Offering Memorandum Guide for Data Center Properties
Data center deals are different. Your typical retail or office OM won't cut it when you're talking about facilities that can trade for $200M+. Investors want to see power capacity first, then everything else. The AI boom has made these deals even more technical. Miss the engineering details and you'll lose credibility before page 10.
Power Infrastructure Details
Power is everything in data center deals. Investors need to understand exactly what they're buying from a capacity and reliability standpoint.
Total Power Capacity in MW
State the total IT load capacity, not just what's currently contracted. Include planned expansions if utility agreements are signed.
Best Practice
Break it down by building or zone. Example: Building A - 12MW live, 8MW ready for deployment, 15MW future with utility upgrade.
Redundancy Configuration
Specify N+1, 2N, or other configurations for UPS, generators, and cooling systems. This directly impacts pricing and tenant types you can attract.
Best Practice
Use engineering diagrams. Don't just say 'redundant power' - show the single line electrical drawings in the appendix.
Utility Rate Structure
Include current utility rates per kWh and any demand charges. Rate trends matter since power is 60-70% of operating costs.
Best Practice
Show 3-year rate history and any known future increases. Include standby charges for generators if applicable.
Generator Runtime Capacity
How long can the facility run on backup power at full load. This affects SLA capabilities and insurance requirements.
Best Practice
State hours at 100% load, plus fuel storage capacity and delivery agreements. Include generator testing schedules.
Power Usage Effectiveness (PUE)
Current PUE ratio shows operational efficiency. Anything above 1.5 needs explanation in today's market.
Best Practice
Show monthly PUE over the past year. If it's high, explain planned improvements and projected impact on NOI.
Connectivity and Network Infrastructure
Fiber and network access can make or break deal value. Enterprise tenants especially scrutinize carrier diversity and latency.
On-Net Carrier List
Name every fiber provider with physical presence. More carriers mean higher rents and stickier tenants.
Best Practice
List carriers by tier - Tier 1 (Verizon, AT&T), regional fiber, and dark fiber providers. Include entrance facilities map.
Meet-Me-Room Configuration
Cross-connect revenue can add $50-100 per connection monthly. Show current utilization and expansion capability.
Best Practice
Include rack counts, port density, and cross-connect pricing. Show 3-year cross-connect revenue history.
Latency to Major Markets
Round-trip latency to financial centers, cloud regions, and internet exchanges. Critical for high-frequency trading and gaming tenants.
Best Practice
Measure and document latency to NYSE, NASDAQ, AWS regions, and major IXPs. Update measurements quarterly.
Dark Fiber Availability
Enterprise tenants often want private fiber runs. Show available routes and pricing from major carriers.
Best Practice
Map available dark fiber routes within 50-mile radius. Include typical pricing per strand-mile from each provider.
Tenant Analysis and Revenue Stability
Data center tenant credit and contract terms drive valuations. Investors price concentration risk heavily.
Tenant Concentration by Revenue
Show percentage of revenue from top 1, 3, and 5 tenants. Anything over 50% from one tenant gets heavily discounted.
Best Practice
Include tenant credit ratings where available. Show contract expiration schedule and renewal probability.
Monthly Recurring Revenue Breakdown
Separate colocation, cross-connects, managed services, and power charges. Different revenue streams have different margins.
Best Practice
Show MRR growth over 24 months by category. Include average revenue per cabinet or per MW deployed.
Contract Terms and Escalations
Data center leases often run 3-10 years with annual escalations tied to CPI or fixed percentages.
Best Practice
Show weighted average lease term remaining. Include escalation schedule for next 3 years and any early termination clauses.
Customer Acquisition Costs
What it costs to land new tenants including sales commissions, buildout costs, and installation fees.
Best Practice
Track CAC by customer type - enterprise vs. cloud vs. colo. Show payback period for different tenant categories.
Churn Rate Analysis
Monthly and annual churn rates by customer segment. Higher churn requires higher cap rates.
Best Practice
Show 3-year churn history. Include exit interview summaries to identify pattern reasons for departures.
Operating Metrics and Efficiency
Data centers are infrastructure plays. Investors want to see operational excellence and efficiency improvements over time.
Utilization Rates by Area
Cabinet utilization, cage utilization, and power utilization rates. Show capacity for growth without major capex.
Best Practice
Break down by floor or zone. Include near-term utilization projections based on signed LOIs and current pipeline.
Operating Cost per kW
Total operating costs divided by deployed power capacity. Includes utilities, maintenance, security, and staff.
Best Practice
Show 3-year trend and benchmark against similar facilities. Identify cost reduction opportunities with quantified savings.
