DuPont Fabros Technology Inc. Q4 2009 Earnings Call Transcript

Feb.11.10 | About: DuPont Fabros (DFT)

DuPont Fabros Technology Inc. (NYSE:DFT)

Q4 2009 Earnings Call

February 11, 2010; 10:00 am ET

Executives

Hossein Fateh - President & Chief Executive Officer

Mark Wetzel - Chief Financial Officer & Treasurer

Chris Wamke - Investor Relations Manager

Analysts

Jordan Sadler - KeyBanc

Sri Anantha - Oppenheimer & Co.

Mark Montana - Citi

Young Ku - Wells Fargo

David Nebinski - Robert Baird

Romeo Reyes - Jefferies

Jordan Sadler - KeyBanc

Todd Morgan - Oppenheimer & Co.

Brendan Maiorana - Wells Fargo

Operator

Welcome to the DuPont Fabros Technology fourth quarter 2009 earnings conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over Mr. Chris Warnke, Investor Relations Manager; please go ahead.

Chris Warnke

Thank you. Good morning everyone and thank you for joining us for DuPont Fabros Technology’s fourth quarter 2009 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.dfg.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 of 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 release issued at last night. 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.

I will now turn the call over to Hossein.

Hossein Fateh

Thank you Chris and good morning everyone. Thank you for joining us on the fourth quarter earning call. As noted in last night’s press release, we’ve delivered solid operating results for both the fourth quarter ‘09 and the full year ‘09, highlights of our second year as a public company includes.

We recapitalized our balance sheet and positioned ourselves for growth in 2010 and beyond. This recapitalization included raising $700 million of new debt and extending of debt maturities out to an average of 5.7 years as of December 31, 2009. The $550 million of unsecured notes are a new source of funds for us. We were very pleased with the execution of this transaction. This provides DFT with the new source of financing versus relying solely on secured syndicated short term bank debts. Mark will provide the details later in the call.

We increased revenues 15% to over $200 million. We executed 15 leases creating over $800 million in future contract value to the company. We completed the development of ACC5 Phase I. We commenced development on two more projects, ACC5 Phase II and New Jersey Phase I and we restarted the cash dividend for our shareholders. I want to thank all of our employees for their dedication and hard work.

With the federal government closed for four days this week numerous brownouts and blackouts throughout Northern Virginia would continue to operate our buildings with no service interruptions. During the last quarter, we remained focused on leasing taking care of our customers and obtaining new financing. This strengthened our balance sheet and will view our development growth.

Leasing activity continues to be favorable, four new leases and one renewal were signed during the fourth quarter. Knowing where the new enterprise customers and three with existing customers. The weighted average term of the new leases is 10.9 years. There are no leases expiring in 2010 and only two leases expiring in 2011, one at the end of the first quarter and one at the end of the third quarter respectively. These leases represent less than 2% of our annual base rent.

At the end of the fourth quarter, our top three tenants Microsoft, Yahoo!, Facebook represented 66% of our annualized base rents. Our top two tenants Microsoft, Yahoo! are 50% of our annualized base rent, down from 86% since October 2007. We are working to further diversify our tenant base and expect this tenant’s concentration to continue to drop as we sign new leases. The average combined remaining lease term with these three companies is 7.2 years with no out profits. The average remaining lease term at December 31, for our entire portfolio was seven years.

Let me now walk you through the two buildings in our portfolio that we have inventory. Chicago is 48% leased, unchanged from the third quarter. Based on the current level of potential tenant activity, we remain comfortable with the 24 month lease up with from Chicago’s opening. Therefore we anticipate these fully leased by August of 2010.

Turning to Ashburn, Virginia, ACC5 Phase I is 84% leased as of today, up 11% from the third quarter. ACC5 Phase II is 50% pre-leased, up 12% from the third quarter. We will continue to see solid traffic in terms of interests and tours at both Chicago and Northern Virginia. Our pipeline of respective tenants is very encouraging. We would continue to work with multiple prospective tenants at both locations interested in executing leases.

As to our development in pipeline, we are actively building both ACC5 Phase II and New Jersey Phase I with a fourth quarter 2010 delivery expected for both. We believe New Jersey will be a publicized market for us and we are active with site tours there as well. We will spend approximately $85 million to finish ACC5 Phase II and $75 million to finish New Jersey Phase I. For each of our developments we continued to expect 12% to 15% unlevered return upon full lease up.

