Form 10-Q

Large accelerated Filer

Accelerated filer

(DuPont Fabros Technology, Inc. only)

Non-accelerated Filer

x (Do not check if a smaller reporting company)

Smaller reporting company

(DuPont Fabros Technology, L.P. only)

10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2011.

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From to .

Commission file number 001-33748

DUPONT FABROS TECHNOLOGY, INC.

DUPONT FABROS TECHNOLOGY, L.P.

(Exact name of registrant as specified in its charter)


Maryland (DuPont Fabros Technology, Inc.) Maryland (DuPont Fabros Technology, L.P.)		20-8718331 26-0559473
(State or other jurisdiction of Incorporation or organization)		(IRS employer identification number)

1212 New York Avenue, NW Washington, D.C.		20005
(Address of principal executive offices)		Zip Code

Registrant’s telephone number, including area code: (202) 728-0044

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding at July 31, 2011

DuPont Fabros Technology, Inc. Common Stock,

$0.001 par value per share

62,445,458

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter and six months ended June 30, 2011 of DuPont Fabros Technology, Inc. and DuPont Fabros Technology, L.P. References to the “REIT” or “DFT” mean DuPont Fabros Technology, Inc. and its controlled subsidiaries; and references to the “Operating Partnership” or “OP” mean DuPont Fabros Technology, L.P. and its controlled subsidiaries. The term “the Company” refers to DFT and the Operating Partnership, collectively.

DFT is a real estate investment trust (“REIT”) and the general partner of the Operating Partnership. The Operating Partnership’s capital includes general and limited common operating partnership units, or “OP units”. As of June 30, 2011, DFT owned approximately 74.6% of the economic interest in the Operating Partnership, with the remaining interest being owned by investors. As the sole general partner of the Operating Partnership, DFT has exclusive control of the Operating Partnership’s day-to-day management.

The Company believes combining the quarterly reports on Form 10-Q of DFT and the Operating Partnership into this single report provides the following benefits:

•

enhances investors’ understanding of DFT and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•

eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this report applies to both DFT and the Operating Partnership; and

•

creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

Management operates DFT and the Operating Partnership as one business. The management of DFT consists of the same members as the management of the Operating Partnership.

The Company believes it is important for investors to understand the few differences between DFT and the Operating Partnership in the context of how DFT and the Operating Partnership operate as a consolidated company. DFT is a REIT, whose only material asset is its ownership of OP units of the Operating Partnership. As a result, DFT does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing unsecured debt of the Operating Partnership. DFT has not issued any indebtedness, but has guaranteed all of the unsecured debt of the Operating Partnership. The Operating Partnership holds all the real estate assets of the Company. Except for net proceeds from public equity issuances by DFT, which are contributed to the Operating Partnership in exchange for OP units or preferred units, the Operating Partnership generates all remaining capital required by the Company’s business. These sources include the Operating Partnership’s operations, its direct or indirect incurrence of indebtedness, and the issuance of partnership units.

As general partner with control of the Operating Partnership, DFT consolidates the Operating Partnership for financial reporting purposes. The presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of DFT and those of the Operating Partnership. The Operating Partnership’s capital includes preferred units and general and limited common units that are owned by DFT and the other partners. DFT’s stockholders’ equity includes preferred stock, common stock, additional paid in capital and accumulated deficit. The common limited partnership interests held by the limited partners (other than DFT) in the Operating Partnership are presented as “redeemable partnership units” in the Operating Partnership’s consolidated financial statements and as “redeemable noncontrolling interests-operating partnership” in DFT’s consolidated financial statements. The only difference between the total assets and cash flows of DFT and the Operating Partnership as of and for the six months ended June 30, 2011 is a $4.3 million bank account held by DFT that is not part of the Operating Partnership and a $0.2 million payment of offering expenses paid by DFT that is not reflected as a use of cash on the Operating Partnership’s cash flow statement. Net income is the same for DFT and the Operating Partnership.

In order to highlight the few differences between DFT and the Operating Partnership, there are sections in this report that discuss DFT and the Operating Partnership separately, including separate financial statements, controls and procedures sections, and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure for DFT and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that enters into contracts, holds assets and issues debt, we believe that reference to the Company in this context is appropriate because the business is one enterprise and the Company operates the business through the Operating Partnership.

DUPONT FABROS TECHNOLOGY, INC. / DUPONT FABROS TECHNOLOGY, L.P.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2011

TABLE OF CONTENTS


			PAGE NO.
PART I. FINANCIAL INFORMATION				4

	ITEM 1.	Consolidated Financial Statements		4

		DuPont Fabros Technology, Inc.		4

		DuPont Fabros Technology, L.P.		8

		Notes to Consolidated Financial Statements (DuPont Fabros Technology, Inc. and DuPont Fabros Technology, L.P.)		12

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		36

	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		49

	ITEM 4.	Controls and Procedures		49

PART II. OTHER INFORMATION				49

	ITEM 1.	Legal Proceedings		49

	ITEM 1A.	Risks Factors		49

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		49

	ITEM 3.	Defaults Upon Senior Securities		49

	ITEM 4.	Removed and Reserved		49

	ITEM 5.	Other Information		49

	ITEM 6.	Exhibits		50

	Signatures			51

PART 1—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

DUPONT FABROS TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands except share data)


	June 30, 2011			December 31, 2010
	(unaudited)
ASSETS
Income producing property:
Land	$	50,531		$	50,531
Buildings and improvements		1,776,396			1,779,955

		1,826,927			1,830,486
Less: accumulated depreciation		(206,025	)		(172,537	)

Net income producing property		1,620,902			1,657,949
Construction in progress and land held for development		560,701			336,686

Net real estate		2,181,603			1,994,635
Cash and cash equivalents		111,025			226,950
Restricted cash		273			1,600
Rents and other receivables		1,649			3,227
Deferred rent		115,719			92,767
Lease contracts above market value, net		12,052			13,484
Deferred costs, net		43,184			45,543
Prepaid expenses and other assets		20,185			19,245

Total assets	$	2,485,690		$	2,397,451


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Mortgage notes payable	$	147,400		$	150,000
Unsecured notes payable		550,000			550,000
Accounts payable and accrued liabilities		16,615			21,409
Construction costs payable		48,048			67,262
Accrued interest payable		2,731			2,766
Dividend and distribution payable		14,542			12,970
Lease contracts below market value, net		20,816			23,319
Prepaid rents and other liabilities		28,506			22,644

Total liabilities		828,658			850,370
Redeemable noncontrolling interests—operating partnership		523,845			466,823
Commitments and contingencies		—			—
Stockholders’ equity:
Preferred stock, $.001 par value, 50,000,000 shares authorized:
Series A cumulative redeemable perpetual preferred stock, 7,400,000 issued and outstanding at June 30, 2011 and December 31, 2010		185,000			185,000
Series B cumulative redeemable perpetual preferred stock, 4,050,000 issued and outstanding at June 30, 2011 and no shares issued or outstanding at December 31, 2010		101,250			—
Common stock, $.001 par value, 250,000,000 shares authorized, 61,181,294 shares issued and outstanding at June 30, 2011 and 59,827,005 shares issued and outstanding at December 31, 2010		61			60
Additional paid in capital		875,648			946,379
Accumulated deficit		(28,772	)		(51,181	)

Total stockholders’ equity		1,133,187			1,080,258

Total liabilities and stockholders’ equity	$	2,485,690		$	2,397,451

See accompanying notes

DUPONT FABROS TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands except share and per share data)


	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Revenues:
Base rent	$	48,286		$	37,922		$	95,261		$	72,840
Recoveries from tenants		21,609			18,071			42,467			37,561
Other revenues		861			3,299			1,527			5,800

Total revenues		70,756			59,292			139,255			116,201
Expenses:
Property operating costs		18,746			15,613			36,846			32,967
Real estate taxes and insurance		1,523			1,140			3,179			2,386
Depreciation and amortization		18,113			15,091			36,204			30,187
General and administrative		3,884			4,008			8,682			7,598
Other expenses		319			2,511			517			4,352

Total expenses		42,585			38,363			85,428			77,490

Operating income		28,171			20,929			53,827			38,711
Interest income		192			209			403			234
Interest:
Expense incurred		(5,519	)		(10,050	)		(13,178	)		(21,679	)
Amortization of deferred financing costs		(522	)		(893	)		(1,146	)		(1,840	)

Net income		22,322			10,195			39,906			15,426
Net income attributable to redeemable noncontrolling interests – operating partnership		(4,296	)		(3,274	)		(7,768	)		(5,214	)

Net income attributable to controlling interests		18,026			6,921			32,138			10,212
Preferred stock dividends		(5,572	)		—			(9,729	)		—

Net income attributable to common shares	$	12,454		$	6,921		$	22,409		$	10,212

Earnings per share – basic:
Net income attributable to common shares	$	0.20		$	0.13		$	0.37		$	0.22

Weighted average common shares outstanding		60,533,755			51,087,845			60,373,069			46,602,821

Earnings per share – diluted:
Net income attributable to common shares	$	0.20		$	0.13		$	0.37		$	0.22

Weighted average common shares outstanding		61,577,461			52,408,654			61,480,769			47,899,114

Dividends declared per common share	$	0.12		$	0.12		$	0.24		$	0.20

See accompanying notes

DUPONT FABROS TECHNOLOGY, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited and in thousands except share data)


	Preferred Stock		Common Shares					Additional Paid-in Capital			Accumulated Deficit			Comprehensive Income		Total
	Preferred Stock		Number			Amount		Additional Paid-in Capital			Accumulated Deficit			Comprehensive Income		Total
Balance at December 31, 2010	$	185,000		59,827,005		$	60	$	946,379		$	(51,181	)			$	1,080,258
Comprehensive income attributable to controlling interests:
Net income attributable to controlling interests												32,138		$	32,138		32,138

Comprehensive income attributable to controlling interests														$	32,138

Issuance of preferred stock		101,250							(3,800	)							97,450
Dividends declared on common stock									(14,654	)							(14,654	)
Dividends earned on preferred stock												(9,729	)				(9,729	)
Redemption of Operating Partnership units				1,160,000			1		25,099								25,100
Issuance of stock awards				164,727			—		257								257
Stock option exercises				117,737			—		596								596
Retirement and forfeiture of stock awards				(88,175	)		—		(1,945	)							(1,945	)
Amortization of deferred compensation									3,076								3,076
Adjustment to redeemable noncontrolling interests—operating partnership									(79,360	)							(79,360	)


Balance at June 30, 2011	$	286,250		61,181,294		$	61	$	875,648		$	(28,772	)			$	1,133,187

See accompanying notes

DUPONT FABROS TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	Six months ended June 30,
	2011			2010
Cash flow from operating activities
Net income	$	39,906		$	15,426
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		36,204			30,187
Straight line rent		(22,952	)		(17,842	)
Amortization of deferred financing costs		1,146			1,840
Amortization of lease contracts above and below market value		(1,071	)		(1,433	)
Compensation paid with Company common shares		2,923			1,795
Changes in operating assets and liabilities
Restricted cash		223			(145	)
Rents and other receivables		1,578			13
Deferred costs		(1,566	)		(2,302	)
Prepaid expenses and other assets		(738	)		(2,371	)
Accounts payable and accrued liabilities		(4,794	)		332
Accrued interest payable		(35	)		(328	)
Prepaid rents and other liabilities		3,903			2,338

Net cash provided by operating activities		54,727			27,510

Cash flow from investing activities
Investments in real estate – development		(213,464	)		(88,312	)
Land acquisition costs		(9,507	)		—
Marketable securities held to maturity
Purchase		—			(60,014	)
Redemption		—			138,978
Interest capitalized for real estate under development		(14,654	)		(9,845	)
Improvements to real estate		(1,454	)		(1,745	)
Additions to non-real estate property		(88	)		(95	)

Net cash used in investing activities		(239,167	)		(21,033	)

Cash flow from financing activities
Issuance of preferred stock, net of offering costs		97,450			—
Issuance of common stock, net of offering costs		—			304,107
Mortgage notes payable:
Repayments		(2,600	)		(1,000	)
Return of escrowed proceeds		1,104			4,513
Exercises of stock options		596			309
Payments of financing costs		(218	)		(2,614	)
Dividends and distributions:
Common shares		(14,491	)		(3,534	)
Preferred shares		(8,180	)		—
Redeemable noncontrolling interests – operating partnership		(5,146	)		(1,894	)

Net cash provided by financing activities		68,515			299,887

Net (decrease) increase in cash and cash equivalents		(115,925	)		306,364
Cash and cash equivalents, beginning		226,950			38,279

Cash and cash equivalents, ending	$	111,025		$	344,643

Supplemental information:
Cash paid for interest	$	27,867		$	31,851

Deferred financing costs capitalized for real estate under development	$	697		$	834

Construction costs payable capitalized for real estate under development	$	48,048		$	16,542

Redemption of OP units for common shares	$	25,100		$	61,300

Adjustments to redeemable noncontrolling interests	$	79,360		$	163,242

See accompanying notes

DUPONT FABROS TECHNOLOGY, L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands)


	June 30, 2011			December 31, 2010
	(unaudited)
ASSETS
Income producing property:
Land	$	50,531		$	50,531
Buildings and improvements		1,776,396			1,779,955

		1,826,927			1,830,486
Less: accumulated depreciation		(206,025	)		(172,537	)

Net income producing property		1,620,902			1,657,949
Construction in progress and land held for development		560,701			336,686

Net real estate		2,181,603			1,994,635
Cash and cash equivalents		106,720			222,428
Restricted cash		273			1,600
Rents and other receivables		1,649			3,227
Deferred rent		115,719			92,767
Lease contracts above market value, net		12,052			13,484
Deferred costs, net		43,184			45,543
Prepaid expenses and other assets		20,185			19,245

Total assets	$	2,481,385		$	2,392,929


LIABILITIES AND PARTNERS’ CAPITAL
Liabilities:
Mortgage notes payable	$	147,400		$	150,000
Unsecured notes payable		550,000			550,000
Accounts payable and accrued liabilities		16,615			21,409
Construction costs payable		48,048			67,262
Accrued interest payable		2,731			2,766
Distribution payable		14,542			12,970
Lease contracts below market value, net		20,816			23,319
Prepaid rents and other liabilities		28,506			22,644

Total liabilities		828,658			850,370
Redeemable partnership units		523,845			466,823
Commitments and contingencies		—			—
Partners’ capital:
Limited partners’ capital:
Series A cumulative redeemable perpetual preferred units, 7,400,000 issued and outstanding at June 30, 2011 and December 31, 2010		185,000			185,000
Series B cumulative redeemable perpetual preferred units, 4,050,000 issued and outstanding at June 30, 2011 and no shares issued or outstanding at December 31, 2010		101,250			—
Common units, 60,518,921 issued and outstanding at June 30, 2011 and 59,164,632 issued and outstanding at December 31, 2010		830,410			878,826
General partner’s capital, common units, 662,373 issued and outstanding at June 30, 2011 and December 31, 2010		12,222			11,910

Total partners’ capital		1,128,882			1,075,736

Total liabilities and partners’ capital	$	2,481,385		$	2,392,929

See accompanying notes

DUPONT FABROS TECHNOLOGY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands except unit and per unit data)


	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Revenues:
Base rent	$	48,286		$	37,922		$	95,261		$	72,840
Recoveries from tenants		21,609			18,071			42,467			37,561
Other revenues		861			3,299			1,527			5,800

Total revenues		70,756			59,292			139,255			116,201
Expenses:
Property operating costs		18,746			15,613			36,846			32,967
Real estate taxes and insurance		1,523			1,140			3,179			2,386
Depreciation and amortization		18,113			15,091			36,204			30,187
General and administrative		3,884			4,008			8,682			7,598
Other expenses		319			2,511			517			4,352

Total expenses		42,585			38,363			85,428			77,490

Operating income		28,171			20,929			53,827			38,711
Interest income		192			209			403			234
Interest:
Expense incurred		(5,519	)		(10,050	)		(13,178	)		(21,679	)
Amortization of deferred financing costs		(522	)		(893	)		(1,146	)		(1,840	)

Net income		22,322			10,195			39,906			15,426
Preferred unit dividends		(5,572	)		—			(9,729	)		—

Net income attributable to common units	$	16,750		$	10,195		$	30,177		$	15,426

Earnings per unit – basic:
Net income attributable to common units	$	0.20		$	0.13		$	0.37		$	0.22

Weighted average common units outstanding		81,395,430			73,879,205			81,303,883			70,394,769

Earnings per unit – diluted:
Net income attributable to common units	$	0.20		$	0.13		$	0.37		$	0.22

Weighted average common units outstanding		82,439,136			75,200,014			82,411,583			71,691,062

Distributions declared per unit	$	0.12		$	0.12		$	0.24		$	0.20

See accompanying notes

DUPONT FABROS TECHNOLOGY, L.P.

