DuPont Fabros Technology, Inc. Reports First Quarter 2015 Results

WASHINGTON, May 7, 2015 /PRNewswire/ -- DuPont Fabros Technology, Inc. (NYSE: DFT) is reporting results for the quarter ended March 31, 2015.  All per share results are reported on a fully diluted basis.

Highlights

• As of May 7, 2015, our operating portfolio including the newly opened SC1 Phase IIB was 94% leased and commenced as measured by computer room square feet ("CRSF") and as measured by critical load (in megawatts, or "MW").
• Quarterly Highlights:
  • As previously reported, signed two leases totaling 2.20 MW and 9,039 CRSF.  One of these leases is our first mini-wholesale lease. 
  • As previously reported, renewed two leases with one customer totaling 2.28 MW and 10,800 CRSF.  Theses leases were originally scheduled to expire in 2017 and 2019, but have been extended 7.0 years and will now expire in 2024 and 2026.
  • Commenced development of ACC7 Phase II, totaling 8.9 MW and 51,000 CRSF.
• Subsequent to the first quarter 2015:
  • Signed two leases totaling 4.83 MW and 24,739 CRSF.
  • Placed SC1 Phase IIB into service 100% leased, totaling 9.1 MW and 42,000 CRSF.

Christopher Eldredge, President and Chief Executive Officer, said, "The first ten weeks of my tenure as CEO have been very exciting.  Demand for DFT's product remains strong in our prime markets.  We continued to experience leasing success in Santa Clara as SC1 Phase IIB opened 100% leased, and we also executed our first lease at CH2. We have also embarked on the development of a strategic plan, the results of which we plan to share with you when complete."

First Quarter 2015 Results

For the quarter ended March 31, 2015, earnings were $0.24 per share compared to $0.30 per share for the first quarter of 2014.  The current quarter was negatively impacted by a customer who filed for bankruptcy, resulting in $0.03 per share of revenue not being recognized. Also, the company recognized a $0.07 per share charge for the severance expense and equity accelerations associated with the departure of our former CEO. Excluding these items, earnings per share for the first quarter 2015 increased $0.04 per share, or 13%.  Revenues increased 5%, or $5.2 million, to $107.3 million for the first quarter of 2015 over the first quarter of 2014.  The increase in revenues was primarily due to new leases commencing, partially offset by impact of the customer in bankruptcy noted above.

Normalized FFO for the quarter ended March 31, 2015 was $0.61 per share compared to $0.59 per share for the first quarter of 2014.  Normalized FFO adds back the $0.07 per share recognized in the first quarter of 2015 for the severance expense and equity accelerations noted above.  Normalized FFO increased $0.02 per share, or 3%, from the prior year quarter primarily due to the following:

• Increased operating income excluding depreciation of $0.03 per share which includes the negative impact from the bankrupt customer, partially offset by
• Increased interest expense of $0.01 per share due to a higher level of outstanding debt related to development financing.  

Adjusted FFO ("AFFO") for the quarter ended March 31, 2015 was $0.65 per share compared to $0.62 per share in the first quarter of 2014.  AFFO increased $0.03 per share, or 5% from the prior year.  The increase was primarily due to the following:

• Increased Normalized FFO of $0.02 per share.
• Increased add back of straight line revenue as a result of increased cash rents of $0.03 per share, partially offset by
• Increased capitalized leasing commissions of $0.02 per share as a result of a broker commission paid on a renewal.   

The customer for which we increased our bad debt reserve in the fourth quarter of 2014 filed for bankruptcy protection on February 23, 2015.  This customer did not pay the base rent owed to us in January and February, but did pay for operating expenses, direct electric and management fees in these months. Post-bankruptcy filing, we have received full rent payments for March, April and May totaling $3.8 million.  We did not recognize the March base rent payment as revenue, but instead applied it to the straight-line rent receivable balance that we have on our books for this customer.  As of quarter-end, the straight-line rent receivable balance for this customer totaled $8.5 million, of which we have reserved $3.7 million, or 43%.  The straight-line receivable is fully reserved for the NJ1 lease.  To date, we have also reserved $5.1 million of the note receivable due from this customer, which represents 79% of the outstanding note balance of $6.5 million.  In summary, as of March 31, 2015, we had a total of $6.2 million of unreserved receivables on our books from this customer.  We will continue to monitor these reserves each quarter. This customer has the following leases with us:

