STACK Infrastructure continues to move quickly to compete in the wholesale data center business. The company, which debuted its national platform and new brand just last month, said today that it has lined up $850 million to finance the growth of its data center infrastructure. The funds will be used for expanding STACK’s existing data centers and expanding into new markets, the company said.
The deal reflects several trends we’ve been tracking here at Data Center Frontier, including the impact of new companies in deploying data center capacity, and the increasing sophistication of the financial strategies used to fund them. The STACK funding will use securitized notes, a strategy which allows the company to borrow money at a lower interest rate.
STACK Infrastructure was formed by investor IPI Data Center Partners with assets acquired from Infomart Data Centers and T5 Data Centers, giving it a national footprint of eight data centers in six markets spanning 1.5 million feet of space and 100 megawatts of capacity. The company has since announced plans to add a large campus in Fort Worth at the Alliance Texas business park.
CEO Brian Cox said STACK intends to “think big” as it develops data center capacity for hyperscale operators, who are seeking to manage the rapid growth in cloud computing and social business. In the data center world, big plans require lots of funding, and today’s announcement provides STACK with the capital to act quickly on its ambitions.
“This financing immediately positions STACK with the long-term capital structure to support the scaled critical infrastructure demands of our growing clients,” said Cox. “We are pleased that the offering was well received by investors and believe their confidence highlights the strength of our team and the quality of the platform we’ve assembled. This is just the most recent success of many since STACK launched and there is much more to come.”
STACK is issuing $850 million in securitized notes, marking the second use of this structure by a data center provider, following a Vantage Data Centers funding last year. In a securitization financing, a company creates a security based on the creditworthiness of a specific pool of assets, rather than the entire company. Data center developers can issue debt notes backed by cash flow from operational data centers, which are leased by some of the world’s largest and most credit-worthy companies.
That tenant credit quality enables the issuer to pay lower interest rates on its debt, which reduces its costs as it seeks to compete and build additional facilities. The STACK notes are rated investment grade at A- by Standard & Poor’s, as was the Vantage offering last year.
Until now, Digital Realty has been the only leading data center specialist with an investment grade bond rating from S&P. In a capital-intensive business like the data center industry, the cost of money matters. Lower rates translate into fatter profit margins, which can also provide companies with leeway to compete on pricing.
STACK’s strategy will feature a combination of “rack-ready” wholesale space for immediate delivery (Ready STACK), rapid development of powered shell data halls for larger requirements (Power STACK), and build-to-suit projects for entire campuses (Hyper STACK).
The “stack” concept, which is familiar to those in networking or software development, refers to groupings of tools or components that come together to create a complete platform.
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New Company, Experienced Team
IPI Data Center Partners has been one of the major new investors in the data center industry. The company is backed by Iron Point Partners and Iconiq Capital, a wealth manager to Silicon Valley whose clients reportedly include Facebook CEO Mark Zuckerberg and LinkedIn chairman Reid Hoffman. IPI was created in 2016, and has announced a series of investments in wholesale data center projects.
Iron Point is an experienced player in the industry as an investor in PowerLoft (which was acquired by COPT) and T5 Data Centers. Iconiq’s clients include executives who are familiar with the needs of hyperscale users.
The company’s portfolio includes three facilities previously under the Infomart Data Centers brand, located in Northern Virginia (Ashburn), Silicon Valley (San Jose) and Portland (two facilities), along with data centers previously operated by T5 Data Centers in Atlanta, Dallas (two facilities) and Chicago (Elk Grove Village).
STACK has development properties on land parcels in Atlanta, Chicago, Dallas/Fort Worth, Portland, and Silicon Valley.
Where might we see more activity from STACK? One possibility is Ashburn, Virginia where Stack Infrastructure takes over an Infomart property that was initially developed by America Online. Last month Cox said STACK is speaking with several prospects about space at its Ashburn site, but is also thinking about long-term growth in Northern Virginia. “We have demand that’s in excess of our current facility capacity, and look forward to announcing additional solutions in 2019,” said Cox.