DuPont Fabros Technology (DFT) is seeking additional funding to complete construction on major data center projects in New Jersey and northern Virginia. The company said today that it is negotiating a $150 million loan with a large pension fund, and hopes to complete the funding by the end of 2008. In the meantime, DuPont Fabros has suspended its fourth quarter dividend to preserve capital.
The company discussed its financing efforts Thursday morning in a conference call with securities analysts. DuPont Fabros expressed confidence in its ability to fund its expansion, but securities analysts asked pointed questions about the company's strategic options if it can't secure new loans.
Shares of DuPont Fabros plunged shortly after the call began, and by midday were trading at $3 a share, down $2.47 on the session, a decline of 45 percent. DuPont Fabros went public in Oct. 2007 at $21 a share.
"We are actively working to secure additional capital, and are cautiously optimistic," said Hossein Fateh, president and CEO of DuPont Fabros. Fateh said the potential $150 million loan from the pension fund would be secured by the company's ACC4 data center in Ashburn, Va.
The company originally planned to use ACC4 to obtain a loan of $300 to $400 million. But "several banks we were in discussion with have merged or disappeared," said CFO Mark Wetzel. DuPont Fabros was ultimately able to raise $100 million through a loan with a syndicate of lenders led by KeyBank National Association. Fateh said the ACC4 data center has been appraised at $680 million, leaving room for additional loans to be secured by the property.
DuPont Fabros is using the $100 million loan to continue developing a data center in Piscataway, New Jersey and its ACC5 facility in Ashburn, but has mothballed a $270 million project in Santa Clara, Calif.
Several analysts questioned the company's decision to continue construction on the new data centers while it seeks more funding. Wetzel said DuPont Fabros can continue building through December and still have $25 million in cash at year end.
"In the event we don't receive additional capital by year-end, we will re-evaluate at that point," said Fateh. "If we felt there was a moderate risk we wouldn't get the $150 million, we would certainly stop building."
Analysts pressed Fateh and Wetzel about various strategic options to raise capital and/or complete projects. These included:
- Joint ventures: Fateh said the company was open to partnering to eventually complete the Santa Clara project. "We continue to believe Santa Clara is one of the best markets in the country," he said.
- Accessing existing credit lines: The $100 million Keybank secured loan has an "accordion" feature that could allow the company to borrow another $150 million. But it would have to put up another unencumbered facility as collateral, an option that would not be available until ACC5 is completed.
- Selling existing facilities to raise capital: In response to an analyst's question, Fateh said DuPont Fabros "could sell some of the single-tenanted buildings," which include three data centers in the company's portfolio. "At the moment, we don't feel that we need to do that," he said.
- Taking the company private: In response to an analyst's specific question, Fateh said this was always an option, but not being considered at this time. At today's stock price of $3 a share, DuPont Fabros has a market capitalization of $101.5 million.
While the credit crunch has raised short-term challenges for new construction, Fateh said it will make the company's completed facilities more valuable. "This environment should enforce the supply/demand imbalance we currently see in place," he said. "There will be very little new product built over the next two years, which will increase demand for our products."
DuPont Fabros reported that it has signed two leases in its new Chicago data center, representing 9 percent of the available space. In August the company had reported a longer sales cycle for the Chicago site for enterprise companies. The first two leases were from Internet companies.
Fateh said the company's stock price doesn't reflect the strength of the company's business. "We're managing the business," he said. "We're very excited about the business."