Summary
- CONE is a fast growing data center REIT that is underperforming peers.
- CONE shares trade at a high valuation, but the growth rate is commensurate and the company is spending money on further growth in this high growth market.
- CONE is a possible acquisition target for large peers that have appreciated significantly recently, and which have a history of making acquisitions.
CyrusOne (CONE) is a data center real estate investment trust ("REIT"). Other REITs in this segment include CoreSite Realty (COR), Digital Realty (DLR), Equinix (EQIX) and QTS Realty (QTS). Most data center REITs have significantly outperformed the broader REIT industry for several years, primarily due to the higher growth in data center demand compared to most other real estate segments. Nonetheless, CONE has been out of favor for the last several quarters, and now seems to represent a speculative value.
CONE appears to be a better current value than its data center REIT peers for reasons including having the lowest dividend payout ratio from funds from operations and trading at a decent discount to its FFO multiple throughout this cycle. Further, and because of these factors, CONE appears most capable of either increasing its multiple or dividend payout within the next few quarters. Moreover, and largely due to the nature of recent data center growth, I believe CONE, and other similarly sized data center REITs, may become targeted takeover candidates from the larger data centers, such as EQIX, in the next year or two.