SLA Performance History
Actual uptime percentages versus contracted SLAs. Downtime events and causes should be documented.
Best Practice
Show monthly uptime for past 24 months. Include any SLA credits paid and root cause analysis for outages.
Preventive Maintenance Schedule
Regular maintenance of generators, UPS systems, and cooling equipment. Deferred maintenance can kill deals.
Best Practice
Include maintenance contracts and schedules for all critical systems. Show capex forecast for major equipment replacements.
Environmental Controls
Temperature and humidity management, plus any environmental monitoring systems for early problem detection.
Best Practice
Show temperature mapping and any hot spot issues. Include humidity control systems and backup environmental monitoring.
Financial Performance and Projections
Data center financial modeling requires understanding of both real estate and technology infrastructure investments.
NOI Margins by Revenue Stream
Different services have different margins. Colocation might be 70%+ while managed services could be 30-40%.
Best Practice
Show NOI margin trends over 3 years by service line. Identify highest-margin growth opportunities.
Capital Expenditure Forecasts
Regular capex for equipment refresh, capacity expansion, and technology upgrades. Usually 8-15% of revenue annually.
Best Practice
Break down maintenance capex vs. growth capex. Show ROI projections for major expansion projects.
Revenue Recognition Timing
Installation revenue, setup fees, and recurring revenue recognition can affect monthly cash flow patterns.
Best Practice
Show typical customer ramp timeline from contract signature to full monthly billing. Include average installation period.
Working Capital Requirements
Customer deposits, prepaid expenses, and typical collection periods for receivables.
Best Practice
Show days sales outstanding trends. Include customer deposit policies and any bad debt history.
Common OM Mistakes
Listing total building power instead of IT power capacity
Impact: Investors can't properly value the asset or compare to other opportunities. Creates immediate credibility issues.
Fix: Always state IT power capacity separately from total facility power. Show the breakdown between IT load, cooling, and building systems.
Ignoring utility rate trends and future availability
Impact: Power cost increases can destroy NOI projections. New capacity might not be available at any price in constrained markets.
Fix: Include 3-year utility rate history and any known future increases. Confirm available capacity from utility for expansion plans.
Not addressing tenant concentration risk
Impact: Single-tenant facilities trade at 100-200 basis point cap rate premiums. Investors assume higher risk without mitigation story.
Fix: If concentrated, show tenant credit strength, contract terms, and diversification strategy. Include renewal probability analysis.
Vague descriptions of cooling and backup systems
Impact: Engineering due diligence will expose gaps. Sophisticated buyers will question operational capabilities and future capex needs.
Fix: Include specific equipment models, ages, and maintenance records. Show cooling redundancy with system diagrams.
Missing fiber connectivity details
Impact: Network access directly affects rental rates and tenant retention. Poor connectivity limits tenant universe and pricing power.
Fix: Map all fiber routes into the building. List every on-net carrier and document any planned fiber improvements.
Not explaining PUE performance
Impact: High PUE ratios signal operational inefficiency and higher costs. Investors will assume worse-case scenarios without explanation.
Fix: If PUE is above 1.4, explain causes and improvement plans. Show monthly trends and benchmark against industry standards.
Key Metrics for Data Center OMs
| Metric | What It Tells Investors | Typical Range | Data Source |
|---|---|---|---|
| Price per MW (Deployed) | Valuation efficiency compared to other data center assets. Typical range varies by market and tenant quality. | $3M-$15M per MW | Total purchase price divided by deployed IT power capacity in MW |
| NOI per MW | Operating efficiency and revenue density. Higher numbers indicate better tenant mix or operational excellence. | $400K-$2M per MW | Annual NOI divided by deployed MW capacity |
| Power Utilization Rate | Growth capacity without major capex. Low utilization might indicate demand issues or expansion opportunity. | 60%-90% | Deployed power capacity divided by total available power capacity |
| Average Revenue per Cabinet | Tenant quality and pricing power. Higher numbers suggest enterprise customers or value-added services. | $1,000-$5,000 monthly | Monthly colocation revenue divided by occupied cabinet count |
| Customer Acquisition Cost | Growth efficiency and sales process effectiveness. High CAC might indicate competitive market or weak positioning. | $15K-$150K per customer | Annual sales and marketing costs divided by new customers acquired |
| Annual Churn Rate | Revenue stability and customer satisfaction. High churn increases investor risk perception and lowers valuations. | 5%-15% annually | Customers lost during year divided by average customer count |
| Cross-Connect Revenue per Customer | Stickiness and additional revenue potential. Higher numbers indicate strong network ecosystem. | $200-$2,000 monthly | Monthly cross-connect fees divided by total customer count |
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