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Speaker 1: The information provided in this program is of a general

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Speaker 1: nature and is not intended to be personalized financial advice.

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Speaker 1: We encourage you to seek appropriate advice from a qualified

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Speaker 1: professional to suit your individual circumstances.

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Speaker 2: I'm taking you.

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Speaker 1: Inside in Frattill's biggest growth project, this multi billion dollar

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Speaker 1: data center business.

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Speaker 3: We're right in the heart of things. If you want

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Speaker 3: to do anything in the modern economy, almost has to

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Speaker 3: come through this facility, right, So that's what's driving our conviction.

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Speaker 3: It's right in the heart of everything you might want

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Speaker 3: to do in a modern economy.

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Speaker 1: This is the first time anyone has been allowed to

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Speaker 1: take cameras inside in New.

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Speaker 2: Zealand data center.

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Speaker 1: I've got us access thanks to these executives, Jason Boyce

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Speaker 1: and Andrew Kirker. Andrew heads up CDC Data Centers in

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Speaker 1: New Zealand, and Jason is the CEO of Infratil, which

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Speaker 1: owns half of CDC. I'm not allowed to tell you

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Speaker 1: actly where in Auckland we are for security reasons. My

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Speaker 1: cameraman and I had to get clearance to enter the site.

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Speaker 3: It's like a prison.

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Speaker 2: We're limited in what we could show you. Now it'd

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Speaker 2: stop rolling here because a spirit.

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Speaker 1: Gotta get thing here, but we were escorted into data

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Speaker 1: halls like this, where all online information can be stored

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Speaker 1: on servers. They couldn't tell me how much power this

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Speaker 1: center uses because it changes often, but it does take

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Speaker 1: it from the grid with backup generators on site. For

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Speaker 1: all of this tech equipment, centers have to be temperature controlled,

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Speaker 1: so this place has a water fueled cooling system that

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Speaker 1: allows it to host the world's most powerful supercomputers, meaning

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Speaker 1: it's levered up for the AI boom Infratil first invested

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Speaker 1: in CDC in twenty sixteen. The value of that stake

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Speaker 1: has increased it by ten times to now be worth close.

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Speaker 2: To five billion dollars.

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Speaker 1: It's the infrastructure investors just strategic play to get on

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Speaker 1: the artificial intelligence bandwagon. It just raised one point one

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Speaker 1: billion dollars from investors to help pay for its expansion.

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Speaker 1: That's what I started asking Jason Boyce about in this interview.

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Speaker 2: You asked for quite a bit, but you got it.

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Speaker 3: Yeah, we really did.

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Speaker 1: Why did you feel like you needed to go out

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Speaker 1: and ask for more than one billion dollars, especially at

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Speaker 1: a time like this.

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Speaker 3: I had a nice ring to it. Obviously, the one billion.

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Speaker 3: The look really as we said at the time, there's

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Speaker 3: a lot of growth in places mostly later this right

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Speaker 3: at City C that we felt it was prudent at

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Speaker 3: that time to get the funding sorted for now. And

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Speaker 3: every day we've had it done, we feel better that

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Speaker 3: we've got it done already, right because the world is

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Speaker 3: a volas whole place, and who knows what the balance

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Speaker 3: of this heat will bring. So the timing felt really good,

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Speaker 3: and you know, when you think of it from a

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Speaker 3: shareholder perspective, I think a lot of people sort of

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Speaker 3: nodded their head and said, yeah, actually, this is a

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Speaker 3: really important trend. We want access to it, and we

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Speaker 3: don't want you do funded at the last minute, and

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Speaker 3: maybe at least advantageous terms, depending what's happening at that time.

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Speaker 1: We are going to unpack all of the conviction. But

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Speaker 1: on a top line level, what about the market? What

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Speaker 1: about AI? Artificial intelligence gives you and in fortil such

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Speaker 1: high conviction that this is data centers are a good

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Speaker 1: play right now.