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(unaudited and in thousands, except unit data)


	Limited Partners’ Capital								General Partner’s Capital
	Preferred Amount		Common Units			Common Amount			Common Units		Common Amount			Comprehensive Income		Total
Balance at December 31, 2010	$	185,000		59,164,632		$	878,826			662,373	$	11,910				$	1,075,736
Comprehensive income:
Net income							39,474					432		$	39,906		39,906

Comprehensive income														$	39,906

Issuance of preferred units for preferred stock offering		101,250					(3,800	)				—					97,450
Common unit distributions							(19,447	)				(213	)				(19,660	)
Preferred unit distributions							(9,624	)				(105	)				(9,729	)
Issuance of OP units to REIT when redeemable partnership units redeemed				1,160,000			25,100					—					25,100
Issuance of OP units				164,727			257					—					257
Issuance of OP units due to option exercises				117,737			596					—					596
Retirement and forfeiture of OP units				(88,175	)		(1,945	)				—					(1,945	)
Amortization of deferred compensation costs							3,076					—					3,076
Adjustment to redeemable partnership units							(82,103	)				198					(81,905	)

Balance at June 30, 2011	$	286,250		60,518,921		$	830,410			662,373	$	12,222				$	1,128,882

See accompanying notes

DUPONT FABROS TECHNOLOGY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	Six months ended June 30,
	2011			2010
Cash flow from operating activities
Net income	$	39,906		$	15,426
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		36,204			30,187
Straight line rent		(22,952	)		(17,842	)
Amortization of deferred financing costs		1,146			1,840
Amortization of lease contracts above and below market value		(1,071	)		(1,433	)
Compensation paid with Company common shares		2,923			1,795
Changes in operating assets and liabilities
Restricted cash		223			(145	)
Rents and other receivables		1,578			13
Deferred costs		(1,566	)		(2,302	)
Prepaid expenses and other assets		(738	)		(2,371	)
Accounts payable and accrued liabilities		(4,577	)		374
Accrued interest payable		(35	)		(328	)
Prepaid rents and other liabilities		3,903			2,338

Net cash provided by operating activities		54,944			27,552

Cash flow from investing activities
Investments in real estate – development		(213,464	)		(88,312	)
Land acquisition costs		(9,507	)		—
Marketable securities held to maturity
Purchase		—			(60,014	)
Redemption		—			138,978
Interest capitalized for real estate under development		(14,654	)		(9,845	)
Improvements to real estate		(1,454	)		(1,745	)
Additions to non-real estate property		(88	)		(95	)

Net cash used in investing activities		(239,167	)		(21,033	)

Cash flow from financing activities
Issuance of preferred units, net of offering costs		97,450			—
Issuance of common units, net of offering costs		—			304,107
Mortgage notes payable:
Repayments		(2,600	)		(1,000	)
Return of escrowed proceeds		1,104			4,513
Exercises of stock options		596			309
Payments of financing costs		(218	)		(2,614	)
Distributions		(27,817	)		(5,428	)

Net cash provided by financing activities		68,515			299,887

Net (decrease) increase in cash and cash equivalents		(115,708	)		306,406
Cash and cash equivalents, beginning		222,428			33,588

Cash and cash equivalents, ending	$	106,720		$	339,994

Supplemental information:
Cash paid for interest	$	27,867		$	31,851

Deferred financing costs capitalized for real estate under development	$	697		$	834

Construction costs payable capitalized for real estate under development	$	48,048		$	16,542

Redemption of OP units for common shares	$	25,100		$	61,300

Adjustments to redeemable partnership units	$	81,905		$	163,826

See accompanying notes

DUPONT FABROS TECHNOLOGY, INC.

DUPONT FABROS TECHNOLOGY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2011

(unaudited)

1. Description of Business

DuPont Fabros Technology, Inc. (the “REIT” or “DFT”), through its controlling interest in DuPont Fabros Technology, L.P. (the “Operating Partnership” or “OP” and collectively with DFT and their operating subsidiaries, the “Company”), is a fully integrated, self-administered and self-managed company that owns, acquires, develops and operates wholesale data centers. DFT was formed on March 2, 2007 and completed its initial public offering of common stock (the “IPO”) on October 24, 2007. DFT elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes commencing with the taxable year ended December 31, 2007. DFT is the sole general partner of the Operating Partnership and, as of June 30, 2011, owned 74.6% of the partnership interests in the Operating Partnership, of which 1.1% is held as general partnership units. As of June 30, 2011, the Company holds a fee simple interest in the following properties:

•

eight operating data centers—referred to as ACC2, ACC3, ACC4, ACC5, VA3, VA4, CH1 Phase I and NJ1 Phase I;

•

data center projects under current development—referred to as ACC6 Phase I, SC1 Phase I and CH1 Phase II;

•

data center projects available for future development— the second phases of ACC6, NJ1 and SC1; and

•

land that may be used to develop additional data centers—referred to as ACC7, ACC8 and SC2.

In the second quarter of 2011, the Company acquired land for development of a 36.4 megawatt data center that will be known as ACC7. The land held to develop a 10.4 megawatt data center formerly known as ACC7 was renamed ACC8.

2. Significant Accounting Policies

Basis of Presentation

This report combines the quarterly reports on Form 10-Q for the quarter and six months ended June 30, 2011 of DuPont Fabros Technology, Inc. and DuPont Fabros Technology, L.P. The Company believes combining the quarterly reports on Form 10-Q of DFT and the Operating Partnership into this single report provides the following benefits:

•

enhances investors’ understanding of DFT and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•

creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

Management operates DFT and the Operating Partnership as one business. The management of DFT consists of the same members as the management of the Operating Partnership.

The Company believes it is important to understand the few differences between DFT and the Operating Partnership in the context of how DFT and the Operating Partnership operate as a consolidated company. DFT is a REIT, whose only material asset is its ownership of OP units of the Operating Partnership. As a result, DFT does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing unsecured debt of the Operating Partnership. DFT has not issued any indebtedness, but has guaranteed all of the unsecured debt of the Operating Partnership. The Operating Partnership holds all the real estate assets of the Company. Except for net proceeds from public equity issuances by DFT, which are contributed to the Operating Partnership in exchange for OP units or preferred units, the Operating Partnership generates all remaining capital required by the Company’s business. These sources include the Operating Partnership’s operations, its direct or indirect incurrence of indebtedness, and the issuance of partnership units.

The accompanying unaudited consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the full year. These consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere in this Form 10-Q and the audited financial statements and accompanying notes for the year ended December 31, 2010 contained in the Company’s Form 10-K, which contains a complete listing of the Company’s significant accounting policies.

The Company has one reportable segment consisting of investments in data centers located in the United States.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Property

Depreciation on buildings is generally provided on a straight-line basis over 40 years from the date the buildings were placed in service. Building components are depreciated over the life of the respective improvement ranging from 20 to 40 years from the date the components were placed in service. Personal property is depreciated over three to seven years. Depreciation expense was $17.0 million and $13.9 million for the three months ended June 30, 2011 and 2010, respectively, and $33.9 million and $27.9 million for the six months ended June 30, 2011 and 2010, respectively. Included in these amounts is amortization expense related to tenant origination costs, which was $1.2 million for each of the three months ended June 30, 2011 and 2010, respectively, and $2.4 million for each of the six months ended June 30, 2011 and 2010, respectively. Repairs and maintenance costs are expensed as incurred.

The Company records impairment losses on long-lived assets used in operations or in development when events or changes in circumstances indicate that the assets might be impaired, and the estimated undiscounted cash flows to be generated by those assets are less than the carrying amounts. If circumstances indicating impairment of a property are present, the Company would determine the fair value of that property, and an impairment loss would be recognized in an amount equal to the excess of the carrying amount of the impaired asset over its fair value. Management assesses the recoverability of the carrying value of its assets on a property-by-property basis. No impairment losses were recorded during the six months ended June 30, 2011 and 2010.

The Company classifies a data center property as held-for-sale when it meets the necessary criteria, which include when the Company commits to and actively embarks on a plan to sell the asset, the sale is expected to be completed within one year under terms usual and customary for such sales, and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Data center properties held-for-sale are carried at the lower of cost or fair value less costs to sell. As of June 30, 2011, there were no data center properties classified as held-for-sale and discontinued operations.

Deferred Costs

Deferred costs, net on the Company’s consolidated balance sheets include both financing and leasing costs.

Financing costs, which represent fees and other costs incurred in obtaining debt, are amortized using the effective-interest rate method or a method that approximates the effective-interest method, over the term of the loan and are included in amortization of deferred financing costs. Balances, net of accumulated amortization, at June 30, 2011 and December 31, 2010 are as follows (in thousands):


	June 30, 2011			December 31, 2010
Financing costs	$	19,957		$	19,788
Accumulated amortization		(4,870	)		(3,077	)

Financing costs, net	$	15,087		$	16,711

Leasing costs, which are either external fees and costs incurred in the successful negotiations of leases, internal costs expended in the successful negotiations of leases or the estimated leasing commissions resulting from the allocation of the purchase price of ACC2, VA3, VA4 and ACC4, are deferred and amortized over the terms of the related leases on a straight-line basis. If an applicable lease terminates prior to the expiration of its initial term, the carrying amount of the costs are written off to amortization expense. The Company incurred leasing costs of $1.6 million and $2.3 million for the six months ended June 30, 2011 and 2010, respectively. Amortization of deferred leasing costs totaled $1.1 million and $1.2 million for the three months ended June 30, 2011 and 2010, respectively, and $2.3 million for each of the six months ended June 30, 2011 and 2010. Balances, net of accumulated amortization, at June 30, 2011 and December 31, 2010 are as follows (in thousands):


	June 30, 2011			December 31, 2010
Leasing costs	$	45,921		$	44,355
Accumulated amortization		(17,824	)		(15,523	)

Leasing costs, net	$	28,097		$	28,832

Inventory

The Company maintains fuel inventory for its generators, which is recorded at the lower of cost (on a first-in, first-out basis) or market. As of June 30, 2011 and December 31, 2010, the fuel inventory was $1.9 million and $2.0 million, respectively, and is included in prepaid expenses and other assets in the accompanying consolidated balance sheets.

Rental Income

The Company, as a lessor, has retained substantially all the risks and benefits of ownership and accounts for its leases as operating leases. For lease agreements that provide for scheduled fixed and determinable rent increases, rental income is recognized on a straight-line basis over the non-cancellable term of the leases, which commences when control of the space and critical power have been provided to the tenant. If the lease contains an early termination clause with a penalty payment, the Company determines the lease termination date by evaluating whether the penalty reasonably assures that the lease will not be terminated early. Lease inducements, which include free rent or cash payments to tenants, are amortized as a reduction of rental income over the non-cancellable lease term. Straight-line rents receivable are included in deferred rent on the consolidated balance sheets. Lease intangible assets and liabilities that have resulted from above-market and below-market leases that were acquired are amortized on a straight-line basis as decreases and increases, respectively, to rental revenue over the remaining non-cancellable term of the underlying leases. If a lease terminates prior to the expiration of its initial term, the unamortized portion of lease intangibles associated with that lease will be written off to rental revenue. Balances, net of accumulated amortization, at June 30, 2011 and December 31, 2010 are as follows (in thousands):


	June 30, 2011			December 31, 2010
Lease contracts above market value	$	23,100		$	23,100
Accumulated amortization		(11,048	)		(9,616	)

Lease contracts above market value, net	$	12,052		$	13,484


Lease contracts below market value	$	45,700		$	45,700
Accumulated amortization		(24,884	)		(22,381	)

Lease contracts below market value, net	$	20,816		$	23,319

The Company’s policy is to record a provision for losses on accounts receivable equal to the estimated uncollectible accounts. The estimate is based on management’s historical experience and a review of the current status of the Company’s receivables. The Company will also establish, as necessary, an appropriate allowance for doubtful accounts for receivables arising from the straight-lining of rents. This receivable arises from revenue recognized in excess of amounts currently due under the lease.

Tenant leases generally contain provisions under which the tenants reimburse the Company for a portion of the property’s operating expenses and real estate taxes incurred by the property. Recoveries from tenants are included in revenue in the consolidated statements of operations in the period the applicable expenditures are incurred. Recoveries from tenants also include the property management fees that the Company earns from its tenants.

Other Revenue

Other revenue primarily consists of services provided to tenants on a non-recurring basis. This includes projects such as the purchase and installation of circuits, racks, breakers and other tenant requested items. Revenue is recognized on a completed contract basis. Costs of providing these services are included in other expenses in the accompanying consolidated statements of operations.

Redeemable Noncontrolling Interests—Operating Partnership / Redeemable Partnership Units

Redeemable noncontrolling interests – operating partnership, as presented on DFT’s consolidated balance sheets, represent the limited partnership interests in the Operating Partnership (“OP units”) held by individuals and entities other than DFT. These interests are also presented on the Operating Partnership’s consolidated balance sheets, referred to as “redeemable partnership units.” Accordingly, the following discussion related to redeemable noncontrolling interests – operating partnership of the REIT refers equally to redeemable partnership units of the Operating Partnership.

Redeemable noncontrolling interests—operating partnership, which require cash payment, or allow settlement in shares, but with the ability to deliver the shares outside of the control of DFT, are reported outside of the permanent equity section of the consolidated balance sheets of DFT and Operating Partnership. Redeemable noncontrolling interests—operating partnership are adjusted for income, losses and distributions allocated to OP units not held by DFT (normal noncontrolling interest accounting amount). Adjustments to redeemable noncontrolling interests—operating partnership are recorded to reflect increases or decreases in the ownership of the Operating Partnership by holders of OP units, including in the case of redemptions of OP units for cash or in exchange for shares of DFT’s common stock. If such adjustments result in redeemable noncontrolling interests—operating partnership being recorded at less than the redemption value of the OP units, redeemable noncontrolling interests—operating partnership are further adjusted to their redemption value (see Note 6). Redeemable noncontrolling interests—operating partnership are recorded at the greater of the normal noncontrolling interest accounting amount or redemption value. The following is a summary of activity for redeemable noncontrolling interests—operating partnership for the six months ended June 30, 2011 (dollars in thousands):


	OP Units
	Number			Amount
Balance at December 31, 2010		21,947,499		$	466,823
Comprehensive income attributable to redeemable noncontrolling interests – operating partnership:
Net income attributable to redeemable noncontrolling interests – operating partnership		—			7,768
Distributions declared		—			(5,006	)
Redemption of OP units		(1,160,000	)		(25,100	)
Adjustment to redeemable noncontrolling interests – operating partnership		—			79,360

Balance at June 30, 2011		20,787,499		$	523,845

Net income is allocated to controlling interests and redeemable noncontrolling interests—operating partnership in accordance with the limited partnership agreement of the Operating Partnership. The following is a summary of net income attributable to controlling interests and transfers to redeemable noncontrolling interests—operating partnership for the three and six months ended June 30, 2011 and 2010 (dollars in thousands):


	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Net income attributable to controlling interests	$	18,026		$	6,921		$	32,138		$	10,212
Transfers from noncontrolling interests:
Net change in the Company’s common stock and additional paid in capital due to the redemption of OP units and other adjustments to redeemable noncontrolling interests—operating partnership		(14,309	)		(39,527	)		(54,260	)		(101,942	)

	$	3,717		$	(32,606	)	$	(22,122	)	$	(91,730	)

Comprehensive Income

DFT reports comprehensive income on its consolidated statement of stockholders’ equity and within redeemable noncontrolling interests—operating partnership. The Operating Partnership reports comprehensive income on its consolidated statement of partners’ capital. Comprehensive income is defined as all changes in equity during each period except those resulting from investments by or distributions to shareholders of the REIT or partners of the Operating Partnership. For the three and six months ended June 30, 2011 and 2010, comprehensive income attributable to controlling interests and noncontrolling interests was comprised exclusively of net income attributable to controlling interests and noncontrolling interests.

