DuPont Fabros Technology, Inc. Reports Fourth Quarter 2014 Results

WASHINGTON, Feb. 5, 2015 /PRNewswire/ -- DuPont Fabros Technology, Inc. (NYSE: DFT) is reporting results for the quarter ended December 31, 2014.  All per share results are reported on a fully diluted basis.

Highlights

• As of February 4, 2015, our operating portfolio was 94% leased and commenced as measured by computer room square feet ("CRSF") and 94% leased and 93% commenced as measured by critical load (in megawatts, or "MW").  Excluding our recently opened ACC7 data center, DFT's operating portfolio was 97% leased and commenced as measured by CRSF and 96% leased and commenced as measured by critical load.
• Quarterly Highlights:
  • Same store revenue growth of 7.3% when comparing Q4 2014 to Q4 2013, 10.5% year over year. 
  • Executed and commenced two leases totaling 2.28 MW and 10,587 CRSF and executed two pre-leases totaling 5.68 MW and 25,916 CRSF.  Both leases and one of the pre-leases were disclosed in our Q3 earnings release.
  • Entered into a tri-party agreement related to Yahoo's sublease of its ACC4 space totaling 13.65 MW and 64,200 CRSF.  This arrangement also provided for an extension of the lease expiration date on 9.10 MW and 42,800 CRSF by an average of 1.4 years, so that the entire lease now expires in 2019. This was disclosed in our Q3 earnings release. 
  • Renewed one lease that was scheduled to expire in 2015 and re-leased two leases scheduled to expire in 2015 and 2016 totaling 4.55 MW and 21,900 CRSF for a weighted average term of 7.8 years.
  • Declared fourth quarter 2014 dividend of $0.42 per share, which is an increase of 20% over the prior quarter and a 68% increase over the prior year.   
• Subsequent to the Fourth Quarter 2014:
  • Signed two leases totaling 2.20 MW and 9,039 CRSF.  One of these leases is our first mini-wholesale lease. 
  • 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 now expire in 2024 and 2026.
  • Commenced development of ACC7 Phase II, totaling 8.9 MW and 53,000 CRSF.

Hossein Fateh, President and Chief Executive Officer, said, "Customer demand for DFT's data centers is strong as evidenced by the renewal and releasing activity in our portfolio. Since October 2014, we have leased, renewed or re-leased 26.09 megawatts of critical load. These leases included extensions of two of our four 2015 expirations and the first lease of our new mini-wholesale product. Current interest in wholesale data center space is strong, particularly in Northern Virginia, which gives us optimism as we seek to re-lease Yahoo's ACC2 space."

Fourth Quarter 2014 Results

For the quarter ended December 31, 2014, earnings were $0.28 per share compared to $0.18 per share for the fourth quarter of 2013.  The current quarter contains a provision for bad debts of $0.05 per share, which is included in other expense, and the year ago quarter included an $0.11 per share loss on early extinguishment of debt. Excluding these items, earnings per share for the fourth quarter 2014 increased $0.04 per share, or 14%.  Revenues increased 9%, or $8.5 million, to $108.0 million for the fourth quarter of 2014 over the fourth quarter of 2013.  The increase in revenues was primarily due to new leases commencing.

Normalized FFO for the quarter ended December 31, 2014 was $0.58 per share compared to $0.57 per share for the fourth quarter of 2013.  As noted above, the current quarter includes a provision for bad debts of $0.05 per share.  Excluding this bad debt charge, Normalized FFO increased $0.06 per share, or 11%, from the prior year quarter primarily due to higher operating income excluding depreciation.  Operating income in the fourth quarter of 2014 included $0.01 per share from a favorable settlement of 2011 real property taxes at NJ1. 

