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Executives

Vicky Baker - Financial Relations Board

Hossein Fateh – President, Chief Executive Officer

Mark Wetzel – Treasurer, Chief Financial Officer

Analysts

George Auerbach – Merrill Lynch

Jordan Sadler – Keybanc Capital Markets

Omotayo Okusanya – UBS

Irwin Guzman – Citi

Chris Lucas - Robert W. Baird

Brendan Maiorana – Wachovia

Michael Bilerman – Citigroup

Chris Haley – Wachovia

Dupont Fabros Technology (DFT) Q3 2008 Earnings Call November 6, 2008 10:00 AM ET

Operator

Please stand by. We are about to begin. Good day and welcome to the Dupont Fabros Technology third quarter 2008 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Vicky Baker of the Financial Relations Board. Please go ahead, ma'am.

Vicky Baker

Thank you. Good morning everyone and thank you for joining us for Dupont Fabros Technology third quarter 2008 results conference call. Our speakers today are Hossein Fateh, the company's President and Chief Executive Officer and Mark Wetzel, the company's Chief Financial Officer and Treasurer.

This release is available in PDF format in the Investor Relations section of the company's corporate website at www.dft.com. Certain matters discussed during this conference call may constitute forward-looking statements within the meaning of federal securities laws.

These forward-looking statements are subject to certain risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. Additionally, this call contains non-GAAP financial information of which explanations and reconciliations to net income are contained in the company's earnings issued earlier today.

To manage the call in a timely manner, questions will be taken in random order and limited to two per caller. If you have additional questions, please feel free to return to the queue. Now, it is my pleasure to turn the call over to Mr. Fateh.

Hossein Fateh

Thank you, Vicky and good morning, everyone. Thanks for joining us on our search for the earnings call. As noted in last night's press release, we delivered solid operating results for the quarter. These results were in line with our expectations. We also celebrated DFT's one year anniversary as a public company last month and I think our team on achieving that milestone.

We have accomplished a great deal to date. We also recognize that we have a lot to do going forward. Today, we have stabilized oscillating platforms for five wholesale data processors. Four are 100% leased and the fifth is at 87.5% leased.

We have virtually no receivables and zero bad debt. 2009, lease plans, assuming no changes to the in-place leases or new leases after today will generate $89 million in cash. This is an increase of $17 million, compared to 2008.

In addition, we have completed and opened our data center in the metro Chicago area during third quarter, below-budget and on-time adding 22% available critical load to our portfolio. We have also signed two new leases in the fourth quarter, representing 9.5% of CH1.

In spite of a longer sale cycle for enterprise tenants, we continue to see interest in CH1. We remain comfortable with a 12% unlevered, stabilized return on CH1, based on the leases executed. We continue to perform at CH1 to be 100% leased over the next 21 months.

The development of our two data centers in Virginia and New Jersey are on track, on time and under budget. We have also signed our first lease of ACC5 in the fourth quarter, representing 7% pre-leasing of the building so far.

We tightened the budget range for both our projects from the estimates provided in the second quarter release. This lowers the total cost mid-point range by 75 million or 20%. ACC5 in Virginia should be completed at the end of the first quarter 2009 and NJ1 in New Jersey in the third quarter of 2009.

It's cost-savings is a direct reflection of the effort and experience of our development team. We announced on October 27th that we have raised an additional 100 million of secured debt on ACC4 prototype data center in Ashburn, Virginia. This represents only a 15% loan to value on an 87% occupied data center with quality tenants and long-term leases.

As Mark will discuss later in the call, we are active in securing additional capital and remain cautiously optimistic. Also announced in our October 27th press release, because the loan proceeds were less than we had hoped for, we have temporarily suspended our Santa Clara development.

We continue to believe this is an excellent site and will look to re-start when the capital market shows improvement and we obtain new capital. Also by that time, we are confident that we will have executed additional leases within our available inventory.

We also would consider a joint venture or similar structure in order to obtain third party construction finance. We will continue to evaluate our options within the current environment. We also continue to have discussions with perspective tenants regarding Santa Clara and will pre-lease when appropriate.

Like many companies, we're navigating through an incredibly challenging credit environment. The good news in this credit crunch is that over the next several years, it will curtail the introduction of speculative supplies. This environment should maintain the supply/demand in balance that we in place and should support attractive pricing for wholesale data center space.

In addition, companies that in the past may have used their own balance sheets to build new data centers will now look to us as an outsourcing solution. Just over the last few weeks, we're seeing increased interest from companies that were previously in discussion with private developers. These developers are now unable to complete their projects.

We're also seeing increased interest from companies that are revisiting the outsource as a build model. To a large expect, much of our competition comes from tenants wanting to build themselves. The current environment has somewhat eliminated this option. We suspected that the credit crunch would create more demand for outsource.

The profile of the recent tours demonstrates that our suspicions have been confirmed. We expect 2009 to be a challenging year in terms the overall economy and business environment. We will give 2009 earning guidance in our fourth quarter call in February. Therefore, our comments today both prepared and during the Q&A, will be based on how we see things today and through the next 60 days.

Liquidity is clearly valuable in this environment. As announced last night in our press release, we will not pay a fourth quarter dividend. We believe it's prudent to suspend the $12.6 million cash payment, having met the 2008 REIT test. We will address the 2009 dividend on the fourth quarter call in February.

