Stocks

Two Gems Within The Data Center REIT Sector

Software as a service (SaaS) aka THE CLOUD is a business model in which software, centrally hosted, is licensed on a subscription basis and is centrally hosted.  One force driving these companies' growth is soaring demand for data centers to support cloud computing.

And it doesn’t matter what size company you have:

*Start-ups - an idea / viable business model can get up and running quickly with minimal capital and operating cost.

*Small to medium-sized businesses – can take advantage of the scalability in storage and networking capabilities on demand as their business grows.

*Larger business - can help increase operational efficiency, productivity and agility.

REITs are companies that own or finance some type of real estate property. During economic troubled times, Smart Money rotates into REITs because they act like bonds, meaning the stock dividends are equivalent to coupon rates, the yield paid by a fixed-income security.

The data center REIT sector is relatively new compared to other REITs. Salesforce was an early pioneer of moving their CRM services to the cloud in the early 2000s. The company's founder, Benioff's vision was that software should be delivered 24/7 to people over the cloud.  Most data center REITs were founded around 2000 and make up a small percentage of REITs overall.

As data becomes an integral part of everything we do, data center real estate investment trusts (REITs) have become more important. 

The data center REIT sector is relatively new compared to other REITs. Most data center REITs were founded around 2000.  This was the around the same time Salesforce migrated its services to the cloud in the early 2000s. The company's founder, Benioff's vision was that software should be delivered 24/7 to people over the cloud.  Now Salesforce shares the cloud pie with Apple, Amazon, Facebook, Google, and Microsoft who have huge appetites for access to data centers.  These companies are building their own data centers, but because of the demand, are turning to data center REITs to fill that void.  But it’s also financial services, insurance and retail companies that are shifting from owning and operating their own data centers to third-party data center operators.

The relentless growth of wireless data, public cloud, digital content, social media, and ecommerce continues to fuel the need for more data center space.  The beauty of data center REITs is that their growth isn’t dependent on consumer spending, population growth or unemployment like traditional REITs.  And might I add, the Trade War between the US and China has not barring on data REITs growth.  

Two companies that I want to give some shine to are QTS Realty Trust and CyrusOne.

Image result for QTS Realty Trust, Inc. logo

QTS Realty Trust, Inc. (NYSE: QTS) is a leading provider of data center solutions across a diverse footprint spanning more than 6 million square feet of owned mega scale data center space throughout primarily North America and Europe. Through its software-defined technology platform, QTS is able to deliver secure, compliant infrastructure solutions, robust connectivity and premium customer service to leading hyperscale technology companies, enterprises, and government entities. QTS owns, operates or manages 26 data centers and supports more than 1,100 customers primarily in North America and Europe.

The chart suggests it's not a buy yet, as price is just below the monthly supply at $55.

Image result for CyrusOne  logo

CyrusOne (NASDAQ: CONE) is a high-growth real estate investment trust (REIT) specializing in highly reliable enterprise-class, carrier-neutral data center properties. It’s America's third largest data-center provider and its solutions allow customers take advantage of cloud platforms such as Amazon Web Services and Microsoft Azure.

The Company provides mission-critical data center facilities that protect and ensure the continued operation of IT infrastructure for approximately 1,000 customers, including more than 200 Fortune 1000 companies. 

In 2018, CyrusOne have the most data center properties under construction in the U.S., at six and had the most preconstruction data center development properties at 24.

The chart suggests to go long at the monthly demand at $56.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

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