Real Estate Investment Trust Valuating Equinix Inc Finance Summary Hi,Please take a look at the instruction. It listed the points you should cover. I already did a powerpoint version of the paper, just simply make and edit the content in the powerpoint into essay form. Please do more research and add more information. Let me know if you have any questions. reit investing & risk project
“a good report uses metrics to tell a story with a view”
1. general overview (team introduction, name of reit, segment)
a. approach
b. methodology
c. information sources
2. executive summary (complete last)
a. key results, findings, outcomes
b. valuations (tev stock, nav, premium/discount)
c. key risks, mitigants
d. justify recommendation of the reit for future investment or not (buy,
hold, sell)
3. background
a. reit position in the specific competitive segment
b. geographic scope (domestic, national, regional, global, market share
c. reit position in the reit industry
d. reit strategic positioning, capabilities (development/re-development,
management, acquisitions, sales)
e. jvs, partnerships
f. brand
4. management
a. talent
b. operator, leasing
c. developer, acquisitions, asset sales,
5. financial
a. trend, current state, future outlook
b. metrics, analytics, analysis
i. financial statement integration (balance sheet, p&l, statement
of cash flows)
ii. nav (premium/discount)
iii. capital structure (debt, equity)
1. debt sources, maturities
2. leverage calculation (debt/tev, debt/ebitda
c. debt rating
d. fixed charge/debt service ratios
e. encumbered assets (assets which have secured mortgage debt vs
unencubered assets, secured asset ratio)
f. lease rollover
g. comparative metrics
i. leverage
ii. coverage ratios
iii. price multiples e.g. price/ffo
iv. dividend payout ratios
v. dividend yield
6. threats, disruptions, issues, risks & mitigants
reit investing & risk project
“a good report uses metrics to tell a story with a view”
1. general overview (team introduction, name of reit, segment)
a. approach
b. methodology
c. information sources
2. executive summary (complete last)
a. key results, findings, outcomes
b. valuations (tev stock, nav, premium/discount)
c. key risks, mitigants
d. justify recommendation of the reit for future investment or not (buy,
hold, sell)
3. background
a. reit position in the specific competitive segment
b. geographic scope (domestic, national, regional, global, market share
c. reit position in the reit industry
d. reit strategic positioning, capabilities (development/re-development,
management, acquisitions, sales)
e. jvs, partnerships
f. brand
4. management
a. talent
b. operator, leasing
c. developer, acquisitions, asset sales,
5. financial
a. trend, current state, future outlook
b. metrics, analytics, analysis
i. financial statement integration (balance sheet, p&l, statement
of cash flows)
ii. nav (premium/discount)
iii. capital structure (debt, equity)
1. debt sources, maturities
2. leverage calculation (debt/tev, debt/ebitda
c. debt rating
d. fixed charge/debt service ratios
e. encumbered assets (assets which have secured mortgage debt vs
unencubered assets, secured asset ratio)
f. lease rollover
g. comparative metrics
i. leverage
ii. coverage ratios
iii. price multiples e.g. price/ffo
iv. dividend payout ratios
v. dividend yield
6. threats, disruptions, issues, risks & mitigants
Equinix – A Data Center REIT
Table of Contents
❏
General Overview
❏
Executive Summary
❏
Company Background
❏
Management
❏
Financial
❏
Risks & Mitigants
General Overview
●
Equinix(Nasdaq:EQIX) is a American company that specializes in data center and internet
connections.
●
Founded in 1998 by Al Avery and Jay Adelson and went public in Aug 11, 2000.
●
It located its headquarters in Redwood City, California.
●
In Jan 2015, this company converted into Data Center REIT. (gain tax advantage and enhance
shareholder value by offering dividends )
Executive Summary
●
●
●
We are optimistic about Equinix’s business
growth and development prospects in the
field of data centers. It is a leading company
in the global data center industry.
The current rapid growth of global data traffic
and data storage has greatly boosted the
market demand for data centers. Hyperscale
data centers will become the mainstream
form of future data center, which will benefit
industry leaders.
