Cyxtera Seeks to Reject Leases with CyrusOne and Serverfarm

Cyxtera Technologies (NASDAQ: CYXT), which voluntarily filed for Chapter 11 bankruptcy relief on June 4, 2023, has begun the process of seeking to reject unprofitable data center leases. Its first two targets are a facility outside of Amsterdam, Netherlands, owned by CyrusOne, and another in Moses Lake, Washington, in the United States, owned by Serverfarm.

For a more comprehensive understanding of the current situation, refer to Dgtl Infra’s initial analysis provided in the article Cyxtera Technologies – Chapter 11 Bankruptcy Filing In-Depth.

Cyxtera Rejects Unprofitable Data Center Leases

Cyxtera Technologies intends to reject unexpired leases at two of its data centers, specifically the Cyxtera Amsterdam (AMS-1) and Cyxtera Moses Lake (MWH-1) facilities, in an effort to streamline operations. This also includes the abandonment of personal property like equipment, fixtures, and furniture at these sites.

Cyxtera claims that these leases are placing unnecessary burdens on its operations. To enhance the value of its reorganized business after the Chapter 11 bankruptcy process, Cyxtera has decided to reject these leases. They cite Section 365(a) of the Bankruptcy Code, which allows the rejection of any ongoing contract or unexpired lease with court approval, and have requested the U.S. Bankruptcy Court for the District of New Jersey to consider this action (among others).

Cyxtera expects to save over $114 million in future rent payments, plus associated maintenance costs and taxes, over the remaining term of the leases by rejecting them. Moreover, it aims to avert more than $11.5 million in net operating losses based on its performance in 2022.

Cyxtera Amsterdam – AMS-1

Cyxtera’s AMS-1 data center, located in Halfweg, a small Dutch village between Amsterdam and Haarlem, is situated at Linieweg 1, 1165 AA. This three-story, purpose-built data center provides 3.0 megawatts of UPS power capacity.

Despite its active use for retail colocation services, the AMS-1 facility has been operating at a loss, making it an unsuitable part of Cyxtera’s future business plans. Consequently, Cyxtera plans to cease operations at this data center and reject the lease effective September 6, 2023.

In light of the planned lease termination in Amsterdam, Cyxtera is committed to ensuring a seamless transition for customers currently using colocation and network services at AMS-1. Notices have been issued to customers regarding the intention to either terminate or relocate their services to other Cyxtera data centers, be it in London, Frankfurt, or any other location preferred by the customer.

Cyxtera requires all customers to fully vacate the AMS-1 data center by August 31, 2023. The company does not plan to nullify contracts with these customers, and services at alternate data centers will continue unaffected.

As of March 31, 2023, Cyxtera’s AMS-1 data center covered 23,724 square feet, with only 1,432 square feet sold, resulting in a scant 6% occupancy rate. Cyxtera leases the AMS-1 data center from CyrusOne, a wholesale data center operator owned by KKR and Global Infrastructure Partners (GIP).

Cyxtera Moses Lake – MWH-1

Cyxtera’s Moses Lake data center, known as MWH-1, is situated at 4949 Randolph Road NE, Moses Lake, Washington, in the United States. Notably, Cyxtera fully vacated this data center in June 2021, writing off the remaining lease obligation of $58.5 million. Consequently, Cyxtera’s proposed date to reject this lease aligns with its Chapter 11 bankruptcy filing on June 4, 2023.

Cyxtera leases the first, second, and third floors of the MWH-1 data center from Serverfarm, a wholesale data center operator controlled by Manulife Investment Management via its Manulife Infrastructure Fund II. This data center provides 22 megawatts of IT power capacity, with Building 1 comprising 163,000 square feet of space. Cyxtera has previously disclosed that it had a total of only 29,029 sellable square feet at Moses Lake.

READ MORE: Cyxtera Data Center Leases – Who and What is at Risk?