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Speaker 3: I mean I think they've been a good play for

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Speaker 3: a while by the way, now as a particular peak

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Speaker 3: where it's got lots of people's imagination as well. But

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Speaker 3: actually if you dive back three years just around the

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Speaker 3: time of COVID, it went through a massive inflection point

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Speaker 3: then as well, right when everything migrated to the cloud

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Speaker 3: quite quickly. Is remember as we all had to work

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Speaker 3: from home and sort of the lesson we've taken away

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Speaker 3: from that really is that our lives really revolve around

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Speaker 3: this sort of infrastructure and CDC's right at the heart,

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Speaker 3: right bit communications is just another element of it. And

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Speaker 3: so the world's going to go through these kind of inflections.

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Speaker 3: There's new technologies as things in the environment require us

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Speaker 3: to use these things more and more. And I think

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Speaker 3: what happens in these periods is the value of a

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Speaker 3: business light CDC sort of gets revealed rather than new

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Speaker 3: value created. We're right in the heart of things. If

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Speaker 3: you want to do anything in the modern economy almost

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Speaker 3: has to come through this facility, right, So that's what's

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Speaker 3: driving our conviction. It's right in the heart of everything

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Speaker 3: you might want to do in a modern economy.

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Speaker 2: Where is the customer demand coming from.

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Speaker 1: Apparently you're receiving four hundred megawatts of capacity from customers

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Speaker 1: to come online to these CDC data centers in the

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Speaker 1: next four to five years. These modernization projects. Is the

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Speaker 1: cybersecurity How critical is this?

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Speaker 3: It changes all the time, right and clearly right now

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Speaker 3: the biggest workloads are for the world's biggest technology companies,

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Speaker 3: and a lot of their focus at the moment is

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Speaker 3: on deploying their artificial intelligence infrastructure globally where they need it,

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Speaker 3: how they think it will be needed session not tomorrow really.

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Speaker 3: I mean we're all using bits and pieces now, but

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Speaker 3: there's businesses have to think four, five, six, seven, eight,

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Speaker 3: nine years and a head, right, and so they're provisioning now.

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Speaker 3: Governments did this more right for things they know are

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Speaker 3: going to be happening in five to sixty this time.

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Speaker 3: It's a great luxury that they have. So that's mainly

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Speaker 3: where the current peak is coming from. But I have

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Speaker 3: no doubt there'll be others. The things you mentioned have

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Speaker 3: definitely been big in the past, and a slower economy,

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Speaker 3: things like technology modernization projects, they probably get pushed to

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Speaker 3: the backburner, right, but they will come forward again. Cybersecurity

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Speaker 3: is always going to be an ongoing issue. So those

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Speaker 3: are the kinds of reasons why we like the sector, right.

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Speaker 3: There are multiple ways they can win.

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Speaker 1: You mentioned something really interesting in your previous answer is

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Speaker 1: that almost everything in the modern economy is going to

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Speaker 1: have to come through a data center like this. Are

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Speaker 1: we talking government institutions in terms of customers or are

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Speaker 1: we talking every single business, big and small right through

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Speaker 1: to your small to medium enterprises in this country.

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Speaker 3: Yeah, I mean it's more than even business, right, I

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Speaker 3: heard that. I think it's the United Arab Emirates have

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Speaker 3: provisioned a large language model for every student in their

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Speaker 3: country right to provide tailored personalized learning for individual students.

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Speaker 3: The healthcare system will have to have huge deployments in

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Speaker 3: these facilities, as modern healthcare and just the need for

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Speaker 3: efficiency drives it. Communications networks all have to sit in

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Speaker 3: these facilities. I mean. One interesting thing that gives us

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Speaker 3: a little bit of conviction as well, right is people

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Speaker 3: will be talking forever about how land was getting so expensive,

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Speaker 3: and they call them the flats markets, the big markets

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Speaker 3: in Europe Frankfurt, London, as to dam Paris or Virginia

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Speaker 3: where most of the world's data centers are. But they

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Speaker 3: keep building data centers there. It doesn't actually matter what

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Speaker 3: it costs, because once you have all that infrastructure in place,

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Speaker 3: the value of being next to it versus somewhere else

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Speaker 3: is so high that it creates its own kind of momentum,

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Speaker 3: and that's sort of part of it as well. Once

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Speaker 3: you're in the communication networks, are in your track record

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Speaker 3: is clear actually going somewhere else to provision that sort

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Speaker 3: of service? Why would you on the.