The increase in provision for bad debts is related to the customer who restructured three of its leases with us in the first quarter of 2013.  Since that restructuring, we have received all payments due from this customer through the end of 2014.  This customer informed us in January 2015 that they would be halting base rent payments and would pay only operating expenses, direct electric charges and management fees until the company is sold or new funding sources are obtained.  We increased the provision for bad debts due to the uncertainty surrounding this customer's ability to repay at maturity its $6.4 million note which is due on December 31, 2016.  After this increase in the provision for bad debts, we have reserved $5.0 million of the note receivable, which represents 78% of the outstanding balance of the note.  Also, we have a receivable of $9.5 million resulting from the straight-lining of this customer's rent payments, of which we have reserved $3.7 million, or 39%.  In summary, as of today we have a total of $7.2 million of unreserved receivables on our books from this customer.  We believe that we will recover the unreserved portion of these receivables.  This customer has the following leases with us:

Full Year 2014 Results

For the year ended December 31, 2014, earnings were $1.18 per share compared to earnings of $0.32 per share for 2013.  Earnings for 2014 included the $0.05 per share provision for bad debts discussed above and losses of $0.02 per share on the early extinguishment of debt.  Earnings for 2013 included losses on the early extinguishment of debt of $0.50 per share. Excluding these items, earnings per share for 2014 increased $0.43, or 52%, over 2013.  Revenues increased 11%, or $42.5 million, to $417.6 million for 2014 versus 2013.  The increase in revenues was primarily due to new leases commencing.

Normalized FFO for the year ended December 31, 2014 was $2.39 per share compared to $1.96 per share for 2013. As noted above, our 2014 results include a provision for bad debts of $0.05 per share.  Excluding this bad debt charge, Normalized FFO increased $0.48 per share, or 24%, from 2013 which was primarily due to the following:

• Higher operating income excluding depreciation of $0.32 per share, and 
• Lower interest expense of $0.16 per share due to lower interest rates and higher capitalized interest.

Succession Update

As previously announced, our Board of Directors appointed Christopher P. Eldredge as President and Chief Executive Officer.  Effective February 17, 2015, Eldredge will succeed Hossein Fateh, who co-founded DFT.   Fateh will continue to serve DFT as Vice Chairman of its Board of Directors and will be available to DFT for insight and support.

Portfolio Update

During the fourth quarter 2014, we:

• Executed two leases and two pre-leases with a weighted average lease term of 4.7 years totaling 7.96 MW and 36,503 CRSF.
  • The two leases were at SC1 Phase IIA totaling 2.28 MW and 10,587 CRSF, which commenced in the fourth quarter.  These leases were reported in the Q3 earnings release.
  • The two pre-leases were at SC1 Phase IIB totaling 5.68 MW and 25,916 CRSF.  These leases are projected to commence in the second quarter of 2015 and one of these leases was reported in the Q3 earnings release.
• Extended the maturity of one lease at ACC5 totaling 1.14 MW and 5,400 CRSF by 6.0 years.  This lease was scheduled to expire in 2015 and will now expire in 2021.  Cash base rent will be 3.7% lower upon consummation of the renewal on November 1, 2015, while GAAP rent will immediately be 6.1% higher. 
• Entered into a tri-party agreement related to Yahoo's sublease of its ACC4 space totaling 13.65 MW and 64,200 CRSF.  This arrangement also provided for an extension of the lease expiration date of 9.10 MW and 42,800 CRSF by an average of 1.4 years, so that the entire lease now expires in 2019.  Compared to the current rates on Yahoo's leases, cash and GAAP base rents will be an average of 30.2% and 26.0% lower, respectively, upon the expiration of the original lease terms.  These lower rates do not take effect until 2017 and 2018 and represent super wholesale rates.
• Entered into a tri-party agreement for a sublease of 3.41 MW and 16,500 CRSF of space at ACC5 that was scheduled to terminate in 2015 and 2016.  This arrangement also provided for an extension of the lease expiration dates by a weighted average of 8.5 years so that all of the leases now expire in 2024.  Cash and GAAP base rents will be an average of 15.8% and 0.9% lower, respectively, upon the expiration of the original lease terms in 2015 and 2016.