We believe that supply and demand imbalance for the whole data center industry is in our favor. This minimizes our lease offers. We will not start actual construction of our Santa Clara project or any other project without first executing additional leases within our current market and raising the required funds to complete it. We will need $200 million to $230 million to finish Santa Clara Phase I.

Now, I will turn over the call to Mark, who will take us through our financial results and our 2010 guidance.

Mark Wetzel

Thank you, Hossein. Good morning everyone and thank you for joining us. I will cover five topics today. Our 2009 results, a capital markets update, our 2010 guidance, a summary of the company’s 2010 sources and uses of cash, and our 2010 dividend policies.

For the fourth quarter of 2009, company’s FFO was $0.5 per share, compared to $0.30 per share in the fourth quarter of 2008. Q4 revenues were $53 million and 11% increased quarter-over-quarter. The FFO decreased of $0.25 per share, which primarily due to the previously announced onetime swap termination charge of $0.20 per share and $0.04 per share for the write-off of deferred financing cost related to the retired debt.

Operating income was up 30% or $0.5 per share quarter-over-quarter. Total interest cost excluding onetime charges expense to the P&L in Q4 ‘09 represented $0.7 per share or $4.8 million. This represented 92% of overall interest incurred for Q4 ‘09 as compared to 57% of overall interest expense in Q4 2008.

Sequentially the Q3 ‘09, we were at $0.29 of FFO per share for both periods without the above $0.24 per share onetime charges in Q4 ‘09. FFO per share for the fourth quarter of ‘09 excluding the swap and loan cost write-offs was at the high end of our original guidance range.

As a reminder, the majority of the Q4 ‘09 loan cost write-offs related to our Safari line of loan put in place prior to the IPO. FFO was $0.18 per share for the fourth quarter, $0.3 lower than a year ago and the third quarter. This $0.3 per share reduction is primarily increased interest expense, partially offset by improved cash operating income. Year-to-date AFFO was $0.79 per share, compared to $0.81 per share a year ago. Year-to-date cash based rent increased $0.31 per share or $21 million on all executed leases.

I want to provide a quick capital markets update. As Hossein mentioned and previously announced, we close on two important financing transactions during fourth quarter. First, we close on a $150 million five year secured loan, this loan has a 1.5% LIBOR floor plus a 4.25% interest rate added to the floor. The loan is secured by our ACC5 facility and land for ACC6. We set aside $10 million as an interest reserve in restricted cash to pay the interest as the building leases up and cash flow stabilize.

Second, we close on a $550 million eight year unsecured note. This has an 8.5% coupon rate payable in June and December each year. In conjunction with this unsecured note, we obtained company in debt ratings of Ba2 from Moody’s and BB-/ from S&P. Our goal is to improve these ratings over the next several years. I’ve included selected covenants that we need to maintain going forward on page 13 in the earnings release.

We have note that maturities until October of 2012 assuming we satisfy our quarterly financial covenants and elect to extend our ACC for term long. I am comfortable that we will continue to meet these covenants based on what I know today. In addition, we are working on putting end place to a small unsecured line of credit and hope to have this completed this quarter. I have no further details to provide at this time. We’d now I like to walk to our 2010 guidance.

Our FFO guidance was a $1.25 to a $1.45 per share is based on fallen for primary assumptions to get to the midpoint of this range. First, we expect annual revenues to be in the range of $240 to $260 million for the year, a $10 million increase from what we was stated on the Q3 call. Our annual revenue forecast calls were approximately $9 million, or $0.14 per share of new leases expected to be signed in 2010. Primarily, the remaining the vacant space in Chicago, this additional revenue will be saved in over the last three quarters with none in Q1.

Second, we expect to placing service in both of our developments ACC5 Phase II and Ashburn, Virginia and NJ1 Phase in Piscataway, New Jersey in the fourth quarter. 2010 Q4 projected FFO per share on these two developments is minimal.

Third, we assume right now that we will not restart Santa Clara or any other development calendar in year 2010. This assumption could change if the lease of Chicago or the Virginia and/or New Jersey takes place faster than we anticipate, and we secure new funds to restart it. Once Santa Clara is restarted, it will take 12 to 15 months to complete and commission.

Fourth, excluding the $17.6 million or $0.26 per share with the swap termination and loan cost write-offs in 2009, we project high rate expense of $0.34 per share as compared to 2009. This is primarily due to the high overall balances and rates. This excludes approximately 24% of interest cost that our forecast as soon as we capitalize as compared to 19% in 2009.