Portfolio Update

During the first quarter 2015, we:

• Signed two leases with a weighted average lease term of 6.8 years totaling 2.20 MW and 9,039 CRSF.
  • One of these leases was at ACC7 totaling 2.00 MW and 8,179 CRSF which commenced in the second quarter of 2015.
  • One of these leases is our first mini-wholesale lease at ACC5 totaling 0.20 MW and 860 CRSF which commenced in the first quarter of 2015.
  • Renewed two leases with one customer totaling 2.28 MW and 10,800 CRSF.  These leases were originally scheduled to expire in 2017 and 2019, but have been extended 7.0 years and will now expire in 2024 and 2026.  Compared to the current rates of these leases, cash base rents will be an average of 1.6% lower upon the expiration of the original lease terms.  GAAP base rents will be an average of 9.1% higher immediately. 

Subsequent to the first quarter, we:

• Signed two leases with a weighted average lease term of 6.7 years totaling 4.83 MW and 24,739 CRSF.
  • One lease was at SC1 Phase IIB totaling 3.41 MW and 15,853 CRSF.  This lease commenced in the second quarter of 2015.
  • One pre-lease was at CH2 Phase I totaling 1.42 MW and 8,886 CRSF.  This lease is projected to commence in the third quarter of 2015 upon the opening of CH2 Phase I.
• Commenced two additional leases at SC1 Phase IIB totaling 5.69 MW and 25,916 CRSF that were executed in the fourth quarter of 2014.

Year to date, we:

• Signed 4 leases with a weighted average lease term of 6.7 years totaling 7.03 MW and 33,778 CRSF that are expected to generate approximately $8.3 million of annualized GAAP base rent revenue which is equivalent to a GAAP rate of $98 per kW per month.
• Commenced 5 leases totaling 11.30 MW and 50,808 CRSF.
• Extended the maturity of two leases totaling 2.28 MW and 10,800 CRSF by a weighted average of 7.0 years.

Development Update

We placed SC1 Phase IIB (9.1 MW), which is 100% leased and commenced, into service on May 1, 2015. We continue to develop CH2 Phase I (7.1 MW) and ACC7 Phase IIB (8.9 MW).  We anticipate that CH2 Phase I, which is 20% pre-leased, will be placed into service in the third quarter of 2015 and that ACC7 Phase IIB will be placed into service in the fourth quarter of 2015.

Balance Sheet and Liquidity

The Board approved a common stock repurchase program of $120 million for 2015, of which we purchased $31.9 million in the first quarter of 2015 at an average price of $31.80.  There is $88.1 million remaining under this program for the remainder of 2015.

As of March 31, 2015, we had $410 million of available capacity under our $560 million revolving credit facility.  Since quarter-end, we have drawn $30 million on the facility, leaving $380 million available.

Dividend

Our first quarter 2015 dividend of $0.42 per share was paid on April 15, 2015.  The anticipated 2015 annualized dividend of $1.68 per share represents an estimated AFFO payout ratio of 66% at the midpoint of our current 2015 guidance.

Second Quarter and Full Year 2015 Guidance

We are increasing our 2015 Normalized FFO guidance range by $0.03 per share from $2.27 to $2.47 per share to $2.30 to $2.50 per share.  The increase is due to the following:

• $0.03 per share from positive leasing results
• $0.01 per share from lower shares outstanding after the share repurchase
• $0.01 per share from the bankrupt customer's first quarter payments, partially offset by
• $0.02 per share increased interest expense due to a higher interest rate and earlier timing forecasted for the refinancing of the line, as well as a higher amount of debt forecasted for the year due to the share repurchase. 

Key assumptions included in this guidance are:

• Both the higher and lower end of the range assume no additional revenue from the customer who has filed for bankruptcy protection.  Remaining contractual revenue from this customer is $0.12 per share in 2015 which consists of $0.09 of base rent and $0.03 of operating expenses and management fee.
• The lower end of this range assumes no new leases commenced other than the CH2 pre-lease.
• The lower end of the range assumes that ACC2 is not re-leased at the end of Yahoo's lease term, which is September 30, 2015, and remains vacant for the remainder of 2015.  The current Yahoo! lease generates $0.05 of GAAP revenue per quarter. 
• Opening CH2 Phase I in July 2015 and ACC7 Phase II in December 2015. 
• Refinancing $200 million of the revolving credit facility in June at a 5.50% interest rate. 