Subsequent to the fourth quarter, we:

• Signed two leases totaling 2.20 MW and 9,039 CRSF.
  • One of these leases is at ACC7 totaling 2.00 MW and 8,179 CRSF which is projected to commence 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 is projected to commence later this quarter. 
• 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 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

In 2014, we:

• Signed 14 leases (including the new leases we signed with sublessees) with a weighted average lease term of 4.6 years totaling 30.82 MW and 162,381 CRSF that are expected to generate approximately $35.1 million of annualized GAAP base rent revenue.
• Commenced 10 leases totaling 17.61 MW and 101,876 CRSF.
• Extended the maturity of four leases totaling 4.14 MW and 28,472 CRSF by a weighted average of 3.0 years with a weighted average decrease to cash base rent of 1.7% and a weighted average increase to GAAP base rent of 5.9%.

Development Update

We continue to develop SC1 Phase IIB (9.10 MW) and CH2 Phase I (7.10 MW).  We anticipate that SC1 Phase IIB, which is 63% pre-leased on a critical load basis and 62% pre-leased on a CRSF basis, will be placed into service in the second quarter of 2015 and that CH2 Phase I will be placed into service in the third quarter of 2015.  The Board has approved the development of ACC7 Phase II which totals 8.9 MW and 53,000 CRSF for delivery in late 2015.

Balance Sheet and Liquidity

We had a 2014 common stock repurchase program that allowed for purchases up to $122.2 million.  This program expired on December 31, 2014 and we did not repurchase any shares under this program.  The Board has approved a common stock repurchase program of $120 million for 2015.

As of December 31, 2014, we had $500 million of available capacity under our $560 million revolving credit facility.  Since year-end, we have drawn $35 million on the facility, leaving $465 million available.

Dividend

Our fourth quarter 2014 dividend of $0.42 per share was 20% higher than the prior quarter dividend and was paid on January 15, 2015.  The anticipated 2015 annualized dividend of $1.68 per share represents an estimated AFFO payout ratio of 67.2% at the midpoint of our current 2015 guidance.  Excluding the impact of our customer who has suspended base rent payments, the AFFO payout ratio would be 63.2%.

First Quarter and Full Year 2015 Guidance

Our 2015 Normalized FFO guidance range is $2.27 to $2.47 per share.  Key assumptions included in this guidance are:

• Both the higher and lower end of the range assume no revenue from the customer who has halted base rent payments.  Contractual revenue from this customer is $0.16 per share in 2015 and any revenue received from this customer in 2015 will increase our Normalized FFO guidance.
• The lower end of this range assumes $0.03 of revenue from new leasing.
• 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 SC1 Phase IIB in May 2015, CH2 Phase I in August 2015 and ACC7 Phase II in late 2015. 
• Refinancing $150 million of the revolving credit facility in June by adding on to our current bonds at a 5.25% yield.

The midpoint of our 2015 Normalized FFO guidance range is $2.37, which is $0.02 lower than 2014's Normalized FFO of $2.39 per share.  This is due to the following:

• Higher interest expense of $0.08 per share due to increased debt that is being used to fund data center development, the anticipated conversion of our line of credit to permanent financing mid-year 2015 which increases our average interest rate and lower capitalized interest. 
• A $0.10 per share decline in Normalized FFO from the customer who has halted base rent payments.  This customer generated $0.10 per share of Normalized FFO in 2014, net of the $0.05 per share bad debt reserve increase.
• An increase of Normalized FFO of $0.16 per share from all other customers.

Our Normalized FFO guidance range is $0.56 to $0.60 per share for the first quarter of 2015.  The mid-point of this range of $0.58 equals the fourth quarter 2014 Normalized FFO per share.

In 2015, we are providing AFFO per share guidance.  Our 2015 AFFO guidance range is $2.40 to $2.60 per share and the first quarter 2015 range is $0.59 to $0.63 per share.

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

Fourth Quarter 2014 Conference Call and Webcast Information

We will host a conference call to discuss these results today, Thursday, February 5, 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 10057812.  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 2.75 million gross square feet and 240 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 first 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, 2013 and the quarterly reports for the periods ended September 30, 2014, June 30, 2014 and March 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.