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Executives

Victoria Baker - Investor and Media Inquiries

Hossein Fateh - President and Chief Executive Officer

Mark L. Wetzel - Executive Vice President, Chief Financial Officer and Treasurer

Analysts

Jordan Sadler - KeyBanc Capital Markets

Omotayo Okusanya - UBS Investment Bank

Irwin Guzman - Citigroup Inc.

Chris Lucas - Robert W. Baird

George Auerbach - Bank of America

DuPont Fabros Technology, Inc. (DFT) Q4 2008 Earnings Call February 12, 2009 10:00 AM ET

Operator

Please stand by. We are about to begin. Good day and welcome to the DuPont Fabros Technology Fourth Quarter 2008 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Vicky Baker of the Financial Relations Board. Please go ahead.

Victoria Baker

Thank you. Good morning everyone and thank you for joining us for DuPont Fabros Technology fourth quarter 2008 results and outlook for 2009 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 limited to two per caller. If you have additional questions, please feel free to return to the queue. Now, I will turn the call over to Mr. Fateh.

Hossein Fateh

Thank you, Vicky, and good morning everyone. Thank you for joining us on our fourth quarter earnings call. As noted in last night press release, we delivered a solid quarter and a full year of operating results.

These results were in line with the high-end of our expectations, provided the earnings call in November. We are very pleased with these results. I want to congratulate all the employee for their hard work last year.

In 2008, we completed our first full year as a public company. Today, we have the right people resources and infrastructure in place to deliver solid result in '09 and beyond.

Given our strong start in 2009, we are optimistic about the wholesales data center space and what future holds. The last six months have been a challenge for all companies including us.

Looking at the big picture, DuPont Fabros business model is a very sound one. We're continuing to strengthen our balance sheet and improve our liquidity. We have a solid tenant base that is expanding on a good demand for our products.

Looking ahead, we believe we will benefit from the limited supply of high quality wholesale data center space coming online over the next few years. Turning to the highlights as noted in last night press release, we paid off in full the Chicago construction loan. This result all near-term debt maturities until August of 2011.

We were able to move all the CH1 lenders to ACC 4 loan, its accordion feature.

In addition, we secure $30 million in financing lastly, and have reinitiated development on ACC5, due to the leak up of over 57% of the building. We expect to compete Phase I of this data center in the third quarter of this year.

As Mark will discuss the $30 million have initial term of one year, but can be extended from up to four additional year.

A company's operating platform of five stabilized wholesale data center has now 97.5% and continues to perform as expected. The base trends in 2009, will generate $93 million in cash and free cash flow will be $40 million not including development cost and dividend payments.

We are very pleased with the leasing program. We've signed pre-leases in the fourth quarter of 2008 as pre-leases serve cost in 2009. A contract value of these leases to the company is approximately $340 million over the respective lease terms.

Let me walk you through each program. ACC4 in Ashburn, Virginia is now 94% leased up, up from 87% lease at the end of the third quarter. We have executed one new lease with the new finance and have only two small parts remaining.

We expect that the lease, the remaining 6% of the facility over the next few months. ACC5 also in Ashburn is now 57% pre-lease up from the zero at the end of the third quarter.

This is the result of three leases with the one new tenant and two existing tenant from ACC4. The decision of these two tenants takes additional safe reduction tenants (ph). We believe, we provide a best-in-class product and operating environment. We expect to continue to see very good organic growth from more existing tenants.

Turning to Chicago, since the end of the third quarter we have leased 10% of CH1. CH1 remains our leasing challenge however, the facility is a great asset and a good long-term market. We continue to see qualified traffic, assigning new leases with enterprise tenants is taking more time in this environment. We remain comfortable with the 24 months leased up from Chicago, its opening in August of 2008.

We continue to see and experience a challenging credit environment. Some forms of limited capital are available but very expensive. I firmly believe that this environment will work to curtail both speculative development, as well as companies that are considering using the wrong balance sheet. With this environment, we provide a strong outsourcing production.

Now, I will turn the call over to Mark, who will take up through our financial results.

Mark L. Wetzel

Thank you, Hossein. Good morning everyone and thank you for joining us on today's call. I want to cover five key topics today.

Our 2008 results, our '09 guidance, capital markets update, in summary of the company's sources and uses of cash, and an update on our 2009 dividend. As a reminder, we will not review the results for the prior year due to the October '07 IPO, as they are not comparable.

For the fourth quarter of '08, the company's FFO was $0.30 per share compares sequentially to $0.31 per share in the third quarter. AFFO is $0.21 per share compares sequentially to the $0.19 per share accordion to the third quarter.