Earnings Per Share of the REIT

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

Earnings Per Unit of the Operating Partnership

Basic earnings per unit is calculated by dividing the net income attributable to common units for the period by the weighted average number of common units outstanding during the period using the two class method. Diluted earnings per unit is calculated by dividing the net income attributable to common units for the period by the weighted average number of common and dilutive securities outstanding during the period.

Stock-based Compensation

DFT awards stock-based compensation to employees and members of its Board of Directors in the form of common stock. For each stock award granted by DFT, the OP issues an equivalent common unit, which may be referred to herein as a common share, common stock, or common unit. The Company estimates the fair value of the awards and recognizes this value over the requisite vesting period. The fair value of restricted stock-based compensation is based on the market value of DFT’s common stock on the date of the grant. The fair value of options to purchase common stock is based on the Black-Scholes model.

Reclassifications

Certain amounts from the prior year have been reclassified for consistency with the current year presentation.

3. Real Estate Assets

The following is a summary of properties owned by the Company at June 30, 2011 (dollars in thousands):


Property	Location	Land		Buildings and Improvements		Construction in Progress and Land Held for Development		Total Cost
ACC2	Ashburn, VA	$	2,500	$	158,771	$	—	$	161,271
ACC3	Ashburn, VA		1,071		94,604		—		95,675
ACC4	Ashburn, VA		6,600		535,514		—		542,114
ACC5	Ashburn, VA		6,442		296,941		—		303,383
VA3	Reston, VA		9,000		175,109		—		184,109
VA4	Bristow, VA		6,800		142,131		—		148,931
CH1 Phase I	Elk Grove Village, IL		13,807		182,356		—		196,163
NJ1 Phase I	Piscataway, NJ		4,311		190,970		—		195,281

			50,531		1,776,396		—		1,826,927

Construction in progress and land held for development	(1)		—		—		560,701		560,701

		$	50,531	$	1,776,396	$	560,701	$	2,387,628

(1)	Properties located in Ashburn, VA (ACC6, ACC7 and ACC8); Elk Grove Village, IL (CH1 Phase II); Piscataway, NJ (NJ1 Phase II) and Santa Clara, CA (SC1 and SC2).

In June 2011, the Company purchased an undeveloped parcel of land from an entity controlled by its Executive Chairman and President and CEO for $9.6 million. The Executive Chairman and the President and CEO owned a 24% and 18% interest in this entity, respectively. One of DFT’s independent directors is a non-managing member of the entity and has a 4% interest in this entity. The location of the parcel, which consists of approximately 23 acres, is adjacent to the Company’s ACC data center campus in Ashburn, Virginia and is being held for development of a 36.4 megawatt data center known as ACC7. The process was managed by the Company’s audit committee, and the purchase price was based on appraisals prepared by independent appraisal firms.

4. Debt

Debt Summary as of June 30, 2011 and December 31, 2010

($ in thousands)


	June 30, 2011										December 31, 2010
	Amounts		% of Total			Rates (1)			Maturities (years)		Amounts
Secured	$	147,400		21.1	%		5.8	%		3.4	$	150,000
Unsecured		550,000		78.9	%		8.5	%		5.8		550,000

Total	$	697,400		100.0	%		7.9	%		5.3	$	700,000

Fixed Rate Debt:
Unsecured Notes	$	550,000		78.9	%		8.5	%		5.8	$	550,000

Fixed Rate Debt		550,000		78.9	%		8.5	%		5.8		550,000

Floating Rate Debt:
Unsecured Credit Facility		—		—			—			1.9		—
ACC5 Term Loan		147,400		21.1	%		5.8	%		3.4		150,000

Floating Rate Debt		147,400		21.1	%		5.8	%		3.4		150,000

Total	$	697,400		100.0	%		7.9	%		5.3	$	700,000

Note:

The Company capitalized interest and deferred financing cost amortization of $8.8 million and $15.4 million during the three and six months ended June 30, 2011, respectively.

(1)	Rates as of June 30, 2011. On July 29, 2011, the Company amended the ACC5 Term Loan, reducing the rate from 5.8% to LIBOR (currently 0.2%) plus a 3% spread.

Outstanding Indebtedness

ACC5 Term Loan

On December 2, 2009, the Company entered into a $150 million term loan facility (the “ACC5 Term Loan”). An interest reserve in the amount of $10.0 million was withheld from the loan proceeds and the remaining interest reserve was classified as restricted cash on the Company’s consolidated balance sheets. As of June 30, 2011, this interest reserve was zero as the reserve was fully utilized for interest payments. The ACC5 Term Loan matures on December 2, 2014 and borrowings bear interest at LIBOR plus 4.25% with a LIBOR floor of 1.5%. As of June 30, 2011, the interest rate for this loan was 5.75%. As of July 1, 2011, the interest rate decreased to LIBOR plus 4.00%. The loan is secured by the ACC5 and ACC6 data centers and an assignment of the lease agreements between the Company and the tenants of ACC5 and ACC6. The Operating Partnership has guaranteed the outstanding principal amount of the ACC5 Term Loan, plus interest and certain costs under the loan.

The original terms of the ACC5 Term Loan required that, within 120 days of the closing date, the Company enter into an interest rate swap or cap agreement with a notional principal amount equal to the outstanding principal amount of the loan. On March 24, 2010 the Company executed an amendment to the ACC5 Term Loan that, among other things, eliminated the 120 day requirement. The Operating Partnership is now required to enter into an interest rate protection agreement only upon the earlier to occur of (i) 30 days following the date on which U.S. dollar one month LIBOR equals or exceeds 3.75% or (ii) the occurrence of a default under the ACC5 Term Loan.

The loan requires quarterly installments of principal of $1.3 million that began in January 2011, and may be prepaid in whole or in part without penalty any time, subject to the payment of certain LIBOR rate breakage fees. The Company may increase the total loan on or before June 30, 2012 to not more than $250 million, subject to lender commitments, receipt of new appraisals of the ACC5 and ACC6 property, a minimum debt service coverage ratio of no less than 1.65 to 1, and a maximum loan-to-value of 50%.

The ACC5 Term Loan requires ongoing compliance with various covenants, including with respect to restrictions on liens, incurring indebtedness, making investments, effecting mergers and/or assets sales and maintenance of certain leases. In addition, the ACC5 Term Loan requires ongoing compliance with certain financial covenants, including, without limitation, the following:

•

The principal amount of the loan may not exceed 60% of the appraised value of ACC5 and ACC6;

•

The Company must maintain the following minimum debt service coverage ratios:

•

Calendar quarter ending June 30, 2011—1.00 to 1;

•

Calendar quarters ending September 30, 2011 and December 31, 2011—1.15 to 1; and

•

Commencing with the calendar quarter ending March 31, 2012 and continuing for the remainder of the term—1.50 to 1; provided, however, that if the Company exercises its right to increase the total amount of the loan above $150 million, 1.65 to 1.

•

Consolidated total indebtedness of the Operating Partnership and its subsidiaries to gross asset value of the Operating Partnership and its subsidiaries must not exceed 65% during the term of the loan;

•

Ratio of adjusted consolidated Earnings Before Interest Taxes Depreciation and Amortization to consolidated fixed charges must not be less than 1.45 to 1 during the term of the loan; and

•

Minimum consolidated tangible net worth of the Operating Partnership and its subsidiaries must not be less than approximately $575 million (plus 75% of the sum of (i) the net proceeds from any offerings after December 2, 2009 and (ii) the value of any interests in the Operating Partnership or DFT issued upon the contribution of assets to DFT, the Operating Partnership or its subsidiaries after December 2, 2009) during the term of the loan.

The terms of the ACC5 Term Loan limit the Company’s investment in development properties to $1 billion and the Company is not permitted to have more than five properties in development at any time. If a development property is being developed in multiple phases, only the phase actually being constructed shall be considered a development property for this test. Once construction of a phase is substantially complete and the phase is 80% leased, it is no longer deemed a development property for purposes of this covenant.

The credit agreement that governs the ACC5 Term Loan also has customary events of default, including, but not limited to, nonpayment, breach of covenants, and payment or acceleration defaults in certain other of the Company’s indebtedness. Upon an event of default, the lenders may declare the loan due and immediately payable. Also, upon a change in control, lenders that hold two-thirds of the outstanding principal amount of the loan may declare it due and payable.

The credit agreement that governs the ACC5 Term Loan contains definitions of many of the terms used in this summary of covenants. The Company was in compliance with all of the covenants under the loan as of June 30, 2011.

Unsecured Notes

On December 16, 2009, the Operating Partnership completed the sale of $550 million of 8.5% senior notes due 2017 (the “Unsecured Notes”). The Unsecured Notes were issued at face value. The Company pays interest on the Unsecured Notes semi-annually, in arrears, on December 15 and June 15 of each year. On each of December 15, 2015 and December 15, 2016, $125 million in principal amount of the Unsecured Notes will become due and payable, with the remaining $300 million due on December 15, 2017.

The Unsecured Notes are unconditionally guaranteed, jointly and severally on a senior unsecured basis by DFT and certain of the Operating Partnership’s subsidiaries, including the subsidiaries that own the ACC2, ACC3, ACC4, ACC5, ACC6, VA3, VA4, CH1 and NJ1 data centers (collectively, the “Subsidiary Guarantors”), but excluding the subsidiaries that own the SC1 data center, the ACC7, ACC8 and SC2 parcels of land, and the Company’s taxable REIT subsidiary (“TRS”), DF Technical Services, LLC.

The Unsecured Notes rank (i) equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured indebtedness, (ii) senior in right of payment with all of its existing and future subordinated indebtedness, (iii) effectively subordinate to any of the Operating Partnership’s existing and future secured indebtedness and (iv) effectively junior to any liabilities of any subsidiaries of the Operating Partnership that do not guarantee the Unsecured Notes. The guarantees of the Unsecured Notes by DFT and the Subsidiary Guarantors rank (i) equally in right of payment with such guarantor’s existing and future senior unsecured indebtedness, (ii) senior in right of payment with all of such guarantor’s existing and future subordinated indebtedness and (iii) effectively subordinate to any of such guarantor’s existing and future secured indebtedness.

At any time prior to December 15, 2013, the Operating Partnership may redeem the Unsecured Notes, in whole or in part, at a price equal to the sum of (i) 100% of the principal amount of the Unsecured Notes to be redeemed, plus (ii) a make-whole premium and accrued and unpaid interest. On or after December 15, 2013, the Operating Partnership may redeem the Unsecured Notes, in whole or in part, at (i) 104.250% from December 15, 2013 to December 14, 2014, (ii) 102.125% from December 15, 2014 to December 14, 2015 and (iii) 100% of the principal amount of the Unsecured Notes from December 15, 2015 and thereafter, in each case plus accrued and unpaid interest. In addition, on or prior to December 15, 2012, the Operating Partnership may redeem up to 35% of the Unsecured Notes at 108.500% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of certain equity offerings consummated by DFT or the Operating Partnership.

If there is a change of control (as defined in the Indenture) of the Operating Partnership or DFT, Unsecured Note holders can require the Operating Partnership to purchase their Unsecured Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest. In addition, in certain circumstances the Operating Partnership may be required to use the net proceeds of asset sales to purchase a portion of the Unsecured Notes at 100% of the principal amount thereof, plus accrued and unpaid interest.

(v) entering into agreements limiting the ability to make certain transfers and other payments from subsidiaries or (vi) engaging in certain mergers, consolidations or transfers/sales of assets. The Unsecured Notes also require the Operating Partnership and the Subsidiary Guarantors to maintain total unencumbered assets of at least 150% of their unsecured debt on a consolidated basis. All of the covenants are subject to a number of important qualifications and exceptions.

The Unsecured Notes also have customary events of default, including, but not limited to, nonpayment, breach of covenants, and payment or acceleration defaults in certain other indebtedness of the Company or certain of its subsidiaries. Upon an event of default, the holders of the Unsecured Notes or the trustee may declare the Unsecured Notes due and immediately payable. The Company was in compliance with all covenants under the Unsecured Notes as of June 30, 2011.

Unsecured Credit Facility

On May 6, 2010, the Operating Partnership entered into a credit agreement providing for an $85 million unsecured revolving credit facility. The facility was increased to $100 million in August 2010 through the use of its accordion feature. The facility has an initial maturity date of May 6, 2013, with a one-year extension option, subject to the payment of an extension fee equal to 50 basis points on the amount of the facility at initial maturity and certain other customary conditions. As of June 30, 2011, the Operating Partnership has not drawn down any funds under the facility.

The facility is unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and all of the Operating Partnership’s subsidiaries that currently guaranty the obligations under the Company’s Indenture governing the terms of the Operating Partnership’s 8.5% senior notes due 2017, including the subsidiaries that own the ACC2, ACC3, ACC4, ACC5, ACC6, VA3, VA4, CH1 and NJ1 data centers, but excluding the subsidiaries that own the SC1 data center, the ACC7, ACC8 and SC2 parcels of land, and the TRS.

On February 4, 2011, the Operating Partnership entered into a first amendment to its unsecured credit facility, which removes the 1% floor for LIBOR established under the original agreement and establishes applicable margins for LIBOR based loans and base rate loans that are based on the Company’s ratio of total indebtedness to gross asset value. Under the amendment, the Company may still elect to have borrowings under the facility bear interest at either LIBOR or a base rate, in each case plus an applicable margin. The applicable margin added to LIBOR now is based on the table below instead of a flat 450 basis points, and the applicable margin added to the base rate now is based on the table below instead of a flat 300 basis points.


		Applicable Margin
Pricing Level	Ratio of Total Indebtedness to Gross Asset Value	LIBOR Rate Loans			Base Rate Loans
Pricing Level 1	Less than or equal to 35%		3.25	%		1.25	%
Pricing Level 2	Greater than 35% but less than or equal to 45%		3.50	%		1.50	%
Pricing Level 3	Greater than 45% but less than or equal to 55%		3.75	%		1.75	%
Pricing Level 4	Greater than 55%		4.25	%		2.25	%

Under the amendment, the initial applicable margin is set at pricing level 1. The terms of the amendment provide for the adjustment to the applicable margin from time to time.

The amount available for borrowings under the facility will be determined according to a calculation comparing the value of certain unencumbered properties designated by the Operating Partnership at such time relative to the amount of the Operating Partnership’s unsecured debt. As of June 30, 2011, all $100 million of the facility was available for borrowing. Up to $25 million of borrowings under the facility may be used for letters of credit.

The facility requires that the Company, the Operating Partnership and their subsidiaries comply with various covenants, including with respect to restrictions on liens, incurring indebtedness, making investments, effecting mergers and/or asset sales, and certain restrictions on dividend payments. In addition, the facility imposes financial maintenance covenants relating to, among other things, the following matters:

•

unsecured debt not exceeding 60% of the value of unencumbered assets;

•

net operating income generated from unencumbered properties divided by the amount of unsecured debt being not less than 12.5%;

•

total indebtedness not exceeding 60% of gross asset value;

•

fixed charge coverage ratio being not less than 1.70 to 1.00; and

•

tangible net worth being not less than $750 million plus 80% of the sum of (i) net equity offering proceeds and (ii) the value of equity interests issued in connection with a contribution of assets to the Operating Partnership or its subsidiaries.