With that said, I will continue to strongly believe the following: one, we are in the right market. Two, our core assets are all performing well. Three, we have well-planned, ideally-positioned assets for delivery in 2009. Four, there will be very little new product sales over next several years, which should create additional demand for our products. Five, a leasing timeframe of 18 to 24 months remains prudent at this point with regard to lease up of the development properties from the time they are placed in service. And lastly, we're seeing very efficient, high-quality, unique construction on both ACC5 and New Jersey, resulting in overall savings.

Now, I will turn the call over to Mark, who will take us through our financial results for the quarter and perhaps, more importantly, our liquidity position.

Mark Wetzel

Good morning, everyone and thank you for joining today's call. These challenging times for the economy and the capital markets have created a heightened focus on liquidity across all companies.

As a one-year-old public company, with a sizeable development pipeline supplying access to the capital markets, we are clearly focused on our liquidity. With that in mind, I want to summarize DFT's cash position, our funding needs and our plans to meet those needs over the next 12 months and beyond.

I would first like to talk about our operating results and guidance for the remainder of the year. As a reminder, and as explained on the last earnings call, we will not review the comparative results from the prior year due to the October '07 IPO.

For the third quarter of '08, the company's funds from operations were $0.31 per share, compared to $0.35 per share in the second quarter of '08. AFFO for the third quarter was $0.19 per share, compared to $0.21 per share reported in the second quarter. Both FFO and AFFO for the third quarter of '08 were in line with our expectations.

Specific to our Q3 results, a $0.04 FFO decrease as compared to Q2 is a result of our Chicago facility, $0.01 for operating expenses and $0.03 for interest expense for the two months. Other variances sequentially include recoveries from tenants and property operating expenses. These increased in sync as compared to Q2 and are a result of increased, direct tenant electricity usage.

Direct electric represents approximately 50% of both recoveries from tenants and property operating costs on the P&L. As a reminder, tenant electricity usage is a direct pass-through with no mark-up and no management fee.

Q3 other revenue drop sequentially due to the large tenant project that should be completed in the fourth quarter. Q3 G&A decreased sequentially due to tax accrual adjustments and interest expense increased sequentially due to higher overall debt outstanding and the allocation of interest capitalized. Our total interest costs were split approximately between the P&L and what was capitalized for the quarter.

On a net basis, we hit our expected Q3 FFO results and we are maintaining our full year 2008 FFO guidance of $1.24 to $1.30 per share. We expect to hit the midpoint of that range, having achieved FFO of $1.00 per share through the first nine months of the year. Other revenue should finish the year north of 10 million and G&A should come in around 11 million for the year.

As Hossein stated earlier, we will provide '09 FFO guidance on our fourth quarter call in February. Now, I would like to discuss our liquidity and uses of capital for the near term. By way of background from the IPO, we are a growth development company. Our business plan was to build highly specialized, secure, wholesale data centers. These are used by technology and enterprise companies to house power and cool to computer service that support their critical business prophecies.

This is a capital-intensive business and we fund from our balance sheet. We build data centers that house mission-critical servers. We believe the obsolescence risk of our buildings is low as we simply provide power, cooling and security. Once built, we must lease the space to high-quality tenants and operate each building in a manner acceptable to each.

Our tenants, which are some of the most sophisticated companies out there, must constantly upgrade the racks of servers they install every three to four years to simply maintain a competitive advantage and avoid obsolescence. We are attempting to create value for our investors through the development of these data centers in four key markets across the country as they coulomb to the internet for both enterprise and internet penance.

We believe there is and will be more demand and supply for wholesale data centers. As we discussed in the last call, we looked to place $300 to $400 million of secured debt, representing an approximate 50% loan to value on ACC4. At that time, ACC4 was an 86% leased asset with quality tenants under long term leases located in Ashburn, Virginia.

We started the Santa Clara project in August '08, simultaneous with the debt raise as we believed and we continue to believe, that this is one of the best markets in the country. And we believed we would raise the debt. The 300 to 400 million would have funded the completion of ACC5 and NJ1 and a substantial part of Santa Clara. Our reliance on third party secured debt financing on a quality asset three months ago did not seem that out of the ordinary to fund a development pipeline. Times have changed quickly, however. Bank balance sheets have shrunk, loan allocations for real estate in '08 are now full and several banks that we were in discussions with have merged or disappeared.

Liquidity is our number one priority. I would like to explain our approach to it. Let's start with the sources and uses for the fourth quarter. As of September 30, 2008, our cash balance was 35 million and our line availability was 40 million, giving us 75 million of liquidity.

We received 96 million of debt proceeds from a secured loan we announced on October 27th. We forecast excess Q4 operating cash flow to be approximately 19 million. Total sources in the fourth quarter are 190 million, exclusive of any new capital.

As for uses, we will spend about 165 million in the fourth quarter. This includes 145 million for the two development projects without slowing down and the committed cost to close out Santa Clara plus Q4 interest cost of 7 million and the Q3dividend of 12.6 million paid in October. The result of all this is a total liquidity at year end of approximately 25 million between cash and our line without any new financing.

We are in active discussions to raise funds to apply the secured line accordion feature under our ACC4 credit agreement. In addition, earlier this week, we signed a non-binding letter of intent for $150 million of mezzanine financing with a large pension fund. While no assurances can be made, we are optimistic that we can obtain funds under both agreements.

