Sohn Investment Conference, London – 14th November 2019

NextDC (ASX:NXT) - SHORT

Henry Kinnersley

henry.kinnersley@gmail.com
Company Overview ASX:NXT 2

§ NextDC (“NXT” or “the Company”) is an owner-operator of carrier-neutral data centres in Australia

§ Since floatation in 2010 NXT has raised a combined $1.5 billion of debt and equity
§ As of FY2019, NXT operated 58 MW of built capacity across 9 data centres, with plans to triple this by 2022

AUD$m Financial Summary

AUD$
Share Price (AUD$) 6.59
9.0 Shares outstanding 344
Market Cap 2,265 AUD$m Jun-16 Jun-17 Jun-18 Jun-19
8.0 Mkt Cap (USDm) 1,562 Revenue 93 124 162 179
(+) Net Debt 468
EV 2,733 6.59 % growth 33% 31% 11%
7.0
EV/EBITDA 32.1x Gross profit 84 107 134 146
6.0 FCF Yield NA Underlying EBITDA 28 49 63 85
P/BV 2.6x
Net Debt / EBITDA 5.5x % margin 30% 40% 39% 47%
5.0
Net Finance exp. (8) (13) (20) (45)
4.0 Net Profit 2 10 (7) (10)

3.0 CFFO 23 47 33 39
2.0
FCF (66) (102) (322) (475)

1.0 Net Debt (26) 30 (114) 468

Tang. Book Value 317 400 874 853
0.0
Nov-14 Sep-15 Jul-16 May-17 Mar-18 Jan-19 Nov-19

Henry Kinnersley – Nov 2019

Investor Perceptions Underpin NXT’s Premium Trading Multiple ASX:NXT 3

1) Best-in-Class Operator - NXT purports to offer a high-end product at a premium price point.
2) Strong Leasing Track Record – NXT’s “committed utilisation” has kept pace with build out.
3) Industry-Leading Financial Returns - NXT reports a return on capital as high as 39% at its first-generation
centres.

EBITDA Return on Capital: Peer Trading Multiples

39% Mkt Cap EV/EBITDA
33% ($USDbn) FY2019
27% 29% Equinix 45.1 18.2x
16% 21%
14% 21% Digital Realty 24.3 17.6x
11% Interxion 6.2 19.6x
NextDC Coresite 4.2 15.7x
purports QTS 2.8 14.8x
best-in-class Peer average 17.2x
Digital Realty

Coresite

returns
CyrusOne

Next DC 1.6 32.1x

QTS

Interxion

Equinix

NXT S1

NXT M1

NXT B1

Investors rationalise that if NXT can achieve comparable performance at its new data centres it has the potential to
grow quickly and generate strong cash flow within a few years.
Henry Kinnersley – Nov 2019
 Perception 1: Best in Class Operator ASX:NXT 4

§ Reality 1: NXT is operating in a competitive market with its data centres in second-best locations
§ Data Centres in general have high level of homogeneity. Experts describe NXT as a “price taker”
§ NXT’s data centres in Sydney are located further from the CBD / Airport than retail rivals Equinix and Global Switch

Management Claims: Sydney Data Centre Market

"We're not selling widgets. Where the data center
is located is critically important....we are not a NXT S1 & S2
price-led company. We are an operation centers-
of-excellence level organization..And we are a
premium price. "
- Craig Scroggie, CEO

Sell-side Claims CBD

Prime Data
NextDC

"DCs have an above average level of homogeneity Centre Global Switch

and therefore we believe NXT is closer to a price Market
taker than a price maker" Equinix Sites
- Credit Suisse
“There is a high level of competition between NextDC, Airport

Equinix, and a number of other players in the retail

market” - GLG Network
Henry Kinnersley – Nov 2019
 Perception 1: Best in Class Operator ASX:NXT 5

§ Reality 2: NXT is a small-scale operator competing against much larger peers

§ Data centre industry exhibits major economies of scale.
§ Competitors Equinix and Digital Realty are a magnitude of times larger than NXT
§ Competitors are able to provide a global service, catering to businesses operating in multiple regions

Global Data Centre Footprint (sq.m)

“we had to become more global for our customer base.
4 Our customers are all doing business in multiple regions
14
sq.m (Millions)

….Everything in this business is about

3 size…Operating at scale is crucial to compete in this
business”
24 Numbers denote the
2 countries operated in - Andy Power, CFO Digital Realty

1 “being able to target businesses operating in multiple

8 regions is a strong selling point…I’m surprised that
20
- 8 [NextDC] haven’t done that”
1
- GLG Network
Dgital Realty

