QTS Realty Trust to Acquire Carpathia Hosting for $326M

QTS Realty Trust to Acquire Carpathia Hosting

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OVERLAND PARK, Kan., May 6, 2015 /PRNewswire/ — QTS Realty Trust (NYSE: QTS) announced today that it has reached an agreement to acquire Virginia-based colocation, cloud and managed services provider, Carpathia Hosting, Inc. for approximately $326 million. Carpathia is a leading hybrid cloud services and Infrastructure-as-a-Service (IaaS) provider offering a high level of security and compliance solutions to sophisticated enterprise customers and federal agencies.

The transaction strengthens QTS’ existing, fully integrated real estate and technology services platform, known as QTS’ 3C’s: custom data center (C1), colocation (C2) and cloud and managed services (C3). The combined companies will service over 1,000 customers in North America, Europe and Asia Pacific.

“Carpathia will be a great complement to our existing platform, enhancing and expanding our premium product and service offering, while delivering added value to customers, shareholders and employees,” said Chad Williams, Chief Executive Officer – QTS. “The addition of Carpathia, with its seasoned management team, will accelerate QTS’ already industry-leading performance, and further strengthen QTS’ unique integrated technology services platform that enterprise customers increasingly require.”

The transaction will provide a number of strategic benefits to QTS, including:

Enhances QTS’ proven and well established 3C integrated services platform with additional scale and product mix in C2 and C3

Accelerates QTS’ federal business through Carpathia’s strong momentum with federal agencies and the ability to leverage this business with QTS’ Richmond mega data center

Adds access to government business through numerous federal Authorizations to Operate (ATOs) with federal civilian and DoD agencies, and a Provisional ATO from the FedRAMP Joint Authorization Board (JAB)

Provides highly complementary capabilities in security and compliance solutions designed for sophisticated enterprise and federal customers

Deepens the QTS customer base with approximately 230 customers and provides the ability to cross-sell QTS’ infrastructure and Carpathia’s product mix to a combined group of over 1,000 customers

Diversifies and expands QTS’ geographic footprint, adding strategic international capabilities

Promotes strategic partnership and offering with VMware vCloud® Government Service provided by Carpathia™ (vCGS)

Fosters near term and long term financial benefits including growth, scale, and immediate accretion
Expands QTS’ executive ranks to include the Carpathia leadership team
“We admire the leadership position QTS has taken in understanding the evolving needs of the industry and building dynamic solutions to meet customer demand,” said Peter Weber, Chief Executive Officer – Carpathia. “Joining QTS means leveraging common strengths and continuing the development of innovative hybrid cloud solutions for enterprise and public sector customers. Furthermore, the existing Carpathia customer base will benefit significantly from QTS’ world-class mega data center infrastructure for their integrated data center needs.”

Peter Weber will join the QTS executive team as Chief Product Officer. The remainder of the Carpathia executive team will continue to play key roles in further developing and delivering products and services that customers seek and value.

Financial Impact
The transaction is expected to be immediately accretive to QTS, adding an estimated $0.01 per share to OFFO and an estimated $0.10 per share to AFFO in 2015, and adding an estimated $0.10 per share to OFFO and an estimated $0.25 per share to AFFO in 2016. The terms of the agreement call for QTS to purchase Carpathia for approximately $290m, and to take approximately $36m of capital lease obligations, for a total enterprise value of approximately $326m. Carpathia is expected to contribute on a second-half 2015 annualized basis approximately $90m in revenue and approximately $32m in annualized Adjusted EBITDA. In addition, QTS anticipates an additional $2m in synergies to begin to ramp in 2016, resulting in an anticipated purchase price multiple of approximately 9.6x 2015 annualized Adjusted EBITDA, pro forma for synergies. In addition, QTS is expecting to incur approximately $7m in fees and expenses associated with the transaction and approximately $15m one-time integration costs to be incurred through 2016.

QTS expects to finance the transaction through available capacity under the Company’s credit facilities, and will ultimately look to a blend of equity and debt securities to finance the acquisition on a leverage-neutral basis.

The transaction is expected to close mid-year 2015, subject to the fulfillment of customary closing conditions.

Management will host a call Wednesday, May 6, 2015 at 4:00 p.m. Central / 5:00 p.m. Eastern with additional details surrounding the transaction. The dial-in number for the conference call is (877) 883-0383 (U.S.) or (412) 902-6506 (International). The participant entry number is 3726112 and callers are asked to dial in ten minutes prior to start time. A link to the live broadcast and the replay will be available on the Company’s website (www.qtsdatacenters.com) under the Investors tab.

