QTS Realty Trust (NYSE: QTS) is catching the data tsunami at the right time. As a data center solutions provider, QTS owns and operates 24 data centers covering 7 million square feet in North America and Europe.
That tally includes 13 mega-scale data centers defined by the Data Center Institute as having over 225,000 sq. ft. of compute space and a power density of 144 megawatts or more.
QTS cites key IT and telecom market trends that are driving data center infrastructure demand.
Organizations are outsourcing much of their on-premise data centers to specialists like QTS. Outsourcing is expected to account for 2/3 of the overall data center market revenues by 2023, double the 2019 level. Hybrid co-locations involving both customer on-premise and outsourced data center applications make up the 1/3 balance.
Customers adopting a hybrid IT infrastructure environment (mixed computing and storage) realize benefits of blended on-premises data center, private cloud and/or public cloud services thereby gaining flexibility to quickly respond to changing business needs.
Cloud adoption by small and large organizations alike using both outsourced and hybrid co-location models is growing at over 50 percent a year.
Work-from-home likely will continue post-COVID-19 creating greater reliance on data center-housed software-as-a-service platforms.
Fixed and mobile data volumes are growing at roughly 25-30 percent annual rate. Connected IoT device deployments are projected to reach into the billions in the next five years.
Furthermore, data centers enable companies undergoing digital transformations to improve their efficiency and lower operating costs.
QTS believes it is well-positioned to take its share of that growth.
The company says it has “powered shell capacity” that represents over five years of growth. Moreover, customers are utilizing QTS’s dispersed data center facilities and its proprietary service delivery platform (SDP) software for remote infrastructure tracking and management.
Within those building shells, the company currently has 1.8 million sq ft of built out raised floors with capacity to add another 1.4 million sq. ft. raised floors. This ability to double its footprint in pre-built powered building shells reduces its future capital expenditures.
Near term, QTS is investing in its future. In its 2Q20 earnings call, QTS raised its full year capex guidance to $650-750 million up from $550-600 million in 1Q20. The midpoint of the updated 2020 guidance range doubles QTS’ capex commitment over the $348 million spent in 2019.
With increased capex, QTS expects to add a total of over 60 MW of gross power capacity in 2020, nearly the same amount it delivered in aggregate over the prior three years.
QTS expects its full-year 2020 revenues to reach $530 million, up from $480 million in 2019, and growing at a 13 percent CAGR since 2017.
Comparatively, QTS is not a big data center operator. Market leader Equinix (NASDAQ: EQIX) has roughly 10 times the number of data centers and revenues.
But QTS keeps expanding. Its Hillsboro, OR mega data center which opened Phase I on October 1, shows the company’s growing scale of operation. Phase I is a 158,000 sq. ft., 24 MW data center.
When completed, the Hillsboro campus will house five mega data centers aggregating more than 1 million sq. ft. of leasable data center capacity and more than 250 MW of gross power capacity.
With the updated 2020 capital plan, the company commenced pre-development of a new mega-scale data center in Ashburn, VA on owned land adjacent to QTS’ existing Ashburn site that is over 75 percent leased since opening in 2018.
The new Ashburn data center is expected to have over 40 MW of sellable power capacity, giving QTS a strong presence in the prime Ashburn market.
More than three quarters of QTS’ capital development plan is directly tied to signed leases, even though billing has not yet commenced.
QTS serves over 1,200 customers in a mix of tenants and industries. As a percentage of monthly recurring revenues, 50 percent comes from Content & Digital Media and Cloud & IT Services (including hyperscalers such as Microsoft Azure and Amazon Web Services) industries. The balance derives from financial services, the U.S. federal government and an array of network, retail, transportation, hospitality, and oil & gas customers.
The federal government is an area of focus for QTS. Having met high security, personnel, and operational requirements, QTS’ 2Q20 leasing results include a 5 MW expansion for an existing hyperscale customer that recently won a significant Federal government contract. Deployments to support that contract across multiple existing QTS facilities will start in mid-2021.
By John Celentano, Inside Towers Business Editor