Equinix has formed two joint ventures with GIC, a Singaporean sovereign wealth fund, to develop and operate hyperscale data centers in Europe and Asia-Pacific, which it has branded xScale. These xScale data centers serve the needs of the growing hyperscale data center market, including the world’s largest cloud service providers.

xScale data centers are engineered to meet the technical requirements, operational requirements, and price points of core hyperscale workload deployments. At the same time, xScale offers access to Equinix’s suite of interconnection and edge services. These xScale data centers will be connected with the hyperscalers’ existing access points at Equinix. In turn, this will increase the speed of connectivity to the hyperscalers’ enterprise customers.

The xScale joint venture targets the top 12 hyperscale and SaaS customers, with typical deployments being 5 megawatts and greater. Examples of these customers include the world’s largest cloud service providers, such as Amazon Web Services (AWS), Microsoft Azure, Google Cloud, Alibaba Cloud, IBM Cloud and Oracle Cloud.

Europe xScale Joint Venture

In October 2019, Equinix entered into a $1.0bn+ joint venture with GIC to develop and operate hyperscale data centers in Europe. Specifically, Equinix owns a 20% interest and GIC owns an 80% interest in the joint venture company. Additionally, Equinix will receive management fees to operate the facilities, once they have been fully developed.

The European joint venture comprises six initial facilities and targets building 158 megawatts of total power capacity. Specifically, these facilities will be located in the FLAP (Frankfurt, London, Amsterdam, and Paris) data center markets in Europe. The current portfolio of Europe xScale joint venture data centers, at full build-out, include:

  1. London 10 (LD10x) / London 13 (LD13x): 6 megawatts / 750 cabinets of power capacity and 16.1k sqft
  2. London 11 (LD11x): 10 megawatts / 1,450 cabinets of power capacity and 31.2k sqft. Completion by Q2 2021
  3. Paris 8 (PA8x): 14 megawatts / ~1,700 cabinets of power capacity and ~36k sqft
  4. Paris 9 (PA9x): 10 megawatts / 1,200 cabinets of power capacity and 25.8k sqft. Completion by Q1 2021
  5. Frankfurt 9 (FR9x): 10 megawatts / 1,325 cabinets of power capacity and 28.5k sqft. Completion by Q3 2021
  6. Frankfurt 11 (FR11x): 14 megawatts / ~1,850 cabinets of power capacity and ~40k sqft. Completion by Q2 2022

London 10 (LD10x) and Paris 8 (PA8x) Data Centers

Initially, Equinix sold two stabilized data centers, London 10 (LD10x) and Paris 8 (PA8x), and certain construction development and leases in London and Frankfurt to the joint venture in exchange for consideration of $433m. Specifically, the consideration was comprised of:

  • $351.8m in cash
  • 20% interest in the joint venture for Equinix, valued at $41.9m
  • Contingent consideration of $39.3m, payable upon receipt of local regulatory approval for certain sites

At the time of contribution to the joint venture, the London 10 (LD10x) and Paris 8 (PA8x) data centers were substantially leased. Moreover, Equinix was able to sell these facilities to the joint venture at a 6% cap rate.

Note that the London 13 (LD13x) is the xScale portion of the London 10 (LD10x) site sold to the joint venture with GIC.

Paris 9 (PA9) Data Center

In September 2020, Equinix agreed to sell its Paris 9 (PA9x) data center to the European joint venture. Specifically, the Paris 9 (PA9x) data center transaction is expected to close in Q4 2020. At the time of contribution to the joint venture, the Paris 9 (PA9x) data center was 100% pre-leased to a hyperscale customer.

Debt Financing

As part of the European joint venture, Equinix and GIC received financing commitments for €850m from Deutsche Bank and ING. Specifically, the €850m of debt financing has the following uses:

  • €200m secured term loan facility used for the consideration paid to Equinix for the sale of its London 10 (LD10x) and Paris 8 (PA8x) data centers to the joint venture
  • €610m secured delayed draw term loan facility used to fund the planned development and construction costs for the new xScale data centers
  • €40m secured revolving credit facility used to fund working capital needs

Asia-Pacific xScale Joint Venture

In April 2020, Equinix entered into another $1.0bn+ joint venture with GIC to develop and operate hyperscale data centers in Asia-Pacific, starting with Japan. Similarly, Equinix owns a 20% interest and GIC owns an 80% interest in the joint venture company. Additionally, Equinix will receive management fees to operate the facilities, once they have been fully developed.

The Asia-Pacific joint venture comprises three initial facilities which, when fully built out, will provide 138 megawatts of power capacity. Specifically, these facilities are located in Japan and, at full build-out, comprise:

  1. Osaka 2 (OS2x): 38 megawatts / 5,475 cabinets of power capacity and 110k sqft. Phase 1 completion by Q4 2021
  2. Tokyo 12 (TY12x): 45 megawatts / 5,525 cabinets of power capacity and 115k sqft. Phase 1 completion by Q4 2020
  3. Tokyo 14 (TY14x): 55 megawatts / ~7,300 cabinets of power capacity and ~150k sqft

Equinix sold these three data centers to the joint venture in exchange for a 20% interest in the joint venture and cash proceeds in excess of $100m. Additionally, the transaction closed in Q4 2020.

Americas and Australia xScale Joint Ventures

Equinix is also pursuing additional xScale joint ventures in the Americas (notably in São Paulo, Brazil) and Australia. Specifically, São Paulo 5 (SP5x) has 5 megawatts / 500k cabinets of power capacity and 10.8k sqft, with completion by Q3 2021. Equinix notes that this São Paulo site is “JV Ready”, but it has not yet found a capital partner.

xScale Strategy for Equinix

Overall, joint venture structures enable Equinix to pursue strategic hyperscale deployments, while minimizing dilution of Equinix returns. Specifically, Equinix deploys capital against its core retail business and generates 30% cash-on-cash returns. Whereas hyperscale cash-on-cash returns are considerably lower, yielding only 8% to 11%.

Equinix’s xScale joint venture allows the company to address the demands of its hyperscale customers, while allocating less capital (i.e., only 20%) to the effort. In addition, Equinix receives management fees from GIC to operate the facilities, which increases the return profile to Equinix further. Therefore, Equinix is able to financially engineer a superior return profile for its hyperscale business. At the same time, Equinix can preserve more capital to invest in its retail business where returns are stronger.

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