Bullish indicating open at $55-$60, IPO prices at $37
Investing.com -- Moody’s Ratings has affirmed the Baa2 senior unsecured ratings of global data center market leader, Equinix (NASDAQ:EQIX), Inc., and adjusted the outlook from stable to positive. The same affirmation and outlook adjustment has been applied to the backed senior unsecured ratings of Equinix Europe 1 Financing Corporation LLC and Equinix Europe 2 Financing Corporation LLC.
Moody’s decision was influenced by Equinix’s dominant position in the global data center market, its moderate leverage metrics, robust fixed charge coverage, and excellent liquidity. The change in outlook reflects Moody’s expectation that Equinix will benefit significantly from strong demand for data center capacity, with its diverse portfolio and long operational history.
Equinix’s Baa2 senior unsecured rating reflects its strong market position, bolstered by a large and diverse portfolio in terms of geography and tenant mix, and a long operating track record. The company’s moderate leverage metrics, strong fixed charge coverage, excellent liquidity, and the robust demand for data centers are other critical credit positives.
Equinix owns and operates a large and diverse data center portfolio that includes 268 properties in 74 metro markets across 35 countries. As of the end of 2024, Equinix’s aggregate portfolio was 78% utilized, with the utilization rate for its 177 stabilized properties stronger at 83%.
In 2024, Equinix’s revenue grew by 7%, and Moody’s Adjusted EBITDA grew at a higher rate of 8%, due to margin expansion. The company’s portfolio was leased to a diverse customer roster, with the largest accounting for only 2.7% of revenue and the largest ten making up 16.8% of revenue.
At the end of 2024, assets owned by Equinix accounted for 69% of its recurring revenues, improving from 63% at year-end 2022. However, the REIT’s share of owned properties is lower than most other investment-grade commercial real estate landlords.
Through unconsolidated joint venture partnerships, Equinix is building large data centers, called xScale data centers, to cater to the strong demand from hyperscale customers. At the end of 2024, these joint ventures owned 20 xScale properties in operation with 296 MW of capacity; another sixteen projects with 184 MW of capacity are under construction.
At the end of 2024, Equinix’s net debt to EBITDA was 4.1x and its effective leverage was 40.8%. The REIT’s fixed charge coverage has been strong at close to 7x over the last three years.
Equinix’s liquidity position is strong with near full availability on its $4.0 billion revolver that matures in January 2027 and a cash balance of over $3.0 billion. Equinix has $1.2 billion of debt maturing in 2025 and another $1.3 billion maturing in 2026.
Moody’s stated that Equinix’s ratings could be upgraded if net debt to EBITDA is close to 4.0x (Moody’s adjusted), the REIT continues to use a meaningful amount of equity to fund its growth, and over 65% of revenues are generated by the owned assets. On the other hand, Equinix’s ratings could be downgraded if net debt to EBITDA is close to 6x (Moody’s adjusted), aggregate portfolio utilization drops below 75%, or EBITDA margins decline to 40% or lower, all on a consistent basis.
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