The facility includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Operating Partnership under the facility to be immediately due and payable. The Company was in compliance with all covenants under the facility as of June 30, 2011.

A summary of the Company’s debt maturity schedule as of June 30, 2011 is as follows:

Debt Maturity as of June 30, 2011

($ in thousands)


Year	Fixed Rate			Floating Rate			Total		% of Total			Rates (3)
2011	$	—		$	2,600	(2)	$	2,600		0.4	%		5.8	%
2012		—			5,200	(2)		5,200		0.7	%		5.8	%
2013		—			5,200	(2)		5,200		0.7	%		5.8	%
2014		—			134,400	(2)		134,400		19.3	%		5.8	%
2015		125,000	(1)		—			125,000		17.9	%		8.5	%
2016		125,000	(1)		—			125,000		17.9	%		8.5	%
2017		300,000	(1)		—			300,000		43.1	%		8.5	%

Total	$	550,000		$	147,400		$	697,400		100	%		7.9	%

(1)	The Unsecured Notes have mandatory amortizations of $125.0 million due in 2015, $125.0 million due in 2016 and $300.0 million due in 2017.

(2)	The ACC5 Term Loan matures on December 2, 2014 with no extension option. Scheduled quarterly principal amortization payments of $1.3 million started in the first quarter of 2011.

(3)	Rates as of June 30, 2011.

5. Commitments and Contingencies

The Company is involved from time to time in various legal proceedings, lawsuits, examinations by various tax authorities and claims that have arisen in the ordinary course of business. Management currently believes that the resolution of such matters will not have a material adverse effect on the Company’s financial condition or results of operations.

Contracts related to the development of the ACC6 Phase I, SC1 Phase I and CH1 Phase II data centers were in place as of June 30, 2011. These contracts are cost-plus in nature whereby the contract sum is the aggregate of the cost of the actual work performed and equipment purchased plus a contractor fee. Control estimates, which are adjusted from time to time to reflect any contract changes, are estimates of the total contract cost at completion. As of June 30, 2011, the ACC6 Phase I control estimate was $119.0 million of which $113.8 million has been incurred, the SC1 Phase I control estimate was $230.2 million of which $220.2 million has been incurred and the CH1 Phase II control estimate was $163.3 million of which $77.0 million has been incurred. Because of the cost-plus nature of these contracts, if development was halted on these projects, the Company would incur liabilities less than what is remaining within the control estimates. As of June 30, 2011, the Company had entered into commitments through its construction general contractor to purchase $49.5 million in equipment and labor for the ACC6 Phase I, SC1 Phase I and CH1 Phase II development properties. Additionally, the Company has entered into contracts for various projects at its NJ1 property totaling $17.8 million of which $0.8 million was incurred as of June 30, 2011.

Concurrent with DFT’s IPO in October 2007, the Company entered into tax protection agreements with some of the contributors of the initial properties including DFT’s Executive Chairman and President and CEO. Pursuant to the terms of these agreements, if the Company disposes of any interest in the initial contributed properties that generates more than a certain allowable amount of built-in gain for the contributors, as a group, in any single year through 2017, the Company will indemnify the contributors for a portion of the tax liabilities incurred with respect to the amount of built-in gain and tax liabilities incurred as a result of the reimbursement payment. The amount of initial built-in gain that can be recognized as of June 30, 2011 without triggering the tax protection provisions is approximately 44% of the initial built in gain of $667 million (unaudited). This percentage grows each year by 10%, accumulating to 100% in 2017. The Company’s estimated aggregate built-in gain attributed to the initial contributors as of December 31, 2009 was approximately $480—$500 million (unaudited) and will be updated when the 2010 tax returns are finalized. Additionally, the Company must provide an opportunity for certain of the contributors of the initial properties to guarantee a secured loan. Any sale by the Company that requires payments to any of DFT’s executive officers or directors pursuant to these agreements requires the approval of at least 75% of the disinterested members of DFT’s Board of Directors.

6. Redeemable noncontrolling interests – operating partnership / Redeemable partnership units

Redeemable noncontrolling interests – operating partnership, as presented on DFT’s consolidated balance sheets, represent the OP units held by individuals and entities other than DFT. These interests are also presented on the Operating Partnership’s consolidated balance sheets, referred to as “redeemable partnership units.” Accordingly, the following discussion related to redeemable noncontrolling interests – operating partnership of the REIT refers equally to redeemable partnership units of the Operating Partnership.

The redemption value of redeemable noncontrolling interests – operating partnership at June 30, 2011 and December 31, 2010 was $523.8 million and $466.8 million based on the closing share price of DFT’s common stock of $25.20 and $21.27, respectively, on those dates.

Holders of OP units are entitled to receive distributions in a per unit amount equal to the per share dividends made with respect to each share of DFT’s common stock, if and when DFT’s Board of Directors declares such a dividend. Holders of OP units have the right to tender their units for redemption, in an amount equal to the fair market value of DFT’s common stock. DFT may elect to redeem tendered OP units for cash or for shares of DFT’s common stock. During the six months ended June 30, 2011, OP unitholders redeemed 1,160,000 OP units in exchange for an equal number of shares of DFT’s common stock. See Note 2.

7. Preferred Stock

Series A Preferred Stock

On October 13, 2010, DFT issued 7,400,000 shares of 7.875% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) for $185.0 million in an underwritten public offering that resulted in proceeds to the Company, net of underwriting discounts, commissions, advisory fees and other offering costs of $178.6 million. The liquidation preference on the Series A Preferred Stock is $25 per share and dividends are scheduled quarterly.

In 2011, DFT has declared and paid the following cash dividends on its Series A Preferred Stock:

•

$0.4921875 per share payable to shareholders of record as of March 29, 2011. This dividend was paid on April 15, 2011.

•

$0.4921875 per share payable to shareholders of record as of June 28, 2011. This dividend was paid on July 15, 2011.

For each share of Series A Preferred Stock issued by DFT, the Operating Partnership issued a preferred unit equivalent to DFT with the same terms.

Except in instances relating to preservation of the Company’s qualification as a REIT or pursuant to the special optional redemption right discussed below, the Series A Preferred Stock is not redeemable prior to October 15, 2015. On and after October 15, 2015, the Company may, at its option, redeem the Series A Preferred Stock, in whole, at any time, or in part, from time to time, for cash at a redemption price of $25 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption.

If, at any time following a change of control, the Series A Preferred Stock is not listed on the NYSE or quoted on NASDAQ (or listed or quoted on a successor exchange or quotation system), holders will be entitled to receive dividends at an increased rate of 11.875%, and the Company will have the option to redeem the Series A Preferred Stock, in whole but not in part, within 90 days after the first date on which both the change of control has occurred and the Series A Preferred Stock is not so listed or quoted, for cash at $25 per share, plus accrued and unpaid dividends (whether or not declared) to, but not including, the redemption date.

Series B Preferred Stock

On March 3, 2011, DFT issued 4,050,000 shares of 7.625% Series B Cumulative Redeemable Perpetual Preferred Stock (“Series B Preferred Stock”) for $101.3 million in an underwritten public offering that resulted in proceeds to the Company, net of underwriting discounts, commissions, advisory fees and other offering costs of $97.5 million. The liquidation preference on the Series B Preferred Stock is $25 per share and dividends are scheduled quarterly.

In 2011, DFT has declared and paid the following cash dividends on its Series B Preferred Stock:

•

$0.20121528 per share payable to shareholders of record as of March 29, 2011. This dividend was paid on April 15, 2011.

•

$0.476562 per share payable to shareholders of record as of June 28, 2011. This dividend was paid on July 15, 2011.

For each share of Series B Preferred Stock issued by DFT, the Operating Partnership issued a preferred unit equivalent to DFT with the same terms.

Except in instances relating to preservation of the Company’s qualification as a REIT or pursuant to the special optional redemption right and conversion right discussed below, the Series B Preferred Stock is not redeemable prior to March 15, 2016 or convertible at any time. On and after March 15, 2016, the Company may, at its option, redeem the Series B Preferred Stock, in whole, at any time, or in part, from time to time, for cash at a redemption price of $25 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption.

Upon the occurrence of a change of control, DFT has a special optional redemption right that enables it to redeem the Series B Preferred Stock within 120 days after the first date on which a change of control has occurred resulting in neither DFT nor the surviving entity having a class of common shares listed on the NYSE, NYSE Amex or NASDAQ. For this special redemption right, the redemption price is $25 per share in cash, plus accrued and unpaid dividends (whether or not declared) to, but not including, the redemption date.

Upon the occurrence of a change of control that results in neither DFT nor the surviving entity having a class of common shares listed on the NYSE, NYSE Amex or NASDAQ, the holder will have the right (subject to DFT’s special optional redemption right to redeem the Series B Preferred Stock) to convert some or all of the Series B Preferred Stock into a number of shares of DFT’s common stock equal to the lesser of (A) the quotient obtained by dividing (i) the sum of (x) $25.00, plus (y) an amount equal to any accrued and unpaid dividends, whether or not declared, to but not including, the date of conversion (unless the date of conversion is after a record date for a Series B Preferred Stock dividend payment and prior to the corresponding Series B Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included in this quotient), by (ii) the price of our common stock, and (B) 2.105 (the Share Cap), subject to certain adjustments and provisions for the receipt of alternative consideration of equivalent value.

8. Stockholders’ Equity of the REIT

During the six months ended June 30, 2011, DFT issued an aggregate of 164,727 shares of common stock in connection with the hiring of new employees, annual grants and retainers for its Board of Directors and the Company’s annual grant of restricted stock to employees.

During the six months ended June 30, 2011, OP unitholders redeemed 1,160,000 OP units in exchange for an equal number of shares of DFT’s common stock.

In 2011, DFT has declared and paid the following cash dividends on its common stock:

•

$0.12 per share payable to shareholders of record as of March 29, 2011. This dividend was paid on April 8, 2011.

•

$0.12 per share payable to shareholders of record as of June 28, 2011. This dividend was paid on July 8, 2011.

9. Partners’ Capital of the Operating Partnership

During the six months ended June 30, 2011, the OP issued an aggregate of 164,727 OP units to DFT in connection with DFT’s issuance of the same number of shares of common stock in connection with the hiring of new employees, annual grants and retainers for its Board of Directors and the Company’s annual grant of restricted stock to employees.

During the six months ended June 30, 2011, OP unitholders redeemed 1,160,000 OP units in exchange for an equal number of shares of DFT’s common stock.

10. Equity Compensation Plan

In May 2011, DFT’s Board of Directors adopted the 2011 Equity Incentive Plan (the “2011 Plan”) following approval from its stockholders. The 2011 Plan is administered by the Compensation Committee of the Company’s Board of Directors. The 2011 Plan allows the Company to provide equity-based compensation to its personnel in the form of stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units, performance-based awards, unrestricted stock, long term incentives units (“LTIP units”) and other awards.

The 2011 Plan authorizes a maximum aggregate of 6,300,000 share equivalents be reserved for future issuances. In addition, shares that were awarded under the Company’s 2007 Equity Compensation Plan (the “2007 Plan”) that subsequently become available due to forfeitures of such awards will be available for issuance under the 2011 Plan. As of June 30, 2011, the maximum aggregate amount of share equivalents that may be issued under the 2011 Plan, including forfeitures under the 2007 Plan, is equal to 6,300,000 shares, of which 28,103 have been issued, leaving 6,271,897 share equivalents available for future issuance.

The 2011 Plan provides that awards can no longer be made under the 2007 Plan. Furthermore, under the 2011 Plan, shares of common stock that are subject to awards of options or stock appreciation rights will be counted against the 2011 Plan share limit as one share for every one share subject to the award. Any shares of stock that are subject to awards other than options or stock appreciation rights shall be counted against the 2011 Plan share limit as 2.36 shares for every one share subject to the award.

Restricted Stock

Restricted stock awards vest over specified periods of time as long as the employee remains employed with the Company and are not subject to any performance criteria. The following table sets forth the number of unvested shares of restricted stock and the weighted average fair value of these shares at the date of grant:


	Shares of Restricted Stock			Weighted Average Fair Value at Date of Grant
Unvested balance at December 31, 2010		636,851		$	10.82
Granted		153,992		$	23.62
Vested		(273,568	)	$	9.32
Forfeited		(7,888	)	$	15.11

Unvested balance at June 30, 2011		509,387		$	15.43

During the six months ended June 30, 2011, the Company issued 153,992 shares of restricted stock, which had a value of $3.6 million on the grant date. This amount will be amortized to expense over a three year vesting period. Also during the six months ended June 30, 2011, 273,568 shares of restricted stock vested at a value of $6.6 million on the vesting date.

As of June 30, 2011, total unearned compensation on restricted stock was $6.4 million, and the weighted average vesting period was 1.1 years.

Stock Options

Stock option awards are granted with an exercise price equal to the closing market price of DFT’s common stock at the date of grant and vest over specified periods of time as long as the employee remains employed with the Company. All shares to be issued upon option exercises will be newly issued shares and the options have 10-year contractual terms.

A summary of the Company’s stock option activity under the Plan for the six months ended June 30, 2011 is presented in the tables below.


	Number of Options			Weighted Average Exercise Price
Under option, December 31, 2010		1,403,277		$	8.13
Granted		637,879		$	23.79
Exercised		(117,737	)	$	5.06

Under option, June 30, 2011		1,923,419		$	13.51

Shares Subject
to Option

Total Unearned
Compensation

Weighted Average
Vesting Period

Weighted Average
Remaining
Contractual Term

As of June 30, 2011

1,923,419

6.0 million

1.3 years

8.5 years

The following table sets forth the number of unvested options as of June 30, 2011 and the weighted average fair value of these options at the grant date.


	Number of Options			Weighted Average Fair Value at Date of Grant
Unvested balance at December 31, 2010		1,140,353		$	3.40
Granted		637,879		$	7.38
Vested		(521,754	)	$	2.88

Unvested balance at June 30, 2011		1,256,478		$	5.63

The following table sets forth the number of exercisable options as of June 30, 2011 and the weighted average fair value and exercise price of these options at the grant date.


	Number of Options			Weighted Average Fair Value at Date of Grant
Options Exercisable at December 31, 2010		262,924		$	1.48
Vested		521,754		$	2.88
Exercised		(117,737	)	$	1.48

Options Exercisable at June 30, 2011		666,941		$	2.57

Exercisable
Options

Intrinsic Value

Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual Term

As of June 30, 2011

666,941

12.0 million

7.21

7.8 years

The intrinsic value of stock options exercised during the three and six months ended June 30, 2011 was $1.8 million and $2.3 million, respectively.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. As DFT has been a publicly traded company only since October 24, 2007, during which time DFT experienced significant volatility in its stock price, expected volatilities used in the Black-Scholes model are based on the historical volatility of a group of comparable REITs. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following table summarizes the assumptions used to value the stock options granted and the fair value of these options granted during the six months ended June 30, 2011.


