DuPont Fabros Technology, Inc. Reports Second Quarter 2012 Results

DUPONT FABROS TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands except share and per share data)

Three months ended June 30,

Six months ended June 30,

2012

2011

2012

2011

Revenues:

Base rent

$            55,773

$            48,515

$         108,943

$            95,703

Recoveries from tenants

25,728

21,609

49,814

42,467

Other revenues

1,157

632

2,283

1,085

Total revenues

82,658

70,756

161,040

139,255

Expenses:

Property operating costs

23,473

18,746

45,836

36,846

Real estate taxes and insurance

2,413

1,523

4,584

3,179

Depreciation and amortization

22,484

18,113

44,354

36,204

General and administrative

4,505

3,884

9,741

8,682

Other expenses

744

319

1,412

517

Total expenses

53,619

42,585

105,927

85,428

Operating income

29,039

28,171

55,113

53,827

Interest income

45

192

79

403

Interest:

Expense incurred

(12,674)

(5,519)

(24,537)

(13,178)

Amortization of deferred financing costs

(916)

(522)

(1,803)

(1,146)

Net income

15,494

22,322

28,852

39,906

Net income attributable to redeemable noncontrolling
      interests – operating partnership

(2,006)

(4,296)

(3,576)

(7,768)

Net income attributable to controlling interests

13,488

18,026

25,276

32,138

Preferred stock dividends

(6,811)

(5,572)

(13,430)

(9,729)

Net income attributable to common shares

$              6,677

$            12,454

$            11,846

$            22,409

Earnings per share – basic:

Net income attributable to common shares

$                0.11

$                0.20

$                0.19

$                0.37

Weighted average common shares outstanding

62,897,982

60,533,755

62,733,265

60,373,069

Earnings per share – diluted:

Net income attributable to common shares

$                0.11

$                0.20

$                0.19

$                0.37

Weighted average common shares outstanding

63,749,724

61,577,461

63,648,912

61,480,769

Dividends declared per common share

$                0.15

$                0.12

$                0.27

$                0.24

DUPONT FABROS TECHNOLOGY, INC.

RECONCILIATIONS OF NET INCOME TO FFO AND AFFO ⁽¹⁾

(unaudited and in thousands except share and per share data)

Three months ended June 30,

Six months ended June 30,

2012

2011

2012

2011

Net income

$         15,494

$         22,322

$            28,852

$          39,906

Depreciation and amortization

22,484

18,113

44,354

36,204

Less:  Non real estate depreciation and amortization     

(260)

(199)

(534)

(402)

FFO

37,718

40,236

72,672

75,708

Preferred stock dividends

(6,811)

(5,572)

(13,430)

(9,729)

FFO attributable to common shares and OP units

$         30,907

$         34,664

$            59,242

$          65,979

Straight-line revenues

(6,203)

(11,084)

(11,226)

(22,952)

Amortization of lease contracts above and below   
    market value

(853)

(535)

(1,832)

(1,071)

Compensation paid with Company common shares

1,639

1,517

3,673

2,923

AFFO

$         25,490

$         24,562

$            49,857

$          44,879

FFO attributable to common shares and OP units
    per share - diluted

$             0.37

$             0.42

$                0.72

$              0.80

AFFO per share - diluted

$             0.31

$             0.30

$                0.60

$              0.54

Weighted average common shares and OP units
     outstanding - diluted

82,623,517

82,439,136

82,588,508

82,411,583

(1)

Funds from operations, or FFO, is used by industry analysts and investors as a supplemental operating performance measure for REITs. The Company calculates FFO in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. FFO, as defined by NAREIT, represents net income determined in accordance with GAAP, excluding extraordinary items as defined under GAAP, impairment charges on depreciable real estate assets and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The Company also presents FFO attributable to common shares and OP units, which is FFO excluding preferred stock dividends. FFO attributable to common shares and OP units per share is calculated on a basis consistent with net income attributable to common shares and OP units and reflects adjustments to net income for preferred stock dividends.

The Company uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared period over period, captures trends in occupancy rates, rental rates and operating expenses. The Company also believes that, as a widely recognized measure of the performance of equity REITs, FFO may be used by investors as a basis to compare the Company's operating performance with that of other REITs. However, because FFO excludes real estate related depreciation and amortization and captures neither the changes in the value of the Company's properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of the Company's properties, all of which have real economic effects and could materially impact the Company's results from operations, the utility of FFO as a measure of the Company's performance is limited.

