AZRIELI GROUP Investing in the Data Centers Industry - July 18, 2019
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AZRIELI GROUP Investing in the Data Centers Industry July 18, 2019
Disclaimer
The information included in this presentation is merely a summary. It does not exhaust all the information about the Company
and/or Compass Datacenters LLC (“Compass”) and their business, and it is not a substitute for inspection of the Company’s
periodic and immediate reports, as filed and to be filed with the Israel Securities Authority via the Magna distribution site. The
presentation is not an offer or invitation to purchase securities of the Company and/or of any other corporation, nor is it a
recommendation or option or any substitute for the investor’s discretion. In any case of discrepancy or inconsistency between
the information in this presentation and the information in the Company’s reports on Magna, the information in the reports
shall prevail.
This presentation includes forecasts, objectives, assessments, estimates and other information relating to future matters
and/or events whose materialization is uncertain and which lie beyond the Company’s control, and constitute forward-looking
information, as defined in the Securities Law, 5728-1968. Such information (which includes, inter alia, forecasts of output,
NOI, EBITDA, yields and projected leverage) may not materialize, in whole or in part, or may materialize in a materially different
manner than projected. The above information is based solely on the subjective assessment of the company, based on facts
and figures regarding the current state of Compass’ business and macroeconomic facts and figures, all as known to Compass at
the time of preparation of this presentation. The materialization or non-materialization of the forward-looking information will
be affected, inter alia, by risk factors that characterize Compass’ business, as well as developments in the economic
environment, market conditions and external factors that affect its business, including a delay in the completion of sites under
construction and development, termination of contracts, changes in the competition conditions, a significant recession, change
in the financing conditions, and other such events which cannot be assessed in advance and which are beyond Compass’
control. The Company does not undertake to update and/or change any such forecast and/or assessment to reflect events
and/or circumstances occurring after the date of this presentation.
This presentation includes information about the Data Centers market and other information that is based on external sources
and various studies and surveys, which were not independently checked by the Company. Keep in mind that past results are
not necessarily an indication of future performance.
The financial information about the Compass deal takes into account another acquisition of business by Compass, closing of
which is expected by the end of July 2019.
2
Azrieli Group // Opportunity in the Data Centers industry
The Group made a decision to enter the global Data Centers industry
The board of directors and management of the Group believe that the industry fits the Group’s
investment strategy
One of the world’s fastest growing income-producing property markets
The tenants are among the world’s leading companies
The Group has been thoroughly studying the market for about two years
A decision was made to enter the field according to the outline specified below, consisting
primarily of:
An investment in equity, with an option to increase the holdings, in a platform with
significant future development and enterprise potential
3
What is an Azrieli Group growth engine
Core business activity – income-producing property
A sizeable, significant and growing industry
A field with potential to become a significant operating
segment for the Group
Attractive yields
An industry that combines enterprise with an advantage for
financial strength
4
The Global Data Centers Market
Data storage development
Now The early 2000s The 1990s
Projected increase in Sharp growth in number of Increase in the scope of use of
consumption of online content internet users “server-client” IT architecture
in large organizations
Monthly online information
(1) Internet users worldwide,
traffic, ExaBytes
in billions
4
278
228
186
151 2
122
96
0.4
2016 2017 2018 2019 2020 2021 2000 2010 2018
(1) 1 Exabyte = 1 Million TeraByte = 1 Billion GigaByte
(2) Source: Clipperton Finance, Cisco
6Data Centers // Opportunity in the Global Market (1)
The global market is estimated to generate annual revenues of approx. $91 billion.
By 2022, the market is expected to grow at an average annual pace of approx. 35%, totaling annual
revenues of approx. $307 billion.
The U.S.A. is positioned as the global market leader: About 60% of the data centers capacity is located
North America, 20% in Asia-Pacific, and 13% in Europe.
The market growth is led by the global cloud companies, and is driven mainly by the growth of the data
industry by both business and private entities.
