In the world of real estate investment trusts (REITs), the data center segment has been among the few bright spots this year. While the REITs that lease retail space, offices, and apartments have all been hurt by the struggles of their tenants, those whose properties host cloud servers have had little to worry about.

Equinix (NASDAQ:EQIX), the largest data center REIT in the world, recently released its third-quarter report, and the results show that it's continuing to expand its reach.

Picture of a server farm

Image source: Getty Images.

Some changes wrought by COVID-19 may be permanent

Equinix's global interconnection platform comprises over 386,000 physical and virtual interconnections, and it continues to push into new markets. In the third quarter, the company added 8,500 net interconnections, and in October, it acquired Bell Canada's data center portfolio. The company also entered India, which is one of the world's fastest-growing markets. Its biggest customers include Verizon Communications, Oracle,, and Zoom Video Communications, and no single customer accounted for more than 10% of revenues in 2019.

The COVID-19 pandemic has propelled a major increase in remote working, which has naturally led to higher demand for data, cloud storage, and bandwidth. Many companies say they will continue to allow those employees whose work can be done remotely to work from home for as long as they like. While office spaces are not going away, fewer employees will occupy them regularly. Zoom meetings have largely replaced in-person sales calls, and this may also prove to be a permanent change in how companies do business. 

For the third quarter, Equinix's revenue came in at $1.52 billion, up 3% from the second quarter and 9% year over year. Adjusted funds from operations (AFFO, the REIT equivalent of earnings) came in at $6.48 per share, a 2% increase over the previous quarter. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 11% on a year-over-year basis. Interconnection revenues rose 15% year over year on a combination of higher volume and higher pricing. 

Equinix has been actively managing its balance sheet

The REIT ended the quarter with $2.6 billion in cash on the balance sheet and an unused $4.6 billion revolving line of credit. The company has been active on the financing front, taking advantage of low interest rates to refinance its bonds. So far this year, that has resulted in $125 million in annualized interest savings, and on the earnings conference call, management said that it could save an additional $50 million by refinancing another $1.8 billion. Equinix's debt-to-equity ratio stands at 1.2.

Equinix also tapped its at-the-market equity facility, which allows it to sell stock periodically. Equinix raised almost $200 million that way during the quarter, and intends to enter another $1.5 billion program which will run through the end of 2023. Equinix uses the proceeds for working capital and general corporate purposes.  

Equinix also slightly raised its guidance for 2020 AFFO. It now is expected to grow by 16% to 17%, primarily driven by the Bell Canada acquisition and refinancing savings. The company forecasts that AFFO per share will land in the $24.38 to $24.61 range, which would amount to growth of 7% to 8%. 

Those figures have the stock trading at a price-to-AFFO multiple around 32, which is somewhat expensive. However, Equinix is a growth company that dominates its space. Sometimes you have to pay up for the leader.

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