News: NXT NEXTDC posts FY statutory net profit after tax of $23.0 mln, page-22

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bumskins

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03/09/17

11:48

Post #: 26959209
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Originally posted by savvyinvestor ↑

ht1 and js i agree its about customer peace of mind and security and that they have the cash, but if they have long leases they are secure for several decades.

the capital to buy apdc could be allocated more efficiently to increase earnings rather than to buying capital intensive fixed assets.

the risk of buying apdc is that it takes a company that is presently a capital light business model with high return on invested capital (when used to build new data centres and deploy new technology) and makes it a capital heavy business model with a reit-like component. this may constrain nxt's ability to allocate future capital to new data centres or may necessitate equity raisings / more expensive debt financing to expand further.

i think the reason the company is happy to buy apdc is that m2, s2 and b2 in addition to p1 and c1 will be adequate to meet demand for the next 5years+ including expansions. therefore given their cash and available debt facilities, they figure they have the means to buy apdc without compromising their ability to meet medium term demand.

i just worry if they overpay then it is inefficient caputal allocation for what is a fairly soft reason to buy apdc in the first place, ie to 'appease' customer anxiety.

perhaps they are better off negotiating a long term lease of 50years plus and accepting to pay a small premium on the rent indexation rather than a large premium on the purchase and tying up their capital above the real value of the properties.

if 360 is trying to screw them, let 360 have it and find new sites that they can buy cheaply outright if 360 jacks up the rent too aggressively on a long term lease.

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AJD (APDC) like most similar assets was already on a low Cap rate prior to all these shenanigans. By paying such a premium to NTA, it will really drive down the Cap Rate / ROC.
I wholeheartedly agree with the REIT statement.

Theoretically the NTA should actually decrease with this purchase, going of APDC's prior valuation's.

NXT's ROC as a group currently is very low, largely due to non-performing assets & partially due to still being in a growth phase. But individual facilities, M1, B1, S1 were starting to look very attractive.

I think it would make sense to list the whole lot of centres again but keep a blocking stake.

Last edited by bumskins: 03/09/17

NXT Price at posting: $4.55 Sentiment: Sell Disclosure: Held
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0 Great analysis

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