Equinix Inc. (EQIX) is a Real Estate Investment Trust (REIT) that specializes in data centers. Customers of EQIX include telecommunications carriers, mobile and network service providers, cloud and IT service providers, digital media and content providers, and financial services companies, highlights Nikolaos Sismanis, analyst at Top 10 REITs.
Equinix was incorporated in 1998, converted to a REIT in 2015, and currently has a market capitalization of $78 billion. It reported second-quarter results on Aug. 7, growing revenue by 7% from the previous year’s quarter. That marked its 86th consecutive quarter of revenue growth.
Adjusted funds from operations (AFFO) rose 15%, from $8.04 to $9.22. Management provided strong guidance for 2024. It expects 6% to 7% growth in revenue and 8% to 10% growth in AFFO per share, from $32.11 to $34.67 to $35.30. We expect AFFO per share of $34.99 for this year, in line with management’s guidance.
Equinix Inc. (EQIX)
Equinix also announced its expansion into the Philippines by acquiring three data centers from Total Information Management in a $180 million all-cash transaction. The deal is expected to close in the fourth quarter of 2024.
Equinix was recently offering a 2.1% dividend, which is well covered given its healthy payout ratio of 49%. The trust has raised its dividend for eight consecutive years and has ample room to keep raising its dividend for many more years.
Based on expected 2024 AFFO per share of $34.99, the stock was recently trading at a price-to-FFO ratio (P/FFO) of 23.6, slightly ahead of our fair value P/FFO estimate of 23. A contracting P/FFO multiple could reduce shareholder returns by 0.5% per year. But factoring in the 2.1% dividend yield and 9% FFO per share growth rate estimate, we expect total returns of 10.3% per year over the next five years.
Recommended Action: Buy EQIX