While FFO is a relevant and widely used measure of operating performance of equity REITs, other equity REITs may use different methodologies for calculating FFO and, accordingly, FFO as disclosed by such other REITs may not be comparable to the Company's FFO. Therefore, the Company believes that in order to facilitate a clear understanding of its historical operating results, FFO should be examined in conjunction with net income as presented in the consolidated statements of operations. FFO should not be considered as an alternative to net income or to cash flow from operating activities (each as computed in accordance with GAAP) or as an indicator of the Company's liquidity, nor is it indicative of funds available to meet the Company's cash needs, including its ability to pay dividends or make distributions.

The Company also presents FFO with supplemental adjustments to arrive at Adjusted FFO ("AFFO"). AFFO is FFO attributable to common shares and OP units excluding straight-line revenue, non-cash stock based compensation, gain or loss on derivative instruments, acquisition of service agreements, below market lease amortization net of above market lease amortization and early extinguishment of debt costs.  AFFO does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow provided by operations as a measure of liquidity and is not necessarily indicative of funds available to fund the Company's cash needs including the Company's ability to pay dividends. In addition, AFFO may not be comparable to similarly titled measurements employed by other companies. The Company's management uses AFFO in management reports to provide a measure of REIT operating performance that can be compared to other companies using AFFO.

DUPONT FABROS TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands except share data)

June 30,
2012

December 31,
2011

(unaudited)

ASSETS

Income producing property:

Land

$         73,197

$         63,393

Buildings and improvements

2,312,187

2,123,377

2,385,384

2,186,770

Less: accumulated depreciation

(283,673)

(242,245)

Net income producing property

2,101,711

1,944,525

Construction in progress and land held for development

161,245

320,611

Net real estate

2,262,956

2,265,136

Cash and cash equivalents

40,777

14,402

Restricted cash

19

174

Rents and other receivables

1,954

1,388

Deferred rent

138,088

126,862

Lease contracts above market value, net

10,805

11,352

Deferred costs, net

39,134

40,349

Prepaid expenses and other assets

28,709

31,708

Total assets

$    2,522,442

$    2,491,371

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

Line of credit

$                  —

$         20,000

Mortgage notes payable

142,200

144,800

Unsecured notes payable

550,000

550,000

Accounts payable and accrued liabilities

20,910

22,955

Construction costs payable

14,048

20,300

Accrued interest payable

2,584

2,528

Dividend and distribution payable

18,071

14,543

Lease contracts below market value, net

15,934

18,313

Prepaid rents and other liabilities

31,364

29,058

Total liabilities

795,111

822,497

Redeemable noncontrolling interests—operating partnership

537,847

461,739

Commitments and contingencies

—

—

Stockholders' equity:

Preferred stock, $.001 par value, 50,000,000 shares authorized:

Series A cumulative redeemable perpetual preferred stock, 7,400,000 issued and
                        outstanding at June 30, 2012 and December 31, 2011

185,000

185,000

Series B cumulative redeemable perpetual preferred stock, 6,650,000 issued and
                      outstanding at June 30, 2012 and 4,050,000 shares issued and outstanding at
                      December 31, 2011

166,250

101,250

Common stock, $.001 par value, 250,000,000 shares authorized, 63,297,595 shares
            issued and outstanding at June 30, 2012 and 62,914,987 shares issued and
            outstanding at December 31, 2011

63

63

Additional paid in capital

838,171

927,902

Retained earnings (accumulated deficit)

—

(7,080)

Total stockholders' equity

1,189,484

1,207,135

Total liabilities and stockholders' equity

$    2,522,442

$    2,491,371

DUPONT FABROS TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

Six months ended June 30,

2012

2011

Cash flow from operating activities

Net income

$      28,852

$      39,906

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

44,354

36,204

Straight line rent

(11,226)

(22,952)

Amortization of deferred financing costs

1,803

1,146

Amortization of lease contracts above and below market value

(1,832)

(1,071)

Compensation paid with Company common shares

3,673

2,923

Changes in operating assets and liabilities

Restricted cash

155

223

Rents and other receivables

(566)

1,578

Deferred costs

(787)

(1,566)

Prepaid expenses and other assets

(3,738)

(738)

Accounts payable and accrued liabilities

(2,045)

(4,794)

Accrued interest payable

56

(35)

Prepaid rents and other liabilities

(110)

3,903

Net cash provided by operating activities

58,589

54,727

Cash flow from investing activities

Investments in real estate – development

(35,752)

(213,464)

Land acquisition costs

—

(9,507)

Interest capitalized for real estate under development

(1,533)

(14,654)

Improvements to real estate

(1,677)

(1,454)

Additions to non-real estate property

(55)

(88)

