DuPont Fabros Technology (DFT)

Q4 2010 Earnings Call

February 09, 2011 10:00 am ET


Christopher Warnke -

Hossein Fateh - Co-Founder, Chief Executive Officer, President and Director

Mark Wetzel - Chief Financial Officer, Executive Vice President and Treasurer


John Stewart - Green Street Advisors, Inc.

Jonathan Schildkraut - Evercore Partners Inc.

Sloan Bohlen - Goldman Sachs Group Inc.

Omotayo Okusanya - Jefferies & Company, Inc.

David Rodgers - RBC Capital Markets, LLC

Young Ku - Wells Fargo Securities, LLC

Phil Wilhelm - Stock Investments

Christopher Lucas - Robert W. Baird & Co. Incorporated

Quentin Velleley - Citigroup Inc

Jonathan Atkin - RBC Capital Markets, LLC

Romeo Reyes - Jefferies & Company, Inc.

Brendan Maiorana - Wells Fargo Securities, LLC

Chris Caton - Morgan Stanley

Srikanth Nagarajan - FBR Capital Markets & Co.

Jordan Sadler - KeyBanc Capital Markets Inc.

William Crow - Raymond James & Associates



Good day and welcome to the DuPont Fabros Technology Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Chris Warnke, Investor Relations manager of DuPont Fabros. Please go ahead, sir.

Christopher Warnke

Thank you. Good morning, everyone and thank you for joining us today for DuPont Fabros Technology's fourth quarter 2010 results conference call. Our speakers today are Hossein Fateh, the company's President and Chief Executive Officer; and Mark Wetzel, the company's Chief Financial Officer and Treasurer. Certain matters discussed during this conference call may constitute forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to certain risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.

Additionally, this call contains non-GAAP financial information, of which explanations and reconciliations to net income are contained in the company's earnings release issued last night, which is available in PDF format in the Investor Relations section of the company's corporate website at To manage the call in a timely manner, questions will be limited to two per caller. If you have additional questions, please feel free to return to the queue.

I will now turn the call over to Hossein.

Hossein Fateh

Thank you, Chris and good morning, everyone. Thank you for joining us on our fourth quarter 2010 earnings call. As noted in last night's press release, we again delivered solid quarterly and full-year results for 2010, which Mark will discuss later in the call. 2010 was our third full year as a public company and we are proud of our accomplishments, none of which could have been done without the hard work and dedication of our excellent team of DFT employees. I thank each and every one of you.

Because leasing is always our primary focus, let me begin with an update. Northern Virginia continues to be a very attractive market. In the first quarter of 2011, we signed two new leases totaling 4.55 MW of critical load at ACC5 Phase II. This completes the lease up of the entire building within three months of opening. Both leases are with existing tenants with great credit and payment history in our Northern Virginia data centers. One is a gaming provider and the other is an Internet-based company. We continue to achieve the 15% unleveraged return on our Virginia data center development.

Specific to Chicago, we signed two pre-leases totaling 5.2 MW of critical load. This represents 29% of Phase II. Both leases are with existing tenants in Phase I. One tenant is an Internet-based company and the second, a reseller. Our Phase II development will provide additional well-needed space to this market. One of the benefits of our phased approach is that when our tenants' requirements increase, they are able to take additional space in the second phases of our data centers. This approach reduces their risk exposure and capital expenditures. This leverages DFT's platform and building design.

The benefit to DFT is that our first phase serves as an incubator for our second phase. Many existing tenants in Virginia have taken additional space on our Ashburn campus. We are seeing this trend repeat itself in Chicago. For us, the second phases of each project have always been the low hanging fruit. Our total leasing equates to 9.75 MW of critical load that has been done since the end of the quarter and before the call. Leases signed in both the fourth quarter and first quarter to date will achieve our 12% to 15% unleveraged returns on CH1 and ACC5, respectively.

Due to the required delivery date in our recently executed leases, we expect to open Phase II of Chicago in the first quarter of 2012. We'll likely raise $100 million to $125 million of new funds in the near future. We are currently looking at various sources of capital to fund this development. We do not plan to issue common equity for this raise. The new money raised will likely be perpetual preferred stock or debt. As always, our decision will be dependent upon timing, pricing, market condition and the best interests of our shareholders.

Within our existing portfolio, we have limited available space, all of which is in New Jersey. We are on target with our projected lease up of this facility, which is currently 22% leased to date. New Jersey is one of the Tier 1 markets in the country. Our asset is one of the highest quality and most efficient data centers in the area. Tours and traffic remain strong. We continue to project a 24-month lease up and a 12% unleveraged return on our investment capital. We expect to be fully leased by the end of 2012. Both Phase I of ACC6 and Santa Clara will be delivered in the third quarter of 2011.

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