GIC and Equinix to Pump Extra $3.9 Billion into Data Centers

Singapore sovereign wealth fund GIC has signed up for more joint ventures with digital infrastructure firm Equinix to pump $3.9 billion into a global data center portfolio that will service some of the world’s largest cloud service providers.

When the data center portfolio called xScale is completed, it will hold more than 32 properties that are collectively valued at more than $6.9 billion, in places such as Europe, Asia-Pacific, and the Americas, Equinix said this week. Equinix already has more than 220 data centers around the world.

The portfolio will service some of the world’s largest cloud service providers, including Alibaba Cloud, Amazon Web Services, Google Cloud, IBM Cloud, Microsoft Azure, and Oracle Cloud Infrastructure.

Generally speaking, data center properties count for a relatively small part of an institutional investor’s portfolio. But the investments have soared in popularity in recent years. Advances in cloud technology helped the asset class.

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During 2020, while other real estate assets such as commercial properties fell off, investors sought out the niche assets that were unaffected by the pandemic. Last year, data center real estate investment trusts (REITs) advanced 21% over the whole 12 months, according to the National Association of Real Estate Investment Trusts, or Nareit. Compare that with office investments, which dropped 18% over the same time period.

Still, data centers have not advanced as quickly in 2021. Data center REITs have jumped just 5.4% so far this year, while office REITs have recovered some ground with a 15% increase.

Data center properties are complicated investments to manage without the right expertise. Location matters. The most desirable spots around the globe are located by broadband pipes, many of which have already been claimed by tech giants. Uptime also matters. For the world’s best cloud service providers, data centers are measured by how consistently they run, down to a fraction of a percentage point.

But activity in the investments continues. In its annual report, GIC said last year that it is interested in data centers.

After the xScale deals are closed, which is expected to occur over the course of 2021, GIC would own an 80% equity interest in future joint ventures; Equinix will own the remaining 20% equity interest.

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It has taken airline operator Air France–KLM several years, but it has finally completed the de-risking of its three main Dutch KLM pension plans in a move it says will create more predictable annual contributions and less balance sheet volatility.

The airline reported late last week that it had reached an agreement with the five Dutch ground unions in KLM to convert the pension plan for its ground staff into a collective defined contribution (DC) plan. Under the terms of the deal, KLM agreed to a modest increase in its annual pension premiums from January 2021, and will pay a one-off contribution of €49 million ($59.4 million) to the ground pension fund this month.

The money for the one-off payment had been set aside since 2014, when the airline agreed with the unions to do so in exchange for paying lower pension premiums to the KLM ground pension fund following changes to Dutch pension regulation. Citing International Accounting Standard rule 19, the airline said the de-risking of the ground pension fund will lead to the derecognition of the so-called “pension asset,” which will no longer appear on Air France–KLM’s balance sheet.

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The airline said the pension asset totaled €211 million on the balance sheet as of the end of 2020, and ballooned to €551 million during the first quarter of this year due to the higher discount rate and positive returns on assets under management (AUM). The company also said the impact of the derecognition of the pension asset, the one-off contribution, and the additional pension premiums will be taken as a non-current expense, and that the actual amounts will be calculated and recorded in the second quarter of 2021.

In 2015, KLM began negotiations to adjust the pension plans of its cockpit and cabin crews. After striking a deal with the pilots in 2015 that allowed an increase in the age of retirement, KLM and the Dutch Airline Pilot Union VNV reached an agreement that, among other things, converted the pension into a collective DC plan. As part of that agreement, KLM made a one-off lump-sum payment of €194 million to the pension fund.