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Data center developer DuPont Fabros Technology (DFT) said today that it has arranged a $150 million loan that will allow it to finish its huge ACC5 data center in Ashburn, Virginia, where it has leased additional space. The company also plans to sell $550 million in notes to build a huge data center project in New Jersey and repay existing debt.

If successful, the debt sale would allow DuPont Fabros to bring new space online in the active New Jersey market without having to sell common stock. Management has expressed a preference to fund construction through debt rather than an equity offering that would dilute the holdings of current stockholders. The company’s confidence in its ability to find buyers for its debt may have been boosted by the successful sale of more than $400 million in debt by Terremark Worldwide earlier this year.

Leasing Remains Strong
DuPont Fabros’ effort to fund its growth has been boosted by the strong leasing activity in its core northern Virginia market. the company has now leased nearly two thirds of the ACC5 data center, where Net2EZ and Facebook have leased space. Today the company announced two new leases at ACC5, with one tenant signing a five-year lease for 1.138 megawatts (MW) of critical load , and another signing a 12-year deal for 2.275 MW.

Here’s an overview of the financial transactions DuPont Fabros announced today:

• The company closed on a $150 million secured loan with a syndicate of lenders led by TD Bank. The loan, which is is secured by the ACC5 data center, has a five-year term at a floating rate of LIBOR plus 4.25% with a LIBOR floor of 1.50%. DuPont Fabros will use $25 million to repay a previous term loan secured by ACC5. DuPont Fabros will use the balance of the funds to complete construction on Phase II of ACC5, and set aside $10 million in reserve.
• The new loan includes an “accordion” feature that allows new lenders to join the existing bank syndicate to increase the amount of the loan up to an additional $100 million if certain leasing and other covenants have been met. DuPont Fabros previously used an accordion feature to restructure loans used to build its Chicago data center.
• DuPont Fabros also today announced that a subsidiary will offer $550 million in senior notes due 2017, a move designed to allow the company to complete construction on a planned 360,000 square foot data center complex in Piscataway, New Jersey, which was postponed last year. Company executives said recently that it would take approximately $75 million to restart construction in new Jersey and complete the project’s first phase. DFT will use the remaining funds from the note sale to repay $50 million that it borrowed to build its ACC4 data center, and pay off a loan for a planned project in Santa Clara, Calif., which is currently mothballed.

“We are pleased to have secured this loan in a challenging credit environment,” said Hossein Fateh, President and CEO of DuPont Fabros Technology. “This loan will allow us to continue to make progress on our development pipeline by completing Phase II of ACC5. We now expect that ACC5 Phase II will be placed in service in October 2010.”

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DuPont Fabros Reveals Funding, New Leases

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Will the data center of the future have no central UPS units, and be filled with servers with on-board batteries? The data center team at Facebook believes it should, and is pledging to share its best practices - and perhaps wield some of its clout with vendors and data center operators - as it presses its case for change.   

Facebook recently disclosed its plans to adopt a novel power distribution design pioneered by Google that removes uninterruptible power supply (UPS) and power distribution units (PDUs) from the data center. The new design shifts the UPS and battery backup functions from the data center into the cabinet by adding a 12 volt battery to each server power supply.

While many best practices shared by Google, Microsoft and Facebook can help other data center operators save energy and money, other customizations are impractical.   

Big Companies, Big Innovation 
“A lot of the innovation in the field is being driven by companies with thousands of servers who really care about the efficiency of these things,” said Facebook’s Amir Michael, who previously worked on Google’s data center team. “We have capital to be able to afford engineers to solve these problems. It’s not really benefiting the rest of the industry. Smaller companies who might deploy fewer servers can’t go and design their own systems.”

In discussing Facebook’s plans for on-board batteries, Michael discussed ways these innovations might become more widely available.

“It’s a chicken and the egg problem,” said Michael. “No one really makes a data center without a UPS, and no one makes server with a battery on board. Server manufacturers aren’t going to build a server with a battery on board, because no one has a place to deploy that.”

Facebook’s buying power gives it some influence with hardware vendors. Michael noted that Facebook is working with vendors on power supply customizations, and has gotten little pushback from server vendors on its modifications to motherboards.

“Volumes are large enough that server vendors are helping us with that rather than opposing us,” he said. “We’re actually being supported quite well.”

Not all equipment vendors would endorse an industry shift to servers with on-board batteries, however. Makers of UPS equipment and power distribution units (PDUs) are significant players in discussions of industry best practices, and would be unlikely to advocate designs that reduce demand for those products.

Is there a transition that could lead to more options for innovation in power distribution? Michael suggested potential changes in wholesale data center leasing models.

“One example could be to build a data center where you have a portion that has no UPS,” he said. ”The data center operator can charge customers a lower rate to deploy their servers in a part of the facility that doesn’t have a UPS. The customer, if they’re savvy, can go and purchase a server which has a battery on board. They’ll pay a little more up front, but in the long run they’ll save money because they’re paying less to operate that server over a period of time.

