Cyxtera to Become Public Data Center REIT

Miami-based Cyxtera Technologies, a data center colocation and interconnection service provider that operates a portfolio of 60 data centers in 30 markets, has decided to convert to a publicly traded REIT by the end of the year.

“Following a thorough analysis of the impact a REIT election would have on our business, we are confident the REIT structure will best position us for continued growth while maximizing long-term shareholder value,” said Carlos Sagasta, Cyxtera CFO, in a statement.

The company’s statement indicated that its Board of Directors unanimously approved its conversion to a REIT “for federal income tax purposes,” adding that as part of the restructuring, Cyxtera will be reincorporated in Maryland.

Cyxtera, which since its founding in 2017 has pursued a strategy of spinning off older telecom data centers into a retail colocation business, is bucking the trend in the data center sector over the past two years that has seen a several REITs exit public markets as they were absorbed by large institutional players.

In the past 15 months, QTS and CyrusOne were taken private by Blackstone and KKR, respectively, and CoreSite was acquired by infrastructure REIT American Tower.

Earlier this year, Switch, a Las Vegas-based company that focuses on sustainable data centers, was acquired and taken private by Digital Bridge before completing the process of converting to REIT.

As a result of this consolidation, Cyxtera, which went public last year, will become only the third publicly traded REIT, joining industry giants Digital Reality and Equinox. Industry analysts believe the limited number of publicly traded data center REITs should make it easier for Cyxtera to raise capital.

According to its Q2 2022 earning statement, the company has been dealing with a 17% increase in the cost of power this year. The company has clause in its contracts that lets it pass through increased utility costs to its customers, with a 90-lag before the price hikes can go into effect.

“We expect power cost to peak at the end of Q3 and then moderate. We have the contractual flexibility to past through increases in power costs, but we consider this approach very carefully because we understand that this a real impact to our customers,” Sagasta said, in an earnings call transcript.

Cyxtera also has had to postpone delivery of a new data center in Northern California until the end of this year, citing “local regulatory and supply chain challenges.”

“[Regarding] our capital structure and future financing opportunities, we believe we still have sufficient runway ahead of us with our term loan maturing in 2024,” Sagasta said, in the Q2 earnings call.

“That said, we continue to evaluate all financial alternatives to support our business model and growth plans. While we are not under any pressure to address financial needs in the near-term, it has always been our philosophy to get ahead of these items in a thoughtful and timely manner.”