Brookfield Infrastructure (BIP +2.00%)(BIPC +0.00%) believes we're in a once-in-a-generation investment cycle for data centers. The company forecasts that the world must invest more than $1 trillion into building new data center capacity over the next decade. That investment level is needed to support the forecasted explosive growth in data consumption, which could accelerate as more companies utilize data-dependant artificial intelligence (AI) applications.
The company has taken several steps this year to enhance its ability to capitalize on this enormous investment opportunity. The latest one is a transformational transaction to acquire a portfolio of data centers out of bankruptcy from Cyxtera. That puts Brookfield in a stronger position to continue growing its high-yielding dividend.
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Key Data Points
A wide-ranging transaction
Brookfield Infrastructure is acquiring a portfolio of data centers out of bankruptcy from Cyxtera and the underlying real estate of several sites from third-party landlords. The total purchase price for the data centers and real estate is about $1.3 billion, which includes transaction costs and the net proceeds from selling non-core sites to a third party. In a separate deal, Cyxtera has agreed to sell its data centers in Montreal and Vancouver to Cologix.
The transaction has several parts. Brookfield is acquiring substantially all of Cyxtera's assets for $775 million. In conjunction with that deal, it will purchase the real estate under seven Cyxtera sites from third-party landlords. It has also negotiated several lease amendments.
Brookfield will acquire Digital Realty's (DLR +2.35%) interest in four data centers for $275 million. The data center REIT will use $55 million of those proceeds to buy out Cyxtera's leases in three data centers in Singapore and Frankfurt.
Meanwhile, Brookfield will assume the leases on three facilities previously leased to Cyxtera and amend the leases on three more sites in New Jersey and Los Angeles, accelerating their expiration date to next September. Brookfield will also buy three properties in Silicon Valley from Digital Core REIT for $178 million, while assuming the lease on another facility.
Enhancing an already strong portfolio
Brookfield plans to combine Cyxtera's assets with its Evoque platform to create a leading data center provider in North America, with over 330 megawatts (MW) of capacity. The company noted that the transformative transaction will deliver a step-change improvement in the cash flow of the combined entity, driven by the real estate acquisitions, lease savings negotiated with Digital Realty and Digital Core REIT, and the financial synergies from combining the platforms.
The transaction enhances Brookfield's strong and growing global data center platform, which it recently bolstered by acquiring European data center platform Data4 and North American developer Compass Datacenters. Those additions and organic expansion projects have the company on track to grow its capacity from 485 MW this year to around 800 MW in 2024 before factoring in the additional capacity from the Cyxtera transaction.
Brookfield has several planned development projects worldwide, which will grow its capacity to 1.7 gigawatts (GW) by 2026. Those planned investments will increase the funds from operations (FFO) of its data center platform from $30 million this year to over $135 million by 2026 before factoring in the impact of Cyxtera. The company sees additional potential to expand its global capacity to 2.3 GW by 2028.
The Cyxtera deal could further enhance its planned growth and development potential. In acquiring the underlying real estate, Brookfield will have more control over its ability to expand the retained facilities. Meanwhile, the larger scale of Evoque positions that platform to capitalize on additional growth opportunities.
The embedded growth of Brookfield's global data center platform underpins its robust growth profile. The company expects to grow its overall FFO by over 12% per share over the next few years. That supports its plan to increase its 6.4%-yielding dividend by 5% to 9% annually. Future increases would add to Brookfield's already incredible dividend track record. The company has increased that payout for 14 straight years, growing it at an 8% annual rate over the last decade.
Enhancing its investment appeal
Brookfield has significantly expanded its global data center platform this year by acquiring Data4, Compass Datacenters, and now Cyxtera's assets and underlying real estate. They put the company in an even stronger position to capitalize on the $1 trillion data center megatrend.
The acquisitions will meaningfully increase the FFO from its data center business in 2024 and beyond, giving it more power to grow its dividend. That positions Brookfield to potentially generate strong total returns in the coming years, making it look like an excellent investment opportunity right now.