Equinix

Global Switch

NTT

Keppel DC

NextDC

Henry Kinnersley – Nov 2019

Perception 2: Strong Leasing Track Record ASX:NXT 6

§ Reality 3: There is a growing divide between NXT’s ”billing capacity” and “committed capacity”
§ “Committed Utilisation” has kept pace with build out program, standing at 90% of installed capacity as of FY2019.
§ “Active Utilisation” – i.e. the space on which NXT is actually receiving revenues – has plateaued in recent years,
growing just 10% in 2019

Utilisation Rate KPI Summary

70 Jun-16 Jun-17 Jun-18 Jun-19

Data centres 5 5 7 9
60 Installed Capacity 34.7 36.0 46.4 58.4
Growing divergence
between “Active” and % growth 42% 4% 29% 26%
50
“Committed” capacity Contracted utilisation 26.1 31.5 40.2 52.5
% growth 20% 21% 28% 31%
40
(MW)

% installed capacity 75% 88% 87% 90%

Active utilisation 23.2 29.5 34.3 37.7
30
% growth 27% 16% 10%
% installed capacity 67% 82% 74% 65%
20

10
New Commitments are taking more than 12
0 months to come online
2013 2014 2015 2016 2017 2018 2019

Henry Kinnersley – Nov 2019

Perception 2: Strong Leasing Track Record ASX:NXT 7

§ Reality 4: NXT’s leasing activity is predicated on discounts provided to its largest customer
§ NXT’s largest customer accounts for 31% of its revenues(1)
§ Company disclosures reveal that space was historically leased to this customer at $2-$2.5(2) per MW on a wholesale
basis. Based on this pricing, the largest customer may account for as much as 56% of NXT’s leased capacity

NXT Largest Customer Utilisation

$AUDm FY2015 FY2016 FY2017 FY2018
Largest Customer revenues 17.0 24.4 37.9 44.4
% of revenues from largest customer 29% 27% 32% 29%
Largest Customer Rate ($/MW) 2.5 2.5 2.5 2.5
MW occupied by largest customer 6.8 9.8 15.2 17.8

Average utilised capacity 12.3 18.6 26.4 31.9

% capacity occ. by largest customer 55% 52% 58% 56%

A great way to fill space but is this a viable business model?

“there’s a lot of incentive if someone comes a long and says hey we’ll take half this building off your hands at this
rate, which might be almost a cost of capital type rate” - GLG Network

(1) As of 2018. In FY2019 NXT disclose that its two largest customers accounted for 36% of revenues but do not provide a breakdown.
(2) This is corroborated by sell side analysts who estimate the Company’s wholesale pricing at approximately $2-2.5m/MW. Henry Kinnersley – Nov 2019
Perception 2: Strong Leasing Track Record ASX:NXT 8

§ Reality 5: A number of NXT’s key customers appear to be related parties

• NXT leases capacity to a number of entities connected to its founder and major shareholder Bevan Slattery. These
include ASX listed companies Superloop and Megaport as well as a number of their subsidiaries. NXT recently
announced that Superloop had signed as the cornerstone tenant at its new data centre in Perth.
• Other current / former related party customers include Morgans(1) and Tech Mahindra (2)

NXT’s Chief Accounting Officer is

the former CFO of Superloop
NXT Related Customers
Customer Relation
Megaport Founded by Bevan Slattery
Superloop Founded by Bevan Slattery
BigAir Subsidiary of Superloop
APEXN Subsidiary of Superloop
Morgans Advisor and related to Former Executives
Tech Mahindra Shared Chairman pre 2015

Circular Revenue streams with Superloop

Source: businessnewsaus.com
(1) A blog post from NXT in 2014 stated that Morgans was a tenant at its B1 Brisbane Data Centre
(2) NXT’s former chairman (2011-15) Ted Pretty was also chairman for Tech Mahindra’s AZNAC operation (2012-15) Henry Kinnersley – Nov 2019
Perception 3: Industry Leading Returns ASX:NXT 9

§ Reality 6: NXT’s EBITDA pre-2019 was boosted 8% by aggressive revenue recognition

§ Project fee revenue is charged for one-off set up costs associated with the onboarding of new customers
§ Although fees are charged upfront, associated costs are typically incurred over the course of the contract
§ New accounting rules introduced in 2019 revealed NXT had historically recognised project fee revenue as it was
charged. This is against industry practice and would have inflated NXT’s EBITDA during its initial expansion phase.