The company has a far-reaching layout, with
data centers located in major cities around
the world, providing support services to many
Fortune 500 companies.
●
●
●
Power supply, security, and international
relationship are the key risks. However, there
are mitigants to minimize the risks.
As of Oct 24, 2019, the shares were selling
19% premium to NAV.
Our recommendation is to sell Equinix REIT
and wait for a lower entry point shortly.
Company Background
●
Equinix leads in the global data center market share with 200
data centers in 24 countries on five continents.
●
Strategic positioned with (1) industry-leading data centers, (2)
bringing market leaders and innovators together, and (3) global
interconnection platform to create digital future.
●
Equinix expands capabilities to locations that closer to users to
accelerate the digital transformation. More capacity is under
construction nationwide. (12 new, 23 expanded by 2019)
●
●
Equinix announced the newest 1 billion joint venture with GIC in ●
Brand keywords: Power of Connection,
July 2019. Included 6 data centers in Europe.
Trusted, Expert, Secure, Straightforward,
Three major types of partners: Referral (solution expertises),
Pioneering, Global uptime 99.999%, Provided
Reseller (IT services providers), and Platform (innovative
personalized circuits with various amperage,
technologies)
High network density
– Australia
– China
– Japan
– Indonesia
– Korea
– Singapore
Europe
– Brazil
– Columbia
Connections to
4,200+ companies
and 900+networks
Commercial hub
for international
business
Asia-Pacific
Latin America
2,100+ customers,
370+ data networks,
and 690+ cloud and IT
service providers
Integrated with
1000+ companies
– France
– Germany
– Italy
– Switzerland
– United Kingdom
– Spain
– Netherlands
Middle East
– United Arab
Emirates
Management
Steve Smith
CEO & President (2007 – Jan 2018)
Charles J. Meyers
Current CEO & President
He has managed the company through a period of
high growth, from $419 million in revenues in 2007
to nearly $2 billion in 2012.
He leads the Strategy, Services and Innovation team
to optimize the company’s position, identify key
growth areas, and evolve services portfolio in
response to market, competitive and technology
trends.
As of 2019, Equinix had about 7,900 employees globally.
Business Model
●
The 94% of Equinix’s revenue is called recurring revenue:
○
Equinix simply rent out floor space within a building and provide a power
supply and an internet connection to that floor space.
○
Equinix receives regular income from their data center for the duration of
the contract. Those contracts can be any length, most of the contracts are
one to three years.
●
The remaining 6% of Equinix’s revenue is non-recurring revenue:
○
They are billed typically once, upon completion of the installation or the
professional services work performed.
Acquisitions and Expansions
In 2007, Equinix announced a $2 billion international
expansion plan and entered European market by
acquiring data center operator IXEurope.
In 2015, acquired professional service company
Nimbo, purchased Japanese provider Bit-Isle, and
opened five new data centers globally.
In 2010, Equinix purchased Switch and Data
Facilities Company.(a data center provider with
locations in 23 North American Markets)
In 2016, Equinix spent $3.8 billion to purchase the
British company TelecityGroup.
In 2012, it completed a $230.5 million transaction to
add six data centers and one disaster recovery
center in Asia market.
In 2017, it acquired 29 data centers in 15 markets
from Verizon and acquired Itconic which was a data
center company in Spain and Portugal.
In 2018, acquired Australian data center provider
Metronode.
Why acquisition? Because of the land scarcity in major cities.
The series of acquisitions continues to yield high returns in the range of 8%-10% while improving
margins on the way even further.
Positive trend and future outlook of Data Centers
According Cisco Global Cloud Index, the
hyperscale data centers will grow from 338 in
number at the end of 2016 to 628 by 2021. They will
represent 53% of all installed data center servers by
2021. From 2016 to 2021, the annual growth rate is
13%.
Stock Price
●
As of Dec. 4, the current stock price of Equinix
is $562.93 per share.
