QTS Says Some Data Center Tenants Have Sought Payment Relief

The REIT reports minimal pandemic-related impact to business, but warns that things could change.

Yevgeniy Sverdlik

April 28, 2020

3 Min Read
Rendering of QTS's latest data center in Ashburn, Virginia
Rendering of QTS's latest data center in Ashburn, VirginiaQTS

QTS Realty, one of the largest data center providers in the US, has so far managed to maintain a strong business position. The same cannot be said for all its customers, some of whom have asked for payment relief, the company said in an earnings release Monday.

QTS is opening a data center provider earnings season that will reveal how big a hit the industry’s biggest players have felt from the coronavirus pandemic so far. To varying degrees, these players provide data center space for hyperscale cloud platforms that support the digital economy, but also to many enterprises in the traditional industries that are currently bleeding hard.

Customers that have asked QTS for payment relief for data center services are “primarily concentrated in the retail, oil and gas, hospitality, and transportation” verticals, the Overland Park, Kansas-based operator said in a statement. Revenue associated with the customers that have made the request amounts to less than 5 percent of its total revenue, according to QTS. Total revenue associated with these customers’ industries amounts to less than 10 percent, the company said.

Most of them were current on rent as of the end of March, “and while QTS has not reduced their future payments, it has in certain circumstances provided additional flexibility in the form of extended payment terms.”

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QTS and other publicly traded data center real estate investment trusts (REITs) have performed well on the stock market compared to companies in most other industries ravaged by the COVID-19 pandemic. That’s partly because they’re seen as providing the essential infrastructure that allows people to stay connected and companies to continue doing business during the lockdowns, and partly because they pay dividends at a time when bond yields have taken a nosedive.

QTS, which has 26 data centers in the US and two sites under construction in the Netherlands, reported $126.3 million in revenue for the first quarter – up 12 percent year over year.

It hasn’t changed its revenue and earnings guidance for the full year in its first-quarter report, leaving revenue projection in the $523 million to $537 million range, EBITDA in the $275 million to $285 million range, and FFO per share in the $2.69 to $2.83 range.

The company did, however, acknowledge that its full-year guidance assumes that its data centers will keep operating without “significant work stoppages or closures,” that it will successfully mitigate supply-chain issues affecting ongoing data center construction, and that its customers will continue paying for services as expected.

Related:Coronavirus Is Bad and Good News for the Data Center Switch Market

QTS said it has seen “modest delays in construction activity in a few of its markets primarily as a result of availability of contractors and slower permitting.” But it doesn’t expect these delays to affect its ability to deliver the capacity it’s due to deliver to its clients on time.

There are long lead times for large data center components (things like generators, UPS systems, and chillers) anyway, and the company has already bought most of the components it needs to finish construction planned for the rest of the year, it said in the statement. It’s also “accelerated” acquisition of infrastructure equipment for construction in early 2021.

QTS said it has access to $342 million in undrawn proceeds from a forward stock sale program it launched last year. That should be enough to fund all the construction activity through early 2021, it said.

In the statement, it warned: “The extent to which COVID-19 impacts our and our customers' operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 and the actions taken to contain COVID-19 or treat its impact, among others.”

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