Listen-only mode, there will be a presentation followed by a question and answer session. If you wish to ask a question, please press star, the star key followed by the number one on your telephone keypad. I'd now like to hand the conference over to Mr. Craig Scroggie, CEO and Managing Director. Please go ahead.
Thank you, Noah. Good morning, ladies and gentlemen. Welcome to the NEXTDC results presentation for the first half of FY 2022. I'm joined today by our CFO, Oskar Tomaszewski. Beginning on slide two, we're very pleased to present another set of record results. Revenue of AUD 144.5 million and underlying EBITDA of AUD 85 million, giving us the confidence to upgrade our FY 2022 guidance. Contracted utilization increased by 14% to 81 MW. Our ecosystem continues to expand, growing to more than 15,800 interconnections, up 14% in the past 12 months, and accounting for 7.3% of recurring revenue. On slide three, our results continue to demonstrate the company's strong operating leverage. Underlying EBITDA increased 29% to AUD 85 million.
Operating cash flow grew 9% to AUD 69.5 million, and building utilization grew at 25% over the last 12 months. We remain well-capitalized to support our growth plans. During the half, we refinanced our senior debt facilities. The refinance included an upsize of AUD 650 million to a new aggregate limit of AUD 2.5 billion, together with material pricing and flexibility enhancements, demonstrating the strong support from our lending partners. Total liquidity at December 31st was over AUD 2.1 billion, inclusive of undrawn headroom of AUD 1.4 billion in our senior debt facility, which achieved financial close in November 2021. Our balance sheet remains underpinned by total assets of over AUD 2.9 billion. Our national data center fleet continues to evolve at a rapid pace.
3 MW of expansion capacity was installed at M2, with an additional 4.5 MW of capacity brought forward at M3. S3 development is on schedule for practical completion of phase one in the second half of 2022, with building construction well progressed. Our national data center footprint continues to expand with new sites secured for Darwin and Adelaide. D1 will be the Northern Territory's first purpose-built Tier IV commercial data center and boasts direct private access to Darwin's submarine cable infrastructure. A1 will be located in the heart of Adelaide, well-placed to service both enterprise and government customers. Finally, we announced our first edge location, Sunshine Coast 1, strategically located to host the Sunshine Coast International Broadband Cable Landing Station. I'll now hand over to Oskar to discuss our financial results in more detail.
Thank you, Craig. Let's now turn to a summary of our profit and loss for the year. The statutory results reflect data center services revenue of AUD 144.5 million, an increase of 19% on the same period last year, and net profit after tax of AUD 10.3 million. Our non-statutory results, EBITDA of AUD 85 million, percent on the same period last year. Direct costs, which consist of our facility costs increased to AUD 13.3 million as we ramped up as well as increased property holding costs on the. Indirect corporate costs, which increased to AUD 22.7 million, reflecting the investment NEXTDC is making into the ongoing growth of our business, as well as the continuation of the market-wide increase in insurance costs, particularly for D&O cover. On to slide.
Revenue generated from racks, suites, cross-connects accounted for 96% of total revenue. Project income, representing a lower proportion of revenue each year. The underlying EBITDA performance demonstrates NEXTDC's operating leverage, as demonstrated by the 29% growth in earnings relative to 19% growth in data center services revenue over the past 12 months, trailing the longer-term earnings of 36% and 19% respectively. Slide eight sets out our revenue per unit metrics. Annualized revenue metrics continue to perform strongly throughout the first half of 2022, moving in line with lower power costs, which are largely passed through to customers. Revenues from customer deployments tend to increase over time due to high usage of contract power capacity, increased demand for interconnection, and the use of ancillary services. Slide nine summarizes our balance sheet position and cash flows.
At December 31, NEXTDC owned property with a carrying value of AUD 1.2 billion, as well as plant and equipment with a carrying value of AUD 0.8 billion. Our net assets stood at AUD 1.7 billion. Finally, we remain well-capitalized to continue our growth trajectory, with total liquidity comprising cash and undrawn debt facilities of more than AUD 2.1 billion. I'll now hand you back across to Craig to go through our business performance and outlook for the 2022 financial year.
Thanks, Oskar. On slide 11, our key non-financial metrics. Total number of customers was up 10% year-over-year to 1,569. Total interconnections also rose 14% year-over-year to 15,879. Total cross-connects are at 10.1 per customer, up from 9.8 four months ago. On slide 12, some further insight into the diversity of our business. Breakdown of customers by industry shows strong representation from enterprise and connectivity, as well as system integrators and cloud partners. The increasing skew towards high-density deployments reflects the growth of hyperconverged infrastructure and hyper clouds. On slide 13, at December 31, 82% of installed capacity was under contract and 88% of that contracted capacity was billing and generating revenue.
The past 12 months have seen a 25% increase in billing capacity, which now stands at 71 MW. With over 10 MW of contracted capacity at 31 December still to commence billing, there is significant scope for continued improvement in operating leverage in the form of strong revenue and earnings growth. On slide 14, we set out our capacity and utilization. With a total planned capacity of over 400 MW across facilities that are either open or under construction. With more than 300 MW of additional capacity earmarked for future development in our land bank portfolio. S3 development continues at a rapid pace with building construction well progressed. We are fitting out the first 12 MW, which remains on target for practical completion in the second half of 2022. In Victoria, M2 has had an additional 3-MW data hall fitted out to support customer requirements.