With our current liquidity and a capital raise of at least $150 million, we will be fully funded to complete our development projects on time and on budget and to fund all of our Santa Clara committed costs.

While we have some challenges ahead, there are four positive fundamentals to remember. First, our operating cash flow from our existing stabilized portfolio is healthy and sufficient to cover all the company's G&A, debt service, and our revised dividend policy for the foreseeable future.

Microsoft and Yahoo! remain our two largest tenants and account for 69% of our annualized rent. This is down from 86% at our October '07 IPO as we continue to diversify our tenant base as we execute new leases.

Second, we were able to close a $100 million loan in the most challenging credit market that any of us have ever seen. We've established relationships with several new banks and we structured the loan with an accordion feature that will allow us to add new lenders over the next 18 months.

Third, we have no debt maturities until December 2010, assuming financial covenants are maintained or achieved. And fourth, we have no debt on ACC5 or NJ1 or the Santa Clara site. In the event we do not receive any new capital before year end, we will re-evaluate our options at that point.

Once we obtain the needed funds to complete the two developments, we will immediately begin to evaluate other sources of capital to strengthen the right side of our balance sheet. I will now turn the call back over to Hossein.

Hossein Fateh

Thanks Mark. In summary, I would like to reiterate four key points. We remain active with leasing. We executed one lease in Q3 and have executed three leases so far in Q4. Today, our stabilized portfolio is 94.5% leased. Our Chicago facility is 9.5% leased and we pre-leased 7% of ACC5. Since the beginning of Q3, a total of 3.6 megawatts of critical load has been leased. We are continuing to work very hard to execute leases and were optimistic with the increased level of interest on site tours.

Two, access to capital in general remains a concern in this environment; however, we hope to secure at least $150 million of new financing before the next earnings call.

Three, the supply and demand parameters are still in our favor as there are significant barriers to entry in the wholesale data center space, especially in this credit market.

And four, we remain on track to meet our 2008 guidance. One final point before opening up the call for questions, Mark and I will be at (inaudible) later this month and hope to see you there. Please email Vicky Baker if you'd like to schedule a meeting.

Operator, with that we will happy return to open up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We'll take our first question from George Auerbach with Merrill Lynch.

George Auerbach – Merrill Lynch

Hi, good morning.

Mark Wetzel

Hi, George.

George Auerbach – Merrill Lynch

Wondering if you could walk us through how you were able to cut 20% off of the construction costs for New Jersey 1 and ACC5. Can you give us specific examples how the team's effort and experience translated into a $75 million savings?

Hossein Fateh

Sure. One was that we were probably a little bit conservative when we gave out original estimates because it's better to be conservative rather than being aggressive on those numbers. Two, the current market -- we have a highly specialized team that's building the same product in ACC5 and in New Jersey that we've already built. Although there was a list of 250 items that we improved, essentially, it's the same building. So, we're cutting and pasting the same building we've already built in Virginia into two locations.

We have gotten better -- at each building we're getting better and are implementing new procedures that take up less labor to build it. For example, on construction, you can dig the pit and pre-wire, pull the wires through the conduits before you place the equipment there. That saves time and time is money. So, at every turn, our method is to reduce the number of labor hours it takes to build the data centers.

Lastly, with the current economic environment, we're also able to get better quality labor and use less overtime to build the project, so instead of getting 400 people to work during the day and 100 people to work at night, you could sometimes get 500 people to work during the day and pay less overtime.

George Auerbach – Merrill Lynch

If these are all operational efficiencies —

Hossein Fateh

These are operational efficiencies --

George Auerbach – Merrill Lynch

-- as opposed to cutting back on --

Hossein Fateh

Yes, and also we're building the same building so, there are more and more methods that we realize that we can implement. At each turn we're getting better at building it.

George Auerbach – Merrill Lynch

Okay and also, Mark, a question with the balance sheet, the supplemental notes that you're able to extend the maturities on the constructional end of the revolver, subject to certain customary covenants, can you walk us through these covenants and also does the extension option require lender consent as well or does it automatically trigger if you meet those covenants?

Mark Wetzel

Well, there's two different ones you got to look at. We'll take the Chicago loan first because that's the one that expires December of '09. There's basically six conditions for extension. Five of them are fairly straight-forward in terms of we issued a certificate of occupancy, notices, fees, no defaults. There's a debt service coverage ratio that we have to meet on a go-forward basis, on a forward-looking basis in 2010.

So, the challenge between now and next year is Chicago, while we've preformatted to be timeframe from an occupancy perspective, over 21 months, we need to hustle this 2009 calendar year to get there. So, we do have a debt service, a 1.5 debt service coverage ratio on a forward-looking basis in 2010.

Specific to the term loan in the revolver, it's really a function of continuing to meet those quarterly covenants as we go forward, so that one's probably a little easier to meet.

Hossein Fateh

Yes, on the term loan and the revolver on the four stabilized assets, that's almost a given we can meet those because they're 100% leased building and the leases go on for an average of approximately 8 more years, so that one is the obvious one that could be extended from August of 2010 to August of 2011.

George Auerbach – Merrill Lynch

Okay, just to clarify, so these do trigger if you hit those covenants?