Our Normalized FFO guidance range is $0.61 to $0.63 per share for the second quarter of 2015.  The mid-point of this range is $0.01 higher than Normalized FFO per share in the first quarter of 2015.  This is due to the following:

• Increased base rent of $0.02 per share from the opening of SC1 Phase IIB, partially offset by
• Increased interest expense of $0.01 per share due to the forecasted refinancing of the revolving credit facility.

We increased our 2015 AFFO guidance range by $0.06 per share from $2.40 to $2.60 per share to $2.46 to $2.66 per share.  This is due to the following:

• Increased Normalized FFO of $0.03 per share
• Receipt of base rent from the bankrupt customer in March, April and May of $0.03 per share.  This is forecasted to be applied to the straight line receivable which increases the add back to AFFO. 

Our AFFO guidance range is $0.65 to $0.69 per share for the second quarter of 2015.  The mid-point of the range is $0.02 per share higher than first quarter 2015 AFFO per share.  This is due to following:

• Increase in mid-point of Normalized FFO per share of $0.01
• Increased base rent received from the bankrupt customer of $0.01 per share. 

The assumptions underlying Normalized FFO and AFFO guidance can be found on the last page of this earnings release.

First Quarter 2015 Conference Call and Webcast Information

We will host a conference call to discuss these results today, Thursday, May 7, 2015 at 1:30 p.m. ET. To access the live call, please visit the Investor Relations section of our website at www.dft.com or dial 1-877-300-9306 (domestic) or 1-412-902-6613 (international).  A replay will be available for seven days by dialing 1-877-344-7529 (domestic) or 1-412-317-0088 (international) using passcode 10062856.  The webcast will be archived on our website for one year at www.dft.com on the Presentations & Webcasts page.

About DuPont Fabros Technology, Inc.

DuPont Fabros Technology, Inc. (NYSE: DFT) is a leading owner, developer, operator and manager of enterprise-class, carrier neutral, multi-tenant wholesale data centers.  The Company's facilities are designed to offer highly specialized, efficient and safe computing environments in a low-cost operating model.  The Company's customers outsource their mission critical applications and include national and international enterprises across numerous industries, such as technology, Internet content providers, media, communications, cloud-based, healthcare and financial services.  The Company's 11 data centers are located in four major U.S. markets, which total 2.8 million gross square feet and 249 megawatts of available critical load to power the servers and computing equipment of its customers.  DuPont Fabros Technology, Inc., a real estate investment trust (REIT), is headquartered in Washington, DC.  For more information, please visit www.dft.com.

Forward-Looking Statements

Certain statements contained in this press release may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  The matters described in these forward-looking statements include expectations regarding future events, results and trends and are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. We face many risks that could cause our actual performance to differ materially from the results contemplated by our forward-looking statements, including, without limitation, the risk that the assumptions underlying our full year and second quarter 2015 guidance are not realized, the risks related to the leasing of available space to third-party customers, including delays in executing new leases and failure to negotiate leases on terms that will enable us to achieve our expected returns, risks related to the collection of accounts and notes receivable, the risk that we may be unable to obtain new financing on favorable terms to facilitate, among other things, future development projects, the risks commonly associated with construction and development of new facilities (including delays and/or cost increases associated with the completion of new developments), risks relating to obtaining required permits and compliance with permitting, zoning, land-use and environmental requirements, the risk that we will not declare and pay dividends as anticipated for 2015 and the risk that we may not be able to maintain our qualification as a REIT for federal tax purposes.  The periodic reports that we file with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2014 contain detailed descriptions of these and many other risks to which we are subject.  These reports are available on our website at www.dft.com.  Because of the risks described above and other unknown risks, our actual results, performance or achievements may differ materially from the results, performance or achievements contemplated by our forward-looking statements.  The information set forth in this news release represents our expectations and intentions only as of the date of this press release.  We assume no responsibility to issue updates to the contents of this press release.

(1)  Funds from operations, or FFO, is used by industry analysts and investors as a supplemental operating performance measure for REITs. We calculate FFO in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. FFO, as defined by NAREIT, represents net income determined in accordance with GAAP, excluding extraordinary items as defined under GAAP, impairment charges on depreciable real estate assets and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We also present FFO attributable to common shares and OP units, which is FFO excluding preferred stock dividends. FFO attributable to common shares and OP units per share is calculated on a basis consistent with net income attributable to common shares and OP units and reflects adjustments to net income for preferred stock dividends.

