Data Center Capital Markets Foundations

Glossary

Asset-backed securities (ABS)

Bonds issued by a separate trust and repaid from the cash flows of a specific pool of assets, such as the rents of stabilized data centers, rather than from the issuing company as a whole.

Capitalization rate

A property's net operating income divided by its price or value. A lower capitalization rate implies a higher price for the same income.

Colocation

A data center service in which many customers rent space, power and cooling in a shared facility for their own equipment. Retail colocation serves smaller customers and typically includes interconnection services.

Funds from operations (FFO)

A REIT earnings measure defined by Nareit that adds real estate depreciation and amortization back to net income and excludes gains or losses on property sales. Adjusted funds from operations further deducts recurring capital spending and removes certain non-cash items.

Hyperscale lease

A long-term lease of an entire data center building or campus, usually tens to hundreds of megawatts, to a single very large tenant such as a cloud provider. Pricing per kilowatt is lower than retail and terms are typically ten years or longer.

Real estate investment trust (REIT)

A company that owns income-producing property and avoids most corporate income tax by meeting Internal Revenue Code tests, chiefly distributing at least ninety percent of taxable income to shareholders.

Residual value guarantee

A commitment by a tenant or sponsor to compensate owners if a property is worth less than an agreed amount at the end of a lease, shifting part of the non-renewal risk back to the guarantor.

Take-private

An acquisition in which a buyer purchases all the shares of a publicly listed company, after which the company is delisted and owned privately. Blackstone's purchase of QTS in 2021 is an example.