Hossein Fateh

Yes, on the term loan and the revolver, it's an automatic that we can get the extension.

George Auerbach – Merrill Lynch

Okay, thank you.

Operator

We'll go next to Jordan Sadler with Keybanc Capital Markets.

Jordan Sadler – Keybanc Capital Markets

Hi, thanks, guys for the detail.

Hossein Fateh

Sure.

Mark Wetzel

Morning.

Jordan Sadler – Keybanc Capital Markets

Mark, could you, in the press release, I think as of today or yesterday, whenever it was issued, I think you said you had $100 million in cash and 10 million of availability on the line. Could you, maybe -- so that's a snapshot of your liquidity as of today, what is left to spend on New Jersey 1 and ACC5 today?

Mark Wetzel

We tend to deal with a monthly invoice from each of our two -- both projects -- a monthly invoice from our general contractor so that those two months, December's still kind of opened, October's invoice is in hand. It's roughly, I believe, around 40 million and so the remaining difference, it sort of maps into what I said, we would spend about 145 for the quarter. So, December's still projected to be roughly the difference to get us at the liquidity perspective at roughly the 20, 25 million at year end.

Jordan Sadler – Keybanc Capital Markets

You have 20, 25 million in net cash at year end?

Jordan Sadler – Keybanc Capital Markets

Yes.

Jordan Sadler – Keybanc Capital Markets

That's kind of what you bridged to, but then, how much additional spending would be required on those two projects beyond year end?

Mark Wetzel

We believe that we need roughly, as I said, about 150 million that will give us cushion a little bit to finish both projects -- as well as the Santa Clara's monies because we have some money to close out that deal for the rest of this year ago —

Jordan Sadler – Keybanc Capital Markets

I guess I'm not understanding, because you're saying there's 150 million of additional proceeds you'd need to raise. You mothballed Santa Clara, but I guess you're throwing that into the money you need to as funding in order to complete Santa Clara.

And so, it's not clear to me whether or not Santa Clara, number one, is Santa Clara mothballed or not? Number two, how much of the proceed do you need -- how much money do you need right now to finish ACC5 and New Jersey and sustain yourselves until those are leased out?

Mark Wetzel

Well, we need about -- with 100 million in the bank today we need about another 150 million to finish those projects out and to cover the commitments, because we've temporarily suspended Santa Clara, which we obviously will honor our commitments on that asset.

Jordan Sadler – Keybanc Capital Markets

So, approximately 70 million on Santa Clara, temporarily suspended. The commitments -- you owe the construction company another $60 to $70 million is that the right way to read it?

Mark Wetzel

Yes, that's what we said in the footnotes. That's correct?

Jordan Sadler – Keybanc Capital Markets

That's the outstanding payable to the construction company?

Mark Wetzel

That's correct.

Jordan Sadler – Keybanc Capital Markets

Okay and so it's that 60 to 70 plus whatever else you have to spend, which as of September 30th, looked like about $170 million on ACC5 and NJ1.

Mark Wetzel

The simple math way to look at it is if we have 100 million in the bank today, we still need about 150 more to finish this out, including Santa Clara to right side, to finish the developments over the next six to nine months.

Jordan Sadler – Keybanc Capital Markets

And how far along will Santa Clara be at that point, how far away from completion.

Hossein Fateh

Look, Santa Clara, what we purchased is some of the equipment that we're going to store. From that point we would probably need to spend an additional 180 on Santa Clara, 170 to finish it, so Santa Clara is absolutely being mothballed. The additional 150 that we will raise will get us 100% through building of New Jersey and ACC5 and any additional costs that we need to spend on Santa Clara. So, the additional 150 will get us through the business plan of finishing both projects.

Jordan Sadler – Keybanc Capital Markets

Okay, so with that 150, how much cash will be left over to fund the dividend? In other words, how long will you be able to --

Mark Wetzel

Well, the 150, George, is strictly focused on the development needs. Cash flow from operations for next year will easily cover all the G&A, all the debt service and the dividend that the board will look at before the next earnings call. The dividend --

Jordan Sadler – Keybanc Capital Markets

Okay, the 150 covers the interest carry and the OpEx carry on all of the development that's —

Hossein Fateh

Yes, and don't forget the developments have zero debt on them, Jordan.

Jordan Sadler – Keybanc Capital Markets

I understand that, but that's pretty tough to come by, it seems.

Hossein Fateh

Like we said, we have signed a non-binding term sheet that we hope that will fund before the next earnings call. Now, what I think the markets are going to appreciate, you could slow down or stop the other developments and as soon as we feel like it's not going to fund, we will certainly do that and we have no problems in stopping a development if we have to.

Jordan Sadler – Keybanc Capital Markets

Right.

Hossein Fateh

But, we don't feel at that point that we're there.

Jordan Sadler – Keybanc Capital Markets

Right. Okay, and what are the expected terms of that 150? Can you give us any color?

Mark Wetzel

It's mezzanine financing. It could be more expensive than what we just placed, but it's going to be low double digits.

Jordan Sadler – Keybanc Capital Markets

What's the term or tenure of it?

Mark Wetzel

It's longer than the three-year money that we just obtained.

Jordan Sadler – Keybanc Capital Markets

Okay. Have you guys considered asset sales at all?