“We hope to see the industry move to a model like this,” said Michael. ”As a customer that leases space in data centers, I would welcome a change like this.”

Facebook is one of the largest customers in the market for turn-key data center space, and leases space from leading providers like Digital Realty Trust, DuPont Fabros Technology and Fortune Data Centers. 

Are these cutting-edge energy efficiency strategies only appropriate for large-scale operations like Google and Facebook? Or would enterprises and smaller companies adopt these practices if they had access to them? Facebook says it will be more active in the growing industry conversation about best practices, which it hopes will reveal the answer.  

“It’s no longer okay just to be secretive,” said Michael. “There’s too much at stake.  Smaller companies might use too much of their resources and too much of their capital on their data center infrastructure. They should be allowed to benefit from the same type of optimizations that we’re making here at Facebook.”

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Should Servers Come With Batteries?

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The growing importance of electric power is remaking the business of leasing data center space, with megawatts replacing square feet as the primary benchmark for real estate deals.

“Our business is all about leasing access to power,” said Michael Foust, the CEO of Digital Realty Trust, the largest data center developer landlord. “The square footage is almost secondary in some cases.”

DuPont Fabros Technology, another large developer of wholesale data center space, now describes all its leases in megawatts in its financial reporting. As data centers consume more power, electricity is the benchmark that matters, according to DuPont Fabros president and CEO Hossein Fateh.

“Any customer that needs a megawatt – that’s 4,000 servers – better be ready to talk power, or they’re not even qualified to have that job,” Fateh said earlier this year. “What we’re charging for is the availability of power.”

Wanted: Cheap, Abundant Power
As companies like Google and Microsoft build ever-larger data centers packed with tens of thousands of servers, they are choosing to build in places with cheap and abundant power like central Washington state, Iowa and North Carolina.

It’s not just the cloud-builders that are making decisions based on power. In a recent survey by the industry group AFCOM, 67 prcent of data center operators said the availability of sufficient power is the number one challenge in data center consolidation projects, which can eliminate servers but result in higher-density environments.

This shift is changing the way companies determine their data center requirements as they max out the capacity of their existing facilities. Many data center operators are running out of power before they run out of space, underscoring the need to have good metrics on existing power usage for capacity planning purposes.

Measure by the Kilowatt
“If your company isn’t measuring whatever the widget is by kilowatts, you need to,” said Chris Crosby, VP of business development at Digital Realty. “Power is really the key element for measurement. The clients that understand things in these terms make the best decisions.

“If you talk about square footage in the data center, you’ll get confused in your buying decision,” Crosby added. “Getting an understanding of your kilowatts will give you a lot of insight into your costs.”

An example is Currenex, an electronic trading platform specializing in the foreign exchange markets. The company’s business was growing quickly, but its two third-party data center providers had limited capacity.

“We were operating in data centers that were out of power,” said Chad Parris, VP of technical operations at Currenex. “We’re not big enough to build our own facility, so it became tempting to buy cage or cabinet solutions (in colocation centers).”

Converting Workloads into Power
Instead, Currenex performed a detailed analysis of the power required to execute its trades, and then used those numbers to convert daily volume of foreign exchange trades into kilowatts. This allowed the company to model its future power needs based on estimates of its future trading volume.

Currenex wound up leasing 2,500 square feet space in a Digital Realty data center in New Jersey, with an option for additional space as its operation expands. The wholesale data center model “was the cheapest way to buy a long-term position in kilowatts,” Parris said. “In year four, our cost per kilowatt a month is about a third of what it would have been.”

Complicator in Lease Renewals
The new focus on power as a leasing benchmark creates some challenges for enterprise companies that use leased data center space, according to Jim Kerrigan, the director of the data center real estate practice at Grubb & Ellis.

Kerrigan estimates that 32 percent of all leased data center space in the U.S. will come up for renewal between now and 2013. Nearly all of those leases were based on square footage, while power capacity will be the key issue in many renegotiations. Reconciling that difference will introduce an added wrinkle in many lease renewal talks.

The primacy of electricity in data center real estate isn’t likely to end anytime soon.”Power is really the core commodity of the information age,” said Crosby.

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Data Center Leasing: It’s All About the Megawatts

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The breakout growth of Facebook is turning out to be an economic stimulus plan for data center landlords. And the fast-growing social network’s infrastructure isn’t just getting bigger, it’s getting greener. 

Facebook has confirmed that it has leased additional data center space in San Jose, Calif. in a new facility operated by Fortune Data Centers. This is the fourth data center expansion of 2009 for Facebook, which has signed two leases for additional data center space in Virginia and two more in Silicon Valley.

All LEED Gold Data Centers
All four of the leases are in facilities designed to attain the highest energy efficiency ratings under the LEED (Leadership in Energy and Environmental Design) program operated by the U.S. Green Building Council. Each of the data centers hosting Facebook’s servers are on track for Gold certification under the LEED rating scale. 

