Equinix (NASDAQ: EQIX) released the latest financials for its first xScale joint venture with GIC, which owns, develops, and operates, hyperscale data centers in Europe through the company EMEA Hyperscale 1 C.V., a limited partnership in the Netherlands. While Equinix’s disclosure covers the joint venture’s financial statements for the year ended December 31, 2020, important takeaways on Equinix’s xScale customer base, lease length, and asset-level operations in London and Paris can be understood.

xScale EMEA Joint Venture – London and Paris Detail – Equinix and GIC

Equinix owns a 20% equity interest and GIC, through the entity Euro Heather Private Limited, owns the remaining 80% of the xScale EMEA joint venture company. Presently, 7 data center properties have been sold into the EMEA Hyperscale 1 entity, including Dublin 5x (DB5), Frankfurt 9x (FR9), Frankfurt 11x (FR11), London 11x (LD11), London 13x (LD13), Paris 8x (PA8), and Paris 9x (PA9).

Customers

As of December 31, 2020, Equinix’s xScale EMEA joint venture generated lease revenue only from its London 13x (LD13) and Paris 8x (PA8) data centers. Below are further details on the customer leases at these two facilities, which include hyperscalers Microsoft, Salesforce, and Amazon as tenants:

CustomerData CenterRemaining Term*Expiry DateRenewal Option
MicrosoftLondon 13x12 to 14 years2032 to 2034
SalesforceParis 8x3.5 yearsmid-2023Annual
MicrosoftParis 8x8.5 yearsmid-20285-year x 1
AmazonParis 8x4 years20245-year x 2
*As of December 31, 2020. Note: Expiry Date = initial term.

Overall, Equinix notes that customer lease contracts for its xScale EMEA joint venture typically have an initial term of 5 to 7 years. Additionally, these customer lease contracts generally do not include any option, for the hyperscale customers, to purchase the underlying lease assets or to transfer ownership, at the end of their contracts.

Notably, the xScale EMEA joint venture also leases colocation space back to Equinix, for its use as a retail IBX data center. Specifically, Equinix has leased colocation space at the London 13x (LD13) data center on a term of 14 years, which for the year ended December 31, 2020, generated €12.5m of revenue for the xScale EMEA joint venture.

Interestingly, this arrangement is similar to Equinix’s disclosure in Q3 2021 which noted that Equinix would lease a portion of xScale’s Madrid 3x facility, from the EMEA 2 JV, for the retail IBX Madrid 6 data center.

Financials – December 31, 2020

For the year-ended December 31, 2020, Equinix’s EMEA Hyperscale 1, which comprises the xScale operations of only its London 13x (LD13) and Paris 8x (PA8) data centers generated:

  • Revenue: €48.6m in total, of which €37.3m (77%) was colocation revenue and €11.3m (23%) was tenant reimbursements
  • EBITDA: €23.4m, implying a 48% EBITDA margin

Recall, the xScale EMEA joint venture provides colocation services to customers on a wholesale basis. Therefore, xScale is delivering space, power, and cooling in an environment designed and/or customized by its customers. Separately, xScale’s revenue from tenant reimbursements relate to utility costs (e.g., electricity), which are charged on a metered usage basis.

Geographic Decomposition

The xScale EMEA joint venture’s total revenue of €48.6m can be split by geographic location as follows:

  • United Kingdom: €31.2m (64% of total) from the London 13x (LD13) data center
  • France: €17.3m (36% of total) from the Paris 8x (PA8) data center

Debt Financing

Equinix and GIC’s xScale EMEA joint venture has secured total debt financing commitments of €850m from a consortium of lenders led by ING Bank and Deutsche Bank. Specifically, these senior credit facilities consist of:

  • Facility A: €200m secured term loan facility drawn at closing and used to fund consideration paid to Equinix for the sale of operating data centers to the joint venture
  • Facility B: €610m secured delayed draw term loan facility used to fund development and construction costs for new data centers
  • Revolving Credit Facility: €40m used to fund working capital needs

As of December 31, 2020, Equinix and GIC had drawn a total of €313m from these 7-year credit facilities.

Interest Rates

The xScale EMEA joint venture’s debt financing carries an annual interest rate, for Euro loans, of EURIBOR + 2.625% and, for Sterling loans, LIBOR + 2.875% – for a period of two years. Thereafter, the margin for the debt facilities is based on a pricing matrix.

For the year-ended December 31, 2020, the joint venture’s effective annual interest rate was ~2.9% for Euro loans and ~3.2% for Sterling loans.

xScale Joint Ventures – Equinix, GIC, PGIM Real Estate

At full build-out, the total investment across Equinix’s xScale data center joint venture with both GIC (Europe, Asia-Pacific, and the Americas) and PGIM Real Estate (Australia) will be over $8bn, across 36 facilities, with 720+ megawatts of power capacity.

Operational Portfolio

Presently, 7 xScale data centers are operating in Asia-Pacific, EMEA, and Latin America. Specifically, these include Frankfurt 9x-1, London LD11x-1, London LD13x, Paris PA8x, Paris PA9x, São Paulo SP5x-1, and Tokyo TY12x-1.

As of Q4 2021, Equinix had cumulatively leased 133 megawatts of its xScale capacity.

Mary Zhang covers Data Centers for Dgtl Infra, including Equinix (NASDAQ: EQIX), Digital Realty (NYSE: DLR), CyrusOne, CoreSite Realty, QTS Realty, Switch Inc, Iron Mountain (NYSE: IRM), Cyxtera (NASDAQ: CYXT), and many more. Within Data Centers, Mary focuses on the sub-sectors of hyperscale, enterprise / colocation, cloud service providers, and edge computing.

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