We use FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared period over period, captures trends in occupancy rates, rental rates and operating expenses. We also believe that, as a widely recognized measure of the performance of equity REITs, FFO may be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes real estate related depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited.

While FFO is a relevant and widely used measure of operating performance of equity REITs, other equity REITs may use different methodologies for calculating FFO and, accordingly, FFO as disclosed by such other REITs may not be comparable to our FFO. Therefore, we believe that in order to facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income as presented in the consolidated statements of operations. FFO should not be considered as an alternative to net income or to cash flow from operating activities (each as computed in accordance with GAAP) or as an indicator of our liquidity, nor is it indicative of funds available to meet our cash needs, including our ability to pay dividends or make distributions.

We present FFO with adjustments to arrive at Normalized FFO.  Normalized FFO is FFO attributable to common shares and units excluding severance expense and equity accelerations, gain or loss on early extinguishment of debt and gain or loss on derivative instruments.   We also present FFO with supplemental adjustments to arrive at Adjusted FFO ("AFFO"). AFFO is Normalized FFO excluding straight-line revenue, compensation paid with Company common shares, below market lease amortization net of above market lease amortization, non real estate depreciation and amortization, amortization of deferred financing costs, improvements to real estate and capitalized leasing commissions.  AFFO does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indicator of our operating performance or as an alternative to cash flow provided by operations as a measure of liquidity and is not necessarily indicative of funds available to fund our cash needs including our ability to pay dividends. In addition, AFFO may not be comparable to similarly titled measurements employed by other companies. We use AFFO in management reports to provide a measure of REIT operating performance that can be compared to other companies using AFFO.

(1)  Stabilized operating properties are either 85% or more leased and commenced or have been in service for 24 months or greater.

(2)  Gross building area is the entire building area, including CRSF (the portion of gross building area where our customers' computer servers are located), common areas, areas controlled by us (such as the mechanical, telecommunications and utility rooms) and, in some facilities, individual office and storage space leased on an as available basis to our customers.

(3)  Percentage leased is expressed as a percentage of CRSF or critical load, as applicable, that is subject to an executed lease. Leases executed as of April 1, 2015 represent $291 million of base rent on a GAAP basis and $305 million of base rent on a cash basis over the next twelve months. Both amounts include $18 million of revenue from management fees over the next twelve months.  These amounts include $9.7 million of GAAP base rent, $10.4 million of cash base rent and $0.6 million of management fees from the customer who has filed for bankruptcy protection.

(4)  Percentage commenced is expressed as a percentage of CRSF or critical load, as applicable, where the lease has commenced under generally accepted accounting principles.

(5)  Critical load (also referred to as IT load or load used by customers' servers or related equipment) is the power available for exclusive use by customers expressed in terms of megawatt, or MW, or kilowatt, or kW (1 MW is equal to 1,000 kW).

(6)  As of May 7, 2015, ACC7 Phase I was 37% commenced on a CRSF basis and 46% commenced on a critical load basis.

DUPONT FABROS TECHNOLOGY, INC.

Lease Expirations
As of April 1, 2015

The following table sets forth a summary schedule of lease expirations at our operating properties for each of the ten calendar years beginning with 2015. The information set forth in the table below assumes that customers exercise no renewal options and takes into account customers' early termination options in determining the life of their leases under GAAP.

(1)  Represents 37 customers with 106 lease expiration dates.

(2)  CRSF is that portion of gross building area where customers locate their computer servers. One MW is equal to 1,000 kW.

(3)  Annualized base rent represents the monthly contractual base rent (defined as cash base rent before abatements) multiplied by 12 for commenced leases as of April 1, 2015.

DUPONT FABROS TECHNOLOGY, INC.

Top 15 Customers
As of April 1, 2015

The following table presents our top 15 customers based on annualized monthly contractual base rent at our operating properties as of April 1, 2015:

(1)  Annualized base rent represents monthly contractual base rent (defined as cash base rent before abatements) multiplied by 12 for commenced leases as of April 1, 2015.

