Q4 2020 CoreSite Realty Corp Earnings Call
Greetings and welcome to the core State Realty fourth quarter 2020 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your Investor Relations host Kate Rupee. Please go ahead.
Thank you good morning, and welcome to core side fourth quarter, 'twenty and 'twenty earnings Conference call I'm joined today by Paul Zurich, President and CEO.
Smith, Chief revenue Officer, and Jeff and Chief Financial Officer.
Before we begin I would like to remind everyone that our remarks on today's call may include forward looking statements as defined by federal Securities laws and.
Statements addressing protection plans and our future expectations.
Statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons.
We assume no obligation to update these forward looking statements and can give no assurance that the expectations will be obtained day.
Sales information about these risks is included in our filings with the SEC.
Also on this conference call, we refer to certain non-GAAP financial measures such as funds from operations.
Reconciliations of these non-GAAP financial measures are available and the supplemental information that is part of our full earnings release, which can be found on the investor relations pages of our website at core site Dot com.
With that I'll turn the call over to Paul.
Good morning, and thank you for joining us for our fourth quarter earnings call.
Today, I will cover our 2020 highlights and discuss our 2021 priorities I'll be followed by Steve and Jeff's more in depth discussion of sales and financial matters.
Our 2020 highlights include new and expansion and sales of $37 $6 million of annualized GAAP rent, which marks a record year for retail and small scale leasing.
Operating revenues of $606 $8 million, representing 6% year over year growth.
<unk> per share of $5.31, representing a year over year increase of 21 per share or four 1% delay.
Delivery of 192000, net rentable square feet or 22 megawatts of total new capacity, including the opening of two new data centers and $7 and power and cooling uptime.
These achievements enabled us to execute on our 2020 goals of developing more capacity and completing projects on time, and translating new and vacant capacity and to sales attracting quality, new logos that value our campus ecosystems thoughtfully expanding our products to assist enterprises with their hybrid.
And multi cloud needs and maintaining high levels of facility performance and customer service.
Overall I am pleased with the team's ability to successfully execute these priorities amidst the backdrop of the global pandemic we.
We delivered SBA phase III and why two phase III and the first phases of new data centers at C. H, two and L. A three.
As a result, we finished 2020 with 40 megawatts of available capacity to sell compared to 23 megawatts at the end of 2019.
Examples of translating new capacity and to higher sales included leasing 75 per cent of SBA phase III and 80% of L. Three phase, one and accelerating leasing and northern Virginia, our best year in terms of annualized GAAP rent and that market since 2015.
While sales cycles per enterprises, where L and gated probably due to the economic and other uncertainties related to the virus, we continue to attract high quality, new logos, especially and the financial services industry and then what to do.
We also expanded our connectivity options during the year, including adding Google partner interconnect and Oracle cloud infrastructure to the core side open cloud exchange increasing bandwidth for AWS hosted connections on the core side open cloud exchange at our Chicago campus, adding multi market peering through our enhanced and <unk>.
Change and as recently announced adding access to Google cloud using dedicated interconnect and northern Virginia.
In addition to these 2020 accomplishments as we announced earlier this week, we appointed a new director to our board Mr. Michael Milligan.
<unk> brings us valuable telecommunications experience as well as noteworthy board experience, which will be a tremendous asset core side as we continue our pattern of expanding our talent pool through increasing diversity and.
Also want to thank Jim Attwood, and David Thomson for their board service over the last 10 years. They have both served since the company's IPO and September 2010, and their contribution for many.
Jim and David will continue to serve until our annual meeting in May but as part of our periodic board rotation will voluntarily not seek reelection this year.
We are very grateful for the service they have provided the core side, its shareholders and its employees and customers and wish them, the best and their future endeavors.
As we move forward to 2021, our goals are similar to our 2020 goals as we build on last year's successes are.
Our ability to meet those goals is enhanced by greater available capacity to sell and the strong enterprise bundle that has been building up due to elevated sales cycles, we saw for the enterprise vertical and 2020.
