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DuPont Fabros Scouting for Acquisitions
Data center developer DuPont Fabros Technology is exploring acquisitions, and in recent months has investigated deals with other providers in both the U.S. and Europe, as well as opportunities to acquire properties, company executives said yesterday.
Rich Miller
February 7, 2013
5 Min Read
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The ACC5 data center, one of the northern Virginia properties operated by DuPont Fabros Technology.
Data center developer DuPont Fabros Technology is exploring acquisitions, and in recent months has investigated deals with other providers in both the U.S. and Europe, as well as opportunities to acquire properties, company executives said yesterday. That marks a shift in strategy for DuPont Fabros (DFT), which to date has focused exclusively on building and operating its own data centers.
The company's efforts haven't been limited to small deals, either. In yesterday's earnings call, DFT President and CEO Hossein Fateh said that discussions were held with a large U.S. company that offered wholesale and colocation services.
"We are looking at acquisitions," said Fateh, who said the company was exploring deals that could give it a presence in retail colocation and the interconnection market. DuPont Fabros currently operates "wholesale" space, leasing completed data halls to large companies.
The focus on acquisitions follows one of the most successful years in the company's history. In 2012 DuPont Fabros leased 41.5 megawatts of data center space, up from 25 megawatts in 2011.
"This has been our best year in leasing," said Fateh. "The amount of volume of leasing we've had has been unbelievable. If you had asked me a year ago, 'Would you have done 41.5 megawatts of leasing?' I would have said no."
Growth in Wholesale, But Open to New Models
Securities analysts focused on the company's growth options and its decision to focus on acquisitions. Fateh said that DuPont Fabros still sees strong growth trends in the wholesale data center business, but believes the company has reached a scale that allows it to look beyond its initial focus developing wholesale data centers.
"I think for our first 5 years, we had to build the tenant base and build a diversified portfolio that could successfully absorb an acquisition," said Fateh. "I believe we're now close to making that happen. And so now we would look to doing acquisitions."
Analysts focused on the company's stock price, and wondered whether DFT should forego acquisitions and instead buy back its own stock. The company has said it may repurchase up to $80 million of its stock, but has not initiated any purchases as yet.
Several analysts also asked whether DuPont Fabros would be open to being acquired itself.
"I think we would like to do whatever is in the best interest of our shareholders as strategic alternatives come up," said Fateh. "Nothing is off the table. As opportunities occur, we'll evaluate them on the best way to maximize shareholder value."
The discussion of deals and strategy were part of a wide-ranging discussion on the company's earnings call. Other topics included:
Financial Results: For the quarter ended Dec. 31, 2012, the company reported earnings of 11 cents per share, compared to 12 centers for the fourth quarter of 2011. Revenues increased 16 percent to $86 million for the fourth quarter. Funds from oprations (FFO) for the quarter were $0.38 per share compared to $0.37 per share for the fourth quarter of 2011.
Leasing: DuPont Fabros signed five leases in the fourth quarter, totaling 13.62 megawatts and 73,582 raised square feet. That included two leases in Chicago totaling 3 MW, one lease was at ACC6 Phase II in Ashburn totaling 4.3 MW, one lease in Santa Clara for 5.7 MW and a lease in New Jersey for 570 kW.
Tenant Negotiations: The company said it had renegotiated leases with one of its tenants. "We hit a small snag with one of our existing reseller tenants," said Fateh. "This tenant expanded too fast. It was mutually decided that we would modify their leases by allowing them to return the small amount of space, while maintaining that all their rental rates remain unchanged." CFO Mark Wetzel said the tenant had returned about 1.2 megawatts of space at the ACC5 and VA3 data centers in Virginia, and that its accounts receivable and deferred rent receivable had been converted into a note. Wetzel said the tenant was now cash-flow positive.
Slow Going in NJ: DuPont Fabros' 2013 guidance does not include any additional leasing revenue from its NJ1 data center in Piscataway, New Jersey, where the company leased less than a megawatt of pace in 2012. "Leasing New Jersey continues to take longer than we originally expected," said Fateh. "The leasing pace for wholesale providers in the New Jersey market was disappointing. Hurricane Sandy created some renewed interest, and we're tracking some new prospects. We remain confident New Jersey will be a good long-term market for us. To be conservative, our 2013 FFO guidance excludes any New Jersey leasing." Fateh said DFT was committed to the New Jersey market and would not consider selling the NJ1 property.
Improvements at VA3: With the tenant renegotiation, DFT has two large chunks of space available at its VA3 data center. The facility in Reston, which was built by AboveNet and acquired by DuPont Fabros, is the oldest facility in the company's portfolio. As it seeks to market the available space, DSFT is making some improvements. "It never really had a lobby and a proper entrance, so we are under construction to have the lobby finished, and we hope to be done with it sometime in May," said Fateh, who said VA3 remained an attractive location. "From a network connectivity standpoint, it's probably one of the best areas in America. It sits on Sunset Hills Road, which has more fiber optic running down at it than probably any other road, certainly on the East Coast." The neighborhood is home to data centers for AOL and CoreSite, as well as several bandwidth-intensive government agencies.
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