DuPont Fabros Technology, Inc. Reports Second Quarter 2015 Results

WASHINGTON, July 30, 2015 /PRNewswire/ -- DuPont Fabros Technology, Inc. (NYSE: DFT) is reporting results for the quarter ended June 30, 2015.  All per share results are reported on a fully diluted basis.

Highlights

• As of July 30, 2015, our operating portfolio excluding the newly opened CH2 Phase I was 96% leased and commenced as measured by computer room square feet ("CRSF") and critical load (in megawatts, or "MW").
• Quarterly Highlights, all previously reported other than one lease extension:
  • Signed five leases totaling 12.26 MW and 67,561 CRSF.
  • Extended three leases totaling 7.91 MW and 47,120 CRSF.
  • Placed SC1 Phase IIB into service 100% leased, totaling 9.1 MW and 42,000 CRSF.
  • Issued $250 million 8-year, 5.625% Senior Notes at 99.205%.
• Subsequent to the second quarter 2015:
  • Placed CH2 Phase I into service 20% leased, totaling 7.1 MW and 45,000 CRSF.
  • Increased capacity under the Line of Credit from $560 million to $700 million. There are currently no borrowings under the Line of Credit.

Christopher Eldredge, President and Chief Executive Officer, said, "I am very proud of the leases executed in the second quarter, which totaled over 12 megawatts of critical load.  Also, we have placed over 16 megawatts of new capacity into service since the end of the first quarter.  All indications are that demand for our wholesale product will remain strong."

Second Quarter 2015 Results

For the quarter ended June 30, 2015, earnings were $0.30 per share compared to $0.32 per share for the second quarter of 2014.  As anticipated in our prior guidance, the current quarter was negatively impacted by a customer who filed for bankruptcy, resulting in $0.03 per share of revenue not being recognized and $0.03 of non-cash write-offs of straight-line receivables, intangible assets and leasing commissions due to this customer rejecting its leases. Excluding these items, earnings per share for second quarter 2015 increased $0.04 per share, or 13%.  Revenues increased 12%, or $11.9 million, to $113.8 million for the second quarter of 2015 over the second quarter of 2014.  The increase in revenues was primarily due to new leases commencing, an increase in a la carte project revenue and an increase in recoveries from customers due to higher real estate taxes, partially offset by the impact of the customer in bankruptcy noted above.

Normalized FFO for the quarter ended June 30, 2015 was $0.62 per share compared to $0.61 per share for the second quarter of 2014. Normalized FFO increased $0.01 per share, or 2%, from the prior year quarter primarily due to the following:

• Increased operating income excluding depreciation of $0.08 per share which excludes the negative impact from the bankrupt customer, partially offset by
• Revenue of $0.03 per share not recognized from the bankrupt customer,
• Write-off of $0.02 per share of straight-line receivables and intangible assets related to the bankrupt customer, and
• Increased interest expense of $0.02 per share due to a higher level of outstanding debt related to development financing.

Adjusted FFO ("AFFO") for the quarter ended June 30, 2015 was $0.70 per share compared to $0.62 per share in the second quarter of 2014. AFFO increased $0.08 per share, or 13% from the prior year. The increase was primarily due to the following:

• Increased Normalized FFO of $0.01 per share,
• Increased add-back of straight-line revenue as a result of rent received from bankrupt customer not recognized as revenue and increased cash rents totaling $0.04 per share,
• Add-back of non-cash write-offs of straight-line receivables and intangible assets of $0.02 per share, and
• Decreased capitalized leasing commissions of $0.01 per share.

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 received full rent payments for March through June totaling $5.1 million.  We did not recognize the base rent portions of these payments as revenue, but instead applied them to the straight-line rent receivables balance that we had on our books for this customer. At the time of the bankruptcy filing, this customer had the following leases with us:

Effective July 1, 2015, this customer was deemed to have rejected each of its four leases with us.  Consequently, in the second quarter 2015, we wrote-off a portion of straight-line receivables and all of the intangible asset and leasing commissions related to this customer, which totaled $0.03 per share.  The remaining straight-line receivable balance as of July 29, 2015 is $0.9 million, which we believe will be recovered via a revenue sharing arrangement with this customer approved by the bankruptcy court, which allows this customer to occupy the leased space in our data centers while they work to negotiate a sale or vacate the space if such a sale does not materialize.  As of July 29, 2015, we have received $0.8 million from this arrangement.

We also have a $6.5 million note receivable from this customer, of which $5.1 million is reserved and represents 79% of the outstanding note balance. We will continue to monitor this reserve each quarter.

