On June 8
th, Equinix announced a $250 Million public offering of Convertible Subordinated Notes due 2016. The following day, the Company confirmed the pricing of the offering and achieving the sale of $325 Million in total (more than forecasted), plus granting an over-allotment option for up to $48.75 Million. The interest paid on the notes will be 4.75% per year, basically in line with the weighted average interest rate on the existing debt, which is 4.65%.
This is a brief summary of the debt Equinix carries, taken from the recent analyst day held in New York, which is the source for most of the pictures included in this article (click to enlarge):
As a small update to the above sheet, Equinix called for redemption in May the remaining $19,150,000 Convertible Subordinates Debentures shown as convertible debt due in 2009.
In connection with the new offering, Equinix entered into capped call transactions that are expected to reduce potential dilution upon conversion of the notes, which is initially fixed at $84.32 per share, subject to adjustment under certain circumstances.
As those who follow Equinix already know, the Company has already fully funded its 2009 expansion plans, but is also experiencing a great market momentum, and as the debt market seems to be opening again, management obviously decided to increase the opportunities for expansion in 2010 and beyond.
After deducting underwriting discounts and estimated offering expenses and after giving effect to the cost of the capped call transactions, the Company expects to receive approximately $273.1 million from the offering, exclusive of any over-allotment.
Which are the most likely markets where Equinix might consider announcing expansion in the second half of 2009 and 2010?
The recent Equinix analyst meeting, held on May 5th, disclosed an enormous amount of metrics and data about the Company's performance in each and every market.
Let's start the guessing game.
First of all, we still believe that Equinix will take the opportunity to buy the land where the most recent Secaucus (New York metro) NY4 data center is located. The three year option expires in September 2009, and the price is fixed at $39,000,000.
NY4 is also a very likely candidate for future expansion, as the second phase recently opened with a 50% booking rate already in place, and the request (especially from the financial sector) is very strong for this kind of services, in that specific market.
Here is a short summary of the activity in the region:
New York has been one of the fastest growing markets for Equinix recently, with the NY4 1st phase opening in 4Q 2007, now fully booked (1,700 cabinets) and the 2nd phase (1,100 cabinets) recently completed with a great booking rate at opening. A 3rd phase expansion would add another 1,900 cabinets in the region.
If we exclude Los Angeles (where Equinix has already planned two significant future expansions, both downtown - in the 4Q 2009, and in El Segundo - in the 3Q 2009), all the other 4 US markets present very good opportunities for further expansion, even if demand may come locally from different verticals/opportunities/catalysts.
To give a general sense of the activity and potential in each region, we have elaborated a small Excel Sheet based on Company's information gathered from their filings, conferences, Press Releases, etc. Please note that we show as full potential for each market the expansions that the Company might decide to achieve within a building/campus it already owns (not all of them may be done in the future, but are potentially possible if that specific market requires expansion).
Here is a summary of it – feel free to contact us if you want to receive a copy of it.
While we are talking about 2010 time frame and beyond for availability of future expansions (a green field data center requires about 12 to 18 months to be completed), it is important to underline that Equinix still has room to fulfill its forecasted growth rate in the short term.
This is a short summary of cabinet utilization at the end of 1Q 2009 in the USA – I have added a few notes to update it. As explained at the analyst meeting, an additional 600 cabinets can be added to the sellable inventory as the Company will be churning in the 2Q an old anchor tenant in one of its Silicon Valley data centers (a move that will allow Equinix to re-sell that room at market price, which is now roughly two times what was paid by that specific customer who took a “wholesale“ deal in a completely different environment), and the new New York metro NY4 phase 2 expansion will add another 1,100 cabinets (50% already reserved).
Chicago will also see a further expansion in the downtown location, adding 200 cabinets in that market in the 4Q 2009, and Los Angeles, as we noticed already, will add 1,300 cabinets by year end in two different locations.
As a reminder, a chart of the planned expansions worldwide is available at this link on the Equinix web site.
Turning our attention to Asia and Europe, likely candidates for further expansions might be the Honk Kong (strong financial vertical) and Sydney (Australia) markets, and Switzerland (both Zürich and Geneva), Germany and Amsterdam in Holland.
While Equinix has always favored expansion in markets where the Company already enjoys a strong market leadership, expanding the footprint into mainland China or to other US hubs like Seattle, Atlanta, Boston or Miami might also be a future possibility, although we would probably bet our money on the existing footprint - a much safer choice given the fact that 80% of growth comes from existing customers increasing their footprint, on average.
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