Specific to our Q4 results, compared sequentially to Q3, FFO decreased $0.01 per share. This include Q4 margin from other revenue increase in sequentially of $0.01 per share due to large one-time tenant projects completed in the fourth quarter. This was offset by interest expense increase in $0.02 per share sequentially, due to higher overall debt outstanding and less capitalized interest.

Total interest costs were split 58% expense to the P&L and 42% capitalize for the quarter. For the year, the split was approximately 45% expense and 55% capitalized.

AFFO increased $0.02 per share as cash rents increased quarter-over-quarter. Both FFO and AFFO for the fourth quarter of '08 were in line with the high-end of our expectations.

I would now like to walk you through '09 guidance. Our FFO guidance of $0.96 to a $0.12 per share is based on four main assumptions gets the mid point of our range.

First, our annual revenue forecast calls for approximately 10 million or $0.15 per share of new lease assigned. This is spread out over the last three quarters with Q2 at $0.03, Q3 at $0.05 and Q4 at $0.07.

Second, we assume as of right now that we will not restart either New Jersey or Santa Clara in calendar year 2009, this represent $0.03 per share of operating cost to carry and no interest capitalization on these properties. This assumption could change if we secure pre-leasing and reasonable financing both of which we are working on now.

Third, we expect to place ACC5 in service in Q3 and would not capitalize interest through remainder of the year after as placed service.

And fourth, we project higher interest expense of $0.39 per share as compared to 2008. This is due to higher overall balances, as well as expensing almost 88% of each dollar of interest cost as compared to 45% in 2008, due to the temporary suspension of development. This includes $0.02 for the Chicago deferred loan of cost write-off.

The remaining assumptions are listed on page 14 of this release.

I want to highlight recent capital markets activity that we have accomplished and discussed our number one priority, liquidity. We closed on several critical financing transactions within the past week.

First, we worked with our CH1 construction loan lenders to basically swap their existing commitment out of CH1 and enter the ACC4 term loan. This resulted in a $150 million increase in our ACC4 term loan from a 100 million to 250 million in the full repayment of the $135 million outstanding balance on our CH1 construction well.

This solution was a win-win for all parties. The CH1 lenders benefit from the higher interest rates spread on the ACC4 term loan as they are now at LIBOR plus 350 basis points and as the cash flowing asset is collateral.

DFT received an extended term of 34 months on the 150 million of lender commitments that we shifted from the CH1 construction to the ACC4 term loan. We also received 12 million in net cash proceeds.

We did improved two amendments for the ACC4 loan. First CH1 was added as additional collateral for the ACC4 term loan. However, CH1 can be released from the collateral package at our request subject to its $50 million principle pay down. And second, we agreed to increase the principle amortization during the extension year, the fourth year of the loan by $6 million or $1.5 million per quarter.

I would like to thank this group of seven lenders for the cost displaced in that and also thank our ACC4 original lenders for working with us to complete the transaction.

Regarding to our recent financing transactions, we secured a $25 million for the construction loans secured by ACC5. In addition, we secured a $5 million loan that is secured by Santa Clara land.

Both of these loans have a fixed interest rate of 12% in one year terms, with the ability to extend two years. The only hurdle on the $25 million loan is that we must provide an ACC5 certificate of occupancy within one year in order to receive an automatic two year extension. We are confident, we will meet this hurdle as we plan to complete construction in the third quarter.

We will use these funds exclusively to complete the ACC5 and that portion of our committed cost on Santa Clara. We received $10 million to date and the additional $20 million will be funded as we complete ACC5. We also have two one year extensions for total term of five years. Both loans are pre-payable without NOL (ph).

We have no debt maturities until August of 2011 assuming we satisfy our quarterly financial covenants and expansion conditions. And comfortable, we will continue to meet these covenants dispositions stakes and what I know today.

Liquidity remains our number one priority, so let me walk you through our sources and use the cash for calendar year 2009. Our '09 source is total approximately $134 million. We started the year with 54 million in cash and expect 40 million of free cash flow for dividends. Net proceeds from the capital market's transaction that I referenced totaled 40 million.

Our '09 uses total approximately $120 million. We owed $82 million of construction cost payable at the start of the year, due over the next eight months, $38 million of which has already been paid to date. We plan to spend $34 million to complete ACC5 and replace $4 million in a restricted cash account for the ACC5 at Santa Clara loss.

