Friday, February 5th, 2016

Time	Event
1:00p	DuPont Fabros Firing on All Cylinders: Time to Step on Gas? Shares of wholesale data center provider DuPont Fabros Technology shares spiked 6 percent following its fourth-quarter 2016 earnings report Thursday, closing up 3.7 percent. Analysts clearly liked what they heard from DFT CEO Chris Eldredge and CFO Jeff Foster. The company’s re-commitment to its wholesale data center focus, announced in November, did not take long to pay off for investors. DFT reported a record 46.83MW in signed leases for 2015, including 12 leases for a combined 32.27MW in the fourth quarter. The results exceeded its previous annual leasing record by more than 5MW. Notably, it was able to achieve a return on investment of 13 percent on its latest leasing activity, a full 100 basis points above its target return. Earlier this week, analysts at Evercore ISI upgraded DFT from Hold to a Buy rating and increased the firm’s target price from $35 to $37 per share, prior to earnings, which represented potential share price appreciation of 14.5 percent from the prior day close at $32.32 per share. In addition, DFT pays an annual distribution of $1.88 per share, currently yielding 5.7 percent, for a total 12 month return of just over 20 percent. A Rosy Outlook Data center leasing by web-scale operators, the likes of Facebook and Microsoft, is on the rise, and wholesale data center providers like DFT are reaping the benefits. “Microsoft’s Azure announced their premium services grew nearly 3x year-over-year, with compute usage nearly doubling year-over-year and SQL database usage increasing more than 5x year-over-year,” Eldredge said. “The growth in this space is staggering and reinforces our view of a future with tremendous upside.” Notably, DFT derives 60 percent of its revenue from its top four customers: Microsoft, Facebook, Rackspace, and Yahoo. Its tenant concentration may now be viewed more positively by investors, as the hyperscale cloud providers accelerate CapEx spending. According to a recent market report by the commercial real estate firm North American Data Centers, Apple, Microsoft, and Salesforce signed substantial leases with DFT. Overall, hyperscale companies drove more data center leasing in 2015 than usual, Jim Kerrigan, managing principal at North American Data Centers, told us. Read more: Who Leased the Most Data Center Space in 2015? No Room at the Inn Eldredge said Northern Virginia and Chicago showed the strongest demand from large-scale tenants. DFT had to pass on a 10MW requirement recently because of a lack of available space. Currently, the company only has 1.5MW of available capacity, with another 30MW expected to be placed in service during 2016. Measured Growth It appears that DFT’s future growth will be constrained by conservative management of the balance sheet, rather than by customer demand. Foster explained that maintaining net-debt-to-EBITDA at 5x or less was a key metric for management. However, there will be no new equity issuance planned for 2016. The company intends to fund its growth in 2016 from cash, cash flow, and existing debt facilities, but pace of development could be accelerated by proceeds from the sale of its New Jersey data center. Read more: Why DuPont Fabros is Getting Out of New Jersey DFT intends to recycle this capital to fund its development pipeline, including a planned expansion into Toronto in late 2017 or early 2018. Other expansion plans include Hillsboro, Oregon (outside Portland), and potentially Phoenix. DFT booked an impairment of $122 million, or $1.52 per share in Q4, to reflect the actual market value of the NJ1 facility. During 2015, only 2MW of wholesale deals were signed in that market. However, management reported strong demand for NJ1 from retail data center REITs, private equity, and technology companies. Market Updates Chicago: CH2 Phase II (5.7MW), scheduled for April, is 25 percent pre-leased, with CH2 Phase III (12.5 MW) following in July 2016. Northern Virginia: ACC7 Phase III (11.9 MW) will be available June 2016. Additionally, DFT just closed on 44 acres of land in Ashburn, Virginia, which will support future development of ACC9 and ACC10, as well as a 10MW powered base shell or build-to-suit. Santa Clara: On DFT’s previous data centers, SC1 and SC2, the ROI was just 9.25 percent. This is a land-constrained market, but pricing is still competitive. The company is looking to “de-risk” development of SC3 by waiting for a pre-lease of 10 MW or more prior to breaking ground. While DFT might not get a 12 percent ROI in this market, management is not willing to break ground until they have a proverbial bird in hand. ACC9 Phase I and CH2 Phase III are both in the capital plan for development in 2016. Investor Takeaway DFT appears to be firing on all cylinders, while its core group of wholesale customers is beefing up capital spending. However, the current