First Half 2015 Results

For the six months ended June 30, 2015, earnings were $0.53 per share compared to $0.63 per share for the first half of 2014.  The first half of 2015 was negatively impacted by the customer who filed for bankruptcy, resulting in $0.06 per share of revenue not being recognized and $0.03 of non-cash write-offs when this customer rejected its leases. Also, we 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 six months ended June 30, 2015 increased $0.06 per share, or 10%.  Revenues increased 8%, or $17.1 million, to $221.1 million for the first half of 2015 compared to the first half of 2014.  The increase in revenues was primarily due to new leases commencing, an increase in a la carte revenue and an increase in recoveries from tenants due to higher real estate taxes, partially offset by impact of the customer in bankruptcy noted above.

Normalized FFO for the six months ended June 30, 2015 was $1.23 per share compared to $1.20 per share for the first half of 2014.  Normalized FFO adds back the $0.07 per share recognized in the first half of 2015 for the severance expense and equity accelerations noted above.  Normalized FFO increased $0.03 per share, or 3%, from the prior year period primarily due to the following:

• Increased operating income excluding depreciation of $0.13 per share which excludes the negative impact from the bankrupt customer, partially offset by
• Revenue of $0.06 per share not recognized from bankrupt customer,
• Write-off of $0.02 per share of straight-line receivables and intangible assets related to the bankrupt customer, and
• Increased interest expense of $0.02 per share due to a higher level of outstanding debt related to development financing.

AFFO for the six months ended June 30, 2015 was $1.35 per share compared to $1.24 per share in the first half of 2014.  AFFO increased $0.11 per share, or 9% from the prior year.  The increase was primarily due to the following:

• Increased Normalized FFO of $0.03 per share,
• Increased add-back of straight-line revenue as a result rent received from bankrupt customer not recognized as revenue and increased cash rents totaling $0.08 per share,
• Add-back of non-cash write-offs of straight-line receivables and intangible assets of $0.02 per share, partially offset by
• Increased capitalized leasing commissions of $0.01 per share, and
• Lower stock compensation expense add-back of $0.01 per share.

Portfolio Update

During the second quarter 2015, we:

• Signed five leases with a weighted average lease term of 7.1 years totaling 12.26 MW and 67,561 CRSF.
  • Three of these leases were with one customer at ACC7 totaling 7.43 MW and 42,822 CRSF. Two of the leases were in Phase I (4.46 MW) which commenced in the second quarter of 2015 and one pre-lease is in Phase II (2.97 MW) which is projected to commence in the fourth quarter of 2015 upon the opening of Phase II.
  • 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 commenced in the third quarter of 2015 upon the opening of CH2 Phase I.
• Commenced six leases totaling 15.56 MW and 75,474 CRSF.
• Extended three leases with two customers totaling 7.91 MW and 47,120 CRSF by an average of 1.5 years.
  • One customer extended a lease at ACC4 and a lease at ACC6 totaling 6.61 MW and 32,800 CRSF by an average of 0.8 years. Compared to the rates in effect at the time of renewal, cash base rents will be an average of 12.6% higher upon the expiration of the original lease terms. GAAP base rents will be an average of 3.7% higher immediately. The same customer was given the right to individually decrease the term of the lease of each of nine computer rooms at ACC5, each with 2.28 MW of available critical load provided the aggregate reduction in lease terms does not exceed 67 months, or an average of approximately seven months per computer room. This right does not impact cash base rents, but GAAP rents will be an average of 6.1% lower immediately.
  • Another customer extended a lease at VA3 totaling 1.30 MW and 14,320 CRSF that was scheduled to expire in 2016. This lease was extended by 5.0 years and is now scheduled to expire in 2021. Cash base rents are not changed, but GAAP rents will be an average of 10.5% lower immediately due to an increase in the amortization term of the below market lease liability.

Subsequent to the second quarter, we:

• Commenced two leases totaling 2.56 MW and 14,386 CRSF. One of these leases was at CH2 Phase I for 1.42 MW and 8,886 CRSF and the other was at ACC5 for 1.14 MW and 5,500 CRSF.

Year to date, we:

• Signed seven leases with a weighted average lease term of 7.1 years totaling 14.46 MW and 76,600 CRSF that are expected to generate approximately $16.5 million of annualized GAAP base rent revenue which is equivalent to a GAAP rate of $95 per kW per month.
• Commenced nine leases totaling 18.32 MW and 90,720 CRSF.
• Extended the maturity of five leases totaling 10.18 MW and 57,920 CRSF by a weighted average of 2.7 years. Compared to the rates in effect when the extension was executed, cash base rents will be an average of 7.7% higher upon the expiration of the original lease terms. GAAP base rents will be an average of 4.0% higher immediately.