	Assumption
Number of options granted		637,879
Exercise price	$	23.79
Expected term (in years)		4
Expected volatility		44	%
Expected annual dividend		2.02	%
Risk-free rate		1.72	%
Fair value at date of grant	$	4.7 million

11. Earnings Per Share of the REIT

The following table sets forth the reconciliation of basic and diluted average shares outstanding used in the computation of earnings per share of common stock (in thousands except for share and per share amounts):


	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Basic and Diluted Shares Outstanding
Weighted average common shares - basic		60,533,755			51,087,845			60,373,069			46,602,821
Effect of dilutive securities		1,043,706			1,320,809			1,107,700			1,296,293

Weighted average common shares - diluted		61,577,461			52,408,654			61,480,769			47,899,114

Calculation of Earnings per Share - Basic
Net income attributable to common shares	$	12,454		$	6,921		$	22,409		$	10,212
Net income allocated to unvested restricted shares		(104	)		(77	)		(194	)		(125	)

Net income attributable to common shares, adjusted		12,350			6,844			22,215			10,087
Weighted average common shares - basic		60,533,755			51,087,845			60,373,069			46,602,821

Earnings per common share - basic	$	0.20		$	0.13		$	0.37		$	0.22

Calculation of Earnings per Share - Diluted
Net income attributable to common shares	$	12,454		$	6,921		$	22,409		$	10,212
Adjustments to redeemable noncontrolling interests		53			58			103			94

Adjusted net income available to common shares		12,507			6,979			22,512			10,306
Weighted average common shares - diluted		61,577,461			52,408,654			61,480,769			47,899,114

Earnings per common share - diluted	$	0.20		$	0.13		$	0.37		$	0.22

Approximately 0.9 million stock options for the three and six months ended June 30, 2011 and approximately 0.3 million stock options for the three and six months ended June 30, 2010 have been excluded from the calculations of diluted earnings per share as their effect would have been antidilutive.

12. Earnings Per Unit of the Operating Partnership

The following table sets forth the reconciliation of basic and diluted average units outstanding used in the computation of earnings per unit:


	Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010
Basic and Diluted Units Outstanding
Weighted average common units - basic (includes redeemable partnership units and units of general and limited partners)		81,395,430		73,879,205		81,303,883		70,394,769
Effect of dilutive securities		1,043,706		1,320,809		1,107,700		1,296,293

Weighted average common units - diluted		82,439,136		75,200,014		82,411,583		71,691,062

13. Fair Value

Assets and Liabilities Measured at Fair Value

The Company follows the authoritative guidance issued by the FASB relating to fair value measurements that defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The guidance applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the guidance does not require any new fair value measurements of reported balances. The guidance excludes the accounting for leases, as well as other authoritative guidance that address fair value measurements on lease classification and measurement. The authoritative guidance issued by the FASB emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The authoritative guidance issued by the FASB requires disclosure of the fair value of financial instruments. Fair value estimates are subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks, discount rates, and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the amounts are not necessarily indicative of the amounts the Company would realize in a current market exchange.

The following methods and assumptions were used in estimating the fair value amounts and disclosures for financial instruments as of June 30, 2011:

•

Cash and cash equivalents: The carrying amount of cash and cash equivalents reported in the consolidated balance sheet approximates fair value because of the short maturity of these instruments (i.e., less than 90 days).

•

Restricted cash: The carrying amount of restricted cash reported in the consolidated balance sheets approximates fair value because of the short maturities of these instruments.

•

Rents and other receivables, accounts payable and accrued liabilities, and prepaid rents: The carrying amount of these assets and liabilities reported in the balance sheet approximates fair value because of the short-term nature of these amounts.

•

Debt: As of June 30, 2011, the combined balance of the Company’s Unsecured Notes and mortgage notes payable was $697.4 million with a fair value of $755.4 million based on Level 1 and Level 3 data. The Level 1 data is for the Unsecured Notes and consisted of a quote from the market maker in the Unsecured Notes. The Level 3 data is for the ACC5 Term Loan and is based on discounted cash flows using the one-month LIBOR rate as of June 30, 2011 plus the 4.25% spread on the ACC5 Term loan.

14. Supplemental Consolidating Financial Data for Subsidiary Guarantors of 8.5% Senior Unsecured Notes

On December 16, 2009, the Operating Partnership issued the Unsecured Notes (See Note 4). The Unsecured Notes are unconditionally guaranteed, jointly and severally on a senior unsecured basis by DFT and certain of the Company’s subsidiaries, including the subsidiaries that own the ACC2, ACC3, ACC4, ACC5, ACC6, VA3, VA4, CH1 and NJ1 data centers, but excluding the subsidiaries that own the SC1 data center and the SC2 parcel of land, the ACC7 and ACC8 parcels of land, and the TRS. The following consolidating financial information sets forth the financial position as of June 30, 2011 and December 31, 2010, and the results of operations and cash flows for the three and six months ended June 30, 2011 and 2010 of the Operating Partnership, Subsidiary Guarantors and the Subsidiary Non-Guarantors.

DUPONT FABROS TECHNOLOGY, L.P.

SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS

(in thousands)


	June 30, 2011
	Operating Partnership		Subsidiary Guarantors			Subsidiary Non-Guarantors		Eliminations			Consolidated Total
ASSETS
Income producing property:
Land	$	—	$	50,531		$	—	$	—		$	50,531
Buildings and improvements		—		1,776,396			—		—			1,776,396

		—		1,826,927			—		—			1,826,927
Less: accumulated depreciation		—		(206,025	)		—		—			(206,025	)

Net income producing property		—		1,620,902			—		—			1,620,902
Construction in progress and land held for development		—		271,288			289,413		—			560,701

Net real estate		—		1,892,190			289,413		—			2,181,603
Cash and cash equivalents		103,204		2,782			734		—			106,720
Restricted cash		—		273			—		—			273
Rents and other receivables		13		1,492			144		—			1,649
Deferred rent		—		115,719			—		—			115,719
Lease contracts above market value, net		—		12,052			—		—			12,052
Deferred costs, net		12,779		30,306			99		—			43,184
Investment in affiliates		2,104,714		—			—		(2,104,714	)		—
Prepaid expenses and other assets		1,634		17,743			808		—			20,185

Total assets	$	2,222,344	$	2,072,557		$	291,198	$	(2,104,714	)	$	2,481,385

LIABILITIES AND PARTNERS’ CAPITAL
Liabilities:
Mortgage notes payable	$	—	$	147,400		$	—	$	—		$	147,400
Unsecured notes payable		550,000		—			—		—			550,000
Accounts payable and accrued liabilities		2,866		13,329			420		—			16,615
Construction costs payable		—		38,376			9,672		—			48,048
Accrued interest payable		2,166		565			—		—			2,731
Distribution payable		14,542		—			—		—			14,542
Lease contracts below market value, net		—		20,816			—		—			20,816
Prepaid rents and other liabilities		43		28,233			230		—			28,506

Total liabilities		569,617		248,719			10,322		—			828,658
Redeemable partnership units		523,845		—			—		—			523,845
Commitments and contingencies		—		—			—		—			—
Partners’ capital:
Limited Partners’ Capital:
Series A cumulative redeemable perpetual preferred units, 7,400,000 issued and outstanding at June 30, 2011		185,000		—			—		—			185,000
Series B cumulative redeemable perpetual preferred units, 4,050,000 issued and outstanding at June 30, 2011		101,250		—			—		—			101,250
60,518,921 common units issued and outstanding at June 30, 2011		830,410		1,823,838			280,876		(2,104,714	)		830,410
General partner’s capital, 662,373 common units issued and outstanding at June 30, 2011		12,222		—			—		—			12,222

Total partners’ capital		1,128,882		1,823,838			280,876		(2,104,714	)		1,128,882

Total liabilities & partners’ capital	$	2,222,344	$	2,072,557		$	291,198	$	(2,104,714	)	$	2,481,385

DUPONT FABROS TECHNOLOGY, L.P.

SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS

(in thousands)


	December 31, 2010
	Operating Partnership		Subsidiary Guarantors			Subsidiary Non-Guarantors		Eliminations			Consolidated Total
ASSETS
Income producing property:
Land	$	—	$	50,531		$	—	$	—		$	50,531
Buildings and improvements		—		1,779,955								1,779,955

		—		1,830,486			—		—			1,830,486
Less: accumulated depreciation		—		(172,537	)		—		—			(172,537	)

Net income producing property		—		1,657,949			—		—			1,657,949
Construction in progress and land held for development		493		137,210			198,983		—			336,686

Net real estate		493		1,795,159			198,983		—			1,994,635
Cash and cash equivalents		221,055		669			704		—			222,428
Restricted cash		—		1,600			—		—			1,600
Rents and other receivables		9		1,538			1,680		—			3,227
Deferred rent		—		92,767			—		—			92,767
Lease contracts above market value, net		—		13,484			—		—			13,484
Deferred costs, net		14,071		31,472			—		—			45,543
Investment in affiliates		1,875,147		—			—		(1,875,147	)		—
Prepaid expenses and other assets		1,435		16,624			1,186		—			19,245

Total assets	$	2,112,210	$	1,953,313		$	202,553	$	(1,875,147	)	$	2,392,929

LIABILITIES AND PARTNERS’ CAPITAL
Liabilities:
Mortgage notes payable	$	—	$	150,000		$	—	$	—		$	150,000
Unsecured notes payable		550,000		—			—		—			550,000
Accounts payable and accrued liabilities		4,469		15,273			1,667		—			21,409
Construction costs payable		10		30,925			36,327		—			67,262
Accrued interest payable		2,167		599			—		—			2,766
Distribution payable		12,970		—			—		—			12,970
Lease contracts below market value, net		—		23,319			—		—			23,319
Prepaid rents and other liabilities		35		21,967			642		—			22,644

Total liabilities		569,651		242,083			38,636		—			850,370
Redeemable partnership units		466,823		—			—		—			466,823
Commitments and contingencies		—		—			—		—			—
Partners’ capital:
Limited Partners’ Capital
Series A cumulative redeemable perpetual preferred units, 7,400,000 issued and outstanding at December 31, 2010		185,000		—			—		—			185,000
Series B cumulative redeemable perpetual preferred units, no shares issued or outstanding at December 31, 2010		—		—			—		—			—
59,164,632 common units issued and outstanding at December 31, 2010		878,826		1,711,230			163,917		(1,875,147	)		878,826
General partner’s capital, 662,373 common units issued and outstanding at December 31, 2010		11,910		—			—		—			11,910

Total partners’ capital		1,075,736		1,711,230			163,917		(1,875,147	)		1,075,736

Total liabilities & partners’ capital	$	2,112,210	$	1,953,313		$	202,553	$	(1,875,147	)	$	2,392,929

DUPONT FABROS TECHNOLOGY, L.P.

SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)


	Three months ended June 30, 2011
	Operating Partnership			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated Total
Revenues:
Base rent	$	—		$	48,286		$	—		$	—		$	48,286
Recoveries from tenants		2,862			21,609			—			(2,862	)		21,609
Other revenues		—			478			383			—			861

Total revenues		2,862			70,373			383			(2,862	)		70,756
Expenses:
Property operating costs		—			21,608			—			(2,862	)		18,746
Real estate taxes and insurance		—			1,502			21			—			1,523
Depreciation and amortization		28			18,083			2			—			18,113
General and administrative		3,638			35			211			—			3,884
Other expenses		—			—			319			—			319

Total expenses		3,666			41,228			553			(2,862	)		42,585

Operating income		(804	)		29,145			(170	)		—			28,171
Interest income		192			—			—			—			192
Interest:
Expense incurred		(11,776	)		1,005			5,252			—			(5,519	)
Amortization of deferred financing costs		(752	)		(4	)		234			—			(522	)
Equity in earnings		35,462			—			—			(35,462	)		—

Net income		22,322			30,146			5,316			(35,462	)		22,322
Preferred unit distributions		(5,572	)		—			—			—			(5,572	)

Net income attributable to common units	$	16,750		$	30,146		$	5,316		$	(35,462	)	$	16,750

DUPONT FABROS TECHNOLOGY, L.P.

SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)


	Three months ended June 30, 2010
	Operating Partnership			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated Total
Revenues:
Base rent	$	—		$	37,922		$	—		$	—		$	37,922
Recoveries from tenants		2,350			18,071			—			(2,350	)		18,071
Other revenues		—			322			2,977			—			3,299

Total revenues		2,350			56,315			2,977			(2,350	)		59,292
Expenses:
Property operating costs		—			17,920			43			(2,350	)		15,613
Real estate taxes and insurance		—			1,086			54			—			1,140
Depreciation and amortization		26			15,063			2			—			15,091
General and administrative		3,481			73			454			—			4,008
Other expenses		(3	)		78			2,436			—			2,511

Total expenses		3,504			34,220			2,989			(2,350	)		38,363

Operating income		(1,154	)		22,095			(12	)		—			20,929
Interest income		208			1			—			—			209
Interest:
Expense incurred		(11,734	)		1,024			660			—			(10,050	)
Amortization of deferred financing costs		(562	)		(393	)		62			—			(893	)
Equity in earnings		23,437			—			—			(23,437	)		—

Net income		10,195			22,727			710			(23,437	)		10,195
Preferred unit distributions		—			—			—			—			—

Net income attributable to common units	$	10,195		$	22,727		$	710		$	(23,437	)	$	10,195

DUPONT FABROS TECHNOLOGY, L.P.

SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)


	Six months ended June 30, 2011
	Operating Partnership			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated Total
Revenues:
Base rent	$	—		$	95,261		$	—		$	—		$	95,261
Recoveries from tenants		5,744			42,467			—			(5,744	)		42,467
Other revenues		—			919			608			—			1,527

Total revenues		5,744			138,647			608			(5,744	)		139,255
Expenses:
Property operating costs		—			42,590			—			(5,744	)		36,846
Real estate taxes and insurance		—			3,136			43			—			3,179
Depreciation and amortization		55			36,146			3			—			36,204
General and administrative		7,756			65			861			—			8,682
Other expenses		21			—			496			—			517

Total expenses		7,832			81,937			1,403			(5,744	)		85,428

Operating income		(2,088	)		56,710			(795	)		—			53,827
Interest income		402			1			—			—			403
Interest:
Expense incurred		(23,551	)		801			9,572			—			(13,178	)
Amortization of deferred financing costs		(1,497	)		(75	)		426			—			(1,146	)
Equity in earnings		66,640			—			—			(66,640	)		—

Net income		39,906			57,437			9,203			(66,640	)		39,906
Preferred unit distributions		(9,729	)		—			—			—			(9,729	)

Net income attributable to common units	$	30,177		$	57,437		$	9,203		$	(66,640	)	$	30,177

DUPONT FABROS TECHNOLOGY, L.P.

SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)


	Six months ended June 30, 2010
	Operating Partnership			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated Total
Revenues:
Base rent	$	—		$	72,840		$	—		$	—		$	72,840
Recoveries from tenants		4,552			37,561			—			(4,552	)		37,561
Other revenues		—			621			5,179			—			5,800

Total revenues		4,552			111,022			5,179			(4,552	)		116,201
Expenses:
Property operating costs		—			37,382			137			(4,552	)		32,967
Real estate taxes and insurance		—			2,244			142			—			2,386
Depreciation and amortization		50			30,135			2			—			30,187
General and administrative		6,508			152			938			—			7,598
Other expenses		5			81			4,266			—			4,352

Total expenses		6,563			69,994			5,485			(4,552	)		77,490

Operating income		(2,011	)		41,028			(306	)		—			38,711
Interest income		227			7			—			—			234
Interest:
Expense incurred		(23,421	)		1,082			660			—			(21,679	)
Amortization of deferred financing costs		(1,000	)		(902	)		62			—			(1,840	)
Equity in earnings		41,631			—			—			(41,631	)		—

Net income		15,426			41,215			416			(41,631	)		15,426
Preferred unit distributions		—			—			—			—			—

Net income attributable to common units	$	15,426		$	41,215		$	416		$	(41,631	)	$	15,426

DUPONT FABROS TECHNOLOGY, L.P.