Financial and Legal Advisors
Deutsche Bank Securities Inc. acted as lead financial advisor and TD Securities acted as financial advisor to QTS. Hogan Lovells acted as legal advisor to QTS. Credit Suisse acted as exclusive financial advisor to Carpathia’s controlling shareholder, Spire Capital Partners, and Dentons acted as legal advisor to Carpathia and Spire Capital Partners.

About QTS
QTS Realty Trust, Inc. (NYSE: QTS) is a leading national provider of data center solutions and fully managed services and a leader in security and compliance. The company offers a complete, unique portfolio of core data center products, including custom data center (C1), colocation (C2) and cloud and managed services (C3), providing the flexibility, scale and security needed to support the rapidly evolving hybrid infrastructure demands of web and IT applications. With 12 data centers in eight states, QTS owns, operates and manages approximately 4.7 million square feet of secure, state-of-the-art data center infrastructure and supports more than 850 customers. QTS’ Critical Facility Management (CFM) can provide increased efficiency and greater performance for third-party data center owners and operators.    Press Release.

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Amazon Web Services test driving Tesla batteries in data centers

By Rachel King for Between the Lines | May 1, 2015 Screen Shot 2015-05-04 at 8.39.50 AM

Tesla turned up the spotlight earlier this week with a portfolio of new power-fueling (and hopefully power-saving) innovations for homes and businesses.
The California car maker often garners attention through the cutting-edge designs and breakthroughs demonstrated predominantly through its lineup of electric vehicles.

Many of today’s small businesses and startups have become leading-edge adopters and innovators in technology because they are not chained to big, legacy systems. We look at tech best practices and transformative opportunities for the small companies that make up such a big part of the business world.

Now premium motor company founded by Elon Musk is infusing that energy into somewhere a little less flashy but all the more needed these days: data centers.

Among those already sampling Tesla’s battery innovations is none other than one of the largest data center managers worldwide: Amazon Web Services, recently boasted to be a $5 billion business by company founder and CEO Jeff Bezos.

Describing itself as “not just an automotive company” but rather a “an energy innovation company,” Tesla touted how it is utilizing some of the same architectures and components in its electric vehicles and bringing them to energy storage systems.

Namely, Tesla is experimenting with integrating batteries to power electronics, thermal management and controls for wrangling them together for a turn key system.
“Tesla’s energy storage allows businesses to capture the full potential of their facility’s solar arrays by storing excess generation for later use and delivering solar power at all times,” the Palo Alto, Calif.-headquartered business asserted. “Business Storage anticipates and discharges stored power during a facility’s times of highest usage, reducing the demand charge component of the energy energy bills.”

James Hamilton, a distinguished engineer at AWS, revealed that Tesla has already been testing running applications on Tesla’s high-capacity battery technology over the last year.

The hope, Hamilton explained, is that such energy efficient measures could encourage “widespread adoption of renewables in the grid.”

“Batteries are important for both data center reliability and as enablers for the efficient application of renewable power,” Hamilton wrote in prepared remarks. “They help bridge the gap between intermittent production, from sources like wind, and the data center’s constant power demands.”

AWS plans to roll out a 4.8-megawatt hour pilot of Tesla’s energy storage batteries, starting with its US West (Northern California) Region. AWS has four regions stateside (including one dedicated to government applications) with half a dozen more scattered around the globe.

Hamilton promised that the soft launch fits in with Amazon’s long-term strategy to eventually achieve a 100 percent renewable energy tech deployment rate across its global infrastructure.

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Facebook Investing Heavily in Webscale Data Centers – CIO Journal

By STEVE ROSENBUSH WSJ

Facebook Inc.FB -0.82% is investing heavily, no, make that massively, in cloud-based data centers that are capable of delivering video and other complex digital services to its billion-plus users. Total costs and expenses rose 83% from the year-earlier period, far outpacing a 42% increase in revenue, and research and development spending more than doubled, to $1.06 billion, the WSJ’s Alistair Barr and Deepa Seetharaman report.

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Other CIO Journal News:

A technician works on a computer while testing servers at the Facebook Inc. hardware labs in Menlo Park, Calif., April 7, 2014.
“Lurking in the background, though, is Facebook’s heavy spending on data centers to deliver services and long-term projects such as virtual reality and Internet access beamed from solar-powered drones. Facebook needs lots of computers, places to run them, and the means to connect them to end users around the world,” they say.