At M3, building construction is also well progressed, and we remain on target for practical completion in the first half of 2023. An additional 4.5 MW have been added to the plan to support early customer contracts. Lastly, our first edge location, SC1 on the Sunshine Coast, hosts the International Broadband Cable Landing Station, which is fully live and operational. Turning to slide 16, provide a summary on our ESG highlights. As data centers continue to grow as a major feature in our infrastructure landscape, our focus on sustainability is critically important. During the first half of 2022, the company made significant progress across numerous ESG areas, including energy and water efficiency, carbon neutrality, renewable energy generation, recycling and minimizing waste, giving back to our communities, driving social engagement, and monitoring of our supply chain in line with UN Guiding Principles.
Turning to slide 17, we provide a summary of our safety highlights. As our national fleet of mission-critical infrastructure assets continues to grow in size, so too does the importance of keeping our workforce safe. With more than AUD 500,000 of capital works and construction projects concurrently in flight around the country, there is a significant focus on achieving our goal of zero injuries in the workplace. This includes programs that support operational and construction safety, mental health, and ongoing procedures for pandemic management. Turning to slide 19. We're pleased to upgrade our FY 2022 revenue and earnings guidance. The scale and earnings growth continuing to be driven by our generation two facilities. We expect revenues of AUD 290 million-AUD 295 million, which are underpinned by long-term customer contracts with substantial contracted capacity yet to commence billing.
We expect underlying EBITDA of AUD 163 million-AUD 167 million, representing an increase of 21%-24% on our record results achieved in FY 2021. Notwithstanding our strong first half performance, we do expect our operating costs will increase in the second half. This is in line with the planned opening of S3 and M3 facilities, as well as the new site acquisitions we have made in Darwin and Adelaide. Total CapEx for the year is expected to be between AUD 530 million and AUD 580 million, which includes our new site acquisitions, the final stages of development of S3 and M3, as well as additional data hall investments to support custom. Our current investment projects remain on time and on budget. FY 2022 is a year of continuing acceleration of growth for NEXTDC's national infrastructure platform.
The foundations we've put in place over recent years will see the company continue to scale rapidly through 2022 and beyond. NEXTDC's where the cloud lives. Now, if you would please open the line for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. The first question comes from Jonathan Atkin from RBC Capital Markets. Please go ahead.
Thanks very much. I was interested in any kind of discussion you could provide around the commercial use cases that you see around some of the edge deployments, whether there's Sunshine Coast or customer interest that has materialized for A1 and D1. Can you tell us a little bit about the profile that you expect of business there versus some of your more established first generation sites? Thank you.
Thanks, John. The data center product portfolio, if you think about the last 10 years, the company has predominantly built world-class metropolitan data centers, strategically located close to a highly networked. As the industry has continued to evolve, more recently it has become clear that hyperscale as a segment is a very large and growing and attractive segment that we will want to play a key role in. What is happening over time is our hyperscale deployments are getting larger and becoming campus space. We're still very focused on building world-leading quality metropolitan data centers which serve those downtown CBD customer requirements. High network latency. Those particularly sensitive applications that need to be close to the user.
Those two new emerging categories that have been closely followed by the industry for some time, but haven't necessarily seen significant traction on a global scale, are starting to emerge as very, very interesting opportunities for the company. The third category in that data center portfolio, and being the first, is the emergence of regions. Regions, for us, the investments in Darwin and Adelaide, just like our regions in Brisbane and Perth, have become important for serving our customers who want a national presence. They wanna be served in every major location as they go closer to customers. We have, in recent times, taken Google to Brisbane, Microsoft and Amazon to Perth, and the same too will be true in these further locations as our key customers get closer to their key customers. The next component of that is moving from a region to an edge.
Edges are strategic locations where the user needs to have some network presence. In particular, for us, edges are customer-led. The opportunity to serve the SUBCO cable or the Sunshine Coast International Broadband Network was very strategic for us. SC1, over the course of the next 12 months, is forecast to have 25% of Australia's internet traffic flow through from the U.S. That asset will be very strategic for us, and that is in part the key focus for us as we think about serving edge deployments in key markets. Those four key pillars of the data center industry give us a highly diversified business model.
The last point I'll make on that, John, is that while regions and edges are very important strategic for us, and they are customer-led, they are relatively small compared to the overall major investments in hyperscale and key metropolitan markets. They will be size appropriate, and they will have modest CapEx investments that are also size appropriate. Our strategy remains customer-led. Next question.
On that last point that you made, I guess I wanted to maybe get a sense as to where you see multi-megawatts hyperscale type leasing. Is Australia in any kind of a digestion period where it's a matter of moving in and fulfilling prior commit ments and signings made? Or do you see, you know, continued strong demand the rest of this calendar year? Finally, if there's any kind of an update on rest of Asia expansion that you could provide more color on. Thank you.