(1)  Net Operating Income ("NOI") represents total revenues less property operating costs, real estate taxes and insurance, and other expenses (each as reflected in the consolidated statements of operations) for the properties included in the analysis. Cash Net Operating Income ("Cash NOI") is NOI less straight line revenues, net and amortization of lease contracts above and below market value for the properties included in the analysis.

We use NOI and Cash NOI as supplemental performance measures because, in excluding depreciation and amortization and gains and losses from property dispositions, each provides a performance measure that, when compared period over period, captures trends in occupancy rates, rental rates and operating expenses. However, because NOI and Cash NOI exclude depreciation and amortization and capture neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of NOI and Cash NOI as a measure of our performance is limited.

Other REITs may not calculate NOI and Cash NOI in the same manner we do and, accordingly, our NOI and Cash NOI may not be comparable to the NOI and Cash NOI of other REITs. NOI and Cash NOI should not be considered as an alternative to operating income (as computed in accordance with GAAP).

(1)  Gross building area is the entire building area, including CRSF (the portion of gross building area where our customers' computer servers are located), common areas, areas controlled by us (such as the mechanical, telecommunications and utility rooms) and, in some facilities, individual office and storage space leased on an as available basis to our customers.  The respective amounts listed for each of the "Land Held for Development" sites are estimates.

(2)  CRSF is that portion of gross building area where customers locate their computer servers. The respective amounts listed for each of the "Land Held for Development" sites are estimates.

(3)  Critical load (also referred to as IT load or load used by customers' servers or related equipment) is the power available for exclusive use by customers expressed in terms of MW or kW (1 MW is equal to 1,000 kW).  The respective amounts listed for each of the "Land Held for Development" sites are estimates.

(4)  Current development projects include land, capitalization for construction and development and capitalized interest and operating carrying costs, as applicable, upon completion. Future development projects/phases include land, shell and underground work through Phase I opening only. 

(5)  Amount capitalized as of March 31, 2015. Future development projects/phases include land, shell and underground work through Phase I opening only.

(6)  SC1 Phase IIB was placed into service on May 1, 2015 and was 100% leased on a CRSF and critical load basis. 

(7)  As of May 7, 2015, CH2 Phase I was 20% pre-leased on a CRSF and critical load basis.

(8)  Amounts listed are updated estimates. We are currently evaluating the best use for this land.  Options include a stand-alone data center, an additional phase of SC1 or a powered base shell.

Note:  We capitalized interest and deferred financing cost amortization of $3.1 million during the three months ended March 31, 2015.

(1)  The 5.875% Unsecured Notes due 2021 mature on September 15, 2021.

(2)  The ACC3 Term Loan matures on March 27, 2018 with no extension option. Quarterly principal payments of $1.25 million begin on April 1, 2016, increase to $2.5 million on April 1, 2017 and continue through maturity.

(3)  The Unsecured Credit Facility matures on May 13, 2018 with a one-year extension option.

(4)  The Unsecured Term Loan matures on July 21, 2019 with no extension option.

(1)  These selected metrics relate to DuPont Fabros Technology, LP's outstanding unsecured notes.  DuPont Fabros Technology, Inc. is the general partner of DuPont Fabros Technology, LP.

DUPONT FABROS TECHNOLOGY, INC.

2015 Guidance

The earnings guidance/projections provided below are based on current expectations and are forward-looking.

(1)  For information regarding FFO and Normalized FFO, see "Reconciliations of Net Income to FFO, Normalized FFO and AFFO" in this earnings release.

(2)  Represents cash spend expected in 2015 for the SC1 Phase IIB, CH2 Phase I and ACC7 Phase II developments.

Note: This press release supplement contains certain non-GAAP financial measures that we believe are helpful in understanding our business, as further discussed within this press release supplement.  These financial measures, which include Funds From Operations, Normalized Funds From Operations, Adjusted Funds From Operations, Net Operating Income, Cash Net Operating Income, Funds From Operations per share, Normalized Funds From Operations per share and Adjusted Funds From Operations per share, should not be considered as an alternative to net income, operating income, earnings per share or any other GAAP measurement of performance or as an alternative to cash flows from operating, investing or financing activities.  Furthermore, these non-GAAP financial measures are not intended to be a measure of cash flow or liquidity.  Information included in this supplemental package is unaudited.

SOURCE DuPont Fabros Technology Inc.

Related Links

http://www.dft.com