DuPont Fabros Sees Data Center Leasing Momentum in Virginia

While the third quarter wasn’t stellar for DuPont Fabros Technology in terms of signing new leases, the period immediately after the quarter’s last day saw a series of major deals.

The two most notable ones were the lease of a portion of capacity across four East Coast data centers formerly occupied by the bankrupt Net Data Centers (known in the past as Net2EZ), and a lease by one company of more than 10 MW of capacity in Ashburn, Virginia, that used to be occupied by Yahoo. Yahoo, like other big web companies, has built its own data centers and moved into them a lot of infrastructure it used to house in wholesale facilities operated by the likes of DuPont.

The lease of former Net capacity was by Anexio, which recently acquired all of Net’s East Coast assets. Anexio took 4 MW total across three data centers in Virginia and one in New Jersey.

Washington, DC-based DuPont is one of the biggest wholesale data center providers in the US. Specializing in building and leasing out huge data center facilities, concentrated primarily in Northern Virginia, its biggest tenants are Microsoft, Facebook, Rackspace, and Yahoo, among others.

Collectively, the top four tenants contribute 60 percent of the provider’s total rent revenue, which has worried some investors, especially as big web companies continue building and operating their own data centers.

ACC2 Goes to Unnamed Big Tenant

DuPont did not disclose who the tenant that took Yahoo’s former 10 MW in one of its Ashburn facilities, ACC2, was. It is one of the provider’s existing customers, however, company executives said on its third-quarter earnings call last week.

The deal is welcome news for the provider, since the building is designed for large users, and single-tenant 10 MW requirements are relatively rare, DuPont CEO Christopher Eldredge said on the call.

“Last year, we saw three such requirements in Northern Virginia,” he said. “We captured one requirement for 13.65 megawatts at ACC4. We could not accommodate the others, as Yahoo! could not vacate ACC2 in time to meet these requirements.”

Because of “exponential” growth in cloud, data storage, and other internet applications, however, the company’s leadership was confident another large requirement would eventually surface. “It has, and we've captured it,” Eldredge said.

Operating Costs High for Single-Tenant Facility

Whoever the user is, they got a steep discount on the lease, although it doesn’t mean they will pay less for the facility in the end. Because ACC2 is a single-tenant data center, it is much smaller than the massive multitenant buildings DuPont specializes in and therefore costs more to operate, which is why the provider had to lower the rent to make it more competitive.

Operating expenses at ACC2 are 75 percent higher than other DuPont data centers, such as its newest 40 MW ACC7 facility, for example. ACC2 is smaller and its cooling costs are “significantly higher,” DuPont CFO Jeffrey Foster said on the call.

Taking operating expenses into account, the tenant will end up spending as much on their infrastructure housed at ACC2 as they would in other DuPont buildings.

“On a total cost of occupancy basis the new customer will pay as much at ACC2 as a super wholesale customer would at ACC7,” he said.

Q4 Quickly Outpaces Q3

DuPont also signed three more leases since the third quarter ended, all with tenants whose name the landlord did not disclose.

Two of the deals, with a single customer, totaled 6 MW across two phases in ACC7. The third one was a single 6 MW deal in the Chicago market.

The company also extended an existing 1.5 MW lease at ACC7 for another four years.

All that adds up to a fourth quarter that is already much better than the third in terms of new leases. The company did not sign any new deals in the third quarter, only extending an existing 0.6 MW one at ACC5.

Two leases totaling 2.6 MW commenced during the quarter.

DuPont reported $115 million in revenue for the third quarter – up 9 percent year over year. Its earnings per share were flat year over year, remaining at $0.29.