• About Us
  • Partnership Opportunities
  • Privacy Policy

Data Center Frontier

Charting the future of data centers and cloud computing.

  • Cloud
    • Hyperscale
  • Colo
    • Site Selection
    • Interconnection
  • Energy
    • Sustainability
  • Cooling
  • Technology
    • Internet of Things
    • AI & Machine Learning
    • Edge Computing
    • Virtual Reality
    • Autonomous Cars
    • 5G Wireless
    • Satellites
  • Design
    • Servers
    • Storage
    • Network
  • Voices
  • Podcast
  • White Papers
  • Resources
    • COVID-19
    • Events
    • Newsletter
    • Companies
    • Data Center 101
  • Jobs
You are here: Home / Colo / Vantage Lines Up $1.1 Billion to Build More Data Centers

Vantage Lines Up $1.1 Billion to Build More Data Centers

By Rich Miller - February 20, 2018 2 Comments

Vantage Lines Up $1.1 Billion to Build More Data Centers

The Vantage V2 data center in Santa Clara. (Photo: Rich Miller)

LinkedinTwitterFacebookSubscribe
Mail

Vantage Data Centers has lined up more than $1.125 billion in financing, which it will use to build new data centers as it continues its national expansion. The money was raised using securitization financing, an approach that allows Vantage to pay lower interest rates on its debt, which reduces its costs as it seeks to compete in the industry’s largest markets.

Vantage will use some of the funds to pay off its existing bank credit facility. When combined with equity commitments from owner Digital Bridge, the financing provides Vantage with more than $500 million to invest in new data center campuses in Santa Clara and Northern Virginia. CEO Sureel Choksi says the company may also expand into new markets.

The use of securitization financing enabled Vantage to issue notes with an investment grade rating of A- from Standard & Poors. Companies with an investment grade credit rating can borrow money at attractive rates, while companies with lower ratings are perceived as more risky and typically pay higher interest rates.

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.

This can be particularly important in markets like Northern Virginia, where Vantage will compete against virtually every major provider of wholesale data center space – including Digital Realty, which is the dominant player in Ashburn’s “Data Center Alley.”

Why A Securitization Financing?

This was the first time a data center company has used securitization financing, in which a company creates a security based on the creditworthiness of a specific pool of assets, rather than the entire company. In this case, Vantage was able to issue debt notes backed by cash flow from their operational data centers, which are leased by some of the world’s largest and most credit-worthy companies.

“Three quarters of our revenue comes from investment grade tenants,” said Choksi. “Fundamentally, what this allows us to do is to finance separately the assets of the business that are generating income from those in development.”

Stabilized cloud data centers filled with tenants have different revenue and costs than dirt fields for future construction, Choksi said. A bank credit facility has to acknowledge this broader, blended risk.

Although securitization is new to the data center sector, it has been used to fund growth in the wireless telecom tower business, where Digital Bridge is an experienced operator.

“Digital Bridge has a tremendous amount of expertise as an innovator in the securitization market,” said Choksi. “We leveraged their expertise with this tried-and-true model that a number of wireless companies had used, and applied it to the data center industry.”

Free Resource from Data Center Frontier White Paper Library

colocation
Six Top Concerns about Migrating from On-Prem to a Colocation Data Center
As Gartner stated in its research, “Colocation is often used as a replacement for traditional data centers, because it offers higher availability, reliability, certified building tier levels, energy efficiency, dedicated facilities management and the ability to scale.” Get the new white paper from NTT and RagingWire Data Centers, which takes a look at some of the most common worries that come up when making the move to use a colocation partner. 
We always respect your privacy and we never sell or rent our list to third parties. By downloading this White Paper you are agreeing to our terms of service. You can opt out at any time.

Get this PDF emailed to you.

Securitization is not without controversy, owing to its misuse in creating risky mortgage-backed securities that played a role in the financial crisis of 2008-9. The history of securitization in wireless towers has a very different profile than the abuses in residential lending markets. The Vantage offering is an example of how securitization is most effective in highlighting the credit-worthiness of assets, rather than obscuring it.