The remaining assumptions are listed on page 15 of our earnings release. Cash flow remains a high priority for us, so let me walk you through our expected sources and uses of cash for calendar year 2010.

Our 2010 sources totaled approximately $238 million; we started the year with $187 million in cash and marketable securities, when we expect $51 million of free cash flow before any cash dividends.

Our 2010 users, totaled approximately $188 we projective payout $22 million of cash dividends, $2 million for principal loan pay downs, $4 million for operating properties CapEx, $85 million to complete ACC5 Phase II, and $75 million to complete New Jersey Phase I. As a result what I have outlined, we expect in 2010 with approximately $50 million of unrestricted cash. We also expect to have a line of credit established with no funds drawn on it.

As to our 2010 dividend policy and as noted in our press release issued last night, we expect to pay $0.08 per share quarterly cash dividend throughout 2010. This annualize $0.32 per share dividend currently covers 100% of our projected taxable income. The Board will review and approve the actual payment each quarter.

With that, let me turn to back over to Hossein.

Hossein Fateh

Thank you, Mark. Before I open it up for questions, I want to emphasize that our primary focus is executing the leases in Chicago, Northern Virginia and New Jersey. We are confident that the completion of ACC5 Phase II and New Jersey Phase I later this year will result in solid earnings growth over the next several years. We are very pleased with the rate of our leasing in our projects and we are great confidence on what the future holds for DuPont Fabros.

With that, I’ll be happy to turn the call over for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Jordan Sadler - KeyBanc.

Jordan Sadler - KeyBanc

First question regarding the difference in the revenue growth, I think you started to grow through it a little bit, but the $10 million up tick is principally related to what, and then maybe if you could just give us a little bit more color surrounding the commencement timing for un-started or un-commenced leases?

Mark Wetzel

We referenced that revenue growth at Q3 and is leasing continue to be some abortion in Northern Virginia market. The reality is ACC5 Phase I is leasing out faster than we expected and we should be fully leased with that building sometime late this summer. Chicago, we always expected to be leased out by the end of the summer.

These are two buildings that have remaining inventory. We’re going to open the doors in Q4, if you assume we open up midpoint in this quarter, we have 50% pre-leasing already in ACC5 Phase II. So it’s a combination of those three buildings.

Hossein Fateh

Jordan, another issue is when you lease the buildings up faster, the operating expenses are obviously pass through to the tenant that are occupying those buildings, when the buildings are leasing. As expected for the unyielding portions or un-leased portions were coming for those operating expenses, the combination of the accelerated leasing on ACC5 Phase I, and the pass through of the operating expenses.

Jordan Sadler - KeyBanc

There’s not a tremendous difference between when we spoke in November and today, and either ACC5 Phase I and II or Chicago. So you’ve added a leaser too, but it doesn’t seem like $10 million a year. Is there any speculative revenue built into the guidance stuff that’s not yet signed or commenced?

Mark Wetzel

I think from Q3 to today, we never stated that ACC5 Phase II would be open until January ‘11. So there were zero revenue streams in Phase II. Our goal is to get that building open probably November 1. So there’s two months right there as it was in the discussion points of Q3 and then the acceleration of lease up in Phase I helps the revenue stream because of the pass through cost.

Hossein Fateh

Originally Jordan, we have said that 18 month lease up, now the building going to be leased up in Phase I and probably that’s on a year from.

Jordan Sadler - KeyBanc

Are you building in anything that’s not yet signed like some speculative leasing revenue are you assuming for instance that ACC5 is fully leased and some of those you have additional commencements that are not yet signed?

Hossein Fateh

I mean in 2010, we fully expect by year end that Phase I of ACC5 is a 100% leased and Chicago is a 100% leased, so those are best all speculative revenue in 2010.

Jordan Sadler - KeyBanc

So you don’t necessarily have them commenced in that timing, do you?

Hossein Fateh

Well lease execution, lease commencement, as we’d execute a lease and a tenant wants to move in on next year then that may be different then if they move in this summer.

Mark Wetzel

Most of the tenant that is signing leases, because they want to start now.

Jordan Sadler - KeyBanc

So in that sense what you are assuming not only you’re assuming the leases are signed, you’re also assuming some commencement in both Chicago and ACC5?

