The exterior of one of the northern Virginia data center properties operated by DuPont Fabros Technology.

Leasing at new data centers built by developer DuPont Fabros Technology has been slower than expected in several key markets, the company said today,  DuPont Fabros said it remained confident in the long-term outlook for the data center market, but that given the current pace of leasing it is lowering its revenue guidance for 2012.

Shares of DuPont Fabros (DFT) were down by about 6 percent in midday trading on the New York Stock Exchange, declining $1.49 a share to $24.01. Shares had been as much as 9 percent lower in after-hours trading last night.

CEO Hossein Fateh said leasing has been slower than expected in New Jersey and northern Virginia, but about on track with expectations in Silicon Valley. DuPont Fabros has recently opened new data centers in each of these markets.

“Leasing in New Jersey has been slower than expected,” said Fateh. “Northern Virginia remains a solid market for us. Although leasing has been somewhat slower than expected in this market, we have no concerns about leasing this space due to the demand.”

Competition in Santa Clara

Analysts have also been focused on DFT’s leasing progress at its site in Santa Clara, California, known as SC1. Santa Clara is a particularly competitive market, and DuPont Fabros has been able to lease 25 percent of the first phase of SC1, including a new 2.28 megawatt lease announced Tuesday.

“We have competition in Silicon Valley, but we also have the majority of the available space,” said Fateh, who said competition had caused a “market disruption” in Santa Clara. In other markets, he said, the slower pace of leasing was tied to internal decisions by customers, rather than compeittion from other wholesale data center providers.

The company’s assessment of the market, shared in its quarterly earnings call, raised a key question for the industry: is the leasing slowdown specific to DuPont Fabros, or a broader change in the demand trend that could affect other companies? We’ll know more in coming weeks, as other players in the data center industry report their earnings.

Will DFT Continue Building Big?

DuPont Fabros builds some of the largest data centers in the industry, which gives the company the ability to rapidly lease space in active markets. But when demand slows, it leaves the company with a larger volume of vacant wholesale space, placing pressure on the company’s leasing efforts. Other players in the wholesale data enter sector tend to build in smaller increments than the 13 megawatt to 18 megawatt phases that DFT brings to market.

Fateh defended DuPont Fabros’ focus on building big, but said the company will adjust its construction plans for the second phases of SC1 and ACC6, deploying new space in chunks of 9 megawatts or even 4.5 megawatts at a time rather than 18 megawatts. But he said the focus on larger facilities is driven by the economics of the data center market.

“We believe that as a landlord operating for the long-term, these are the buildings we want to own,” said Fateh, who said 36 megawatt facilities offer economies of scale not available in 10 megawatt buildings. “We feel very comfortable with our market and our product.”

Emergence of “Super Wholesale”

Fateh said DuPont Fabros was seeing more interest from companies with “super wholesale” requirements of 10 megawatts or  more of critical power. In the past, companies with these large space requirements would be candidates for a stand-alone data center. But now some of these companies are doing comparison shopping between build-to-suit opportunities and wholesale data center space.

“We’re seeing these deals in the market,” he said, noting that these huge requirements were limited to a small number of companies, but represent a substantial new opportunity for wholesale data center operators. Deals of this size could rapidly fill large swaths of wholesale space, with the tradeoff that they might also involve slightly lower returns on capital.

An aerial view of the new DuPont Fabros data center in Santa Clara, Calif.

Wholesale data center developer DuPont Fabros Technology has signed new customer leases at its data centers in New Jersey and Silicon Valley, the company said today.

Two new tenants have signed leases totalling 1.71 megawatts of critical power – about 8,120 square feet of raised-floor technical space – at the NJ1 facility in Piscataway, New Jersey. In California, a single tenant has leased 2.28 megawatts of power (11,000 square feet of space) at the SC1 facility in Santa Clara.