Strong Interest from Investors

Vantage was initially funded by private equity sponsors and debt, including a bank credit facility that started at $100 million and grew to $900 million, not all of which was tapped. This week’s financing retires the credit facility, and creates a variable funding note with $225 million of capacity. Combined with an equity investment from Digital Bridge, the funding provides Vantage with more than $500 million to invest.

Choksi says the investment grade rating of the offering will allow Vantage to pay an interest of about 4 percent, considerably less than the prior rate on its credit facility. The Vantage note offering was secured by six data centers (including five in Santa  Clara and one in Quincy, Washington) that total  596,250 gross square feet and approximately 66 megawatts of power.

Investors and rating agencies responded positively. “We believe wholesale data center leases generally have the same key credit risk factors as single-tenant triple-net leases,” said Standard & Poors, which noted that the credit of Vantage’s tenant base helped offset the limited history of the company and asset class.[clickToTweet tweet=”Vantage CEO Sureel Choksi: We were thrilled with the strong response from investors for this offering.” quote=”Vantage CEO Sureel Choksi: We were thrilled with the strong response from investors for this offering.”]

Choksi said the $1.1 billion offering was 10 times oversubscribed, meaning that investors were willing to buy as much as $10 billion worth of the notes. Vantage discussed the offering with more than 45 investors, reflecting how a securitization financing has the potential to widen the pool of funding sources.

“We were thrilled with the strong response from investors for this offering, which we believe speaks both to the high quality and growth prospects of Vantage’s business,” said Choksi.

Securitization or JVs?

The borrowing strategies of data center developers may seem esoteric compared to other aspects of the cloud computing business. But the Vantage transaction, along with the recent sale of the Dallas Infomart to Equinix, is shining a spotlight on how data center operators might use existing properties to generate cash to fund future growth.

The Vantage transaction is the first securitization in the data center sector, but developers have used other strategies to leverage the value of stabilized buildings, most notably through joint ventures. In 2013 Digital Realty formed a joint venture with Prudential in which it sold an 80 percent interest in a portfolio of nine fully-leased data centers. CyrusOne has considered similar transactions.

Investors and analysts are focused on the potential for joint venture transactions in the wake of the Dallas Infomart sale, in which Equinix paid a premium price of $800 million. Last week Wall Street analysts pressed several public data center REITs about the valuation for the Infomart, and whether it suggests an opportunity to tap the strong market for data hubs.

“There’s an awful lot of capital coming in market, and clearly we’re seeing some pretty big valuations out there,” said Scott Peterson, the Chief Investment Officer at Digital Realty. “We’re going to take a deep dive in our portfolio a little later this year and we’re going to look at  assets where essentially we’ve created all the value we can create, and look at whether it would it make more sense to redeploy that capital somewhere else in our portfolio.  I think, it would be reasonable for us to bear that in mind as we review the portfolio later this year.”

As for securitization financings, Choksi said Vantage has put a structure in place so it can issue additional notes as more data centers are built and filled. “We’ll come back to the market to upsize as the business demands,” said Choksi.

Will this be a trend? Choski says that not every data center REIT is well-positioned for securitizing its stablized assets.

“We’re on the simpler end of the spectrum, because we own all the underlying real estate, and sign long-term contracts with Fortune 500 service providers and cloud tenants,” he said. “These factors were what made us interesting. I think there are some unique aspects to Vantage. We’re the first to do it, but we may not be the last.”

LinkedinTwitterFacebookSubscribe
Mail

Tagged With: Digital Realty, Vantage Data Centers

Newsletters

Stay informed: Get our weekly updates!

Are you a new reader? Follow Data Center Frontier on Twitter or Facebook.

About Rich Miller

I write about the places where the Internet lives, telling the story of data centers and the people who build them. I founded Data Center Knowledge, the data center industry's leading news site. Now I'm exploring the future of cloud computing at Data Center Frontier.

Comments

  1. Chris.k@markserv.com'Chris says

    March 14, 2018 at 4:47 pm

    Hi Rich,
    Wondering if you heard any news of who the General Contractor or any of the subcontractors may be for the Vantage Data Center project in Ashburn Virginia?
    Thank you!

