The following is a press release from Fitch Ratings:
Fitch Ratings-New York-18 March 2024:
Fitch Ratings has assigned a 'BBB+' rating to the proposed senior unsecured notes issued by Equinix Europe 2
Financing Corporation LLC, an indirect wholly-owned subsidiary of Equinix, Inc. (EQIX; BBB+/Stable). EQIX will be
guarantor of the notes.
Fitch expects the proceeds will be used for general corporate purposes.
Key Rating Drivers
Conservative Financial Policy: Fitch expects EQIX to sustain leverage in the low-4.0x range through the rating
horizon. These metrics are strong for a U.S. data center REIT at the 'BBB+' level but are appropriately more
conservative given lower asset ownership; owned assets represented 66% of recurring revenues as of 4Q23. Additionally,
limited but improving secured mortgage access for data center assets results in weaker contingent liquidity relative to
other U.S. equity REITs.
EQIX's commitment to prefunding development capex and acquisitions through balanced debt and equity issuances is
positive for the rating. Fitch estimates EQIX's leverage at YE 2023 was 3.3x. EQIX has traditionally maintained
leverage below 5.0x.
Stable Cash Flow Profile: EQIX's network-dense retail colocation data centers have exhibited stable same-store rental
income growth. This is due to constant-currency colocation and high-margin interconnection revenues, which provide
predictable and stable cash flows. The relative stability in EQIX's utilization rates (79% as of 4Q23) with low
single-digit churn (2.4% as of 4Q23) is a positive. These factors highlight the stickiness of network-dense retail
colocation leases and act as a balance to the relatively shorter lease tenor of one to three years on average.
Fitch views data center demand as defensive in a tougher macro environment. Deployments in EQIX data centers are
typically mission-critical infrastructure that are revenue linked for companies. Additionally, volatility in energy
prices reduces visibility; however, Fitch believes EQIX will balance price increases with customer relationships.
Globally Diversified Portfolio: At 4Q23, EQIX owns, leases and operates a global network of 260 data centers across
71 metros in 33 countries across the Americas (44% of FY 2023 revenues), EMEA (36%) and APAC (20%). The company
continues to expand its asset ownership to 66% of recurring revenues at YE 2023 compared to 35% in 1Q17. Fitch expects
asset ownership to increase over time as more than 90% of expansion project spend as of 4Q23 is on owned land or
buildings with long-term ground leases.
Fitch views operating scale as an important competitive factor for data center REITs. Global portfolio depth and
breadth enhances competitive positions, allowing companies to offer cross-border solutions and meet their customers'
rapidly growing data needs. EQIX has a strong competitive position through its global network of colocation data
centers. This should result in continued growth, given high barriers to entry and switching costs, as well as network
effects. As of 4Q23, 90% of the company's customers utilize space in multiple metros, 76% are multi-regional, and 65%
are in all three regions.
Focus on International Expansion: In recent years, EQIX has supplemented internal growth with strategic acquisitions
to enter or expand in key non-U.S. markets. In recent years, EQIX has entered West Africa through its MainOne
acquisition and expanded into India through its GPX Global Systems acquisition. EQIX has also recently expanded its
presence in Chile and Peru, adding to its existing Latin America footprint of Colombia, Mexico and Brazil.
The recent acquisitions offer embedded growth opportunities because there is limited overlap between existing
customers. Additionally, EQIX can drive further expansion by integrating its global interconnection platform and
ecosystem with the acquired data centers. EQIX has also established multiple joint ventures (JVs) with GIC and PGIM
Real Estate to expand into the hyperscale markets across APAC, EMEA and Americas. The JV structure reduces EQIX's
capital requirements and enhances returns through JV management fees.
Secular Tailwinds Offset/Balanced By Long Term Risks: Secular tailwinds like internet adoption, mobile data usage, 5G
deployments, cloud storage, IT outsourcing and migration away from on-premise data centers support EQIX's credit
profile. Demand growth for technology has accelerated for data centers since the pandemic. Companies upgrade IT
infrastructures and shift workloads to the public and private cloud in order to support remote work settings. Moreover,
individual consumers are also driving aggregate demand for online content and entertainment, benefitting demand for
data center space and interconnections.
However, data center competition is intense, and pricing and market share dynamics are constantly evolving. Cloud
service providers such as Amazon.com Inc. (AA-/Stable), Microsoft Corporation (Not Rated) and Alphabet Inc. (Not Rated)
have scaled their cloud businesses meaningfully in the past few years. They have captured market share and transformed
the way enterprises and small businesses think about data center needs. This represents a long-term competitive risk
even though EQIX has benefitted from this trend as cloud providers are among its tenants.
Derivation Summary
Fitch's ratings reflect Equinix's strong operating platform and competitive position in the global data center
industry. The industry has experienced strong secular demand growth from a variety of enduring technology related
trends. Equinix's shorter relative lease tenor of one to three years compared with DLR is balanced by the stickiness of
the interconnection leases. This is demonstrated by low and stable churn rates and consistent same-store revenue growth
rates, compared to lumpier hyperscale-leasing results.
