Data Center REITs Report Solid Third-Quarter Results (Part 2)

DCK Investor Edge: Data center REITs reported an impressive third quarter. Here’s the second part of our earnings coverage.

Bill Stoller

November 11, 2019

5 Min Read
New data hall being commissioned inside Equinix's PA8 data center in Pantin (outside Paris) in February 2019
New data hall being commissioned inside Equinix's PA8 data center in Pantin (outside Paris) in February 2019JACQUES DEMARTHON/AFP via Getty Images

Digital Realty’s announcement of a planned merger with the pan-European interconnection powerhouse Interxion at the start of the data center REIT earnings season overshadowed reports of robust quarterly results by the entire sector. Here’s all the newsworthy material that came out of third-quarter reports investors should know about.

(Find the first part of our third-quarter coverage here)

Overcoming Northern Virginia Headwinds

A big theme across the sector was solid bookings and/or record annualized revenues generated from leases signed during the third quarter.

This is despite much lower net absorption in Northern Virginia by hyperscale customers. Last year, a record 270MW of data center net absorption in this market smashed its own previous record of 115MW in 2017. Allen Tucker, a real-estate strategist and data center site selection expert, estimated that 140MW will be the total number for full-year 2019. (Of course, even a single big hyperscale deal in the fourth quarter could skew that number higher.)

Keep in mind that the “powered shells” Amazon subsidiary Vadata leases for AWS data centers are not included in these net-absorption figures.

Data Center REIT Q3 Highlights


Digital Realty:


The $8.4 billion Interxion deal wasn’t the only important Digital Realty news. The company also reported some solid results.

Related:Equinix CEO: Digital Realty’s Interxion Deal ‘Doesn’t Close the Gap’

  • Digital Realty reported its third largest booking quarter ever, $68.6 million, including a record 64 new logos signed.

  • Digital Realty also signed renewal leases representing $152 million of annualized GAAP rental revenue during the quarter.

  • Rental rates on renewal leases signed during the quarter rolled up 7.2 percent on a cash basis and up 10.1 percent on a GAAP basis.

Notably, this was in sharp contrast to the previous quarter, when rental rates on $125 million of renewal leases rolled down 5.8 percent on a cash basis and down 3.7 percent on a GAAP basis.


Equinix continues to grow AFFO per share at a rapid clip to support a growing dividend, while retaining over 50 percent of funds available for distribution to invest in organic growth.

  • Quarterly revenues increased 9 percent year over year to $1.397 billion, which includes $8 million of negative foreign currency impact when compared to prior guidance rates.

  • Delivered record channel bookings, accounting for more than 30 percent of total bookings.

  • Equinix’s AFFO per share 2019 guidance was $22.56 - $22.68 per share, a normalized and constant-currency increase of about 8 percent over the previous year.

On the company’s earnings call, Equinix CFO Keith Taylor highlighted returns on CapEx investments: "Our 136 stabilized assets increased revenues 3 percent year over year on a constant-currency basis, similar to last quarter. Our stabilized assets are collectively 85 percent utilized and generate a 30 percent cash-on-cash return on the gross PP&E invested."

Related:Large Interxion Shareholders Are Said to Be Unhappy With the Digital Realty Deal


During CyrusOne’s earnings call, CONE common shares sold off when CEO Gary Wojtaszek quashed market rumors of a potential sale of the company. But this masked solid Q3 results:

  • CyrusOne reported a record $23 million in annualized GAAP revenue signed with enterprise customers.

  • The company leased out 35MW and 266,000 colocation square feet in the third quarter, totaling $52 million in annualized GAAP revenue, including a 4.5MW (and approximately $5.5 million in annualized GAAP revenue) associated with a paid reservation expected to be exercised in the next 12 months.

  • CyrusOne leased out 22MW totaling $27 million in annualized GAAP revenue across European locations (inclusive of a lease associated with the paid reservation referenced above), reflecting growing demand in European markets from US hyperscale companies.

  • The company reported a backlog of $53 million in annualized GAAP revenue as of the end of the third quarter, representing more than $340 million in total contract value (inclusive of a lease associated with the paid reservation referenced above).

Subsequent to the end of the quarter, CyrusOne acquired 20 acres of land with 24MW of power capacity in Council Bluffs, Iowa, to deliver a hybrid cloud solution for enterprise customers.


Bookings rebounded in the third quarter after disappointing second-quarter leasing results:

  • CoreSite achieved new and expansion sales of $14.4 million of annualized GAAP rent for the quarter, including 34 new logos. Sales included $4.5 million of core retail colocation sales and $9.9 million of scale leasing.

  • CoreSite successfully pre-leased 74 percent of Phase I of its new data center at LA3 (Los Angeles) – a year in advance of its expected completion.

  • Sales backlog as of September 30 included $25.3 million of annualized GAAP rent from signed but not yet commenced leases, or $28.4 million on a cash basis, with a majority of the GAAP backlog to commence in the next two quarters, and the remaining amount in Q4 2020, following completion of LA3 Phase I.

One area for investors to watch closely is management's elevated churn guidance of 9 to 11 percent, versus the historical range of 7.5 to 8 percent. Additionally, a customer in SV7 (Silicon Valley) will be vacating a 9MW data hall over the next two years. Management seemed confident about CoreSite’s ability to re-lease that space. given the current Silicon Valley market conditions.

QTS Realty

One bright spot in the quarter’s hyperscale leasing results in Northern Virginia came courtesy of QTS:

  • QTS Realty booked 10MW in Ashburn (a new logo) and leased another 4MW in Manassas.

  • Subsequent to the end of the quarter, QTS signed a 12MW lease to anchor an expansion of its Metro-Atlanta campus. Notably, the same customer vacated 4.5MW in Richmond, Virginia, at the end of the quarter.

  • QTS signed new and modified renewal leases aggregating to $17.4 million of incremental annualized rent, net of the Richmond downgrade of 4.5MW. This included 40 new hybrid IT colocation logos.

  • As of September 30, QTS's booked-not-billed MRR balance was approximately $6.6 million, or $79.8 million of annualized rent (a company record), and compares to $5.7 million, or $68.1 million of annualized rent at June 30.

  • QTS reported operating FFO per fully diluted share of $0.65 for the quarter ended September 30, compared to Core Operating FFO per fully diluted share of $0.61 in the same period of 2018.

Investor Edge

Despite the slowdown in Northern Virginia leasing, the five publicly traded data center REITs reported solid (in some cases record) bookings and sales backlogs.

Our key takeaways of what made data center providers successful during the quarter were:

  1. Offering solutions across multiple markets

  2. Having a solid operating track record

  3. Maintaining a strong balance sheet to compete for new corporate logos

The quarter showed that publicly traded REITs operating across US, Europe, and Asia-Pacific markets are agile when it comes to allocating capital and resources where customers are expanding, and that supply-demand fundamentals are balanced.

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