QTS paired long-term hyperscale leases with joint-venture capital to build large data-center campuses without carrying all the construction funding itself. In its 2019 Manassas plan, Alinda Capital Partners agreed to fund up to $500 million over five years, matched by QTS for as much as $1 billion in combined construction funding. QTS estimated the arrangement could lift stabilized return on invested capital (ROIC) to 12%, from 9% before the joint venture, in part because QTS could earn development and management fees as well as lease income.
Why hyperscale demand creates a financing challenge
Hyperscale customers—typically large cloud or software companies—can lease substantial blocks of data-center capacity for long periods. Those commitments give a landlord visibility into future revenue, but the landlord may need to fund extensive construction before the customer begins paying rent. A signed lease therefore reduces demand risk without removing the upfront financing burden.
Northern Virginia illustrated the scale of the opportunity. Data Center Knowledge reported 270 megawatts (MW) of net absorption in the region during 2018. QTS also reported approximately $63 million in booked-but-not-billed backlog at December 31, with more than $40 million scheduled to commence in 2019. That backlog represented signed revenue not yet started; it was evidence of demand, not revenue already being collected.
QTS expected its 2019 capital expenditures to reach $450 million to $500 million across seven campus locations, in addition to the Manassas build, according to Data Center Knowledge’s March 1, 2019 report. Funding that kind of expansion entirely on the company’s balance sheet would tie up substantial capital while construction and lease-up were still underway.
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How the Manassas joint venture worked
Construction funding shared with Alinda
QTS set up a 50/50 joint venture with Alinda Capital Partners for the Manassas project. Alinda committed up to $500 million over five years, with QTS matching that amount, for up to $1 billion in combined construction funding. The commitment was a multi-year funding capacity for construction, not a statement that $1 billion was spent on the Manassas building alone.
The structure let QTS pursue a large project while sharing its construction-capital requirement with an institutional partner. QTS remained involved in developing and managing the campus, creating fee income in addition to its economic interest in the venture and the lease-related returns.
The contracted project
The Manassas development was reported as a 10-year lease for 24 MW with a global cloud-software customer. The plan called for an 118,000-square-foot shell and an estimated total investment of $240 million. These figures describe the reported project and lease terms; they do not establish the tenant’s identity or disclose the lease’s rent, escalation clauses, or other economics.
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How the structure could improve returns
QTS estimated that the joint-venture structure would produce a stabilized ROIC of 12% within 24 months, compared with 9% before the JV. The company attributed part of the improvement to development and management fees it could earn while the venture provided capital. In practical terms, QTS could participate in the returns from a larger development while deploying less of its own capital than it would have needed to fund the full build itself.
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That is a projected, stabilized return—not a guaranteed result or a measure of the project’s return in every year. The available figures do not break out the 12% calculation, specify how fees were treated in the comparison, or show the eventual realized return. A joint venture can also divide economic upside and decision-making; the headline ROIC alone does not disclose every allocation of risk or reward.
What QTS reported about its broader growth plan
In results covered by Data Center Knowledge on March 1, 2019, QTS reported a 580-basis-point increase in adjusted EBITDA margin and 6% year-over-year growth in operating funds from operations (FFO) per share. It also reported a 7.3% increase in its quarterly distribution. Data Center Knowledge cited an approximately 4.2% yield at the time of publication; that was a point-in-time market yield, not a current yield or a promised return.
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These company-level measures help explain why QTS presented capital-efficient hyperscale development as part of a growth strategy, but they do not prove that the Manassas JV caused those reported results. QTS CFO Jeff Berson said the company ended 2018 with a near-record backlog of signed, not-yet-commenced revenue, which he said materially de-risked its growth outlook. He also described the Alinda-style arrangement as a higher-return, capital-efficient structure for future hyperscale opportunities.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What happened to QTS after the 2019 plan
QTS left the public markets when Blackstone affiliates completed an acquisition valued at approximately $10 billion on August 31, 2021. Blackstone said that at closing QTS owned more than 7 million square feet of mega-scale data-center space across North America and Europe. QTS CEO Chad Williams called the deal a new chapter for the company; after the acquisition, QTS was no longer a publicly traded REIT.
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What this means for investors evaluating hyperscale landlords
The QTS example shows why lease growth alone is not enough to assess a data-center landlord. A long lease and a large power commitment can support predictable demand, but the investor also needs to understand when rent begins, how much construction capital is required, who supplies it, and what the landlord earns for developing and operating the asset.
- Contracted demand: Look at the lease term and committed power, and distinguish signed-but-not-started backlog from rent already being collected.
- Capital exposure: Identify the landlord’s share of construction costs and whether a partner funds part of the build.
- Return measure: Check whether a quoted ROIC is projected or realized, when it is expected to stabilize, and whether fee income is included.
- Other revenue and concentration: Consider interconnection and connectivity income where disclosed, along with the risks of relying on a small number of very large tenants. The figures available for the Manassas project do not quantify those revenue streams or disclose tenant concentration across QTS.
A joint venture can make a capital-intensive expansion more manageable and improve the sponsor’s return on its own invested capital, but it does not eliminate construction, tenant, or execution risk. The Manassas figures are QTS’s 2019 estimates and reported terms; they are not a current investment opportunity or a forecast of returns for other projects.
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