Datacenters 2012


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This is an example of what EQUITY AVOCATS propose to help you to increase your revenues.

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Datacenters 2012

  1. 1. 09/03/2012 DATACENTERS A real estate asset now atypical … … the future of tomorrow ? Thomas CARBONNIER, Business & Tax Lawyer EQUITY AVOCATS – Lawyers Firm 17 rue du dragon - 75006 PARIS (FRANCE) 1
  2. 2. 09/03/2012 The establishment and development of the French subsidiary of a major global real estate fund manager will be presented through financial simulations (I). Then the project “opportunistic fund” with bank debt at 80 % in order to implement a risky real estate project but at the edge of technology that would be, to date, unique in FRANCE (II).I - FINANCIAL SIMULATIONS BY TYPE OF FUNDFinancial simulations are presented below to find out the minimum required rate of return for realestate investments and meet the objective of profitability expected in the hypotheses: "core, valueadded, and opportunistic funds".Article 14 of the fourth supplementary budget for 2011 provides that companies which have a turnoverthat excess 250 million euros a year will be subject to an exceptional increase of 5% of corporationtax. This increase was due to the years ending between December 31, 2011 and December 30, 2013.For this project, we will consider that this increase only affects the opportunistic funds, only funds thatcan generate such a turnover.It is also considered the contribution of social enterprises in calculating the corporate tax rate under3.3% of the SI by section 235 ZC of the French Tax Code. A turnover of over € 7,670,000 is required.It is likely to be generated by all funds. CORE VALUE ADDED OPPORTUNISTIC Debt 0 0,4000 0,6000 0,8000 Equity 1,0000 0,6000 0,4000 0,2000 Debt financing 0,0000 0,4000 0,6000 0,8000 Cost of equity 0,0800 0,0800 0,1200 0,1600 Cost of debt 0,0450 0,0450 0,0500 0,0550 Rate of corporation tax 0,3443 0,3443 0,3443 0,3960 WACC 8,00% 5,98% 6,77% 5,86%II - THE CHOICE OF INVESTMENT STRUCTURE AND CORPORATE OF THEOPPORTUNISTIC FUNDIf it was usual to structure investment through dedicated REITs exempt from corporation tax,the supplementary budget of 2011 has considerably weakened the fiscal attractiveness ofthese.Therefore the investment will be realized through a different rent structure (2). However, thedistribution and motivations are presented previously (1).1 - REJECTION OF TRADITIONNAL REAL ESTATE ASSETS FOR THE BENEFIT OFMODULAR DATACENTERAs the market cycle is now very high, the risk of market downturn is real. The current economic crisisis not likely to promote market development of offices and shops. As the housing market, profitabilityis very low so unattractive. Growth prospects are uncertain.However, on the side of IT, revolutions follow one another and a new era of choice for businesses hasbegun. Our discussions or communications needs are growing at an exponential rate. More than atrend, it is a fundamental shift. While it took nearly 38 years for radio to reach an audience of 50million people, only 4 years for internet, facebook for 2 years and 14 days ... for google apps havebeen necessary! Thomas CARBONNIER, Business & Tax Lawyer EQUITY AVOCATS – Lawyers Firm 17 rue du dragon - 75006 PARIS (FRANCE) 2
  3. 3. 09/03/2012The share of the digital economy in the French GDP is 6%, against 13% in the U.S. and 17% in Korea.Between 2000 and 2004, ICT contributed nearly 50% to productivity growth in the European Union.The digital economy now represents over 25% of global growth and represents 30% before 5 years.The need for data center computing capacity increases so in a drastic way to meet those new needs (1).The processors are more powerful and the arrival of new technologies such as High Density,Virtualization, Cloud-Computing, the SaaS (2) or VoIP mean that today the vast majority of datacenters is obsolete. If the cloud computing wasnt able to not fulfill all its promises, other technologieswill come into growth areas. (1) Source : Gartner Thomas CARBONNIER, Business & Tax Lawyer EQUITY AVOCATS – Lawyers Firm 17 rue du dragon - 75006 PARIS (FRANCE) 3