    Reply
    • pb@yi.com'Paul says

      March 15, 2018 at 11:26 am

      HITT

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

  • Facebook
  • Instagram
  • LinkedIn
  • Pinterest
  • Twitter

Voices of the Industry

5 Ways to Mitigate Supply Chain Unpredictability and Labor Shortages in Data Center Construction

5 Ways to Mitigate Supply Chain Unpredictability and Labor Shortages in Data Center Construction Blake Weaver, Data Center Specialist at ProLift Rigging offers a list of ways to overcome supply chain challenges and labor shortages in data center construction. 

DCF Spotlight

The COVID-19 Crisis and the Data Center Industry

The COVID-19 pandemic presents strategic challenges for the data center and cloud computing sectors. Data Center Frontier provides a one-stop resource for the latest news and analysis for decision-makers navigating this complex new landscape.

An aerial view of major facilities in Data Center Alley in Ashburn, Virginia. (Image: Loudoun County)

Northern Virginia Data Center Market: The Focal Point for Cloud Growth

The Northern Virginia data center market is seeing a surge in supply and an even bigger surge in demand. Data Center Frontier explores trends, stats and future expectations for the No. 1 data center market in the country.

See More Spotlight Features

White Papers

Sustainable Data Centers

A New Era of Sustainable Data Centers

The energy footprint taken up by data centers will certainly increase as our reliance increases on artificial intelligence, machine learning, Internet of Things, and 5G. Another factor driving even more data use is that the world’s population will continue to increase, necessitating more devices, connectivity and more. Get the new paper that discusses what power providers are currently offering in key data center markets, what data centers are doing to be as efficient as possible, and how data center customers can support sustainability. 

Get this PDF emailed to you.

We always respect your privacy and we never sell or rent our list to third parties. By downloading this White Paper you are agreeing to our terms of service. You can opt out at any time.

Newsletters

Get the Latest News from Data Center Frontier

Job Listings

RSS Job Openings | Peter Kazella and Associates, Inc

  • Account Executive - Data Center Solutions - Atlanta, GA
  • Mechanical Construction Sales Rep - Ashburn, VA
  • Account Executive - Data Center Solutions - Denver, CO
  • Data Center QA / QC Manager - Omaha, NE
  • Electrical Commissioning Engineer - Papillion, NE

See More Jobs

Data Center 101

Data Center 101: Mastering the Basics of the Data Center Industry

Data Center 101: Mastering the Basics of the Data Center Industry

Data Center Frontier, in partnership with Open Spectrum, brings our readers a series that provides an introductory guidebook to the ins and outs of the data center and colocation industry. Think power systems, cooling, solutions, data center contracts and more. The Data Center 101 Special Report series is directed to those new to the industry, or those of our readers who need to brush up on the basics.

  • Data Center Power
  • Data Center Cooling
  • Strategies for Data Center Location
  • Data Center Pricing Negotiating
  • Cloud Computing

See More Data center 101 Topics

About Us

Charting the future of data centers and cloud computing. We write about what’s next for the Internet, and the innovations that will take us there. We tell the story of the digital economy through the data center facilities that power cloud computing and the people who build them. Read more ...
  • Facebook
  • LinkedIn
  • Pinterest
  • Twitter

About Our Founder

Data Center Frontier is edited by Rich Miller, the data center industry’s most experienced journalist. For more than 20 years, Rich has profiled the key role played by data centers in the Internet revolution. Meet the DCF team.

TOPICS

  • 5G Wireless
  • Cloud
  • Colo
  • Connected Cars
  • Cooling
  • Cornerstone
  • Coronavirus
  • Design
  • Edge Computing
  • Energy
  • Executive Roundtable
  • Featured
  • Finance
  • Hyperscale
  • Interconnection
  • Internet of Things
  • Machine Learning
  • Network
  • Podcast
  • Servers
  • Site Selection
  • Social Business
  • Special Reports
  • Storage
  • Sustainability
  • Videos
  • Virtual Reality
  • Voices of the Industry
  • White Paper

Copyright Data Center Frontier LLC © 2021