What Does Next Week’s Earnings Call Hold For DuPont Fabros?

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CoreSite Realty Corporation (NYSE: COR) and CyrusOne (NASDAQ: CONE) have been market darlings in the data center sector space. Due to the adverse impact of a tenant default as well as lackluster 2015 FFO projections, DuPont Fabros Technology (NYSE: DFT) has been punished by the investment community.

Year-to-date, both CoreSite and CyrusOne have been solid performers with gains of 23 and 17 percent respectively. The market opportunity seems so favorable that Carlyle Group decided on Monday, April 27, to monetize their investment in CoreSite by selling a portion of their holding. The shares decreased by 4 percent yesterday.

Conversely, DuPont Fabros is down 3 percent this year. Nevertheless, by addressing key questions during their next earnings call scheduled for May 7, DuPont Fabros’s outlook for the balance of 2015 could improve. Some of the questions are as follows:

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Has the situation with Net Data Centers been rectified?

Net Data Centers, one of DuPont Fabros’s top customers, filed a voluntary petition for relief under Chapter 11 Bankruptcy protection last February and ceased making rental payments. The question is whether Net Data Centers will either resume making payments or vacate the space enabling DuPont Fabros to generate revenue with a new tenant.

Will the average interest rate increase?

The company has indicated that interest expenses will increase due to the issuance of new debt for development. The outstanding concern is the extent to which the increase in interest expenses will limit 2015 FFO results.

Will the new CEO Christopher Eldredge shed light on growth prospects?

As noted in the previous earnings call, Mr. Eldridge has been tasked by the Board of Directors to create a strategic plan for the company. The question is whether the growth focus will change from their wholesale product to alternative offerings such as the recently launched mini-wholesale product.

With answers to the above questions, it is believed a more informed investment decision can be made.

Summary

 Metrics 2011 2012 2013 2014 2015P
Dividends declared per common share, $ 0.48 0.62 0.95 1.47 1.68
Q4 Dividend, $ 0.12 0.20 0.25 0.42
Dividend payout ratio, in percent 39.7 48.1 50.8 58.8 67.2
Dividend yield, in percent 2.0 2.6 3.8 4.4 4.7
FFO per share, $ 1.61 1.48 1.46 2.37 2.30
FFO per share (Q4 only), $ 0.37 0.38 0.46 0.58
Alternate FFO per share (Normalized), $ 1.48 1.96 2.39 2.37
AFFO per share, $ 1.21 1.29 1.87 2.50 2.50
Debt to total capitalization, in percent 23.9 23.3 27.0 25.1
Occupancy – Total, in percent 79 90 94 94
Share Price on 31 December, $ 24.22 24.16 24.71 33.24 36.07
P/FFO on 31 December 15.0 16.3 16.9 14.0 15.7
 2015P= 2015 Projections

Written by Heli Brecailo

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