One notable difference is that while we will continue being proactive for future developments and we do not need and do not have any new ground up data centers planned to come online in 2021.
In closing we are excited about the opportunities that lie ahead for us and we believe our priorities and our other operating objectives. We will continue to drive long term value to our customers employees and shareholders with that I will turn the call over to Steve.
Thanks, Paul and Hello, everyone.
I'll start by reviewing our fourth quarter sales results and then talk further about some of our key 'twenty and 'twenty successes and drivers.
Turning to our quarterly sales results, we delivered new and expansion and sales of $9 $7 million of annualized GAAP rent during the fourth quarter.
Please note that as of this earnings report and going forward, we have modified our reporting of new and expansion leases signed by deployment size included on page 14 of our supplemental information.
This revision reports are signed leases per period based on at least kilowatts, rather than net rentable square feet.
The change more closely aligns with how we managed sales activity internally and it is intended to provide greater visibility.
New and expansion sales for the quarter included $4 $4 million of annualized GAAP rent from retail leases three.
And $3 $7 million of GAAP rent from small scale leases and.
And $1.5 million of GAAP rent from large scale leases.
Our new and expansion and sales were comprised of 54000 net rentable square feet, reflecting an average annual GAAP rate of $180 per square foot.
And included an impressive 45, new logos, all with opportunities for future growth, our highest count since the first quarter of 2018.
Looking more closely and new logos to 45, new logos represents core $8 million of annualized GAAP rent.
Or approximately eight 5% of our total annualized GAAP rent signed during the quarter and were strongest in the enterprise vertical.
Enhancing and ecosystem, while diversifying the customer base through attracting and winning new customers remains a key area of focus and it's great to see 45, new brands become part of that story.
Next I'll share some highlights from our sales wins.
And as Paul mentioned during 2020, we executed $37 $6 million of doing the expansion sales and annualized GAAP rent.
Which marks a record year for retail and small scale leasing.
It also represents an 18% increase and retail and small scale leasing compared to 2019.
Burger and our new and expansion and sales. This year were several key factors, including more available contiguous capacity to meet a broader range of customer requirements.
Ongoing strength, and a trucking and winning and high quality new logo sales.
Strategic expansions from existing customers.
And a robust sustainable pet sales pipeline that includes customers looking to accelerate their digital transformation by deploying high performance hybrid cloud architectures.
Let me expand on these drivers our new logo annualized GAAP rent for the full year was $4 $3 million, which demonstrates the progress made against our goal to attract high quality new customers the value of our platform, which will help drive future growth.
That's true strategic expansions with existing customers.
Our existing customers accounted for approximately 89% for the full year of 2020 annualized GAAP rent signed <unk>.
Including expansion into additional markets.
In summary, we are pleased with our sales execution during the year.
We exited 2020 with ample contiguous capacity to support future sales opportunities as illustrated by the new capacity graph at the top of page 18 of our supplemental information.
We are optimistic about the fundamental market drivers supporting our strategy.
The increasing need for enterprises to leverage technology, and a seamless high performance hybrid multi cloud environment bodes well for the unique position of our network dense cloud enabled campuses located and top enterprise markets.
These market drivers align well with our ongoing product and services development, which are targeted at easing the transition of enterprise is becoming customers by making data integration and application interoperability seamless.
Our focus going forward will be to continue improving our ability to help customers. So there are two challenges because they address the changing and dynamic needs of their industries and their customers.
With that I will turn the call over to Jeff.
Thanks, Steve Today, I will review, our fourth quarter and full year financial results discuss our balance sheet, including leverage and liquidity and conclude with our financial outlook and guidance for 2021.
Looking at our financial results for the full year.
Operating revenues grew to $606 $8 million, a 6% year over year increase including interconnection revenue of $84 $1 million and increase of 11% year over year.
Adjusted EBITDA was $324 $5 million and increase of five 3% year over year.