DuPont Fabros also announced that it has opened Phase II of its CH1 data center in Elk Grove Village, Ill. The second phase of the massive facility is 79 percent pre-leased, with 57 percent of those leases commencing on Feb. 1. The opening follows an active fourth quarter in with DuPont Fabros (DFT) opened two new data centers (SC1 and the first phase of ACC6 in Ashburn, Virginia) totalling 31.6 megawatts of critical power.

“Over the past 15 months we have opened five new developments comprising 85.8 megawatts of critical load and leased about half of this space,” said Hossein Fateh, President and Chief Executive Officer of DFT. “Our primary focus in 2012 is to lease our remaining available space. The timing of corporate decision-making by potential tenants to execute leases is not always predictable, but we remain optimistic regarding the long–term demand for our strategically located wholesale facilities.”

Focus on Leasing Space

The pace of leasing at the New Jersey and Santa Clara facilities is being closely watched, as the DuPont Fabros facilities represent the largest chunks of completed wholesale data center space in competitive markets. NJ1 is now 34 percent leased, while 25 percent of the space is filled at SC1.

During the full year 2011, the company signed 14 leases totaling 24.92 megawatts of critical load and 133,716 raised square feet, with an average lease term of 7.9 years and approximate contract value of $428 million.

For the quarter ended December 31, DuPont Fabros reported earnings of $0.12 per share compared to $0.10 per share for the fourth quarter of 2010. Revenues increased 13 percent to $74.4 million for the fourth quarter of 2011 over the fourth quarter of 2010, primarily due to new leases commencing at data centers in Virginia, New Jersey, Chicago and Santa Clara. Funds from Operations (FFO) for the quarter ended December 31, 2011 was $0.37 per share compared to $0.33 per share for the quarter ended December 31, 2010.

DuPont Fabros established an FFO guidance range of $1.31 to $1.51 per share for the full year 2012, establishing a midpoint about 20 cents lower than the company’s full year 2011 FFO of $1.61. DFT said the reduction was due to a tange of factors, including the impact of  lower capitalized interest expenses. No new data center construction is scheduled for to commence in 2012, and the company’s capitalization policy is to stop interest capitalization when projects are placed in service.

After the guidance adjustment, shares of DuPont Fabros were about 9 percent lower in after-hours trading.

• DuPont Fabros Technology – Wholesale data center developer DuPont Fabros Technology (DFT) today announced that the control procedures for its data centers that required the certification have been found to be suitable in design and operating effectively according to Service Organization Control Reports (“SOC1″).  These were prepared under Statement of Standards for Attestation Engagement No. 16 (“SSAE 16″) by one of the Big 4 independent auditing firms. “We’re committed to operating our data centers and facilities at a level that meets or exceeds the highest industry and regulatory standards,” said Hossein Fateh, President and Chief Executive Officer of DuPont Fabros Technology, Inc.  “We will continue to obtain annual SSAE 16 reports for all future properties we develop, place in service and operate.”
• IO – Modular data center specialist IO said the company has completed a SSAE 16 Type 2 audit covering three operational data centers – IO New Jersey, IO Phoenix and IO Scottsdale. The company said the certification of IO New Jersey and IO Phoenix further validates the resiliency and operational excellence of IO’s next-generation modular data centers. “Designed, engineered and manufactured in the US using standards-based components and processes, IO.Anywhere offers unmatched reliability, in a repeatable manner,” said David Shaw, Chief Operating Officer of IO. “This SSAE 16 accreditation will only further accelerate the increased customer adoption of our highly secure and scalable modular Data Center solution.”

DuPont Fabros (DFT) is one of three publicly-held real estate investment trusts (REITs) focusing on the data center sector, along with Digital Realty Trust (DLR) and CoreSite Realty (COR). The company leased 125,716 square feet of data center space in the first nine months of 2011, equal to 23.6 megawatts of critical load. In September DFT opened its ACC6 Phase I data center located in Ashburn, Virginia and its SC1 Phase I data center located in Santa Clara, California. Both facilities offer wholesale data center space.