Hossein Fateh

We certainly have and that's on the books, and we certainly could sell of the single purpose or some of the single tenant buildings and those buildings clearly have investment grade credits inside those. So we certainly could sell three assets that are investment grade credit, but we need to -- we certainly could, but we don't feel at the moment that we need to.

Jordan Sadler – Keybanc Capital Markets

Right, but if you approached either the existing tenants or other potential buyers?

Hossein Fateh

No, we have not because we don't need to at this point.

Jordan Sadler – Keybanc Capital Markets

Right. On the dividend, you touched on it. It's going to be addressed before the next conference call and it's going to be function of liquidity?

Mark Wetzel

It has to be. The board will go through the '09 process of building a budget, looking at development and obviously, the liquidity specific to the development is what we're chasing right now, but the dividend will be some amount that the board will approve and we will address it before on the year-end call.

Jordan Sadler – Keybanc Capital Markets

And lastly, Hossein, it looks like you've got a little bit of momentum on the leasing here, is this something we should that can be sustained here, that's sustainable in terms of this volume?

Hossein Fateh

We certainly believe that the amount of outsourcing we're seeing is increasing, especially in Chicago, in ACC5. We're also seeing a few deals that are rather than one or two megawatts, there's a handful of deals that we're tracking that's in the six to ten megawatt range. So, it will be bumpy, but we do see an increase in leasing activity.

Jordan Sadler – Keybanc Capital Markets

Okay, thank you.

Operator

(Operator Instructions). We'll take our next question from Tayo Okusanya with UBS.

Tayo Okusanya UBS

Yes, good morning, couple of questions, when I think about the dividend policy going into '09. Could you give us a sense, right now, of the difference between your FFO number and your taxable ETS number since it's just 90% of the taxable ETS that you have to pay out?

Mark Wetzel

At this point, Tayo, it's sort of hard to sit here and give a projection. I really don't want to get into the '09 numbers at this point.

Tayo Okusanya UBS

Well, what about on a '08 basis? You've already met your'08 distribution requirements. It means the taxable ETS is running much, much lower than the FFO. Can you give us a sense by how much?

Mark Wetzel

We've constantly met that. As you can guess, with the IPO and with the operating partnership structure, the GAAP versus the tax depreciation, there's a lot of variables to get to that number, but we constantly met that for 2008.

Tayo Okusanya UBS

But, could you give us a sense of what the GAAP ETS is versus the taxed ETS in a 9/30 or year-to-date number?

Mark Wetzel

I don't have that handy, but again, we constantly met it and the board weighed in that it was prudent to suspend the dividend for Q4.

Tayo Okusanya - UBS

Right. But I understand that, but I'm just trying to get a sense of how large that difference is running at this point in the time so that it gives me a some sense of just that what kind of decisions you may make about the dividend going forward.

Mark Wetzel

All I can tell you, Tayo, is we met it comfortably, the '09 results, depending on how lease-up goes and how the liquidity is then we'll re-address it at year-end.

Hossein Fateh

Tayo, part of the -- I think by addressing the liquidity concerns on the 150, that's also going to be related to what our dividend policy is going to be.

Tayo Okusanya - UBS

Right, I mean, I understand that, but the dividend policy at that are very minimum, you need to pay out 90% because absolute EPS will remain (inaudible).

Mark Wetzel

Absolutely. We will do that.

Tayo Okusanya - UBS

And I'm just trying to figure out what that minimum threshold is, because you've obviously met it this year already.

Mark Wetzel

Tayo, I simply would reiterate that we met it comfortably and '09 will look different than '08.

Operator

And we'll take our next question from Michael Bilerman with Citi. (Operators Instructions) We go next to Michael Bilerman with Citi.

Irwin Guzman – Citi

Good morning, it's Irwin Guzman here with Michael. Just a question on the disclosure in the supplemental. The $132 million of investment in the future development projects, how much of that is associated with Santa Clara .

And just to clarify your answer to Jordan's question earlier. The 150 million would that take care of just your existing liability to the construction companies or would that get you through to completing Santa Clara?

Mark Wetzel

No, no. It will not get us through the completing Santa Clara. It will finish ACC5 through commissioning. It will finish New Jersey through commissioning and it will fund the 60 to 70 million that we said that we owed at September 30th specific to Santa Clara. So, that's really the reason we suspended Santa Clara because we really need another 180 or whatever, 180 million roughly to finish the Santa Clara projects.

Irwin Guzman – Citi

And the 132 million on the construction schedule, how much of that is Santa Clara?

Hossein Fateh

That's roughly about $55 million.

Irwin Guzman – Citi

Okay, so it'll be 55 million plus the roughly 60 million liability plus another 100 million to finish it for that project.

Hossein Fateh

Oh, no. The 50 million includes the land purchase obviously and it accrues from a kind of CIP prospective. So there's accruals in there, but roughly the commitments were the 60 million.

Irwin Guzman – Citi

Right, so it would be the 50 million that you've spent -- in terms of what the total value or what your total basis in the asset would be upon completion, it would be the 50 million that's already been spent, the 60 million that you owe the construction company and then you said, I think the figure you said was another $180 million beyond that to complete the asset. Is that right?

Hossein Fateh

Yes, but we're not going to finish Santa Clara. We're going to wait until (inaudible) to date..

Irwin Guzman – Citi

Right.