Thanks, John. Sure. In terms of the hyperscale demand in regions, you know, we'll have more to say soon in those key emerging markets. As I said earlier, you know, we're supporting our customers supporting their customers. It continues to be our focus and strategy. As it relates to Asia, there continues to be a significant focus from the team on that opportunity. The key markets there in Japan, Singapore, Malaysia and Indonesia offer significant opportunity. Again, in time, we'll share more on progress in those markets. We do intend to take advantage of the opportunities and work closely to support our customers' growth in the Asia region.
Thanks very much.
Thank you. Your next question comes from Kane Hannan from Goldman. Please go ahead.
Hey, guys. Just three from me. I can go in turn as well if that's helpful. Maybe just my three. I'm probably reading a bit much into it, but just the language around, I suppose, what you said in January about gonna be ready for service by end of 2022 versus now talking about practical completion first half 2023. Just confirming if there's been any change there and if that relates to sort of the 4.5 MW expansion.
Thanks. Yeah, essentially it's the end and the beginning. It straddles the end of the year. Sort of 10 days, you know, one side or the other at the moment is the current forecast. I would expect that, you know, it is on track to deliver the current program. Despite the significant challenge, obviously, everyone has had working through COVID, getting workers on site safely, continuing to support safety as our number one priority as a company and managing multiple workforces just like we've managed the data center workforce as to the construction workforce needs to be split between sites. That has obviously been a complicated matter for most who are building and constructing. That has gone very well during a challenging period. As it stands, you know, it's on target.
It's the end or the beginning, doesn't really matter what way you look at it in the context of the date. It's been about 10 days in the program, one side or the other. As it relates to the additional capacity, obviously we have secured significant orders and options for M3. We will have some significant customer contracts before M3 opens. And that is an outstanding result and gives us significant confidence to be able to further invest and bring more capacity. The pipeline as it relates to growth in M2 and M3 is very significant. It's more significant than we have seen at any other point in time in the history of the company. Thank you for the question.
Just one quick follow-up. Just take your comments around inflation and not seeing anything come through at the moment. I suppose we look forward, you know, and we do see a lot more inflation coming through, and it potentially does start to impact build costs. Talk about, I suppose, your ability to offset that through pricing, how much of that you've contracted in with the hyperscalers, and I suppose just how you can offset any build cost inflation.
Yeah, that's obviously, you know, a key topic for everybody right now. There's no question that inflation is an issue that most businesses are going to have to deal with. Supply chain, you know, being a tightly coupled topic behind that. I'll answer that in a couple of parts. As it relates to the first priority, which is managing our cost base, the delivery of the programs on time and on budget. There is no change to our current cost forecast for M2, M3, S3, Sunshine Coast One. Those programs have worked. The key mechanical electrical infrastructure and the fixed price building contracts are locked in. We don't see any immediate inflationary impact to the current program.
The long lead time supply items, the significant investments that we have made with key supplier relationships, those orders go 12, 18 or 24 months in advance. We're forecasting for a significant period. Obviously, the depth of the relationships with those key suppliers means that we have locked in pricing for those key supply chain items. There are, again, no cost impacts in that regard. I was on site in Sydney with the builder, Multiplex, last week, on site with our builder also last week in Melbourne, Capital Construction Group, meeting with the managing directors of both organizations, talking about what the future impact of inflation may mean for enterprise, our bargaining agreements and how they'll manage salaries and other deliverables at this point in time. There's no direct impact to the company. We are very conscious of the issue.
We're aware that it exists, and it's something that we'll work closely with our building partners on as we start to embark on any future project commitments. If I swing across to the other side of the balance sheet to talk about the impact to customers, the first component is the majority of our contracts obviously have CPI or greater. So any movement in inflation will be something that is passed on to customers as they will naturally pass on inflationary movement to their customers. We do expect that, obviously for key clients, you know, large portion of our power, our electricity costs are power pass through. So in that regard, again, it's something that largely will wash through our numbers. An increase in inflation will drive an increase in revenue.
It will drive an increase in revenue per megawatt because that cost inflation will come through at the top line. As it relates to gross margin and other matters, that will obviously have little to no impact at all on our financial position. There's a lot of key issues, certainly a number of things, top of mind in relation to inflation and supply chain. The company is very, very well insulated from inflationary movements given its contracting position, and the contracting position not only with customers, but the relationship and the agreements that we have in place with suppliers.
Just lastly, just that comment, greater CPI or greater in your contracts. I mean, could there be a situation where if we had inflation, you could see margin expansion? Or do you think your cost base, you know, would probably expand, you know, maybe a little bit more than CPI and so, you know, no change as you're sort of talking to them?
I think they're all important issues, and as you start to look through operating expenses, what line items can or would be impacted by inflation. Wages obviously is a key one. No question that those type of things will need to be managed inside our operating budgets. Short answer is that while, you know, we have to pay close attention to all of those line items in the day-to-day management and operation of our budget, we'll certainly have margin expansion as a result of some of these changes, and that in and of itself is a net positive for the performance of the business financially.
Perfect. Thanks very much.
Thank you. Your next question comes from Tim Plumbe from UBS. Please go ahead.
Hi, guys. A couple of questions from me, if possible. Craig, just in terms of the 5.5 MW that's been contracted, could you remind us how we should think about the time taken, across the different parts or the different subsets of the business between contracting the megawatts and then those megawatts being activated and billing, please?
