ASHBURN, Va. – In buying more than 30 data centers over the last five years, Carter Validus Mission Critical REIT has often provided an exit for facility owners looking to sell their properties. The company continues to weigh whether there’s an exit strategy in its future.
Carter Validus has grown through acquisitions in a period when a number of data center assets have come up for sale. Carter Validus explored strategic alternatives last year, but opted to end the process, citing difficult market conditions.
Christof Hammerli, the Chief Acquisitions Officer for Carter Validus, said the company will eventually evaluate options again, which could include a sale or initial public offering (IPO).
“At some point we do have to have an exit, either an IPO or sale,” Hammerli said during a panel at the CapRate Washington D.C. Data Center Summit on Sept. 15 in Ashburn.
The data center industry hasn’t had a major IPO since 2013, when CyrusOne went public. But data center REITs (real estate investment trusts) have been strong performers over the past two years, averaging a 32 percent return in 2015 and gaining another 20 percent in the first quarter of 2016. Share prices have fluctuated in recent months, primarily due to concerns about valuations in the wake of this strong run-up in price.
Dual Focus
Carter Validus Mission Critical REIT was created in 2012 to invest in data centers and healthcare facilities such as medical office buildings, specialty surgical centers, and hospital properties. It has since accumulated $3.5 billion in assets, including 64 healthcare facilities and 20 data centers.
Carter Validus is a non-traded public REIT. Like a public REIT, they invest in real estate, make regular SEC disclosures, and distribute 90 percent of their taxable income to shareholders.
A major difference is that non-traded REITs don’t trade on a national securities exchange, and thus are less liquid investments (meaning funds are harder to buy and sell than with an exchange-traded REIT).
Over the years, Carter Validus has acquired facilities owned by AT&T, IO, Ascent and Stream Realty, among others. Its list of tenants includes Equinix, Level 3, Internap and Peak 10.
Spanning Asset Classes
While many REITs focus their investments on a single class of real estate (such as apartments, shopping centers or self-storage facilities), Carter Validus’ holdings include both data centers and healthcare facilities. There are REITs that focus on each of these asset classes, but spanning both presents a slightly more complex valuation process.
Last September Carter Validus announced that it had hired Goldman Sachs to explore strategic alternatives. That process concluded in late November, with the company saying it would keep its options open, citing volatile market conditions.
There are signs that the investors are more receptive of IPOs after a lackluster performance by new issues in 2015. Companies that launched IPOs in the third quarter of 2016 saw an average first-day spike of 37 percent, according to an Ernst & Young analysis. Some market watchers believe the environment for public offerings will improve in 2017, once the election uncertainties are resolved.