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Speaker 1: AI point and what equipment is in here to actually

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Speaker 1: leverage the AI boom? Is this place stacked within video

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Speaker 1: GPUs or is this still CPUs? Very technical question, but

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Speaker 1: I want to understand how get up this place is

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Speaker 1: for AAR.

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Speaker 3: Yeah, I wouldn't know in a particular building, to be honest,

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Speaker 3: and it's kept reasonably confidential. We do have those deployments

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Speaker 3: in our network somewhere, and what we do though is

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Speaker 3: create the environment where those computers can work really, really well,

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Speaker 3: which is a lot about the calling and a lot

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Speaker 3: about the amount of power you can get to the

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Speaker 3: racks and pods. So we think our facility is a

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Speaker 3: really well placed to do that because we've always used

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Speaker 3: liquid calling in our data centers for various reasons, and

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Speaker 3: that is where the world is heading. We've always had

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Speaker 3: very flexible power architecture, so weing get more power to

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Speaker 3: our data halls than anyone else, and that is where

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Speaker 3: the world's heading. So better it'd be lucky than good.

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Speaker 3: I guess some smart people said, so we've been quite

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Speaker 3: lucky in that respect.

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Speaker 1: You're going up against the guest players in town. We're

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Speaker 1: not talking small competitors here, Google Clouds, Microsoft, Amazon Web Services.

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Speaker 1: Why get into a business where you're going up against

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Speaker 1: the biggest hyperscalers, the biggest companies in the world.

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Speaker 3: Well, they're more our partners than competitors and a lot

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Speaker 3: of this so they're experiencing a lot of growth that

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Speaker 3: they at different times would like us to help them

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Speaker 3: with it, and that is what we can do. Also,

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Speaker 3: we have relationships with customers and Australia famously, OCBC has

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Speaker 3: been a great partner to the Australian government and has

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Speaker 3: a lot of Australian Government customers. And so when anybody

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Speaker 3: really wants to do business with them, technically they should

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Speaker 3: really be in our data center and in the environment

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Speaker 3: we provide. So yeah, I prefer to think of it

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Speaker 3: as more a partnership than in a competitive relationship, and

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Speaker 3: that's proven to be true for a long time now.

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Speaker 1: What Jason is talking about here is referred to as

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Speaker 1: co location. The hyperscalers are customers of CDC, Google Cloud,

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Speaker 1: Microsoft Azure, and Amazon Web Services all rent space here

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Speaker 1: to house critical systems and equipment that power the cloud.

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Speaker 1: It's partly a diversification strategy that spreads the risk between

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Speaker 1: their own and third party sites. But they're spending billions

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Speaker 1: building their own data centers in New Zealand, which may

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Speaker 1: eventually pose a risk to CDC. Will that competition come then,

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Speaker 1: because then they I assume they'll be selling that to

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Speaker 1: customers saying we have domestic data centers that you can

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Speaker 1: use which competes with CDC.

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Speaker 3: Yeah. Yeah, I think it's prouten to assume it does

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Speaker 3: become more competitive in the future. That's how we would

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Speaker 3: think about any investment. You don't assume that your margins

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Speaker 3: will stay the same forever. You should assume they can

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Speaker 3: tract to a pretty stable norm over time. So that's

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Speaker 3: what it's sort of that sort of the planning for

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Speaker 3: the worst, and then there's the sort of hope for

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Speaker 3: the best, right, which is a lot of how you

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Speaker 3: manage your business, keeping an eye on exactly what and

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Speaker 3: supply really is and whether or not we think we're

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Speaker 3: reaching that point where actually there's going to be a

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Speaker 3: lot of competition and we should look to move on.

