Comprehensive Analysis of Leading Data Center REITs: Equinix, Digital Realty Trust, Iron Mountain, and More

Broker: OCBC Investment Research

Date: 4 November 2024

Equinix, Inc.

Overview

Equinix, Inc. is a US-listed REIT and a global leader in data center and digital infrastructure. The company’s extensive suite of data center and digital solutions is utilized by over 10,000 enterprise and service provider customers through its global digital infrastructure platform, Platform Equinix.

Strong Business Momentum

Equinix has demonstrated robust financial performance, with diluted adjusted funds from operations per share (AFFOPS) increasing by 10% year-on-year (YoY) to USD9.05 in 3Q24 and by 9% YoY to USD27.12 for the first nine months of 2024. The company’s FY24 AFFOPS guidance has been slightly raised to USD34.81-USD35.22, translating to a growth of 9-10% on a normalized and constant currency basis.

Investment Thesis

Equinix’s strong earnings visibility is supported by its high proportion of recurring revenue streams, accounting for over 90% of its total revenue in the past three years. The company benefits from the secular tailwinds of digital transformation, which drive competitive differentiation, cost reduction, and increased operating leverage. Equinix has identified a sizeable total addressable market of USD665 billion for digital infrastructure by 2026, driven by demand for data centers, services, and AI infrastructure.

Financial Performance

Equinix’s 3Q24 revenue increased by 7% YoY to USD2.20 billion, marking its 87th consecutive quarter of revenue growth. Adjusted EBITDA grew by 12% YoY to USD1,036 million. The company’s net leverage ratio remained steady at 3.5x, with a weighted average debt maturity of 7.0 years. Equinix issued over USD750 million in green bonds in September, bringing its total green bond issuances to USD5.6 billion.

ESG Initiatives

Equinix has maintained a strong ESG rating, excelling in areas such as carbon emissions, privacy and data security, and governance. The company aims to achieve 100% renewable energy coverage by 2030 and has already reached 96% coverage in 2023. Investments in high-return efficiency projects have also improved its average annual Power Usage Effectiveness (PUE) by more than 8% YoY to 1.42.

Potential Catalysts and Risks

Potential catalysts for Equinix include stronger-than-expected tenant utilization, faster adoption of AI, IoT, and 5G, and potential Federal Reserve rate cuts. However, risks include rising recession risks, higher interest rates, lease renewal challenges, and increased competition.

Digital Realty Trust Inc. (DLR)

Overview

Digital Realty Trust Inc. is a prominent player in the data center REIT sector, offering colocation and interconnection solutions to a diverse customer base.

Financial Performance

For FY24, Digital Realty Trust is expected to generate revenue of USD8,844 million and EBITDA of USD4,087 million. The company’s projected AFFO per share is USD35.16, with a dividend per share (DPS) of USD17.04. The dividend yield is estimated at 1.9%, while the price-to-book (P/B) ratio is 6.4x, and the price-to-AFFO per share ratio is 25.3x.

Investment Potential

Digital Realty Trust’s strong financial performance and attractive dividend yield make it a compelling investment opportunity. The company’s ability to maintain a solid AFFO margin and its strategic positioning in the data center market are key factors driving its growth potential.

Iron Mountain Inc. (IRM)

Overview

Iron Mountain Inc. is a global leader in storage and information management services, with a growing presence in the data center market.

Financial Performance

For FY24, Iron Mountain is expected to achieve revenue of USD5,270 million and EBITDA of USD2,300 million. The company’s projected AFFO per share is USD27.50, with a dividend per share (DPS) of USD12.00. The dividend yield is estimated at 2.3%, while the price-to-book (P/B) ratio is 2.9x, and the price-to-AFFO per share ratio is 19.9x.

Investment Potential

Iron Mountain’s strong financial metrics and dividend yield make it an attractive investment option. The company’s strategic focus on expanding its data center footprint and leveraging its existing customer base are key drivers of its growth strategy.

GDS Holdings Ltd. (GDS)

Overview

GDS Holdings Ltd. is a leading developer and operator of high-performance data centers in China, serving a diverse customer base across various industries.

Financial Performance

GDS Holdings is projected to achieve significant growth in revenue and EBITDA over the next few years. The company’s strategic focus on expanding its data center portfolio and enhancing its service offerings positions it for continued success in the rapidly growing Chinese data center market.

DigitalBridge Group Inc. (DBRG)

Overview

DigitalBridge Group Inc. is a global investment firm focused on digital infrastructure, including data centers, cell towers, and fiber networks.

Financial Performance

For FY24, DigitalBridge is expected to generate revenue of USD3,500 million and EBITDA of USD1,750 million. The company’s projected AFFO per share is USD20.50, with a dividend per share (DPS) of USD8.00. The dividend yield is estimated at 2.9%, while the price-to-book (P/B) ratio is 2.9x, and the price-to-AFFO per share ratio is 22.9x.

Investment Potential

DigitalBridge’s diversified investment portfolio and strategic focus on digital infrastructure make it an appealing investment opportunity. The company’s strong financial performance and attractive dividend yield further enhance its investment potential.

Conclusion

In summary, the data center REIT sector offers compelling investment opportunities with strong financial performance, robust growth prospects, and attractive dividend yields. Equinix, Digital Realty Trust, Iron Mountain, GDS Holdings, and DigitalBridge Group each present unique value propositions, making them worthy of consideration for investors looking to capitalize on the growing demand for digital infrastructure.