  4. 4. (2)09/03/2012The real estate market data center is both unusual and very complex. It seems necessary to define whata datacenter is (1.1) before to present a panorama of different existing business model (1.2) and thestate of competition (1.3). Given those elements, datacenter construction project at the cutting edge oftechnology will be exposed (1.4). If the intellectual effort to understand that atypical real estate marketis undeniable, at a time when rental yields of traditional assets are falling, this effort is needed toanticipate what might be the future of corporate real estate (1.5).1.1 – DEFINITION AND SEGMENTATION OF DATACENTERSWe can define datacenters as follows: • A concentration of resources (servers + disks + network) in a dedicated building; • A technical infrastructure to ensure that continuity of power supply, cooling and telecommunications access to these resources are always available; • A building incorporating specialized technical infrastructure, the computer room and ensuring the security of the site; • A building located near access points to very high electrical power and very high bandwidth telecommunication. Thomas CARBONNIER, Business & Tax Lawyer EQUITY AVOCATS – Lawyers Firm 17 rue du dragon - 75006 PARIS (FRANCE) 4
  5. 5. 09/03/2012These resources will thus ensure a very high availability, and in a secure environment, hosting criticalsoftware applications for very large companies. Datacenters are designed on two main criteria that arehigh availability for applications that never stop and energy efficiency to minimize energy bill andcarbon footprint of this activity. The datacenters are classified by the level of availability of I withlittle redundancy of equipment, with multiple redundancy to IV equipment for maximum flexibility ofoperation.1.2 - THE BUSINESS MODEL OF HOSTINGThis hosting market has grown remarkably in recent years, an overview is needed.Hosts-rental companies offering services on surfaces and energy supplies are in a market that has seena strong concentration: • the four world leaders are Equinix, Global Switch, Telecity and Interxion; • the average load rate of these players is around 85%.Hosting companies optimize occupancy rate of their centers: • The investment decision is taken when 50% of their capacities are engaged; • The occupancy rate of 80% is reached in three years.The services provided by such hosters are: • a surface powered, chilled, watered and secured by telecom operators; • The client remains the owner of hosted material; • a third party provider or the customer himself supervises and exploits computer equipment; • a density of 1 to 2 kVA [Kilos Volt Amper] by full rack (5) on average, even longer in some of high-density centers, is proposed; • an acceptable level of confidentiality is ensured from when customer is the only in the room;Billing is done as follows (prices are from May 2009): • an entrance fee (setup fees) is payable to each rental of new surface (~ 1900 € / Rack 2kVA); Thomas CARBONNIER, Business & Tax Lawyer EQUITY AVOCATS – Lawyers Firm 17 rue du dragon - 75006 PARIS (FRANCE) 5
  6. 6. 09/03/2012 • a monthly rent does not include electricity and telecom costs (~ 300 € / Rack / month for rent for a 2 kVA rack).Lease contracts regulated by the Civil Code have duration of 3 to 10 years with an option to exit atage 5. Terms of price revisions are in the contracts and may be based on evolutions of Syntec index orConstruction Cost Index. The Syntec index is preferable because of the variations observed over along period.1.3 - TYPES OF HOSTINGStarting from the simply providing to surfaces managed to go up to value-added servicesprovided to the application layer, we can clearly distinguish several levels of market players: • hosters "dry" are mainly focused on the leasing of space managed with variable characteristics. May be mentioned here InterXion, Equinix, Telecity Redbus, Global Switch and others; • hosters such as IBM, HP, Orange Business Services, Accenture, Atos-Origin and Cap