Data Center REITs: Go Big Or Go Home
After delivering sector-leading performance in 2020, Data Center REITs have lagged this year as fundamentals have been largely unaffected by the pandemic and subsequent reopening - for better and worse.
Data Center REITs reported solid-but-unspectacular earnings results in Q2. Leasing activity was better than expected, but "same-store" renewal pricing remains soft amid stiff "hyperscale" competition.
As predicted early this year, we've seen a boom in data center M&A and IPO activity. Blackstone will take QTS Realty private, but several new REIT players have recently emerged.
Cyxtera completed its SPAC listing last month, while Switch now appears poised to convert to a REIT. Meanwhile, Colony Capital completed its "digital transformation" and rebranded as DigitalBridge.
With DLR and EQIX sitting on ample dry powder, we suspect the M&A boom is just getting started. We see consolidation as a potential catalyst and necessary to regain pricing power.
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