Digital Realty has historically grown by acquiring properties, some already built out and leased to tenants, and some vacant to be held for future development. During the past three years, it has acquired an average of 12 facilities per year. During the quarter ending March 31, consistent with this growth rate, four more properties were acquired. Ubiquity/Sears could be a source of “pre-engineered” datacenter sites for Digital Realty, as well as competitors Core Site Realty, CyrusOne, DuPont Fabros, and Equinix.
If Sears Holdings Corp (NASDAQ:SHLD) chooses to compete in this space, a future Ubiquity spin-off of a datacenter REIT could be a tremendous boost for investors in Sear’s stock. It should be noted that the IRS has not yet awarded Equinix REIT status, and this is something investors interested in this sector should watch closely.
The alchemy of turning dirt into gold:
Sears launched Seritage Realty Trust, LLC in 2013 as a “nationwide developer of commercial real estate” to help oversee a Sears portfolio containing over 200 properties in 33 states that totals over 18 million square feet. The Seritage stated strategic objective is “to provide access to mature suburban and urban markets for quality retailers, office tenants, and other commercial uses in tailored redevelopment projects.” Unlocking the value contained in this real estate “treasure chest” appears to be part of Sears Holdings blueprint for future success.
Staking out a claim in Minnesota
Seritage is initially focused on entitlements for a 17 acre redevelopment project in downtown St. Paul, Minnesota. The proposed development would include 111,700 square feet of retail space, 121 apartments and 18 townhomes, and a new four-level 586 space parking garage to create a “cohesive village atmosphere” anchored by the existing free standing Sears store, including 701 retained surface parking spaces.
An appraisal of this mixed-use development as if completed — and then discounted back to present value to account for approval, design, construction and marketing time frames — should yield a valuation significantly in excess of the legacy Sears retail property. Investors need to decide if projects like this will lead to a meaningful increase in Sears Holdings perceived market value.
Can you hear me now?
Ubiquity is also spearheading a new initiative to lease communication towers to be built at existing Sears Holdings Corp (NASDAQ:SHLD) facilities. Ubiquity could be looking to emulate the successful business model employed by wireless communication tower operator American Tower Corp (NYSE:AMT) — currently the second largest U.S. REIT valued at $28.3 billion. American Tower Corp (NYSE:AMT) along with competitors SBA Communications and Crown Castle International can leverage existing relationships with their major telecom tenants when competing with a start-up like Ubiquity.
How can Sears capture a piece of this pie?
American Tower owns or operates about 50,000 tower sites and also provides customized co-location solutions through its Distributed Antenna Systems. American Tower CEO Jim Taiclet was bullish on catalysts for U.S. growth during a May 1 conference call: “Leading the charge toward pervasive 4G services are our four major U.S. tenants, who we believe will need to substantially upgrade their existing networks to meet the capacity and elevated signal quality required to deliver services such as LTE video and voice over IP.”
