Brookfield is to acquire Cyxtera, following the latter’s bankruptcy. The company, which filed for Chapter 11 in early June, will be combined with Brookfield's other US colo provider, Evoque.
The colocation company today announced that it has entered into an asset purchase agreement (APA) under which Brookfield Infrastructure Partners and its institutional partners will acquire “substantially all” of Cyxtera’s assets for $775 million.
The deal also rationalizes Cyxtera's leased facilities, with Brookfield ending some leases, and buying the real estate of others, to have total ownership of those properties.
“We are pleased to reach this agreement with Brookfield, which represents a favorable path forward for our customers, partners, and employees,” said Nelson Fonseca, Cyxtera’s CEO. “Throughout our restructuring process, our business has continued to perform well, a testament to our customers’ confidence in our team and our innovative data center platform. This agreement and the changes to the data center portfolio, most importantly our increased facility ownership, will enable us to build on our business momentum and better position Cyxtera for the future.”
The hearing to approve Cyxtera’s Chapter 11 plan and transaction with Brookfield is scheduled for November 16, 2023. In addition to court approval, the APA is subject to regulatory approval and customary closing conditions. The transaction with Brookfield is expected to close in the first quarter of 2024.
In its Q3 2023 earnings report, Brookfield Infrastructure Partners said it will “generate strategic value” by combining Cyxtera with Evoque to create a retail colocation data center provider with more than 330MW of capacity in high-demand areas across North America.
“The combined platform will have the scale, assets, and capabilities required to provide critical infrastructure for its over 2,500 customers to support the exponential increase in demand from industry tailwinds, including AI and cloud deployments,” Brookfield said.
It said the total purchase price for the data centers and associated real estate underlying the sites is approximately $1.3 billion, inclusive of transaction costs and net of proceeds received from concurrently selling non-core Cyxtera sites to a third-party.
Cyxtera cuts deals with Digital Realty, Digital Core REIT, Cologix
Brookfield will also purchase the real estate at seven of Cyxtera’s US data centers from several landlords. Cyxtera said these transactions will increase existing facility ownership, secure expansion opportunities, and give the company more control over its cost structure.
While it didn’t name the facilities or all of the landlords, the announcement notes that two are the related bodies, Digital Realty Trust and Digital Core REIT.
Cyxtera will leave at least six more data centers during 2024, (three in the US and three abroad) which it currently leases from Digital Realty.
In its own release, Digital said Brookfield was acquiring its interest in four data centers for approximately $275 million.
Digital said it would spend $55 million of that to buy out Cyxtera's leases in three colocation data centers in Singapore and Frankfurt. The remaining net proceeds will be used to repay debt and fund development.
Brookfield is also assuming the leases on three facilities previously leased to Cyxtera and amending the leases on three additional data centers in New Jersey and Los Angeles, accelerating the expiration date to September 2024.
While it didn’t name the facilities or all of the landlords, the announcement names the New Jersey facility at 365 S. Randolphville Road in Piscataway; one of the Frankfurt facilities as Hanauer Landstrasse 298, 60314 Frankfurt am Main (FRA1); and the Singapore facility as 29A International Business Park, Jurong East, Singapore (SIN2-C).
Brookfield has granted Digital Realty a purchase option to acquire a colocation data center outside of London, in the Slough Trading Estate.
Meanwhile, Digital Core REIT – a Singapore-listed REIT set up by Digital Realty to hold stabilized assets – announced its own deals with Cyxtera and Brookfield.
The company is selling two Silicon Valley facilities to Brookfield at 2401 Walsh Avenue and 2403 Walsh Avenue for $178 million. Digital Core REIT owns a 90 percent interest in both assets and the transaction values the company’s stake at $160 million. Brookfield also took on Cyxtera’s lease at a third Silicon Valley facility at 1500 Space Park.
At the same time in Los Angeles, Cyxtera and Brookfeld are to amend lease agreements at 200 North Nash Street in El Segundo and 3015 Winona Avenue in Burbank to accelerate the lease expiration dates from February 2033 and January 2035, respectively, to 30 September 2024.
Digital Core REIT and Digital Realty have agreed to pay a combined $10 million to terminate the customer’s lease agreement at Wilhelm-Fay Straße 24 (FRA2) in Frankfurt, Germany, where Cyxtera leased 1.5MW.
"We are pleased to have worked with Digital Core REIT and Brookfield to successfully resolve our relationship with Cyxtera. This agreement mitigates the financial impact related to their bankruptcy, while also enhancing our financial position, and demonstrating our commitment to and sponsorship of Digital Core REIT," said Digital Realty chief investment officer, Greg Wright. "Digital Realty will benefit from an improved overall customer credit profile, additional capital to fund new investment, and be better positioned to deliver sustainable value to all of our stakeholders."
“We are pleased to have reached this series of agreements to resolve our customer bankruptcy exposure and expand our portfolio with strategic investments in Japan and Germany,” said John J. Stewart, CEO of Digital Core REIT Management Pte. Ltd., the manager of Digital Core REIT.
Cyxtera has also signed an agreement to sell its interest in its Montreal and Vancouver data centers to Cologix.
The end of Cyxtera?
Formed out of CenturyLink’s colocation business, Cyxtera went public via a SPAC in 2021. The company combined with the Nasdaq-listed Starboard Value Acquisition Corp. (SVAC) in a $3.1bn deal.
However, within a year, the company was rumored to be looking to go private again, but was unable to find a company to acquire it until now. Reports that it was again looking for a buyer surfaced earlier this year as its debt matured.
Prior to the bankruptcy, the colo firm operated more than 60 facilities totaling more than 245MW across 29 markets globally - with the majority of its portfolio leased.
Since the filing, it has rejected leases at two Prime-owned data centers in Silicon Valley, as well as at a Stack-owned data center in Elk Grove, Illinois, and more facilities in Washington and Amsterdam.
Brookfield Asset Management jointly owns data center ventures with Digital Realty in India (BAM Digital Realty/Digital Connexion) and Latin America (Ascenty), and also owns DCI Data Centers in Australia/New Zealand and US-based Evoque, which we profiled in the latest magazine. 2023 has seen Brookfield acquire Data4 and Compass Datacenters.
Kirkland & Ellis LLP is serving as legal counsel to Cyxtera, Guggenheim Securities, LLC is serving as financial advisor, and AlixPartners, LLP is serving as restructuring advisor. Moelis & Co. is serving as exclusive financial advisor to Brookfield on the acquisition of Cyxtera.
Wells Fargo and TD Securities are serving as joint financial advisors to Brookfield on the acquisition of the real estate underlying seven Cyxtera data centers and the pro forma combined entity, and are providing committed debt financing for the broader transaction. Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as Brookfield’s legal counsel.
Weil, Gotshal & Manges LLP served as legal advisor to Digital Realty and Digital Core REIT, while Evercore served as financial advisor to Digital Realty on the transaction.
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