Data Center REIT CyrusOne Investing $100 Million in Chinese Company GDS

CyrusOne Inc. (NASDAQ: CONE) said Oct. 18 that it will make a $100 million equity investment in GDS Holdings Ltd. as part of a new strategic partnership with the Chinese data center developer and operator.

Following the equity investment, CyrusOne will own approximately 8 percent of GDS. Additionally, CyrusOne President and CEO Gary Wojtaszek will join the GDS board.

In a conference call, Wojtaszek noted that CyrusOne and GDS count almost every major online cloud company in the United States and China as their customers. He stressed that the partnership fulfills the companies’ goal of developing a global data presence and creates a “compelling value proposition” for shareholders. He added that “practically all” of CyrusOne’s customers are looking to expand in China.

The strategic partnership is expected to involve the exchange of best practices around sales and marketing, data center design and construction, supply chain management, and customer relationship management and operations.

Wojtaszek said the partnership and investment with GDS will do nothing to disrupt existing plans to expand in the European market. In fact, he pointed out that GDS’s major shareholder, STT GDC, already has a strong presence in Europe. As a result, CyrusOne will now have two partners that can help it expand in Europe at a faster pace than would have been possible alone, he said.

Michael Rollins, analyst at Citi Research, said he had considered European expansion to be the priority for CyrusOne. However, “the partnership with GDS strengthens CyrusOne’s move towards becoming the key supplier and enabler of the hyper-scale cloud players both in the U.S. and abroad,” he observed.

KeyBanc Capital Markets analyst Jordan Sadler described the announcement as a “surprising strategic shift,” given that during the second quarter earnings call Wojtaszek said the company was reviewing a number of options in Europe, including a property in Dublin.

“We view the investment and the Chinese market as a potentially significant opportunity, though the risk associated with an investment in GDS remains less clear,” Sadler said.

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