CoreSite Realty Has ‘Cloudy’ Future — In A Great Way

It’s tempting to think of “the cloud” as something ephemeral that exists in the ether, but really it’s composed of many computers in buildings that need to be secured, electrified, maintained and kept at reasonable temperatures.

Enter CoreSite Realty (NYSE:COR), a Denver-based real estate investment trust (REIT) that has profited handsomely in the data center industry that houses countless computers that comprise “the cloud.”

The data center industry went on a building spree immediately after the Great Recession, resulting in oversupply amid weak demand. But the economy has gradually recovered and the appetite for cloud computing has steadily increased.

So, as the future gets more “cloudy,” in a good way, CoreSite clearly sees better sales and profit.

Shares have risen about 24% so far this year compared to a 4.3% decline for IBD’s entire Finance-Property REIT industry group, which includes many other types of REITs other than data centers.

CoreSite’s second-quarter funds from operations (FFO) — REITs’ measure of profit — rose 19.3% on an unadjusted basis from a year earlier to 68 cents per share, up 33% excluding nonrecurring items in Q2 ’14. Operating revenue surged 24% from a year earlier to $ 81.5 million.

Full-year FFO guidance was boosted in July to a range of $ 2.75 to $ 2.83 per share, up from $ 2.55 to $ 2.65 per share. Likewise, CoreSite hiked 2015 earnings per share guidance to a range of 93 cents to $ 1.01 from 75 to 85 cents earlier.

Double-Digit Growth, Again

Q2 marked at least the 19th consecutive quarter of double-digit earnings and sales growth for CoreSite, which went public in September 2010.

CoreSite received an average annualized rent of $ 81 per square foot in Q2, said Steven Smith, CoreSite’s senior vice president of sales, in its most recent quarterly earnings conference call.

CoreSite provides the space for servers, electricity, air conditioning and security, but not the computers themselves, as some other data centers do.

REITs — corporations that own and manage real estate and mortgages — are legal entities that avoid the double taxation of typical corporate profits when companies pay taxes on profit and then shareholders pay personally on the same profit. REITs, like traditional corporations, also give shareholders a way to buy and sell their shares quickly and spread out risk by owning a portfolio of multiple properties without the hassles of buying, managing and selling the properties individually and personally.

Some of CoreSite’s rivals generated a strong Q2 as well. CyrusOne (NASDAQ:CONE), a Carrollton, Texas-based REIT, earned 50 cents per share in FFO, beating analysts’ estimates. Its shares are up 16% this year.

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