Sure. Wonderful question for Oskar to weigh in on, Tim, 'cause it goes directly to forecasting. They are largely known with a high degree of certainty, and they are forecast into our model, generally, and in more recent cases. As we deliver capacity, sometimes it's, you know, taken up and activated early, but, you know, in the most part, we have a very, very good window. Oskar, you wanna talk about that topic?
Yeah, sure. Thanks, Tim. So across the first half, we had a pretty strong enterprise and government performance. At this stage, we're trending ahead of a circa 2 MW per annum typical experience. And as you know, those contracts typically ramp in about three to four months after signing. In terms of the larger hyperscale deals, Given our guidance that we're pulling forward additional capacity at M3, I think it's reasonable to assume that the contract might have landed as an anchor tenant in M3. And given we're in construction, that contract will progressively start to ramp in from second half of FY 2023 onwards.
For any further details than that, I know you've got a session lined up with Greg, so I assume you'll get into a bit more detail with him.
Great. Just one of the other questions, wondering if you can give us any color in terms of where we sit in regards to the hyperscaler options. How many of those options were kind of activated over the last 12 months? And where do we sit now in terms of the total?
We haven't given Tim on that, not obviously, a lot more detail on options. I'll answer that in a couple of points. The first one being, we tend not to try and share too much of this information because it's commercially sensitive, and obviously there's a whole lot of people in the industry that continue to want to, you know, focus on taking share away from us, and the less information we share in that regard, the less detail that we provide in relation to where they are and how they're tracking, the harder it is for competitors to pick off those opportunities. So we tend to keep our cards pretty close to our chest in that regard.
What I will say is that we had a very significant half in signing new options around the country for hyperscale. It's probably one of the largest net new halves of customer commitment firming up into contracted options that we've ever seen in the company's history. A high degree of confidence that as customers are working closely to plan with us. The pressure on supply chain, the pressure on getting people into the country, skilled workers, delivering capacity in a number of markets, and obviously all of that pressure flows back on our clients to do a better job when it comes to longer range planning and ensuring that we're in a position to help them take advantage of their opportunity.
When we appropriately prepare our infrastructure platform, it significantly shortens the time to market for our customer to take advantage of the opportunities that are presented to them as well. We're certainly getting better at long range planning, contracting of options, understanding where our capacity is required, and then putting the base infrastructure in place to provide those services and have quick time to market. Without giving the game away, it has been a very, very significant half for us in that regard, and we do expect that those options will flow through to orders in due course.
Great. Just very last question, if I can. Are you able to give us any sense of the sort of magnitude of startup costs for those new data centers that are likely to be absorbed in the second half of 2022, please?
At this time, Tim, we have acquired land for those new sites in Darwin and Adelaide. We are going through detailed cost planning. Day one CapEx obviously minimized with the anchor customers that we have secured for those. You know, the key goal for us is to be able to get those facilities operational at a cash flow breakeven style of entry to the market. Whilst the CapEx estimates are being made on the long range planning forecast, what is the appropriate size? As an example, in the Darwin market, our partnership with Minister Gunner and the Northern Territory Government, significant amount of activity in that region related to defense and other industries supporting the northern border. Sizing that appropriately and the work that we're doing there is in flight currently.
We will share more on that day one detail and our anchor customers that we've secured there in due course. At the same time, as throughout, we have been working closely with the South Australian Government and Premier Marshall, Minister Patterson, and the team at the Department of Trade and Investment have done an outstanding job. South Australia has some significant investments from key customers of ours like Microsoft, Amazon, Google. Consulting firms like Accenture. There's a lot of activity in that market, particularly related to defense, space, lots of activities for machine learning. The Australian Institute for Machine Learning is based just there. It's an exciting, I guess, final piece of the national puzzle in the context of covering every major market and being able to support our customers in growing their reach to support their clients.
We will share more on those, but that work is a detailed costing work in relation to day one versus the longer range overall CapEx plan and size is currently in flight now that we have secured contract of the land and have those, contracted commitments from key customers.
Right. I mean, I was just thinking more along the lines of the startup costs associated with S3 and M3.
For S3 and M3, I think, Tim, it's probably a modeling question for Craig. We have, you know, front of house, 24/7 security, delivery. You know, there's a lot of day one opening costs to bring the facility, both the fleet, particularly given the size and scale. You know, to give you an answer off the top of my head might be accurate. I think it's a modeling question.
No problem.
Yeah.
No problems. Thanks, guys.
Thanks.
Thank you. The next question comes from Paul Mason from E&P. Please go ahead.
Hi. Three from me. The first one, just wondering if you could make any more specific comments around Perth and Brisbane demand levels. There's obviously been a bit of news about one of your hyperscale customers looking to enter those markets. Yeah, is there sort of much active sort of tendering going on in those markets at the moment?
All that would go into the competitive information category. Frankly, the less I talk about those at the moment, the better. We see significant opportunity in supporting the growth of our key clients in Brisbane and Perth. The same, too, obviously, will be true in Darwin and Adelaide. We're very well positioned. We have infrastructure in place. You know, recently, obviously, we announced that we took Google into Brisbane. We already have network and edge deployments, critically important cloud on-ramp locations for Amazon and for Microsoft in Perth. I guess my answer to you in that regard is watch this space.