Operator

Your next question comes from Sri Anantha - Oppenheimer & Co.

Sri Anantha - Oppenheimer & Co.

I had a question on the guidance again on the revenues the range of 240 to 260 is the difference in that range plainly related to the timing of lease up of your Chicago and ACC5 Phase II, or is there something else that we should be aware of?

What I’m trying to understand is, let us assume that you guys are successful in leasing up Chicago 100%, but it happens in August as opposed or the next two months then what is the variability in that revenue guidance?

Mark Wetzel

We think we’re within that range, we have leases for Chicago obviously nothing in Q1 but we have leases in Q2 and Q3 with a goal to have leases commenced by the end of third quarter. So it’s well within that room if it slips in the Q4 it’s still within the year, but the 240 we think it’s pretty solid.

Sri Anantha - Oppenheimer & Co.

Hossein based on the pipeline that you are currently seeing. Is there a chance that ACC5 Phase II could be pretty much fully leased up the time you guys open it in 3Q?

Hossein Fateh

We want to be conservative there so Phase I, what we’re saying right now will be fully leased by this summer Phase II we’re opening in October and by October we’re saying that it will probably take about a year to be fully leased. We could surprise ourselves, but at the movement what we’re sticking with is on ACC5 one year from opening.

Sri Anantha - Oppenheimer & Co.

Last one in general, based on the claim profile that you’re seeing, what kind of a power density requirements are these customers asking for, and if you could compare and contrast that to a year ago like, are these power density requirements continue to increase or you’re seeing a flattening at least here in the near term?

Hossein Fateh

Our customers are more and more sophisticated now they understand that powered density is just a matter of how high the racks can go. So customers are sophisticated and to be more efficient themselves they will build a nine foot rack and without any hesitation we just went through the exercise with one customer who hadn’t done it before.

But you could build vertically as well as horizontally, and to build your rack higher they don’t have to pay extra for it. So the more sophisticated customers more and more what we’re seeing are able to use the density that we provide for them.

Operator

Your next question comes from Mark Montana - Citi.

Mark Montana - Citi

One of you could discuss a little bit relating the economics on the VA3 leases that were signed I guess may be in terms of both term and rates, the space that was to be vacated in 4Q, completed in 4Q as well as the renewal is about 5.7 Megawatts of the 2010 expiry.

Hossein Fateh

Mark, we don’t certainly get into the specifics. We did talk about a lease that one tenant left, a new tenant came in. We had cash increase of 59% cash-on-cash year-over-year, but we’re not going to get any specifics on rate on anyone customer.

Mark Wetzel

You have to mark the leases to market, so it’s not a significant GAAP increase anyway.

Mark Montana - Citi

I guess I am just trying to get a sense of the trend, a new versus in place?

Hossein Fateh

Like we said, rents were significantly higher as far as the trend goes…

Mark Wetzel

Specific to VA3, some of those leases were under market from cash prospective, but as the IPO, they were marked up.

Hossein Fateh

You’re not going to see a GAAP, cash-on-cash has increased significantly, but we really don’t want to close it single leases.

Mark Montana - Citi

Then as far as development goes, I know you said leasing is coming in faster than expected on ACC5 I and you are getting good traction of Chicago. What the potential maybe further development could come into view a little bit sooner than you expected just last quarter? I was wondering, what your strategy was at this point for raising the incremental funds to do so?

Hossein Fateh

We’ve stated in the past, when we wanted to build Santa Clara, we will raise equity. We do want to use the most efficient sums possible. We do need to also raise equity, when and if we want to build Santa Clara. The timing of that currently we’ve tied it to lease up of ACC5 and lease up of Chicago.

So at that time, we’ll raise some equity to develop that project and meanwhile we’ve got access to unsecured bonds as well and we would also look to build ACC6 sometime as well. So we’re looking at all those things and using the most efficient capital possible and we know that it will include some form of equity as well.

Mark Montana - Citi

Then ACC6 is included, what’s the incremental spend that you expect there?

Hossein Fateh

Typically in Virginia, we’re sending somewhere around $8 million to $10 million in megawatts.

Operator

Your next question comes from Young Ku - Wells Fargo.

Young Ku - Wells Fargo

This is Young Ku here for Brendan. Could you guys tell us how much of the 48% lease that CH1 is currently renting?

Hossein Fateh

Renting or 48% at leased?

Young Ku - Wells Fargo

Rent paying.

