MIT just announce a deal to build to suit a data center for us listed Equinix. This to me is a splendid deal for MIT. Factsheet here
It also shows us how much lock in certain data center has.
Equinix Economic Moat
Equinix Data center are rather different from perhaps the local data center in that the folks that make use of their infrastructure are Google and Facebook, the big boys in the infrastructure consumption space.
For the telecom operators to connect to them they have to try to minimize the latency. Equinix have a proprietary switching channel that allows very fast switching between Equinix neighbours.
The cost of moving away is that you gave to incur migration and these residual business losses due to not competitive services.
Thus Equinix somehow enjoys an economic moat that allows them to charge a premium.
Moreover, application server systems may be easier to redeploy and migrate to another data center, telecommunications equipment is not so straight forward.
The business risks are so much that they are likely to such thumb and pay for these costs.
MIT’s Good Deal
MIT’s deal isn’t shabby as well.
- The land lease is 30 years
- Equinix will lease from mit for 20 years with the option to extend for 5 + 5 years
- Equinix have the option to increase two more levels which means more rents possible
- Yearly 2% rent escalation
- Total Aei will bump up leverage to 42%
What amaze me is that why the hell would Equinix lease from mit when its like they can build on their own.
The lease term is crazy long and certainly will help bring stability to the cash flow.
MIT may develop a reputation to implement something like this.
This will bode well for the reit in the future