All right, great. Thank you. So the second one, just in terms of the options in Melbourne, and it sounds like maybe you've signed a lot more that haven't been, you know, formally sized and announced to the market. But just in terms of the information that you guys have made public there, should we assume that M2 is fully committed, or do you actually have space to sign more deals there? Yeah, I'll leave the question like that for now.
Yeah. No, look, that's an important question. M2 obviously is significantly well committed. We always retain some capacity. Enterprise and government is a critically important element of our business, obviously supporting the diversity of our clients, growing those 1,500+ customers. I mean, when you look at the volume of services and that diversity in our business, it provides, you know, a significant risk reduced overall operating plan. That will continue to remain a very important priority for us. Focusing on net new clients in enterprise and government is a key part of our network strategy. It diversifies our ecosystem. It brings a significant amount of value and network effect to our key hyperscale customers as well. So it's not just about the ability to serve and build world-quality infrastructure that supports our larger clients.
They too want to operate in markets where they can get their customers onto their platform in the lowest latency, most secure way that they possibly can. That will continue to remain an important part of our strategy. In the not too distant future, Paul, there will be some upgrades coming to M2 as an overall target capacity. We have acquired additional land in Melbourne in relation to the expansion of M2.
Okay, great. Just the last one from me, obviously like, in FY 2021, you guys had, you know, a new tenant, OVH, which was sort of pretty big news for you know, call it the second-tier cloud market. They had a pretty big deal. In terms of that sort of style of customer, like the second tier cloud below what we refer to as hyperscalers in Australia, like how's the sort of general outlook going at the moment for that sort of market?
Well, that's one of the most exciting areas of opportunity for us, Paul. What we call the hyper challenger category. You know, today you've got 70% of the market in the big three. Between Microsoft, Amazon and Google, they are a significant force on a global scale. It's very, very exciting when we think about the hyper challenger category. A number of those organizations will bring significant diversity and optionality for enterprise and government customers. I think the answer is it began in the not too distant future, and many of those new clients that we're working closely with to bring to Australia. It has been a challenging time. Most of those organizations have not been able to travel over the course of the last two years. Much of this planning has had to be done remotely.
I think that as the borders start to change, you know, travel becomes a little easier. It will not be easy, but certainly will change. The desire for those organizations to want to grow their platforms in the fastest growing region in the world today will put us in a very good position. I would expect that again, just like we have done to support OVH, there will be others just like them desire to expand their platforms as well.
Thanks, Craig.
Thank you. Your next question comes from Bob Chen from JP Morgan. Please go ahead.
Morning, guys. Just a couple of questions for me. Just looking at sort of the initial stages of S3 and M3 as they're coming online over the next sort of calendar year, and trying to marry that up to the 81 MW of contracted capacity. I mean, is that sort of the leading indicator of what's coming into that pipeline?
Oskar, do you wanna take that one for Bob?
Yeah, sure. Bob, if you look at the breakdown of our contracted capacity at the end of FY 2021, and then at the end of first half 2022, you'll be able to see that in the first half, the bulk of our sales landed in Melbourne. As we alluded to earlier, we have flagged that we are bringing on additional capacity into M3 in response to customer demand. I think you can probably draw some conclusions around where those incremental orders that have been landing in Victoria may have ended up.
Okay, great. Then just looking at that sort of customer cohort chart that you guys have provided. I mean, if we look three years down the track, like what's the sort of mix that NEXTDC gets to the more mature level?
Bob,
Customer cohort chart. Could you just expand on that?
He's talking about the customer mix chart.
Yes. That's right.
Yeah. Bob, I think the answer to that is it will be what it will be. You know, we are heavily focused on the as a service community, as it relates to, you know, building a valuable ecosystem where our enterprise and government customers are able to seamlessly migrate through the cloud and in some cases repatriate from the cloud. Providing customers the ability to be able to have a, you know, ubiquitous network that allows them to move between platforms securely continues to be a very, very important pillar of our strategy, Power, Secure and Connect. Whilst the key customers we're focused on obviously is building, allowing us in that as a service market to build significant value for our clients. More than 730 partners today, most of those partners are providing something as a service to enterprise customers.
I don't know exactly what that number will be over time, but I do know that our ability to bring more value to our clients is helping them, particularly in the enterprise and government sense, get on and off clouds simply and securely. That is what builds the value in our double-sided marketplace, helping our customers access enterprise and government clients and building that diverse ecosystem of service providers.
It will have a strong cloud and as a service flavor, but it will also still be significantly skewed towards enterprise and government organizations. Because that is why many of those network on-ramps, the largest number of network on-ramps in Australia today, continues to sit with us. Because those companies that sell something as a service need to sell it to those enterprise and government clients. They want to be at the place where they can do that securely, safely, and frankly, in the lowest latency way for many of those services.
All right. Perfect. Thanks for that. Maybe just a final question on the cost side of things, going through that second half. Is any of those costs more one-off in nature that you're sort of calling out, or are they, essentially sort of embedded costs for your new facilities?
Oskar?
Yeah. Thanks, Bob. Happy to take this one. We do have some seasonality.