As a result of what I outlined, we will end the 2009 with approximately $14 million of unrestricted cash and our line availability of $10 million before cash dividend payment.

Finally, I would like to address our dividend policy. Despite our recent financing and leasing transactions, our 2009 liquidity position would be tight and we will monitor it carefully throughout the year. Going forward, and as we have done each quarter since going public, the Board will review all necessary factors regarding the dividend policy and will act appropriately.

As noted in our press release, we are not planning to declare dividend in the first and second quarters. We will revisit our dividend policy in the second half of this year. We are currently estimating $0.20 per share of dividend to meet the 2009 redistribution requirement.

I will now turn the call back over to Hossein.

Hossein Fateh

Thanks, Mark. Before opening the call to questions, I would like to make a few more comments. For 2009, we have four priority areas of focus. We will continue to focus on liquidity, we have been successful in restructuring our near-term debt maturity. We will continue to be proactive in strengthening our balance sheet, as discussed on our next loan maturity is now August of 2011 which is great news for the company. We have been successful in securing to finish ACC5 term financing to finish ACC5. We will complete the development of Phase 1 in the third quarter of this year. We will maximize property operation. We are going to continue to take care of our existing tenants and collect our rent meanwhile controlling expenses.

Lastly, we have enjoyed our best quarter of leasing since going public. We will continue to focus on leasing each and every quarter throughout the year.

With that, we'll happy to open the call up for questions.

Question-and-Answer Session

Operator

Thank you. Today's question-and-answer session will be conducted electronically. (Operator Instructions). And we'll take our first question from Jordan Sadler from KeyBanc.

Jordan Sadler - KeyBanc Capital Markets

Thanks and good morning everybody.

Hossein Fateh

Hi, Jordan.

Jordan Sadler - KeyBanc Capital Markets

I just wanted to on the leases signed, could you maybe characterize the types of tenants, that you signed leases with in the quarter and year-to-date?

Hossein Fateh

Sure, there is of all the leases signed that there are two existing tenants in ACC4 that move to ACC5. One of them is a Internet type company, the other one is Internet based, there is a hedge fund that had signed on the third quarter in ACC5 -- third quarter of last year, and then in ACC4 we have a -- again an internet services company that signed in ACC4.

Jordan Sadler - KeyBanc Capital Markets

And of those tenants, how many of them were new, was it two of them?

Hossein Fateh

Two of them were new, yes.

Jordan Sadler - KeyBanc Capital Markets

The hedge fund and the other one in ACC4.

Hossein Fateh

Yes.

Jordan Sadler - KeyBanc Capital Markets

Okay, and then could you maybe talk about the pipeline, in terms of what you're seeing in demand is it been remained robust or these things just came to provision quickly or is there sort to come?

Hossein Fateh

I mean, a lot of the tenant for ACC4 will have organic growth into ACC5. We've always said, lease up will be bumpy, don't want to be less than the month would be more, this month is one of the month that is more. As regard to pipeline, Virginia we see stronger demand than in Chicago, mostly because it's a Internet, more, Internet based market versus the more enterprise like project. The deals we're currently seeing in Chicago are also a little bit smaller than the deal in Virginia. But, there is moderate demand in Chicago and I would say strong demand in Virginia.

Operator

And we'll take our next question from Omotayo Okusanya with UBS.

Omotayo Okusanya - UBS Investment Bank

Yes, good morning. Congratulations Hossein and Mark for resolving the states one loan situation, that's great news. Couple of quick questions, just in regard the '09 guidance, what assumptions are you making in regards to lease up on CH1 as well as ACC5 by the end of 2009?

Hossein Fateh

I am not sure I followed that. The assumptions with regards to what?

Omotayo Okusanya - UBS Investment Bank

Lease up.

Hossein Fateh

Lease up?

Omotayo Okusanya - UBS Investment Bank

Yeah.

Hossein Fateh

Lease up is bumpy. We're not looking at just '09. Chicago we're still seeing two years from incoming in August of 2008.

Omotayo Okusanya - UBS Investment Bank

Okay.

Hossein Fateh

And we're saying -- we were saying, what we are saying 18 months to two year's in Virginia on any opening of this data center, but with the strong demand in Virginia we feel very comfortable being on the lower end of that range.

We said that it would be roughly $10 million or $0.15 for new lease signed.

Mark Wetzel

Beyond today.

Omotayo Okusanya - UBS Investment Bank

Beyond today, $0.10 to $0.15 more of new leases in '09, for both data centers.

Hossein Fateh

Yeah, basically we only have space in three locations, the 6% remaining in ACC4.