Gemini, which are capable of the previous layer to provide additional layers of services related to complete systems (mainframe, Unix, etc.) applications (SAP-related services, accounting, Oracle financials) or models to support (help desk, please, extended hours).According to Markess International, a perspective of market segment, it may be noted that theactors are quite compartmentalized: Atos-Origin will be reluctant to provide accommodationsunlike pure Equinix.It is important also to mention corporations who appear increasingly as challengers, in thatthey allow the user to stop using its datacenter.These companies have offers which are based on the model of "Cloud computing" to provideInternet services falling into either of the following categories: • The hosting "platform as a service" offering lodging virtual machine in the world x-86 charged by the hour, for example: Amazon EC2 and his offer is typical of this evolution; • The hosts software as a service "offering online access to applications: Google Apps or are illustrations of these offers. Such companies should play an increasing role in the coming years. Thomas CARBONNIER, Business & Tax Lawyer EQUITY AVOCATS – Lawyers Firm 17 rue du dragon - 75006 PARIS (FRANCE) 6
  7. 7. 09/03/20121.4 - CONSTRUCTION OF A DATACENTER IV MODULARTo choose their data center, firms focus connectivity, physical security, building characteristics, thecompanys financial stability, etc. The project will focus on a modular datacenter Tiers IV to ensurethe sustainability of investment. In a non-modular data center, electrical equipment and cooling systemwith circulation spaces leaves about 50% of surface to computer rooms.Even within these rooms, accessibility requirements and ventilation usually divide again by 2 to 3.5from the land on which servers.The modular data center will be favored because of its delivery time is only three months as against 12to 18 months for a third datacenter tiers III.It will also be due to its cost which, in reported m², is less than a non-modular datacenter. The cost ofeach module HP 240a (delivered in Europe from 2012) (3) is approximately $ 8 million or about6.18M€ for a capacity equal to that of a non-modular data center 929 m² (9600 square feet). It is notconsidered the cost of land. (3)The filling ratio of this data center is expected to reach an occupancy rate of 90% through its PowerUsage Effectiveness (PUE) of 1.05 only! (4) To date, only the HP POD modules 240a offer such PUE.No module developed by HPs competitors offer such performances! (4) Thomas CARBONNIER, Business & Tax Lawyer EQUITY AVOCATS – Lawyers Firm 17 rue du dragon - 75006 PARIS (FRANCE) 7
  8. 8. 09/03/2012The geographic location of the construction of the data center will be out of danger and close to thefiber optic networks and electricity. The data center will be insured against financial loss caused totenants in case of occurrence of such risks. To reduce the need for internal cooling, a green roofmembrane will be implemented. With this upper layer, the temperature under roof is decreased from2 to 5° C. In winter, the cold outdoors will be used for internal cooling.1.5 ESTIMATED PROFITABILITY OF THE FUND OPPORTUNISTICThe filling rate of the data center is progressive and may not exceed 90%. The Syntec index, generallyused for the indexation of rents particularly in datacenters, is not included.The rapid obsolescence does not allow capitalizing rental income to determine the capital gain on thesale of the building. This business model is very different from other types of real estate: it offers veryhigh rental income that offset a sharp depreciation, year after year, equipment.The fifth year, the property is sold with a profit. The sale price is based on a rental yield of 8%, currentyield of a warehouse. In contrast, the HP POD 240a modules are sold to their net book value. Thomas CARBONNIER, Business & Tax Lawyer EQUITY AVOCATS – Lawyers Firm 17 rue du dragon - 75006 PARIS (FRANCE) 8
