Infratil Limited (NZX: IFT), a New Zealand-headquartered infrastructure investor, today announced that it has agreed to invest up to £120m to £130m ($163m to $177m USD) of equity into Kao Data, a UK developer and operator of data centers. Initially, Infratil has become a 20% shareholder of Kao Data and will ultimately reach a 40% shareholding as Kao completes its acquisition of two UK data centers (see below).
Infratil will obtain a 40% equity stake, alongside Kao Data’s two current shareholders, which will each retain a 30% equity ownership in the business:
- Legal & General Group: investing through Legal & General Capital, a European alternative asset manager
- Goldacre: founder of Kao Data in 2014. Goldacre is the venture capital arm of Noé Group, a £2.5bn family office focused on real estate and property technology
Kao Data – Current Business
Kao Data, which began operations in 2018, provides colocation services for enterprise, cloud, high performance computing (HPC), and artificial intelligence organizations. Specifically, the company has secured contracts with customers including Nvidia, the European Bioinformatics Institute, and financial services companies.
Harlow Data Center Campus
Kao Data owns a freehold 15-acre data center campus in Harlow, which is situated ~20 miles north of central London. The company’s Harlow campus is within the UK Innovation Corridor, between London and Cambridge, which is home to academic, technology, and bioscience institutions/companies.
Presently, Kao Data has built one carrier-neutral data center on this Harlow campus. Furthermore, the company intends to begin construction of a second facility prior to the financial year ending March 31, 2022 (FY22). Once fully developed, Kao Data’s Harlow campus will comprise four data centers.
Finally, Kao Data’s Harlow campus sources 100% renewable power and has a design power usage effectiveness (PUE) of <1.2.
Sub-Market
The Harlow data center campus sits within a London sub-market which benefits from 88 megawatts of local demand. Particularly, this demand derives from research, academic, artificial intelligence, and life sciences companies.
More broadly, UK data center demand is projected to grow at a CAGR of 13% between 2019 and 2029. Components of this growth include high performance computing (17% CAGR), enterprise (10% CAGR), and hyperscale (23% CAGR).
Customers
Kao Data’s operational data center houses Nvidia’s Cambridge-1, the most powerful supercomputer in the UK. Through this facility, Nvidia serves healthcare companies such as AstraZeneca and GlaxoSmithKline with computing capacity.
Acquisition of UK Data Centers – Kao Data
Kao Data has signed a conditional agreement to acquire two UK data centers from a FTSE 100 financial services business via a sale-and-leaseback transaction. Indeed, the financial services business will become the anchor tenant of its data centers, signing a long-term lease with Kao Data for its continued use of the facilities. Notably, completion of this acquisition is expected by the end of March 31, 2022 (FY22).
Infratil’s follow-on investment will fund Kao Data’s acquisition of these two UK data centers. In turn, Infratil will own a 40% equity stake in Kao Data.
Portfolio
Post-acquisition, Kao Data’s portfolio will comprise 12.3 megawatts of installed power capacity, across three existing data centers. Moreover, the company will have the potential to develop a total of six data centers, with aggregate power capacity of 55 megawatts.
Finally, Kao Data will have a weighted average remaining client contract life of 9+ years, excluding renewal options.
Financials
Kao Data generates contracted run-rate rental revenue of £13.3m, pro forma for its acquisition of these two UK data centers. Additionally, through its existing sites, the company projects breakeven EBITDA within two years, versus its forecast for an EBITDA loss of <£5m for the financial year ending March 31, 2022 (FY22).
Medium-Term Strategy – Kao Data
Infratil, Legal & General, and Goldacre, will build Kao Data into a £500m multi-site data center business in the medium-term. To this end, the company references growth prospects through its pipeline of London/UK developments and further acquisition opportunities, which represent 50+ megawatts of power capacity. Finally, Kao Data highlights the potential of entering new markets outside of London or the UK.
Infratil Limited – Overview
Infratil invests in the infrastructure sectors of renewables, digital, and social, with operations in New Zealand, Australia, Europe, Asia, and the United States. Overall, Infratil has group assets of more than $4.9bn USD (NZ$7bn). Through its investments, Infratil targets returns to shareholders of 11% to 15% per annum, over the long-term.
Data Centers
Beyond Kao Data, Infratil Limited has invested in the data center sub-sector of digital infrastructure through its acquisition of CDC Data Centres in 2016. Specifically, CDC Data Centres operates facilities in both Australia and New Zealand.
Morrison & Co
Morrison & Co is the investment manager of Infratil Limited and has investment and operating experience in digital infrastructure. Specifically, the firm manages investments in businesses including Vodafone New Zealand, Fore Freedom, and CDC Data Centres.
