Dupont Fabros Technology, Inc. (DFT)

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DuPont Fabros Technology (DFT)

Q1 2011 Earnings Call

May 04, 2011 10:00 am ET

Executives

Christopher Warnke -

Hossein Fateh - Co-Founder, Chief Executive Officer, President and Director

Mark Wetzel - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

John Stewart - Green Street Advisors, Inc.

Omotayo Okusanya - Jefferies & Company, Inc.

Jonathan Schildkraut - Evercore Partners Inc.

Sloan Bohlen - Goldman Sachs Group Inc.

Mark Montandon

Christopher Lucas - Robert W. Baird & Co. Incorporated

Ross Nussbaum - UBS Investment Bank

Michael Bilerman - Citigroup Inc

Romeo Reyes - Jefferies & Company, Inc.

Brendan Maiorana - Wells Fargo Securities, LLC

Srikanth Nagarajan - FBR Capital Markets & Co.

Jordan Sadler - KeyBanc Capital Markets Inc.

Robert Stevenson - Macquarie Research

Presentation

Operator

Good day, everyone, and welcome to the DuPont Fabros Technology First Quarter 2011 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference to Chris Warnke, Investor Relations Manager of DuPont Fabros. Please go ahead, sir.

Christopher Warnke

Thank you. Good morning, everyone, and thank you for joining us today for DuPont Fabros Technology's First Quarter 2011 Results Conference Call. Our speakers today are Hossein Fateh, the company's President and Chief Executive Officer; and Mark Wetzel, the company's Chief Financial Officer and Treasurer.

Certain matters discussed during this conference call may constitute forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to certain risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.

Additionally, this call contains non-GAAP financial information, of which explanations and reconciliations to net income are contained in the company's earnings release issued last night, which is available in PDF format in the Investor Relations section of the company's corporate website at www.dft.com. To manage the call in a timely manner, questions will be limited to 2 per caller. If you have additional questions, please feel free to return to the queue. I will now turn the call over to Hossein.

Hossein Fateh

Thank you, Chris, and good morning, everyone. Thank you for joining us on our first quarter 2011 earnings call. As noted in last night's press release, we again delivered solid financial results, which Mark will discuss later in the call. Our focus always has been to grow our business in a prudent and fruitful manner, to increase not only our revenues and data center portfolios, but also shareholder value. Since going public in 2007, we have increased our leased critical load from 75 megawatts to 141 megawatts, an increase of 88%. Over the same period, we have increased our revenues 135%. These achievements would not have been possible without our highly diligent and committed employees at DFT. I thank each of you for your contribution. Leasing has and continues to be the primary focus and catalyst for growth.

So let me begin with an update. As of today, we have signed 6 leases totaling 16 megawatts of critical load in 2011. This compares to 23 megawatts in all of 2010, or 70% of last year's total. This is a great start to the year. Five leases are with existing tenants and one lease is with a new tenant. One of our existing tenants in Phase I of Chicago, who has preleased space in Phase II, requested that they be able to relinquish 2 small pods totaling 0.9 megawatts. We agreed to take back this space since we have no available inventory. This enabled us to sign a 3.9-megawatt prelease in Phase II of Chicago with the same tenant. This tenant simply prefers the larger rooms at CH1. We were happy to accommodate them.

New Jersey remains 22% leased. We see good demand. Leasing, as always, will be lumpy. Tours and traffic remain solid. We are touring approximately 3 tenants a week in New Jersey. Pricing remains solid and in the range we expected. We continue to expect to be 50% leased at the end of this year and 100% leased by the end of 2012. We continue to expect GAAP unleveraged 12% return at 100% lease-up.

Entering in new markets and pursuing a new tenant base require time to lease up. Decision-making for financial and enterprise companies typically takes longer than those of technology companies. From what we have experienced in New Jersey, we do not expect a single tenant to take down large amounts of space. We have cast our nets wide to land many fish instead of a few large ones. These buildings have been designed so that rooms can be broken out into smaller increments. We're able to accommodate wholesale tenants as small as 250 kilowatts with dedicated PDUs. Each small tenant would still be able to enjoy the reliability and redundancy this facility offers just as much as the larger tenants would. As these small tenants' requirements grow, we believe that they will take additional space with us.

Subsequent to the end of the first quarter, we signed one prelease with a tenant in Santa Clara. This prelease was for 2.28 megawatts or 13% of Phase I. This tenant is a Fortune 50 technology company with excellent credit. To have a leading-edge company make this decision to choose DFT to provide for a portion of their data center needs reinforces the excellence of the building designs and operating teams. We continue to have very good traffic in Santa Clara. As a reminder, we expect to be 22% leased in Santa Clara at the end of this year. We have reconfirmed an 18-month lease-up from opening and remain confident with these lease assumptions.

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