The Future is Data, and These Three REITs are the Way to Profit From That Future

The need for an ever-increasing amount of data storage is a growth story that appears to have a very long runway. Experts estimate that the “digital universe” will double every two years (that’s a 50-fold increase in a decade).

Enterprise IT, cloud computing and services, the Internet of Things, and autonomous vehicles all require larger and larger amounts of data storage capacity. Data center owning real estate investment trusts (REITs) are a conservative way to play this trend, with potential for high teens, up to 20% annual total returns.

There is a small handful of REITs that specialize in developing and leasing data centers. All these companies are in growth mode and are either acquiring and/or developing new facilities to lease out to a wide range of customers.

The investing public often forgets that this REIT sector is an integral part of the technology industry. Often, they are treated like any other class of REIT. This dichotomy of market focus allows the attentive investor to pick up data center REIT shares on sale when the larger REIT sector goes into a decline.

Multi-year investment returns from the data center companies will be driven by cash flow and dividend growth rates.

Here are three REITs that can put high-teens annual compounding total returns into your portfolio.

Equinix, Inc. (EQIX) is the $37 billion market cap, 800 lb. gorilla of the data center industry. The company converted from corporate tax payer to REIT status at the start of 2015. The company is a colocation and interconnection service provider.

Colocation is a data center facility in which a business can rent space for servers and other computing hardware. Typically, a colocation facility provides the building, cooling, power, bandwidth and physical security while the customer provides servers and storage.

The company’s services currently give 9,800 customers 333,000 interconnects between data centers and world’s digital exchanges. According to the current Investor Overview presentation, Equinix owns 200 data centers in 24 countries, on five continents. This is truly an international company.

Equinix has produced 64 consecutive quarters of revenue growth – the longest growth track record in the S&P500. This results in mid-teen per share cash flow growth.

For 2018 the company forecasts 8% to 11% FFO per share and dividend increases.

The shares currently yield 2.2%.

Digital Realty Trust, Inc. (DLR) is a $26 billion market cap REIT that owns 214 data centers in 13 countries. Digital Realty has 2,300 customers.

Like Equinix, Digital Realty is also a colocation and interconnection services provider. This REIT’s customer list includes some of the largest technology and telecommunications companies. In the top 10 are IBM, Facebook, Oracle, Verizon, LinkedIn, and even Equinix.

According to the current investor presentation, Digital Realty has increased its dividend per share for 14 straight years. Over that period cash flow to pay dividends has grown by a compounding 11.4% per year.

The DLR dividend has grown by 10% plus per year for the last 14 years.

The shares currently yield 4.0%.

CoreSite Realty Corp (COR) is a $4.0 billion market cap REIT that owns 22 data centers in eight strategic U.S. cities. The company’s focus is to provide colocation services to enterprise, network, and cloud services companies.

CoreSite is the high growth, higher risk company out of the three covered here. From 2011 through 2017, FFO per share grew by 23% compounded and the dividend by more than 30% per year.

Future results will cycle from relatively flat to high growth years. The company is currently in a flat growth stretch with management forecasting 4% FFO growth for 2019. That could easily increase back to historic levels with a few new data center investments.

An investment in COR will not be as stable as with the large cap data center REITs. The flip side is the potential for large dividend increases and corresponding share price gains.

The shares currently yield 4.0%.

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Source: Investors Alley

So the 3D Hype Is Over? Yes, But Not for Everyone

A great area to find investment opportunities is places where the Wall Street hype machine went crazy and then the bubble burst. I’ll give you a great example.

After the dot-com bubble burst, shares of Amazon plunged 95%. People thought the entire industry went bust when in reality, only the shady start-ups went under.

A current example is 3D printing, or, to use the more formal name, additive manufacturing. In 2013, valuations here went bonkers. We were told that a 3D printer would soon be in every home. Then in 2015, the bubble finally burst.

Now, if anything, we’re at the other extreme. Some folks who should know better think the field is dead. Well, they’re wrong. The long-term growth story for additive manufacturing is alive and well. The difference is that the industry has shifted its priorities to industrial and medical applications.

So what exactly is additive manufacturing? I’ll make it simple—it’s the process of making something by building it one layer at a time.

The first step is to create a design. This is typically done using computer aided design, or CAD software.

The software translates the design into a layer-by-layer framework for the additive manufacturing machine to follow. This is sent to the 3D printer which begins creating the object immediately.

There are some key benefits. With traditional manufacturing, the entire supply chain can take months and require an investment of millions of dollars that can only be recouped by high-volume production. With additive manufacturing, many of those intermediate steps are simply removed.

Manufacturing something additively also makes it possible to use different materials on the inside and outside. For example, making something that has high conductivity but that is also abrasion-resistant is no problem. With conventional manufacturing, this can be a big headache.

Additive manufacturing also makes it easier to create small amounts of something. Hearing aids, for example, which are customized for each person, could be almost entirely additively manufactured.

3D Printing Body Parts?

In the future, bioprinters will use human cells from the patients themselves as the “ink” in order to create living body parts.  Sounds freaky? Sure.

We’re still years away from that, but when that day does arrive, it will offer the prospect of immunologically compatible replacement parts for humans. Here in the U.S. alone, about 900,000 deaths annually occur because of a shortage of organs for ailing patients.

According to the research firm Gartner, medical 3D printing will have a market value of $1.2 billion by 2020. 3D printing in medicine has already evolved from making relatively simple prosthetics to printing a silicon prototype of a functioning human heart. 3D printing can also be used to speed up surgical procedures and produce cheaper versions of required surgical tools.

In 2015, the FDA approved the first 3D printed drug used to treat epilepsy. Elderly patients in need of a hip or knee replacement could benefit from 3D printing of specialty implants. Particularly, as the process is more exact, these patients would avoid the second or third procedure to replace traditional, less-effective implants.

Materialise Is Leading the Way

The best 3D printing stock to own now is the Belgium-based firm, Materialise (MTLS). What got my attention is Materialise’s complete and automated software solutions and certified 3D printing services.

Materialise’s business isn’t something to dream of in the future. They’re already working on 3D printing solutions in dozens of different industries, and they’re currently working with firms like Hyundai, Toyota, HP, Airbus, Volvo, BASF, Stryker and Microsoft.

Consider some numbers. In the auto sector, 3D printing is estimated to grow at 34% per year. In healthcare, it’s expected to be 23% per year. By 2021, 75% of all commercial or military will contain a 3D-printed engine or airframe.

In March, Materialise became the first company ever to get FDA clearance for software for 3D printing anatomical models for diagnostic use. The software is a tool that makes it possible to convert patient medical image data, such as CT scans, to 3D models.

This is a game-changer. It will allow for the creation of patient-specific diagnostic models which doctors can use for three-dimensional and tangible examination of scan data, potentially revealing affected areas that may have been missed using traditional 2D medical images.

The medical community is enthusiastically welcoming this advancement. Sixteen of the top 20 hospitals in the U.S., as ranked by U.S. News & World Report, are using Materialise Mimics software as a medical 3D printing strategy.

Patient-specific 3D printed models are becoming increasingly common for pre-surgical planning procedures. Gartner writes that by 2021, “25% of surgeons will practice on 3D-printed models of the patient prior to surgery.”

The next step for Materialise may be receiving clearance for the tools to create actual 3D-printed implants, stents and other medical devices. If it jumps that hurdle, the company may then have a significant lead on other device manufacturers that have received FDA approval for individual devices and product categories, as it could potentially apply the clearance to a complete host of 3D-printed components at once.

This is also a good time to add shares of Materialize since they’re off the peak from earlier this year.

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Source: Investors Alley