Net cash used in investing activities

(39,017)

(239,167)

Cash flow from financing activities

Issuance of preferred stock, net of offering costs

62,685

97,450

Line of credit:

Proceeds

15,000

—

Repayments

(35,000)

—

Mortgage notes payable:

Repayments

(2,600)

(2,600)

Return of escrowed proceeds

—

1,104

Exercises of stock options

868

596

Payments of financing costs

(2,081)

(218)

Dividends and distributions:

Common shares

(15,122)

(14,491)

Preferred shares

(12,384)

(8,180)

Redeemable noncontrolling interests – operating partnership

(4,563)

(5,146)

Net cash provided by financing activities

6,803

68,515

Net increase (decrease) in cash and cash equivalents

26,375

(115,925)

Cash and cash equivalents, beginning

14,402

226,950

Cash and cash equivalents, ending

$       40,777

$     111,025

Supplemental information:

Cash paid for interest

$       26,014

$       27,867

Deferred financing costs capitalized for real estate under development

$              97

$            697

Construction costs payable capitalized for real estate under development

$       14,048

$       48,048

Redemption of operating partnership units

$         5,700

$       25,100

Adjustments to redeemable noncontrolling interests – operating partnership

$       83,333

$       79,360

DUPONT FABROS TECHNOLOGY, INC.

Operating Properties

As of June 30, 2012

 Property

Property Location

Year Built/
Renovated

Gross
Building
Area
(2)

Raised
Square
Feet
(3)

Critical
Load
MW
(4)

%
Leased
(5)

%

Commenced
(5)

Stabilized (1)

ACC2

Ashburn, VA

    2001/2005

87,000

53,000

10.4

100%

100%

ACC3

Ashburn, VA

    2001/2006

147,000

80,000

13.9

100%

100%

ACC4

Ashburn, VA

2007

347,000

172,000

36.4

100%

100%

ACC5

Ashburn, VA

    2009-2010

360,000

176,000

36.4

100%

100%

CH1 Phase I

Elk Grove Village, IL

2008

285,000

122,000

18.2

98%

98%

VA3

Reston, VA

2003

256,000

147,000

13.0

56%

56%

VA4

Bristow, VA

2005

230,000

90,000

9.6

100%

100%

Subtotal— stabilized

1,712,000

840,000

137.9

96%

96%

Completed not Stabilized 

NJ1 Phase I 

Piscataway, NJ

2010

180,000

88,000

18.2

36%

36%

ACC6 Phase I

Ashburn, VA

2011

131,000

66,000

13.0

83%

75%

SC1 Phase I

Santa Clara, CA

2011

180,000

88,000

18.2

44%

44%

CH1 Phase II (6)

Elk Grove Village, IL

2012

200,000

109,000

18.2

79%

57%

Subtotal— non-stabilized

691,000

351,000

67.6

59%

51%

Total Operating Properties

2,403,000

1,191,000

205.5

83%

81%

(1)

Stabilized operating properties are either 85% or more leased or have been in service for 24 months or greater.

(2)

Gross building area is the entire building area, including raised square footage (the portion of gross building area where the tenants' computer servers are located), tenant common areas, areas controlled by the Company (such as the mechanical, telecommunications and utility rooms) and, in some facilities, individual office and storage space leased on an as available basis to the tenants.

(3)

Raised square footage is that portion of gross building area where the tenants locate their computer servers. The Company considers raised square footage to be the net rentable square footage in each of its facilities.

(4)

Critical load (also referred to as IT load or load used by tenants' servers or related equipment) is the power available for exclusive use by tenants expressed in terms of megawatt, or MW, or kilowatt, or kW (1 MW is equal to 1,000 kW).

(5)

Percentage leased is expressed as a percentage of critical load that is subject to an executed lease. Percentage commenced is expressed as a percentage of critical load where the lease has commenced under generally accepted accounting principles. Leases executed as of June 30, 2012 represent $225 million of base rent on a straight-line basis and $215 million on a cash basis over the next twelve months.

(6)

As of July 25, 2012, CH1 Phase II is 64% commenced. 

DUPONT FABROS TECHNOLOGY, INC.

 Lease Expirations 
 As of June 30, 2012

The following table sets forth a summary schedule of lease expirations of the operating properties for each of the ten calendar years beginning with 2012. The information set forth in the table below assumes that tenants exercise no renewal options and takes into account tenants' early termination options.

