Blackstone Is Taking QTS Realty Private

The data center industry is red-hot right now. There's a rapidly growing volume of data flowing around the world, and this is translating to huge demand for data centers. We recently learned that Blackstone Group plans to take data center real estate investment trust QTS Realty Trust (NYSE: QTS) private, but in this Fool Live video clip, recorded on June 7, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss the best way for investors to play this high-growth industry.

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Jason Moser: Matt, there's a big acquisition here in the data center REIT space. Blackstone is acquiring QTS. We talk a lot about REITS on the show. You're very interested in the data center REIT space, you know QTS. What do you think about this deal, does it make sense?

Matt Frankel: If the current trends keep up, investors aren't going to have any data center REITs to buy. I think Digital Realty has acquired at least two of them over the past few years. Now, Blackstone's acquiring QTS, there's only like five. There's Equinix, there's Digital Realty, and then there's a few smaller ones, like two or three smaller ones, QTS was one of the smaller ones. Blackstone's taking this private. It's the Blackstone's infrastructure and their REIT division. They have a private REIT, not a publicly traded REIT. Blackstone Infrastructure Partners is their infrastructure division. Those two divisions of Blackstone are buying QTS. They're paying $6.7 billion for which is a 21% premium over its share price, so congratulations to all QTS shareholders. It's really not hard to see why they want this. QTS owns about 7 million square feet of data space. The use of data is growing exponentially in America, throughout the world, but here, especially.

Moser: It is.

Frankel: Some really data-heavy markets are blowing up right now. Jason, you are the artificial intelligence augmented reality guy. That's your official job tittle I believe.

Moser: Well, augmented reality, immersive technology, more of the 5G stuff. Seth really focuses more on the AI, but AI is definitely a part of the universe that I'm studying and you're right. The data is just mind-bending. The amount of data that's out there and then further, the companies that are all just geared toward figuring out the best ways to work with that data.

Frankel: AI devices are extremely data-heavy.

Moser: Yeah.

Frankel: The market for AI is expected to grow from $11 billion in annual AI device sales in 2019 to $90 billion in AI device sales by 2025, just a few years from now. That's huge growth and the point is things like that are going to drive the need for data centers.

Moser: Yeah.

Frankel: That's why you're seeing I mentioned a company called Cyxtera is going public.

Moser: Yes, I remember talking about.

Frankel: Which isn't going to be a REIT most likely because I only own, I think, two of their properties. They lease and this is like a subleasing model. But Digital Realty has been a holding of mine for a long time. Just the amount of data-heavy devices. Just think of how many things in your immediate vicinity right now are connected to the internet that wouldn't have been a couple of years ago. When I'm sitting at home, I could see a vacuum cleaner, a doorknob, or doorbell. Ten years ago, you would never think that all these things would be internet-connected. All of these things use a ton of data. How much data does your car use the car you drove 20 years ago didn't?

Moser: It's multiples upon multiples.

Frankel: My wife's car has a computer that's like the size of my laptop sitting on the window like this.

Moser: Sure.

Frankel: She has a Volvo and it has not self-driving, but it really like driver assist, I guess you call it. That uses a ton of data. Things like this over time are going to really add to the need for secured, reliable places to store and transmit data. I think the data center market, it's already blown up over the past two decades. I think it's really just getting started. Obviously, you can't really buy QTS anymore because Blackstone beat you to it. But Digital Realty is my favorite way to play this space. It's one of my largest investments and I think it will continue to be so.

Jason Moser has no position in any of the stocks mentioned. Matthew Frankel, CFP owns shares of Digital Realty Trust and Starboard Value Acquisition Corp. The Motley Fool owns shares of and recommends Digital Realty Trust, Equinix, QTS Realty Trust, and Starboard Value Acquisition Corp. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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