Fitch Ratings has withdrawn the 'BBB+' rating assigned to proposed senior unsecured notes intended to be issued by
Fitch has withdrawn
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
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
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-
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
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),
Derivation Summary
Fitch's ratings reflect
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:
The company's multinational bonds act as a natural hedge, given its exposure to eurozone countries.
Limited Secured Mortgage Access:
Stable UA/UD Coverage: Fitch expects
Issuer Profile
Date of Relevant Committee
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.
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