Nextdc plans 'capital recycling'

Stuart Corner
Monday, 14 March 2011 15:12

IT Industry - Strategy

Startup data centre operator Nextdc (ASX: NXT) is planning to sell and lease back properties it has bought for its data centres and to re-invest the proceeds in data centre fitout and the provision of cloud services, saying this will generate higher returns.

In an investor presentation the company said: "Management feels it is advantageous for the company to have access to further capital for fit-out expansion should early demand exceed initial internal expectations."

It said the move would provide maximum flexibility in pursuing its expansion program and greater flexibility in pursuing alternative funding arrangements. It intends ensure secure tenancy of the properties through long term lease arrangements.

It gave capital return models for typical data centres indicating that provision of core and shell, while having low execution risk and low operational complexity would generate returns on capital of only 8-10 percent, whereas the provision of colocation services would generate 15-30 percent return on a medium revenue base with medium execution risk and medium operational complexity.

However the provision of managed/cloud services, it said could generate 15-30 percent return on capital from a higher revenue base but with high execution risk and high operational complexity.

In it results for the period form its formation in May 2010 to 31 December 2010 the company said it had invested $16.7m in property plant and equipment.