Text on screen: PIMCO

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Text on screen: Kirill Zavodov, Executive Vice President, PIMCO

Zavodov: Russell, it's great to have you here today to talk about the European data centers and to hear your insights. We're excited by the momentum for the space at the moment and the opportunity that comes with it. To start with, it will be great to touch on how the market for data centers has evolved over the last few years.

Text on screen: Russell Poole, CEO, APTO DC LTD

Poole: Thanks, Kirill. It's great to be here. Demand for data centers in Europe is being driven by increased use of the internet. It's embedded now in everyday life with adoption of cloud services by enterprises and most recently by AI, which is a brand new trend providing massive requirements for increased data center capacity.

Zavodov: Thanks Russell, for the overview. In addition to that, data centers represent the critical infrastructure that underpin the digital economy that is driven by a number of trends, including increased connectivity, and increased density of internet traffic that are now being turbocharged by AI. In this context, how do think about the development of the data centers?

Poole: So the approach we're taking is to build what our customers want, so the data center designs that they need, where they need them to be - so the right locations and crucially when they need them, so that we can allow them to continue to expand their businesses. And that's the lens from the operational side, so what's PIMCO's perspective on this market and particularly Europe, and why is it interesting?

Zavodov: We at PIMCO see data centers as a secular growth theme globally and are therefore making both debt and equity investments, both in the U.S. and Europe. In Europe, we see the opportunity set as more attractive compared to the U.S., as the market is more under supplied and lagging the U.S. by approximately five years as it relates to the installed data center capacity in the largest European data centers - markets like Frankfurt, London, Amsterdam and Paris, with Tier two and Tier three markets even further behind. And this is where we see and expect the most of the growth opportunity to play out over the coming years.

Poole: I completely agree. I think if you look at many of the major markets that are power constrained, we're seeing an increase in the deployment of low latency applications that need capacity in more geographies. And also GDPR data sovereignty is driving increased demand across Europe.

Zavodov: Exactly. That's why we see the opportunity in Tier two and Tier three markets as the most interesting at the moment, as these markets represent a considerable white space for developing new data center capacity. In this context, what is a good data center location?

Poole: Well, to an extent it varies by use case for cloud data centers which are generally more latency sensitive, so we have to be closer to existing cloud infrastructure. AI data centers can be much more flexible, but both need good access to power, both need access to networks, both need to be environments where permitting is possible, so the planning regimes are favorable towards data centers. And also the locations really have to offer an expansion runway so our customers can continue to expand.

Zavodov: What are the challenges for data center investments and is sustainability a factor for consideration?

Poole: Sustainability is an increasing issue within the data center industry. We are very focused on increasing and improving the efficiency of the data centers, measuring power usage effectiveness and really that is all about reducing the amount of energy consumed in cooling your data center.

Zavodov: The investor appetite for the data center sector continues to be very strong with over $48 billion dollars of transaction volumes in 2022 and a number of very large transaction closing in the first half of 2023. What do we need to be successful in developing data centers in Tier two and Tier three markets?

Poole: Well, you need three main things: access to capital, access to real estate and an experienced leadership team. What PIMCO provides is capital, and also very deep real estate knowledge and resources across Europe. We’ve combined that with a very experienced leadership team that's drawn from both operators and consumers of data center capacity to bring together those three main elements in a really compelling package.

Zavodov: Indeed, we have been using our own crowd sourcing capabilities to assemble a pipeline of development opportunities in the data center space of about €4 billion euro of all in cost. In fact, we have already acquired our first asset and have started the development works on site. The data center sector is highly specialized, which requires strong management teams in order to execute on the opportunity. Can you tell us a little bit more on the team that we have assembled for this?

Poole: That's right. The industry is indeed very specialized and to have credibility with customers, you have to have an experienced leadership team and that's what we've pulled together. I've spent 23 years in the industry now with IH Europe and Equinix, leading the largest business unit outside of the U.S., and we’ve pulled together a team that really brings in a tremendous amount of knowledge and experience from the whole industry.

David West has joined us from Digital Realty and Interaction, where he spent 11 years running finance for Europe with responsibility for 14 countries. Chris Baxter joins us from Equinix, and Chris was running hyper scale relationships for Equinix in Europe. And Roger Gough who joins us from AWS where he spent nine years building out data centers across 11 countries developing around about 700 megawatts of capacity. We'll be continuing to expand the team and we expect to be bringing in similarly talented and experienced people.

Zavodov: Thank you, Russell, for sharing your insights and great to hear about the momentum ahead for European data centers. We're excited by the opportunity and look forward to a continued partnership.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO

Disclosure

All $ amounts referenced are in USD unless stated otherwise.

Real asset investments including those in European Data Centers are subject to a variety of inherent risks that may have an adverse impact on the values of, and returns (if any) from, such investments, including: changes in the general economic climate, local conditions (such as an oversupply of space or a reduction in demand for space), the quality and philosophy of management, competition based on rental rates, attractiveness and location of the properties, physical condition of the properties, the financial condition of tenants, buyers and sellers of properties, the quality of maintenance, insurance and management services, changes in operating costs, interest rate levels, the availability of financing, potential liability under environmental and other laws (including costs of remediation and liabilities associated with environmental conditions), energy prices, the ongoing need for capital improvements, tenant default or distress, construction risks, as well as natural catastrophes (such as earthquakes, hurricanes, floods and other natural disasters), acts of war, terrorism, civil unrest, vandalism, uninsurable losses and other factors beyond the control of the Investment Manager. In addition, there is no assurance that there will be a ready market for resale of investments because real estate investments generally are not liquid. Illiquidity may result from the absence of an established market for the investments.

Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that these investment opportunities will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook is subject to change without notice.

Actual events or results may differ materially from those reflected or contemplated in any opinions contained herein. Certain information presented herein is as of a specified reference date, and may have changed significantly since such date.  Neither PIMCO nor any of their affiliates shall have any duty to update any of the information presented herein.

APTO and PIMCO are separate and unaffiliated entities.

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CMR2023-0928-3137038