Not by design, but we have experienced some seasonality in our operating expenditure over the last few years, and this year is no different to that. Typically, a pattern that we've seen is our project-related spends are typically budgeted for at the start of the year. Progress is made during the first half of the year, but the biggest spend is booked during the second half, resulting in a second half weighting in terms of our operating expenditure. It's not something that we're driving on purpose, it's just a function of how the business has evolved. So we're tracking well in terms of overall operating spend for the entire year. It just so happens to be second half weighted.
Great. Thanks, guys.
Thanks, Bob.
Thank you. Your next question comes from Wei Sim , from Macquarie. Please go ahead.
Hi, guys. Thanks for taking my question. I really just wanted to ask a bit more on, you know, how edge data centers. You know, it's exciting that we've announced the first one. Are you able to give any details as to, you know, what kind of CapEx profile each edge data center has? And then also, I know you mentioned that it's probably still a very small kind of thing in terms of our overall portfolio, but how we might think about the addressable market and, you know, how we mentioned that we're kind of customer-led. You know, how did we go about getting the first one on the Sunshine Coast, and how we're thinking about potentially doing more of these going forward? Thanks.
Thanks. I'll start with Sunshine Coast, because obviously, easy to talk about the success of that and where it's going over time. That cable landing station investment that we've made was strategically important. Securing cable landing stations and then having those as the kind of core to building the network effect for an ecosystem is critically important. Not only do we have SUBCO with the cable landing station as a client there, we have a number of enterprise customers that have signed with us as a result of us taking over and operating that as a data center. We will build out that Sunshine Coast facility and support up to 1 MW of capacity working with customers. We've got clients who are running gaming platforms. OneQode, as an example, they run their gaming platform out of Guam.
That low latency network connectivity is critically important for the Sunshine Coast, and then off to Sydney. It's pretty strategic in that sense. We have a number of other sites planned, so there are about 10 more edge locations that we are working with customers on. It is genuinely customer-led. Our strategy is not to go and build facilities in locations that they're not required that we aren't working closely with telecommunications customers or major enterprises. Our, again, a lot of this is competitively sensitive, and I don't wanna give away all the locations necessarily that we are going to announce in due course. What I would add because the important question is, well, where does this go over time? What could it represent? What sort of CapEx?
We do expect that most of these edge locations will be modest in size, so they'll be a target size up to maybe 1 MW. Some locations might only require 200kW to 500 kW. Others may require more than 1 MW over time. That will be driven by their success. As far as CapEx is concerned, day one CapEx for a sub-megawatt facility that is customer-led would be under AUD 10 million land and building. Generally, again, by being customer-led, our operating cash flow break-even on day one, and it improves from there.
You know, if you add 10 of those up and, you know, estimated that they might all account for 10 MW in capacity over time, it's a key point of difference in regions and edges, is that you tend to have, you know, fewer competitors. Certainly, while we offer a national pricing model and we wanna be, cost efficient and cost effective for our customers, there's probably a little less competition in regions and edges than there are in major markets like Melbourne and Sydney, and that should see, outlier performance from a margin perspective. While the size might not be significant overall, its margin performance should be value creating and significant and serve our customers, in a way that few other operators can serve them, holistically on a national scale in every major market in the country.
Okay, great. Thank you. That's the only question that I had.
Thanks.
Thank you. Your next question comes from Ross Barrows, from Wilsons Advisory. Please go ahead.
Hey, thanks. Just a couple questions. Firstly, on the competitive landscape, maybe you could provide some color there. I guess you know, some players are in one to two markets and looking to move into one to two more, and there are also some new entrants entering the market for the first time. Can you sort of wrap the order of magnitude of growth that you're seeing in the market and I guess any comments you can make around those moves by you know, existing and new players and maybe some reference to the duration of your relationships as well. Thanks.
Thanks, Ross. Yeah, it's interesting sort of to reflect back on the last decade. You know, when we started, there wasn't a lot of competition, but there was a lot of questions as to, you know, if I had a dollar for every time someone said to me that this won't work. But I don't think there's too many people wandering around saying this won't work today. You've got every pension fund or, you know, large scale infrastructure player on the planet today wanting to be ours and others' best friend. The jury is not out on whether data centers will be successful and create value. The question is, most importantly, this is a very, very significant infrastructure platform over time.
I mean, the infrastructure-like nature of data centers and the role that they will play over the course of the next 10 or 20 years is fundamental in every community globally. That means that where we didn't have a significant number of competitors in the past, there's, you know, very large pools of capital at low rates of return flowing to the industry on a global scale. We can't control, you know, how many people want to be reproducing our success in the industry. What we can control is the way we run our business. We can take our decade of experience and focus on delivering world-class Tier IV Uptime Institute certified facilities, 100% uptime. The customers who take security and data sovereignty very seriously, they wanna work with highly credentialed operators like ourselves.
You know, while we tend to recognize that there are more competitors, there's apartment builders and how many other people who have ever had any experience building anything in the construction industry wanting to be in our business. It is not as simple. It's not like running a property business in the context of the operational risk is significantly high. The day-to-day support and the expertise around security, power, environmental management, and these are all things that have taken us a decade to refine and continue to invest in. These are, for us today, important competitive advantages of being able to offer a national platform, 100% uptime guarantee, DTA certified strategic certification.
