Equinix comfortable with balance sheet, eyes eventual investment grade

By Paul Deckelman

New York, June 6 – Equinix, Inc. is comfortable with its balance sheet as it stands today – but ultimately aims to get to investment grade, its chief financial officer said Tuesday.

Keith Taylor told participants at the NAREIT REIT Week 2017 conference in New York that “as a general comment, we love our balance sheet – we love the balance we bring to our balance sheet – we’ve got roughly $9 billion of debt. Adjusting for taking leases out, we’ve got a high 4% weighted average cost-to-borrow as a company.”

Taylor – who addressed the conference along with the Redwood City, Calif.-based interconnection and data centers company’s chief executive officer, Steve Smith – said that Equinix has a leverage ratio target of net debt at 3 times to 4 times adjusted EBITDA, although he acknowledged that last year’s big purchase of dozens of data centers from telecom giant Verizon pushed its leverage ratio up.

“Right now, we’re slightly above that target with the acquisition of Verizon [data centers] – if you look at it on a gross basis, we’re just under 5%.”

That having been said, the company’s goal is “to stay in the 3% to 4% [range]. We think that’s reasonable given the length of our contracts and the amount of risk we want to put on the balance sheet.

“We like finding that balance between driving value to the equity holder while at the same time not exposing us to the vagaries of the market.”

Taylor said that ultimately, Equinix wants to get to investment grade – but it does not want to do so by cutting back on growth.

He acknowledged that with the spending on the Verizon deal and the company’s equity dividend, it is currently free cash flow negative – a factor in why it has not already reached investment grade, even though the company is financially solid.

“We recognize that some of our peers are investment grade. That would drive meaningful value, but not to the detriment of growth. We enjoy growth much more than achieving investment grade – but we think we’ll get to investment grade anyway.”

He said that reaching IG status could produce as much as $3 billion in added value for the company on lower borrowing costs, although he acknowledged that this “wouldn’t all happen at once because you’ve got different debt maturities. But the recognition is if you can get to investment grade, all else being equal, it’s $ 3 billion of [added] value.”

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