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EX-32.2 - EXHIBIT 32.2 - DUPONT FABROS TECHNOLOGY, INC.dft_q1x3312015xex322.htm
10-Q - 10-Q PDF - DUPONT FABROS TECHNOLOGY, INC.a10q33115final.pdf
EX-10.7.1 - EXHIBIT 10.7.1 - DUPONT FABROS TECHNOLOGY, INC.dft_q1x3312015xex1071.htm
EX-10.7.2 - EXHIBIT 10.7.2 - DUPONT FABROS TECHNOLOGY, INC.dft_q1x3312015xex1072.htm
EX-10.7.3 - EXHIBIT 10.7.3 - DUPONT FABROS TECHNOLOGY, INC.dft_q1x3312015xex1073.htm
EX-31.1 - EXHIBIT 31.1 - DUPONT FABROS TECHNOLOGY, INC.dft_q1x3312015xex311.htm
EX-31.2 - EXHIBIT 31.2 - DUPONT FABROS TECHNOLOGY, INC.dft_q1x3312015xex312.htm
EX-31.3 - EXHIBIT 31.3 - DUPONT FABROS TECHNOLOGY, INC.dft_q1x3312015xex313.htm
EX-31.4 - EXHIBIT 31.4 - DUPONT FABROS TECHNOLOGY, INC.dft_q1x3312015xex314.htm
EX-32.1 - EXHIBIT 32.1 - DUPONT FABROS TECHNOLOGY, INC.dft_q1x3312015xex321.htm
EXCEL - IDEA: XBRL DOCUMENT - DUPONT FABROS TECHNOLOGY, INC.Financial_Report.xls

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 

FORM 10-Q 
 
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2015.
OR
 
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From             to            .
Commission file number 001-33748 
 
DUPONT FABROS TECHNOLOGY, INC.
DUPONT FABROS TECHNOLOGY, L.P.
(Exact name of registrant as specified in its charter)
 
Maryland (DuPont Fabros Technology, Inc.)
Maryland (DuPont Fabros Technology, L.P.)
 
20-8718331
26-0559473
(State or other jurisdiction of
Incorporation or organization)
 
(IRS employer
identification number)
 
 
1212 New York Avenue, NW, Suite 900
Washington, D.C.
 
20005
(Address of principal executive offices)
 
Zip Code
Registrant’s telephone number, including area code: (202) 728-0044
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
Large accelerated Filer
 
x
Accelerated filer
 
¨
(DuPont Fabros Technology, Inc. only)
 
 
 
Non-accelerated Filer
 
x  (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
(DuPont Fabros Technology, L.P. only)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at May 1, 2015
DuPont Fabros Technology, Inc. Common Stock,
$0.001 par value per share
 
65,374,247



EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended March 31, 2015 of DuPont Fabros Technology, Inc. and DuPont Fabros Technology, L.P. References to “DFT” mean DuPont Fabros Technology, Inc. and its controlled subsidiaries; and references to the “Operating Partnership” or “OP” mean DuPont Fabros Technology, L.P. and its controlled subsidiaries. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “our Company” or “the Company” refer to DFT and the Operating Partnership, collectively.
DFT is a real estate investment trust (“REIT”) and the general partner of the Operating Partnership. The Operating Partnership’s capital includes general and limited common operating partnership units, or “OP units.” As of March 31, 2015, DFT owned 80.9% of the common economic interest in the Operating Partnership, with the remaining interest being owned by investors. As the sole general partner of the Operating Partnership, DFT has exclusive control of the Operating Partnership’s day-to-day management.
We believe combining the quarterly reports on Form 10-Q of DFT and the Operating Partnership into this single report provides the following benefits:
enhances investors’ understanding of DFT and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this report applies to both DFT and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
We operate DFT and the Operating Partnership as one business. The management of DFT consists of the same employees as the management of the Operating Partnership.
We believe it is important for investors to understand the few differences between DFT and the Operating Partnership in the context of how DFT and the Operating Partnership operate as a consolidated company. DFT is a REIT, whose only material asset is its ownership of OP units of the Operating Partnership. As a result, DFT does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing unsecured debt of the Operating Partnership. DFT has not issued any indebtedness, but has guaranteed all of the unsecured debt of the Operating Partnership. The Operating Partnership holds all the real estate assets of the Company. Except for net proceeds from public equity issuances by DFT, which are contributed to the Operating Partnership in exchange for OP units or preferred units, the Operating Partnership generates all remaining capital required by our business. These sources include the Operating Partnership’s operations, its direct or indirect incurrence of indebtedness, and the issuance of partnership units.
As general partner with control of the Operating Partnership, DFT consolidates the Operating Partnership for financial reporting purposes. The presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of DFT and those of the Operating Partnership. The Operating Partnership’s capital includes preferred units and general and limited common units that are owned by DFT and the other partners. DFT’s stockholders’ equity includes preferred stock, common stock, additional paid in capital and retained earnings. The common limited partnership interests held by the limited partners (other than DFT) in the Operating Partnership are presented as “redeemable partnership units” in the Operating Partnership’s consolidated financial statements and as “redeemable noncontrolling interests-operating partnership” in DFT’s consolidated financial statements. The only difference between the assets and liabilities of DFT and the Operating Partnership as of March 31, 2015 is a $4.2 million bank account held by DFT that is not part of the Operating Partnership. Net income is the same for DFT and the Operating Partnership.
In order to highlight the few differences between DFT and the Operating Partnership, there are sections in this report that discuss DFT and the Operating Partnership separately, including separate financial statements, controls and procedures sections, and Exhibit 31 and 32 certifications. In the sections that combine disclosure for DFT and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that enters into contracts, holds assets and issues debt, we believe that reference to the Company in this context is appropriate because the business is one enterprise and we operate the business through our Operating Partnership.

2


DUPONT FABROS TECHNOLOGY, INC. / DUPONT FABROS TECHNOLOGY, L.P.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2015
TABLE OF CONTENTS


3


PART 1—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
DUPONT FABROS TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
 
March 31,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Income producing property:
 
 
 
Land
$
83,793

 
$
83,793

Buildings and improvements
2,624,963

 
2,623,539

 
2,708,756

 
2,707,332

Less: accumulated depreciation
(528,539
)
 
(504,869
)
Net income producing property
2,180,217

 
2,202,463

Construction in progress and land held for development
410,870

 
358,965

Net real estate
2,591,087

 
2,561,428

Cash and cash equivalents
27,059

 
29,598

Rents and other receivables, net
11,712

 
8,113

Deferred rent, net
138,582

 
142,365

Lease contracts above market value, net
7,779

 
8,054

Deferred costs, net
38,029

 
38,495

Prepaid expenses and other assets
50,431

 
48,295

Total assets
$
2,864,679

 
$
2,836,348

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities:
 
 
 
Line of credit
$
150,000

 
$
60,000

Mortgage notes payable
115,000

 
115,000

Unsecured term loan
250,000

 
250,000

Unsecured notes payable
600,000

 
600,000

Accounts payable and accrued liabilities
28,529

 
26,973

Construction costs payable
25,482

 
32,949

Accrued interest payable
1,943

 
10,759

Dividend and distribution payable
39,685

 
39,981

Lease contracts below market value, net
6,169

 
7,037

Prepaid rents and other liabilities
67,824

 
65,174

Total liabilities
1,284,632

 
1,207,873

Redeemable noncontrolling interests – operating partnership
503,901

 
513,134

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Preferred stock, $.001 par value, 50,000,000 shares authorized:
 
 
 
Series A cumulative redeemable perpetual preferred stock, 7,400,000 issued and outstanding at March 31, 2015 and December 31, 2014
185,000

 
185,000

Series B cumulative redeemable perpetual preferred stock, 6,650,000 issued and outstanding at March 31, 2015 and December 31, 2014
166,250

 
166,250

Common stock, $.001 par value, 250,000,000 shares authorized, 65,375,225 shares issued and outstanding at March 31, 2015 and 66,061,804 shares issued and outstanding at December 31, 2014
65

 
66

Additional paid in capital
724,831

 
764,025

Retained earnings

 

Total stockholders’ equity
1,076,146

 
1,115,341

Total liabilities and stockholders’ equity
$
2,864,679

 
$
2,836,348

See accompanying notes

4


DUPONT FABROS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands except share and per share data)
 
 
Three months ended March 31,
 
2015
 
2014
Revenues:
 
 
 
Base rent
$
71,573

 
$
69,204

Recoveries from tenants
33,305

 
31,689

Other revenues
2,436

 
1,194

Total revenues
107,314

 
102,087

Expenses:
 
 
 
Property operating costs
31,493

 
30,095

Real estate taxes and insurance
3,976

 
3,467

Depreciation and amortization
25,027

 
23,269

General and administrative
4,343

 
4,240

Other expenses
7,253

 
873

Total expenses
72,092

 
61,944

Operating income
35,222

 
40,143

Interest income
11

 
68

Interest:
 
 
 
Expense incurred
(8,258
)
 
(7,824
)
Amortization of deferred financing costs
(642
)
 
(743
)
Net income
26,333

 
31,644

Net income attributable to redeemable noncontrolling interests – operating partnership
(3,719
)
 
(4,788
)
Net income attributable to controlling interests
22,614

 
26,856

Preferred stock dividends
(6,811
)
 
(6,811
)
Net income attributable to common shares
$
15,803

 
$
20,045

Earnings per share – basic:
 
 
 
Net income attributable to common shares
$
0.24

 
$
0.30

Weighted average common shares outstanding
65,506,028

 
65,348,269

Earnings per share – diluted:
 
 
 
