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Why QTS Realty Is Up 80% In A Year (In 10 Pictures)

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Why QTS Realty Is Up 80% In A Year In 10 Pictures
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The data center REIT sector is well positioned to harvest the exponential growth of big data and cloud computing.

On February 9, CEO Chad Williams made a compelling case why QTS Realty Trust Inc (NYSE: QTS) is well positioned to continue to both compete and grow profitably at Stifel's Tech, Internet and Media Conference.

Here are some key takeaways that highlight how QTS Realty plans to continue achieving its impressive 15 percent ROIC.

Tale Of The Tape - QTS & Peer Group

QTS competes with all of its peers because of its "3C" offerings: C1 Wholesale; C2 Colocation and C3 Cloud and Managed Services.

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Global player Digital Realty Trust (NYSE: DLR) and DuPont Fabros (NYSE: DFT) historically have focused more on wholesale customers. CyrusOne (NASDAQ: CONE) has built a business focused on large enterprise customers, while CoreSite (NYSE: COR) has found a great deal of success focused on the colocation/networking niche.

QTS - Secret Sauce

QTS Realty has been the first of its peers to focus on the Cloud and Managed Services. QTS has over 500 employees, including data center operations, 24/7 x 365 call center, and dedicated sales teams for each of its product offerings.

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Security & Compliance - Key To Outsourcing Wins

While many primary risk factors are the customers responsibility, a secure campus, internal security and compliance reporting are areas where responsibilities my fall to a third-party provider.

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According to Williams it was compliance and security discussions that eventually led to the $75 million sale on June 30, 2014 of the 194 acre McGraw Hill Financial (NYSE: MHFI) New Jersey data center facility to QTS.

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QTS Colocation & Network

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The QTS network dense ecosystem supports more than 850 customers of all sizes. The large mega-data centers provide ample room for growth in Atlanta (2), Dallas, Richmond and New Jersey.

In turn, 50 percent of QTS growth comes from its large and diverse customer base.

Hybrid/Cloud - First Mover Advantage

QTS has a real differentiator with its cloud and managed services offerings.

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QTS can help provide customers with a "technology roadmap to the cloud." Customers of all sizes looking to implement hybrid strategies want to be able to control the physical and logical location of valuable company data.

QTS - Strong CAGR Metrics

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The key financial metric for QTS management is to allocate capital to provide a 15 percent ROIC.

Balance Sheet

The company debt-to-EBIDA ratio is currently above its long-term targeted range due to funding of the build-outs required for QTS rapid growth, including recent signing of two large, (12 MW and 7 MW), C1 customers.

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Record QTS Book-Not-Billed

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As the customer revenue from the record book-not-billed is recognized, it will naturally lead to a de-leveraging of the balance sheet.

Mega-Data Centers - Low Cost Basis

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QTS currently owns 4.7 million gross feet of space. As of Sept. 30, 2014 the company is operating 927,000 SF of raised floor UPS space which represents only 44 percent utilization of its 2.1 million SF of powered shell.

Summary

• QTS Realty buys large infrastructure rich facilities - resulting in low cost of $7 million per MW.
• Mega-data centers allow for large MW C1 leases and expansion space for large customers.
• QTS has a first mover advantage with its C3 Cloud & Managed services; along with industry leading Security & Compliance certifications.
• Approximately half of QTS growth is from its existing network dense customer base.
• QTS is able to cross-sell its C2/C3 services to existing customers which increases MRR (monthly recurring revenue) per SF.

QTS Q4 2014 earnings are scheduled to be reported on February 23, with a conference call the following morning.

Image credit: 123Data, Wikimedia

Posted-In: big data cloud computing data centersLong Ideas REIT Trading Ideas General Real Estate Best of Benzinga

 

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