SUPPLEMENTAL CONSOLIDATING STATEMENTS OF CASH FLOWS

(in thousands)


	Six months ended June 30, 2011
	Operating Partnership			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations		Consolidated Total
Cash flow from operating activities
Net cash (used in) provided by operating activities	$	(26,788	)	$	72,764		$	8,968		$	—	$	54,944

Cash flow from investing activities
Investments in real estate—development		—			(106,999	)		(106,465	)		—		(213,464	)
Land acquisition costs		—			—			(9,507	)		—		(9,507	)
Investments in affiliates		(161,021	)		44,407			116,614			—		—
Interest capitalized for real estate under development		—			(5,082	)		(9,572	)		—		(14,654	)
Improvements to real estate		—			(1,454	)		—			—		(1,454	)
Additions to non-real estate property		(66	)		(14	)		(8	)		—		(88	)

Net cash used in investing activities		(161,087	)		(69,142	)		(8,938	)		—		(239,167	)

Cash flow from financing activities
Issuance of preferred units, net of offering costs		97,450			—			—			—		97,450
Mortgage notes payable:
Repayments		—			(2,600	)		—			—		(2,600	)
Return of escrowed proceeds		—			1,104			—			—		1,104
Exercises of stock options		596			—			—			—		596
Payments of financing costs		(205	)		(13	)		—			—		(218	)
Distributions		(27,817	)		—			—			—		(27,817	)

Net cash provided by (used in) financing activities		70,024			(1,509	)		—			—		68,515

Net (decrease) increase in cash and cash equivalents		(117,851	)		2,113			30			—		(115,708	)
Cash and cash equivalents, beginning		221,055			669			704			—		222,428

Cash and cash equivalents, ending	$	103,204		$	2,782		$	734		$	—	$	106,720

DUPONT FABROS TECHNOLOGY, L.P.

SUPPLEMENTAL CONSOLIDATING STATEMENTS OF CASH FLOWS

(in thousands)


	Six months ended June 30, 2010
	Operating Partnership			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations		Consolidated Total
Cash flow from operating activities
Net cash (used in) provided by operating activities	$	(31,767	)	$	59,293		$	26		$	—	$	27,552

Cash flow from investing activities
Investments in real estate—development		—			(86,914	)		(1,398	)		—		(88,312	)
Marketable securities held to maturity:
Purchase		(60,014	)		—			—			—		(60,014	)
Redemption		138,978			—			—			—		138,978
Investments in affiliates		(20,241	)		17,957			2,284			—		—
Interest capitalized for real estate under development		—			(9,185	)		(660	)		—		(9,845	)
Improvements to real estate		—			(1,745	)		—			—		(1,745	)
Additions to non-real estate property		(50	)		(45	)		—			—		(95	)

Net cash provided by (used in) investing activities		58,673			(79,932	)		226			—		(21,033	)

Cash flow from financing activities
Issuance of OP units to DFT for issuance of common stock, net of offering costs		304,107			—			—			—		304,107
Mortgage notes payable:
Repayments		—			(1,000	)		—			—		(1,000	)
Return of escrowed proceeds		—			4,513			—			—		4,513
Issuance of OP units for stock option exercises		309			—			—			—		309
Payments of financing costs		(2,595	)		(19	)		—			—		(2,614	)
Distributions		(5,428	)		—			—			—		(5,428	)

Net cash provided by financing activities		296,393			3,494			—			—		299,887

Net (decrease) increase in cash and cash equivalents		323,299			(17,145	)		252			—		306,406
Cash and cash equivalents, beginning		15,119			17,787			682			—		33,588

Cash and cash equivalents, ending	$	338,418		$	642		$	934		$	—	$	339,994

15. Subsequent Event

ACC5 Term Loan Amendment

On July 29, 2011, the Company executed an amendment to the ACC5 Term Loan (the “Third Amendment”) that, among other things, removed the 1.5% LIBOR floor and reduced the applicable margin to 3.00%.

The ACC5 Term Loan matures on December 2, 2014. Under the Third Amendment, the Company is prohibited from prepaying the ACC5 Term Loan prior to July 31, 2012 and, from July 31, 2012 through November 30, 2012, the Company may prepay the loan, in whole or in part, if it pays exit fees ranging from 0.75% to 1.00% of the then-outstanding principal balance. After November 30, 2012, the Company may prepay the ACC5 Term Loan at any time, in whole or in part, without penalty or premium.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This report contains forward-looking statements within the meaning of the federal securities laws. The Company cautions investors that any forward-looking statements presented in this report are based on management’s beliefs and assumptions relying upon information currently available to management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond the Company’s control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The Company cautions investors that while forward-looking statements reflect its good faith beliefs when the Company makes them, they are not guarantees of future performance and are impacted by actual events when they occur after the Company makes such statements. The Company expressly disclaims any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

For a detailed discussion of certain of the risks and uncertainties that could cause the Company’s future results to differ materially from any forward-looking statements, see Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011. You should also review the risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q and identified in other documents filed by the Company with the Securities and Exchange Commission. The risks and uncertainties discussed in these reports are not exhaustive. The Company operates in a very competitive and rapidly changing environment and new risk factors may emerge from time to time. It is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as an accurate prediction of actual results.

Overview

DuPont Fabros Technology, Inc. (the “REIT” or “DFT”) was formed on March 2, 2007 and is headquartered in Washington, D.C. DFT is a fully integrated, self-administered and self-managed company that owns, acquires, develops and operates wholesale data centers. DFT is the sole general partner of, and, as of June 30, 2011, owned 74.6% of the economic interest in, DuPont Fabros Technology, L.P. (the “Operating Partnership” or “OP” and collectively with DFT and their operating subsidiaries, the “Company”). The remaining 25.4% economic interest was owned by redeemable noncontrolling interests—operating partnership. DFT’s common stock trades on the New York Stock Exchange, or NYSE, under the symbol “DFT”. DFT’s Series A and Series B preferred stock also trade on the NYSE under the symbols “DFTPrA” and “DFTPrB”, respectively.

As of June 30, 2011, the Company owns and operates eight data centers, six of which are located in Northern Virginia, one of which is located in suburban Chicago, Illinois and one of which is located in Piscataway, New Jersey. In connection with the Company’s initial public offering of common stock (the “IPO”) on October 24, 2007, the original costs of four of its operating data centers were “stepped-up” to their fair market values based on an average capitalization rate of 6.8%. The fair value adjustment increase totaled approximately $510 million and was as follows: $212 million for ACC4, $157 million for VA3, $86 million for ACC2 and $55 million for VA4.

As discussed below, the Company also owns certain development properties and parcels of land that it is currently developing, or may develop in the future, into wholesale data centers. With this portfolio of operating and development properties, the Company believes that it is well positioned as a fully integrated wholesale data center provider, capable of developing, leasing, operating and managing the Company’s growing portfolio.

The Company has three data centers currently under development: ACC6 Phase I, located in Ashburn, Virginia, SC1 Phase I, located in Santa Clara, California, and CH1 Phase II, located in suburban Chicago. The Company currently expects that ACC6 Phase I and SC1 Phase I will be placed into service during the third quarter of 2011 and that CH1 Phase II will be completed in the first quarter of 2012. For the six months ended June 30, 2011, the Company capitalized $2.2 million of internal development and leasing costs. The table below captioned “Development Projects” provides current estimates of the total costs to complete these development projects.

The following tables present certain data of the operating properties and development projects as of June 30, 2011:

Operating Properties

As of June 30, 2011


Property	Property Location	Year Built/ Renovated		Gross Building Area (2)		Raised Square Feet (3)		Critical Load MW (4)		% Leased (5)			% Commenced (5)
Stabilized (1)
ACC2	Ashburn, VA		2001/2005		87,000		53,000		10.4		100	%		100	%
ACC3	Ashburn, VA		2001/2006		147,000		80,000		13.9		100	%		100	%
ACC4	Ashburn, VA		2007		347,000		172,000		36.4		100	%		100	%
ACC5	Ashburn, VA		2009-2010		360,000		176,000		36.4		100	%		100	%
CH1 Phase I	Elk Grove Village, IL		2008		285,000		122,000		18.2		98	%		98	%
VA3	Reston, VA		2003		256,000		147,000		13.0		100	%		100	%
VA4	Bristow, VA		2005		230,000		90,000		9.6		100	%		100	%

Subtotal— stabilized					1,712,000		840,000		137.9

Completed not Stabilized
NJ1 Phase I (6)	Piscataway, NJ		2010		180,000		88,000		18.2		22	%		22	%

Total Operating Properties					1,892,000		928,000		156.1

(1)	Stabilized operating properties are either 85% or more leased or have been in service for 24 months or greater.

(2)

Gross building area is the entire building area, including raised square footage (the portion of gross building area where the tenants’ computer servers are located), tenant common areas, areas controlled by the Company (such as the mechanical, telecommunications and utility rooms) and, in some facilities, individual office and storage space leased on an as available basis to the tenants.

(3)	Raised square footage is that portion of gross building area where the tenants locate their computer servers. The Company considers raised square footage to be the net rentable square footage in each of its facilities.

(4)	Critical load (also referred to as IT load or load used by tenants’ servers or related equipment) is the power available for exclusive use by tenants expressed in terms of megawatt, or MW, or kilowatt, or kW (1 MW is equal to 1,000 kW).

(5)

Percentage leased is expressed as a percentage of critical load that is subject to an executed lease. Percentage commenced is expressed as a percentage of critical load where the lease has commenced under generally accepted accounting principles. Leases executed as of June 30, 2011 represent $191 million of base rent on a straight-line basis and $177 million on a cash basis over the next twelve months. This excludes contractual management fees and approximately $2 million net amortization increase in revenue of above and below market leases.

(6)	As of August 2, 2011, NJ1 Phase I is 25% leased.

Lease Expirations

As of June 30, 2011

The following table sets forth a summary schedule of lease expirations of the operating properties for each of the ten calendar years beginning with 2011. The information set forth in the table below assumes that tenants exercise no renewal options, except as noted below, and takes into account tenants’ early termination options.


Year of Lease Expiration	Number of Leases Expiring (1)		Raised Square Feet Expiring (in thousands) (2)		% of Leased Raised Square Feet			Total kW of Expiring Leases (3)		% of Leased kW			% of Annualized Base Rent
2011		—		—		—			—		—			—
2012 (4)(5)(6)		2		72		8.4	%		6,878		4.9	%		4.2	%
2013 (5)		2		30		3.6	%		3,030		2.2	%		1.0	%
2014 (5)		6		35		4.0	%		6,287		4.4	%		4.5	%
2015 (5)		6		84		9.8	%		16,250		11.5	%		10.5	%
2016 (5)		4		68		7.9	%		11,098		7.8	%		7.7	%
2017 (5)		6		76		8.9	%		14,063		10.0	%		10.2	%
2018		4		75		8.8	%		15,309		10.8	%		11.3	%
2019		9		116		13.6	%		21,067		14.9	%		14.1	%
2020 (5)		8		82		9.6	%		13,895		9.8	%		10.6	%
After 2020 (5)		14		217		25.4	%		33,570		23.7	%		25.9	%

Total		61		855		100	%		141,447		100	%		100	%

(1)	Represents 27 tenants with 61 lease expiration dates. Top three tenants represent 58% of annualized base rent as of June 30, 2011.

(2)	Raised square footage is that portion of gross building area where the tenants locate their computer servers. The Company considers raised square footage to be the net rentable square footage in each of its facilities.

(3)	One MW is equal to 1,000 kW.

(4)

Includes one lease – representing 1,138 kW of available critical load and 5,000 raised square feet, or 0.6% of the total amount of leased raised square feet as of June 30, 2011 – that gives the tenant a limited right to terminate the lease upon six months notice, but only if the tenant’s customer were to terminate the services agreement between the tenant and its customer.

(5)

Reflects the fact that, in August 2011, the Company entered into a lease amendment with one tenant, which lease provided for scheduled lease expirations of 9,600 kW of critical load in increments of 1,600 kW in each of 2012, 2013, 2014, 2015, 2016 and 2017, to extend the term of each of these 1,600 kW increments for eight years. This lease represents 90,000 raised square feet and 10.5% of leased raised square feet as of June 30, 2011.

(6)	On June 20, 2011, one tenant notified the Company it will not renew a lease that is scheduled to expire on April 30, 2012. This lease represents 67,000 raised square feet, 7.8% of leased raised square feet and 5,740 kW of critical load as of June 30, 2011.

Development Projects

The following table presents a summary of the Company’s development properties as of June 30, 2011:

Development Projects

As of June 30, 2011

($ in thousands)


Property	Property Location	Gross Building Area (1)		Raised Square Feet (2)		Critical Load MW (3)		Estimated Total Cost (4)		Construction in Progress & Land Held for Development (5)		Percentage Pre-Leased
*Current Development Projects*
SC1 Phase I (6)	Santa Clara, CA		180,000		88,000		18.2	$	230,000 - 235,000	$	214,763		13	%
ACC6 Phase I (6)	Ashburn, VA		131,000		66,000		13.0		115,000 - 120,000		108,969		4	%
CH1 Phase II (7)	Elk Grove Village, IL		200,000		109,000		18.2		190,000 - 200,000		97,509		50	%

			511,000		263,000		49.4		535,000 - 555,000		421,241


*Future Development Projects/Phases*
NJ1 Phase II	Piscataway, NJ		180,000		88,000		18.2		40,175		40,175
SC1 Phase II	Santa Clara, CA		180,000		88,000		18.2		59,000 - 60,000		58,594
ACC6 Phase II	Ashburn, VA		131,000		66,000		13.0		25,000 - 26,000		24,772

			491,000		242,000		49.4	$	124,175 - 126,175		123,541


*Land Held for Development*
ACC7 Phase I /II (8)	Ashburn, VA		360,000		176,000		36.4				10,039
ACC8 (8)	Ashburn, VA		100,000		50,000		10.4				3,726
SC2 Phase I/II	Santa Clara, CA		300,000		171,000		36.4				2,154

			760,000		397,000		83.2				15,919

Total			1,762,000		902,000		182.0			$	560,701

(1)

(2)	Raised square footage is that portion of gross building area where the tenants locate their computer servers. The Company considers raised square footage to be the net rentable square footage in each of its facilities.

(3)	Critical load (also referred to as IT load or load used by tenants’ servers or related equipment) is the power available for exclusive use by tenants expressed in terms of MW or kW (1 MW is equal to 1,000 kW).

(4)

Current development projects include land, capitalization for construction and development, capitalized interest and capitalized operating carrying costs, as applicable, upon completion. Future Phase II development projects include land, shell, underground work and capitalized interest through Phase I opening only.

(5)	Amount capitalized as of June 30, 2011.

(6)	Completion expected during the third quarter of 2011.

(7)	Completion expected during the first quarter of 2012.

(8)

In June 2011, the Company acquired undeveloped land in Ashburn, Virginia that is of sufficient size to accommodate a data center facility capable of providing 36.4 MW of available critical load. This parcel of land is newly titled ACC7 while the parcel of land previously titled ACC7 is now known as ACC8.

Leasing Update

The Company derives substantially all of its revenue from rents received from tenants under existing leases at each of the operating properties. Because the Company believes that critical load is the primary factor used by tenants in evaluating data center requirements, rents are based primarily on the amount of power that is made available to tenants, rather than the amount of space that they occupy.

Each of the Company’s leases includes pass-through provisions under which tenants are required to pay for their pro rata share of most of the property-level operating expenses—commonly referred to as a triple net lease, such as real estate taxes and insurance. In addition, under the Company’s triple-net lease structure, tenants pay for only the power they use and power that is used to cool their space. The Company intends to continue to structure future leases as triple net leases. The Company’s leases also provide it with a

property management fee based on a percentage of base rent collected and property-level operating expenses, other than charges for power used by tenants to run their servers and cool their space. The Company takes into account various factors when negotiating the terms of its lease, which can vary among leases, including the following factors: the tenant’s strategic importance, growth prospects and credit quality, the length of the lease term, the amount of space being leased and market conditions.