Net income attributable to common shares
$
0.24

 
$
0.30

Weighted average common shares outstanding
66,456,271

 
65,823,921

Dividends declared per common share
$
0.42

 
$
0.35

See accompanying notes


5


DUPONT FABROS TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited and in thousands except share data)

 
Preferred Stock
 
Common Shares
 
Additional Paid-in Capital
 
Retained Earnings
 
 
 
 
Number
 
Amount
 
 
 
Total
Balance at December 31, 2014
$
351,250

 
66,061,804

 
$
66

 
$
764,025

 
$

 
$
1,115,341

Net income attributable to controlling interests
 
 
 
 
 
 
 
 
22,614

 
22,614

Dividends declared on common stock
 
 
 
 
 
 
(11,654
)
 
(15,803
)
 
(27,457
)
Dividends earned on preferred stock
 
 
 
 
 
 

 
(6,811
)
 
(6,811
)
Redemption of operating partnership units
 
 
18,000

 


 
598

 
 
 
598

Common stock repurchases
 
 
(1,002,610
)
 
(1
)
 
(31,911
)
 
 
 
(31,912
)
Issuance of stock awards
 
 
530,419

 


 
1,761

 
 
 
1,761

Retirement and forfeiture of stock awards
 
 
(232,388
)
 


 
(7,489
)
 
 
 
(7,489
)
Amortization of deferred compensation costs
 
 
 
 
 
 
3,623

 
 
 
3,623

Adjustments to redeemable noncontrolling interests – operating partnership
 
 
 
 
 
 
5,878

 
 
 
5,878

Balance at March 31, 2015
$
351,250

 
65,375,225

 
$
65

 
$
724,831

 
$

 
$
1,076,146

See accompanying notes


6


DUPONT FABROS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
 
Three months ended March 31,
 
2015
 
2014
Cash flow from operating activities
 
 
 
Net income
$
26,333

 
$
31,644

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
25,027

 
23,269

Straight line revenues, net of reserve
3,783

 
711

Amortization of deferred financing costs
642

 
743

Amortization of lease contracts above and below market value
(593
)
 
(599
)
Compensation paid with Company common shares
5,290

 
1,593

Changes in operating assets and liabilities
 
 
 
Rents and other receivables
(3,599
)
 
(979
)
Deferred costs
(1,474
)
 
(52
)
Prepaid expenses and other assets
(2,052
)
 
(5,933
)
Accounts payable and accrued liabilities
1,916

 
(1,191
)
Accrued interest payable
(8,816
)
 
(8,012
)
Prepaid rents and other liabilities
2,635

 
3,297

Net cash provided by operating activities
49,092

 
44,491

Cash flow from investing activities
 
 
 
Investments in real estate – development
(57,584
)
 
(80,159
)
Interest capitalized for real estate under development
(2,856
)
 
(2,965
)
Improvements to real estate
(574
)
 
(425
)
Additions to non-real estate property
(176
)
 
(220
)
Net cash used in investing activities
(61,190
)
 
(83,769
)
Cash flow from financing activities
 
 
 
Line of credit:
 
 
 
Proceeds
90,000

 

Unsecured term loan:
 
 
 
Proceeds

 
96,000

Payments of financing costs

 
(96
)
Equity compensation (payments) proceeds
(7,489
)
 
3,457

Common stock repurchases
(31,912
)
 

Dividends and distributions:
 
 
 
Common shares
(27,745
)
 
(16,301
)
Preferred shares
(6,811
)
 
(6,811
)
Redeemable noncontrolling interests – operating partnership
(6,484
)
 
(3,918
)
Net cash provided by financing activities
9,559

 
72,331

Net (decrease) increase in cash and cash equivalents
(2,539
)
 
33,053

Cash and cash equivalents, beginning
29,598

 
38,733

Cash and cash equivalents, ending
$
27,059

 
$
71,786

Supplemental information:
 
 
 
Cash paid for interest
$
19,930

 
$
18,802

Deferred financing costs capitalized for real estate under development
$
231

 
$
170

Construction costs payable capitalized for real estate under development
$
25,482

 
$
25,489

Redemption of operating partnership units
$
598

 
$
2,100

Adjustments to redeemable noncontrolling interests - operating partnership
$
(5,878
)
 
$
(9,334
)
See accompanying notes

7


DUPONT FABROS TECHNOLOGY, L.P.

CONSOLIDATED BALANCE SHEETS
(in thousands except unit data)
 
March 31,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Income producing property:
 
 
 
Land
$
83,793

 
$
83,793

Buildings and improvements
2,624,963

 
2,623,539

 
2,708,756

 
2,707,332

Less: accumulated depreciation
(528,539
)
 
(504,869
)
Net income producing property
2,180,217

 
2,202,463

Construction in progress and land held for development
410,870

 
358,965

Net real estate
2,591,087

 
2,561,428

Cash and cash equivalents
22,841

 
25,380

Rents and other receivables, net
11,712

 
8,113

Deferred rent, net
138,582

 
142,365

Lease contracts above market value, net
7,779

 
8,054

Deferred costs, net
38,029

 
38,495

Prepaid expenses and other assets
50,431

 
48,295

Total assets
$
2,860,461

 
$
2,832,130

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
Liabilities:
 
 
 
Line of credit
$
150,000

 
$
60,000

Mortgage notes payable
115,000

 
115,000

Unsecured term loan
250,000

 
250,000

Unsecured notes payable
600,000

 
600,000

Accounts payable and accrued liabilities
28,529

 
26,973

Construction costs payable
25,482

 
32,949

Accrued interest payable
1,943

 
10,759

Dividend and distribution payable
39,685

 
39,981

Lease contracts below market value, net
6,169

 
7,037

Prepaid rents and other liabilities
67,824

 
65,174

Total liabilities
1,284,632

 
1,207,873

Redeemable partnership units
503,901

 
513,134

Commitments and contingencies

 

Partners’ capital:
 
 
 
Limited partners’ capital:
 
 
 
Series A cumulative redeemable perpetual preferred units, 7,400,000 issued and outstanding at March 31, 2015 and December 31, 2014
185,000

 
185,000

Series B cumulative redeemable perpetual preferred units, 6,650,000 issued and outstanding at March 31, 2015 and December 31, 2014
166,250

 
166,250

Common units, 64,712,852 issued and outstanding at March 31, 2015 and 65,399,431 issued and outstanding at December 31, 2014
713,376

 
752,254

General partner’s capital, common units, 662,373 issued and outstanding at March 31, 2015 and December 31, 2014
7,302

 
7,619

Total partners’ capital
1,071,928

 
1,111,123

Total liabilities and partners’ capital
$
2,860,461

 
$
2,832,130

See accompanying notes

8


DUPONT FABROS TECHNOLOGY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands except unit and per unit data)
 
 
Three months ended March 31,
 
2015
 
2014
Revenues:
 
 
 
Base rent
$
71,573

 
$
69,204

Recoveries from tenants
33,305

 
31,689

Other revenues
2,436

 
1,194

Total revenues
107,314

 
102,087

Expenses:
 
 
 
Property operating costs
31,493

 
30,095

Real estate taxes and insurance
3,976

 
3,467

Depreciation and amortization
25,027

 
23,269

General and administrative
4,343

 
4,240

Other expenses
7,253

 
873

Total expenses
72,092

 
61,944

Operating income
35,222

 
40,143

Interest income
11

 
68

Interest:
 
 
 
Expense incurred
(8,258
)
 
(7,824
)
Amortization of deferred financing costs
(642
)
 
(743
)
Net income
26,333

 
31,644

Preferred unit distributions
(6,811
)
 
(6,811
)
Net income attributable to common units
$
19,522

 
$
24,833

Earnings per unit – basic:
 
 
 
Net income attributable to common units
$
0.24

 
$
0.30

Weighted average common units outstanding
80,926,265

 
80,956,206

Earnings per unit – diluted:
 
 
 
Net income attributable to common units
$
0.24

 
$
0.30

Weighted average common units outstanding
81,876,508

 
81,431,858

Distributions declared per common unit
$
0.42

 
$
0.35

See accompanying notes

9


DUPONT FABROS TECHNOLOGY, L.P.
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
(unaudited and in thousands, except unit data)
 
 
Limited Partners’ Capital
 
General Partner’s Capital
 
 
 
Preferred
Amount
 
Common
Units
 
Common
Amount
 
Common
Units
 
Common
Amount
 
Total
Balance at December 31, 2014
$
351,250

 
65,399,431

 
$
752,254

 
662,373

 
$
7,619

 
$
1,111,123

Net income
 
 
 
 
26,066

 
 
 
267

 
26,333

Common unit distributions
 
 
 
 
(33,655
)
 
 
 
(278
)
 
(33,933
)
Preferred unit distributions
 
 
 
 
(6,742
)
 
 
 
(69
)
 
(6,811
)
Issuance of OP units to DFT when redeemable partnership units redeemed
 
 
18,000

 
598

 
 
 
 
 
598

OP unit repurchases
 
 
(1,002,610
)
 
(31,912
)
 
 
 
 
 
(31,912
)
Issuance of OP units for stock awards
 
 
530,419

 
1,761

 
 
 
 
 
1,761

Retirement and forfeiture of OP units
 
 
(232,388
)
 
(7,489
)
 
 
 
 
 
(7,489
)
Amortization of deferred compensation costs
 
 
 
 
3,623

 
 
 
 
 
3,623

Adjustments to redeemable partnership units
 
 
 
 
8,872

 
 
 
(237
)
 