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Speaker 3: And that's kind of the power of infertil really is

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Speaker 3: that over time, if you don't like a sector you're in,

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Speaker 3: you can move on. And this is definitely not one

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Speaker 3: of those ones we think is in moving on territory

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Speaker 3: at all, But that's the flexibility we have at any

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Speaker 3: given time and.

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Speaker 2: Others like risk.

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Speaker 1: I can imagine with a data center business obviously a

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Speaker 1: great business to be in, but customers' businesses, they will

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Speaker 1: be deciding whether or not to go external and house

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Speaker 1: their information in the cloud that Likess Data center or

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Speaker 1: hold it on premise.

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Speaker 2: Talk to me about that thematic and.

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Speaker 1: How much of a risk you see that being, especially

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Speaker 1: at a time where operational expenditure is tough.

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Speaker 3: Yeah, it sort of felt like we went through that.

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Speaker 3: That was the original thesis actually when we first invested

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Speaker 3: in CDC in twenty sixteen, that this would happen, and

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Speaker 3: to be honest, it didn't happen as fast as we

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Speaker 3: hoped for the first four years actually of the investment,

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Speaker 3: and a lot of that was business procurement programs took longer,

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Speaker 3: you know, government procurment programs took longer, and frankly it

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Speaker 3: was easier just to extend what you already had for

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Speaker 3: another year rather than like do a big shift into

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Speaker 3: something like this. But COVID really changed all that, and

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Speaker 3: really people were forced to move out quite quickly so

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Speaker 3: that they could access the types of services that really

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Speaker 3: are only available in the cloud, whether you're talking teams

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Speaker 3: or whatever. So I sort of feel like my kind

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Speaker 3: of personal view would be that's largely done. But we

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Speaker 3: do still find that people really only move to us

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Speaker 3: when their existing data center is clearly end of life

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Speaker 3: or they're going through their own technology upgrade. So it's

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Speaker 3: not really an on premise, off purpose decision. It is, Okay,

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Speaker 3: I really have to do my tech now, it's probably

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Speaker 3: going to be cloud based for all reasons that cloud

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Speaker 3: has proven to be useful. Hold that thought on the

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Speaker 3: cost side, so that's actually when we find people to

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Speaker 3: move to us, so and that I think is driven

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Speaker 3: mostly by their general economy, how people sort of feel

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Speaker 3: about it.

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Speaker 1: Right on the cost side, one are the potential risks

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Speaker 1: you see there because there's this term bill shock that

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Speaker 1: gets thrown around and it's effectively a subscription model. You

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Speaker 1: seen them a bill every single month and they're going

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Speaker 1: to have to keep paying that for as long as

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Speaker 1: their information stays housed here.

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Speaker 3: Yeah. Yeah, that's right, and that's really competition amongst those

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Speaker 3: large service providers is what you need, right to ensure

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Speaker 3: that that doesn't get out of hand. And also, you know,

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Speaker 3: in our other businesses, we always think about, well, we

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Speaker 3: don't want to be wedded to one particular supplier. If

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Speaker 3: you can create a framework that it enables you to

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Speaker 3: plug and play multiple providers over time, so you're not

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Speaker 3: totally beholden to one, then that's kind of the ideal outcome,

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Speaker 3: isn't it. But you know, your advantages in terms of security.

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Speaker 3: If you're dealing with anybody's personal information a cloud, the

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Speaker 3: boardman should be way more secure right over time because

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Speaker 3: it's automatically updating in the background than your own on

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Speaker 3: premise one that some antiperson has to go and make

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Speaker 3: sure they're updating and those sorts of things. So I

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Speaker 3: think the benefits will be good. But certainly, when you're

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Speaker 3: setting up in your system, if you can find a

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Speaker 3: way to retain some level of competition, that's a better

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Speaker 3: place to be, isn't it.