Omotayo Okusanya - UBS Investment Bank

Right.

Hossein Fateh

The remaining space and ACC5 and Chicago.

Omotayo Okusanya - UBS Investment Bank

Sorry, its one

Hossein Fateh

Three of those combined we're saying $10 million or $0.15.

Omotayo Okusanya - UBS Investment Bank

Okay, got it. With ACC5, given your current lease up, are you still seeing development yields of north of 12%?

Hossein Fateh

We're actually seeing, when we're looking at ACC4, we're going to be now hitting 15%.

Omotayo Okusanya - UBS Investment Bank

Okay.

Hossein Fateh

And on ACC5, we expect to be similar or higher, or a little bit higher. Part of that is also the fact that we are on any new data center the fact that we're not capitalizing interest would also add 1% to our development yield for the 15 maybe closer to 16.

Omotayo Okusanya - UBS Investment Bank

Got it. And then with CH1, given that you're seeing smaller tenant emphasis is this space, is there some any current situation being given to reconsidering this space going forward?

Hossein Fateh

We have been able to do that and we are able to cut about 50% of the past and half if we need to or part of it a third and the other parts of two-third, it aspects from two different corridor. So we will take smaller tenant, if -- when does it make sense. Also the fact that we have no lender on it, we would also entertain if necessary shorter-term leases.

Operator

And we'll take our next question from Michael Bilerman with Citi.

Irwin Guzman - Citigroup Inc.

Good morning, it's Irwin Guzman here.

Hossein Fateh

Hi, Irwin.

Irwin Guzman - Citigroup Inc.

Mark, just to review I think I missed the prepared remarks, the 2009 sources are primarily the $80 million of payables related to different construction project and $30 million was to spend on ACC5 is that right?

Hossein Fateh

I'm not sure. Could you repeat that, I'm not sure I heard you.

Irwin Guzman - Citigroup Inc.

In terms of the 2009 usage, I believe what you said was there was $80 million of payables related to Santa Clara and New Jersey and $30 million to $35 million was the complete ACC5, is that right?

Hossein Fateh

That's correct. If you look at our balance sheet there was $82 million of construction cost payable. We've paid about $37 million of that stake, the remaining funding of those across all three assets Santa Clara, New Jersey locations as well as finishing of ACC5 in total is about $30 million to 35 million.

Irwin Guzman - Citigroup Inc.

The expansion on ACC5 it's typical occupancy, does that be benefit to be completely occupied?

Hossein Fateh

No, no just the actual commissioning report and our certificate of occupancy from the local authorities.

Irwin Guzman - Citigroup Inc.

Fair enough.

Hossein Fateh

Just that the building is commission.

Mark Wetzel

That is zero leasing requirements for the expansion.

Irwin Guzman - Citigroup Inc.

Can you just remind is it there, any other assets that are currently incomparable accept for ACC5 as soon get leased up?

Hossein Fateh

Well the New Jersey location, and then we have some land in Northern Virginia. And we restructure the both the 25 million and the 5 billion loan that's pre-payable at any time, so if we lease ACC5 up to 100% quickly and financing credit markets opened up, we could replace that.

Mark Wetzel

Yeah, then Erwin when Chicago is leased up, you know it'll have $25 million of income and we will hoping to of course get more than 50 million of that right, so you know on a asset producing 25 million, you could get more than 50 million for the first 50 million would go to pay down the ACC4 lenders but beyond that the debts could remain on the properties.

Operator

And we'll take our next question from Chris Lucas with Robert W. Baird.

Chris Lucas - Robert W. Baird

Good morning, everyone.

Hossein Fateh

Morning, Chris.

Chris Lucas - Robert W. Baird

Mark, just a point of clarification on the terms adjustments for the ACC4 accordion feature that there is no recourse you've eliminated all of the recourse factors with the pay down on the Chicago is that correct?

Hossein Fateh

That's correct we had a 100 million recourse existing on the ACC4 facility that remains the same, the recourse was on Chicago has been eliminated.

Chris Lucas - Robert W. Baird

Okay, and then just in terms of your plan sort of -- can you walk us through the steps of how you get the decision to start the next project, whether that be the completion of Phase 2 of ACC5 or New Jersey 1 or Santa Clara, what are the steps we need to get to that point?

Hossein Fateh

I mean there are a couple of factors that we want to be a little bit more, we need to be morally in Chicago. So once Chicago is more leased or our risk factor, our risk would be little bit less. And then New Jersey is a very good market and we already have some, Mark with the 150 million in New Jersey?