Mark Wetzel

We’re not going to give any specifics of it. Some of the last lease that we signed is stage overtime, so it is a takedown in 2010.

Hossein Fateh

All the leases, we always sign had a takedown, which is typical for datacenters because tenants want to build in over a short period of time. We are very pleased with the progress of that tenant the way that they are using the stakes, but we don’t want to get into specifics of leases.

Mark Wetzel

Obviously, on the straight line that I disclosed on the assumption pay just built into that.

Young Ku - Wells Fargo

In terms for the new lease, did you guys spend any CapEx for that space?

Hossein Fateh

No.

Mark Wetzel

It’s a very, very small amount.

Hossein Fateh

Typically datacenters, you don’t need CapEx and there was no brokerage fee. So if some floor tiles are beaten up we may replace them, but it’s nominal.

Young Ku - Wells Fargo

It sounds like you guys increased cash rents by 59% on the new lease, how about the renewal?

Hossein Fateh

Within the renewal, they have a small increase, but it wasn’t anywhere near that 59%.

Young Ku - Wells Fargo

My final questions regarding the New Jersey project, we are hearing that NYSC might be building a datacenter there and there maybe some other projects under works. How do you guys think about demand in that market comparing about potential supplier over the next couple of years?

Hossein Fateh

We think that one of the strongest markets in the country Digital, SAVVIS is one of their best markets. So I think they’ll work for it and we feel very good about it. We are touring tenants to the market, but as far as us our kind of prospects in any new market that we go to, we kind have edge by thing saying that it will take 18 to 24 months to lease up.

Young Ku - Wells Fargo

For ACC6, would you guys consider building that one first before SE1?

Hossein Fateh

I mean everything is possible, but at this time we cannot feel that we need to build both and it also will depend on the rate of pre-leasing, like on ACC5 Phase II, we have the equipment, we added 50% pre-lease that was an easy decision to bring equipment over and put it in a project at 50% pre-lease. I think we really need to be building in those markets and our engineering is a little bit further along in Santa Clara.

Young Ku - Wells Fargo

In terms of the unlevered return expectations is about culpable?

Hossein Fateh

Yes, all of our projects are getting between 12% to 15% unlevered return.

Operator

Your next question comes from David Nebinski - Robert Baird.

David Nebinski - Robert Baird

Most of my questions have been asked and answered. Adjusting on cost all your markets, could you just rank in terms of the demand and the velocity that you’re seeing within that?

Hossein Fateh

We currently, what we can talk about is basically two markets, Virginia and Chicago so Virginia is number one and Chicago is number two, but we do feel Santa Clara is a stronger market than Chicago and New Jersey is probably in between Santa Clara and Chicago. The Internet markets are clearly Virginia and Santa Clara, the more enterprise on financial are Chicago and New Jersey.

Operator

Your next question comes from Romeo Reyes - Jefferies.

Romeo Reyes - Jefferies

A couple of things, on the ACC5 on Phase II in Jersey Phase I, the two numbers that you got out 85, 75 does that include the capitalized interest Mark, is that just a construction cost?

Mark Wetzel

No that should include the total cost if you go in the development page in the details of the press lease the total spend is what we need to finish those projects.

Romeo Reyes - Jefferies

It includes the 13.5% to 17.5% of capitalized interests, right?

Mark Wetzel

Yes.

Romeo Reyes - Jefferies

Just the second question with respect to the 165 of total contract value for your new leases, how much of that do you expect book in or I guess average of 10.9 years is like $15 million about the year, how much of that $15 million do you expect to book in 2010?

Mark Wetzel

When you say book, you mean from a GAAP prospective?

Romeo Reyes - Jefferies

Yes.

Mark Wetzel

The lease commencement of all basically started so you can divide by that 10.9 years, so it’s the average for that period of time.

Romeo Reyes - Jefferies

So we’re going to see about $15 million annualized of incremental base rent in Q1?

Mark Wetzel

That’s a right math, I think, yes.

Operator

Your next question comes from Jordan Sadler - KeyBanc.

Jordan Sadler - KeyBanc

Just a follow-up on a couple of things, the leaser for Chicago, I mean your 48% pre-leased is in needle really hasn’t moved a lot in a while. Can you explain the renewed confidence in lease update there?

Mark Wetzel

Jordan we don’t really talk about what lessors of intent we sign and what lessors of intent that we’re working on and who’s touring the building and who is not so, all I can talk about is the sentiment on activity that we have, without bringing up a specific…

Jordan Sadler - KeyBanc

Do you have something in the pipeline you’ve been working on for a while was that kind of?

