DuPont Fabros Halts Data Center Projects

Data center developer DuPont Fabros Technology (DFT) said today that it has halted construction at data center projects in New Jersey and Virginia after it failed to arrange additional financing. The company said talks to arrange $150 million in mezzanine debt recently ended after the lender revised its terms.

“After a careful evaluation of our development initiatives we believe this is the prudent course of action at this time,” said Hossein Fateh, President and Chief Executive Officer of DuPont Fabros. “Although we continue to pursue financing arrangements acceptable to the Company, we are confident that our existing sources of cash will satisfy all construction-related obligations that have been committed to date at ACC5, NJ1 and SC1 in Santa Clara, California.”

DuPont Fabros said Oct. 28 that it was halting work on its planned $270 million data center in Santa Clara, saying the credit crunch had limited the size of a new loan to $100 million. At the time, the company said it planned to will use the $100 million to continue construction on new data centers Piscataway, New Jersey and its ACC5 facility in Ashburn, Virginia.

Another Selloff for DuPont Fabros Shares

Shares of data center REIT DuPont Fabros (DFT) sold off sharply again today, losing 87 cents to close at $1.88 a share for a one-day decline of 32 percent. The selloff followed a downgrade from UBS analyst Omotayo Okusanya, who lowered his recommendation from Buy to Neutral. The company’s stock headed lower last Thursday after DuPont Fabros said it is seeking additional funding to complete construction on two major data center projects.  At the current share price, DuPont Fabros has a market capitalization of about $67 million.

The company said Thursday that it is negotiating a $150 million loan with a large pension fund to finance construction on new data centers in New Jersey and Virginia, 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. Okusanya, the UBS analyst, expressed concern about the dividend suspension during last week’s conference call with securities analysts (see full transcript at Seeking Alpha). 

DuPont Fabros Seeks Funding, Shares Plunge

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.

DuPont Fabros Halts Santa Clara Project

DuPont Fabros Technology (DFT) has halted development of a major data center in Santa Clara, Calif, citing capital constraints after it was able to borrow less than it hoped to fund the project, the company said today.

The company planned to invest $270 million in the new facility, and pay for construction by arranging a loan of $300 to $400 million, secured by its new ACC4 data center in Ashburn, Virginia. DuPont Fabros said today that it had closed on a $100 million secured loan with a syndicate of lenders led by KeyBank National Association.

The company started construction on the Santa Clara project last August based on the expectation of borrowing a larger amount the ACC4 financing, but that work has now been “temporarily suspended.” The Tech Hermit blog reported last week that activity had ceased at the Santa Clara site.

DuPont Fabros Reports Slower Leasing

DuPont Fabros Technology (DFT) said today that leasing at its data centers has slowed slightly due to a longer sales cycle for enterprise companies, who are the primary customers for the company’s newly-opened Chicago data center. DuPont Fabros executives said they remain highly confident about demand for the company’s facilities, and expect to have no trouble meeting their revenue projections.

“We feel demand outpaces supply and the market is healthy,” said Hossein Fateh, the president and CEO of DuPont Fabros. “In the current economic climate, the decision to sign leases is now taking longer, particularly in the enterprise market. We originally hoped to be 100 percent leased in ACC4 (the company’s new data center in Ashburn, Virginia) and we are currently at 86 percent. We also hoped to be further ahead on leasing our Chicago facility.”

Fateh discussed the leasing in a conference call with analysts this morning. The company also said it had raised the low end of its 2008 guidance on funds from operations (FFO) from $1.20 to $1.24, while keeping the top end estimate at $1.30 per share.

The report of slower leasing differs from the experience at Digital Realty Trust (DLR), the other large REIT focused on the data center sector, which reported strong demand and higher leasing rates in its second quarter earnings and raised its 2008 FFO projection. Colocation providers Equinix (EQIX) and Switch and Data (SDXC) also reported strong demand for space and raised their revenue guidance.

Data Center REITs Get Respect

Real estate investment trusts (REITs) focusing on the data center sector are a pretty exclusive group. It’s a club with only two members - Digital Realty Trust (DLR) and Dupont Fabros Technology (DFT). The investment potential of these two REITs was the subject of an Associated Press article yesterday, which appeared in a number of daily newspapers around the nation. The story notes that securities analysts from Raymond James, UBS AG and KeyBanc Capital Markets are all bullish on the sector.