Mark Wetzel

Yeah about 125.

Hossein Fateh

Yeah, we've already sunk the 125 million end. So, while when we complete New Jersey that project can generate again another $25 million of income for us so, we do want to get there, so part of it is the availability of financing, the other parts of it will be leased up on our other -- in on our other asset.

Chris Lucas - Robert W. Baird

Are you trying to market the New Jersey at all at this point to develop.

Hossein Fateh

We're talking to tenants all the time.

Chris Lucas - Robert W. Baird

So what do you promise them at this point in terms of delivery timeframe.

Hossein Fateh

Well, it depends how much leasing they can promise us. We could finish that building within -- with three quarters Chris, so within eight to nine month timeline that building can be commissioned. So as a perspective tenant had a need, and we could -- the pre-leasing was there and I'll see the financing can be arranged then we're talking -- you know timeline of nine months.

Operator

And we'll take our next question from George Auerbach with Bank of America.

George Auerbach - Bank of America

Hi. Good morning.

Hossein Fateh

Hi, George. How are you?

George Auerbach - Bank of America

Good, how are you guys?

Hossein Fateh

Good, I'm not used to saying George from Bank of America.

George Auerbach - Bank of America

And now you're saying either. Mark, do you have plans to fix the floating rate on the ACC4 debt, would you intend to be that floating?

Mark Wetzel

We are looking at that as we speak so it's under discussion.

George Auerbach - Bank of America

Okay, and just to clarify on Chris's question just before, the corporate recourse from Chicago 1 is now eliminated, how do you track down to sort of a 5% secured recourse to G&A?

Mark Wetzel

That's right we were 5% at September 30th, we jumped to 10 when we put the 100 million in place, we go back down to 5 as of today.

George Auerbach - Bank of America

Why would your lenders drop the recourse they had it in place. Just given that they -- had a lean on an operating asset as opposed to a construction side?

Mark Wetzel

Well it was a negotiation, we gave them the better asset, '08 better wait, we gave CH1 as collateral and the 100 million was in place on the ACC4 loan. So the term loan to set up, max to 100 when we did that loan, we assumed we're going to raise 250 in the first place, so we always envisioned 40% of recourse.

Hossein Fateh

And then George, as you know, a property that's fully leased, there is less risk for the lenders, so they have to set a side less reserve, so obviously it's a more profitable loan with them its not just that they're getting more points on it, is that its also a less risky loan, so they're getting the similar profitable loan for them.

Operator

And we'll take our next question from Rupesh Sahu (ph) with KeyBanc Capital.

Unidentified Analyst

Good morning. Thanks for taking my questions.

Mark Wetzel

Good morning.

Unidentified Analyst

My first question is about the most recently signed leases, specifically the one with track base for the 11,000 square feet, at the ACC4. Could you maybe provide a little more detail on the pricing or terms of that lease? For example what was the rent per megawatt of critical load or per square foot and how does that compare to the already space?

Hossein Fateh

We do not break out individual tenant rent, but we can tell you that the overall return on ACC4 has been better then we expected, we projected on our IPO being around 12% yield. We now are comfortable in saying that it will be approximately a 15% yield.

Unidentified Analyst

15%, it sounds great. Also, just a quick question on the FFO. Looking at your our guidance of $0.96 to $1.12 for the full year, I guess it's fair to assume that you will be exiting 2009 at a probably higher rate, could you give us a little sense of where you would, where the FFO would be exiting 2009?

Unidentified Analyst

I didn't break it, I mean I gave full year guidance. I didn't break it out by quarter, but we will -- we are positioning ourselves to have a very good 2010, both on a FFO run rate as well as the AFFO run rate.

Operator

And we'll take our next question from Sat Roche at SRD (ph).

Unidentified Analyst

This is Sat Roche from Carrel (ph). We understand that Microsoft and Google build and use their own data centers and have an economic buyers to continue to do so. What are the percentage of the victory in the present lease structure?

Mark Wetzel

Well, the big carriers still are roughly 69%. And it will go down accordingly. So that's what we've disclosed, as those two roughly are 69% as of September 30th.

Hossein Fateh

Don't also forget that the leases in term we have are all with both Microsoft and Yahoo! are higher than or longer than eight years, still remaining of our leases higher than eight years. The average lease term is higher than eight years. So we're not really worried about that and the reason that percentage will go down is not necessarily because they are not growing with us, is that we have many other tenants that will be growing.