Global DC market breakdown (% in MW) Industry growth factors
2% Cloud
United States
20% Canada AI
)2(
Major Europe
Other Europe IoT (Internet of Things) $137
APAC
$99
1% LATAM
Augmented reality $47
$69
$23 $32
12%
5G networks
61% 2015A 2016A 2017A 2018E 2019E 2020E
Smart transportation Public Cloud ($bn)
3%
Crypto Currencies
(1) Source of data: CMA Strategy Consulting, RBC, Structure Research
(2) UK, Germany, France, Ireland, the Netherlands
7Data Centers // Characteristics
Main characteristics Tenants and Leases
Income-producing real estate, a building housing Lease is based on power units rather than area
computers and servers of companies of various units
types
Measurement unit: KW
Includes hardware for processing, storage,
Types of tenants:
switches, etc.
– Hyperscale (>5 MW)
High-standard security requirements, very high
– Wholesale (300 KW – 5MW)
redundancy in terms of power, latency, systems,
control and safety – Retail (Multi Tenants) (Data Centers // Customer breakdown
Types of customers
Hyperscale -Wholesale Retail
9Data Centers //
The Changes and Expected Growth in the Market
Growth in the number of Hyperscale Data Centers Main drivers for increasing demand for
53% Outsourced services
48%
44% Assists companies in focusing on their core business
38%
32%
27% Increase in costs and complexity of in-house DC
570 628 management increases attractiveness of outsourcing
509
448
338 386
More companies will “lease” comprehensive IT services
from cloud providers, and transfer the task of building and
2015A 2016A 2017A 2018E 2019E 2020E maintaining their IT infrastructure to a limited group of
# of Hyperscale Data Centres % Share of Data Centre Servers (Installed Base) specialist experts.
The U.S. market is shifting to outsourcing solutions Key North American markets in terms of capacity
CAGR )2013-2023): and development
Service providers: +24%
2019 2022 2019 2022
Internal Data Centers: -10%
Critical MW Critical MW 3-YR CAGR MW/YR Rank Rank
2013 2019 Northern VA 1,393 1,946 11.8% 184 1 1
Dallas 693 826 6.0% 44 2 2
Las Vegas & Reno 593 659 3.6% 22 3 4
12%
Chicago 573 714 7.6% 47 4 3
Silicon Valley 519 651 7.8% 44 5 5
New Jersey 516 580 4.0% 21 6 6
45%
Houston 383 424 3.4% 13 7 10
55%
Atlanta 376 460 6.9% 28 8 7
Los Angeles 374 427 4.5% 18 9 9
88% Seattle 325 363 3.8% 13 10 11
Phoenix 317 441 11.6% 41 11 8
Internal Data Centers Service Providers New York 295 320 2.8% 8 12 12
(1) Source: CMA Strategy Consulting, RBC
(2) Source: Industry Research, Cisco Global Cloud Index: Forecast and Methodology, Statista, Gartner, BI Intelligence
(3) Source: IDC, Worldwide Datacenter Installation Census and Construction Forecast, 2019–2023, Doc #US43797219 , Apr 2019
10
The analysis includes datacenters only (without server closet and server rooms)Data Centers // U.S. capacity increase forecast
The forecast includes the deployment of Retail Colocation
(Data Centers // The Global revenues development forecast
Hyperscale cloud providers rely increasingly on third-party wholesale providers to develop their capacity to support growth
Outsourced Infrastructure Global Forecast Total Infrastructure Forecast Mix
($ in Bns)
Hyperscale Retail Wholesale 2017
8% 6%
$306.8 9%
24.4
58.0 77%
$223.8
20.3
Colocation Hyperscale/ Cloud
$164.7 50.5 Managed Infrastructure On-Premise
16.9
$122.2
43.9
2022E
14.0 224.4
$91.5 12%
$69.5 11.6 38.0
153.0
9.8 33.1
28.9 103.9 43%
70.2
46.8 34%
30.8
2017 2018E 2019E 2020E 2021E 2022E
11%
% Growth 32% 34% 35% 36% 37%
Colocation Hyperscale/Cloud
Managed Infrastructure On-Premise
(1) Source of data: Wall Street Research, Structure Research, RBC
12Data Centers // U.S. Market Characteristics
Retail Hyperscale / Wholesale
Customers Medium-sized businesses Large cloud service providers,
– banks, airlines, etc. communication companies, etc.
