It's two down, and two to go, as: CorSite Realty (NYSE:COR), and DuPont Fabros (NYSE: DFT) reported strong results for the quarter ended June 30, 2014; with Digital Realty Trust (NYSE:DLR) and QTS Realty Trust (NYSE:QTS) each having good news to report prior to their earnings releases.
Here is a snapshot of how the leading data center REITs have performed so far in 2014:
Fellow Fool Patrick Morris in a recent article found plenty to like in the recent CorSite earnings release, his highlights included:
- Cloud computing and big data continue to drive growth in the 16 data center locations owned by CorSite.
- AFFO, or adjusted funds from operations has risen from $0.25 to $0.51 per share a 23% annual growth rate since the CorSite IPO.
- Given the rate of growth, CorSite trading at an FFO multiple of ~16.7x estimated 2014 seems to be a reasonable valuation.
However, so far this year several of CorSite's peers have enjoyed better performance.
DuPont Fabros earnings
DuPont Fabros reported great leasing metrics. Its operating portfolio was 96% leased as measured by computer room square feet, or CRSF; and 95% leased when measured by megawatts, or MW, of critical load. This contributed to excellent results reported for the quarter ended June 30th:
- Normalized funds from operations, or FFO, of $0.61 per share, up 30% over the same period in 2013.
- AFFO, or adjusted funds from operations, of $0.62 per share, a 48% increase over this time period during 2013.
- Executed three leases totaling 7.1 MW and ~47,000 CRSF.
- Commenced three leases totaling 9.65 MW and ~61,000 CRSF.
- Earnings were up 78% compared to the same quarter last year.
The company increased 2014 Normalized FFO guidance for the full year from a range of $2.32 -$2.40 per share, to $2.38-$2.42 per share. DuPont Fabros attributed the $0.05 per share increase in mid-point guidance to: higher operating income, lower G&A expenses, and lower projected interest expense.
Digital Realty-charting a new path forward
On July 22, 2014 Deutsche Bank analysts upgraded Digital Realty to a buy rating citing "a favorable risk/reward and the company's turnaround."
Digital Realty stock has returned over 33% so far this year. The company has an investment grade rating and has paid a dividend for 10 straight years -- currently yielding ~5.25%.
The recent uptick in Digital's stock price came after the sudden departure this past March of longtime CEO Michael Faust; and the corresponding shift in company focus away from large wholesale customers in favor of custom solutions, connectivity and mid-market customers.
CFO William Stein has been serving as interim-CEO for the past few months. He has emphasized the importance of leasing up existing inventory, and limiting construction of speculative space, in order to increase the return on invested capital, or ROIC.
QTS Realty Trust - a growth story
During the past quarter, $822 million market cap QTS has announced several large scale strategic acquisitions and business partnerships. The latest major announcement just occurred on July 24, 2014 -- the pre-sale of 26,000 square feet of data center space prior to the opening of its new 40 acre Dallas/Ft Worth campus. This follows on the heels of:
- The July 9th announcement of the acquisition of the former 317,000 SF Sun Times Press facility located on a 30-acre parcel in downtown Chicago. This campus will allow QTS to offer its integrated 3C product mix in one of the largest data center hubs in the U.S.
- The July 2nd dual announcement of the acquisition of a huge McGraw Hill Financial Data Center located on a 194-acre campus in East Windsor, New Jersey; and strategic alliance with global IT powerhouse, Atos SE.
- QTS Realty Trust's custom data center, or C1, offering and Critical Facilities Management service will be bundled along with Atos technology service offerings targeting similar blue-chip enterprise customers in North America.
Atos is headquartered in Bezos, France and has over 17,000 employees based in 52 countries around the globe.
The data center REIT sector is a bit unique because of the technology component which is layered on top of some very sophisticated real estate. Understanding the dynamics involved with companies that develop, construct, and operating large data centers is a complicated challenge for most investors. However, I feel that the potential rewards make spending the extra bit of time it takes to understand this growing REIT sector worthwhile.
Both CorSite Realty and DuPont Fabros reported excellent quarterly results. They have set the bar high for the rest of the sector.
Digital Realty, the $8 billion market cap industry giant, is changing its focus to provide the solutions its worldwide customers require. Digital is scheduled to report earnings after the bell July 29, 2014.
QTS Realty, with its recent Chicago acquisition, now has pins in the map in all of the top six data center markets with the exception of Los Angeles. QTS is scheduled to host its earnings call at 9:00 AM CDT on July 30, 2014.