And adjusted EBITDA margin of 53, 5% consistent with the trailing 12 month average.
<unk> per share was $5 31.
Which represents four 1% year over year growth and we declared dividends of $4 89 per share representing an increase of $2 seven per cent.
For the quarter.
Operating revenues were $154 9 million, which represents six 1% growth year over year.
And consistent sequentially.
Including growth and interconnection revenue of 12, 7% year over year, three 8% sequentially.
Customer lease renewals equaling $15.8 million of annualized GAAP rent, which represents a cash rent mark to market of 1% and.
And we reported churn of five 4%.
Commencement of new and expansion leases of $24 million of annualized GAAP rent.
Our revenue backlog as of December 31 consisted of $7 $8 million of annualized GAAP rent or $21 $4 million on a cash basis for leases signed but not yet commenced.
We expect approximately 60% of the GAAP backlog to commence and the first quarter of 2021.
And substantially all of the remaining GAAP backlog to commence and the second quarter of 2021.
Adjusted EBITDA was $82 8 million for the quarter and increase of 4.7 year over year and one 6% sequentially.
Net income was 46 cents per diluted share a decrease of five cents year over year and four sequentially.
<unk> per share was $1 34, and increased four cents or three 1% year over year, and one cent or 8% sequentially.
Moving to our balance sheet.
Our debt to annualized adjusted EBITDA was five two times a year and.
Slightly lower than anticipated and inclusive of the current GAAP backlog mentioned earlier, our leverage ratio is five one times.
We ended the quarter with approximately $301 million of liquidity, providing us the ability to fully fund our 2021 business plan and in addition, we finished the year with 91% fixed rate debt, we expect our fixed rate debt percentage to decrease to approximately 80% by the end of 2021.
Absent any new debt or derivative instruments.
I will now address our 2021 guidance. We ended the year at 81, 9% occupancy and our data center portfolio and 40 megawatts of available capacity to sell.
In addition, we have the ability to bring on consistent amounts of capacity through incremental computer rooms, and infrastructure development within our existing data centers as needed and as anticipated absorption dictates.
We reported elevated churn during 2020 slightly ahead of the high end of our guidance with Q4 results slightly elevated due to a couple of customer move outs accelerating their timing from Q1 2021.
The following 2000 and 'twenty one guidance is based on our outlook on current economic conditions internal assumptions about our customer base and our view of supply and demand dynamics and our markets. It does not include the impact of any future financing investment and disposition activities beyond what has already been discussed.
I will cover the highlights of our 2021 guidance, but I will refer you to our complete guidance on page 22 of our fourth quarter supplemental information for further details.
Operating revenue is estimated to be $642 million to $652 million.
Scenting six 6% year over year revenue growth at the midpoint.
Our 2021 churn is estimated to be six five to eight 5% inclusive of the 200 and basis points related to that specific bay area customer during the second half of the year.
Additionally, we expect cash rent growth on data center renewals to be zero to 2% growth for the year.
And interconnection revenue is estimated to be $87 million to $93 million, representing 7% growth at the midpoint and.
Adjusted EBITDA is estimated to be $336 million to $346 million.
Which implies a 52.7% adjusted EBITDA margin and five 1% year over year growth at the midpoint.
<unk> per diluted share and operating unit is estimated to be $5 40 to.
To $5 52.
Reflecting 3% growth at the midpoint.
Based on our expectations and estimates related to leasing net absorption and timing of Commencements, we anticipate the year over year growth rates to accelerate and the second half of 2021 for revenue adjusted EBITDA and <unk> per share.
And lastly, <unk>.
Capital expenditures are consistent with our original guidance provided in October and estimated to be $185 million to $225 million.
And clothing.
We are pleased with our execution in 2020, and we look forward to the opportunities ahead to further help our customers solve their it needs and challenges as they accelerate their digital transformation.
With that operator, we would now like to open the call for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question. Kim you May press star two if you'd like to remove your question from the cash for participants using speaker equipment and may be necessary to pick up your hand.