Although most of the Company’s leases provide for annual escalation of rents, generally at a rate of 3% or a function of the consumer price index, the Company’s revenue growth in the near term is expected to result primarily from the future leasing of vacant space in the Company’s operating properties and, once the Company’s current development projects are completed, the commencement of pre-leases and the leasing of vacant space in those properties. The Company’s NJ1 Phase I operating property is 25% leased as of August 2, 2011. With respect to the Company’s three development projects, as of August 2, 2011, SC1 Phase I is 13% pre-leased and will be placed in service in September 2011, ACC6 Phase I is 4% pre-leased and will be placed in service in September 2011, and CH1 Phase II is 50% pre-leased and is expected to be placed in service in the first quarter 2012.

The Company receives expense reimbursement from tenants only on space that is leased. Vacant space results in portions of the Company’s operating expenses being unreimbursed, which in turn negatively impacts revenues and net income. It is difficult for the Company to predict the timing in which vacant space in data center facilities will be leased and when those leases will commence. This uncertainty is particularly true with respect to the leasing of vacant space in data center facilities that are located in new markets for the Company – NJ1 Phase I in Piscataway, New Jersey and SC1 Phase I in Santa Clara, California.

In the second quarter of 2011, the Company executed three leases and pre-leases comprising a total of 3.25 MW of critical load. One of the leases was at CH1 Phase I comprising 0.43 MW of critical load, one pre-lease was at SC1 comprising 2.28 MW of critical load and a pre-lease was at ACC6 comprising 0.54 MW of critical load. For the first six months of 2011, the Company executed eight leases and pre-leases comprising a total of 16.90 MW of critical load.

The amount of rental income generated by the properties in the Company’s portfolio depends on its ability to maintain the lease rates of currently leased space and to re-lease space available from leases that expire or are terminated. Our three largest tenants comprised 58% of our annualized base rent as of June 30, 2011 and none of our three largest tenants’ leases have early termination rights. The Company expects these tenants to evaluate their lease expirations in the year before expiration is scheduled to occur against their anticipated need for server capacity and economic factors. If the Company cannot renew these leases at similar rates or attract replacement tenants on similar terms in a timely manner, the Company’s rental income could be impacted adversely in future periods.

The Company’s largest tenant is Facebook, comprising 21.7% of the Company’s annualized base rent as of June 30, 2011, with ten lease expirations ranging from 2018 to 2022.

The Company’s second largest tenant is Yahoo!, comprising 18.6% of the Company’s annualized base rent as of June 30, 2011, with lease expirations ranging from 2012 to 2019. Yahoo! informed the Company in June 2011 that it will not renew one of its leases comprising 3.3% of the Company’s consolidated annualized base rent as of June 30, 2011. This lease will expire on April 30, 2012 and the Company is actively marketing this space. This tenant’s next lease is scheduled to expire in the third quarter of 2015 and a third lease is scheduled to expire ratably in equal amounts in 2017, 2018 and 2019.

The Company’s third largest tenant is Microsoft, comprising 17.7% of the Company’s annualized base rent as of June 30, 2011 with lease expirations ranging from 2012 to 2020. One lease, for 9.60 MW of available critical load, was scheduled to expire in 1.60 MW increments beginning in 2012 and continuing through 2017. In August 2011, the Company and Microsoft entered into an amendment to this lease that extends the lease term of each of the 1.60 MW increments for eight years, such that the lease now expires in 1.60 MW increments beginning in 2020 and continuing through 2025. Taking this amendment into account, the lease expirations now range from 2016 to 2025.

The Company’s operating properties are located in Northern Virginia, New Jersey and suburban Chicago, Illinois, and one of its development properties is located in Santa Clara, California. Changes in the conditions of these markets will impact the overall performance of the Company’s current and future operating properties and the Company’s ability to fully lease its properties. The ability of the Company’s tenants to fulfill their lease commitments could be impacted by future economic or regional downturns in the markets in which the Company operates or downturns in the technology industry. If these or other conditions cause a tenant to default on its payment or other obligations, the Company could elect to terminate the related lease.

The Company’s taxable REIT subsidiary (“TRS”), DF Technical Services, LLC, generates revenue by providing certain technical services to the Company’s tenants on a contract or purchase-order basis, which the Company refers to as “a la carte” services. Such services include the installation of circuits, racks, breakers and other tenant requested items. The TRS will generally charge tenants for these services on a cost-plus basis. Because the degree of utilization of the TRS for these services varies from period to period depending on the needs of the tenants for technical services, the Company has limited ability to forecast future revenue from this source. Moreover, as a taxable corporation, the TRS is subject to federal, state and local corporate taxes and is not

required to distribute its income, if any, to the Company for purposes of making additional distributions to DFT’s stockholders. Because demand for its services is unpredictable, the Company anticipates that the TRS may retain a significant amount of its cash to fund future operations, and therefore the Company does not expect to receive distributions from the TRS on a regular basis.

In the current economic environment, certain types of real estate are experiencing declines in value. If this trend were to be experienced by any of the Company’s data centers, the Company may have to write down the value of that data center, which would result in the Company recording a charge against earnings.

Results of Operations

This Quarterly Report on Form 10-Q contains stand-alone audited and unaudited financial statements and other financial data for each of DFT and the Operating Partnership. DFT is the sole general partner of the Operating Partnership and, as of June 30, 2011, owned 74.6% of the partnership interests in the Operating Partnership, of which 1.1% is held as general partnership units. All of the Company’s operations are conducted by the Operating Partnership which is consolidated by DFT, and therefore the following information applies to both DFT and the Operating Partnership.

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

Operating Revenue. Operating revenue for the three months ended June 30, 2011 was $70.8 million, reflecting an increase of $11.5 million, or 19.4%, compared to revenue of $59.3 million for the three months ended June 30, 2010. This includes base rent of $48.3 million, tenant recoveries of $21.6 million, which includes our property management fee, and other revenue of $0.9 million, partially from a la carte projects for our tenants performed by our TRS. The increase in operating revenue reflects additional rent from leases commencing at CH1 Phase I and the opening of ACC5 Phase II and NJ1 Phase I in November 2010, partially offset by a decrease in revenue from a la carte services provided to the tenants on a nonrecurring basis due to a lower volume of a la carte projects. These projects include the purchase and installation of circuits, racks, breakers and other tenant requested items.

Operating Expenses. Operating expenses for the three months ended June 30, 2011 were $42.6 million, compared to $38.4 million for the three months ended June 30, 2010. The increase of $4.2 million, or 10.9%, was primarily due to the following: $3.5 million of increased operating costs, real estate taxes and insurance due to the opening of ACC5 Phase II and NJ1 Phase I in November 2010 and $3.0 million increase from depreciation and amortization from ACC5 Phase II and NJ1 Phase I, partially offset by a decrease of $2.2 million of other expenses for non-recurring tenant projects.

Interest Expense. Interest expense, including amortization of deferred financing costs, for the three months ended June 30, 2011 was $6.0 million compared to interest expense of $10.9 million for the three months ended June 30, 2010. Total interest incurred for the three months ended June 30, 2011 was $14.8 million, of which $8.8 million was capitalized, compared to $17.2 million for the corresponding period in 2010, of which $6.3 million was capitalized. The decrease in total interest incurred period over period was primarily due to lower overall debt balances following the Company’s Series A preferred stock offering in October 2010, the proceeds from which were used to pay off in full a $196.5 million term loan. Interest capitalized increased period over period as the Company spent more funds on development in the second quarter of 2011 than in the prior period.

Net Income Attributable to Redeemable Noncontrolling Interests – Operating Partnership (DFT only). Net income attributable to redeemable noncontrolling interests – operating partnership for the three months ended June 30, 2011 was $4.3 million compared to $3.3 million for the three months ended June 30, 2010. The increase of $1.0 million was primarily due to higher operating income from leases commencing at ACC5 and CH1 Phase I and lower interest expense, described above, partially offset by $1.4 million of the preferred stock dividends related to the Company’s $185.0 million Series A and $101.3 million Series B preferred stock issued in October 2010 and March 2011, respectively, and a decrease in ownership of redeemable noncontrolling interests – operating partnership due to OP unitholders redeeming 2.9 million OP units in exchange for an equal number of shares of DFT’s common stock during the period from April 1, 2010 through June 30, 2011.

Net Income Attributable to Common Shares. Net income attributable to common shares for the three months ended June 30, 2011 was $12.5 million as compared to $6.9 million for the three months ended June 30, 2010. The increase of $5.6 million was primarily due to higher operating income from leases commencing at ACC5 and CH1 Phase I and lower interest expense, described above, partially offset by $4.2 million of the preferred stock dividends.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

Operating Revenue. Operating revenue for the six months ended June 30, 2011 was $139.3 million, reflecting an increase of $23.1 million, or 19.9%, compared to revenue of $116.2 million for the six months ended June 30, 2010. This includes base rent of $95.3 million, tenant recoveries of $42.5 million, which includes our property management fee, and other revenue of $1.5 million, partially from a la carte projects for our tenants performed by our TRS. The increase in operating revenue was due to leases commencing at CH1 Phase I and the opening of ACC5 Phase II and NJ1 Phase I in November 2010, partially offset by a decrease in revenue from a la carte services provided to the tenants on a non-recurring basis due to a lower volume of a la carte projects. These projects include the purchase and installation of circuits, racks, breakers and other tenant requested items.

Operating Expenses. Operating expenses for the six months ended June 30, 2011 were $85.4 million, compared to $77.5 million for the six months ended June 30, 2010. The increase of $7.9 million, or 10.2%, was primarily due to the following: $4.7 million of increased operating costs, real estate taxes and insurance due to the opening of ACC5 Phase II and NJ1 Phase I in November 2010, $6.0 million increase from depreciation and amortization from ACC5 Phase II and NJ1 Phase I, $1.1 million of increased general and administrative expenses primarily for compensation and professional fees, partially offset by a decrease of $3.8 million of other expenses for non-recurring tenant projects.

Interest Expense. Interest expense, including amortization of deferred financing costs, for the six months ended June 30, 2011 was $14.3 million compared to interest expense of $23.5 million for the six months ended June 30, 2010. Total interest incurred for the six months ended June 30, 2011 was $29.7 million, of which $15.4 million was capitalized, as compared to $34.2 million for the corresponding period in 2010, of which $10.7 million was capitalized. The decrease in total interest incurred period over period was primarily due to lower overall debt balances following the Company’s Series A preferred stock offering in October 2010, the proceeds from which were used to pay off in full a $196.5 million term loan. Interest capitalized increased period over period as the Company spent more funds on development during the first half of 2011 than the year ago period. The Company anticipates a decrease in capitalized interest in the second half of 2011 as two of the Company’s development projects, SC1 Phase I and ACC6 Phase I, are expected be placed into service in the third quarter of 2011, and the capitalization of interest on these projects will cease. The Company will continue to capitalize interest on CH1 Phase II until it is placed into service, which is expected to occur in the first quarter of 2012. The Company currently does not anticipate starting any new developments in the second half of 2011.

Net Income Attributable to Redeemable Noncontrolling interests – Operating Partnership (DFT only). Net income attributable to redeemable noncontrolling interests – operating partnership for the six months ended June 30, 2011 was $7.8 million as compared to $5.2 million for the six months ended June 30, 2010. The increase of $2.6 million was primarily due to higher operating income from leases commencing at ACC5 and CH1 Phase I and lower interest expense, described above, partially offset by $2.5 million of the preferred stock dividends related to the Company’s $185.0 million Series A and $101.3 million Series B preferred stock issued in October 2010 and March 2011, respectively, and a decrease in ownership of redeemable noncontrolling interests – operating partnership due to OP unitholders redeeming 4.5 million OP units in exchange for an equal number of shares of DFT’s common stock during the period from January 1, 2010 through June 30, 2011.

Net Income Attributable to Common Shares. Net income attributable to common shares for the six months ended June 30, 2011 was $22.4 million as compared to $10.2 million for the six months ended June 30, 2010. The increase of $12.2 million was primarily due to higher operating income from leases commencing at ACC5 and CH1 Phase I and lower interest expense, described above, partially offset by $7.2 million of the preferred stock dividends.

Liquidity and Capital Resources

Discussion of Cash Flows

The discussion of cash flows below applies to both DFT and the Operating Partnership. The only difference between the cash flows of DFT and the Operating Partnership for the six months ended June 30, 2011 is a $4.3 million bank account at DFT that is not part of the Operating Partnership and a $0.2 million payment of offering expenses paid by DFT that is not reflected as a use of cash on the Operating Partnership’s cash flow statement.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

Net cash provided by operating activities increased by $27.2 million to $54.7 million for the six months ended June 30, 2011, as compared to $27.5 million for the corresponding period in 2010. The increase is primarily due to leases commencing at CH1 Phase I and ACC5 since the first quarter of 2010 and lower interest expense.

Net cash used in investing activities increased by $218.2 million to $239.2 million for the six months ended June 30, 2011 compared to $21.0 million for the corresponding period in 2010. Cash used in investing activities for the six months ended June 30, 2011 and 2010 primarily consisted of expenditures for projects under development. Development expenditures were $213.5 million for the six months ended June 30, 2011 which is an increase by $125.2 million period over period. Also, interest capitalized for real estate under development increased by $4.8 million period over period to $14.7 million for the six months ended June 30, 2011. Development related expenditures are forecasted to decrease in the second half of 2011 as two of our projects, SC1 Phase I and ACC6 Phase I, are expected to be placed into service during the third quarter of 2011. The Company also acquired, from an entity controlled by its Executive Chairman and President and CEO and in which one of its independent directors has a 4% interest, 23 acres of land held for future development at a cost of $9.5 million during the six months ended June 30, 2011. Expenditures for improvements to real estate were $1.5 million in the six months ending June 30, 2011 which was comparable to the amount expended in the prior period. In addition during the six months ended June 30, 2010, the Company redeemed $139.0 million in marketable securities held to maturity and purchased $60.0 million of these securities. The Company had no redemptions or purchases of marketable securities during the six months ended June 30, 2011.

Net cash provided by financing activities decreased by $231.4 million to $68.5 million for the six months ended June 30, 2011 compared to $299.9 million for the corresponding period in 2010. Cash provided by financing activities for the six months ended June 30, 2011 primarily consisted of $97.5 million of net proceeds from the issuance of 4.1 million shares of Series B preferred stock and the release of $1.1 million of funds held in an interest reserve for the ACC5 Term Loan, partially offset by $27.8 million paid for dividends and distributions and $2.6 million of principal payments on the ACC5 Term Loan. Cash provided by financing activities for the six months ended June 30, 2010 primarily consisted of $304.1 million of net proceeds from the issuance of 13.8 million shares of common stock, the release of $4.5 million of funds held in the same interest reserve for the ACC5 Term Loan, partially offset by $5.4 million paid for dividends and distributions, $2.6 million paid for financing costs and $1.0 million of principal payments on a term loan.

Market Capitalization

The following table sets forth the Company’s total market capitalization as of June 30, 2011:

Capital Structure as of June 30, 2011

(in thousands except per share data)


Mortgage Notes Payable							$	147,400
Unsecured Notes								550,000

Total Debt								697,400	22.9	%
Common Shares	75	%		61,181
Operating Partnership (“OP”) Units	25	%		20,788

Total Shares and Units	100	%		81,969
Common Share Price at June 30, 2011			$	25.20

Common Share and OP Unit Capitalization					$	2,065,619
Preferred Stock ($25 per share liquidation preference)						286,250

Total Equity								2,351,869	77.1	%

Total Market Capitalization							$	3,049,269	100.0	%

Capital Resources

The development and construction of wholesale data centers is very capital intensive. This development not only requires the Company to make substantial capital investments, but also increases its operating expenses, which impacts its cash flows from operations negatively until leases are executed and the Company begins to collect cash rents from these leases. In addition, because DFT has elected to be taxed as a REIT for federal income tax purposes, DFT is required to distribute at least 90% of its taxable income to its stockholders annually.