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Speaker 1: What is the earnings potential, the earnings upside of a

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Speaker 1: business like this if we look at it like as a

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Speaker 1: subscription model, but also.

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Speaker 2: Just a sheer Land banking model. I mean, this place

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Speaker 2: is huge. How do you view that? On paper? It

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Speaker 2: sounds pretty great, I.

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Speaker 3: Think the big question for data centers, right, so we

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Speaker 3: have all these contracts up front and out. The length

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Speaker 3: of our original initial contracts quite long, and well every

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Speaker 3: ten years on average. The big question really is, and

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Speaker 3: that's easy to value. The big question really is, you know,

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Speaker 3: how long was this a second the last fifty years?

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Speaker 3: So what will they renew? What will be the renewal rate?

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Speaker 3: Will people leave at those times? And those are the

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Speaker 3: sorts of things that are much harder to predic because

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Speaker 3: they're at further in the future. That's where the real

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Speaker 3: valuation questions arise. I think for something like this, which

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Speaker 3: is where your point about competition is super relevant. Right,

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Speaker 3: will there be a point in the future where you

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Speaker 3: face competition from maybe one of our customers say saying, well, actually,

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Speaker 3: if you ship your data through a fiber network cable,

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Speaker 3: we'll provide you much better services. So we think we

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Speaker 3: have some Unix selling points obviously, but that's the big

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Speaker 3: question if you're wondering about how I value this business

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Speaker 3: and how does it grow?

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Speaker 1: Well, the valuation of this business, as we know, has

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Speaker 1: increased enormously.

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Speaker 2: We're saying before.

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Speaker 1: It seems like every month you're revaluing this place at

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Speaker 1: hundreds of millions of dollars more.

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Speaker 2: It's now worth almost five billion dollars just your stake

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Speaker 2: in it, which is just shy of half.

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Speaker 1: So really a ten billion dollar business. How do you

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Speaker 1: actually value that? What does that methodology look like? Does

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Speaker 1: it take into account earnings?

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Speaker 2: How do you come up with that?

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Speaker 3: For absolutely? So you can sort of think of it

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Speaker 3: in two parts. Really. There's one, which is the existing business,

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Speaker 3: which has a bunch of leases if you like, where

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Speaker 3: people are agreeing to pay you cash flow. So that's

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Speaker 3: very easy to value for anybody. And then the harder

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Speaker 3: piece really is we've got all these bits of land,

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Speaker 3: like just across the road here, right, sort of when

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Speaker 3: do you assume that's built? What rate do you assume

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Speaker 3: that's leased up at? That's something that we obviously take

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Speaker 3: a view on. But also in the case of the

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Speaker 3: valuation you just mentioned that independent value outtakes of you

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Speaker 3: on Okay, well, I think I can see you're this

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Speaker 3: big in the market, your annual absorption rate is this much.

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Speaker 3: The market's growing by this much. I will value your

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Speaker 3: ability to get your fash share of that or maybe

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Speaker 3: a bit more on this basis the answer. It's two parts.

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Speaker 1: Well, the reason I ask, and I'm probably jumping the

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Speaker 1: gun here, but investors will be wondering when do you sell?

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Speaker 1: Because these prices, if you can sell at this current

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Speaker 1: market multiple would be an incredible return already ten times.

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Speaker 2: What you first invested in twenty sixteen.

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Speaker 3: Would you consider sell losing? Well, never say never, It's

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Speaker 3: not on our mind today. There's a lot to be built,

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Speaker 3: right and the equation for us always, whether it's CDC

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Speaker 3: or Long Road in Australia or TILL renewables, which we

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Speaker 3: did end up selling on the end, is where are

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Speaker 3: we add on that growth curve? Do we think the

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Speaker 3: market will pass more more for growth than there actually

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Speaker 3: is in this business that we believe anyway that justifies

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Speaker 3: removing ourselves from the sector or downwaiting in the sector.

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Speaker 3: It doesn't feel like the right time to be doing that.

