Equinix will complete the purchase of its Singapore SG3 data center from Mapletree Industrial Trust for $93m (S$125m) by the end of June 2021. Specifically, Equinix has exercised its contractual option to purchase the 384k sqft facility located at 26A Ayer Rajah Crescent in Singapore.
Equinix and Mapletree Industrial Trust – Agreement
The seven-floor data center was originally developed by Mapletree Industrial Trust for Equinix in January 2015. At this time, Equinix leased the building from Mapletree for an initial fixed term of 20 years, with renewal options. Included in the lease agreement, was an option for Equinix to purchase the building five years after lease commencement, which has elapsed.
Overall, the total rent obligation for the 20-year term was $159.6m, equating to $8.0m of rent annually. Therefore, given the purchase option structure, Equinix is buying this asset from Mapletree at an attractive 8.6% gross rental yield.
Equinix – Data Centers in Singapore
Currently, Equinix has four data centers in Singapore: SG1, SG2, SG3, and SG4. Indeed, prior to this deal between Equinix and Mapletree, all of these facilities were leased, as opposed to owned.
Additionally, Equinix is also expanding aggressively in Singapore through significant data center expansion projects under construction in the country. Specifically, Equinix is budgeting $290m to build 4.5k sellable cabinets of power capacity through the following four projects:
- SG4 Phase II: target opening date in Q1 2021, with 1.4k sellable cabinets, at a cost of $49m
- SG5 Phase I: target opening date in Q2 2021, with 1.3k sellable cabinets, at a cost of $144m
- SG1 Phase XV: target opening date in Q3 2021, with 300 sellable cabinets, at a cost of $22m
- SG5 Phase II: target opening date in Q4 2021, with 1.5k sellable cabinets, at a cost of $75m
Equinix – Desire to Own More of its Data Centers
Equinix is keen on maintaining and improving its current investment grade credit rating in order to benefit from a lower cost of capital. Notably, Equinix has an investment grade credit rating from all three of Standard & Poor’s, Moody’s, and Fitch. The rating agencies have become increasingly positive on Equinix’s credit as the company has increased its asset ownership and control of its long-term assets.
As of year-end 2020, Equinix owned 106 of its 227 data centers, equivalent to 16.0 million of its 26.4 million gross sqft. Additionally, the company generates 55% of its total recurring revenues from owned assets. Finally, Equinix has average remaining lease terms of greater than 18 years, including extensions, for the assets that it leases.
All of these asset ownership and control metrics contribute to Equinix’s positive credit momentum. Indeed, with Equinix acquiring its Singapore SG3 data center, the company’s trend towards greater asset ownership continues.
Mapletree – Implications of Data Center Sale to Equinix
The Equinix SG3 data center contributed 2.2% to Mapletree Industrial Trust’s portfolio gross revenue for the fiscal year ended March 31, 2020. Additionally, Mapletree notes that the $93m sale price for the data center was 23% above its development cost of $75m.
Overall, the company will use the sale proceeds to fund committed investments, reduce debt and/or make distributions to unitholders.
