Equinix, Inc. EQIX recently announced that it concluded the acquisition of a commercial building at Vierenkamp 1, Hamburg, Germany, from Aspen REG 1. Management GmbH, on Dec 28, 2018, for a value of $11 million. Further, the company plans to invest additional $25 million to redevelop the 130,000-square-foot-property into a facility that will be renamed to Equinix HH1 International Business Exchange (IBX) data center.
This buyout expands the company’s global inter-connection platform and is aimed at catering to the rising demand for digital infrastructure connectivity throughout Europe. The new facility is expected to be unveiled in third-quarter 2019.
Moreover, the company remains focused to strengthen the Germany portfolio as indicated by its commitment to invest nearly $150 million in organic expansion of the German facilities in fiscal years 2018-2019. With nine facilities located across three markets — Frankfurt, Munich and Dusseldorf — the acquisition marks Equinix’s data-center expansion in its fourth German market.
Expansion in Hamburg is a strategic fit as it is home to many multinational enterprises and is witnessing growth in the technology community, including many e-commerce companies. This is spurring demand for best-in-class networking and cloud services providers that can offer low latency, along with higher bandwidth and connectivity.
In fact, Equinix intends to revamp the two-story industrial building to an interconnection and carrier-neutral colocation space. This overhaul will offer 375 cabinets in phase one, with a total capacity of 1,875 cabinets at full built.
As demand for interconnection continues to rise, the property will facilitate global interconnection and IT transformation needs of Equinix’s customers. Further, it will provide customers an opportunity to process, store and distribute latency-sensitive data in close proximity to end users and local markets.
Admittedly, data-center REITs are experiencing a boom, with growing popularity of cloud computing, Internet of Things and big data, as well as the use of third-party IT infrastructure by several companies. In fact, demand has been outpacing supply in top-tier data-center markets. These markets are absorbing new construction at an accelerated pace despite enjoying high occupancy. This, along with an improved outlook for economic growth, will significantly aid data-center REITs such as Equinix, as well as Digital Realty Trust Inc. DLR, CyrusOne Inc. CONE, CoreSite Realty Corp. COR and others.
While Equinix plans to add more data centers to satisfy the rising demand for co-location and interconnection services, this requires huge capital outlays. Amid rising interest-rate environment, increasing debt obligations will affect operating results as interest expense would flare up.
Currently, Equinix carries a Zacks Rank #3 (Hold). You can see
However, the stock has depreciated 6.3% in the past three months, as against the 2.1% gain of the Real Estate industry.
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