Creative Loan Structure Boosts DuPont Fabros

Tough times call for creative solutions. When data center REIT DuPont Fabros Technology (DFT) saw its borrowing ability curtailed by the credit crisis, it worked out a creative way to restructure loans secured by two of its data centers. The solution, which was announced this week, freed up $150 million and shifted the company’s next major debt repayment from December 2009 to August 2011. The move helped boost investor confidence in DuPont Fabros, which saw its shares soar 36 percent Thursday.

Here’s the scenario; DuPont Fabros had hoped to borrow at least $300 million through a loan secured by its huge ACC4 data center in Ashburn, Virginia and use the proceeds to fund construction of three new data centers in Silicon Valley, New Jersey and Ashburn. But then several potential lenders, including Lehman Brothers, were wiped out or hobbled by the Wall Street financial crisis in September.

With lending severely curtailed, DuPont Fabros was eventually able to borrow just $100 million, despite an appraisal that valued ACC4 at $680 million – a 15 percent loan to value ratio on a facility that was 87 percent occupied with long-term leases. As a result, it was forced to halt construction on the three data center projects.

DuPont Fabros Borrows $180 Million

Data center developer DuPont Fabros Technology (DFT) has borrowed $180 million this week, and is using the money to pay off a key loan and resume construction on a new data center in northern Virginia. The company also reported strong leasing activity at data center projects in both northern Virginia and Chicago. Shares of DuPont Fabros soared 30 percent in early trading on the New York Stock Exchange, adding $1.21 to $5.23.

DuPont Fabros obtained an additional $150 million Tuesday on a loan secured by its ACC4 data center in Ashburn, Virginia, using an “accordion” feature that allowed it to access additional funds. The company used the money to pay off a $135 million construction loan for its Chicago data center, leaving it with no major debt coming due until August 2011.

Last Friday DuPont Fabros raised $30 million in new debt, which it will use to complete construction on ACC5, its next major data center in Ashburn, Virginia. Three tenants have signed leases for more than 50,000 square feet of space in ACC5, representing 57 percent of the facility’s capacity. DuPont Fabros now expects to complete ACC5 during the third quarter of this year.

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.