Investor Relations In Action: How to Sell a Data Center REIT

How Investor Relations Sells a Data Center REIT

An Investor Relations Officer represents the Chief Sales Officer of a given company’s stock.

He or she represents the spokesperson and likely creator of messaging around an attractive investment thesis.

In today’s video, I walk through how an IRO might try to sell a Data Center REIT to investors.

The story requires both macro and micro level detail. If you can provide data that shows vast scale and near limitless opportunity, the sky is truly the limit in unlocking shareholder value.

In the case of selling a Data Center REIT, there is a combination of macro stats that illustrate the endless demand for data, combined with the compelling aspects that illustrate the stickiness and ageless aspect of seemingly nondescript buildings.

The Key Points of Selling a Data Center REIT

Stat #1 - 70% of global IP traffic goes through Loudoun County, VA!

Stat #2 - Development of AWS Applications: In 2008, AWS delivered one new application every 15 days, by 2016, AWS delivered two new applications a day!

There will be a significant need for data centers as long as new applications are developed and continue to generate more and more data

Stat #3 - Why Are Ashburn, VA, Elk Grove Village, IL, Santa Clara, CA, and Dallas, TX, Data Center Hotbeds?

The four key variables: Tax Rates, Power Costs, Proximity to Airports, and Cost of Land.

Stat #5 – Building Size: Data centers are often the size of a Nimitz class aircraft carrier. You can’t just build one anywhere.

Stat #6 – Cost to Build: A data center costs $10M+ per MW to build, so a 30MW building is $300M.

Stat #7 – Hyperscale Investment: Hyperscale tenants typically put $10M+ per MW of equipment in a data center. Raising the value of a data center to $1B+!

Stat #8 – Wholesale vs. Retail Colo: Wholesale allows hyperscale tenants to scale by taking 25%+ of a given building. Retail Colo represents a 1,000-piece jigsaw puzzle where a tenant might have multiple non-adjacent servers prohibiting scale.  

Stat #9 – Data Center Useful Life: A data center has an accounting life of 40 years. In real life, the useful life might be unlimited. Why?

Stat #10 - Ringbus versus 4 Over 3 Architecture: The internal data center architecture can be a huge advantage to the Data Center provider. A ringbus configuration allows one to sell more MW to tenants and have less MW in reserve versus the 4/3 configuration.

For example, in a 28 MW data center, the ringbus design allows the Data Center Provider to keep only two MWs in reserve at all times, and lease out the other 26 MWs. In a 4 over 3 configuration, the data center has four rooms of seven MWs. The design calls for seven rooms of four MWs each. Therefore, each room can lease three MWs and hold one MW in reserve. In total, the four over three configuration forces the Data Center Provider to keep seven MWs in reserve at all times!

As long as new data is generated / created, a hyperscale provider will have a problem of finding space for said data, and cannot be bothered relocating already stood up applications!

As a bonus, Gaming REITs are the attractive sister of Data Center REITs. Once you fill a building with slot machines, it will be cost prohibitive to build / relocate to another building!