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Speaker 3: I think we always keep an eye though, on where

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Speaker 3: the market is pricing these things and who is out

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Speaker 3: there who would be interested, right, And I'm not just

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Speaker 3: talking about CDC, that's generally so you can you know,

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Speaker 3: we definitely take that part of our job really seriously.

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Speaker 3: We do it every day, so you can be sure

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Speaker 3: that we're tracking this for all of our investments all

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Speaker 3: the time.

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Speaker 1: Well, on the flip side, would you be willing to

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Speaker 1: increase your stake these indications that co owners and CDC

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Speaker 1: may be looking for an exit?

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Speaker 3: Yeah, I don't know about that. I think always with

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Speaker 3: when it comes to buy al sell decision, it just

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Speaker 3: comes down to valuation, right. We have to be really

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Speaker 3: dispassionate about these things. Having said that, the thing that

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Speaker 3: makes these places so special is actually the management team

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Speaker 3: in the case of this one, like many of our

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Speaker 3: incredible teams, so you would definitely back them.

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Speaker 2: I think we want's talk about your other investments.

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Speaker 1: Is there anything else you'd consider adding to that and

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Speaker 1: mix any other thematics that.

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Speaker 2: You think invertel could and should be early.

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Speaker 3: On always, I think I think we're always looking for

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Speaker 3: something that has that feel to it, right, something you

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Speaker 3: could take and be big everywhere. And you know we've

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Speaker 3: started at healthcare. I do really like elements of that space,

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Speaker 3: and I like, I think it fits our values to

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Speaker 3: be trying to help in an area where we can

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Speaker 3: bring some capability, our corporate capability to something that's obviously

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Speaker 3: very sensitive but important to people and we need more of.

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Speaker 3: But I think in and around renewable energy as well,

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Speaker 3: there are plenty of things there right that the world's

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Speaker 3: going to need to get us where we need to

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Speaker 3: be from a decabinization perspective, whether it's recycling the batteries

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Speaker 3: that we're all sitting on when we drive around in

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Speaker 3: our cars, or you know, smart ways to use all

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Speaker 3: the different types of generation and storage, which is a

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Speaker 3: very digital feel to it, right, but it's actually the

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Speaker 3: core of what we've always done and again could expand

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Speaker 3: and be global. So I think we're always looking for

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Speaker 3: things that are in and around what we've got or

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Speaker 3: have a similar feel to it, but they have to

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Speaker 3: be able to scale or it's not really worth our attention,

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Speaker 3: and frankly everyone's attention because it's getting quite big now,

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Speaker 3: is the matter? Right? Yeah, it's got to matter. I

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Speaker 3: like that might have made that up. It's good, it sticks.

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Speaker 2: What do you think Lloyd Morrison would make?

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Speaker 3: Yeah?

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Speaker 2: Not only this data.

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Speaker 3: He would Yeah, yeah.

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Speaker 2: What do you think he'd say walking around this place today?

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Speaker 3: Yeah? Said could you make it bigger? Probably Karen Jack quickly, Yeah,

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Speaker 3: I know who would be right into this. I think

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Speaker 3: he'd be I think he'd be heavy. But you should

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Speaker 3: ask Mike and Rob see what they'd say as well.

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Speaker 2: I'd love to that. It'd be amazing.

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Speaker 1: That's what brings me here to Wellington with a late

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Speaker 1: Lloyd Morrison started and fort till thirty years ago. I'm

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Speaker 1: here to talk to his brother Rob Morrison, who carried

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Speaker 1: on his legacy.

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Speaker 3: He loved an argument. He and I used to argue

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Speaker 3: all the time.

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Speaker 1: And the former chief executive will take us behind some

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Speaker 1: of its most historic deals.

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Speaker 3: Morrison and weren't everyone's favorite organization. I think he probably

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Speaker 3: he may know that, but so you know, there wasn't

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Speaker 3: It wasn't like everyone was cheering for us.

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Speaker 2: Stay tuned for part two.