From 2007 to 2011, Heiliger oversaw global infrastructure, site architecture and internal systems for Facebook, as the number of Facebook users grew from 35 million to over 800 million and its staff expanded from 300 to 2,500 people.

“We have known Jonathan for quite some time through DFT’s long relationship with Facebook,” said Lammot du Pont, Chairman of DFT’s Board of Directors. “We believe that Jonathan’s expertise in architecting and operating cutting edge datacenters will be invaluable as we continue to design, develop and operate first-class data center facilities that meet the needs of our customers.”

“I’ve been involved with building and scaling advanced infrastructure systems for some time and I have a deep appreciation for the value that DFT provides to its customers,” said Heiliger. “I look forward to collaborating with the Board and the company’s management team to continue developing innovative solutions for DFT’s customers.”

Heiliger has also served in executive positions with Walmart.com and a number of venture capital and early-stage technology companies. Previously, Heiliger was a co-founder and chief technology officer of GlobalCenter and vice president of technology for Global Crossing, a telecommunications company that built and operated the world’s first independent global fiber optic network. He is a member of the Boards of Directors of Jive Software, Inc. and Webmonsters, Inc.

For more company news, see our DuPont Fabros channel.

The ACC5 data center, one of the northern Virginia properties operated by DuPont Fabros Technology.

Hossein Fateh, the President and CEO of data center developer DuPont Fabros Technology, is very clear about the company’s priority. “Leasing continues to be our relentless focus,” said Fateh.

That focus has helped DuPont Fabros (DFT) lease 125,716 square feet of data center space in the first nine months of 2011, equal to 23.6 megawatts of critical load and more than the company leased in all of 2010. That includes three new leases in its data center in Piscataway, New Jersey, totaling 2.2 megawatts of critical power.

The New Jersey leases mean that DuPont Fabros’ huge NJ1 facility is now 34 percent leased, and will help further allay concerns that the New Jersey market is overbuilt, with too much vacant inventory of wholesale data center space. Digital Realty Trust, one of DFT’s primary competitors, reported this week that it had seen a rebound in demand in the Garden State, with up to 42 megawatts of demand and just 24 megawatts of available supply. Fateh would not comment on Digital Realty’s data, but said he is pleased with the activity that DuPont Fabros is seeing.

DFT Shares Rise on Results

“I think New Jersey’s coming along,” said Fateh. “I see it as a good, solid market.” He said the new tenants include companies from the cloud computing and financial services sectors.

Those leases helped boost DuPont Fabros’ revenues to $73.8 million for the third quarter of 2011, a 22 percent improvement over the third quarter of 2010.
Funds from Operations (FFO) for the quarter was $0.44 per share, a 19 percent increase from $0.37 per share in the year ago quarter. Those results cheered investors, who bid up DFT shares by $2.20 to $21.93 a share in afternoon trading, a gain of 11 percent for the session.

Fateh’s quarterly earnings calls with securities analysts always provide an informative overview of the leasing environment for wholesale data center space, and today’s call was no exception. Fateh said competition in the Silicon Valley market had led the company to adjust some assumptions about its Santa Clara facility, which opened for business on Oct. 1 with 18 megawatts of critical power load. Just 13 percent of that space has been leased thus far.

Competition in Silicon Valley

“We have slightly lowered our rental assumptions in Santa Clara,” said Fateh. “There are one or two private equity players in that market that have done deals that (publicly-held) players aren’t willing to do. The majority of that private equity space is now gone. Whether the rents will ratchet up or remain at a lower level, I’m uncertain. We remain confident in the demand in the Santa Clara market, and believe that over the long term we are well positioned to take advantage of this.”

Fateh didn’t name names. Privately-held Vantage Data Centers has leased 93 percent of the space at its first two data centers in Santa Clara this year, while new space is also available at facilities from Server Farm Realty and QTS, which are also privately-held. Other publicly-held players with space in Santa Clara include Digital Realty Trust (DLR) and CoreSite Realty (COR)

Fateh said he didn’t see competition from privately-held players impacting pricing in other regions. “At the moment, I’d says this situation is isolated to California,” he said. “We haven’t seen it anywhere else.”