Hossein Fateh

So Santa Clara is on hold. So the 150 we're raising right now will get us through the completion of New Jersey and ACC5 in Virginia. In other words, the 55 million has probably $15 million worth of accruals in it.

Irwin Guzman – Citi

Right.

Hossein Fateh

So, what we could just assume is only New Jersey and ACC5 will be completed assuming we get the 150 that we're optimistic on going forward with the executed non-binding letter we have.

Irwin Guzman – Citi

My final question is, you mentioned the 165 million of used in the fourth quarter, the vast majority of which would be for the development pipeline. Given the cash position for that and the very difficult environment that were in and sort of the difficulty that you had in extracting financing from ACC4 or coupled with what could potentially be a problem with expanding the Chicago facility based and we're leasing those, you mentioned that you had no problems putting off development in the event that you have liquidity.

I'm wondering why you're not deciding today to sort of stop spending that money, that 165 million, 145 of which will be construction spend in the fourth quarter until you secure the 150 million of Mez financing or sort of you have the cash to take you through the next 12 months.

I'm just wondering why you would spend in advance of that and at what point you'll sort of get to the point where you decide that it's worth sort of putting off the other two development as well.

Hossein Fateh

I think we feel very, very comfortable that the 150 is retrievable, but due the reasons I can't go on this -- due to reasons I can't explain on this call. We feel very comfortable in getting the 150. If we felt there was a moderate risk of not getting the 150, we would certainly stop one or both of the projects.

Irwin Guzman – Citi

Okay, thank you.

Operator

And we'll go next to Chris Lucas with Robert W. Baird.

Chris Lucas - Robert W. Baird

Good morning, guys. Sort of a follow up question for New Jersey and ACC5, what is the capital commitment that you have outstanding if you stop the project today? This is hypothetical obviously, but if you stop today what additional capital commitments do have to outlay to make whole on your equipment purchases as well as the contractor related fees?

Hossein Fateh

I don't have if we have that at our fingertips. It's obviously the majority of the equipment has been procured and paid for on those assets. So a lot of 2009 represents labor dollars, with regards to the work the needs to be completed at those projects.

So whether its 50% of the dollars in 2009, that's probably a mid-point that, I guess, I'm comfortable with, but we haven't mapped out exact dollar-for-dollar because it's procured through our general contractor and obviously we've been in discussions with them.

But as we look into'09, we look at our operating cash flow, its 150 we feel good about, but again there's no assurances. I would say 95% of the equipment iss already been paid for. So it's pretty much when we stop we're simply stopping labor.

Chris Lucas - Robert W. Baird

Okay. And then just Mark, can you just give me a little bit more color on the current situation with the line of credit, specifically the line was 275, but you reported that under the current covenant limitations that's restricted to 244, what's the specific covenant issue there?

Mark Wetzel

It goes back to the IPO when the barring base was set and it basically had a limit that based on GAB. So the sum of the term loan or whatever we bar on the line was capped at a limit of 444. So if it's really something at the point the IPO was a pricing decision of weight versus additional capacity, and it was 70% pre-IPO and it dropped to 65% at the post-IPO.

Chris Lucas - Robert W. Baird

Okay, so that's been in place for awhile?

Mark Wetzel

It has.

Chris Lucas - Robert W. Baird

Okay. And then is Lehman still a participant in the line, and if so by how much?

Mark Wetzel

We have 12 banks in the line. Lehman was one of 12. They had a 10% amount on the 275. Half of it was funded, so, the amount that they did not fund or will not fund at this point was 12.5 million.

Chris Lucas - Robert W. Baird

Was that factored in to the 244?

Mark Wetzel

No. I mean that's really in my mind that 12.5 sort of fits in the 240. I mean the barring base says 244, so the 12.5 is not factored in the 244.

Chris Lucas - Robert W. Baird

Okay. And then my last question, quickly. What would be the collateral for the Mezzanine loan?

Mark Wetzel

The collateral will be ACC4.

Chris Lucas - Robert W. Baird

Okay. Thank you

Mark Wetzel

The ACC4, at this point has a $100 million on it. We have an appraisal on it of 680 million and we can easily put another 150 on top of that. So we'll have a total of -- if we get nothing more on the revolver, a total of 250, if we get those full value, we'll have 340 million on ACC4, which will be up to 50%.

Chris Lucas - Robert W. Baird

Thank you.

Operator

We'll now take a follow up from George Auerbach with Merrill Lynch.

George Auerbach - Merrill Lynch

Hi, just one quick follow up. The pricing on Mez debt. A recent piece of Mezzanine financing on one of the best retail sites in New York has a yield north of 14%, what gives you comfort that you'll be able to secure similar terms on ACC4?

Hossein Fateh

Our term sheet is a little bit lower than that. It's in the low double digits.

George Auerbach - Merrill Lynch

So it's five or plus 1,000 or so?

Hossein Fateh

A little bit less than that but I don't want to go into the details of that.

George Auerbach - Merrill Lynch

Okay, thank you.

Operator

And we'll go next to Chris Haley with Wachovia.

Brendan Maiorana – Wachovia

Thanks, good morning. It's Brendan Maiorana with Chris. A question on CH1. What is at your underwriting pro forma, the 12% return, what is the amount of leasing that you need to have in-hand at 12/31/09 to be able to extend to meet the 1.5x debt service coverage to extend that construction financing?