Equinix's leverage is lower than peer DLR (BBB/Stable), which has typically maintained leverage in the 5x-6x range.
Fitch views Equinix's leverage as appropriate due to its lower relative level of ownership of its data center real
estate of around 66% of recurring revenues, compared with the 80%-90% portfolio ownership for DLR. Equinix remains
committed to owning a larger portion of its real estate. This is demonstrated by the majority of development capex
spent on fee-simple, wholly owned properties and purchasing ground leases, which Fitch views positively.
Fitch's rating sensitivities maintain more conservative credit metrics relative to 'BBB' category REITs with
commercial tenants. This is suitable given the shallower depth of private institutional and secured mortgage debt
capital access for data centers relative to major REIT property types.
Key Assumptions
--Low single digit annual same-store NOI growth through 2026, driven by positive cash re-leasing spreads and
annual rent escalators, offset in part by growth in operating expenses;
--High single digit revenue growth due to a combination of acquisitions and an active development pipeline with a
ramp up of new facilities;
--EBITDA margins remain relatively flat through 2026;
--Minimal additional capital deployment beyond keeping capex fairly level throughout the forecast.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
--Fitch's expectation of net debt to recurring operating EBITDA sustaining below 3.5x;
--Increased mortgage lending activity in the data center sector, demonstrating contingent liquidity for the property
type;
--A substantial (i.e. 90% of total or greater) increase in percent of owned revenues/NOI that would warrant a
revision in leverage sensitivities, all else equal.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
--Fitch's expectation of net debt to recurring operating EBITDA sustaining above 4.5x;
--Fitch's expectation of REIT UA/UD sustaining below 2.0x;
--Sustained declines in rental rates and same-property NOI;
--A notable decline in percent of owned revenues/NOI that would lead to a negative revision in leverage
sensitivities.
Liquidity and Debt Structure
Improving, Diversified Capital Access: Equinix has demonstrated strong access to equity and debt-capital markets,
even during recent market turmoil. The issuer frequently issues bonds in the U.S. dollar-, euro- and other currency
denominated debt capital markets and common equity through its at-the-market program. The company has access to a range
of currencies under its multicurrency revolving credit facility and term loan A, including U.S. dollars, Euros, Swiss
franc, British pounds and Japanese yen. As of Dec. 31, 2023, Equinix had unrestricted cash of $2.1 billion and $3.9
billion available on its revolving credit facility.
The company's multinational bonds act as a natural hedge, given its exposure to eurozone countries. Equinix also has
entered into five JVs with Singaporean sovereign wealth fund GIC and one with PGIM to build and operate hyperscale data
centers, which are another alternative source of financing for the company.
Limited Secured Mortgage Access: Equinix's ratings are constrained by its data center portfolio focus, which is a
less-established property type with weaker liquidity elements and secured mortgage capital access. The limited
availability of mortgage capital for data centers reduces sources of contingent liquidity, relative to other commercial
real estate property types, during periods of potential financial stress. Fitch also believes the asset class has
limited alternative uses, which further limits downside protection. To offset this potential downside, Fitch's rating
sensitivities maintain more conservative credit metrics, relative to 'BBB' category REITs with commercial tenants.
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Stable UA/UD Coverage: Fitch expects Equinix's unencumbered asset coverage of unsecured debt (UA/UD) to sustain in
the low-2x range over the next couple of years through at-the-market equity issuance and a greater emphasis on owned
versus leased assets, partially offset by incremental unsecured debt issuance. Fitch applies a 9% stressed
capitalization rate on Equinix's owned NOI to calculate the value of fee simple, wholly owned unencumbered assets and a
10% capitalization rate on ground-leased properties to reflect additional risk.
Issuer Profile
Equinix, Inc. (Nasdaq: EQIX) owns and operates primarily network-dense colocation data centers, providing
interconnection services to its customers located in the Americas, EMEA and APAC. EQIX's platform consists of 260 data
centers across 71 metros in 33 countries on six continents.
Date of Relevant Committee 01 November 2023 REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG
Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score
of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their
nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the
rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For
more information on Fitch's ESG Relevance Scores, visit
https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
Equinix Europe 2 Financing Corporation LLC
----senior unsecured; Long Term Rating; New Rating; BBB+
Contacts:
Primary Rating Analyst
Christopher Wimmer,
Senior Director
+1 646 582 3412
christopher.wimmer@fitchratings.com
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Secondary Rating Analyst
Kent Reynolds,
Director
+1 212 908 0668
kent.reynolds@fitchratings.com
Committee Chairperson
David Peterson,
Senior Director
+1 312 368 3177
david.peterson@fitchratings.com
MEDIA RELATIONS: Eleis Brennan, New York, Tel: +1 646 582 3666, Email: eleis.brennan@thefitchgroup.com
Additional information is available on www.fitchratings.com
Applicable Model
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of
model(s).
Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 ( 1 )
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