The analysts’ sentiments closely track the key findings in our February series Crunch Time: The Credit Crunch and Data Centers, particularly the segment on The Incumbent Advantage. Investors interested in the sector will also want to check out our review of data center stock performance in 2007 and the first quarter of 2008.

Microhoo: 1,600 Pound Gorilla for Vendors?

Sometimes it’s nice to have an “800-pound gorilla” as a customer. It’s even better to have two of these huge companies as customers. But what happens if the two 800-pound gorillas merge? That’s an important question in light of Microsoft’s $44 billion bid for Yahoo (YHOO). Several publicly-held companies in the data center sector do big business with both Microsoft (MSFT) and Yahoo, to the extent that the two companies add up to half their revenues. Here are a couple of examples:

• Rackable (RACK) gets 57 percent of its revenues from its top three customers, which are Microsoft, Yahoo and Amazon (AMZN), with Amazon assumed to represent the smaller chunk of the three. Rackable’s focus on DC power and energy-efficient servers has helped it gain traction among companies with the largest server farms. Its customer base has become more diverse with the emergence of Amazon’s utility computing operation and the growth of Facebook, another large customer.

DuPont Fabros: A Bet on Internet Growth

Data center real estate is a fast-growing but specialized business requiring large amounts of capital and engineering experience, according to Hossein Fateh, the President and CEO of DuPont Fabros Technology (DFT). Fateh offered his insights into the data center industry last month in a presentation to investors at the 35th Annual UBS Annual Global Media and Communications Conference.

DuPont Fabros, which had its IPO in October, was among a presenter list filled with some of the world’s largest media companies, such as Viacom, News Corp., Walt Disney and NBC Universal. UBS analyst Omotayo Okusanya said DuPont Fabros is positioned to benefit as media content moves online.

“We are very, very bullish on the data center real estate space,” said Okusanya, a director and equity analyst on UBS team tracking the REIT sector. “We believe owners and operators of data center space have done very well over the past two years due to strong fundamentals. We expect the fundamentals to remain very strong for the next few years, which will create a supply and demand imbalance that should be to the benefit of companies like DuPont Fabros.”

“This is a real estate bet on the growth of the Internet,” said Fateh. “We see growth much faster than that of a typical real estate companies. The product we rent and sell is really power, cooling and the security for the front door. As the Internet has exploded, so has demand for this space. At every iteration, there are new business models that come up.”

Microsoft and Yahoo represent more than 60 percent of DFT’s leasing revenue, but the company’s customer base is diversifying. “If you told me two years ago that social networking sites would be important to our business, I wouldn’t have believed it,” said Fateh. “Today they are a very large part of our business,” as Facebook and MySpace both lease space in the company’s data centers. Fateh said he expects online video to become a large part of DuPont Fabros’ business, along with online delivery of medical records.

DuPont Fabros Closes on Santa Clara Site

DuPont Fabros Technology, Inc. (DFT) has closed on the purchase of 17.2 acres of land in Santa Clara, California for $22.0 million, the company said today. DuPont Fabros plans to build two large data centers at the site. The cost and date of the closing was expected, and had been disclosed in the company’s SEC filings.

The two data centers will include 600,000 gross square feet and 342,000 square feet of finished data center space, with a power capacity of 72.8 megawatts. DuPont Fabros expects the first phase, SC1, to be completed in 2009, but has not announced a timetable for the second phase (SC2).

32 Generators at New DuPont Fabros Facility

DuPont Fabros Technology (DFT) said yesterday that it has completed the second phase of its ACC4 data center in Ashburn, Virginia. The 348,000 square foot facility, which will house servers for Facebook, MySpace and Yahoo, features some of the most extraordinary power infrastructure yet seen in the data center industry. As power usage at data centers continues to grow, the new DuPont Fabros facility may offer a glimpse into the future of infrastructure for premium data centers.

The ACC4 facility has a 36.4 megawatt power feed from Dominion Virginia Power, and is supported by 32 huge 2.25 megawatt diesel generators. That number is correct: 32 generators. The building has four 50,000 gallon tanks of diesel fuel tanks for a total of 200,000 gallons of storage, enough to run the facility on generator power for up to 55 hours during a grid outage. To protect against short-term power outages, ACC4 has 32 rotary power (flywheel) systems that can each produce 1.3 megawatts of output to maintain power until the generators can start.