All of those credentials give our customers in an enterprise and government sense and in the hyperscale and as a service market, a high degree of confidence that we are a world-class quality operator. The areas that we invest in to press our advantage, sustainability, carbon neutrality, energy efficiency, the designs that we work with closely with our key strategic partners to reduce our operating costs, to reduce the cost to build per megawatt, will allow us to continue to provide our customers not only with world quality service and the best product, but at an affordable price, and ensure that we can meet our return on invested capital benchmark. I think, we recognize that there's more competition, there's more capital. Everybody wants to eat our lunch. We've got a decade of experience in running a world-class quality business, and we are going to press our advantage. Thanks, Ross.
That's great. Just a second one. It's more about the rate and speed of deployment of some of the hyperscalers. There are a couple of 6 MW orders at M2 in early 2020 to start to get rolled out in second half 2021. You know, how have they gone? And I guess a high level question, are you seeing the ability of those larger players to deploy much quicker than they have in the past? And if so, kind of how far, how much quicker, how much faster are you seeing that?
Look, I think the answer to this question is, again, it's sort of it will be what it will be. If we look at larger providers, they tend to also be customer-led. I mean, putting yourself in a position to have a land bank, have services in place, be able to take an order from a client and deliver it within a reasonable timeframe. That's what most global data center developers are, you know, focused on serving their customer and being able to move quickly. Time to market is critically important, which is why our land bank is critically important. We're in a position today to be able to take advantage of that, to secure strategic sites in every major market, you know, including our future focus on Asia, to allow our customers to move with us.
We move with our customers based on the regions and the priorities that they have. Even customers who build and develop capacity themselves can't build it all. They don't have all the resources. They don't have every market. Putting yourself in a position to move quickly and be successful is an important piece of our strategy. As it relates to, you know, others building, and providing capacity, generally no one builds ahead. You know, there's the odd speculative build here and there, but it's certainly not the standard in the industry. Putting yourself in a position to work closely with a customer is critically important because designs are changing as well. You know, the volume of mechanical electrical engineering change that I've seen in the last two years is more than we probably saw in the eight years before that. Those are all important factors as well, Ross.
That's great. Thanks, mate.
Thank you. Your next question comes from Todd Voigt from Ranger Global. Please go ahead.
Yes, thank you all. You know, Craig, we're speaking about kind of that wall of capital that's out there. You know, I know at one point there was discussions about potentially looking at joint venture partners, creating joint ventures for either developed existing data centers and/or development. I just would love your view on kind of the progress made in terms of looking for joint venture partners for either joint ownership of existing or development data centers.
Thanks, Todd. Yeah, look, that's an important topic still on our mind, still part of our planning process, reviewing what we do, particularly as it relates to a development of the size of S4, some of the countries and markets that we're looking at entering, obviously in Asia. I was only having this conversation, you know, recently with the CFO of Digital Realty, Andy Power. I'm sure you know Andy, Todd. You know, we're talking about the changes that they have recently made, the investments they've made in the REIT in Singapore and how they're managing some of those, more mature assets in the portfolio. It's really interesting to sort of hear how someone of their size and scale thinks about maximizing their, you know, financial strength at AUD 70+ billion or whatever they are.
Yeah, it's very, very much on our mind. We continue to talk with key parties about what that will look like in the future. While we haven't made any hard decisions at this point in time, we have fantastic optionality. There's no question that we have a long and deep queue of people wanting to get into the detail with us in regards to how we might think about, you know, the best long-term capital structure for the business as some of those assets start to mature, and what some of those larger hyperscale campuses might look like and how they would be constructed over time for the most efficient return on invested capital. It is very important, but I don't have any definitive answer for you at this time, but we are thinking very much about that topic right now.
Are you seeing at all a shift in pension capital or otherwise that is maybe now more willing to accept either development risk and/or lease up risk? Or is the capital still heavily skewed towards kind of stabilized, long let steady assets?
Well, I think the answer is probably both, Todd. You know, there's depending on the type of fund, some have a desire to have a lower risk profile, but have a much lower rate of return. They just want the REIT operating structure. Others, quite surprisingly, in more recent time that would have only been interested in the underlying land or building structure are recognizing that important for them to get a ticket to the dance. They have to be prepared to do more than just bring low cost money. I mean, there's low cost money everywhere. The market is awash with low cost funds, and those low cost funds are hard to distinguish as it relates to value from one trillion-dollar fund to the next.
I think the most important question that operators will answer in that regard is which of these partners brings the most value? We know what value we bring, but what value will that JV partner bring? That's an important consideration for us as well.
Sure. Thank you. If I could, one last quick question. We've seen in European tower cos kind of a blurring of lines between towers and data center and backhaul fiber. Leasing transactions in the U.S. have furthered this blurring of the lines. Just would love your view on Australia. What does that line look like between kind of the towers and kind of data center owners? Is there opportunity for, you know, a similar blurring of lines?
