US Data Center REITs Enjoying a Booming Market
DuPont Fabros Technology’s ACC2 data center in Ashburn, Virginia (Photo: DuPont Fabros)

US Data Center REITs Enjoying a Booming Market

All publicly traded data center REITS building more capacity around US in response to demand

As people watch more and more online video, as cloud service providers grow, and as enterprises move more and more of their IT infrastructure out of their on-premise data centers, the biggest companies that provide data center space as a business are benefitting tremendously, enjoying a market boom.

The biggest ones in the market, US data center providers operating as Real Estate Investment Trusts, all reported high rates of revenue growth in the third quarter compared to one year ago. All of them are building out more capacity across major US markets in response to high demand.

Massive data center construction projects are ongoing in Northern Virginia, Chicago, Dallas, Phoenix, and Silicon Valley, representing hundreds of millions of dollars of investment.

Digital Realty Trust, the second-largest data center REIT after Equinix, announced it will start construction after 18 months of a nearly complete halt to all expansion. The company, whose biggest customers include IBM, Facebook, Oracle, eBay, Amazon, and LinkedIn, recently bought a 2-million-square-foot property in Ashburn, Virginia, with potential for 150 MW of data center capacity.

Digital reported $436 million in revenue for the third quarter, up six percent year over year. The company signed a total of 180,000 square feet and 18MW of capacity in new and renewed leases during the quarter, representing $54 million in annualized rent.

It’s unclear how Digital will be affected by CenturyLink’s decision to rethink its data center strategy, a decision driven primarily by poor performance of its colocation business. The telecommunications company, Digital’s second-largest customer after IBM, announced last week it is exploring alternatives to owning data centers, including potentially selling some or all of its data center assets.

Since it leases most of its data centers, the announcement has to do more with infrastructure inside leased facilities than facilities themselves, but the move can still potentially cause some uncertainty for Digital, depending on the decisions CenturyLink makes from now on. CenturyLink occupies about 11 percent of all space in Digital’s portfolio and nearly 7 percent of annualized rent the landlord receives.

Here's our coverage of Q3 2015 earnings by each individual US data center REIT:

Equinix, the world’s biggest data center REIT that also happens to be Digital’s third-largest customer, is doing much better than CenturyLink’s troubled colocation unit. The company reported $687 million in revenue for the third quarter – up 11 percent year over year.

Equinix is also expanding capacity, its largest upcoming project being a new campus in Ashburn. The campus has the potential to grow to 1 million square feet of building space, costing the company an estimated $1 billion at full build-out.

Another REIT building large in Northern Virginia is DuPont Fabros Technology. While DuPont only leased less than 1 MW of capacity in the third quarter, it closed deals on nearly 20 MW in Northern Virginia immediately after the quarter ended.

DuPont brought about 7 MW of capacity online in the third quarter and has nearly 40 MW of capacity under construction in Ashburn and Chicago.

The company reported $115 million in revenue for the quarter – up 6 percent year over year.

CoreSite, a REIT somewhat smaller than DuPont, reported one of the highest revenue growth rates in the group. The company reported about $87 million in revenue for the third quarter, which represented a 23-percent increase from the third quarter of last year.

CoreSite brought 24,000 square feet of data center space online in Q3 and has 100,000 square feet under construction in Northern Virginia. It also has more than 400,000 square feet under construction in Silicon Valley, about 140,000 square feet of which it is building for a single customer.

The data center REIT that saw the biggest jump in revenue in Q3, due primarily to its recent acquisition of Carpathia Hosting, was QTS Realty Trust. Its revenue went up more than 50 percent, reaching $90 million in the third quarter.

QTS closed leases amounting to $15 million in annualized rent during the quarter. It brought online 22,000 square feet and 3.5 MW of capacity and has 45,000 square feet under construction.

The Carpathia acquisition gave it some international footprint, a sizable managed hosting business, and a substantial boost to its customer base among US federal government agencies.

CyrusOne, the last of publicly traded US data center REITs to report third-quarter earnings, grew its revenue by more than 30 percent year over year. Its Q3 revenue was $111 million. The company also recently made an acquisition, buying Cervalis, a data center provider in the New York market.

CyrusOne leased out about 30,000 square feet of data center space during the quarter, adding $13 million to its annual rent income. It completed build-out of nearly 40,000 square feet of data center space in Q3 in Northern Virginia and has a total of 350,000 square feet under construction in Texas and Arizona.

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