Before pressing the star keys.
Our first question comes from the line of Sami Badri with Credit Suisse. Please proceed with your question.
Hi, Thank you very much for the question.
First question for Paul.
And maybe for Steve and I want to talk about the elongated sales cycles and.
We know we could see and draw the connection between elongated sales cycles and the effects of the pandemic and our.
Are you starting to see changes or or any kind of behavioral movements that are happening that can better explain what you think might happen and a tiny tiny one as far as how enterprises H outsourced data center industry from where we are today.
Yeah.
Sami. Thanks, It's a good question I do think we're starting to see some movement.
And you know and it's it's hard to generalize because it's idiosyncratic to so many customers and even some regions. Like for example, I think and New York and New Jersey, we would've had.
Better performance if it worked for the uncertainty about the proposed transaction tax.
And you know and some some other industries.
Things were moving along and then suddenly some additional acquisitions were taking place and so the the.
The opportunity has to be resized.
But you know for a lot of the customers. It's just.
Them working through what their economic future looks like.
There are growth opportunities for some it's accelerated digital transformation for others. It's accelerated the process of outlining and planning for digital transformation, but not quite and gotten to the point, where they're ready to pull the trigger.
And I do think.
You know 2021 started off a little bit.
It wasn't exactly like the calendar turned and everything turned Rosie and there were some bumps Nash.
Nationally and economic economically and the first month or so but there appears to be some some strong.
Economic.
Optimism going forward and I think that that will have a positive impact on sales cycles and Steve anything you'd add.
So I think you covered it well Paul and I think you know as I mentioned in my prepared remarks, I mean, we feel like we're well positioned for the overall market trends and that is really any enterprise out there and become.
No more interested and how they leverage technology to run their business and the hybrid multi cloud environment is becoming more and more commonplace for a lot of enterprises. It is complex as to how they navigate that and we're working to try and make that as simple for them as possible, but that's part of what drives that elongated cycle. So it's all the things that Paul mentioned as well.
And just the overall complexity of and how they manage that and migration. So overall I think customers are getting used to whatever the new normal is and working through those.
Those complications, but you know we feel like we're well positioned to support that.
Yes.
Got it thank you.
Thank you for that color I wanted to just shift to Jeff Jeff you talked about.
<unk> and our backlog commencement and I think if I heard you right on cue and <unk> 'twenty 'twenty, one should be the current backlog.
Now just to kind of triangulate the commencement schedule, what's the full year guidance and the full year guidance also Paul for relatively strong productivity and the sales force and bringing deals to do and your order execution and deployment.
For the full year guidance range very little on income.
Rental execution and sales productivity as we go through the year.
Sami.
And just to confirm your you heard correctly and in regards to the commencement of the backlog. So again, 60% Q1 about 40% and Q2 and.
And.
In terms of sales execution I think is what your viewer.
And we're gearing your question around.
We would clearly believe that.
Kind of as Paul alluded to that we would have a good day good execution throughout the year and the only thing that I would add is.
We will see some benefits from an expense perspective, if you just see the percentages were guiding to I think you'll see some.
And some decreases and our overall sales as a percentage of revenue during the year I don't I don't know if that's directly addressing your question Sami or was there something else we could add.
Just you know if you think about how much incremental leasing you guys and then imagine you need to make that guidance.
Have you guys and expecting meaningful incremental leasing activities take place and makes that guidance number or are you relatively well rounded out content.
And then the existing backlog.
No, it's going to and it's going to require some meaningful sales execution just as every year requires it and I think.
You know when you look at where we ended the year this past year at rough just below $40 million.
I think realistically, we would expect and anticipate some of them are being north of that $40 million as we think about this year just to give you. Some idea obviously don't want to get into too much specifics because we don't generally guide to that but that gives you some sense from what we're thinking about as we head into 2021.
Got it thank you.
Mhm.