 Year of Lease Expiration

Number
of Leases
Expiring (1)

Raised
Square Feet
Expiring
(in thousands) 
(2)

% of Leased
Raised
Square Feet

Total kW
of Expiring
Leases (3)

% of
Leased kW

% of
Annualized
Base Rent

2012 (4)

1

5

0.5%

1,138

0.7%

0.7%

2013

2

30

3.1%

3,030

1.8%

0.9%

2014

6

35

3.6%

6,287

3.7%

3.8%

2015

6

84

8.6%

16,250

9.5%

8.7%

2016

5

71

7.3%

11,640

6.8%

6.8%

2017

11

104

10.7%

19,195

11.2%

11.4%

2018

9

116

11.9%

23,840

13.9%

14.1%

2019

11

168

17.2%

31,035

18.1%

16.6%

2020

8

82

8.4%

13,895

8.1%

8.9%

2021

7

130

13.3%

21,669

12.6%

14.1%

After 2021

13

150

15.4%

23,384

13.6%

14.0%

Total

79

975

100%

171,363

100%

100%

(1)

Represents 33 tenants with 79 lease expiration dates, including three leases that have not yet commenced as of July 25, 2012 for one existing tenant.  Top three tenants represent 49% of annualized base rent as of June 30, 2012.

(2)

Raised square footage is that portion of gross building area where the tenants locate their computer servers. The Company considers raised square footage to be the net rentable square footage in each of its facilities.

(3)

One MW is equal to 1,000 kW.

(4)

This lease has an option to terminate on six months notice.  As of July 25, 2012, no notice has been received.

DUPONT FABROS TECHNOLOGY, INC.

Development Projects

As of June 30, 2012

($ in thousands)

Property

Property Location

Gross
Building
Area (1)

Raised
Square
Feet (2)

Critical
Load
MW (3)

Estimated Total Cost (4)

Construction
in Progress &
Land Held for
Development (5)

%

Pre-leased

Current Development Projects

ACC6 Phase II

Ashburn, VA

131,000

66,000

13.0

$120,000

$         44,553

67%

Future Development Projects/Phases

SC1 Phase II

Santa Clara, CA

180,000

88,000

18.2

61,629

NJ1 Phase II

Piscataway, NJ

180,000

88,000

18.2

39,212

360,000

176,000

36.4

100,841

Land Held for Development

ACC7 Phase I /II

Ashburn, VA

360,000

176,000

36.4

10,147

ACC8

Ashburn, VA

100,000

50,000

10.4

3,681

SC2 Phase I/II

Santa Clara, CA

300,000

171,000

36.4

2,023

760,000

397,000

83.2

15,851

Total

1,251,000

639,000

132.6

$      161,245

(1)

Gross building area is the entire building area, including raised square footage (the portion of gross building area where the tenants' computer servers are located), tenant common areas, areas controlled by the Company (such as the mechanical, telecommunications and utility rooms) and, in some facilities, individual office and storage space leased on an as available basis to the tenants.

(2)

Raised square footage is that portion of gross building area where the tenants locate their computer servers. The Company considers raised square footage to be the net rentable square footage in each of its facilities.

(3)

Critical load (also referred to as IT load or load used by tenants' servers or related equipment) is the power available for exclusive use by tenants expressed in terms of MW or kW (1 MW is equal to 1,000 kW).

(4)

Current development projects include land, capitalization for construction and development, capitalized interest and capitalized operating carrying costs, as applicable, upon completion.

(5)

Amount capitalized as of June 30, 2012.  Future Phase II development projects include only land, shell, underground work and capitalized interest through Phase I opening.

DUPONT FABROS TECHNOLOGY, INC.

Debt Summary as of June 30, 2012

($ in thousands)

Amounts

% of Total

Rates

Maturities
(years)

Secured

$        142,200

21 %

3.2 %

2.4

Unsecured

550,000

79 %

8.5 %

4.8

Total

$        692,200

100 %

7.4 %

4.3

Fixed Rate Debt:

Unsecured Notes

$        550,000

79 %

8.5 %

4.8

Fixed Rate Debt

550,000

79 %

8.5 %

4.8

Floating Rate Debt:

Unsecured Credit Facility

—

—

—

3.7

ACC5 Term Loan

142,200

21 %

3.2 %

2.4

Floating Rate Debt

142,200

21 %

3.2 %

2.4

Total

$        692,200

100 %

7.4 %

4.3

Note:   

The Company capitalized interest and deferred financing cost amortization of $0.4 million and $1.6 million during the three and six months ended June 30, 2012, respectively.