8,635

Balance at March 31, 2015
$
351,250

 
64,712,852

 
$
713,376

 
662,373

 
$
7,302

 
$
1,071,928

See accompanying notes


10


DUPONT FABROS TECHNOLOGY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)

 
Three months ended March 31,
 
2015
 
2014
Cash flow from operating activities
 
 
 
Net income
$
26,333

 
$
31,644

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
25,027

 
23,269

Straight line rent, net of reserve
3,783

 
711

Amortization of deferred financing costs
642

 
743

Amortization of lease contracts above and below market value
(593
)
 
(599
)
Compensation paid with Company common shares
5,290

 
1,593

Changes in operating assets and liabilities
 
 
 
Rents and other receivables
(3,599
)
 
(979
)
Deferred costs
(1,474
)
 
(52
)
Prepaid expenses and other assets
(2,052
)
 
(5,933
)
Accounts payable and accrued liabilities
1,916

 
(1,190
)
Accrued interest payable
(8,816
)
 
(8,012
)
Prepaid rents and other liabilities
2,635

 
3,297

Net cash provided by operating activities
49,092

 
44,492

Cash flow from investing activities
 
 
 
Investments in real estate – development
(57,584
)
 
(80,159
)
Interest capitalized for real estate under development
(2,856
)
 
(2,965
)
Improvements to real estate
(574
)
 
(425
)
Additions to non-real estate property
(176
)
 
(220
)
Net cash used in investing activities
(61,190
)
 
(83,769
)
Cash flow from financing activities
 
 
 
Line of credit:
 
 
 
Proceeds
90,000

 

Unsecured term loan:
 
 
 
Proceeds

 
96,000

Payments of financing costs

 
(96
)
Equity compensation (payments) proceeds
(7,489
)
 
3,457

OP unit repurchases
(31,912
)
 

Distributions
(41,040
)
 
(27,030
)
Net cash provided by financing activities
9,559

 
72,331

Net (decrease) increase in cash and cash equivalents
(2,539
)
 
33,054

Cash and cash equivalents, beginning
25,380

 
34,514

Cash and cash equivalents, ending
$
22,841

 
$
67,568

Supplemental information:
 
 
 
Cash paid for interest
$
19,930

 
$
18,802

Deferred financing costs capitalized for real estate under development
$
231

 
$
170

Construction costs payable capitalized for real estate under development
$
25,482

 
$
25,489

Redemption of operating partnership units
$
598

 
$
2,100

Adjustments to redeemable partnership units
$
(8,635
)
 
$
(4,547
)
See accompanying notes


11


DUPONT FABROS TECHNOLOGY, INC.
DUPONT FABROS TECHNOLOGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015
(unaudited)
1. Description of Business
DuPont Fabros Technology, Inc. (“DFT”), through its controlling interest in DuPont Fabros Technology, L.P. (the “Operating Partnership” or “OP” and collectively with DFT and their operating subsidiaries, the “Company”), is a fully integrated, self-administered and self-managed company that owns, acquires, develops and operates wholesale data centers. DFT is a real estate investment trust, or REIT, for federal income tax purposes and is the sole general partner of the Operating Partnership, and as of March 31, 2015, owned 80.9% of the common economic interest in the Operating Partnership, of which 1.0% is held as general partnership units. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “our Company” or “the Company” refer to DFT and the Operating Partnership, collectively. As of March 31, 2015, we held a fee simple interest in the following properties:
11 operating data centers – ACC2, ACC3, ACC4, ACC5, ACC6, ACC7 Phase I, VA3, VA4, CH1, NJ1 Phase I and SC1 Phases I and IIA;
three data centers currently under development – SC1 Phase IIB, CH2 Phase I and ACC7 Phase II;
data center projects available for future development – ACC7 Phases III-IV, CH2 Phases II-III and NJ1 Phase II; and
land that may be used to develop additional data centers – ACC8 and SC2.
SC1 Phase IIB was placed into service in May 2015.

2. Significant Accounting Policies
Basis of Presentation
This report combines the quarterly reports on Form 10-Q for the quarter ended March 31, 2015 of DuPont Fabros Technology, Inc. and DuPont Fabros Technology, L.P. References to “DFT” mean DuPont Fabros Technology, Inc. and its controlled subsidiaries; and references to the “Operating Partnership” or “OP” mean DuPont Fabros Technology, L.P. and its controlled subsidiaries.
We believe combining the quarterly reports on Form 10-Q of DFT and the Operating Partnership into this single report provides the following benefits:
enhances investors’ understanding of DFT and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this report applies to both DFT and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
We operate DFT and the Operating Partnership as one business. The management of DFT consists of the same employees as the management of the Operating Partnership.
We believe it is important for investors to understand the few differences between DFT and the Operating Partnership in the context of how DFT and the Operating Partnership operate as a consolidated company. DFT is a REIT, whose only material asset is its ownership of OP units of the Operating Partnership. As a result, DFT does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing unsecured debt of the Operating Partnership. DFT has not issued any indebtedness, but has guaranteed all of the unsecured debt of the Operating Partnership. The Operating Partnership holds all the real estate assets of the Company. Except for net proceeds from public equity issuances by DFT, which are contributed to the Operating Partnership in exchange for OP units or preferred units, the Operating Partnership generates all remaining capital required by our business. These sources include the Operating Partnership’s operations, its direct or indirect incurrence of indebtedness, and the issuance of partnership units.
As general partner with control of the Operating Partnership, DFT consolidates the Operating Partnership for financial reporting purposes. The presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of DFT and those of the Operating Partnership. The Operating Partnership’s capital includes preferred units and general and limited common units that are owned by DFT and the other partners. DFT’s stockholders’ equity includes preferred stock, common stock, additional paid in capital and retained earnings. The common limited partnership interests held by the limited partners (other than DFT) in the Operating Partnership are presented as “redeemable partnership units” in the Operating Partnership’s consolidated financial statements and as “redeemable noncontrolling interests-

12


operating partnership” in DFT’s consolidated financial statements. The only difference between the assets and liabilities of DFT and the Operating Partnership as of March 31, 2015 is a $4.2 million bank account held by DFT that is not part of the Operating Partnership. Net income is the same for DFT and the Operating Partnership.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the full year. These consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere in this Form 10-Q and the audited financial statements and accompanying notes for the year ended December 31, 2014 contained in our Annual Report on Form 10-K, which contains a complete listing of our significant accounting policies.
We have one reportable segment consisting of investments in data centers located in the United States. All of our properties generate similar types of revenues and expenses related to customer rent and reimbursements and operating expenses. The delivery of our products is consistent across all properties and although services are provided to a range of customers, the types of services provided to them are limited to a few core principles. As such, the properties in our portfolio have similar economic characteristics and the nature of the products and services provided to our customers and the method to distribute such services are consistent throughout the portfolio.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Property
Depreciation on buildings is generally provided on a straight-line basis over 40 years from the date the buildings were placed in service. Building components are depreciated over the life of the respective improvement ranging from 10 to 40 years from the date the components were placed in service. Personal property is depreciated over three years to seven years. Depreciation expense was $23.9 million and $22.2 million for the three months ended March 31, 2015 and 2014, respectively. Included in these amounts is amortization expense related to tenant origination costs, which was $0.7 million and $0.8 million for the three months ended March 31, 2015 and 2014, respectively. Repairs and maintenance costs are expensed as incurred.
We record impairment losses on long-lived assets used in operations or in development when events or changes in circumstances indicate that the assets might be impaired, and the estimated undiscounted cash flows to be generated by those assets are less than the carrying amounts. If circumstances indicating impairment of a long-lived asset are present, we would determine the fair value of that asset, and an impairment loss would be recognized in an amount equal to the excess of the carrying amount of the impaired asset over its fair value. We assess the recoverability of the carrying value of our assets on a property-by-property basis. No impairment losses were recorded during the three months ended March 31, 2015 and 2014.
Deferred Costs
Deferred costs, net in our accompanying consolidated balance sheets include both financing and leasing costs.
Financing costs, which represent fees and other costs incurred in obtaining debt, are amortized using the effective-interest rate method, or a method that approximates the effective-interest method, over the term of the loan and are included in amortization of deferred financing costs. In May 2014, we amended our unsecured revolving credit facility ("Unsecured Credit
Facility"), which, due to the change in composition of lenders comprising the Unsecured Credit Facility's bank group, resulted
in the partial write-off of unamortized deferred financing costs totaling $0.3 million. In July 2014, we amended our unsecured
term loan agreement ("Unsecured Term Loan"), which, due to the change in composition of lenders comprising the Unsecured
Term Loan's bank group, resulted in a loss on early extinguishment of debt of $1.4 million, which included a partial write-off of
unamortized deferred financing costs of $0.7 million. Balances, net of accumulated amortization, at March 31, 2015 and December 31, 2014 were as follows (in thousands):

13


 
March 31,
2015
 
December 31,
2014
Financing costs
$
24,110

 
$
24,110

Accumulated amortization
(7,693
)
 
(6,820
)
Financing costs, net
$
16,417

 
$
17,290


Leasing costs, which are either external fees and costs incurred in the successful negotiations of leases, internal costs expended in the successful negotiations of leases or the estimated leasing commissions resulting from the allocation of the purchase price of ACC2, VA3, VA4 and ACC4, are deferred and amortized over the terms of the related leases on a straight-line basis. If an applicable lease terminates prior to the expiration of its initial term, the carrying amount of the costs are written off to amortization expense. Leasing costs incurred for the three months ended March 31, 2015 and 2014 were as follows (in thousands):
 
Three months ended March 31,
 
2015
 
2014
Leasing costs incurred for new leases
$
373

 
$
52

Leasing costs incurred for renewals
1,101

 