Development Update

We placed SC1 Phase IIB (9.1 MW) into service on May 1, 2015, 100% leased and commenced.  We placed CH2 Phase I (7.1 MW) into service on July 1, 2015, 20% leased and commenced.  We are currently developing ACC7 Phase II (8.9 MW) and ACC7 Phase III (11.9 MW) and CH2 Phase II (5.7 MW).  We anticipate that ACC7 Phase II, which is 33% pre-leased, will be placed into service in the fourth quarter of 2015 and that ACC7 Phase III and CH2 Phase II will be placed into service in the second quarter of 2016.

Balance Sheet and Liquidity

We issued $250 million of Unsecured Notes for eight years at a rate of 5.625% and a price of 99.205%.  $180 million of the proceeds were used to pay down the line of credit, and the remainder will be used to fund future data center development.

We increased the size of our line of credit from $560 million to $700 million in July 2015.  No other terms of the line of credit changed.  All $700 million is available as of July 30, 2015.

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.  No shares were purchased in the second quarter of 2015.  There is $88.1 million remaining under this program for the remainder of 2015.

Dividend

Our second quarter 2015 dividend of $0.42 per share was paid on July 15, 2015.  Our third quarter 2015 dividend of $0.42 was declared on July 27, 2015 and will be paid on October 15, 2015 to shareholders of record as of October 2, 2015.  The anticipated 2015 annualized dividend of $1.68 per share represents an estimated AFFO payout ratio of 64% at the midpoint of our current 2015 guidance.

Third Quarter and Full Year 2015 Guidance

We are increasing the mid-point of our 2015 Normalized FFO guidance range by $0.03 per share.  The new range is $2.38 to $2.48 per share compared to last quarter's range of $2.30 to $2.50 per share.  The increase in the mid-point is due to the following:

• $0.03 per share from positive leasing and ala carte results,
• $0.01 per share from lower interest expense due to increased capitalized interest,
• $0.01 per share from the bankrupt customer, partially offset by
• $0.02 per share second quarter write-off of straight-line receivables and intangible assets related to the bankrupt customer.

Key assumptions included in this guidance are:

• The low end of the range assumes no additional revenue from the computer rooms that were leased by the bankrupt customer. The high end of the range assumes $0.02 of revenue from the revenue sharing agreement we have entered into with the bankrupt customer.
• The low end of this range assumes no new leases commencing other than the ACC7 Phase II pre-lease. The high end of the range includes an additional $0.04 of revenue from new lease commencements.
• The low 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. The high end of the range assumes $0.04 of revenue in the fourth quarter from the re-leasing of this space.

Our Normalized FFO guidance range is $0.59 to $0.62 per share for the third quarter of 2015.  The mid-point of this range is $0.01 lower than Normalized FFO per share in the second quarter of 2015.  This is due to the following:

• $0.05 per share of increased interest expense due higher debt levels for the funding of our developments, increased average interest rate after issuing our new bonds and lower capitalized interest after placing CH2 Phase I into service, partially offset by
• $0.02 per share of increased operating income excluding depreciation from new lease commencements, and
• $0.02 per share of second quarter write-offs related to the bankrupt customer that are not forecasted in the third quarter.

We increased the mid-point of our 2015 AFFO guidance range by $0.05 per share.  The new range is $2.56 to $2.66 per share compared to last quarter's range of $2.46 to $2.66 per share.  This is due to the following:

• Increased Normalized FFO of $0.03 per share, and
• Forecasted revenue sharing rent from the bankrupt customer in July and August of $0.02 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 $0.63 to $0.67 per share for the third quarter of 2015.  The mid-point of the range is $0.05 per share lower than second quarter 2015 AFFO per share.  This is due to following:

• Decrease in mid-point of Normalized FFO of $0.01 per share,
• Add-backs of second quarter write-offs of $0.02 per share related to the bankrupt customer that are not forecasted in the third quarter, and
• Increased improvements to real estate of $0.02 per share.

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

Second Quarter 2015 Conference Call and Webcast Information

We will host a conference call to discuss these results today, Thursday, July 30, 2015 at 1:00 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 10068308.  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 12 data centers are located in four major U.S. markets, which total 2.9 million gross square feet and 256 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 third 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 and the quarterly report on Form 10-Q for the quarter ended March 31, 2015 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.

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 NAREIT Funds From Operations, Normalized Funds From Operations, Adjusted Funds From Operations, Net Operating Income, Cash Net Operating Income, NAREIT 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.