Brookfield Infrastructure is expanding its data center hub with a $1.3 billion acquisition of Cyxtera, as the company seeks to capitalize on the growing demand for data centers. The acquisition will allow Brookfield to enhance its ability to serve the increasing need for data center capacity driven by the projected explosive growth in data consumption. With the rise of data-dependent artificial intelligence applications, companies worldwide are expected to invest over $1 trillion in building new data center facilities over the next decade.
This latest transaction involves Brookfield acquiring a portfolio of data centers from Cyxtera, which includes the real estate of several sites from third-party landlords. The total purchase price, including transaction costs and proceeds from selling non-core sites to a third party, amounts to approximately $1.3 billion. As part of a separate deal, Cyxtera will sell its data centers in Montreal and Vancouver to Cologix.
The transaction consists of multiple components. Brookfield will acquire the majority of Cyxtera’s assets for $775 million and purchase the real estate under seven Cyxtera sites from third-party landlords. Additionally, it will acquire Digital Realty’s interest in four data centers for $275 million. In turn, Digital Realty will use $55 million of the proceeds to buy out Cyxtera’s leases in three data centers located in Singapore and Frankfurt.
Brookfield plans to combine Cyxtera’s assets with its existing Evoque platform to create a leading data center provider in North America, with a total capacity of over 330 megawatts. The company expects this transformative transaction to significantly improve the cash flow of the combined entity through various means, including the real estate acquisitions, lease savings negotiated with Digital Realty and Digital Core REIT, and the financial synergies derived from the integration of the two platforms.
This acquisition aligns with Brookfield’s strategy to strengthen its global data center platform, which has recently been expanded through the acquisitions of Data4 and Compass Datacenters. Coupled with organic expansion projects, the company aims to grow its data center capacity from 485 megawatts in 2021 to around 800 megawatts by 2024, before considering the additional capacity from the Cyxtera transaction.
Brookfield has planned development projects worldwide that will further increase its capacity to 1.7 gigawatts by 2026. These investments are expected to drive the funds from operations of its data center platform from $30 million in 2021 to over $135 million by 2026, excluding the impact of the Cyxtera transaction. The company also envisions the potential to expand its global capacity to 2.3 gigawatts by 2028.
By obtaining the underlying real estate, Brookfield will have greater control over expanding its retained facilities, thereby enhancing its growth potential. The scale of the combined platform, Evoque, positions the company to capitalize on additional growth opportunities in the data center market.
This expansion of Brookfield’s data center platform not only supports its robust growth profile but also bolsters its dividend growth. With a plan to increase its dividend by 5% to 9% annually, the company expects to deliver over 12% growth in funds from operations per share in the coming years. Furthermore, Brookfield has a solid track record of increasing its dividend for 14 consecutive years, with an average annual growth rate of 8% over the past decade.
The recent acquisitions of Data4, Compass Datacenters, and now Cyxtera’s assets and real estate position Brookfield to take advantage of the significant opportunities within the data center market. These strategic investments are expected to drive meaningful increases in funds from operations, strengthening the company’s ability to generate strong total returns for investors.
Overall, with the global demand for data centers on the rise, Brookfield Infrastructure’s expansion in this sector seems well-timed, and the company is poised to benefit from the substantial growth potential in the data center industry.