The Company generally funds the cost of data center development from additional capital, which, for future developments, the Company would expect to obtain through unsecured and secured borrowings, construction financings and the issuance of additional preferred and/or common equity, when market conditions permit (such as the Company’s December 2009 unsecured note offering, May 2010 common stock offering and October 2010 and March 2011 perpetual preferred stock offerings). Any increases in project development costs (including the cost of labor and materials and costs resulting from construction delays) and rising interest rates would increase the funds necessary to complete a project and, in turn, the amount of additional capital that the Company would need to raise. In determining the source of capital to meet the Company’s long-term liquidity needs, the Company will evaluate its level of indebtedness and covenants, in particular with respect to the covenants under the Company’s unsecured notes and unsecured line of credit, its expected cash flow from operations, the state of the capital markets, interest rates and other terms for borrowing, and the relative timing considerations and costs of borrowing or issuing equity securities.

In March 2011, the Company sold 4.1 million shares of 7.625% Series B cumulative redeemable perpetual preferred stock raising net proceeds of approximately $97.5 million. The Company is using the net proceeds from this offering, together with anticipated borrowings under its revolving credit facility, to complete the development of CH1 Phase II, which the Company currently anticipates will be completed in the first quarter of 2012. The Company also has sufficient capital to complete the development of ACC6 Phase I and SC1 Phase I, both of which are expected to be placed into service during the third quarter of 2011. The Company anticipates borrowing under its line of credit in the second half of 2011 to fund the completion of CH1 Phase II.

In the future, the Company may develop additional data centers and will rely on third-party sources of capital, as well as the capital markets, to fund its development projects. See the table above captioned “Development Projects” for the estimated total costs to complete some of the Company’s development projects.

The ability to pay dividends to stockholders is dependent on the receipt of distributions from the Operating Partnership, which in turn is dependent on the data center properties generating operating income. The indenture that governs the Company’s unsecured notes limits DFT’s ability to pay dividends, but allows DFT to pay the minimum necessary to meet its REIT income distribution requirements. The Company’s current estimate of 2011 cash dividends on its common stock is $0.48 per share, of which the Company has paid $0.12 per common share in each April and July 2011.

Outstanding Indebtedness

A summary of the Company’s total debt as of June 30, 2011 and December 31, 2010 is as follows:

Debt Summary as of June 30, 2011 and December 31, 2010

($ in thousands)


	June 30, 2011										December 31, 2010
	Amounts		% of Total			Rates (1)			Maturities (years)		Amounts
Secured	$	147,400		21.1	%		5.8	%		3.4	$	150,000
Unsecured		550,000		78.9	%		8.5	%		5.8		550,000

Total	$	697,400		100.0	%		7.9	%		5.3	$	700,000

Fixed Rate Debt:
Unsecured Notes	$	550,000		78.9	%		8.5	%		5.8	$	550,000

Fixed Rate Debt		550,000		78.9	%		8.5	%		5.8		550,000

Floating Rate Debt:
Unsecured Credit Facility		—		—			—			1.9		—
ACC5 Term Loan		147,400		21.1	%		5.8	%		3.4		150,000

Floating Rate Debt		147,400		21.1	%		5.8	%		3.4		150,000

Total	$	697,400		100.0	%		7.9	%		5.3	$	700,000


Note:		The Company capitalized interest and deferred financing cost amortization of $8.8 million and $15.4 million during the three and six months ended June 30, 2011, respectively.

(1)	Rates as of June 30, 2011. On July 29, 2011, the Company amended the ACC5 Term Loan, reducing the rate from 5.8% to LIBOR (currently 0.2%) plus a 3% spread.

ACC5 Term Loan

On December 2, 2009, the Company entered into a $150 million term loan facility (the “ACC5 Term Loan”). An interest reserve in the amount of $10.0 million was withheld from the loan proceeds and the remaining interest reserve was classified as restricted cash on the Company’s consolidated balance sheets. As of June 30, 2011, this interest reserve was zero as the reserve was fully utilized for interest payments. Borrowings under the ACC5 Term Loan bore interest at a LIBOR floor of 1.50% plus an applicable margin of 4.25% for a total interest rate of 5.75% as of June 30, 2011. As of July 1, 2011, the interest rate decreased to the LIBOR floor of 1.50% plus an applicable margin of 4.00%. On July 29, 2011, the Company executed an amendment to the ACC5 Term Loan (the “Third Amendment”) that, among other things, removed the 1.5% LIBOR floor and reduced the applicable margin to 3.00%.

The loan is secured by the ACC5 and ACC6 data centers and an assignment of the lease agreements between the Company and the tenants of ACC5 and ACC6. The Operating Partnership has guaranteed the outstanding principal amount of the ACC5 Term Loan, plus interest and certain costs under the loan.

•

The principal amount of the loan may not exceed 60% of the appraised value of ACC5 and ACC6;

•

The Company must maintain the following minimum debt service coverage ratios:

•

Calendar quarter ending June 30, 2011—1.00 to 1;

•

Calendar quarters ending September 30, 2011 and December 31, 2011—1.15 to 1; and

•

Ratio of adjusted consolidated Earnings Before Interest Taxes Depreciation and Amortization to consolidated fixed charges must not be less than 1.45 to 1 during the term of the loan; and

•

Unsecured Notes

DFT and the Subsidiary Guarantors rank (i) equally in right of payment with such guarantor’s existing and future senior unsecured indebtedness, (ii) senior in right of payment with all of such guarantor’s existing and future subordinated indebtedness and (iii) effectively subordinate to any of such guarantor’s existing and future secured indebtedness.

The Unsecured Notes have certain covenants limiting or prohibiting the ability of the Operating Partnership and certain of its subsidiaries from, among other things, (i) incurring secured or unsecured indebtedness, (ii) entering into sale and leaseback transactions, (iii) making certain dividend payments, distributions and investments, (iv) entering into transactions with affiliates, (v) entering into agreements limiting the ability to make certain transfers and other payments from subsidiaries or (vi) engaging in certain mergers, consolidations or transfers/sales of assets. The Unsecured Notes also require the Operating Partnership and the Subsidiary Guarantors to maintain total unencumbered assets of at least 150% of their unsecured debt on a consolidated basis. All of the covenants are subject to a number of important qualifications and exceptions.

Unsecured Credit Facility


		Applicable Margin
Pricing Level	Ratio of Total Indebtedness to Gross Asset Value	LIBOR Rate Loans			Base Rate Loans
Pricing Level 1	Less than or equal to 35%		3.25	%		1.25	%
Pricing Level 2	Greater than 35% but less than or equal to 45%		3.50	%		1.50	%
Pricing Level 3	Greater than 45% but less than or equal to 55%		3.75	%		1.75	%
Pricing Level 4	Greater than 55%		4.25	%		2.25	%

Under the amendment, the initial applicable margin is set at pricing level 1. The terms of the amendment provide for the adjustment to the applicable margin from time to time.

•

unsecured debt not exceeding 60% of the value of unencumbered assets;

•

net operating income generated from unencumbered properties divided by the amount of unsecured debt being not less than 12.5%;

•

total indebtedness not exceeding 60% of gross asset value;

•

fixed charge coverage ratio being not less than 1.70 to 1.00; and

•

A summary of the Company’s debt maturity schedule as of June 30, 2011 is as follows:

Debt Maturity as of June 30, 2011

($ in thousands)


Year	Fixed Rate			Floating Rate			Total		% of Total			Rates (3)
2011	$	—		$	2,600	(2)	$	2,600		0.4	%		5.8	%
2012		—			5,200	(2)		5,200		0.7	%		5.8	%
2013		—			5,200	(2)		5,200		0.7	%		5.8	%
2014		—			134,400	(2)		134,400		19.3	%		5.8	%
2015		125,000	(1)		—			125,000		17.9	%		8.5	%
2016		125,000	(1)		—			125,000		17.9	%		8.5	%
2017		300,000	(1)		—			300,000		43.1	%		8.5	%

Total	$	550,000		$	147,400		$	697,400		100	%		7.9	%

(1)	The Unsecured Notes have mandatory amortizations of $125.0 million due in 2015, $125.0 million due in 2016 and $300.0 million due in 2017.

(2)	The ACC5 Term Loan matures on December 2, 2014 with no extension option. Scheduled quarterly principal amortization payments of $1.3 million started in the first quarter of 2011.

(3)	Rates as of June 30, 2011.

Contractual Obligations

The following table summarizes the Company’s contractual obligations as of June 30, 2011, including the maturities assuming extension options are not exercised and scheduled principal repayments of the ACC5 Term Loan and the Unsecured Notes (in thousands):


Obligation	2011		2012-2013		2014-2015		Thereafter		Total
Long-term debt obligations	$	2,600	$	10,400	$	259,400	$	425,000	$	697,400
Interest on long-term debt obligations (1)		27,650		109,723		100,104		60,120		297,597
Construction costs payable		48,048		—		—		—		48,048
Commitments under development contracts (2)		65,551		—		—		—		65,551
Operating leases		190		790		819		292		2,091

Total	$	144,039	$	120,913	$	360,323	$	485,412	$	1,110,687

(1)	Calculation of interest on long-term debt obligations uses interest rates in effect as of June 30, 2011.

(2)

These commitments, which are related to the development of the ACC6 Phase I, SC1 Phase I and CH1 Phase II data centers and various NJ1 projects, do not include the full contractual cost of these respective developments other than one of the NJ1 projects, due to the cost plus nature of these contracts. Amount represents only the committed costs as of June 30, 2011. For an estimate of the total costs associated with these developments, see the table captioned “Development Projects” above. Also, see Note 5 of the Company’s Financial Statements.

Off-Balance Sheet Arrangements

As of June 30, 2011, the Company did not have any off-balance sheet arrangements.

Funds From Operations


Reconciliation from Net Income to FFO:	Three months ended June 30,						Six months ended June 30,
(in thousands)	2011			2010			2011			2010
Net income	$	22,322		$	10,195		$	39,906		$	15,426
Depreciation and amortization		18,113			15,091			36,204			30,187
Less: Non real estate depreciation and amortization		(199	)		(144	)		(402	)		(288	)

FFO (1)	$	40,236		$	25,142		$	75,708		$	45,325

(1)

Funds from operations, or FFO, is used by industry analysts and investors as a supplemental operating performance measure for REITs. The Company calculates FFO in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. FFO, as defined by NAREIT, represents net income determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

The Company uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared period over period, captures trends in occupancy rates, rental rates and operating expenses. The Company also believes that, as a widely recognized measure of the performance of equity REITs, FFO may be used by investors as a basis to compare the Company’s operating performance with that of other REITs. However, because FFO excludes real estate related depreciation and amortization and captures neither the changes in the value of the Company’s properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of the Company’s properties, all of which have real economic effects and could materially impact the Company’s results from operations, the utility of FFO as a measure of the Company’s performance is limited.

While FFO is a relevant and widely used measure of operating performance of equity REITs, other equity REITs may use different methodologies for calculating FFO and, accordingly, FFO as disclosed by such other REITs may not be comparable to the Company’s FFO. Therefore, the Company believes that in order to facilitate a clear understanding of its historical operating results, FFO should be examined in conjunction with net income as presented in the consolidated statements of operations. FFO should not be considered as an alternative to net income or to cash flow from operating activities (each as computed in accordance with GAAP) or as an indicator of the Company’s liquidity, nor is it indicative of funds available to meet the Company’s cash needs, including its ability to pay dividends or make distributions.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates.

Because the Company’s variable rate loan has a LIBOR floor of 1.5% and LIBOR was approximately 0.2% at June 30, 2011, the Company would not be impacted by an interest rate increase or decrease of 1%. Pursuant to the ACC5 Term Loan agreement, the Operating Partnership is required to enter into an interest rate protection agreement upon the earlier to occur of (i) 30 days following the date on which U.S. dollar one month LIBOR equals or exceeds 3.75% or (ii) the occurrence of a default under the ACC5 Term Loan.

ITEM 4.

CONTROLS AND PROCEDURES

Controls and Procedures with Respect to DFT

Evaluation of Disclosure Controls and Procedures

DFT’s management, with the participation of DFT’s President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of DFT’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, the President and Chief Executive Officer and the Chief Financial Officer have concluded that as of the end of the period covered by this report, DFT’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in DFT’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) or 15a-15(f) of the Exchange Act) that occurred during the three months ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, DFT’s internal control over financial reporting.

Controls and Procedures with Respect to the Operating Partnership

Evaluation of Disclosure Controls and Procedures

DFT’s management, with the participation of DFT’s President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Operating Partnership’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the President and Chief Executive Officer and the Chief Financial Officer have concluded that as of the end of the period covered by this report, the Operating Partnership’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Operating Partnership’s internal control over financial reporting that occurred during the three months ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 1.A

RISK FACTORS

None.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

REMOVED AND RESERVED

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS.


Exhibit No.		Description

10.1		First Amendment to Employment Agreement, dated May 23, 2011, by and among DuPont Fabros Technology, Inc., DF Property Management LLC and Lammot J. du Pont (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed by the Registrant on May 26, 2011 (Registration No. 001-33748)(the “May Form 8-K”)).

10.2		Second Amendment to Employment Agreement, dated May 23, 2011, by and among DuPont Fabros Technology, Inc., DF Property Management LLC and Mark L. Wetzel (Incorporated by reference to Exhibit 10.2 to the May Form 8-K).

10.3		2011 Equity Incentive Plan (Incorporated by reference to Appendix A of the Registrant’s Definitive Proxy Statement, filed by the Registrant on April 5, 2011 (Registration No. 001-33748)).

10.4		Third Amendment to $150 million term loan facility with TD Bank, National Association, as a Lender and Agent, and other lending institutions that are parties thereto (or may become a party thereto).

31.1		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, Inc.)

31.2		Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, Inc.).

31.3		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, L.P.).

31.4		Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, L.P.).

32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, Inc.)

32.2		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, L.P.)

101		XBRL (eXtensible Business Reporting Language). The following materials from DFT’s and the Operating Partnership’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, formatted in XBRL: (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of cash flows, and (iv) consolidated statements of stockholders’ equity and partners’ capital, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purpose of Sections 11 and 12 of the Securities Act and Section 18 of the Exchange Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	DUPONT FABROS TECHNOLOGY, INC.

Date: August 3, 2011	By:	/s/ Jeffrey H. Foster
		Jeffrey H. Foster Chief Accounting Officer (Principal Accounting Officer)

	DUPONT FABROS TECHNOLOGY, L.P. By: DuPont Fabros Technology, Inc., its sole general partner

Date: August 3, 2011	By:	/s/ Jeffrey H. Foster
		Jeffrey H. Foster Chief Accounting Officer (Principal Accounting Officer)

Exhibit Index


Exhibit No.		Description

10.1		First Amendment to Employment Agreement, dated May 23, 2011, by and among DuPont Fabros Technology, Inc., DF Property Management LLC and Lammot J. du Pont (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed by the Registrant on May 26, 2011 (Registration No. 001-33748)(the “May Form 8-K”)).

10.2		Second Amendment to Employment Agreement, dated May 23, 2011, by and among DuPont Fabros Technology, Inc., DF Property Management LLC and Mark L. Wetzel (Incorporated by reference to Exhibit 10.2 to the May Form 8-K).

10.3		2011 Equity Incentive Plan (Incorporated by reference to Appendix A of the Registrant’s Definitive Proxy Statement, filed by the Registrant on April 5, 2011 (Registration No. 001-33748)).

10.4		Third Amendment to $150 million term loan facility with TD Bank, National Association, as a Lender and Agent, and other lending institutions that are parties thereto (or may become a party thereto).

31.1		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, Inc.)

31.2		Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, Inc.).

31.3		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, L.P.).

31.4		Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, L.P.).

32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, Inc.)

32.2		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (DuPont Fabros Technology, L.P.)

101		XBRL (eXtensible Business Reporting Language). The following materials from DFT’s and the Operating Partnership’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, formatted in XBRL: (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of cash flows, and (iv) consolidated statements of stockholders’ equity and partners’ capital, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purpose of Sections 11 and 12 of the Securities Act and Section 18 of the Exchange Act.