Mark Wetzel

We have numerous fields that we are working on, and that’s why we have this level of confidence.

Jordan Sadler - KeyBanc

You had a tenant that had to make expansion rights I think or potential is that likely to happen?

Mark Wetzel

There are two tenants with expansion rights and those are certainly in the mix and each deal goes from tours to lessers of intent to lease negotiations. There’s a period and we’ve always said that this process is bumpy or lumpy. So it just like where we went from 78% to 48%. It comes in chunk and we’re just doing our job, working the deals as they come in and we feel very good with what’s in our pipeline.

Jordan Sadler - KeyBanc

Is the activity in Chicago also good such that the Chicago Phase II might be considered a late 2010, early 2011 start as well?

Hossein Fateh

I think that these datacenters will take approximately a year to build the sizes that we’re doing. So as we said that its lease up by August and we feel comfortable with that. So as soon as it finishes we will be working on Phase II.

Jordan Sadler - KeyBanc

Just a straight line rent, $30 to $40 budgeted for 2010. What portion of that is free rent, Mark, do you know?

Mark Wetzel

I don’t have that number top of my head. I mean obviously every new lease we signed has a portion of what will call ramp up or free rent and so each one is different. People who want to sign 10, 15 years, we give them maybe a little bit more, somebody signs five year, its obviously about less. So it’s a function of each lease, but I do not have a number of that.

Jordan Sadler - KeyBanc

Do you have a rough sense of what straight line rent would look like in 2011? Is this a good number or probably half of that?

Mark Wetzel

With each leases signed in ‘10, then that will bump up what’s in ‘11.

Jordan Sadler - KeyBanc

I assuming based on the current?

Mark Wetzel

I have that details, but at this point I don’t have it handy.

Jordan Sadler - KeyBanc

Then just my last question is market rent, can you maybe talk about what you are seeing in terms of rental rates by market Chicago and Virginia?

Mark Wetzel

In Chicago we’re getting 12% unlevered return and as working within our expectations. In Virginia, we could be bumping rents to higher dollars, but a lot of our customers are current customers and we’re not squeezing them. The Virginia market is extremely tight, and we want those customers that our repeat customers to keep growing with us.

Jordan Sadler - KeyBanc

Is it $1500 a kilowatt roughly, I mean what you sort of commencing on?

Mark Wetzel

Our rent at triple net right, so on the triple net basis in those markets what we’re seeing is that Chicago cost a little bit more to bills than Virginia. So the rent that we’re seeing is anywhere from $100 to $130 triple net with operating expenses on top of it.

Operator

Your next question comes from Todd Morgan - Oppenheimer & Co.

Todd Morgan - Oppenheimer & Co.

One quick question about renewing leases, you’ve had a pretty good success in pushing out those near tear maturities. Can you talk a little bit about how hard it is to do that? I mean, it’s a simply matter of calling up to tenant and talking about it or is there more of a strategy than that?

Mark Wetzel

Well, each leases difference. A lot of tenants have a years notice. We have a required year notice period on a lot of leases. So it’s really tracking their usage, understanding their trends whether they’re growing, but the operations team is a fund center with a lot of our tenants and they do a great job fund sales in helping that process.

Hossein Fateh

We have very good relationships with our tenant and its more like we take the calls and they would like to renew and as you know it’s difficult to leave a datacenter and we negotiate something for the renewal.

Operator

Your final question comes from Brendan Maiorana - Wells Fargo.

Brendan Maiorana - Wells Fargo

Just a quick follow-up, Mark, I think you spoke about a credit facility of the works. Could we get a sense in terms of a size and terms for that?

Mark Wetzel

At this point, besides I said it will be minimal. I think during the bond discussions it was probably we’re going be less than $100 million, but in rate term and all that, I prefer on the percentage was done.

Brendan Maiorana - Wells Fargo

So you’re going to replace this one with the 275?

Mark Wetzel

No, the 275 has gone, so far, line of credit is gone, blank credit has gone. Sitting here today, we need not have a line of credit in place.

Operator

There are no further questions. Mr. Fateh, I’ll turn the conference back to you.

Hossein Fateh

Thank you for joining us and have a great afternoon guys. Thank you.

Operator

That concludes today’s conference call. We thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!