Dupont Fabros Sees Positive Data Center Leasing Trends But Flat Revenue

Dupont Fabros revealed key data center leasing activity in upcoming properties during its latest earnings. The wholesale data center provider executed its first lease at its upcoming CH2 Chicago facility, and opened a phase in Santa Clara fully pre-leased.

The Santa Clara facility is the company’s first property outside of Virginia that has opened 100 percent pre-leased and Dupont Fabros no longer has any vacant space in the Santa Clara market. The upcoming Chicago facility is now 20 percent leased for the first phase, which is anticipated to open in the third quarter.

The company reported earnings last week. Revenue for the first quarter 2015 was $107.3 million, up from $102 million in the same quarter last year, but slightly down from the previous quarter of $108 million. However, there were extenuating circumstances.

An undisclosed customer filed for bankruptcy negatively impacting Dupont Fabros’ earnings. The customer filed for bankruptcy in February and did not pay base rent owed for January and February, but did pay for operating expenses, direct electric and management fees in those months. The customer’s leases total over 6 megawatts across Virginia and New Jersey.

Dupont Fabros also announced its first mini-wholesale lease for 200kW. The lines between retail and wholesale colocation have blurred over the past several years, with wholesale providers pursuing increasingly smaller deals than what has traditionally been called wholesale. The demarcation line between wholesale and retail keeps dropping.

These smaller deals mean wholesale providers can grow customers into wholesale space – these customers are often high growth companies. It also opens up wholesale as an option to those customers around the 200-500kW range. Several providers have announced their intentions to pursue smaller deals, including Dupont Fabros.

The leases signed in the quarter represent 2.2 megawatts and over 9,000 square feet of space. The company also renewed two leases with one customer totaling 2.3 megawatts and close to 11,000 square feet of space and signed close to 5 megawatts worth of deals post-first quarter results.

The company also noted that average base rent per kilowatt per month increased to $98, up from $95 in 2014. Dupont Fabros commented that the uptick was due to the rationalization of available supply in their markets.

The uptick in base rent is a positive sign for the wholesale provider space. In 2013, analysts were concerned with rising capital expenses and declining rents. Analysts are currently positive on REITs, following five publicly traded data center REITs delivering healthy returns over the past 12 months with better growth rates than the REIT category as a whole.

Dupont Fabros also began development of the second phase of its Virginia ACC7 data center during the quarter. The expansion will add close to 9 megawatts and 50,000 square feet.

This is the first quarter for Christopher Eldredge, who was recently appointed president and chief executive officer of Dupont Fabros. "The first ten weeks of my tenure as CEO have been very exciting,” he said. “Demand for DFT's product remains strong in our prime markets. We continued to experience leasing success in Santa Clara as SC1 Phase IIB opened 100% leased, and we also executed our first lease at CH2. We have also embarked on the development of a strategic plan, the results of which we plan to share with you when complete."