Hossein Fateh

It's got to be north of 80%, 85% of full.

Brendan Maiorana – Wachovia

So, getting that--

Hossein Fateh

Assuming that the tenants that we just signed up, if you would take those two tenants and kind of pro forma that out, we would needed to get north of 80%, 85%.

Brendan Maiorana – Wachovia

And given that, Hossein it sounds like they're a couple of big fish out there that you're looking at and you've made some good leasing progress to date, but it's been a little bit slower maybe then what you would have expected 12 months ago and'09 looks to be, some of a challenging year. Why won't you be a little more aggressive on rate there to (inaudible) that extension or maybe even make it a little bit more probable particularly given the LPD level that you got on ACC4?

Hossein Fateh

We will not lose the deal based on price. But the deal we have, there's almost, I mean, there's someone's looking for nine megawatts, there isn't another nine megawatt that exist. So we will not lose the deal based on competition or price. But there's not much other supply out there.

Brendan Maiorana – Wachovia

And just so I'm clear, it just needs to be a signed lease as of 12/31/09 to calculate that forward expected EBITDA or what's the mechanics?

Mark Wetzel

If you go into the details of those covenant agreements, it talks about forward-looking 12 months on a occupancy basis. So, we will plan that we won't get there, as we start '09 and again there's leasing is --the prospects are there, it's just a question of closing some deals in 2009. But we'll have re-approached looking our balance sheet in 2009, we'll plan that we will not get there, but we think we can get there.

Brendan Maiorana – Wachovia

Mark, what would be your contingency plans if you're not able to extend that debt facility for another year?

Mark Wetzel

It will just really depends what opens up in 2009. I don't think anything is off the table in terms of-- that would be a building that could potentially be JV that would be simply a replacement piece of data if we could obtain it.

The issue of an equity offering is not out of the question as we go in to 2009. But right now, the focus is to lease it up and from the options available, whether its equity, whether its preferred stock, whether it's a piece of new term debt or JV, I don't think that we're looking at anything that -- depends what's out there.

Brendan Maiorana – Wachovia

Okay, thank you.

Operator

We'll now take a follow up from Tayo Okusanya with UBS

Tayo Okusanya - UBS

Yes. A quick follow up. In regards to the line of credit, the line at one point added $ 200 million accordion that does not seem to be factoring into any of your liquidity calculations. Just talk a little bit about what happened in regards to that.

Mark Wetzel

Sure, Tayo. This is Mark. The 200 million accordion, we would have to add an encumbered asset into the line and we would have to obtain approval from each of the syndicated -- each of the banks in that line. The pricing on that was probably a low mark when we just put in placed a year ago, it's about 150 over. So, it's not out of the question and if we leased up ACC5 in 2009, that absolutely could be an option.

Tayo Okusanya - UBS

If you lease of ACC5, you might encumber it to get the accordion. But what would slicing look like at that point to access the accordion, would it change?

Mark Wetzel

We would have to get lender approval to have a change and as we all know banks are looking to -- they would be afraid, it would be a negotiation.

Tayo Okusanya - UBS

Okay. But it would definitely go up from the LIBOR plus 150 right now?

Mark Wetzel

I would assume so.

Tayo Okusanya - UBS

All right. My other question from the past Mark, I'll just take it offline with you, I'm not quite sure you understand what I'm trying to get to, so I'll just take it offline and we'll talk later.

Mark Wetzel

Okay. That will be fine.

Operator

And we'll now take a follow up from Michael Bilerman with Citi.

Michael Bilerman – Citi

Yes, I'm wondering, the $100 million loan that you just secured, is that recourse to the company?

Hossein Fateh

Yes, certainly a recourse amount at 100 million, but if we add accordion money, it's 100 million fixed.

Michael Bilerman – Citi

So, what does that do -- how high up does that get you to your secured recourse that's across benefit value covenant?

Hossein Fateh

We will still have room in our covenant.

Mark Wetzel

Yes, we still have growth.

Hossein Fateh

Plenty of growth. We still have plenty of room in our covenant.

Michael Bilerman – Citi

Thank you.

Operator

And we'll take another follow up from Jordan Sadler with KeyBanc Capital Markets.

Jordan Sadler - KeyBanc Capital Markets

Thanks. Can you guys give us some color on how many participant banks there are in the Chicago construction loan?

Mark Wetzel

Yes, I think we have nine banks from Chicago construction loan.

Jordan Sadler - KeyBanc Capital Markets

Okay. The other question I had is just, I'm not sure if I missed this. The ability to upsize your accordion, the secured term loan up to 250, what's the likelihood that you'll secure some additional lenders in that facility?

Hossein Fateh

Let me just take this. Assuming we get the 150 it's very likely that we'll get another $70 million, $80 million there.

Jordan Sadler - KeyBanc Capital Markets

Okay.

Hossein Fateh

A couple of the banks are waiting for the Mezzanine to come in before they come in.

Jordan Sadler - KeyBanc Capital Markets

Seventy to 80 million.

Hossein Fateh

Yes, and maybe even we'll get up to 90, but we will never -- I mean, assuming we get the 150, there was a covenant in there that in total it cannot go more than 340. So the maximum we can get is 90 million

Jordan Sadler - KeyBanc Capital Markets

And that covenant would be on that secured term loan or the Mez?

