Data center REITs
The rapid growth of technology and e-commerce led to the emergence of data center REITs. Data center REITs own, operate, and develop properties that house data centers and other related infrastructure. Data center facilities mainly include infrastructure for networking, data storage, and communications technology. The main infrastructure includes servers, storage devices, switches, routers, and fiber optic transmission equipment.
Customers are large entities
Companies that require large amounts of data storage or network connectivity are the major tenants of data centers. Some of the tenants include big corporates, governments, telecommunications companies, media content providers, cloud providers, financial institutions, and research institutions, among others. Typical corporate customers could be Facebook (FB), Google (GOOGL) and Yahoo (YHOO). They handle a lot of data.
Rent is based on power capacity usage
A data center requires a lot of power to run its operations. As a result, data center REITs rent their space to tenants mainly based on power capacity usage rather than on a per square foot basis like other REITs. A data center with an efficient power usage design results in reduced energy and operating costs for customers.
Currently, there are six REITs specializing in data centers—namely CyrusOne (CONE), Coresite Realty (COR), Digital Realty (DLR), DuPont Fabros Technology (DFT), Equinix (EQIX), and QTS Realty Trust (QTS). These REITs’ combined market capitalization is $29.5 billion. They account for 3.31% of the total REITs market capitalization.
Equinix (EQIX) was converted to data center REITs in 2015. It’s the largest among the peer group with a market capitalization of $14.5 billion. Equinix is followed by Digital Realty (DLR) with a market capitalization of $9 billion. The average dividend yield of the data center REITs was 3.94% as of June 2015.
Investors looking for diversification in the REIT sector can get exposure to REIT ETFs like the Vanguard REIT ETF (VNQ), the iShares U.S. Real Estate ETF (IYR), and the iShares Cohen & Steers REIT ETF (ICF).