AUD$m FY2018
EBITDA pre accounting change 62.6
Adjustment to project fee revenue (5.2)
EBITDA post accounting change 57.4
% overstatement 8%

Project revenue includes one-off setup costs for

new customer fitouts, standard establishment fees
for new services, remote hands and other service

Henry Kinnersley – Nov 2019

Perception 3: Industry Leading Returns ASX:NXT 10

§ Reality 7: NXT’s recurring capex payments appear to be as much as 6x higher than peers
§ NXT’s payments for intangibles equated to 7% of revenues in 2019.
§ Although NXT does not provide a breakout of Maintenance capex, recurring payments at its stabilised Brisbane
data centre equated to 10% of revenues between 2017 and 2019(1)

B1 Data Centre Brisbane Stabilised Asset Recurring capex % of Revenues

AUD$m Jun-15 Jun-16 Jun-17 Jun-18 AUD$m Maint. Intang. Total
Revenue 11 14 15 16 Equinix 3% - 3%
Built Capacity (MW) 2.25 2.25 2.25 2.25 Digital Realty 3% - 3%
Billing Utilization 78% 93% 93% 92% Interxion 3% 2% 5%
Capex 2 1 2 Coresite 1% - 1%
QTS 1% - 1%
AUD$m 2017-18 Average 2% 0% 3%
Incremental Capex 3 NextDC 10% 7% 17%
Revenues 30
Maintenance capex % of revenues 10%
NXT’s recurring capex
payments 6x higher than
peers as a % of revenues
Recurring capex at NXT’s stabilized asset
equates to c. 10% of revenues

(1) Between 2017 and 2019, NXT spent a combined $3 million of capital expenditure at its Brisbane B1 Data Centre vs cumulative revenues of $30 million.
Henry Kinnersley – Nov 2019
Perception 3: Industry Leading Returns ASX:NXT 11

§ Reality 8: After adjusting for recurring capex payments, NXT’s ROIC falls to 6%
§ Stripping out NXT’s WIP balance and factoring in recurring capex (assumed at 15% of revenues), the Company’s
estimated ROIC in 2019 was just 6.1%.
§ At this level, NXT will struggle to service its rising debt pile, which as of 2019 stood at 5.4x EBITDA

ROIC Calculation Fixed cost coverage

AUD$m Jun-18 Jun-19 AUD$m Jun-17 Jun-18 Jun-19
Revenues 170 Interest costs (19) (26) (55)
EBITDA 85 APAC rent (13) (14)
(-) Recurring capex (15% of revenues) (25) Finance costs (+) rent (32) (40) (55)
EBITDA (-) Recurring Capex 60
Gross PP&E ex. WIP & APDC Assets 475 804 EBITDAR 62 76 85
(+) APDC and RoU Assets 339 339 (-) recurring capex (19) (23) (25)
Adj. Gross PP&E 814 1,142 Adj. EBITDAR 44 53 60
Average Gross PP&E 978 Coverage 1.4x 1.4x 1.1x
ROIC 6.1%

Analysts note that low returns are typical in Australia due to high cost of acquiring
facilities and pricing pressure due to the supply glut of DC capacity(1)

(1) Source: DBS Data Centre & Cloud insights 2018

Henry Kinnersley – Nov 2019
Valuation ASX:NXT 12

§ Value NXT on a multiple of 2022 EBITDA (-) recurring capex to give credit to NXT’s growth prospects but limited
free cash flow generation
§ Base case assumes active utilisation continues to grow in line with trend and maintenance capex payments
stabilise at 10% of revenues(1)
§ A multiple of 17.0x (peer average) gives a downside of -44% (target price $3.69).

Financial Projections - Base Case Valuation

AUD$m 2018A 2019A 2020E 2021E 2022E
AUD$m Trend Bear Base Bull
Average utilised capacity (MW) 32 36 41 48 55
% growth 21% 13% 15% 15% 15% Assumptions:
Av. Revenue per MW 5.1 5.0 5.0 5.0 5.0 Active utilisation growth 13% 10% 15% 25%
Revenue 162 179 206 237 273 Rec. Capex % of rev. 17% 15% 10% 5%
Underlying EBITDA 63 85 98 113 129 2022E EBITDA (-) Rec. Capex 78 102 149
% margin 47% 47% 47% 47% Multiple 15.0x 17.0x 19.0x
(-) recurring capex (21) (24) (27) EV 1,170 1,737 2,831
% of revenues -10% -10% -10%
(-) Net Debt (468) (468) (468)
EBITDA (-) recurring capex 77 89 102
Market Cap 702 1,269 2,363
Target Price ($AUD) 2.04 3.69 6.88
Dowside -69% -44% 4%

(1) Revenue per MW assumed flat at $5 per average MW utilized. EBITDA margins assumed flat at 47%.
Henry Kinnersley – Nov 2019