GIC has partnered with Brookfield on several joint ventures and investments. For example, in May 2023, Brookfield India REIT (BIRET) and GIC announced the acquisition of two major commercial assets totalling 6.5 million sq ft, for a combined enterprise value of US$1.4 billion ($1.8 billion), from Brookfield Asset Management’s private real estate funds. In 2019, GIC and Brookfield Infrastructure Partners invested in an Indian telecom tower company with 15,000 towers, valued at US$3.4 billion, which serves Reliance Jio Infocomm.
Also in 2019, Brookfield Infrastructure, along with its institutional partners GIC and Genesee & Wyoming, privatised G&W for US$8.4 billion. G&W owns a portfolio of 120 short-line railroads, primarily located in North America, with operations also in Europe and Australia.
Brookfield is an alternative asset manager with over US$1 trillion in assets under management (AUM) across renewable power and transition, infrastructure (including AI), private equity, real estate, and credit.
Over the next five years, Brookfield plans to double the size of its business, with fee-bearing capital expected to grow to US$1 trillion. The company has zero debt and US$2 billion of cash and financial assets. In FY2024, Brookfield paid a quarterly dividend of US$0.38 per share and a total annual dividend of US$1.52 per share. The forward payout ratio was approximately 91.72%.
On May 6, a letter to shareholders from CEO Bruce Flatt and President Connor Teskey said: “The secular trends that underpin our strategy continue to accelerate, including rising demand for AI infrastructure, surging global electricity needs, and the growing role of private credit.”
Brookfield has established six distinct platforms within its global data centre business: US-based hyperscaler Compass Data Centres, US retail colocation brand Centersquare (see sidebox), South America-focused hyperscaler Ascenty, European operator Data4, a three-way Indian joint venture Digital Connexion, and pan-Asian platform DCI Data. Brookfield invests in data centres and the broader data value chain, including renewable power and fibre, through a combination of funds, partnerships and joint ventures.
“I oversee our six data centre businesses globally that we’ve invested in through our series of infrastructure funds over time as we’ve built up more capability. These funds themselves have capital partners who invest alongside us, with the focus on long-term infrastructure returns. My role is to oversee our current investments, including a business called Centersquare, which acquired the Cyxtera assets,” says Mathialagan.
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“The data centre thematic has become large, and the AI thematic is now blending into it. Different parts of our business invest in different aspects: Brookfield has an infrastructure credit fund that may invest in data centres. We have real estate colleagues who might take positions on the development aspects of data centres. Our power group is very heavily into renewable energy. We have a US$10 billion framework agreement with Microsoft to provide Microsoft with renewable power for their data centre use,” he adds.
In the US, Brookfield owns and operates two types of data centres: hyperscale facilities and retail colocation centres. For instance, Compass Datacenters, in which Brookfield holds a 50% stake, has a presence in Red Oaks, Texas, with a one million sq ft facility and a 250,000 sq ft development underway for hyperscalers and cloud providers.
“It is very much a large box format data centre for hyperscalers. The site spans more than 300 acres, with a capacity of 360 megawatts (MW). It’s built on a modular basis,” says Mathialagan. As he tells it, the data centre is “critical infrastructure that does basically everything”.
“For every dollar we put into a data centre as a physical infrastructure owner, our customers put in maybe $3 to $4,” he adds. “If we’re spending US$1 billion for a data centre, our clients are investing US$3 billion to US$4 billion.”
Hyperscalers and cloud providers usually operate several data centres. The very large tech companies generally take long-term leases on data centres. “They need pretty much on-time delivery and continuous service with no disruption. Nobody wants a disruption.”
The second main category of data centres is colocation facilities, which form the core of Centersquare’s business. For Brookfield, this segment is primarily based in the US, with facilities located in what Americans refer to as the NFL cities, the top 12 metropolitan markets.“We own the central digital stations where fibre comes into those cities, and that is hard to replicate. We work closely with channels and partners to ensure connectivity.”
The importance of hubs
Markets with the highest data centre utilisation rates include places like Singapore, where Brookfield currently has no presence. As a data centre hub, Singapore holds strategic importance due to its position as Asia’s leading financial centre and its geographic role as a key connectivity gateway, linking Southeast Asia to the global network through 26 subsea cables and three landing sites.