Rent(2) Hyperscale: US$ 90-120 kW/Month
US$ 150-250 kW/Month
Wholesale: US$ 110-140 kW/Month
Duration of
contracts 1-3 years 5-10 years
Yield-on-cost (2) 10%-20% 8%-12%
(1) Source of data: CMA Strategy Consulting, RBC
(2) Gross modified. According to the company’s and CMA’s assessment, the cost of construction of 1MW is in the range of $6-8 million.
13The Compass Deal
Azrieli Group // The Go To Market Approach
Local partner
A reasonably-priced active platform & experienced
management (1)
Existing and future operations in the Wholesale/
Hyperscale segment
Developing a significant installed base in a mature market
Land and development pipeline
in attractive locations for future growth
Long term (Steady State) leverage of 50%-60%
(1) The importance of relationships and acquaintance with key customers, mainly in the Hyperscale and Wholesale markets
15Azrieli Group // Compass Deal
Description of the Company
10 active sites, 3 sites under construction and development
Active mainly in the central-eastern U.S and in Canada in the Montreal region.
The Company’s management is experienced in the development and establishment of data centers and
relationships with strategic customers.
The DCs are located close to power lines and high voltage and fiber line infrastructure.
Data centers in the U.S.A. and Canada
Montreal
(2 Facilities)
Minneapolis
(2 Facilities)
Northern Virginia
(Campus Build)
Nashville
Phoenix Tulsa
(2 Facilities)
(Campus Build) (1 Facility)
Dallas Raleigh
(2 Facilities) (1 Facility)
3 Hyperscale Deployments
8 Stabilized Campuses
Dallas Fort Worth
2 Facilities in Montreal Canada (Campus Build)
16Azrieli Group // Compass Deal
The partners
Ontario Teachers’ Pension Plan– Ontario teachers’ pension fund, one of Canada’s largest institutional investors
RedBird Capital Partners - Investments are focused on communications infrastructure, sports & hospitality,
energy, and financial services.
Compass management – decades of experience in the initiation and management of Data Centers.
Ownership structure
July 2019 Expected Dec. 2020
19.5%)1( 33%
)1(
54.5%
23.7%
Management
Management
2.3%
(1) Option to increase holdings up to 33% according to current value against future investments in development.
17Azrieli Group // Compass Deal
Current income- Duration of Future development
NOI for 100% producing output existing contracts potential
~7 years ~ 560MW
$ 38 Million ~30MW
Average Potential
Current(1) NOI Current
Annualized
lease term output in the
output long term
Management
Compass management – decades of experience in the initiation and management of server farms.
CEO Finance Sales Strategy & operations Construction
Chris Crosby Jared Day Raymond Hawkins Adil Attlassy Nancy Novak
Founder & CEO President & CFO CRO CTO SVP construction
25+ years of 20+ years of 30+ years of 30+ years of 30+ years of
experience experience experience experience experience
Proferian
Construction
Executive
(1) Included signed but not yet closed agreements.
18Azrieli Group // Compass Deal
Compass’s facilities
3 Hyperscale(1) facilities under
10 Active facilities
development(2)
Current Additional short-term Total potential output in
producing output output pipeline acquired assets and land
~30MW ~ 120MW ~ 560MW
Projected leverage Existing debt in acquired company
40%-50% $ 201 Million
projects in pipeline net debt
(1) For Large cloud companies.
(2) The time tables, actual size and marketing of the projects are uncertain.
19Summary // Trends in the Data Centers Market
Cloud development causes businesses to opt for intensive hardware
outsourcing
Consequently, the Data Centers market is growing at a high pace, and
presents an opportunity to develop a new growth engine
The data revolution has created a reality where Data Storage and Data
Processing are growing at increased speed and size
The yields in the Data Centers market are considerably higher than other
traditional real estate sectors
“Stickiness” – Due to the sensitivity and materiality of the matter,
companies tend not to make frequent changes in their server farms and
databases, leading to long-term contracts and little turnover
2021
Summary // An Opportunity for Azrieli Group
A new and growing business segment
Income-producing real estate with attractive yields
Consistent with the Group’s strategy –
real estate development
A growth engine in a significant global market
Significant potential operating segment
22Thank you
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