2312005 Informal Interpretation

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Sheinberg, Samuel I.
From: 	HSRHelp
Sent: 	Friday, December 22, 2023 1:52 PM
To: 	Walsh, Kathryn E.; Berg, Karen E.; Musick, Vesselina; Sheinberg, Samuel I.; Six, Anne; Whitehead, Nora;
Fetterman, Michelle; Burton, June; Larson, Peter
Subject: 	FW: Investment Rental Property Exemption
To:
Cc: HSRHelp <HSRHelp@ftc.gov>
From: Shaffer, Kristin <kshaffer@ftc.gov>
Sent: Friday, December 22, 2023 1:52:01 PM (UTC-05:00) Eastern Time (US & Canada)
Subject: RE: Investment Rental Property Exemption
CONTROLLED
Based upon the information provided, the data center building and its land qualify for 802.2(c). You will need to value
any additional assets, including the lease and any equipment, to determine whether the transaction is reportable.
Best regards,
Kristin
Kristin Shaffer
Attorney
Premerger Notification Office
Federal Trade Commission
202-326-2388 | kshaffer@ftc.gov
From:
Sent: Tuesday, December 19, 2023 2:12:29 PM (UTC-05:00) Eastern Time (US & Canada)
To: HSRHelp <HSRHelp@ftc.gov>
Subject: Investment Rental Property Exemption
Dear PNO.
I am writing to confirm that the two data centers under construction described below qualify for the unproductive real
property exemption (16 C.F.R. Section 802.2(c)).
Relevant Facts
1.>X and Y will form LLC.
2.>X will contribute about $125 million in cash to LLC and in exchange will acquire LLC interests entitling X to over
50% of the profits and over 50% of the assets upon dissolution of LLC.
3.>Y will contribute two data centers that are presently under construction to LLC and in exchange will receive
minority interests in LLC and cash. The cash will be distributed to Y from X’s cash contribution to LLC and will likely
account for over 65% (but less than 100%) of X’s cash contribution to LLC. The two data centers are collectively
valued in excess of $125 million.
4.>When Y contributes the two data centers under construction to LLC, neither will be complete or operational.
At the closing, it is anticipated that it will take another seven months to complete Data Center #1
and the post-closing investment required to do so will be approximately $129 million.
At the closing, it is anticipated that it will take another three months to complete Data Center #2
and the post-closing investment required to do so will be approximately $83 million.
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5. 	All of the operationa l space at the two dat a centers w ill be init ia ll y leased to one t hird party - C. Although the
dat a centers are st ill under constr uct ion and not yet operationa l, C has already signed l eases to occupy bot h data
cent ers when t hey are operat iona l.
HSR Assessment
Y w ill not have an HSR fil ing obli ga ti on as an acqu ir ing person because it w ill not acqu ire HSR cont rol of LLC (defined as
being ent it l ed to at least 50% of the profits or at least 50% of t he asset s of LLC) .
X will acqu ire HSR control of LLC and will hold in excess of $111.4 m il li on of LLC inte rests. However, it w il l not have an HSR
filing ob li gat ion (whether the transaction is analyzed as a fo r mat ion of LLC o r as X's acqu isition of t he data centers fr om Y)
if the two dat a cen t ers quali fy fo r an HSR exemption .
We understand that the unproduct ive r ea l property exemption (16 C.F .R. Section 802. 2c) w ould apply to the two data
cent ers under constructi on so long as they are not considered turn key fa ci lit i es and so long as t hey did not co ll ectively
generate at least $5 mil li on in revenues dur ing the 36 months preceding the ir con tr ibut ion to LLC. In Informal
Int erpr etat ion #1511001 (November 2, 2015) t he PNO explained t h at if t he relevant asset " is subst an t ia ll y complet e" it
does not qua li fy for the unproduct ive r ea l property exemp ti on . Thus, if t he facili ty "w i ll be ready to operate at closing or
short ly th ereafter, it is a 'turnkey' facili ty .. .. Turnkey fa ci lit i es, i.e., new faci li t ies capable of commen ci ng operations
immed iately wi th minimal addit iona l capita l investment, are excluded fr om t he unproducti ve real property exempti on ."
In ou r case nei the r data cent er w ill be oper at ional unt il months after each is con tr ibuted to LLC (approximately seven
months for Da t a Center #1 and approximately th r ee months for Da t a Center #2) . In addit ion , t he post- cl osing capita l
expendi tu re needed to complete ea ch data center is certa inly much mo re than a m inima l capita l investment (estimated
to be approximately $129 m illi on fo r Data Cen t er #1 and approximately $83 million fo r Date Center #2). Therefo re the
two dat a centers under constr uct ion are not turn key facilit ies and since they (includ ing the r ea lty on wh ich th ey si t) d id
not generat e at least $5 m illion in revenue during the 36 mont hs preced ing the ir cont ri but ion to th e LLC, we understand
that they qua li fy fo r the unproduct ive r ea l property exempt ion . See Informa l Interpretat ion #1605002 {May 5, 2016).
Do you ag ree?
As a lw ays , thanks fo r your guidance.
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