Moody’s Ratings said two real estate investment trusts are poised to benefit as demand for data centers continues to surge. Ranjini Venkatesan, senior credit officer at Moody’s, said in a note last week that demand is driven by massive computing demands from artificial intelligence and cryptocurrencies, as well as large tenants such as cloud service providers and social media companies. “While data center capacity has grown rapidly in recent years, it has not been able to keep up with growing demand,” she wrote. “We predict that data center capacity will need to more than double by 2028 to meet our demand for data center capacity. Venkatesan said diversified data center owners Digital Realty Trust and Equinix are investing in projects globally to meet this need. Digital Realty Trust is up more than 9% year to date and has a dividend yield of 3.32%. However, Equinix, which became a target of short seller Hindenburg Research in March, is down nearly 4% year to date. The yield is 2.19%. Hindenburg accused the company’s management of manipulating a key profitability metric. However, Equinix said in May that an independent investigation concluded its financial reporting was accurate. EQIX 1Y mountain Equinix’s one-year results “These owners’ increased utilization of joint venture arrangements, pre-leasing of capacity under construction and good returns on new investments will help maintain their current credit ratios and strong liquidity,” Venkatesan wrote. “While rapid technological innovation will bring significant obsolescence risks over time, these two REITs are better positioned than most peers to navigate the changing environment,” she added. She believes Digital Realty Trust and Equinix’s real estate pipelines and diverse portfolios should attract data center tenants. Together, the two real estate investment trusts own about 71 million square feet of data center space, she said. DLR 1Y mountain Digital Realty Trust’s one-year results Digital Realty generates about 59% of its revenue from the Americas, 31% from Europe, the Middle East and Africa (EMEA) and the remainder from the Asia-Pacific (APAC) region, Venkatesan noted. Meanwhile, 44% of Equinix’s revenue comes from the Americas business, 34% from Europe, the Middle East and Africa, and 22% from Asia Pacific, she said. Both names have long-standing relationships with hyperscale businesses and diverse tenant lists, she noted. She also sees REITs winning business from large, very large clients that are expanding in new markets because they all have long and proven global performance records. “In particular, countries with data privacy and sovereignty rules will require data to be processed and stored within their borders, rather than in one remote centralized location,” Venkatesan said. “Hyperscale enterprises will therefore be maintained in more locations than in the past Data Center Capacity.”
Moody’s: Surge in demand for artificial intelligence data centers will benefit these dividend-paying real estate stocks | Real Time Headlines
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