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Internet Royalties Explained

Internet Royalties From The Likes of Netflix and Amazon?


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Internet Royalties

There is some compelling advertising going around pitching Internet Royalties from the likes of Amazon and Netfilx.  But what are they really and should you pay attention?
Essentially “Internet Royalties” are referring to Data Center REITs (Real Estate Investment Trust).
REITs must pay out at least 90% of its income to its shareholders in the form of dividends, and is tax exempt as long as they distribute 90% of the taxable income.  In turn, shareholders traditionally pay taxes on the dividends they receive. To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment.

Data Center REITs

Data Centers are buildings that are specialized for housing computer servers and databases.  These buildings are geared for data security, optimization of equipment and redundant power in case of outages.  A Data Center REIT is a real estate company that house, power and cool data servers around in different locations around the world.
These factors and more make Data Center REITs very attractive to investors who believe Cloud Computing is the future.
These companies lease data storage to companies that do not wish to take on the costs of effectively maintaining data storage.  Their clients would be like tenants renting office space.  You are probably already familiar with this concept, and if you are not, you are already using it in the form of Cloud Storage.  Companies like Dropbox, Microsoft’s OneDrive, and Google Drive are examples of Cloud Storage.  Normally, a company will charge the use of its Data Center based on need, capacity and functions. A term that could go along with all this is “Big Data”.
Watch this short video to familiarize yourself with data centers:

The Need For Cloud Based Computing

Imagine that you are a small business, or even a big one, and you find the need to increase you online services, but realize that business landscape changes rapidly.  It’s very hard to spend the money on equipment that could be outdated in a short period, let alone the cost to maintain these new machines.  In the cloud, there is no hardware to procure and no infrastructure to maintain.  How attractive is that?
In the case of Netflix, Amazon has service called “Amazon Web Services” or “AWS”.  AWS is a secure cloud services platform, offering compute power, database storage, content delivery and other functionality to help businesses scale and grow.  Several years ago, Netflix began migrated the majority, if not all if its content to Amazon’s AWS.  This was to increase streaming capability for its users, among other things.  Essentially Amazon is doing the heavy lifting and hosting a great deal of Netflix’s portfolio of streaming content.
Another example of the need for Cloud Based Computing and storage is Hulu, which is a joint venture between Disney – ABC, Fox Entertainment, NBCUniversal and Turner Broadcasting System that provide subscription based on demand video services.  In 2013 Hulu users streamed roughly 2 Billion content videos.  That’s a lot of data, and a lot of computing power just from one company with roughly 4 million plus users.  That number represents a fraction of the number of users on Facebook, Twitter and Youtube.

Future For Data Centers

With internet use growing significantly, the move to cloud based storage and web based applications are increasing at a tremendous rate.  The need for speedy delivery of data is of utmost importance.  For example, when you are on your mobile device and a page or a video takes too long to load, you will most likely click back and select a different option, page or .  This is called a bounce, and this affects ad serving and user engagement, and ultimately will cost companies money.  Especially if no one wants to wait for page to load.

An article on IBM predicts a big expansion of Cloud Usage well beyond 2017.  This is a very logical and feasible prediction as Cloud Based storage and applications provide a great deal of agility as business needs change.  This also allows businesses to quickly adapt to new technologies.
These factors and more make Data Center REITs very attractive to investors who believe Cloud Computing is the future.

List Of Data Center REITs

A Data Center REITs would be classified as a Specialty REIT. Specialty REITs are Equity REITs that own and manage a mix of property types and collect rent or in this case subscriptions and service fees from tenants. Specialty REITs own properties that don't necessarily fit the major REIT sectors.
Here is a list of some publicly traded Data Center REITs:

CoreSite Realty Corp

CoreSite Realty Corporation (COR) engages in the ownership, acquisition, construction, and management of data centers. The data centers are specialized and secure buildings that house networking, storage, and communications technology infrastructure, including servers, storage devices, switches, routers, and fiber optic transmission equipment. These buildings provide the power, cooling, and network connectivity to operate this mission-critical equipment.
Stock Chart COR

Digital Realty Trust

Digital Realty Trust, Inc. (DLR), a real estate investment trust (REIT), through its controlling interest in Digital Realty Trust, L.P., engages in the ownership, acquisition, development, redevelopment, and management of technology-related real estate. It focuses on strategically located properties containing applications and operations critical to the day-to-day operations of technology industry tenants and corporate enterprise datacenter users, including the information technology departments of Fortune 1000 companies, and financial services companies. The company’s property portfolio consists of Internet gateway properties, corporate datacenter properties, technology manufacturing properties, and regional or national offices of technology companies.
Stock Chart DLR

Equinix

Equinix, Inc. (EQIX) is a publicly owned real estate investment trust. It provides data center services to protect and connect the information assets for the enterprises, financial services companies, and content and network providers primarily in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. The company provides colocation services and related offerings, including operations space, storage space, cabinets, and power for customers’ colocation needs; interconnection services comprising physical cross connect/direct interconnections, Equinix Internet Exchange, Equinix Cloud Exchange, Equinix Metro Connect, and Internet connectivity services; and managed IT infrastructure services, including installation of customer equipment and cabling, as well as equipment rebooting and power cycling, card swapping, and emergency equipment replacement services.
Stock Chart EQIX

CyrusOne

CyrusOne Inc.(CONE), a real estate investment trust (REIT), owns, operates, and develops enterprise-class, carrier-neutral, and multi-tenant data center properties. The company provides mission-critical data center facilities that protect and ensure the continued operation of information technology infrastructure. Its customers operate in various industries, including energy, oil and gas, mining, medical, technology, finance, and consumer goods and services.
Stock Chart CONE

DuPont Fabros

DuPont Fabros Technology, Inc. (DFT), a real estate investment trust (REIT), engages in the ownership, acquisition, development, operation, management, and lease of large-scale data center facilities in the United States. The company leases its data centers to the American and international technology companies to house, power, and cool the computer servers that support their critical business processes. It also provides certain technical services to tenants, including layout design and installation of electrical power circuits, data cabling, server cabinets and racks, computer room airflow analyses, and monitoring.
Stock Chart DFT

Iron Mountain Inc.

Iron Mountain Incorporated (IRM), together with its subsidiaries, provides storage and information management services in North America, Europe, Latin America, and the Asia Pacific. It operates through North American Records and Information Management Business, North American Data Management Business, Western European Business, and Other International Business segments. The company provides storage and information management services for physical records and other media, such as microfilm and microfiche, master audio and videotapes, film, X-rays, and blueprints, including healthcare information services, vital records services, and service and courier operations, as well as the collection, handling, disposal of sensitive documents for corporate customers.
Stock Chart IRM

QTS Realty Trust, Inc.

QTS Realty Trust, Inc. (QTS) is a leading provider of secure, compliant data center, hybrid cloud and managed services. QTS features the nation’s only fully integrated technology services platform providing flexible, scalable solutions for the federal government, financial services, healthcare and high tech industries.
Stock Chart QTS
These charts were made using Finviz, which you can use to Visualize your data, awesome screener for Data Center REITs, charts, quotes and more.  Try it out here.

 

Written by John Thomas

I began my investing career back in 1998. I quickly discovered day trading, small cap and penny stocks. I was the editor of my own investment newsletter, stock promoter, investor relations, public relations and have witnessed the back-end process of taking a private company public through reverse merger and registration. That is roughly over a decade in a nutshell. During this time I learned how to identify the rats, sharks and people who truly want to help you learn about investing. Now I do research and write.
My hope is to pass along nuggets of information that could help or the very least entertain you on your way to financial success.


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