QTS Realty Trust (NYSE:QTS), an Overland Park, Kansas-based data center owner, operator, and developer, is attempting to raise $349 million in its upcoming IPO. The firm plans to offer 12.3 million shares at an expected price range of $27.00-30.00; at the midpoint of that range at $28.50 per share, QTS would command a market value of $995 million.
QTS filed confidentially on May 31, 2013
Joint Managers: Goldman Sachs, Jefferies & Co., KeyBanc Capital Markets, Deutsche Bank, BofA Merrill Lynch, Morgan Stanley
Co-Managers: J.P. Morgan, Stifel.
QTS is an REIT that develops, owns, and operates data centers that contain servers and computer equipment for multiple customers and allow access to multiple data carriers (the centers are carrier-neutral).
The firm operates its own platform through which it offers numerous IT solutions. The firm offers three forms of core data center project: the Custom Data Center, which is a large, private space that houses critical IT infrastructure; Colocation, which provides data center space in leased cabinets or cages (a smaller version of the Custom Data Center, more or less); and Cloud and Managed Services, offering on-demand access to a pool of servers and support services that include the network management, security, operating systems and data back-up.
QTS currently operates ten data centers spread across seven states, including two of the largest multi-tenant data centers in the world. The centers are located in top data center markets and high growth areas. Seven of the facilities are currently in the process of redevelopment; all of the redevelopments are expected to be completed in 2013 and 2014.
QTS offers the following figures in its S-11 balance sheet for the six months ending June 30, 2013:
Total Revenues: $84,438,000
Net Loss: ($3,306,000)
Total Assets: $758,432,000
Total Liabilities: $628,117,000
Total Equity: $129,379,000
QTS is a promising buy at $27 or lower on it's IPO given the rapidly expanding markets for its products, as described below, and its highly experienced leadership team. The firm's recent losses are likely in large part due to significant capital investments in redevelopment projects that are expected to be completed by the end of 2014; on a pro-forma basis, the firm was already in the black for the six months ending June 30, 2013. QTS has shown a promising ability to adapt and expand its product line to meet emerging markets, especially in the case of the exploding cloud data market, and should be well-positioned to take advantage of the continuing projected growth of its target markets.
The market for data center solutions is growing rapidly, and QTS's wide spectrum of products should allow it to take advantage of that growth. 451 Research projects that the multi-tenant data center market in North America will grow from $8.2 billion in 2011 to $13.7 billion in 2014, a compound annual growth rate of 19%. The market for cloud infrastructure-as-a-service (IaaS) is projected to grow from $1.4 billion in 2011 to $5.2 billion in 2014, a compound annual growth rate of 55%.
QTS must compete with other companies seeking a share of these rapidly expanding markets, including other data center operators and IT infrastructure firms, although it remains the only North American firm to offer a full spectrum of data center solutions. Some of its competitors include Digital Realty Trust (NYSE:DLR) and Dupont Fabros Technology (NYSE:DFT).
Chairman and CEO Chad Williams has over 14 years of experience in commercial real estate, the last eight of which have been specifically focused on data center properties. Mr. Williams has been with QTS or its predecessor since 2003. Chief Financial Officer William H. Schafer has worked for the firm or its predecessor since 2010, and has over 20 years of experience in the REIT industry and 33 years of experience in financial operations. He was previously the CFO of DDR Corp (NYSE:DDR) from 1992 to 2010.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is neither a recommendation to buy or sell shares, and investors should always do their own research and consult with their financial adviser.