Digital Realty to Set Foot in Mexico Market With Ascenty

Digital Realty (NYSE:DLR) DLR recently announced about its entry into the Mexico market in association with Ascenty, a Latin American data-center service provider and Digital Realty’s joint-venture (JV) company with Brookfield Infrastructure (NYSE:BIPC). Two new facilities will be built in the state of Queretaro, Mexico, with the initial phases slated for delivery in 2021.

The facilities, estimated to have a full build-out IT capacity of 36 megawatts, are anchored by long-term, U.S. dollar-denominated, multi-megawatt agreements for supporting a leading global cloud provider’s growth. With underground dark fiber-optic network, the new data centers will be interconnected, offering access to networks, cloud, and connectivity providers in a single, secure environment, the company said.

The expansion in Mexico seems a strategic fit. With a population of more than 120 million, Mexico is the second-largest country in Latin America. Also, Mexico City is one of the largest metropolitan areas in the world. Internet usage by the population is taking place at a rapid pace and as such Mexico is developing as a leading technology hub in Latin America. The new facilities, therefore, offer scope to capitalize on the digital transformation across the region.

With growth in cloud computing, Internet of Things and big data, and an increasing number of companies opting for third-party IT infrastructure, data-center REITs are witnessing a boom market in Mexico as well as worldwide. Furthermore, the estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to six years. Apart from these, data centers are poised to benefit from the heightening reliance on technology in wake of the coronavirus pandemic. As such data-center REITs, including Digital Realty, Equinix (NASDAQ:EQIX), Inc. EQIX, CyrusOne (NASDAQ:CONE) Inc. CONE and CoreSite Realty Corporation COR, will keep witnessing significant demand.

Amid this, Digital Realty is poised to bank on this healthy market fundamental through accretive acquisitions, development and expansion efforts. During the first quarter, the company completed the acquisition of Interxion, a European provider of carrier and cloud-neutral colocation data-center services for a total consideration of $8.4 billion, including debt. The combined entity enjoys enhanced presence in major European metro areas, and its size and scale is likely to result in an efficient cost structure and superior EBITDA margins. The expansion in Mexico also adds to its scale.

Such encouraging factors have helped Digital Realty’s shares gain 16.5%, so far this year, as against the industry’s decline of 7.7%.

However, Digital Realty faces stiff competition from several data-center developers, owners and operators, many of which enjoy ownership of similar assets in locations same as the company. As the data-center market has the potential of further growth, these REITs remain under aggressive pricing pressure.

Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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