Hossein Fateh

On both.

Jordan Sadler - KeyBanc Capital Market

Both, okay.

Mark Wetzel

And Jordan, there's only seven banks from Chicago, not nine.

Jordan Sadler - KeyBanc Capital Markets

Seven banks. Okay. The Mez loan, is there any restrictions or negative pledge on securing additional debt below the 150 or that's allowed to go up to 240?

Hossein Fateh

No. I mean the total loan cannot go more than 340.

Jordan Sadler - KeyBanc Capital Market

Oh, the total.

Hossein Fateh

Yes. So, 340 minus 150 is 190, 190, we already have 100, so the maximum amount on the accordion it will be an additional 90.

Jordan Sadler - KeyBanc Capital Market

I'm with you. Okay, I got it. And then separately on -- when do you expect to have a little bit more color? When do you think you'd have a commitment on the Mez loan?

Mark Wetzel

Absolutely before the next call and hopefully sooner.

Jordan Sadler - KeyBanc Capital Market

And then separately, just on the leases that were signed in this quarter, can we get a little bit of color on rate? (Inaudible) rents versus --

Hossein Fateh

Oh, we're meeting our 12% on all of them and it's very likely and since this was the very beginning, the first leases of the very building, we felt that we're meeting 12% easily on those, but since there was first leases in the building it's very likely, that the future leases may be a higher rent. So we may do much better than 12%.

Jordan Sadler - KeyBanc Capital Market

Okay. What are the nature of the tenants you say end up in 3Q and 4Q?

Hossein Fateh

Let me just address that in the ACC5 tenants that's financial related. The Chicago tenants, both of them are infinite. The tenants that we signed up in ACC4 was also infinite.

Jordan Sadler - KeyBanc Capital Market

Thank you.

Operator

And we go next to Chris Haley with Wachovia.

Chris Haley – Wachovia

Hi, it's Chris.

Hossein Fateh

Hi, Chris.

Chris Haley – Wachovia

Is there any restriction for you guys to take your company private? Becuase you have 30 million share, 30, 35,million shares that are not owned by you guys already, a $100 million today? Is there anything regarding your covenants or –

Hossein Fateh

Not with (inaudible). We could do it. I mean, I'd feel bad for the investors because with the price, I could easily do it. It's tempting at the moment.

Chris Haley – Wachovia

So, from a commitments on NNC there's not a problem in going back to private structure, I'm just interested in terms on how far along you may have gone in this process knowing that obviously a lot has changed in the last month to two months from the equity price, but is this something that, you and we should be thinking about more readily.

Hossein Fateh

At the moment we feel very confident about our 150. At the moment, I mean, we're running the business not necessarily running the stock price. And in the business we feel leasing has picked up. We will access the $150 million that we need and hopefully some of the accordions below that.

And then our business plan is fully funded and we will have the -- what we feel are the best data sensors in the country in the most ideally located (inaudible) locations in the market that no one else in the country is building so we'll have product. So, no matter what the stock price says, we're very optimistic about the business. Now, everything is for sale everyday, but the business plan is being executed.

Mark Wetzel

Chris, the loan we just secured on ACC4 does have a covenant in there that we have to be a New York Stock Exchange listed company. So, we would have to deal with that piece of debt, 100 million. But in terms of the other debt, we're fine.

Chris Haley – Wachovia

Okay. Related to the equipment agreement with Santa Clara, could you expand on is there any revenue producing -- is there any return in the short run off of that capital or it simply some cost into a project that is now being delayed.

Mark Wetzel

It's temporarily suspended, so it's some cost right where I guess it is.

Hossein Fateh

I mean, if we needed to we could sell some of the generators, but that's not on the plan because generators have a very long lease time. So we could recover some of it if we wanted to, but at the moment that's not on the plan.

Chris Haley – Wachovia

Okay, thank you.

Operator

We go next to Chris Lucas with Robert W. Baird.

Chris Lucas - Robert W. Baird

Two quick questions, and one just a follow on that, as it relates to Santa Clara. Those costs -- do you --because the project's suspended, are those cost expensed are does it continue to be capitalized?

Mark Wetzel

No, because we've temporarily suspended that. We'll look for impairment (inaudible) year-end. But we believe that it's the intent of what we want to do in 2009 that that will not be expensed. It will go through the drill of the impairment process.

Chris Lucas - Robert W. Baird

Okay. On the lease you guys did at ACC5 was relatively small, why there and not try to essentially fill up ACC4?

Hossein Fateh

Two isues. One is they didn't need the building until early next year. And secondly, there is a couple of slight modification in the intellectual design that makes it somewhat superior to ACC4.

Chris Lucas - Robert W. Baird

Okay. Thank you.

Mark Wetzel

It was really a timing issue when they wanted the product and we couldn't guarantee it in 4, because the goals -- there's a lot of people looking at 4 right now, feel that.

Chris Lucas - Robert W. Baird

Okay, thanks a lot, guys.

Operator

And with no further questions from the audience, I'd like to turn the call back over to Hossein Fateh.

Hossein Fateh

Thank you for joining us today. We look forward to seeing in San Diego later on this month. Please feel free to call us with any questions. Thank you.

Operator

That does conclude today's teleconference. Thank you for your participation, you may now disconnect your lines.

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