Data is the fuel that powers our increasingly digital economy. That makes it similar in many ways to the industrial economy, currently powered by fossil fuels. Both require a significant physical infrastructure network to transport and store their fuel source. That has opened the door for digital infrastructure companies to build and operate these networks, ensuring that the digital economy has unfettered access to the fuel that keeps it humming.
One of the leaders in the digital infrastructure space is Equinix (NASDAQ: EQIX). Here's a closer at this real estate investment trust (REIT).
Equinix is a data center REIT. As of the end of 2020, the company operated 227 data centers across 63 metro areas in 26 countries with more than 392,000 interconnections. Its portfolio consists of:
- The Americas: Equinix operated 104 data centers across North and South America. It owned 57 of these locations and leased the rest from third-party owners like fellow data center REIT Digital Realty (NYSE: DLR). The Americas region supplied 45% of the REIT's revenue in 2020.
- EMEA (Europe, Middle East, and Africa): Equinix operated 78 data centers across EMEA. The REIT owned 34 of those locations and leased the remaining sites. EMEA contributed 33% of its revenue in 2020.
- Asia-Pacific: The REIT operated 45 data centers across the Asia-Pacific region. It owned 15 of these facilities and leased the rest. Asia-Pacific produced 22% of Equinix's revenue in 2020.
Overall, 55% of the company's revenue came from its owned facilities while 45% came from leased locations. The company will lease sites in the following scenarios:
- It's unable or impractical to own certain multi-tenant facilities.
- There are foreign country restrictions.
- To minimize capital at risk in new locations.
Equinix makes most of its money providing colocation services, which is renting space in its data centers to multiple tenants to house their servers, storage, and networking equipment. In 2020, 74% of the data center operator's recurring revenue was from colocation services, 18% from interconnection (private data connections between two or more tenants), and 8% from managed infrastructure and other sources.
The REIT works with about 10,000 customers across the following industry segments:
- Cloud & IT Services: 29% of its recurring revenue.
- Network: 24%.
- Enterprise: 18%
- Financial Services: 16%.
- Content and digital media: 13%
It has a diversified tenant base. Its largest tenant accounts for 2.5% of its MMR (meet me room: space within a data center where entities handling lots of data can connect and exchange data). Overall, its ten largest tenants account for 18.6% of its MMR and its top fifty total 39.2%.
Equinix delivered strong results despite the pandemic's impact in 2020. The data center operator's revenue grew by 8% to nearly $6 billion. That extended its streak of revenue growth to 18 straight years. Even more impressive, revenue has risen in each of the last 72 consecutive quarters. AFFO also grew in 2020, increasing by 9% on a per-share basis. The REIT benefited from a combination of organic growth drivers as it signed additional tenants to its existing facilities, expanded some of those locations, and built new ones. Equinix also made several acquisitions in 2020.
The company's largest deal in 2020 was purchasing 13 data centers in Canada from BCE (NYSE: BCE) for $780 million in cash. The locations had 1.2 million square feet of data center space leased to more than 600 customers, 500 of which are new to Equinix. The deal solidified the company's position as a leading digital infrastructure provider in Canada.
The company also expanded its presence in the Americas region by purchasing three data centers in Mexico from Axtel for $175 million in cash. That deal marked its entry into Mexico, where it will become one of the country's largest data center operators. Equinix also expanded into India in 2020 by purchasing GPX India for $161 million, adding two data centers to its portfolio.
Equinix also continued its organic expansion in 2020. One notable project was a $142 million expansion of its Dallas Infomart Campus. One of the key features of this project is the launch of its 5G and Edge Proof of Concept Center. This facility will enable customers to test, demonstrate, and accelerate 5G deployment.
The company's investment activity has carried over into 2021. In February, Equinix unveiled a partnership with Vodafone (NASDAQ: VOD) to build a digital hub in Italy to connect Africa, Europe, and the Middle East. It also continued expanding its $3 billion xScale data center program joint venture, which is serving the growing needs of large-scale customers in Brazil, France, Japan, and other markets.
Equinix stock price
Equinix's global expansion strategy has paid dividends for its investors in recent years: