Q1 2020 Earnings Call
[music].
Greetings.
Welcome to Coresite Realty is first quarter 2020 earnings conference call. At this time all participants are in listen only mode. A question answer session will follow before presentation, it's pretty wants to acquire operator assistance. During the call brings please press star Zero Wonder telephone keypad as a reminder, this conference call is being recorded.
Oh, no it's true converts over to your host coal Jorgensen, Vice President Investor Relations corporate communications.
Please go ahead.
Thank you good morning, welcome to Coresites first quarter 2020 earnings Conference call I'm joined today by Paul direct President and CEO, Jeff Finnin, Chief Financial Officer, Steve Smith, Chief revenue Officer before it again I would like to remind everyone that her remarks on today's call may include forward looking state.
As defined by federal Securities laws, including statements addressing projections plans or future expectations. These statements are subject to a number of risk and uncertainties that could cause actual results or back to differ materially for such statements for a variety of reasons.
We assume no obligation to update these forward looking statement. He can give no assurance that the expectations will be obtained.
Detailed information about these risk it's included in our filings with the FTC.
Also on this conference call, we refer to certain non-GAAP financial measures such as funds from operation.
Reconciliations of these non-GAAP financial measures are available in the supplemental information is part of our full earnings release, which can be found on the investor relations pages of our website <unk> dot com with that I'll turn the call over to Paul.
Good morning, and thanks for joining us today I'm going to cover our first quarter, Hardlines and Jeff and Steve will follow with the more in depth discussions financial sales matters.
Highlights for Q1 2020 include new and expansion sales of $12 million of annualized GAAP rent a record quarter for our core non hyperscale leasing.
Operating revenue of $147.4 million, which grew 6.1% year over year.
Ever FFO per share of $1.29, which increased four cents year over year or 3.2%.
Power and cooling uptime for the quarter up 100% and completing a new computer wherever they want to keep your major construction projects on track well navigating cobot fight it changes to local regulations.
Our strong performance cannot obscure. The fact, the recent weeks have been challenging for all of us due to this pandemic.
We expect those listening to this call would like us to discuss the ways in which the situation affects coresite.
First we're fortunate to be other data center space.
Our data center campuses and related connectivity services mediacentral need to businesses governments health care and academia.
They worked in the challenges of this pandemic along with their normal operations. We also have large customer ecosystems of networks cloud and service providers content providers and enterprises in major metropolitan U.S. markets, where capacity continues to be in high demand. So these cloud networking.
Content providers are experiencing increased demand at the network edge at this time for populations, who are shelf bring it home and working remotely driving online education collaboration data analysis Entertainment gaming and several of use cases, hence it appears the economic impacts of the pandemic up so.
For our bid more constructive for Coresite that for most companies and we experienced a pretty smooth transition to operating at a very unusual business environment.
Our work in previous years to hire and cultivate great talent address new technology platforms, and develop extensive procedures and and scenario training showed its value when making us more resilient in an extreme operating environment in which it was more important than ever to meet customer needs with greater agility.
In addition, our products and services made it easier for customers to operate effectively at our data centers with minimal and in some cases extremely rare physical visits customers coopervision, new space power Crossconnects, Oh see exports redundant pads and remote hands via our customer portal through which they can also look at there.
Temperature humidity and power draw.
Second we have learned from successfully managing to be impacts of hurricanes wildfires and other natural risks as well as from regular business got to do continuity planning girls to proactively source supplies.
Anyway design safe operating environments strategically it adequately staff or data centers to ensure business continuity and safe we provide critical customer access and third we're thankful for our team and their innovation and dedication constantly serve our customers with exceptional service even in trying circumstances.
Like those experienced in recent weeks.
Most of these elements of the strengthening our sales performance for sometime and drove the excellent performance this quarter.
Turning to property development, we have sufficient capacity to turn up services quickly, which will support the both existing and new customers across our markets. This quarter. Our major construction is on track, enabling us to presell, 11% of SB eight phase three in Santa Clara.
Place into service, a 35000 square foot computer room, but then what two in new Jersey and continue to pursue pre leasing opportunities for CH two in Chicago.
It's important to note that we still rely on local jurisdiction for final inspections at the permitting as they deal with their own new work rules that said, we still expected labor CH to L. athree industry a in line with planned completion dates.
A few other data points will hopefully round out the picture.
We believe customer satisfaction as high based on the higher than normal volume of feedback from them and their strong expansion demand, which made up 94% of our sales for the quarter.
Customers have been able to decrease their visits to our data centers by approximately one third compared to pre crisis levels.
Sales and pipeline growth was strong and most importantly, we kept critical access available to our customers as we focused on solutions to enable them to deploy that operate in our data centers safely and with confidence.
While we cannot clearly predict all the ramifications of covert 19 or their duration. We believe the increased demand from reliance on technology conductivity and the data in today's economy will on balance approximate or exceed the reduction in data center demand due to a serious economic slowdown.
Although that likely will depend on the depth and duration of the slowdown.
We expect to continue to provide excellent support to our customers and our communities and we believe we will be even stronger as a company due to what we're learning and experiencing through this crisis.
In closing we believed to strengthen our results this quarter reflect the adaptability and strong execution of our team the strategic nature of our diverse network and cloud it's campuses and the interoperability we enable for a large and diverse customer ecosystem, which positions us well to benefit further from the.
Secular tailwinds for data center space and demand for high performance hybrid cloud solutions with that I will turn the call over to Jeff.
Thanks, Paul Today, I will review, our first quarter results and provide an update on our liquidity leverage expectations and Twentytwenty guidance.
Looking at our financial results for the quarter operating revenues were $147.4 million and grew 6.1% year over year end, 0.9% sequentially.
Including growth in interconnection revenue of 9.1% year over year and 3.1% sequentially.
Our customer lease renewals included annualized GAAP rent up $17.3 million that represented a rent increase of 1.4% on a cash basis and churn of 3.3% both inline with expectations.
Commencement of new and expansion leases of $9.7 million of annualized GAAP rent during the corner.
And our sales backlog as of March 31st consist of $17.6 million of annualized GAAP rent for signed but not yet commenced leases or $22.3 million on a cash basis.
And we expect all of the gap backlog to commence fairly ratably over the next three quarters.
Net income was 48 cents per diluted share a decrease of six cents year over year and three cents sequentially.
AFFO per share was $1.29, an increase of four cents or 3.2% year over year, and a decrease of one cents sequentially or 0.8%.
Adjusted EBITDA was $78.7 million for the quarter.
An increase of 5.6% year over year, and a decrease of 0.5% sequentially.
As a result of the current Covance 19 situation. We have received requests from a small number of customers, which currently represent approximately 2.5% of annualized revenues related to some level of payment deferral or relief from current obligations.
We are addressing each customer requests on a case by case basis, and most are being resolved by providing an additional period of time to make do on outstanding amounts generally 30 to 60 days.
While adjustments have been immaterial to date, we cannot predict whether these requests will increase over time.
Moving to our balance sheet.
Our debt to annualized adjusted EBITDA was five times at quarter end inclusive of the current gap backlog mentioned earlier, our leverage ratio is 4.7 times.
Based on our current development pipeline and the related timing capital deployment and Commencements. It is likely we will temporarily trend higher than our target level, a five times leverage in the first half of Twentytwenty with the expectation of moderating leverage based on the timing of commencements related to our backlog.
And anticipated new sales.
We continue to focus on optimizing our balance sheet, including reducing our cost of capital maintaining adequate liquidity.
Minimizing volatility and continuing our disciplined capital investment.
As part of that strategy during the quarter, we executed $450 million, an interest rate swap agreements at attractive rates, increasing our percentage of a fixed rate debt from 71% at yearend 2019 to approximately 95% at March 30 Onest.
This is a departure from our historical approach of maintaining a balanced position between fixed and variable price debt. However, given the flat yield curve and rates it allowed us to capitalize on a market opportunity and reduce our variability to near term interest cost.
In addition in April the company priced a seven year $150 million unsecured private placement of notes at 3.75%.
The notes are scheduled to close on May six with 100 million Dollarss funding at closing and the remaining $50 million in mid July.
The financing provides the company the flexibility to repay outstanding amounts on our revolving credit facility as well as providing additional liquidity for our future development projects.
The Companys nearest debt maturity is April 2022.
While we expect the private placement to close as planned. Please note. The closing is still subject to customary closing conditions.
We ended the quarter with about $292 million of total liquidity.
Bringing us to approximately $442 million of liquidity with this new financing.
Providing liquidity to fund well beyond our $124 million of remaining construction cost for our 2020 data center expansion plans.
Turning to our guidance at this point me here and based on what we have seen so far of the cobot 19 impacts and trends we are maintaining our 2020 guidance and therefore see no reason to depart from our normal cadence of revisiting guidance in connection with second quarter earnings.
In closing.
We're executing on our priorities to bring on capacity and translated into increased sales opportunities. We continue to closely manage our operating cost with attention to the current market dynamics, while thoughtfully balancing and driving our capacity development and customer opportunities.
We have plenty of liquidity our balance sheet is strong we do not have any near term debt maturities and we believe we are well positioned for the long term.
With that I will turn the call over to Steve.
Thanks, Jeff and Hello, everyone, we'll start off reviewing our quarterly sales results and then discuss some key execution themes for the quarter.
As Paul sure, we had a strong quarter of new an expression sales, we delivered $12 million the annualized GAAP rent, primarily reflecting the strength of our core retail leasing.
Including $8.4 million retail sales are higher than three and half years as well as $3.6 million upscale leasing.
This quarter sales reflect success for many aspects, including important expansions with several strategic existing customers.
Winning in key verticals with network and cloud providers that included two new native cloud Onramps from tier one providers to our platform in Chicago in Virginia.
Expanding services with enterprises, whose business is absolutely need low latency for what they do including video services satellite and video streaming providers as well as gaming education and collaboration companies.
We also saw 6000 moving quickly to meet the immediate demand of a modest amount of unexpected new requirements that emerged late in the quarter are the result of covered induced changes to business and consumer behavior.
Further we saw solid sales traction in the governmental space.
Turning to new logos in the first quarter, we won 31 new logos.
Three quarters of these logos were enterprise customers.
Well the initial revenue contribution of these new logos was lower than past quarters, we obtained some great new strategic names that we believe will provide ongoing future opportunities.
Including a well known video sharing networking service provider, a large consulting technology and outsourcing company, providing application outsourcing the cloud services.
Leading healthcare software company operating hosted solutions and promised another jobs.
As you know what do you logos are the key to number strategy and provide perceive the future revenue growth of expense services in our platform.
Moving to pricing overall pricing in our markets was generally stable.
We continue to see progress in northern Virginia, with strong first quarter sales and elevated pricing compared to the trailing 12 months, making it our highest contributing market for new and expansion sales in the quarter.
Fundamentally driving our first quarter results was our strong sales execution as our team continued to find new and effective ways to reach and resonate our value to new prospects and grow long term partnerships with existing customers.
Added to leverage the differentiating factors of course, our campus ecosystem model, including the recent additions of it detects current exchange and several other cloud providers to our SDN based open cloud exchange.
Engaged our solution architects and engineers to design creative cost effective solutions to solve customers changing needs and continued to collaborate with channel partners to extend our reach in helping enterprises evaluate address hybrid and multi cloud architectures for their digital journey.
All of which was amplified by excellent service delivered by our customer service and data center operations personnel.
Sales execution as always top of mind and embedded and all we do we don't often talk specifically about it as we consider at the bedrock of being successful.
Hope this additional insight helps you better understand how we approach.
To drive future growth, we continue to refine our processes develop our team and provide them the necessary tools and solutions like the ones Paul discussed earlier, the lower customers to be more successful and how they leverage technology to drive their businesses.
There's no question the technology will play an increasingly important role in almost every business a success.
Sorry, just committed to providing the services and support good in power enterprises to navigate their path and pace of this new normal with flexibility speed security and performance.
We believe focus and investment in these areas will enable us to continue to execute well over the long term.
We look forward to further helping customers. So there are two challenges.
With that operator, we would now like to open the call for questions.
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First question today is coming from Jonathan Atkins from RBC capital markets. Your line is now lives.
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Our next question today is coming from Colby Synesael from Cowen and company. Your line is now live.
Hi, This is Mike one for Colby two questions. If I may you noted in the press release, the construction remains on track assuming that local jurisdictions, our timely with construction permits.
Are you currently seen any delays inspections, the permitting and my second question given the weak the enterprise strength for the retail strength in the quarter are you seeing any notable changes in enterprise buying patterns, but each one but thank you.
Well, let me address the first I'll, let Steve handle second.
In our major markets, where we are doing ground up development, we have not yet seen any significant slowdown in permitting and inspections.
But you know everyone's going to an evolving situations. We just got to watch that as we go forward.
Smaller projects when you saw the push out of our and why to infrastructure.
Five quarter that did relate to permitting and inspect permitting.
Delays and and we have a small project in Boston that so that's held up by permitting.
Actually a permitting moratorium to the time being in Boston Steve.
Thanks, Paul and Michael This is Steve.
Second part your question I think was regarding enterprise barring any changes that are correct.
Yes, Thats correct.
Yes.
It's been interesting because I think in many cases as I mentioned in the prepared remarks, I mean, I think the technology.
There's even more important than ever for really any or any enterprise or any business out there given the remote nature of how everyone is conducting their lives. These days so.
Theres no question that a a brighter light has been put on technology to help solve those issues and we're clearly a great spot to help help them through that.
Past several years, we've really worked to try to address what was already in place as far as general demand for hybrid multi cloud solutions in our data center and all the advantages that come through outsourcing on to our data center, where they can leverage our AR.
Rebuilt personnel and all of the functionality that we have in our portal and so forth. So they can really maintain and grow their archie systems without necessarily you've been having to do show up at all so that value has has resonated well for each enterprise it's been different in some cases enterprises that are.
A bit more paralyzed in trying to just figure out how they work through this Kurt pandemic. Some projects maybe put on hold but others have also accelerated because I've seen the need and the opportunity to to move about direction. So on balance I would say, it's it's neutral to positive.
Perfect. Thank you.
Thank you. Our next question today is coming from Frank Louthan from Raymond James Your line is now live.
Great. Thank you.
So.
I appreciate given the guidance give us some thoughts on what you. What you think about the general pace of businesses are you concerned on the enterprise side that some customer trends may slow I understand when seen up quick bounce from up from one enterprise customers in the near term, but from from economic weakness and so forth. What are your what are your what are your thoughts on.
Being able to maintain the pace of business if the in could the back half coming a little lower.
Well, let me.
Just kind of quickly on the guidance and then Steve for end or Paul can provide just commentary in terms of just the macro level of business, but.
Frank I think I would just look at it from the standpoint that it's somewhat early innings in 2020.
And as you've seen the last couple of years, we've just not modified our guidance in that first quarter and preferred to take another look at it as we get further along in here.
And that's what we plan on doing again.
This year. So that gives you some context in terms of that guidance and Steve anything sure. Yes, I can give you a little bit of I guess more visibility on.
We are things that today anyway as far as overall pipeline, which is probably the best indicator for where we currently see things so far.
Pipeline continues to be solid and we still see new opportunities being created new logos that are coming into the pipeline. So.
We'll see how this plays out over the long term as Jeff mentioned in his remarks, but so far things seem to be holding up well I think one of the things that in general.
As you look at overall capital and tried to do more with less technology is typically one of those areas that people tend to lean towards and trying to maximize their their dollars versus other areas.
Okay, great and any any thoughts on any customers that are possibly pulling forward some demand.
From.
From that could come in later in the year do you think there's any risk of that.
Well, we haven't seen necessarily need to ban be pulled in per se I think if anything as I mentioned.
I think that this is really just highlighted or reaffirmed opportunity.
It was difficult I think in our business to have a lot of necessarily Colin as it relates to long term leases and that sort of thing it's not necessarily a knee jerk reaction. So if anything I think you just reaffirms demand thats out there well there is some that has.
Stalled a bit because they're just trying to figure out there overall current situation.
Okay, great. Thank you.
Thanks Frank.
Thank you next question is coming from Michael Rollins from Citi. Your line is now live.
Thanks.
You're having conversations.
Customers.
Are there certain architectures in a way to use your facility the way they access the cloud.
That are showing should be really successful in absorbing all the shifts in demand right now.
In the.
Yeah.
And at the same time are there certain architectures or ways customers, who doesn't Disney's where you're learning and it really wasnt the right way to structure things and then.
If you have observations on either of those what does that mean for your business going forward.
Thanks for the question Mike.
From what we've seen there is a continuation of demand for high performance hybrid cloud architectures, which we specialize in so it's not surprising that we would see a lot more of that and other things.
On the second part of your question I think.
All we're seeing so far is the continuation of trends that we've described in our our CHRW forecast for several quarters, which is.
Our older business business models that are not leveraging the public clouds that are not doing.
Doing so in the hybrid high performance architecture.
Continue to see.
Kind of a steady berdahl.
That's it that's pretty much with the data shows us.
I guess, the only color that I would add to that is.
One of the benefits that we've seen of customers that are leveraging that model in our data centers. So they'll have a hybrid environment.
Deployed in our data center, but also leveraging those native cloud on ramps of which as I mentioned in the prepared remarks, where we just added two more.
Those native Onramps really enable those customers to burst to the cloud much more quickly and economically them than others. So on those cost savings that go along with that as Roger speed and capacity because you're right next to the backbone.
And your view to quantify what percentage of your revenue base today might be considered older architectures or at risk architectures versus what you might view as strategic and ongoing.
So I think Jeff gave a good number on that last quarter, Jeff I believe 5% to 6% gives it was category as of last quarter. It was 4% to 6% and I'd say that thats moderated slightly Mike I'd, probably say about 3% to 5% as we sit here today.
Thank you.
But.
Our next question today is coming from Erik Rasmussen from Stifel. Your line is now live.
Yes. Thank you for taking the questions maybe just on sort of the.
The churn again.
You obviously have.
Cseven ended the year in Q1 of next year I think the timeline I would think are still intact, but are you seeing now with this current environment Covidien 18.
Customers, who may have been on the periphery or.
Yes that you thought might churn now sort of taking a better look at what their requirements might be.
Be able to potentially cars back some of those opportunities that you thought might be lost and then maybe within that can you just update us on what the plan is for.
That space.
That nine megawatts of space thats going to be coming due.
Hey, Eric it's Jeff.
Just.
One quick clarification just to make sure.
Everybody's consistent in terms of the actual dates on that SB seven customer so five megawatts of the nine will be turning out and.
October of this year and then the remaining for is essentially late Q3 call at September Thirtyth of the following year. Okay that gives you an idea on the timeframe.
In terms of your question as it relates to has anything really change as you can see from our guidance, we've not modified our guidance for churn as it relates to this year first quarter number of 3.3% came in towards the lower end of what our range was headed into the quarter. So that was a positive having said.
That some of that just relates to timing and so I think when you look at Twentytwenty, we still expected to be in that 9% to 11% and we do expect it to recede as we head into Twentytwenty based on our current expectations of customer renewals and and customer activity. There. So I would say to be honest, it's probably much of the same we havent seen.
A lot of changes or variances from what we are where we were about 90 days ago. I will tell you we work hard and we're trying to get out in front of some of these to see if there are any of those weaken retained it but it's it's pretty much deployment by deployment specific in terms of.
Of that let me add pointed over to Steve.
Can I just can reiterate your lifepoint their job, which is as we work through this and really.
As part of our normal practice were rose in communication with those customers as to how we might be able to retain.
Adopt new models, especially given the circumstances, so as Jeff mentioned, it's still.
Case by case, some early days, but we continue on that effort.
Great and then maybe just my follow up Nova It seems like it showed some progress.
It is based on sort of conversations with customers it kind of sort of what you're seeing now.
What we're hearing.
As the impacts of cobot 19 might be accelerating thinks there.
Does that sort of change your outlook for that business, because I think you sort of pivoted to more of the enterprise or a smaller footprint type deals, but does that now with the current environment do you see the opportunity for you guys to potentially start doing larger deals in that market. Thanks.
Yes, I would say that Weve never pivoted I mean, our core retail and scale leasing has really been the bedrock of our business model from the beginning and we've went after those larger or hyperscale opportunities as they made sense for the campus how that brought value and also brought a good return for the shareholders. So that's always been employee.
And that continues to be in place and it's good to see.
Good results and in Virginia. So we'll continue to monitor the pipeline is reasonable and will continue to pick up same approach them and trying to go over those opportunities as they fit that category.
Thank you.
Thanks, Sir.
Thanks for next question is coming from semi boundary from credit Suisse. Your line is not alive.
Hi, Thank you.
My questions for Josh that you made a comment regarding 2.5% of revenues.
Whereas questing deferrals first I just want to make sure that that is just deferrals for payments for standard grants and then those are deferred out for 30 60 days, but then more specifically out of that 2.5%.
Much of that is small and midsize business how much of that is more established enterprise. So can you give us some color on the call on the mix that's going on in that 2.5%.
You bet Sammy.
So.
You're right as I said in my prepared remarks, we've had some conversations with customers.
Reaching out and asking for some level of relief for deferral of payments.
2.5% is really a percentage of our overall revenue so keep in mind rent power.
Margins plus interconnection revenue. So that gives you an idea it's the whole picture.
In terms of where we are with fellas.
We've made good progress as you look at the customer request about 50, 50% of a more resolved by basically just allowing customers to defer 30 to 60 days keep in mind a lot of those were needed as customers and companies transitions to this different work environment and I just needed to.
Facilitate different processes in order to facilitate payments and those were very simple and I would say most of those to be honest, where small and medium sized companies. Those are the companies that probably had the biggest hurdle to get over as they transition to a work from home environment.
And then of the remaining.
Customer request about a third of them are still in flight, we have a couple of them that are.
I would classify as medium sized businesses that we're working through and we'll get those resolved over near time and then about the remaining about 17% actually were denied request again, we got to take them on a case by case basis, making sure that its valid that it's needed and that percentage was denied.
So hopefully that helps give you some color commentary around a semi.
Yes, absolutely and then.
This is more like a hardware question in terms of what's going on in your data centers have you seen customers either opt into more fiber interconnectivity rather than the former copper interconnectivity or is there any kind of mix change going on because although some people need a lot more bandwidth a lot more broadband.
Any kind of like hardware transition you're seeing in the crossconnects or things are very business as usual stuff.
Sorry to be honest I think as you look at the first quarter data the volume increases in our cross connect side of the business was 6.1% and the composition of that was fairly consistent across the different products we have.
The only thing that we've noted in this occurred late in the quarter as you can expect as a result of the cold 19, and we did see some small acceleration as we got into March and we've seen that.
In April time time will tell in terms of whether that continues.
And then we've also seen some customers where we've seen.
Really IP peering traffic increases as a result of just overall increase in volume of traffic.
But I don't as you saw in our guidance, we maintained our guidance on interconnection revenue those are small and a round out kind of the interconnection product but.
That's what we've seen so far today.
Okay got it thank you very much.
Thank you. My next question is coming from Nick Todayshow from Moffat Nathanson. Your line is there a lot.
Hi, Thank you.
You are getting close to opening the new Chicago datacenter can you talk little bit about the discussions you're having with customers there pick on the scale sides and Thats new product for you net market.
Hi, good Steve I'll pick up as far as.
The pipeline in discussions with customers, we have ongoing customers on.
Our ongoing pipeline in discussions going on we're we're customers there to further expand on that side. We've actually had some networks that have now popped up side or in the process of popping up side as I mentioned that prepared remarks, we now have a new native on ramp with one of the the top tier one cloud providers. It's now part of that campus.
So that really I think bolsters the value of that but that model and really validates that approach. So.
Overall things.
Continue on pace and were.
Continuing to build the pipe there, but overall, it's but solid is probably the best dozens of do.
Okay. That's helpful.
Yes, the Boston in your in your prepared remarks, and you've talked about this in the past as well you alluded to the need for your sales force to work more closely with outside solutions providers.
Imagine, that's maybe meaning more important in today's environment.
Can you expand a bit upon the progress you've made on that front and where things stand within relationship stand relative to where you want them today.
Yes, I think there's been good progress.
Been encouraging to see some of the results come through both in in terms of traditional channel partners that have given us reach into new customers that we otherwise might not have.
Had access to so thats part of the value of that overall ecosystem is that they have those existing relationships in providing other services that but we may not or may have a harder time in reaching so the reach as part of the depth as the other side of it which is just providing.
More full solution bianco location and the other services, we haven't our data center that also has shown some good results and how we have been partnering with.
Enterprises to transition first of all evaluate transition stand up their environment in our datacenter and then manager going forward. So.
No that entire lifecycle is pretty complex and how we work with different partners to achieve that is dynamic.
But we've been I would say, where we are in that continuum is just continuing to get our sales team better and better at how we.
We engage in that process as well as refining the mix of partners that we work with to ensure that meet the standard that we're looking for.
Okay terrific. Thank you Steve yes.
Thank you next question is coming from Eric Lubow.
Wells Fargo. Your line is Noah.
Great. Thank you just curious and sorry, if I Miss that joined a few minutes late.
You've seen any slowdown kind of quarter to date or over the last month and a half on on new logo acquisitions, given many of the travel restrictions that many of your customers have underway or is it more or less business as usual aboard virtual towards relative to physical tours and this decision, making pretty much continuing on at the same pace.
Yeah, I would tell you, but the pipeline for.
Our new logos continues to be strong and consistent with private good clearest.
View I can give you.
So overall things seem to be progressing.
Well I would say that you know kudos to our engineering and marketing teams for putting together waste for customers continue their buying cycle, which as you mentioned part of that is virtual tours.
So we worked quickly you at the beginning of this pandemic to try to look through what steps customers need to look out in order to continue there are two journey and part of that as a physical tour. So we we worked very closely with those teams to want to develop virtual tours of the can really see.
The environment there would go into we all the detail of the technical aspects from and continuing but buying process. So.
It's still a evolving as you know, but so far they seem to be holding well.
Okay, Great and just one follow up for Jeff.
Mentioned that your leverage would kind of temporarily trend above but I know you just.
Issued $150 million of of that but curious if.
You would consider looking at any alternative sources here.
Leverage kind of stays around that five times range, particularly issuing equity or any other sources, such as capital capital recycling or joint Jvs have stabilized assets. Thanks.
Yes, Eric obviously those are all.
Arrows in the quiver that could be utilize I would just say as you think about 2020, we've got plenty of liquidity to fully fund our business plan today.
And issuing equity at least in this environment.
As we look at 2020 isn't in our plans. However, having said that we continue to watch and monitor.
Our stock price.
As well as our leverage in assessing our liquidity needs.
But the the joint ventures items like that are always something we watch closely to just better understand the overall cost of capital what the best next source will be.
But for 2020 I think we're in good shape to fully funded business plan through our continued leverage and you'll watch it slowly creep up about five and then.
Should start to moderate as we get to the second half of the year as customers start to commence what's in our backlog plus set new sales expected.
Okay. Thanks, Jeff.
But.
Thank you next question is coming from Jordan Sadler from Keybanc. Your line is now a lot.
Thank you and good morning out there help everybody is doing okay.
Wanted to just see if I get a characterization.
Steve maybe from you.
A few from you Paul.
In terms of customer cadence.
What are customers.
So.
Looking for in terms of.
The their overall demand for space you know today.
As opposed to maybe during the first quarter are you seeing any any changes.
That are that are sort of pointing to sort of a reaction to the crisis.
Jordan This is Steve I think it really.
Varies it's probably not a great answer.
A little bit more detail so those those companies that are.
In this business.
Are pretty good at it and they know what they're looking for and how they build it out what the process looks like so as I mentioned in my remarks, there those that are extremely providers.
Intent providers cloud companies those kind of that.
Our professional data center buyers there.
There in some cases have moved up a little bit, but there they know what they buy and what they're looking for and.
I would say that that is.
No fairly uninterrupted if nothing just as I mentioned I'm just revalidated by some of the demand is there same.
As far as the enterprises are concerned I would say, that's where you see more variability because some of those customers are kind of paralyzed I'm just trying to figure this out well they knew this.
Need for more technology or being able to leverage technology in their business was.
Well the given.
This is really shown a brighter light on that where they need to figure that out in order to survive or thrive. So.
Depending upon where they are in that maturity cycle is where you just see a lot of variability as to their their ability to go from a need to actual by and so some of that's still being shaken out right now, but you see you see it across the board.
Hopefully I'm NK and.
It does I think it's helpful I guess.
Im not sure if that sort of answered the question entirely in terms of does the overall demand outlook look a little stronger today than it does 90 days ago is really the.
Yes.
Quick and Dirty question.
And that I'm really trying to understand.
And I think investors are trying to capture.
I would say if you've got a quick one there.
Yes, I would you say you know the overall pipeline volume continues to be consistent too.
Two.
Strong or I would say, maybe even better.
How about materializes into actual closed deals and therefore revenue I think thats. The big unknown that we are we're all working through as to how this all shakes out, but so far things appear to be positive.
And then in terms of maybe supply chain, Paul I'm curious you feel like you have the raw material.
In terms of availability of datacenter space necessary to sort of providing customers with what all they might need.
2020, or did you have you put any thought into.
Increasing.
The capital spend or increasing the development.
In 2020.
So for the stuff that we have in flight Jordan essentially all of our our fees already purchased neither on site or.
In confirm transit.
And in terms of the parts and supplies you need that on our side to implement customers.
So far everything is in good shape, we have very good procurement team that proactively goes out and.
And checks things and sources things.
There have been one or two factory shutdowns that if they were to continue for an extended period of time.
We would have Claude some alternative sources and we're we're already could contingently provisioning those but.
The vendors have confirmed as recently that they expect those factories to reopen shortly in assuming that happens.
Things should be okay. So.
I would say so far.
Everything looks fine, but it is getting a tremendous amount of constant and elevated attention from our data center operations construction and procurement teams.
But what about.
Sort of overall availability in terms of product like relative to what you originally underwrote for this year. They do you want to bring on more data center capacity sooner or not yet.
I think we're in good shape, a mean, we entered 2020 with our highest amount of available and near term capacity that we've had in years.
You know a growth capacity of 25% roughly.
In our top five markets so.
Our timing was either good or lucky will take either one but we've got we've got adequate capacity to.
You know to take on more demand that's what we see.
Jordan I'd, just add that I think if you look at.
What's available today, we ended the quarter was just shy of about 400000 square feet and obviously you can see whats coming online here near term.
When you look at our Commencements in overall absorption over the past several quarters ago that gives us about a one and a half maybe 1.3 for 1.75 years' worth of absorption.
Absent any massive acceleration in terms of absorption so something we watch closely but I guess, where we sit today just echo Paul's comments I don't think we don't see a need to increase capital spend in 2020 at this point in time.
That's helpful. Jeff while I have you wanted to come back to.
The two and half percentage total revenue just it was there a bad debt expense your reserves taken the quarter could you quantify that.
Yeah, you bet.
Historically, our bad debt expense has been anywhere from about 10 to 20 basis points as a percentage of revenue.
That was elevated a little bit this quarter up to about 45 basis points on magnitude of overall dollars. It's it's not significant there was an increase of about $350000 over our historical norm.
As we went through the quarter, we took a very measured and conservative approach to looking at our reserves just given the conversations we're having and what what's going on in the mackerel state of the environment today.
So overall bad debt expense for the quarter, just sort of why was about $700000. I think it's important also to maybe just provide this additional commentary when you look at overall cash collections for the quarter, we had 99 plus percent of of cash collections.
Compared to what was build to our customer so overall it looks pretty good.
Comparatively speaking from whatever what about what about April so far terms this cash collections.
And when you look at April.
Where we are to date, we're actually slightly ahead of where we were in the first quarter given the relative moment in time and how many business days, we are through the month.
And we're ahead of where we were a year ago. At this point is as well so that trend hasn't.
Actually hasn't moderated we feel very good about where we are from a cash collections.
Standpoint, and we watch it everyday so overall I'm not going what it continues to be very strong.
Thank you guys are the time.
You bet on.
Thank you as a reminder, ladies and gentlemen that star one if you'd like to be placed the question Q.
Our next question today is coming from May cross it from Berenberg. Your line is now live.
Good afternoon lots been asked already but maybe one for Jeff on cash renewals what would it have been if you had stripped out churn in the quarter spend you get a sense of normalized right.
Yes, I know that the the 1.47 cash rent growth Nate that does not have any of the churn factored into it so.
It's already stripped out when we give that percentage. So at 1.4, just really represents those customers that did renew in the quarter and that were retained bias.
Okay, and then maybe just a question on at the nine I know you haven't given any formal dates but.
When did those office tenants vacate and when can you kind of expect that project to get started.
So.
I believe we've given notice now for all the office tenants to be gone in fact, they probably are all going by now.
And we're still in the process of design and permitting review and environmental reviews, which.
Probably a little bit harder Vic right now than they normally are I would suspect that if the demand were there in Santa Clara.
That we can probably start construction there in the middle of the latter part of next year.
If we saw that.
Or maybe even early next year.
Okay. Thanks, guys.
Thanks.
Thanks next question is coming from David Marino from Green Street Advisors. Your line is now live.
David perhaps your phone is on mute please pick up a headset.
Stephen If you can you hear me I cannot hear you, perhaps your phone is on mute.
Please turn to acute by pressing star one.
Our next question is coming from Richard Choe from JP Morgan. Your line is now live.
Great I just wanted to ask about your kind of larger scale core retail co location.
Really ramped up.
From 2 million kind of quarter average the floor now six how much are that did thousand by doesn't and arosa how much of that is being driven by customers are focused.
From core said.
From I'm not sure I understood. The question is being driven from.
Customers asking for more space or are you focused more on selling and in terms of retail collocation.
The size of the.
Deals so to speak.
Yeah, well I mean, what I guess in general just.
As far as the overall model is concerned we do target a mix across all of our campus to get to yield that we're looking for for each building on the overall campus. So there's a mix of retail versus scale versus some hyperscale included in all of that.
As it relates to customers and what they're buying today.
The majority of our focus from a sales organization is really on out they're finding new customers. That's a fair amount as I mentioned in the prepared remarks to bring in those new seeds that will hopefully grow and bear more fruit later, but that fruit that we've seen a lot of in this last quarter in fact, representing 94% of the total sales in Q1 was from existing.
Customers so.
Pretty good translate that into the scale business as well.
So that's a that's where you see a lot of the growth there, but we do see some new logos that come in and we'll take a fair amount of that space as well.
And then to follow up on the earlier pricing question it looks like cash right.
On renewals.
Is it better alone are we through the kind of negative comps so to speak for.
I guess rent growth and now we could see a kind of trend.
The right direction or is there something ahead of us.
Yes, rich I'd just point you to our guidance I think for the full year, we've said, we expected to be somewhere between zero and 2%.
Obviously this quarter, we were happy to see the 1.4% I think the thing that to point you to is anytime you get larger.
Customer renewals that could tend to drive the ultimate behavior and.
As we saw this back half of last year, we had a couple of those in the long term customers in a couple of markets, where pricing had been a little bit compressed that led to that negative, but I think for the full year, we expected to be zero to 2%.
And obviously on our way to hitting that based on the first quarter results.
Great. Thank you.
But.
Thank you next questions from Jordan Sandler from Keybanc. Your line is now live.
Sorry, I had a couple of quick follow up so.
On the on the SB eight release.
Can you sort of walk us through maybe the decision to pre lease SB eight ahead as maybe backfilling SB seven if that sort of like a timing.
Dear friends or what have you are sort of that configuration difference and then maybe could you characterize the rate of the us on the SB eight lease.
Price versus the outbound rate cseven for us.
Yeah, Hi, Jordan, the Steve I'll give you just some more color on do the decision to pre lease the third phase and SB eight versus SB seven.
You know one of the I think the key benefits that were really realizing now, especially in and Santa Clara as well as Virginia for that matter is our full campus model and the fact that we have multiple buildings in this case, our eight building. The now as we have plans for our ninth building the provide optionality for us as to how we placed customers in order to.
Got the best mix.
Within that building so as we look at SB eight versus SB seven in the space Thats currently under lease and when that might roll off versus.
Colocation opportunities and SB eight.
Good just turned out to be a better decision placed emanate at this point.
So basically leaves SB seven for larger scale hyperscale opportunities as they present themselves.
And what about rate.
As a compare the.
New pre lease versus the outbound lease on SB seven they comparable.
Jordan I think I'd add is just as Steve said in his prepared remarks pricing for the quarter was consistent slightly ahead of where we've been on the trail.
We generally like not to get out a lot of specificity around customer pricing.
So I appreciate I, but I would look at overall pricing was fairly consistent with where we've been on the trail.
Okay. Good could you give us interconnection bookings in the quarter by the way, yes. My sense is that that sounds like it was strong I'm just curious if you guys saw.
Had like a record level of bookings or just what the tempo is like.
No I'd mentioned earlier, the overall increase in volume was 6.1% and I'd say that thats been fairly consistent with where we've been over the past couple of quarters. That's a blend of all of our products.
Fiber is obviously the largest contributor to those overall increases volumes and the increase in volume on fiber alone was right at 9%.
9% growth.
Okay. Thank you.
You bet.
Thank you next question is from David Greeno from Green Street Advisors. Your line is now live.
Hey.
Guys and question I think there Steve really you mentioned in your prepared remarks that pricing was stable and if I just look at the GAAP rent per square foot on your new lease signings right around 200 Dot suspect site, it's pretty consistent with what we've seen the last few quarters I'm in the last few years really which I guess I just kind of surprising given just the higher contribution from reach.
Ill call assigning so I guess my question is really is it fair to say that there maybe a lack of pricing power and we're seeing some retail Colo Arlington, maybe just like a mix issue this quarter.
That's where I was going to is going to just guide you towards me.
It really becomes a mix at the mix of between markets. So different markets are priced differently and as you have more volume in one market versus the other in this case, we had good volume in Virginia, which as you know relative to other markets like Santa Clara.
Less expensive.
That's part of the equation as well as density.
In those markets as well so collectively.
No pricing was in line, but if you look at it you really have to take those two factors in consideration as to volume each market and then the density.
Okay. That's there and then just for clarification, when you say stable and we refrain maybe a quarter over quarter year over year, it's kind of curious the timeframe there. Thanks.
Our year over year.
Great that's it for me thanks.
Thank you. We appreciate about question answer session, let's turn the floor back over to pull for any further closing comments.
Thank you all for being on the call I know its busy day for you and I know that.
All of you like everybody else in the country, we've had to totally redoing the way that you.
Roger business in produce your product and.
Appreciate the extra effort you put into the stay on top of the industry.
Just recap.
I'm very grateful for where we are our business model, our strategy or TV markets are new capacity or new products and importantly, our adaptability have have been key to us prospering and staying on track this quarter and and I think put us in good position.
To stay on track for the future.
And that's our goal.
I would I'd be remiss of it in again bank.
Deeply all my colleagues Coresite, who really have done an amazing job in the last six seven weeks, making rapid adjustments to these changes and executing exceptionally well.
It does vary job.
Two of the have driven from working so thank you everyone hope everyone.
Does well and stays well and appreciate your interest in Coresite.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.