Certainly not in northern Virginia, which serves as home base for DuPont Fabros. “Northern Virginia continues to be our best market,” Fateh said. “It’s the strongest market in the country, and we’re the dominant provider.” He said DFT was tracking at least five large data center requirements, and he had “zero concerns” about leasing ACC6, the company’s newest property in its Ashburn Corporate Campus.

The Economy and the Data Center Market

Fateh also discussed concerns about the global economy, which could factor into U.S. companies’ decisions on spending. He said that a cautious approach is in order, but noted that the impact of a slowing economy on the data center industry is not always predictable.

“I am worried a little bit about the macro environment,” said Fateh. “Data centers are one of the sectors in real estate that have continued to grow. Previous (economic downturns) have not affected the data center market.

“I’m a little worried about some of the decision-making based on what’s going on in the world. But in a world that is uncertain, we may see companies outsourcing their data centers instead of doing it themselves. So it could also turn out that this environment will help us.”

An aerial view of the new DuPont Fabros data center in Santa Clara, Calif.

DuPont Fabros Technology has completed two major data center projects, bringing new space online in two of the busiest markets.

DuPont Fabros (DFT) said Tuesday that it has its ACC6 Phase I data center located in Ashburn, Virginia and its SC1 Phase I data center located in Santa Clara, California. Both facilities offer wholesale data center space

New Capacity in Ashburn

ACC6 Phase I is the first of two identical stages to be brought online in Ashburn, which will total 262,000 gross square feet and 132,000 raised square feet and 26 mega watts of critical load. The facilities on the Ashburn campus are connected by a telecommunications duct bank that will allow tenants at ACC6 to procure network connectivity from more than 20 carriers on the campus.

Ashburn is a key network intersection point, which makes it an attractive location for data centers.

Entry into Silicon Valley

The SCI project represents DuPont Fabros’ entry into the Silicon Valley market, which serves many of the region’s technology firms. About 13 percent of the space at SC1 has been leased to a “Fortune 50 technology company,” which industry sources say is Apple.

SC1 is one of the largest data centers in Santa Clara, with a dedicated 100 MVA substation and an expected power capacity of 36 megawatts upon completion. It is also a two-stage project, with a total build-out of 360,000 gross square feet and 176,000 raised square feet. The SC1 data center currently has five carriers – AboveNet, AT&T, Layer 42, Silicon Valley Power Fiber Enterprise and Verizon.

“Delivering ACC6 and SC1 not only provides us with additional leasable space, but we have expanded our geographical presence into Silicon Valley with the opening of SC1,” said Hossein Fateh, President and Chief Executive Officer of DuPont Fabros. “We design and build our facilities with our tenant’s requirements in mind. Our data centers provide the optimal environment for Cloud and other high-density server and storage applications being developed. We have built strong on-site operations teams at each location to run, operate and provide our tenants with the data center expertise they demand.”

DuPont Fabros  operates as a real estate investment trust (REIT), and has data centers in Virginia, New Jersey ,Chicago and Silicon Valley.

As part of the agreement, NYSE Technologies will build an SFTI Access Center at the Piscataway facility. SFTI – short for Secure Financial Transaction Infrastructure- is a secure network operated by the NYSE that provides over 1,300 financial market participants with a single point of connectivity to multiple exchanges, market centers and content service providers.

High-Speed Link Between Piscataway, Mahwah

The new SFTI Access Center at Piscataway will interconnect NYSE Euronext’s Liquidity Center at Mahwah, proximity hosting site at Weehawken and network of SFTI Access Centers in New York and Chicago to offer more direct connections to markets and market information.