  9. 9. CHIFFRES CLEFS Value HT Value HT Number Total Value HT HP POD Building HP POD 09/03/2012 240a + Land 66 488 521 928€ 9 212 500 € 500 000 000 € Surface total Surface HP POD Number of (with buil- Power per rack 240a Rack ding) 8 861 m² 22 000 m² 2 904 69,12 kVA Annual income Operating costs per m² 124 416 €/an per Rack de € 7.2 million to 5 000m ² or € 1,440 / 69,12 kVA in HP POD 240a ! m² (third datacenter III) + € 427 029 by 300€/month per rack 2kVA HP POD 240a (charged to the tenant in proportion to the leased space). Setup Fees 65 664 € (HP POD : This cost includes: 69,12kVA) 1 900€ in full rack 2kVA - Energy-supply: operating Depreciation periods configuration average of 1 kW / m² - Salaries charged: skilled human resources needed to run 5000 m needing to work full-time equivalent HP POD 240a : 10 ans of 100 (half in general services, half Bâtiment construit : 30 ans in technical computing) - Telecom costs: two leased lines of 10 Gbps Examples de PUE bank debt Bullet repayment of the loan HP POD 240a : 1,05-1,15 Casualty Insurance natural Sun BlackBox : 1,13-1,21 Insurance is required to cover certain Module IO : 1,17 types of risks that could undermine the Cisco CDC : 1,25 service from the datacenter. The server Google : 1,11-1,16 shutdown can cause huge financial Amazon web services : 1,45 harm to tenants. Power Equivalent area in tiers III 69kVA for a 50U rack 929 m² x number 240a HP POD against 10 kVA for a 66 HP POD datacenter equivalent to a datacenter tiers III! tiers III of 61 314m ² with a power per Surface HP POD 240a rack 5kVA 134,26 m² = 9,8 m x 13,7 m Cost effective area into tiers III Land in Paris (IdF) The power per rack full of 69 kVA will help 27 500 m² ; 55 € HT / m² ; address the growing need for power to land use coefficient of 0,8 ; accommodate further technologies. To date, price HT = 1 512 500 € 61,374 square meters of data center cost no data centers in France provide such about tiers III 613 M € instead of 488 possibilities (max 5kVA, 2kWA average per Building cost to build (HT) M€, is a price difference of over 25%! full rack)! Construction cost: 350 € / m² Price: € 7,700,000 In this example, you’ve invested 100 M€ ANNUAL RETURN IN EUROS HT HCY Income Price sale of the Net cash flowe filling Price sale of Operating Insurance POD 240a Debt payment discounted at thea rate rental setup fees the building costs (7) premium modules WACCr1 50% 180 652 032 95 344 128 - - 15 840 000 22 000 000 6 322 821 236 328 1692 65% 234 847 642 28 603 238 - - 20 592 000 22 000 000 8 219 667 181 500 7903 80% 270 978 048 19 068 826 - - 23 760 000 22 000 000 9 484 232 213 417 0794 90% 325 173 658 28 603 238 - - 28 512 000 22 000 000 11 381 078 217 047 8305 90% 325 173 658 - 12 375 000 244 260 964 28 512 000 22 000 000 11 381 078 76 430 712Total Discounted Cash Flow Net 929 362 868 and after 5 years you get 929 M€ ! This is an example of what EQUITY AVOCATS can propose as solution to help you to increase your revenues. Thomas CARBONNIER, Business & Tax Lawyer EQUITY AVOCATS – Lawyers Firm 17 rue du dragon - 75006 PARIS (FRANCE) 9
  10. 10. 09/03/20122 - THE USE OF A SOPARFI AND A TAX CONSOLIDATIONFirst, a financial holding company (SOPARFI) will be established in Luxembourg. It will aim toensure a reduction of tax burden in France through the use of management fees. For this purpose, atransfer pricing documentation will be implemented.On the French side, holding a SAS will be implemented to optimize the tax LBO. A SAS daughter willbe created per investor. To optimize the taxation applicable to this project, every SAS benefit from theresearch tax credit (CIR) and will benefit from a tax consolidation.The CIR will seek to find how to create, like the Google project, a modular datacenter on a boat to useocean waves to generate a portion of the electricity used by the data center from Pelamis converters.The ocean water would also serve to partially cool the servers. This floating datacenter would be basedat 3 or 7 nautical miles from the coast over deep bottoms from 50 to 70 meters. This approach wouldcreate a datacenter with a capacity of 50-100 MW. Thomas CARBONNIER, Business & Tax Lawyer EQUITY AVOCATS – Lawyers Firm 17 rue du dragon - 75006 PARIS (FRANCE) 10