Yeah, look, this is a really interesting question, Todd. You would remember Steve Smith, who was the President and CEO of Equinix, who's on our board. We were just having this conversation yesterday about American Tower, the CoreSite acquisition, you know, chatting with the CoreSite team recently about the strategic rationale behind that investment. There's no question that, you know, the volume, the weight of funds looking to secure quality assets in the tower and data center market, there are very, very few assets, particularly in the public market left today. You know, we were only just discussing with some of the other global players that when you consider that CyrusOne, CoreSite, and go back a little further, Telx, Interxion recently, all of our global peer comps in the public listed market has largely been taken out.
Today we are really left with GDS in China and ourselves. When you look at the market, the universe of public data center assets is very, very small. The volume of activity in the private markets in that regard is significant. The volume of capital attracted to investing in digital infrastructure assets, whether they be towers or data centers, is larger than it's ever been in history today. So they're still public right now, but there is no question that there is a significant shift in the capital markets and the view on the value as it relates to the long-term quality digital infrastructure assets. So, we're one of the few left, my friend. Interesting time.
Absolutely. Well, Craig, thank you so much. Have a great day.
Thanks, Todd.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Siraj Ahmed from Citi. Please go ahead.
Morning, Craig. Just a quick question. There's clearly some M&A costs in the first half results. I'm just wondering whether this is related to AUCloud or should we be thinking about future M&A as well?
Thanks, Siraj. Look, we remain highly disciplined in the context of, you know, our M&A reviews. We had some expenses in relation to our strategic investment in the AUCloud team. You know, it's relatively small. It's a modest investment. That's an important piece for us just to get a little deeper knowledge and insight into both government and what's happening in that private infrastructure as a service layer. You know, we think about the role that we play today, at the data center as a service, the network as a service, that infrastructure as a service layer is the next layer in the stack. So just getting a little more insight into how we can be successful supporting customers and then having some strategic partnerships. Some modest investments in that category is what you should continue to expect to see us doing there.
We looked at a significant number of parties in that regard and found that in the case of AUCloud, we're actually able to help them expand their business into state government by helping them grow their platform with us. They'll deploy in Brisbane, they'll deploy in Adelaide, they'll deploy in Perth, eventually in Melbourne. It's a good partnership and, you know, I'm quite excited about Phil and his team and what he's building there and to watch that segment closely. We did look at a number of other opportunities during the course of the half. There are some expenses in relation to further M&A reviews.
The key challenge for us has been as it was previously, and that is we find it hard to identify quality assets that meet our quality standards, as it relates to the data center and how it operates. It's a challenge, but it will be just a, you know, something that we continue to do. We look at every deal, but we remain highly disciplined. It would have to be a very, very good quality asset in order for us to want to put our brand and reputation and 100% service level guarantee behind. It doesn't mean that we don't look at everything and make important considerations in relation to, you know, particularly expanding in key markets. It is easier, to some extent, to buy an existing operating business.
That ease of buying may become a nightmare in the context of operating if you buy the wrong asset. We will have and continue to remain highly disciplined as a M&A reviewer.
That's quite clear, Craig. Just one clarification on that. Regarding the assets that are meeting quality standards, are we talking about Asia or is that in Australia as well?
We're talking about Australia, we're talking about infrastructure platforms, we're talking about security, we're talking about networks, we're talking about data centers, and we're talking about all of Asia-Pacific and Japan.
All right. Thanks.
Thank you. Your next question is a follow-up question from Tim Plumbe from UBS. Please go ahead.
Hi, guys. Just one last question from me. Most of them have been asked, but just when we're thinking about the pipeline of megawatts contracted, I mean, it sounds like second half 2022's largely covered. Sounds like second half 2023 with those additional wins in M3 looks to be covered. How do we think about the first half of 2023, are deals that are signed in the second half of FY 2022 able to be deployed in the first half of 2023? Or should we think about FY 2023 as probably being a year where more is activated in the back end half?
Tim, I'll share this one with Oskar. I'll start off by saying we have had a very significant start on the enterprise side. Many of you might have read how much activity is going on in the satellite industry, most recently in Australia, and we've had some very, very significant wins in enterprise supporting national deployments for what's happening in the satellite and space industry. We're very excited about that particular segment of the market as you know, obviously everything in the network space is growing. The first half, the team have done a wonderful job. You know, we wanna win more than our fair share in the enterprise, that's for sure. They're already off to a cracking start to the second half.
As it relates to the timing and activation, that's absolutely a forecasting question. That's for Oskar and Greg down to the, you know, brass tacks every day. Oskar, if you wanna just give some thoughts on that.
Yeah. Thanks, Tim. Very difficult for us to comment on the timing of deals that haven't landed yet might impact our financials. As a general rule of thumb, it's nine to 12 months following signing that larger deals tend to go live. Obviously the timing will be impacted by when those deals get signed. Beyond that, any sort of specific detailed modeling questions, I'll refer you back to Craig.
Got it. Thanks, guys.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Scroggie for closing remarks.
Thanks very much, Noah. Ladies and gentlemen, thanks for joining the call today. As always, last comment is I'd like to thank our investors for their continued support and our amazing staff for their extraordinary efforts, that are reflected in these great results today. Thank you all for joining the call. I'm sure we'll talk again soon. Goodbye for now.
That does conclude our conference for today. Thank you for participating. You may now disconnect.