“This is a huge achievement for DFT,” said Hossein Fateh, President and CEO of DuPont Fabros. “Connecting our NJ1 data center directly to the NYSE Technologies SFTI Network will meet our current and future tenants’ requirements for a direct low-latency connection to the trading platforms and matching engines. NYSE Technologies’ SFTI access center will allow NJ1 to offer even greater performance for latency sensitive trading platforms over data centers without a direct connection via this SFTI Access Center.”

Another Lease Announced

DuPont Fabros also said today that it had leased an additional 570 kilowatts of critical load at NJ1, and now has leased 25 percent of the space available at the NJ1 data center, is a 360,000 square feet facility with 88,000 square feet of raised floor space currently available. The company’s leasing at NJ1 has been under scrutiny amid conjecture that the New Jersey market is facing a possible surplus of wholesale data center space – with the DuPont Fabros facility representing the largest chunk of inventory. Several of DFT’s rivals have recently reported active leasing activity.

But Fateh said there has been active interest from prospective tenants. “We think things are turning around for us in New Jersey,” Fateh said. “We’re feeling very optimistic. We now believe we have a wider market of enterprise customers, because more financial services firms will be interested in this data center.”

An aerial view of the new DuPont Fabros data center being built in Santa Clara, Calif.

Announcing milestones on both coasts, developer DuPont Fabros Technology said Tuesday that it has signed up the first tenant for its new  data center in Silicon Valley, and has bought land for a new facility in its core Northern Virginia market. The company also said its earnings nearly doubled from the same period last year, as new tenants came online and began paying rent.

In April the company signed one pre-lease in phase one of its SC1 project, which is currently under construction in Santa Clara, Calif. The seven-year lease provides the tenant with 2.28 megawatts of critical power load. The lease is expected to commence in the third quarter, when the building opens for customer operations. The customer was described as a “Fortune 50 technology company with excellent credit.”

Further Expansion in Ashburn

DuPont Fabros (DFT), which operates as a real estate investment trust (REIT), also said Tuesday that it has entered into a contract to purchase 23 acres of land adjacent to its ACC data center campus in Ashburn, Virginia. The company expects to close the $9.6 million purchase before the end of 2011. The land will be used to build additional data centers in Ashburn, one of the hottest data center markets.

Revenues increased to $68.5 million for the first quarter of 2011, an increase of 20 percent over the first quarter of 2010. This increase is primarily due to leases commencing at CH1 Phase I, ACC5 Phase II and NJ1 Phase I. The leases represented 5.1 megawatts of critical load and 24,683 square feet of raised floor space.

Strong Leasing in First Quarter

DuPont Fabros also said it signed five leases in the first quarter totaling 13.65 megawatts of critical load and 74,982 raised square feet with an average lease term of 7.9 years and contract value of $230 million. That includes two leases at ACC5 Phase II totaling 4.55 MW of critical load and 22,000 raised square feet, and three pre-leases at CH1 Phase II totaling 9.10 MW of critical load and 52,982 raised square feet.

“We started strong in 2011, leasing 16 megawatts of critical load year to date, which is approximately 70 percent  of the total leased in 2010,” said Hossein Fateh, President and Chief Executive Officer of the company, “Also, we remain on time and budget to open our new developments, SC1 Phase I and ACC6 Phase I, in the third quarter of 2011. These two developments total 31.2 megawatts, representing a 20% increase in our operating portfolio. We continue to see good demand for our wholesale locations.”

The company said it intends to use all of the net proceeds from the offering, together with borrowings under its $100 million revolving credit facility, to develop the second phase of its CH1 data center in Elk Grove Village, Illinois. DFT has pre-leased approximately 5.2 megawatts of critical load in the second phase to two existing tenants requiring expansion space.

The joint book-running managers for this offering are Barclays Capital, Raymond James, RBC Capital Markets, Jefferies and Stifel Nicolaus Weisel, and the co-managers are Oppenheimer & Co. and KeyBanc Capital Markets. The company expects to grant the underwriters a 30-day option to purchase up to an additional 15% of the shares of Series B Preferred Stock initially sold to the public to cover overallotments.