Total leasing costs incurred
$
1,474


$
52


Amortization of deferred leasing costs totaled $1.1 million and $1.0 million for the three months ended March 31, 2015 and 2014, respectively. Balances, net of accumulated amortization, at March 31, 2015 and December 31, 2014 were as follows (in thousands): 
 
March 31,
2015
 
December 31,
2014
Leasing costs
$
53,832

 
$
52,358

Accumulated amortization
(32,220
)
 
(31,153
)
Leasing costs, net
$
21,612

 
$
21,205

Inventory
We maintain fuel inventory for our generators, which is recorded at the lower of cost (on a first-in, first-out basis) or market. As of March 31, 2015 and December 31, 2014, the fuel inventory was $4.4 million and $4.3 million, respectively, and is included in prepaid expenses and other assets in the accompanying consolidated balance sheets.
Rental Income
We, as a lessor, have retained substantially all the risks and benefits of ownership and account for our leases as operating leases. For lease agreements that provide for scheduled fixed and determinable rent increases, rental income is recognized on a straight-line basis over the non-cancellable term of the leases, which commences when control of the space and critical power have been provided to the customer. If the lease contains an early termination clause with a penalty payment, we determine the lease termination date by evaluating whether the penalty reasonably assures that the lease will not be terminated early. Lease inducements, which include free rent or cash payments to customers, are amortized as a reduction of rental income over the non-cancellable lease term. Straight-line rents receivable are included in deferred rent in the accompanying consolidated balance sheets. Lease intangible assets and liabilities that have resulted from above-market and below-market leases that were acquired are amortized on a straight-line basis as decreases and increases, respectively, to rental revenue over the remaining non-cancellable term of the underlying leases. If a lease terminates prior to the expiration of its initial term, the unamortized portion of lease intangibles associated with that lease will be written off to rental revenue. Balances, net of accumulated amortization, at March 31, 2015 and December 31, 2014 were as follows (in thousands):
 

14


 
March 31,
2015
 
December 31,
2014
Lease contracts above market value
$
23,100

 
$
23,100

Accumulated amortization
(15,321
)
 
(15,046
)
Lease contracts above market value, net
$
7,779

 
$
8,054

 
 
 
 
Lease contracts below market value
$
39,375

 
$
39,375

Accumulated amortization
(33,206
)
 
(32,338
)
Lease contracts below market value, net
$
6,169

 
$
7,037


Our policy is to record a reserve for losses on accounts receivable equal to the estimated uncollectible accounts. The estimate is based on our historical experience and a review of the current status of our receivables. As of March 31, 2015 and December 31, 2014, we applied interest received to the note principal balance and had reserves against rents and other receivables of $5.1 million and $4.9 million, respectively. We also establish an appropriate allowance for doubtful accounts for receivables arising from the straight-lining of rents. These receivables arise from revenue recognized in excess of amounts currently due under the lease and are recorded as deferred rent in the accompanying consolidated balance sheets. As of March 31, 2015 and December 31, 2014, we had reserves against deferred rent of $3.7 million.

The reserves described above were established for one customer that restructured its lease obligations with us during 2013. Under this restructuring, this customer's outstanding accounts receivable and deferred rent receivable related to the space that was returned to us were converted into a note receivable, the terms of which require the payment of principal and interest through December 31, 2016. Principal payments on the note are calculated on a ten-year amortization schedule with a final principal payment of the remaining note balance due on December 31, 2016. Additionally, under this restructuring, this customer deferred two-thirds of its base rent payments due for its lease at our NJ1 facility through July 2014, which were added to the note. In February 2015, this customer filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. To date, we have applied the interest portion of all note payments received, totaling $1.2 million, to the note principal balance on our consolidated balance sheet. The note balance as of March 31, 2015 and December 31, 2014 was $6.5 million and $6.6 million, respectively, which is recorded within rents and other receivables, net in our accompanying consolidated balance sheets. The note receivable balance, net of reserves and interest applied to the principal, as of March 31, 2015 and December 31, 2014 was $1.4 million and $1.7 million, respectively.

Due to the uncertainty surrounding this customer's ability to pay its contractual rent obligations, we have also reserved $3.7 million of this customer's deferred rent receivable balance of $8.5 million as of March 31, 2015.
Customer leases generally contain provisions under which the customers reimburse us for a portion of operating expenses and real estate taxes incurred by the property. Recoveries from tenants are included in revenue in the accompanying consolidated statements of operations in the period the applicable expenditures are incurred. Most of our leases also provide us with a property management fee based on a percentage of base rent collected and property-level operating expenses, other than charges for power used by customers to run their servers and cool their space. Property management fees are included in base rent in the accompanying consolidated statements of operations in the applicable period in which they are earned.

Other Revenue
Other revenue primarily consists of services provided to customers on a non-recurring basis. This includes projects such as the purchase and installation of circuits, racks, breakers and other customer requested items. Revenue is recognized on a completed contract basis when the project is finished and ready for the customer's use. This method is consistently applied for all periods presented. Costs of providing these services are included in other expenses in the accompanying consolidated statements of operations.
Redeemable Noncontrolling Interests – Operating Partnership / Redeemable Partnership Units
Redeemable noncontrolling interests – operating partnership, as presented on DFT’s consolidated balance sheets, represent the limited partnership interests in the Operating Partnership (“OP units”) held by individuals and entities other than DFT. These interests are also presented on the Operating Partnership’s consolidated balance sheets, referred to as “redeemable partnership units.” Accordingly, the following discussion related to redeemable noncontrolling interests – operating partnership of DFT refers equally to redeemable partnership units of the Operating Partnership.

15


Redeemable noncontrolling interests – operating partnership, which require cash payment, or allow settlement in shares, but with the ability to deliver the shares outside of the control of DFT, are reported outside of the permanent equity section of the consolidated balance sheets of DFT and the Operating Partnership. Redeemable noncontrolling interests – operating partnership are adjusted for income, losses and distributions allocated to OP units not held by DFT (normal noncontrolling interest accounting amount). Adjustments to redeemable noncontrolling interests – operating partnership are recorded to reflect increases or decreases in the ownership of the Operating Partnership by holders of OP units, including the redemptions of OP units for cash or in exchange for shares of DFT’s common stock. If such adjustments result in redeemable noncontrolling interests – operating partnership being recorded at less than the redemption value of the OP units, redeemable noncontrolling interests – operating partnership are further adjusted to their redemption value (see Note 6). Redeemable noncontrolling interests – operating partnership are recorded at the greater of the normal noncontrolling interest accounting amount or redemption value. The following is a summary of activity for redeemable noncontrolling interests – operating partnership for the three months ended March 31, 2015 (dollars in thousands):
 
OP Units
 
Number
 
Amount
Balance at December 31, 2014
15,437,237

 
$
513,134

Net income attributable to redeemable noncontrolling interests – operating partnership

 
3,719

Distributions declared

 
(6,476
)
Redemption of operating partnership units
(18,000
)
 
(598
)
Adjustments to redeemable noncontrolling interests – operating partnership

 
(5,878
)
Balance at March 31, 2015
15,419,237

 
$
503,901

The following is a summary of activity for redeemable partnership units for the three months ended March 31, 2015 (dollars in thousands):
 
OP Units
 
Number
 
Amount
Balance at December 31, 2014
15,437,237

 
$
513,134

Redemption of operating partnership units
(18,000
)
 
(598
)
Adjustments to redeemable partnership units

 
(8,635
)
Balance at March 31, 2015
15,419,237

 
$
503,901

Net income is allocated to controlling interests and redeemable noncontrolling interests – operating partnership in accordance with the limited partnership agreement of the Operating Partnership. The following is a summary of net income attributable to controlling interests and transfers to redeemable noncontrolling interests – operating partnership for the three months ended March 31, 2015 and 2014 (dollars in thousands): 
 
Three months ended March 31,
 
2015
 
2014
Net income attributable to controlling interests
$
22,614

 
$
26,856

Transfers from noncontrolling interests:
 
 
 
Net change in the Company’s common stock and additional paid in capital due to the redemption of OP units and other adjustments to redeemable noncontrolling interests – operating partnership
6,476

 
11,434

 
$
29,090

 
$
38,290


Earnings Per Share of DFT
Basic earnings per share is calculated by dividing the net income attributable to common shares for the period by the weighted average number of common shares outstanding during the period using the two class method. Diluted earnings per share is calculated by dividing the net income attributable to common shares for the period by the weighted average number of common and dilutive securities outstanding during the period using the two class method.

16


Earnings Per Unit of the Operating Partnership
Basic earnings per unit is calculated by dividing the net income attributable to common units for the period by the weighted average number of common units outstanding during the period using the two class method. Diluted earnings per unit is calculated by dividing the net income attributable to common units for the period by the weighted average number of common and dilutive securities outstanding during the period using the two class method.
Stock-based Compensation
We award stock-based compensation to employees and members of our Board of Directors in the form of common stock. For each stock award granted by DFT, the OP issues an equivalent common unit, which may be referred to herein as a common share, common stock, or a common unit. We estimate the fair value of the awards and recognize this value over the requisite service period. The fair value of restricted stock-based compensation is based on the market value of DFT’s common stock on the date of the grant. The fair value of options to purchase common stock is based on the Black-Scholes model. The fair value of performance units is based on a Monte Carlo simulation.