●
This REIT had outstanding performance in
2016 and 2017. But in 2018, this trend was
reversed. Investors were concerned about the
cost of geographic expansion and expensive
M&A deals.
●
By early 2019, confidence returned as
investors took advantage of low share prices.
Current State and Future Outlook of Equinix
With the acquisition and expansion in the early stage,
problems such as lack of cash flow, high debt ratio, and high
financial costs have appeared which hindering the company’s
further development.
Changing to REITs and high recurring revenue from
considerable amount of loyal customers improved Equinix’s
financial performance at current state and less the debt burden.
The chart shows that Equinix’s revenue has steadily
increased over the recent years. The earnings show a strong
uptrend since 2016 heading into 2020, but prior to this, its
earnings were volatile with no real growth from 2009 until 2016.
Balance Sheet – Current Ratio
–
The Current Ratio increased from 1.18 to 1.58
from end of 2014 to 2017.
–
It occured a decrease of 0.03 last year due to
the expansion of company and downturn of
the market.
NAV
As of Oct 24, 2019, the Net Asset Value is $473.37
per share.
Meanwhile, the market value is $563.34 per share.
Therefore, the shares were selling 19% premium to
NAV.
FFO, AFFO, P/FFO
The table shows that Equinix’s FFO and AFFO
have improved each year.
FFO increased 72.82% from 2016 to 2018.
AFFO increased 53.85% from 2016 to 2018.
The P/FFO is decreasing which is not a good
sign. The decrease was mainly caused by the
decreased market cap.
Comparative metric – P/FFO in 2019
–
According to the updated data by
Barclays, Equinix had a recovery of its
P/FFO from 2018 to Oct 2019.
–
Ranked 1st, leading among other
competitors in the same segment.
–
The REITs industry has an average of
20.1x which is lower than Equinix.
10/24/2019
Capital Structure
Credit Rating
●
Fitch upgraded Equinix to Investment
Grade(BBB-) on July 1, 2019.
●
Moody’s upgraded Equinix from Ba2 to Ba1
on Oct 14, 2019.
Lease Rollover
–
80% + of recurring revenue is generated from
own properties and properties that have
long-term lease extended to 2033 or more.
–
Average maturity of lease maturity is over 19
years.
Leverage
–
Equinix is highly leveraged.
–
Debt to EBITDA ratio in past three years are
relatively high.
–
High ratio indicated a heavy debt burden and
higher risk.
–
The ratio of Equinix is higher than 64% of
companies in REITs.
–
However, Debt to EBITDA ratio in industry
company are high.
Fixed Charge Coverage Ratio
10/24/2019
–
Equinix’s FCCR performed well over the past
three years with a stable growth of 34.7%.
–
–
Equinix ranked as the third position compared
to other four competitors in data center REIT
segment.
Compared to FCCR of the REITs industry,
Equinix performed better.
Dividend Yield
10/24/2019
–
Dividend falls from 2.38% to 1.71%, the
reason of this decline is because the stock
price is increasing.
–
–
Equinix has a low dividend yield compared to
both REITs companies in the same segment
and REITs industry.
Dividend yield of tech stock is usually lower
than the average
Risks & Mitigants
Risk: Trade war and unstable economic environment
may affect the company’s cross-border business
and slow down its expansion.
Mitigant: Create a stable and healthy relationship
with local government and prepare backup plans in
case there is an emergency.
Risk: The trend of hyperscale data centers has also
increased the risk of data leakage and equipment
failure.
Mitigant: Increase the annual maintenance budget
and hire the best network security team.
Risk: The business could be harmed by power
outages or shortages, increased costs of energy or
general lack of availability of electrical resources.
Mitigant: Preparing diesel generators and installing
solar PV systems.
Thank you
Citation
10-K: 2016, 2017, 2018
https://www.equinix.com
https://finance.yahoo.com/quote/EQIX/financials?p=EQIX
https://www.lightwaveonline.com/business/article/16675877/equinix-digital-realty-and-ntt-remain-colocation-market-leaderssynergy-research
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