As with most companies seeking out LEED data centers, Facebook’s motivations are financial as well as environmental. The social network’s racks are packed with servers, and efficient  data centers allow them to do more with the same square footage.

The latest lease in San Jose is reported to be a deal for about 5 megawatts of critical power. “We can confirm that we have signed an agreement, but we cannot disclose the specifics,” Facebook said in a statement. “We are always looking at ways to add data center capacity to support our growing business.”

Pursuing Wholesale Model
Facebook’s extraordinary growth has forced the company to invest in its infrastructure. The social network, which recently crossed the 300 million user barrier, has expanded by leasing space from the two largest “wholesale” data center landlords, the real estate investment trusts Digital Realty Trust and DuPont Fabros Technologies.

Since the beginning of 2009, Facebook has signed two leases for additional space in the ACC5 data center in Ashburn, Virginia operated by DuPont Fabros. The company has also added a data center in Santa Clara operated by Digital Realty, and now has leased space from Fortune down the road in San Jose.

Wholesale providers build the data center, including the raised-floor rechnical space and the power and cooling infrastructure, and then lease the completed facility. The tenant pays a significant premium over typical leases for office space, but is spared the capital investment to construct the data center.

Wholesale Model Means Savings
In the wholesale model, users can also occupy their data center space in about five months, rather than the one to two years needed to build an enterprise data center. This has positioned Facebook to continue growing rapidly without having to build its own facilities.

The San Jose lease allowed Fortune to fill its available space within six months of opening the doors. Fortune has now begun construction on the second phase, which will add another 6 megawatts of power capacity.

Focus on Efficiency
Fortune Data Centers’ energy efficiency features include a design that uses a slab floor and drops cool air into the data center from above, taking advantage of the natural tendency for denser cool air to fall while warm air rises.

Fortune also separated the hot and cold air with vinyl curtains between the top of the racks and the ceiling, preventing warm air from mixing back in with cool air for the servers. The facility employs water-side economization and highly-efficient cooling towers, as well as an advanced building management system to monitor and manage environmental conditions.

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Facebook Goes Green with New Data Centers

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What a difference a year makes. As 2008 drew to a close, DuPont Fabros Technology was struggling. Facing the brutal headwinds of the credit crisis, the data center REIT’s stock had slipped to an all-time low of less than $2 a share after the company halted three development projects amid financing challenges.

Twelve months later, even as the economy continues to struggle, the outlook for DuPont Fabros has been transformed. In 2009 the company has signed 12 leases representing more than $700 million in contract value, gaining commitments for more than 187,000 square feet of data center space. In the third quarter DuPont Fabros opened the doors for first phase of ACC5, one of the projects that had been mothballed last November.

Four New Leases in Virginia
DuPont Fabros (DFT) reported its third quarter earnings late Tuesday, including four previously undisclosed leases in Northern Virginia. Significantly, the company was able to quickly fill space that was being vacated in its VA3 data center in Reston, Va. The deals continue the torrid pace of leasing in Northern Virginia, which is currently the most active market in the nation.

Space at the Reston facility representing 2.5 megawatts of critical load was to become available upon lease expirations on Dec. 31. DuPont Fabros said today that it had successfully filled the space with two leases, one for 1.95 megawatts and another for 0.6 megawatts.

More leasing at ACC5
The company said it also signed two leases at ACC5 Phase I in Ashburn, representing 2.84 megawatts of crticial load and 13,700 square feet of raised-floor space.

DuPont Fabros previously disclosed two large leases from early in the third quarter, a 36,700 square foot lease at its CH1 data center and a 33,000 square foot lease in ACC5 Phase II. DuPont Fabros didn’t identify the tenants, but Rackspace leased the Chicago space and Facebook has made the commitment for the space at ACC5 Phase II.

“During the third quarter, we continued to focus on leasing and operations, and are pleased with the progress made,” said Hossein Fateh, President and CEOf of DuPont Fabros. “Looking ahead, a principal objective will be raising the funds necessary to start the next two developments in early 2010 in order to capitalize on market demand for our product.”

Higher Interest Expenses
For the quarter ended Sept. 30, DuPont Fabros reported earnings per share of $0.08 compared to $0.12 for the third quarter of 2008, attributing the decline to higher interest expenses. Revenues increased 21 percent to $51.9 million for the third quarter of 2009 over the third quarter of 2008. Funds from operation (FFO) per share for the quarter ended Sept. 30, 2009 was $0.29 compared to $0.31 for the year-earlier period.

The company said it is actively pursuing additional funds for both the ACC5 Phase II in Ashburn, Virginia and NJ1 Phase I in Piscataway, New Jersey developments.

DuPont Fabros also hinted at news on the restoration of a dividend. “The company has increased its 2009 REIT dividend requirement estimate by $0.04, and the payment range is now $0.24 to $0.30 per share,” it said. “The company has available funds sufficient to pay the dividend in cash, and the Board of Directors will determine the method and timing of the dividend prior to the end of the fourth quarter.”

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Strong Leasing Continues for DuPont Fabros

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