Recently Issued Accounting Pronouncements

In March 2015, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which will change the presentation of debt issuance costs on our consolidated balance sheet. The new guidance requires that deferred financing costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. We will be required to apply ASU 2015-03 in the first quarter of 2016 and apply the guidance retrospectively to all prior periods presented.
In May 2014, the Financial Accounting Standards Board issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We will be required to apply the new standard in the first quarter of 2017 and are assessing whether the new standard will have a material effect on our financial position or results of operations.
3. Real Estate Assets
The following is a summary of our properties as of March 31, 2015 (dollars in thousands): 
Property
Location
 
Land
 
Buildings and
Improvements
 
Construction
in Progress
and Land Held
for
Development
 
Total Cost
ACC2
Ashburn, VA
 
$
2,500

 
$
159,199

 


 
$
161,699

ACC3
Ashburn, VA
 
1,071

 
95,978

 


 
97,049

ACC4
Ashburn, VA
 
6,600

 
538,557

 


 
545,157

ACC5
Ashburn, VA
 
6,443

 
298,708

 


 
305,151

ACC6
Ashburn, VA
 
5,518

 
216,697

 


 
222,215

ACC7 Phase I
Ashburn, VA
 
2,787

 
94,077

 


 
96,864

VA3
Reston, VA
 
9,000

 
178,362

 


 
187,362

VA4
Bristow, VA
 
6,800

 
149,250

 


 
156,050

CH1
Elk Grove Village, IL
 
23,611

 
358,412

 


 
382,023

NJ1 Phase I
Piscataway, NJ
 
4,311

 
210,136

 


 
214,447

SC1 Phase I and IIA
Santa Clara, CA
 
15,152

 
325,587

 


 
340,739

 
 
 
83,793

 
2,624,963

 

 
2,708,756

Construction in progress and land held for development
(1
)
 


 


 
410,870

 
410,870

 
 
 
$
83,793

 
$
2,624,963

 
$
410,870

 
$
3,119,626

 
(1)
Properties located in Ashburn, VA (ACC7 Phases II-IV and ACC8); Piscataway, NJ (NJ1 Phase II), Elk Grove Village, IL (CH2) and Santa Clara, CA (SC1 Phase IIB and SC2).

17




4. Debt
Debt Summary as of March 31, 2015 and December 31, 2014
($ in thousands)
 
March 31, 2015
 
December 31, 2014
 
Amounts
 
% of Total
 
Rates
 
Maturities
(years)
 
Amounts
Secured
$
115,000

 
10
%
 
1.7
%
 
3.0

 
$
115,000

Unsecured
1,000,000

 
90
%
 
4.2
%
 
5.4

 
910,000

Total
$
1,115,000

 
100
%
 
3.9
%
 
5.2

 
$
1,025,000

Fixed Rate Debt:
 
 
 
 
 
 
 
 
 
Unsecured Notes due 2021
$
600,000

 
54
%
 
5.9
%
 
6.5

 
$
600,000

Fixed Rate Debt
600,000

 
54
%
 
5.9
%
 
6.5

 
600,000

Floating Rate Debt:
 
 
 
 
 
 
 
 
 
Unsecured Credit Facility
150,000

 
14
%
 
1.7
%
 
3.1

 
60,000

Unsecured Term Loan
250,000

 
22
%
 
1.7
%
 
4.3

 
250,000

ACC3 Term Loan
115,000

 
10
%
 
1.7
%
 
3.0

 
115,000

Floating Rate Debt
515,000

 
46
%
 
1.7
%
 
3.7

 
425,000

Total
$
1,115,000

 
100
%
 
3.9
%
 
5.2

 
$
1,025,000

Outstanding Indebtedness

ACC3 Term Loan

We have a $115 million term loan facility (the “ACC3 Term Loan”) that is secured by our ACC3 data center facility and an assignment of the lease agreement between us and the customer of ACC3. The borrower, one of our subsidiaries, may elect to have borrowings under the ACC3 Term Loan bear interest at (i) LIBOR plus 1.55% or (ii) a base rate, which is based on the lender's prime rate, plus 0.55%. The interest rate is currently at LIBOR plus 1.55%. The ACC3 Term Loan matures on March 27, 2018, and we may prepay the ACC3 Term Loan at any time, in whole or in part, without penalty or premium. The Operating Partnership has guaranteed the outstanding principal amount of the ACC3 Term Loan, plus interest and certain costs under the loan.
The ACC3 Term Loan imposes financial maintenance covenants relating to, among other things, the following matters:
consolidated total indebtedness of the Operating Partnership not exceeding 60% of gross asset value of the Operating Partnership;
fixed charge coverage ratio of the Operating Partnership being not less than 1.70 to 1.00;
tangible net worth of the Operating Partnership being not less than $1.3 billion plus 80% of the sum of (i) net equity offering proceeds and (ii) the value of equity interests issued in connection with a contribution of assets to the Operating Partnership or its subsidiaries; and
debt service coverage ratio of the borrower not less than 1.50 to 1.00.
We were in compliance with all of the covenants under the loan as of March 31, 2015.
Unsecured Term Loan

We have an unsecured term loan facility (the "Unsecured Term Loan"), which has a total commitment and amount outstanding of $250 million. The Unsecured Term Loan matures on July 21, 2019, and we may prepay the facility at any time, in whole or in part, without penalty or premium.
Under the terms of the Unsecured Term Loan, we may elect to have borrowings under the loan bear interest at either LIBOR or a base rate, which is based on the lender's prime rate, in each case plus an applicable margin. Prior to our receiving an investment grade credit rating, the applicable margin added to LIBOR and the base rate is based on the table below.  

18


 
 
 
 
Applicable Margin
Pricing Level
 
Ratio of Total Indebtedness to Gross Asset Value
 
LIBOR Rate Loans
 
Base Rate Loans
Level 1
 
Less than or equal to 35%
 
1.50
%
 
0.50
%
Level 2
 
Greater than 35% but less than or equal to 40%
 
1.60
%
 
0.60
%
Level 3
 
Greater than 40% but less than or equal to 45%
 
1.75
%
 
0.75
%
Level 4
 
Greater than 45% but less than or equal to 52.5%
 
1.90
%
 
0.90
%
Level 5
 
Greater than 52.5%
 
2.10
%
 
1.10
%
The applicable margin is currently set at pricing level 1. The terms of the Unsecured Term Loan also provide that, in the event we receive an investment grade credit rating, borrowings under the loan will bear interest based on the table below.
 
 
 
 
Applicable Margin
Credit Rating Level
 
Credit Rating
 
LIBOR Rate Loans
 
Base Rate Loans
Level 1
 
Greater than or equal to A- by S&P or A3 by Moody’s
 
0.825
%
 
0.00
%
Level 2
 
Greater than or equal to BBB+ by S&P or Baa1 by Moody’s
 
0.875
%
 
0.00
%
Level 3
 
Greater than or equal to BBB by S&P or Baa2 by Moody’s
 
1.00
%
 
0.00
%
Level 4
 
Greater than or equal to BBB- by S&P or Baa3 by Moody’s
 
1.25
%
 
0.25
%
Level 5
 
Less than BBB- by S&P or Baa3 by Moody’s
 
1.65
%
 
0.65
%
Following the receipt of such investment grade rating, the terms of the loan provide for the adjustment of the applicable margin from time to time according to the rating then in effect.

The Unsecured Term Loan is unconditionally guaranteed jointly and severally, on a senior unsecured basis by DFT and the direct and indirect subsidiaries of DFT that guaranty the obligations of the Unsecured Credit Facility (as defined below).

The Unsecured Term Loan requires that we comply with various covenants that are substantially the same as those applicable under the Unsecured Credit Facility, including with respect to restrictions on liens, incurring indebtedness, making investments, effecting mergers and/or asset sales, and certain restrictions on dividend payments. In addition, the Unsecured Term Loan imposes financial maintenance covenants substantially the same as those under the Unsecured Credit Facility relating to, among other things, the following matters:

unsecured debt not exceeding 60% of the value of unencumbered assets;
net operating income generated from unencumbered properties divided by the amount of unsecured debt being not less than 12.5%;
total indebtedness not exceeding 60% of gross asset value;
fixed charge coverage ratio being not less than 1.70 to 1.00; and
tangible net worth being not less than $1.3 billion plus 80% of the sum of (i) net equity offering proceeds after March 21, 2012 and (ii) the value of equity interests issued in connection with a contribution of assets to the Operating Partnership or its subsidiaries after March 21, 2012. 