Such technology is steadily making its way into the corporate mainstream. Bank of America Corp. is considering the ideas behind Facebook’s data center in Prineville, Ore., as it remakes its own IT infrastructure, as CIO Journal reported. Open standards, commodity hardware, and compute, storage and networking systems that scale out to accommodate wild levels of user demand are the order of the day.

Addressing the California drought requires access to accurate data. California, now in its fourth year of drought, is collecting more data than ever from utilities, municipalities and other water providers about just how much water flows through their pipes. But some say the data-collection process, built on monthly self-reporting and spreadsheets, could be better, allowing for more effective, fine-tuned management of water. “More data and better data will allow for more nuanced approaches and potentially allow the water system to function more efficiently,” said Ted Grantham, a research scientist with the U.S. Geological Survey, tells CIO Journal.

EMC CEO says IT in midst of big secular shift. History wasn’t particularly kind to EMC Corp. during the latest quarter, but CEO Joe Tucci says medium and long-term investments in areas such as an open, cloud-based software development platform, security and software-defined everything will pay off.

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Cantor Fitzgerald Sees Data Center REIT Sector “Maturing”

Wed, March 25, 2015

On Monday, Cantor Fitzgerald released key takeaways from an interview with Bryan Loewen, executive managing director of the NGKF Data Center Consulting Group, regarding the U.S. data center landscape.

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The Cantor Fitzgerald data center coverage universe includes:

Digital Realty Trust, Inc. (NYSE: DLR) – Sell rated; $61 PT
DuPont Fabros Technology, Inc. (NYSE: DFT) – Buy rated; $35.50 PT
CoreSite Realty Corp (NYSE: COR) – Hold rated; $38.00 PT

Tale Of The Tape:

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Cantor Fitzgerald – Key Takeaways:

The data center REIT sector is maturing and “likely entering into a phase of ‘productization,’ as landlords tailor their offerings to the ever-evolving tenant base.”

The Next Phase – Productization: Loewen is “seeing a noticeable increase in demand for ancillary services from enterprise tenants, as they look to further outsource IT requirements and better spend IT dollars.” Cloud service providers are the fastest growing vertical for wholesale data center space landlords.

Fundamentals: Most markets “continue to improve from the perspective of landlords […] Loewen expects to see rent levels continue to grow through 2015 due to the timing of the anticipated development deliveries.

“With regard to renewal spreads, the tenants’ level of expertise, as well as its usage of a broker […]30 – 40 percent of wholesale and 70 – 80 percent of retail leasing do not involve a broker, likely shielding the tenant from actual market conditions.”

Development: “Development activity is evident across all sizes, products and markets, though there are limited near-term deliveries. Notably, Mr. Loewen is seeing significant activity in second- and third-tier markets, as companies look to move from higher-cost markets into locations with lower overall costs and/or with proximity to their corporate locations.”

Transaction Activity: Buyer interest in data centers “remains robust and unchanged from last year, with private equity players being the most aggressive.  The increased interest in Data Center CMBS could push cap rates lower going forward, in Mr. Loewen’s view.”

Also Of Note: Loewen also mentioned AT&T having $2 billion of data centers for sale and his expectation of “increased M&A activity” in the space.

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CFOs: Is It Time to Sell Your Data Center?

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March 5, 2015: Five 9s Digital

If your corporation owns a data center, chances are you have been involved in the perpetual conversation of what must we do next to meet the company’s growing need for data storage, network, disaster recovery, IT staff, and the need for updated and more efficient data center infrastructure. As the CFO, you are in the middle of trying to manage the ROI with the CIOs IT strategy and CEOs expectations.

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The bad news: You can’t make the cost go away.   The good news: There are a lot of good options today not seen even 5 years ago.   Your team can go the hybrid model by augmenting your existing data center growth through the multitude of cloud offerings, the team can go down the path of upgrading your data center to create a more efficient use of space and reduce operating costs, or go full-on third party cloud and migrate out of data center ownership.   These are not simple decisions.

All options come with monetary and IT strategy risks, however, the conversations will continue and it becomes very difficult to budget for future costs and determine how best to manage them.

One solution that is gaining popularity is a sale-leaseback of the company’s data center assets.   Once considered an untouchable asset due to the mission critical nature of the corporate data center, corporations are seriously considering this option as a way to unleash the capital and utilize the proceeds to enhance the data center infrastructure or use the proceeds to address other financial needs.

Today, a number of highly qualified landlords specifically focused on data center real estate allow a company to have the confidence in not owning the asset, while still maintaining control of the operations and IT strategy for the long term.