Unidentified Analyst

What is your assumption through future occupancy and the type of tenants that will be leasing, will be attracted to the facility?

Hossein Fateh

I think in Virginia there will be numerous Internet type tenants, in Chicago more enterprise type tenants. And it's in our guidance that after delivering Virginia will be about 18 months lease up from the date of delivery. So in Chicago, we're still saying about two years from when we deliver the building. The leasing will be bumpy. It's not going to be a straight drive, this quarter for example has been on the high side of that bump.

And we have to remember the leasing that we've disclosed in this press release, it was roughly 14.4 megawatts of the available space which is in four Chicago and five. We've leased over 38% of our available stake that was -- that's out there, I mean, in roughly 12% of the total megawatts of the 100, roughly 90 megawatts if you fill an ACC5 in Chicago.

Yes, so I wouldn't expect this type of leasing every quarter. This has been on the high side of the bump.

Operator

And we'll take a follow-up question from Jordan Sadler with KeyBanc.

Jordan Sadler - KeyBanc Capital Markets

Yes, I might have missed this. On the ACC4, the accordion feature, what is the -- what are the new -- what were the fees in rate?

Mark Wetzel

Well, we received that proceeds of about $12 million. So the rate is LIBOR plus 350 consistent. Everybody stepped into the same shoes of the original lenders. So therefore pursue in all rights and for the LIBOR plus 350 and the fees were consistent with the original loan terms.

Jordan Sadler - KeyBanc Capital Markets

And then on -- just declare it by an SC1 and NJ1, will you continue to capitalize any portions of the expenses...

Mark Wetzel

We would like to Jordan, but with this temporarily suspended, we are projecting the operating cost of roughly $0.3 for 2009 and we are not capitalizing at this point.

Jordan Sadler - KeyBanc Capital Markets

You're not capitalizing?

Mark Wetzel

That's correct.

Jordan Sadler - KeyBanc Capital Markets

And when you say you'd like to a decision hasn't been made?

Mark Wetzel

No, the decision is made that you -- we can because we're in suspension mode, but if we get some pre-leasing, we get some new financing, ideally, roughly on the same parallel path, then we will restart and do at that point.

Jordan Sadler - KeyBanc Capital Markets

And ACC5 you're assuming continued to be capitalize until the third quarter.

Mark Wetzel

Yes, we basically step up accrual out there, even during this temporary shutdown because we thought we will get this done and we did, so we're back, yes it will be capitalize through Q3.

Jordan Sadler - KeyBanc Capital Markets

So, what was the -- you mentioned something about two large one tenant, one-time tenant project in the fourth quarter?

Hossein Fateh

Yeah that's sitting on the line item on the P&L other revenues, we do accelerate projects for tenants who have specific needs inside their specific space. They bided out, we bid on, we may win 70%, 80% of those bids but it's not -- nothing that we can on a recurring basis maintain at the current run rate that's why we lower that number for 2009 as compared to 2008.

Operator

And we'll take our next follow-up question from Omotayo Okusanya with UBS.

Unidentified Analyst

Hi it's actually Salomon, behalf of Omotayo. Just in regards the covenant on the 30 million -- two loans totaling 30 million that you just signed, could you shed some light on more covenants shed on those as well as the conditions ten to which the loans can be extended?

Mark Wetzel

Yes, well let's take the 5 million loan there's really no covenants other than we make payments each and every quarter over the term. The $25 million loan has only one covenant or a condition, I'd call it and that is that we -- within one year of the date of the loan, we'll provide a commission reports last certificate of occupancy that the buildings open and ready for it's intended use.

We planned to finish that building in the third quarter of '09 here, so we don't have any issues with that and so in our minds that the automatic two year extension is -- will be fair in the two one year extension beyond that is as long as we make the fees payments every quarter those will be extended. So there is no debt service coverage ratio or anything of that nature, nor any leasing covenants.

Unidentified Analyst

Got you. And the quarterly payments on that 5 million loan with today amount do.

Mark Wetzel

Well 5 million to 12%.

Unidentified Analyst

Its 12 Okay,

Mark Wetzel

Yeah 12% per year,

Unidentified Analyst

Got you. Okay, and just in regards the funding sources from potentially restarting Santa Clara as some of these available source willing to provide more money to restart Santa Clara?

Mark Wetzel

At the moment, I would say financing is extremely tough. They will depend on the level of pre-leasing. I don't think we're alone in this market, the lack of financing for building project, so we will continue to evaluate that as we go forward we are not -- at the moment we have not projected, we starting those two projects in '09 but depending on leasing and the availability of financing that may change.