The Unsecured Term Loan includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations under the loan to be immediately due and payable.
We were in compliance with all of the covenants under the loan as of March 31, 2015.
Unsecured Notes due 2021
On September 24, 2013, the Operating Partnership completed the sale of $600 million of 5.875% unsecured notes due 2021 (the "Unsecured Notes due 2021"). The Unsecured Notes due 2021 were issued at face value and mature on September 15, 2021. We pay interest on the Unsecured Notes due 2021 semi-annually, in arrears, on March 15th and September 15th of each year.
The Unsecured Notes due 2021 are unconditionally guaranteed, jointly and severally on a senior unsecured basis by DFT and certain of the Operating Partnership’s subsidiaries, including the subsidiaries that own the ACC2, ACC4, ACC5, ACC6,

19


VA3, VA4, CH1, NJ1 and SC1 data centers and the SC2 land (collectively, the “Subsidiary Guarantors”), but excluding the subsidiaries that own the ACC3 and ACC7 data center facilities, the CH2 data center under development, the ACC8 land, our taxable REIT subsidiary, DF Technical Services, LLC and our property management subsidiary, DF Property Management LLC.
The Unsecured Notes due 2021 rank (i) equally in right of payment with all of the Operating Partnership's existing and future senior unsecured indebtedness, (ii) senior in right of payment with all of its existing and future subordinated indebtedness, (iii) effectively subordinate to any of the Operating Partnership's existing and future secured indebtedness and (iv) effectively junior to any liabilities of any subsidiaries of the Operating Partnership that do not guarantee the Unsecured Notes due 2021. The guarantees of the Unsecured Notes due 2021 by DFT and the Subsidiary Guarantors rank (i) equally in right of payment with such guarantor's existing and future senior unsecured indebtedness, (ii) senior in right of payment with all of such guarantor's existing and future subordinated indebtedness and (iii) effectively subordinate to any of such guarantor's existing and future secured indebtedness.
At any time prior to September 15, 2016, the Operating Partnership may redeem the Unsecured Notes due 2021, in whole or in part, at a price equal to the sum of (i) 100% of the principal amount of the Unsecured Notes due 2021 to be redeemed, plus (ii) a make-whole premium and accrued and unpaid interest. The Unsecured Notes due 2021 may be redeemed at the Operating Partnership's option, in whole or in part, at any time, on and after September 15, 2016 at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the 12-month period commencing September 15 of the years indicated below, in each case together with accrued and unpaid interest to the date of redemption: 
Year
Redemption Price
2016
104.406
%
2017
102.938
%
2018
101.469
%
2019 and thereafter
100.000
%
If there is a change of control (as defined in the indenture governing the Unsecured Notes due 2021) of the Operating Partnership or DFT, we must offer to purchase the Unsecured Notes due 2021 at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest. In addition, in certain circumstances we may be required to use the net proceeds of asset sales to purchase a portion of the Unsecured Notes due 2021 at 100% of the principal amount thereof, plus accrued and unpaid interest.
 
The Unsecured Notes due 2021 have certain covenants limiting or prohibiting the ability of the Operating Partnership and certain of its subsidiaries from, among other things, (i) incurring secured or unsecured indebtedness, (ii) entering into sale and leaseback transactions, (iii) making certain dividend payments, distributions, purchases of DFT's common stock and investments, (iv) entering into transactions with affiliates, (v) entering into agreements limiting the ability to make certain transfers and other payments from subsidiaries, (vi) engaging in sales of assets or (vii) engaging in certain mergers, consolidations or transfers/sales of all or substantially all assets. However, DFT may pay the minimum dividend necessary to meet its REIT income distribution requirements.
The Unsecured Notes due 2021 also require the Operating Partnership and the Subsidiary Guarantors to maintain total unencumbered assets of at least 150% of their unsecured debt on a consolidated basis. The Unsecured Notes due 2021 also have customary events of default, including, but not limited to, nonpayment, breach of covenants, and payment or acceleration defaults in certain other indebtedness of ours or certain of our subsidiaries. Upon an event of default, the holders of the Unsecured Notes due 2021 or the trustee may declare the Unsecured Notes due 2021 due and immediately payable. We were in compliance with all covenants under the Unsecured Notes due 2021 as of March 31, 2015.
Unsecured Credit Facility
We have an unsecured revolving credit facility ("Unsecured Credit Facility") with a total commitment of $560 million. The Unsecured Credit Facility matures on May 13, 2018 and includes a one-year extension option, subject to the payment of an extension fee equal to 15 basis points on the total commitment in effect on such initial maturity date and certain other customary conditions. At our option, we may increase the total commitment under the facility to $800 million, if one or more lenders commit to being a lender for the additional amount and certain other customary conditions are met. We may also prepay the facility at any time, in whole or in part, without penalty or premium.
We may elect to have borrowings under the facility bear interest at either LIBOR or a base rate, which is based on the lender's prime rate, in each case plus an applicable margin. Prior to our receiving an investment grade credit rating, the applicable margin added to LIBOR and the base rate is based on the table below.  

20


 
 
 
 
Applicable Margin
Pricing Level
 
Ratio of Total Indebtedness to Gross Asset Value
 
LIBOR Rate Loans
 
Base Rate Loans
Level 1
 
Less than or equal to 35%
 
1.55
%
 
0.55
%
Level 2
 
Greater than 35% but less than or equal to 40%
 
1.65
%
 
0.65
%
Level 3
 
Greater than 40% but less than or equal to 45%
 
1.80
%
 
0.80
%
Level 4
 
Greater than 45% but less than or equal to 52.5%
 
1.95
%
 
0.95
%
Level 5
 
Greater than 52.5%
 
2.15
%
 
1.15
%
The applicable margin is currently set at pricing level 1. The terms of the facility provide for the adjustment of the applicable margin from time to time according to the ratio of the Operating Partnership’s total indebtedness to gross asset value in effect from time to time.
In the event we receive an investment grade credit rating, borrowings under the facility will bear interest based on the table below.
 
 
 
 
Applicable Margin
Credit Rating Level
 
Credit Rating
 
LIBOR Rate Loans
 
Base Rate Loans
Level 1
 
Greater than or equal to A- by S&P or A3 by Moody’s
 
0.875
%
 
0.00
%
Level 2
 
Greater than or equal to BBB+ by S&P or Baa1 by Moody’s
 
0.925
%
 
0.00
%
Level 3
 
Greater than or equal to BBB by S&P or Baa2 by Moody’s
 
1.05
%
 
0.05
%
Level 4
 
Greater than or equal to BBB- by S&P or Baa3 by Moody’s
 
1.30
%
 
0.30
%
Level 5
 
Less than BBB- by S&P or Baa3 by Moody’s
 
1.70
%
 
0.70
%
Following the receipt of such investment grade rating, the terms of the facility provide for the adjustment of the applicable margin from time to time according to the rating then in effect.
The facility is unconditionally guaranteed, jointly and severally, on a senior unsecured basis by DFT and all of the Operating Partnership’s subsidiaries that currently guaranty the obligations under the Unsecured Notes due 2021, listed above.
The amount available for borrowings under the facility is determined according to a calculation comparing the value of certain unencumbered properties designated by the Operating Partnership at such time relative to the amount of the Operating Partnership's unsecured debt. Up to $35 million of the borrowings under the facility may be used for letters of credit.

As of March 31, 2015, a letter of credit totaling less than $0.1 million was outstanding under the facility. As of March 31, 2015, $150.0 million of borrowings were outstanding under this facility. As of May 7, 2015, $180.0 million of borrowings were outstanding under this facility.
The facility requires that DFT, the Operating Partnership and their subsidiaries comply with various covenants, including with respect to restrictions on liens, incurring indebtedness, making investments, effecting mergers and/or asset sales, and certain limits on dividend payments, distributions and purchases of DFT's stock. In addition, the facility imposes financial maintenance covenants relating to, among other things, the following matters:
unsecured debt not exceeding 60% of the value of unencumbered assets;
net operating income generated from unencumbered properties divided by the amount of unsecured debt being not less than 12.5%;
total indebtedness not exceeding 60% of gross asset value;
fixed charge coverage ratio being not less than 1.70 to 1.00; and
tangible net worth being not less than $1.3 billion plus 80% of the sum of (i) net equity offering proceeds after March 21, 2012 and (ii) the value of equity interests issued in connection with a contribution of assets to the Operating Partnership or its subsidiaries.
The facility includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Operating Partnership under the facility to be immediately due and payable. We were in compliance with all covenants under the facility as of March 31, 2015.

21


A summary of our debt maturity schedule as of March 31, 2015 is as follows:
Debt Maturity as of March 31, 2015
($ in thousands)
Year
 
Fixed Rate
 
 
Floating Rate
 
 
Total
 
% of Total
 
Rates
2015
 
$

 
 
$

  
 
$

 

 

2016
 

 
 
3,750

(2)
 
3,750

 
0.3
%
 
1.7
%
2017
 

 
 
8,750

(2)
 
8,750

 
0.8
%
 
1.7
%
2018
 

 
 
252,500

(2)(3)
 
252,500

 
22.7
%
 
1.7
%
2019
 

 
 
250,000

(4)
 
250,000

 
22.4
%
 
1.7
%
2020
 

 
 

 
 

 

 

2021
 
600,000

(1)
 

 
 
600,000

 
53.8
%
 
5.9
%
Total
 
$
600,000

  
 
$
515,000

  
 
$
1,115,000

 
100
%
 
3.9
%
 

(1)
The 5.875% Unsecured Notes due 2021 mature on September 15, 2021.
(2)
The ACC3 Term Loan matures on March 27, 2018 with no extension option. Quarterly principal payments of $1.25 million begin on April 1, 2016, increase to $2.5 million on April 1, 2017 and continue through maturity.
(3)
The Unsecured Credit Facility matures on May 13, 2018 with a one-year extension option.
(4)
The Unsecured Term Loan matures on July 21, 2019 with no extension option.

