These are powerful occasions for actual property funding trusts that concentrate on knowledge facilities, as each the expertise and actual property sectors are struggling.
Stocks in these two sectors have rebounded a bit prior to now few weeks, however data-center REITs have participated within the restoration for less than the previous few days.
Two of the highest data-center REITs have seen their shares fall: Digital Realty Trust (DLR) – Get Digital Realty Trust Inc. Report is off 28% this 12 months whereas Equinix (EQIX) – Get Equinix Inc. Report has slid 23%. Those evaluate with a 17% spill for the S&P 500.
But heading into second-quarter earnings studies – July 27 for Equinix and July 28 for Digital Realty – issues are wanting up, Wells Fargo analysts wrote in a commentary.
“We remain overweight on both EQIX and DLR,” they stated. As for his or her earnings, “we expect demand momentum and top-line growth to shine through, despite headwinds from [the strong dollar].”
‘Robust’ Leasing Volume
The analysts’ current market checks point out “leasing volumes remain very robust, with a notable pickup in enterprise activity,” they stated. “And pricing growth has sustained, with new lease prices up 10% to 15% (or more) versus last year.”
The analysts are trimming their estimates barely for funds from operations and adjusted FFO in fiscal 2022 and 2023.
But “the changes are almost entirely due to the stronger dollar, with constant-currency [adjusted FFO] growth still poised to accelerate to the high single-digit range next year,” the analysts stated.
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“We maintain a slight preference for DLR in the near term, but believe investors should be long both names, particularly at current valuation levels, where we see more limited downside risk.”
Digital Realty has a trailing price-earnings a number of of 26.3, in contrast with a five-year common of 83.78, in response to Morningstar. For Equinix, these numbers are 120.9 and 134.2.
Hyperscalers and Enterprise
The sturdy demand for cloud-computing demand will assist the 2 REITs, the analysts stated. “We continue to hear about large volumes of activity from the hyperscalers [large cloud hosts], with AWS [Amazon (AMZN) – Get Amazon.com Inc. Report Web Services] and Google (GOOGL) – Get Alphabet Inc. Report (who historically have self-built) in the market for large turnkey deals,” they stated.
“Due to supply-chain constraints and long lead times for power, customers are increasingly securing capacity two to three years ahead of commencement dates.”
Growing cloud use by massive firms additionally will enhance the REITs, Wells Fargo analysts stated.
“Our checks on enterprise demand were even more encouraging, as several private operators told us they had record signings in the second quarter, with the size of enterprise deals also scaling.”
Both DLR and EQIX are more likely to communicate lots about power within the enterprise phase of their earnings displays, the analysts stated. Enterprise has extra favorable pricing and return traits than hyperscale, they stated
Turning to the rise in lease costs, they “should continue to rise based on record-low vacancy rates in major global markets and construction pipelines that are heavily pre-leased (60% to 70% or more),” the analysts stated.
Source: www.thestreet.com”