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Factors that make a location attractive to data centre providers include ease of doing business, streamlined entitlement approvals, strong property rights and rule of law, supportive local utility providers, low exposure to natural disasters and a well-regulated tax environment.
However, these very attributes also make Singapore one of the most expensive locations for building and operating data centres. Mathialagan notes that cost is often driven by real estate, with urban, high-density cities that double as financial hubs typically facing significantly higher property costs.
Deployment drives cost
Mathialagan says it is difficult to assign a fixed cost to building a data centre, as the supply chain is largely global but can be tailored to specific needs. Costs also vary depending on the specifications of each deployment. He compares data centres to airports, noting that they need to be situated relatively close to end users who require low-latency cloud services, which, in today’s world, is virtually everyone.
“Over time, as AI becomes more prevalent and seeps into everything we do, the delivery of inference also needs to be close to population centres. So you are definitely going to get a vast majority of the data that is close to population centres,” adds Mathialagan.
However, data centres focused on “learning” for AI services can be located away from population centres. “They’re going to where land is a bit cheaper and power is readily available,” offers Mathialagan.
AI may eventually become an integral part of a nation’s infrastructure, with greater sovereign capabilities embedded into each country’s digital framework. This would include enhanced digital capabilities to manage local languages and content. Over time, specific sovereign needs may emerge, particularly if the data sets are deemed strategic. Banks could face increased regulation, and data may be required to remain onshore.
“In terms of infrastructure, it’s going to get more expensive. That’s where we see opportunities for large sponsors like us,” says Mathialagan. He cites “the scale of capital”. On average, a rough estimate for data centre costs is approximately US$10 million per megawatt. In certain markets, such as India, it could be lower. In some key gateway cities, it could be more.
“Let’s work with US$10 million. That’s a billion dollars of capital required for a 100-megawatt centre, and customers would spend US$4 more per dollar than what we spent. Our campuses are generally 100 megawatts each because that’s what clients need. We’re not building these facilities for ourselves but because our customers want us to build them,” adds Mathialagan.
He likens the data centre value chain to the Premier League. “You earn the right to play in the Premier League, and you stay there. You’ve got to have capacity, capital, and importantly, a collaborative, committed, mutual future with Big Tech,” says Mathialagan. “You’ve got to make investments alongside your customers. I see a world where markets which are a bit smaller at the moment will continue to grow rapidly and to match economic growth.”
The Premier League analogy reflects a two-tier system, where those in the First Division are ahead in raising capital and delivering better returns for their partners and shareholders. “We’re able to put the capital to work out great relationships, and, importantly, have a track record in multiple countries,” adds Mathialagan.
In Asia, Brookfield operates through DCI with a presence in South Korea, Australia and New Zealand. Including India, it is active in four markets across the Asian time zone. “Japan would be interesting. The approach we take is to follow our customer,” says Mathialagan. “Southeast Asia clearly is an interesting market. We can selectively partner with good local players to deliver solutions for our customers. Global customers would be there.”
Different types of capital are required at various stages of a data centre’s lifecycle. For example, the highest risk is typically associated with the land acquisition and construction phase. “There’s going to be an increasing need for different types of capital to be invested in data centres at different points in time as the development risk decreases progressively,” adds Mathialagan. That capital could be from the public and private markets.
“We invest our capital first, and we have other people’s capital alongside us,” he says. Brookfield offers a full range of funds, from core-plus to core, and now features a super-core fund for assets with contracted cash flows.
Mathialagan also views digital infrastructure, including data centres, wireless towers and fibre, as one of the fastest-growing sectors. As an early investor in this space, he believes demand for the data centre value chain will continue to accelerate rapidly.
Relationship between Digital Core REIT and Brookfield Infrastructure Partners
On Nov 1, 2023, Digital Core REIT announced that it had reached a series of agreements to resolve the bankruptcy of its second-largest customer and sell two Silicon Valley facilities to Brookfield Infrastructure Partners (Brookfield) at book value for US$160 million. The unnamed customer was Cyxtera Technologies. As part of the transaction, DC REIT transferred the facilities to Brookfield. Cyxtera also assigned a third Silicon Valley asset to Brookfield. Altogether, Brookfield (and its institutional partners) paid US$773 million ($996 million) for Cyxtera. It then combined Cyxtera with Brookfield’s own data centre company, Evoque, to form Centersquare, which focuses on colocation facilities in North America.