conservative balance sheet approach risks taking the foot off the gas pedal. Notably, a delay in the closing of the NJ1 data center sale could lead to a slowdown in funding for new development deliveries in 2017. Given the apparent strong demand from hyperscale cloud providers, it might make sense for DFT to enter into a joint venture arrangement on some data centers to free up more capital to meet customer demand. Its Santa Clara data centers might be ideal candidates. The lower unlevered ROI from SC1 and SC2 is less than plan but would still be very attractive to a pension fund or an insurance company as a JV partner. In addition to hastening earnings growth, this would also help DFT to accelerate its diversification geographically. As it stands right now, entry into the Portland and Phoenix markets appears to be off in the distance, likely not until 2019. (Comment on this)
6:23p	Friday Funny: Server Refresh in the New Year It’s the new year and it’s time for some upgrading! Here’s how it works: Diane Alber, the Arizona artist who created Kip and Gary, creates a cartoon, and we challenge our readers to submit the funniest, most clever caption they think will be a fit. Then we ask our readers to vote for the best submission and the winner receives a signed print of the cartoon. Congratulations to Nick, whose caption won the Christmas edition of the contest. His caption was: “Good news: all the lights work. Bad news: we need more PDUs.” Some good submissions came in for the Star Wars edition – all we need now is a winner. Help us out by submitting your vote below! Take Our Poll For previous cartoons on DCK, see our Humor Channel. And for more of Diane’s work, visit Kip and Gary’s website! (Comment on this)
6:40p	Weekly DCIM Software News Update: February 5th Nlyte acquires complementary DCIM vendor FieldView Solutions, and RF Code announces CenterScape Cloud, a cloud-based edition of its CenterScape data center management software. Nlyte acquires FieldView in DCIM Software Consolidation Move: Nlyte Software announced that it has acquired DCIM software company FieldView Solutions, which has developed advanced real-time monitoring and data analytics capabilities for data center managers. Each company’s individual strength is complementary to the other’s, and many data center operators have deployed both. Combination of the two makes for a stronger rival to the big data center infrastructure vendors that also sell DCIM suites. RF Code launches CenterScape Cloud. RF Code announced CenterScape Cloud, a cloud-based service which provides flexibility in how a customer deploys, pays for, integrates with and scale RF Code’s solution. It ensures the same level of insight for equipment in a customer facility or located externally. CenterScape Cloud also now features a new simplified subscription pricing model which delivers a fixed price for the complete solution on an annual per-rack basis. (Comment on this)
7:15p	Data Center REIT Stocks Outperform in January While Broader Markets Struggle Data center REIT stocks displayed strength during the first month of the year, despite the drop in global equity valuations overall. The six US data center REITs rewarded shareholders with 6.48 percent price appreciation on average. The data center stock performance compares favorably with the S&P 500 having lost 3.6 percent during volatile January trading sessions. The month’s data center results were even more impressive when you factor in their outstanding performance in 2015. Tale Of The Tape – January 2016 Concerns about China’s slowing economy, depressed commodity pricing, and an energy sector reeling from a global oil and gas oversupply dominated the headlines. However, data center stocks, and specifically data center REITs, proved to be a safe haven for investors. CoreSite Realty (COR) continued to connect with shareholders. REIT investors bid up COR shares nearly 16 percent in January. This follows on the heels of CoreSite delivering total return to shareholders last year of 50.5 percent (including dividends). Chart by YCHARTS. Click the chart to enlarge Wholesale data center REIT DuPont Fabros Technology (DFT) lagged the sector during 2015. Notably, DFT rebounded in January with a 7.62 percent gain. Read more: DuPont Fabros Firing on All Cylinders: Time to Step on Gas? However, all of the good news isn’t readily apparent from just one chart. QTS Realty (QTS) closed at a then all-time high of $46.20 on Friday January 29, the last trading day of the month. Subsequently, QTS shares have traded as high as $47.55 during intraday trading this Wednesday. As of this writing, shares of Digital Realty (DLR) have also hit a new 52-week high of $80.98 during intraday trading. Investors appear eager to own data center stocks prior to the start of fourth-quarter 2015 earnings season along with guidance for 2016. (Comment on this)

<< Previous Day

2016/02/05 [Calendar]

Next Day >>