Unidentified Analyst

Got you. Last question, can you just shed some light on the market, rental rate you're seeing in New Jersey, Virginia and Santa Clara, Chicago leasing spread ways?

Hossein Fateh

Virginia remains consistent. We are seeing the same rates on a ACC5, except with the normal 3% escalator that's on ACC4, so those rates are just continuing from one building to other, Chicago we think is similar, New Jersey, everything is more expensive in New Jersey. But, we haven't seen the huge -- we haven't seen any decline in market rents. What we are seeing is a surprise restriction in all markets, especially Northern Virginian in that development on, especially private sector has absolutely come to a halt and many public companies are also restricting the development.

For the lack of supply has led to a increase in leasing. And we will continue to see that, to design and buy a piece of land for data center. It takes one year, it takes another year to build it, we probably will not have financing available for a year or two. So that means we will continue to see a restricted supply for three to four year.

Operator

And will take our next question from Jonathan Start with SMS Partners (ph).

Unidentified Analyst

Hi, two questions. Number one, you said that the Chicago market is more enterprise focused whereas Virginia is more Internet focus. I was wondering what's the New Jersey and the Santa Clara market like?

Hossein Fateh

Santa Clara is very much Internet. New Jersey we see a lot of banking and a lot of outsourcing of financial types of information. For example, you may see someone like an HP that is doing outsourcing work for some of the financial institutions in New Jersey. Santa Clara is a very similar to Virginia in its tenant's base.

Unidentified Analyst

Okay. And then the -- I guess another thing that's been going on in the REIT space right now as I'm sure you guys are aware a lot of REIT have decided to conserve cash and payout their dividend in terms of equity? You guys have said you're not going to pay dividend for the first two quarters, but is that something you guys would consider down the line and how would you think about that?

Mark Wetzel

Our preference is to pay that dividend in cash and but we will discuss it with the Board in the third and fourth quarter.

Unidentified Analyst

Okay. Thank you.

Operator

(Operator Instructions). We'll now take a follow-up question from Chris Lucas with Robert W. Baird.

Chris Lucas - Robert W. Baird

Thanks. Two real quick questions that are really clarification. Hossein, on the lease up path that ACC5, the 18 months say plan there, is that just for Phase 1, or is that Phase 1 and Phase 2?

Hossein Fateh

Just for Phase 1, and we're being conservative with lease up 18 months. But we still have another six, seven months of pre-leasing. So that is a very, very comfortable number. But it's totally for Phase 1.

Chris Lucas - Robert W. Baird

Okay. And then Mark, sort of related question on the capitalized interest, as it relates to ACC5, is it possible to split the Phase 1 from Phase 2, or is it all combined?

Mark Wetzel

Well as we develop it Chris it's capitalized dropped, just remaining six, seven months in 2009.

Chris Lucas - Robert W. Baird

Right, but did you get the July, August timeframe, you deliver space to the leased tenants in Phase 1. I'm assuming they will be continued activity within Phase 2, they are on separate tracks right now correct?

Mark Wetzel

That is correct, but we'll get Phase 2 to a point where we won't go forward. So we'll have it ready and positioned to start it again. So there will be unless pre-leasing really takes off between now and then the Phase 2, just the reminder of the year on capitalized interest.

Chris Lucas - Robert W. Baird

Okay. And then just on the ancillary projects that were completed during the quarter, I guess, what is the amount that you included in guidance for '09?

Mark Wetzel

I think were 6 to 7 million. So it's less than 2009 but again that's -- you have to think of the margin on that, because the expenses related to those projects persuading another expense. So we're making anywhere of 10% to 20% margin on that revenue.

Chris Lucas - Robert W. Baird

Okay, but 6 to 7 million of revenue is this just of '09 guidance.

Mark Wetzel

I said 6 to 8.

Chris Lucas - Robert W. Baird

Okay. Thank you.

Operator

And we'll take our next question, it is a follow-up from Jordan Sadler with KeyBanc.

Jordan Sadler - KeyBanc Capital Markets

Sorry guys, I just wanted to address the liquidity one more time, I think you have, you worked through 2009, what is sort of like the liquidity target for you guys. How are you thinking about how you want to position the company, for 2010 beyond because you know obviously you're in a position where you could continue to run on course tight. a number of year potentially depending on what happen to credit market, given sort of the development pipeline. And I'm just counting where do you want to be positioned come the end of this year looking forward into 2010 this is where we stand.

