You should say "I suggest replacing the worn equipment with some new equipment." Notice the word order when using 'replace'. Replace is more permanent. Substitute is more temporary or for only one time. For example 'If you don't have any eggs right now, I suggest substituting apple sauce for eggs.' Notice the word order when using substitute. 'Facilities' are buildings, parts of buildings, or places. For example 'Our school has a gym facility and toilet facilities.' 'Workout facilities in a gym' is incorrect. Because the gym is a workout facility/building/place. 'Workout equipment/machines in a gym' is correct. Workout equipment include dumbbells and barbells etc. Workout machines include treadmills etc.