5. Commitments and Contingencies
We are involved from time to time in various legal proceedings, lawsuits, examinations by various tax authorities and claims that have arisen in the ordinary course of business. We currently believe that the resolution of such matters will not have a material adverse effect on our financial condition or results of operations.
Contracts related to the development of the SC1 Phase IIB, CH2 Phase I and ACC7 Phase II data centers were in place as of March 31, 2015. These contracts are cost plus in nature whereby the contract sum is the aggregate of the actual work performed and equipment purchased plus a contractor fee. Control estimates, which are adjusted from time to time to reflect any contract changes, are estimates of the total contract cost at completion. As of March 31, 2015, the SC1 Phase IIB control estimate was $55.2 million, of which $48.8 million has been incurred. An additional $1.6 million has been committed under this contract as of March 31, 2015. As of March 31, 2015, the CH2 Phase I control estimate was $165.1 million, of which $130.3 million has been incurred. An additional $21.0 million has been committed under this contract as of March 31, 2015. As of March 31, 2015, the ACC7 Phase II control estimate was $39.1 million, of which $1.8 million has been incurred. An additional $12.6 million has been committed under this contract as of March 31, 2015.
In February 2015, we entered into two purchase agreements under which we will acquire two parcels of undeveloped land in Ashburn, Virginia, from entities controlled by Lammot J. du Pont, our Chairman of the Board, and Hossein Fateh, our Vice Chairman of the Board.
One agreement relates to the purchase of a 34.8 acre site that is adjacent to the Ashburn Corporate Center, where our ACC2, ACC3, ACC4, ACC5, ACC6 and ACC7 data center facilities are located, for a total purchase price of $15.5 million. The sole managers of the entity that owns this site are a limited liability company owned solely by Mr. du Pont, which also owns approximately 7% of the seller, and a limited liability company owned solely by Mr. Fateh, which also owns approximately 1% of the seller.
The other agreement relates to the purchase of an 8.7 acre site that is part of the Ashburn Corporate Center and adjacent to our ACC4 and ACC7 data center facilities for a total purchase price of $4.6 million. Mssrs. du Pont and Fateh are the sole managers of the limited liability company that manages the entity that owns this site. Mr. du Pont directly and indirectly owns approximately 23% of the seller, and Mr. Fateh directly and indirectly owns approximately 18% of the seller. In addition, Frederic V. Malek, one of our independent directors, is a non-managing member of the entity that owns this site. Mr. Malek’s sole interest in this entity is the ownership of an approximately 4% non-managing membership interest; he is neither an employee nor an executive officer of this entity. The purchase price for each site was based on an appraisal prepared by an independent appraisal firm.
Concurrent with DFT’s October 2007 initial public offering, we entered into tax protection agreements with some of the contributors of the initial properties including DFT’s Chairman and Vice Chairman of the Board. Pursuant to the terms of these agreements, if we dispose of any interest in the initial contributed properties that generates more than a certain allowable amount of built-in gain for the contributors, as a group, in any single year through 2017, we will indemnify the contributors for a portion of the tax liabilities incurred with respect to the amount of built-in gain and tax liabilities incurred as a result of the

22


reimbursement payment. The amount of initial built-in gain that can be recognized as of January 1, 2015 without triggering the tax protection provisions is approximately 80% of the initial built in gain of $667 million (unaudited), or $534 million (unaudited). This percentage increases each year by 10%, accumulating to 100% in 2017. As of March 31, 2015, none of the tax protection provisions had been triggered and no liability has been recorded on our consolidated balance sheet. If, as of January 1, 2015, the tax protection provisions were triggered, we could be liable for protection on the taxes related to up to approximately $12 million (unaudited) of built-in gain. Additionally, pursuant to the terms of these agreements, we must provide an opportunity for certain of the contributors of the initial properties to guarantee a secured loan and, if we fail to do so, we could be liable for protection on the taxes related to approximately $97 million (unaudited) of remaining minimum liability. The amount of our liability for protection on taxes could be based on the highest federal, state and local capital gains tax rates of the applicable contributor. Any sale by the Company that requires payments to any of DFT’s executive officers or directors pursuant to these agreements requires the approval of at least 75% of the disinterested members of DFT’s Board of Directors.

6. Redeemable noncontrolling interests – operating partnership / Redeemable partnership units
Redeemable noncontrolling interests – operating partnership, as presented in DFT’s accompanying consolidated balance sheets, represent the OP units held by individuals and entities other than DFT. These interests are also presented in the Operating Partnership’s consolidated balance sheets, referred to as “redeemable partnership units.” Accordingly, the following discussion related to redeemable noncontrolling interests – operating partnership of DFT refers equally to redeemable partnership units of the Operating Partnership.
The redemption value of redeemable noncontrolling interests – operating partnership as of March 31, 2015 and December 31, 2014 was $503.9 million and $513.1 million, respectively, based on the closing share price of DFT’s common stock of $32.68 and $33.24, respectively, on those dates.
Holders of OP units are entitled to receive distributions in a per unit amount equal to the per share dividends made with respect to each share of DFT’s common stock, if and when DFT’s Board of Directors declares such a dividend. Holders of OP units have the right to tender their units for redemption, in an amount equal to the fair market value of DFT’s common stock. DFT may elect to redeem tendered OP units for cash or for shares of DFT’s common stock. During the three months ended March 31, 2015, OP unitholders redeemed a total of 18,000 OP units in exchange for an equal number of shares of common stock. See Note 2.

7. Preferred Stock
Series A Preferred Stock
In October 2010, DFT issued 7,400,000 shares of 7.875% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) for $185.0 million in an underwritten public offering. The liquidation preference on the Series A Preferred Stock is $25 per share and dividends are scheduled quarterly. For each share of Series A Preferred Stock issued by DFT, the Operating Partnership issued a preferred unit equivalent to DFT with the same terms.
In 2015, DFT declared and paid the following cash dividends on its Series A Preferred Stock, of which the OP paid equivalent distributions on its preferred units:
$0.4921875 per share payable to stockholders of record as of April 2, 2015. This dividend was paid on April 15, 2015.
Series B Preferred Stock
In March 2011 and January 2012, DFT issued an aggregate of 6,650,000 shares of 7.625% Series B Cumulative Redeemable Perpetual Preferred Stock (“Series B Preferred Stock”) for $166.3 million in underwritten public offerings. The liquidation preference on the Series B Preferred Stock is $25 per share and dividends are scheduled quarterly. For each share of Series B Preferred Stock issued by DFT, the Operating Partnership issued a preferred unit equivalent to DFT with the same terms.
In 2015, DFT declared and paid the following cash dividends on its Series B Preferred Stock, of which the OP paid equivalent distributions on its preferred units:
$0.4765625 per share payable to stockholders of record as of April 2, 2015. This dividend was paid on April 15, 2015.

8. Stockholders’ Equity of DFT and Partners’ Capital of the OP
In 2015, DFT declared and paid the following cash dividend per share on its common stock, of which the OP paid an equivalent distribution on OP units:
$0.42 per share payable to stockholders of record as of April 2, 2015. This dividend was paid on April 15, 2015.

23


In December 2014, the Board of Directors approved a common stock repurchase program to acquire up to $120.0 million of DFT's common stock in 2015. This program was announced on February 5, 2015, and will expire on December 31, 2015. During the three months ended March 31, 2015, DFT repurchased 1,002,610 shares of its common stock, and $88.1 million is still available for repurchase under the program. All repurchased shares were retired immediately, and the OP retired an equivalent number of units.
In connection with the departure of our former chief executive officer, Hossein Fateh, in February 2015, DFT issued the following shares of common stock during the three months ended March 31, 2015, of which the OP issued an equivalent number of units to the REIT:
an award of 55,742 shares of fully vested common stock with a fair value of $1.8 million on the grant date, which was expensed during the three months ended March 31, 2015,
346 shares of fully vested common stock as consideration for Mr. Fateh's continuing service as Vice Chairman of the Board of Directors with a fair value of less than $0.1 million on the grant date, and
320,676 shares of fully vested common stock in connection with the accelerated vesting of certain unvested performance units held by Mr. Fateh. $1.9 million was expensed during the three months ended March 31, 2015 related to the accelerated vesting of these performance units.
Furthermore, $0.3 million was expensed during the three months ended March 31, 2015 in connection with the accelerated vesting of certain unvested stock options held by Mr. Fateh. Mr. Fateh is also entitled to receive a cash severance payment of $1.3 million which was expensed during the three months ended March 31, 2015 and will be paid six months following his separation date.

9. Equity Compensation Plan
In May 2011, our Board of Directors adopted the 2011 Equity Incentive Plan (the “2011 Plan”) following approval from our stockholders. The 2011 Plan is administered by the Compensation Committee of our Board of Directors. The 2011 Plan allows us to provide equity-based compensation to our personnel and directors in the form of stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units, performance-based awards, unrestricted stock, long term incentive units (“LTIP units”) and other awards.
The 2011 Plan authorizes a maximum aggregate of 6,300,000 share equivalents be reserved for future issuances. In addition, shares that were awarded under our 2007 Equity Compensation Plan (the “2007 Plan”) that subsequently become available due to forfeitures of such awards are available for issuance under the 2011 Plan.
The 2011 Plan provides that awards can no longer be made under the 2007 Plan. Furthermore, under the 2011 Plan, shares of common stock that are subject to awards of options or stock appreciation rights will be counted against the 2011 Plan share limit as one share for every one share subject to the award. Any shares of stock that are subject to awards other than options or stock appreciation rights shall be counted against the 2011 Plan share limit as 2.36 shares for every one share subject to the award.
As of March 31, 2015, 3,198,419 share equivalents were issued under the 2011 Plan, and the maximum aggregate amount of share equivalents remaining available for future issuance was 3,101,581.
Restricted Stock
Restricted stock awards vest over specified periods of time as long as the employee remains employed with the Company. The following table sets forth the number of unvested shares of restricted stock and the weighted average fair value of these shares at the date of grant: 
 
Shares of
Restricted Stock
 
Weighted Average
Fair Value at
Date of Grant
Unvested balance at December 31, 2014
323,989

 
$
24.10

Granted
153,655

 
$
32.26

Vested
(124,197
)
 
$
23.78

Forfeited
(888
)
 
$
24.61

Unvested balance at March 31, 2015
352,559

 
$
27.76

During the three months ended March 31, 2015, we issued 153,655 shares of restricted stock, which had an aggregate value of $5.0 million on the grant date. This amount will be amortized to expense over the respective vesting periods, which are

24


typically three years. Also during the three months ended March 31, 2015, 124,197 shares of restricted stock vested at a value of $3.9 million on the respective vesting dates.
As of March 31, 2015, total unearned compensation on restricted stock was $9.0 million, and the weighted average vesting period was 1.7 years.
Stock Options
Stock option awards are granted with an exercise price equal to the closing market price of DFT’s common stock at the date of grant and vest over specified periods of time as long as the employee remains employed with the Company. All shares to be issued upon option exercises will be newly issued shares and the options have 10-year contractual terms. During the three months ended March 31, 2015, no options were granted to employees.
A summary of our stock option activity under the applicable equity incentive plan for the three months ended March 31, 2015 is presented in the tables below.
 