Debt Maturity as of June 30, 2012

($ in thousands)

Year

Fixed Rate

Floating Rate

Total

% of Total

Rates

2012

—

2,600

2,600

0.4 %

3.2 %

2013

—

5,200

5,200

0.8 %

3.2 %

2014

—

134,400 (2)

134,400

19.4 %

3.2 %

2015

125,000 (1)

—

125,000

18.1 %

8.5 %

2016

125,000 (1)

—

125,000

18.1 %

8.5 %

2017

300,000 (1)

—

300,000

43.2 %

8.5 %

Total

$    550,000

$142,200

$    692,200

100 %

7.4 %

(1)

The Unsecured Notes have mandatory amortization payments due December 15 of each respective year.

(2)

Remaining principal payment due on December 2, 2014 with no extension option.

DUPONT FABROS TECHNOLOGY, INC.

Selected Unsecured Debt Metrics

6/30/12

12/31/11

Interest Coverage Ratio (not less than 2.0)

3.8

3.5

Total Debt to Gross Asset Value (not to exceed 60%)

24.8%

26.3%

Secured Debt to Total Assets (not to exceed 40%)

5.1%

5.3%

Total Unsecured Assets to Unsecured Debt (not less than 150%)

344.5%

329.5%

Capital Structure as of June 30, 2012

(in thousands except per share data)

Mortgage Notes Payable

$       142,200

Unsecured Notes

550,000

Total Debt

692,200

20.4 %

Common Shares

77 %

63,298

Operating Partnership ("OP") Units

23 %

18,832

Total Shares and Units

100 %

82,130

Common Share Price at June 30, 2012 

$     28.56

Common Share and OP Unit Capitalization

$     2,345,633

Preferred Stock ($25 per share liquidation preference)

351,250

Total Equity

2,696,883

79.6 %

Total Market Capitalization 

$     3,389,083

100.0 %

DUPONT FABROS TECHNOLOGY, INC.

Common Share and OP Unit

Weighted Average Amounts Outstanding

Q2 2012

Q2 2011

YTD

Q2 2012

YTD

Q2 2011

Weighted Average Amounts

Outstanding for EPS Purposes:

Common Shares – basic

62,897,982

60,533,755

62,733,265

60,373,069

Shares issued from assumed conversion of:

- Restricted Shares

70,030

226,378

138,320

280,878

- Stock Options

781,712

817,328

777,327

826,822

- Performance Units

—

—

—

—

Total Common Shares - diluted

63,749,724

61,577,461

63,648,912

61,480,769

Weighted Average Amounts Outstanding
    for FFO and AFFO Purposes:

Common Shares – basic

62,897,982

60,533,755

62,733,265

60,373,069

OP Units – basic

18,873,793

20,861,675

18,939,596

20,930,814

Total Common Shares and OP Units

81,771,775

81,395,430

81,672,861

81,303,883

Shares and OP Units issued from

    assumed conversion of:

- Restricted Shares

70,030

226,378

138,320

280,878

- Stock Options

781,712

817,328

777,327

826,822

- Performance Units

—

—

—

—

Total Common Shares and Units - diluted

82,623,517

82,439,136

82,588,508

82,411,583

Period Ending Amounts Outstanding:

Common Shares

63,297,595

OP Units

18,832,188

Total Common Shares and Units

82,129,783

                                                   DUPONT FABROS TECHNOLOGY, INC.

                                                       2012 Guidance as of July 25, 2012

Expected Q3 2012

per share

Expected 2012

per share

Net income per common share and unit – diluted

$0.10 to $0.13

  $0.39 to $0.46

Depreciation and amortization, net

0.27

1.08

FFO per share – diluted (1)

   $0.37 to $0.40

  $1.47 to $1.54

2012 Debt Assumptions

Weighted average debt outstanding

        $692.5 million

Weighted average interest rate

7.54%

Total interest costs

         $52.2 million

Amortization of deferred financing costs

            3.8 million

      Interest expense capitalized

          (4.4) million

      Deferred financing costs amortization capitalized

          (0.3) million

Total interest expense after capitalization

         $51.3 million

2012 Other Guidance Assumptions

Total revenues

         $325 to $340 million

Base rent (included in total revenues)

          $222 to $230 million

Straight-line revenues (included in base rent)

         $21 to $25 million

General and administrative expense

         $18 million

Investments in real estate – development (2)

         $100 million

Improvements to real estate excluding development

         $4 million

Preferred stock dividends

        $27 million

Annualized common stock dividend

           $0.60 per share

Weighted average common shares and OP units - diluted

           83 million

(1)

For information regarding FFO, see "Reconciliations of Net Income to FFO and AFFO" on page 6 of this earnings release.

(2)

Includes CH1 Phase II completion costs and $65 million of 2012 cash to build ACC6 Phase II.