The sale-leaseback buyer serves as a capital source today and potentially for future expansions and upgrades, with both parties motivated to reach a mutually agreeable price vs. lease structure.

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A number of successful data center sale-leaseback examples have occurred in the US market in the past year exceeding well over $700M in transactional value.   Some examples can be seen in the 2014 EOY Data Center Real Estate Acquisitions Report.

As CFOs work to manage their ever growing IT budget and needs, the Data Center Sale-Leaseback concept is a worthy consideration.

If you have interest in considering a sale-leaseback of your data center, please let us know and we can provide you some recent market comparable transactions.    We can be reached at 704-651-2210 or Steve@Five9sDigital.

More information can be obtained on our website at www.five9sdigital.com.

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Five 9s Digital acquires top level domain www.datacenter.space….for $500K

Posted February 18, 2015

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Just kidding about the $500K price tag, but how much money is your company spending on its data center space and how do you identify and evaluate your options?

Five 9s Digital Advisory assists companies across the country identify and procure the best options for their data center requirements, whether it be colocation, wholesale data center space or a stand alone data center building.

As new domain name extensions have opened up over the past few months, Five 9s Digital procured the www.datacenter.space domain name to compliment the Five 9s website as it expands its data center corporate advisory services across the country.

“As the data center real estate sector grows along with the rapid growth of technology, corporations continue to seek ideal data center space options.  We felt the domain captures the essence of the initial search whereby companies commence their evaluation process for suitable solutions no matter if they are looking for racks, MWs or square feet.” stated Five 9s Digital partner, Stephen Bollier.

Five 9s has saved corporations across the country a significant amount of time and money, while providing the best options for consideration.   A company’s data center solution is  one of the most important decisions in supporting its mission critical operations and, oftentimes, the company’s core business model.   The cost of our advisory services is born by the group providing the solution upon procurement, not a cost paid by the clients we  assist in finding the best data center solution.

If you happen to be in the market for data center space, please let us assist your efforts.

More information can be viewed at www.datacenter.space with more to come soon.   We are always available to speak and correspond directly.

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2014 Data Center Real Estate Acquisitions Report – Year In Review

D A T A   C E N T E R S  R E A L   E S T A T E   A C Q U I S I T I O N S   R E P O R T

2014 Year In Review – Posted February 11, 2015

Data center real estate acquisition activity for the full year 2014 yielded at total of $1.148 Billion worth of transactions with 4,068,995 SF of data center real estate sold. This follows $1.292 Billion of transactions in 2013.   The transactions represent eighteen (18) data center real estate assets sold with an average sale price of $63,812,500 per transaction.

The largest transaction by price was the $211.7M acquisition made by Carter Validus for the Ascent Data Center in the Chicago market.   The largest transaction by size of data center was the 1.3 M SF carrier hotel data center located at 401 N. Broad in Philadelphia acquired by Netrality Properties.

Digital Realty Trust, historically having a large appetite for new acquisitions, acted as seller either outright or to a joint venture partner, as the company redirected its efforts in 2014.   Carter Validus, a mission critical REIT, and other private investment firms filled this acquisitions gap generating comparable total annual sales volume as 2013.   Other REITs not typically involved in the data center real estate market continue to look at the market for potential investments; However, REITs are being pressured to focus on core competency by shareholders so we do not see a big shift of new buyer competition from industrial, retail or other net leased REITs.

The data center real estate investment market remains very competitive for active buyer groups for strategically located assets with long term, good credit tenancy.   Fairly aggressive lending at low interest rates continue to provide attractive financing opportunities for new data center acquisitions.     Likewise, existing owners are refinancing assets at or near loan maturity taking some data center assets out of the potential investment pool.   Cap rates have edged below 7% for good credit, long term, single-tenant leases.   Investment opportunities lacking clear credit, shorter term leases and multi-tenant occupancy are typically trading in 7.5-9.0% cap rate range.

The data center real estate investment market continues to capture the macro trend of growth in data, storage, disaster recovery and the migration to the cloud.   New developments, upon partial or full stabilization, and corporate sale-leasebacks will continue to supply the market for investors.

Trend Spotting:   Corporations continue to migrate to the cloud either in whole or as part of a hybrid solution.   Data centers vacated resulting from this slow but certain migration offers value-add repositioning opportunities to investors and operators seeking cost savings and reasonably quick access to a growth or underserved market.

For the full report, please click:  2014 Data Center Real Estate Acquistions Report

For more information, please visit http://www.Five9sDigital.com.

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