 
Number of
Options
 
Weighted Average
Exercise Price
Under option, December 31, 2014
1,592,854

 
$
19.09

Granted

 
$

Exercised

 
$

Forfeited

 
$

Under option, March 31, 2015
1,592,854

 
$
19.09

 
 
Shares Subject
to Option
 
Total Unearned
Compensation
 
Weighted Average
Vesting Period
 
Weighted Average
Remaining
Contractual Term
As of March 31, 2015
1,592,854

 
$
0.2
 million
 
0.9 years
 
5.9 years
The following table sets forth the number of unvested options as of March 31, 2015 and the weighted average fair value of these options at the grant date.
 
Number of
Options
 
Weighted Average
Fair Value
at Date of Grant
Unvested balance at December 31, 2014
302,324

 
$
5.05

Granted

 
$

Vested
(256,536
)
 
$
5.11

Forfeited

 
$

Unvested balance at March 31, 2015
45,788

 
$
4.75

The following tables sets forth the number of exercisable options as of March 31, 2015 and the weighted average fair value and exercise price of these options at the grant date. 
 
Number of
Options
 
Weighted Average
Fair Value
at Date of Grant
Options Exercisable at December 31, 2014
1,290,530

 
$
5.74

Vested
256,536

 
$
5.11

Exercised

 
$

Options Exercisable at March 31, 2015
1,547,066

 
$
5.63

 
 
Exercisable
Options
 
Intrinsic Value
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining
Contractual Term
As of March 31, 2015
1,547,066

 
$
21.2
 million
 
$
18.99

 
5.9 years

25


Performance Units
Performance unit awards are awarded to certain executive employees and have a three calendar-year performance period with no dividend rights. Performance units will be settled in common shares following the performance period as long as the employee remains employed with us on the vesting date, which is the March 1st date following the last day of the applicable performance period. Performance units are valued using a Monte Carlo simulation and are amortized over the three year vesting period from the grant date to the vesting date. The number of common shares settled could range from 0% to 300%. For performance unit award grants prior to 2014, the vesting amount is dependent on DFT’s total stockholder return compared to the MSCI US REIT index over the three calendar-year performance period.
For performance unit grants awarded in 2014 and 2015, one-half of the recipient's performance unit award is dependent on DFT’s total stockholder return compared to the MSCI US REIT index over the three calendar-year performance period. The other half of the performance unit award is dependent on DFT’s total stockholder return compared to an index of five comparable publicly traded data center companies over the three calendar-year performance period. The following table summarizes the assumptions used to value, and the resulting fair and maximum values of, the performance units granted during the three months ended March 31, 2015.
 
Assumption
Number of performance units granted
48,674

Expected volatility
24
%
Expected annual dividend
5.18
%
Risk-free rate
1.06
%
Performance unit fair value at date of grant
$
38.34

Total grant fair value at date of grant
$1.9 million
Maximum value of grant on vesting date based on closing price of DFT's stock at the date of grant
$4.7 million

During three months ended March 31, 2015, no performance units were forfeited. As of March 31, 2015, total unearned compensation on outstanding performance units was $2.8 million.

For the performance units granted in 2012, based on DFT’s total stockholder return compared to the MSCI US REIT
index return for the period from January 1, 2012 to January 1, 2015, no common shares were issued upon their vesting on
March 31, 2015.

10. Earnings Per Share of DFT
The following table sets forth the reconciliation of basic and diluted average shares outstanding used in the computation of earnings per share of common stock (in thousands except for share and per share amounts):
 
Three months ended March 31,
 
2015
 
2014
Basic and Diluted Shares Outstanding
 
 
 
Weighted average common shares – basic
65,506,028

 
65,348,269

Effect of dilutive securities
950,243

 
475,652

Weighted average common shares – diluted
66,456,271


65,823,921

Calculation of Earnings per Share – Basic
 
 
 
Net income attributable to common shares
$
15,803

 
$
20,045

Net income allocated to unvested restricted shares
(147
)
 
(116
)
Net income attributable to common shares, adjusted
15,656


19,929

Weighted average common shares – basic
65,506,028

 
65,348,269

Earnings per common share – basic
$
0.24

 
$
0.30

Calculation of Earnings per Share – Diluted
 
 
 
Net income attributable to common shares
$
15,656

 
$
20,045

Adjustments to redeemable noncontrolling interests

 
27

Adjusted net income available to common shares
15,656


20,072

Weighted average common shares – diluted
66,456,271

 
65,823,921

Earnings per common share – diluted
$
0.24

 
$
0.30


26


The following table sets forth the number of stock options and performance units that have been excluded from the calculation of diluted earnings per share as their effect would have been antidilutive (in millions):
 
Three months ended March 31,
 
2015
 
2014
Stock Options

 
0.3

Performance Units

 
0.2


11. Earnings Per Unit of the Operating Partnership
The following table sets forth the reconciliation of basic and diluted average units outstanding used in the computation of earnings per unit:
 
Three months ended March 31,
 
2015
 
2014
Basic and Diluted Units Outstanding
 
 
 
Weighted average common units – basic (includes redeemable partnership units and units of general and limited partners)
80,926,265

 
80,956,206

Effect of dilutive securities
950,243

 
475,652

Weighted average common units – diluted
81,876,508


81,431,858

The following table sets forth the number of stock options and performance units that have been excluded from the calculation of diluted earnings per unit as their effect would have been antidilutive (in millions):
 
Three months ended March 31,
 
2015
 
2014
Stock Options

 
0.3

Performance Units

 
0.2


12. Fair Value
Assets and Liabilities Measured at Fair Value
The authoritative guidance issued by the Financial Accounting Standards Board requires disclosure of the fair value of financial instruments. Fair value estimates are subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks, discount rates, and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the amounts are not necessarily indicative of the amounts we would realize in a current market exchange.
The following methods and assumptions were used in estimating the fair value amounts and disclosures for financial instruments as of March 31, 2015:
Cash and cash equivalents: The carrying amount of cash and cash equivalents reported in the accompanying consolidated balance sheets approximates fair value because of the short maturity of these instruments (i.e., less than 90 days).
Rents and other receivables, accounts payable and accrued liabilities, and prepaid rents: The carrying amount of these assets and liabilities reported in the accompanying consolidated balance sheets approximates fair value because of the short-term nature of these amounts.
Debt: The combined balance of our Unsecured Notes due 2021, Unsecured Term Loan, Unsecured Credit Facility and ACC3 Term Loan was $1,115.0 million with a fair value of $1,137.5 million based on Level 2 data. The Unsecured Notes due 2021 were valued based on Level 2 data which consisted of a quoted price for the Unsecured Notes due 2021 from Bloomberg. Because our ACC3 Term Loan, Unsecured Credit Facility and Unsecured Term Loan were refinanced in 2014, we believe that their carrying values approximate each of their fair values as of March 31, 2015. Each of these loans bear interest at LIBOR plus a spread that is consistent with current market conditions.


27


13. Supplemental Consolidating Financial Data for Subsidiary Guarantors of the Unsecured Notes

On September 24, 2013, the Operating Partnership issued the Unsecured Notes due 2021 (See Note 4). The Unsecured Notes due 2021 are unconditionally guaranteed, jointly and severally on a senior unsecured basis by DFT and certain of our subsidiaries, including the subsidiaries that own the ACC2, ACC4, ACC5, ACC6, VA3, VA4, CH1, NJ1 and SC1 data centers and the SC2 land (collectively, the "Subsidiary Guarantors"), but excluding the subsidiaries that own the ACC3 and ACC7 data center facilities, the CH2 data center under development, the ACC8 land and the TRS collectively, the "Subsidiary Non-Guarantors"). The following consolidating financial information sets forth the financial position as of March 31, 2015 and December 31, 2014 and the results of operations and cash flows for the three months ended March 31, 2015 and 2014 of the Operating Partnership, Subsidiary Guarantors and the Subsidiary Non-Guarantors.

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DUPONT FABROS TECHNOLOGY, L.P.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS
(in thousands except share data)
 
March 31, 2015
 
Operating
Partnership
 
Subsidiary
Guarantors
 
Subsidiary
Non-Guarantors
 
Eliminations
 
Consolidated
Total
ASSETS
 
 
 
 
 
 
 
 
 
Income producing property:
 
 
 
 
 
 
 
 
 
Land
$

 
$
79,935

 
$
3,858

 
$

 
$
83,793

Buildings and improvements

 
2,427,990

 
196,973

 

 
2,624,963

 

 
2,507,925

 
200,831

 

 
2,708,756

Less: accumulated depreciation

 
(495,120
)
 
(33,419
)
 

 
(528,539
)
Net income producing property

 
2,012,805

 
167,412

 

 
2,180,217

Construction in progress and land held for development

 
152,820

 
258,050

 

 
410,870

Net real estate

 
2,165,625

 
425,462

 

 
2,591,087

Cash and cash equivalents
19,080

 

 
3,761

 

 
22,841

Rents and other receivables