Q2 Was Good to U.S. Wholesale Data Center Providers

U.S. wholesale data center real estate giants DuPont Fabros Technology and CoreSite Realty Corp. announced strong second-quarter results last week, as their rivals Digital Realty Trust and QTS Realty Trust prepared to brief investors on their performance during the quarter, both reports scheduled for tomorrow.

DFT and CoreSite’s results indicate a very positive market environment for companies that deal in large amounts of space and multi-megawatt power deals. Both finished the quarter with little finished data center space in their portfolios left without tenants; both are building out more capacity; and both have plenty of capital available to fund construction.

CoreSite successful with large and small deals

CoreSite reported fairly strong year-over-year growth in both revenue and funds from operations (a REIT equivalent of earnings) for the quarter. Its FFO grew about 13 percent, reaching $0.57 per share, and revenue grew about 14 percent, to $65.7 million.

As of the quarter’s end, about 85 percent of finished data center space in the company’s portfolio was occupied. CoreSite commenced leases on about 60,000 square feet at an annualized rent of $135 per square foot during the quarter and signed new and expansion leases at an annualized rate of about $160 per square foot, which will bring about $9.4 million in additional revenue per year.

CoreSite does both wholesale and smaller retail-scale deals. Leases signed during the quarter totaled about 60,000 square feet, spread across about 120 separate contracts. Slightly under half of that space was in the company’s SV3 data center in Santa Clara, California, and was leased out to one customer under a single contract.

With the bulk of its finished space spoken for, CoreSite is fitting out 50,000 square feet in its VA2 data center in Reston, Virginia. The company expects to spend about $74 million on the project, most of which ($61 million) it has spent already.

Further expansion will not be hard to finance, since CoreSite has about $11 million in the bank and $221 million available under its credit facility.

CoreSite CEO Tom Ray said the volume of sales of turn-key space was during the quarter was the highest since the company went public. “Second-quarter sales production reflects the execution of a large lease in the Bay Area and strong leasing across the remainder of the portfolio led by Los Angeles, Boston and Northern Virginia,” he added.

DuPont Fabros commissions space just in time

CoreSite’s bigger rival DuPont Fabros reported healthy year-over-year revenue and earnings growth as well. The company’s revenue for the quarter was $102 million – 11 percent up – and earnings were $0.32 per share – up nearly 80 percent from the second quarter of last year.

Revenue increased primarily because of the three new leases that commenced during the quarter, DFT said. They totaled about 60,000 square feet of space with access to about 10 megawatts of critical power capacity.

The company finished the quarter with 96 percent of its operating portfolio leased. It executed three leases during the quarter, totaling nearly 50,000 square feet and about 7.10 megawatts of power.

Since the quarter ended, DFT brought online Phase I (about 12 megawatts) of its ACC7 data center in Ashburn, Virginia, 17 percent of which was preleased. The company also recently brought online a new 9-megawatt phase at its Santa Clara data center, with 77 percent of the phase pre-leased before it was lit up.

DFT President and CEO Hossein Fateh said there was growing customer demand, which the company stood to capture with the unleased capacity in the two new phases on east and west coasts. “We are equipped to capture more demand with the 21 new megawatts of development we've placed in service in the vibrant data center hubs of Northern Virginia and Santa Clara,” he said.

DFT is building at full steam. Construction has started on another 9-megawatt phase in Santa Clara and a 7-megawatt phase at the company’s CH2 site in Chicago. It expects to bring both online next year – Santa Clara in the first quarter and Chicago in the third.

Like CoreSite, DFT has access to plenty of capital to finance further expansion: $56 million in cash and $560 million of available credit capacity.

DLR and QTS cooking with different ingredients

It will be interesting to watch QTS and Digital Realty report their results for the quarter against the background of healthy tight-supply, strong-demand conditions their two rivals operate in. They will not be as clear-cut, since QTS recently bought several massive properties, and Digital Realty is going through a rough transition following the recent departure of its founding CEO Michael Foust, selling off underperforming assets and focusing on maximizing profitability of the portfolio.

Both are reporting their results Tuesday.