Mark Wetzel

We talk about that all the time, we talked to the Board about that, we needed to strengthen our balance sheet, specifically the right side of it. So, we're -- the goal for the menu of '09 is the focus on leasing, finish 5 and -- the idea of starting a new development on a spec basis without pre-leasing, is going to be hard to deal with at this point, but we're looking to strengthen the balance sheet.

Jordan Sadler - KeyBanc Capital Markets

Do you want to have like the line clean down or like term down at that point before you go ahead and have just another term loan?

Hossein Fateh

Jordan that's only an option I think the real issue is we want to have as much as liquidity as possible without having to really dilute shareholders significantly. Jordan the idea of issuing additional debt or preferred share or something what we have to pay north of 10%, so we can pay the line down that it's roughly LIBOR plus in great rate, LIBOR plus under 2. That doesn't make a lot of sense to us. So, it is -- as you said running full, running tight, but we're not going to belong the borrow money elsewhere so we can pay the line down.

Jordan Sadler - KeyBanc Capital Markets

Great, but how do you avoid the situation that happened sort over the last several months where, there is obviously the -- overly concerned or hyper concerned with your 2009 debt maturity. How do you see those setting up for 2010 and 11, how do you avoid the same situation?

Mark Wetzel

I think it's early, I mean we will. We talked about that a lot. So we'll, as the year progresses, we will look to do that. At this early stage, we literally just closed these loans in the last week and that was our focus for several months. And so now we have to sit down rethink what 2010 looks like, as well as reason (ph).

Hossein Fateh

Well, I mean, that will depend on the volume of leasing that we can get in Chicago on ACC5. Those are, each of those projects when fully leased and generate approximately $25 million of income. And when the income is in place there could be sources to borrow again that income.

Jordan Sadler - KeyBanc Capital Markets

How pre-lease need to be the start New Jersey?

Hossein Fateh

Depends on the credit, and we'll depend also on us feeling comfortable where we are with Chicago. So it depends on the credit of the tenant signing for New Jersey. Also we'll depend on how much leasing was done in Chicago. And the availability of finance, even if you wanted to do it, it may not be available at regular rates. I mean we see money available, in some instances 18% to 22%, but we made the conscious decision right after our earnings fell last time, not to take that expensive money.

Operator

And we'll take our next question from Jim Mulched with Mulched Financial (ph).

Unidentified Analyst

It seems like you guys have got a phenomenal plan in place to be able to capture a lot of a key niche in the data center market. But you're being heavily restricted by the capital market. And you can't help but observe that there was lot of insider buying going up through December 4th, and it's stopped.

Traditionally, that's a result of the insiders being restricted from buying and one can help but guess that it might be, because you're considering taking the company private. At what time would you look at the -- where the stock price where is that, it's obviously got to be more difficult to get financing. Is there any -- can you give us any idea as to what your thoughts would be as you when if might be wise to just take the company private at a better price because the capital markets are just not allowing you to build out your development plan and then down the road take it public again?

Mark Wetzel

I think that will be a very difficult challenge, taking the company private. That is not our intent. We actually see better financing available for public companies and for private companies. So going one of the reasons we went public is to access a broader financing market. When we were... consider this as a private company we dealt with four banks. And I don't want to name them, but all four of them are either not in existence or very -- or have no balance sheet to lend, so that's really not in the game plan to do that.

So we monetize (ph) on a significant amount of equity in the company, both and our intention is to grow the company as a public company. The financing would definitely be more difficult than the private company. The share price is attractive, but the financing market would be even tougher. And that's primary why many of our private competitors have been stopped, dead end in the water and development.

Unidentified Analyst

All right. Is the share price a major issue to you?

Mark Wetzel

If we're knowing.

Unidentified Analyst

I can imagine, but not as far as getting funding as concerned?

Mark Wetzel

Well, I mean when it gets into the very low digit, it does start -- when people are worried about future existence of the company, it becomes an issue. But from now that we have no, we don't have a halo over our head any more with the Chicago issue gone. So we don't expect this to be an issue now.

In fact, our credits -- our tenants and with that type of credit and the length of our leasers were in a very strong financial position to get more attractive debts on winning us the market we were trying.

Unidentified Analyst

Okay. Thank you.

Operator

And it appears we have no further questions at this time. I'd like to turn the conference back over to Mr. Hossein Fateh for any additional closing remarks.

Hossein Fateh

Thank you for joining us on the call today.

Operator

Thank you. That does conclude today's conference. We want to thank you for your participation. And you are now free to disconnect.

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