Thank you. Our next question comes from the line of Jonathan Atkin with RBC capital markets. Please proceed with your question.
Thanks, and I was interested in India interconnect business and if you don't mind drilling down a little bit on the drivers of pressures you're seeing in that segment.
You've got a lot of a lot of different products that you offer there's bilateral cross connects as well and then you've got the cloud the cloud operators and the on ramps and carriers and the enterprises and and then partners as well and yes.
D and side and I just wondered is there any anything that kind of jumped out in terms of what's going.
Well or what's what's what's the growth rate might be slowing a little bit and that and that area.
Yeah, Let me give you a little bit of color, John and then I'll ask Steve just to add any incremental color. He sees obviously on the front lines, but.
When you look at 2020 and.
From a volume perspective overall volume increases was about seven 7% for 2020.
And as you saw on the revenue overall revenue increases year over year was 11%. So those percentages are fairly consistent with generally what drives that revenue increases which is about two thirds coming from volume increases of about another third of it coming from customers migrating from lower priced to higher priced products.
And some price increases as customers roll or just general price increases and so that relationship has stayed fairly consistent in 2020.
And.
We saw really good growth in the fiber cross connects last year as well as our open cloud exchange and I think some of that may have been spawned on by the pandemic that we that we walked through and.
A live through and 2020, obviously when you look at our guide for this year, we're guiding to growth of about 7% and so I think it's unclear at this point, whether we're going to see that continued level of volume increases for 'twenty 'twenty, one and it's something we're going to watch closely but at this point.
And we think it will moderate slightly just given where we've guided the street to at this point and time, Steve anything else from August.
And I guess I'll, just add as far as trending and where we're seeing.
Customer adoption and so forth I mean, we're we're fortunate and that we were one of the in fact I think the first public data center provider to offer and <unk> type of offering and open cloud exchange, where it's basically and Ethernet.
Backbone and that allows customers to virtually connect to many different services on that backbone.
And we made significant enhancements to that over the last several years, that's positioned us well for really where we see the trend going in the future, which is really kind of that into and serviceability over STM like network. So I think you'll continue to see more adoption of that and more services available on that same platform.
And that's part of what we're driving towards our product development.
And then secondly on the M&A and.
And just noticed that there has been some.
And Theres a lot of activity kind of at the asset level.
And in this sector, including in markets, where you don't really have a presence.
And I wonder to what extent, if you could maybe just remind us of.
And the sorts of things that you look at what when you think about maybe entering a new kind of core.
Data center Internet Gateway type market and Youre not in cash.
There was there were there were recently some opportunities and I. Just wonder are you looking to partner with people and as you enter those markets is that entirely on balance sheet because it just not of interest relative to maybe deploying capital where you already are maybe just kind of refresh us on your thinking there.
We looked at a lot of things as we've said in the past and.
And our guidance is strategic fit with.
And which really means and what type of revenue synergies can we generate and above standard growth. If we do make the investment.
And then return on invested capital does it benefit our shareholders and the.
Medium and long term and hopefully the short term as well or does it not.
You know, we're not averse to partnering if that if that makes sense and the opportunities there, but generally that can be more complicated.
And then then it sounds at first glance.
Again, we look we've looked at a lot of things and.
And when those criteria are met we'll do something when.
And when they're not we won't.
Okay, and then lastly is there any kind of and update on the.
On the standard campus in Santa Clara.
And it seems like that's.
Ready to break ground.
And there's been obviously, some increased occupancy and F C H.
And maybe just kind of give us.
Color on the demand pipeline that you think the market has seen and and what's happening with kind of overall absorption. There's been a I think a lot of activity and that market away from you and wondered what to what extent you might think Santa Clara might drive some of the core growth. This.
This year.
I'll, let Steve address.
And supply and demand and that market, although I will tell you I feel good about it.
<unk> as we said last quarter, you know, we're targeting having our permits and everything.
By the end of the first quarter.
And so far the processes are trending that way, but in that market and and John you probably know the you know the dynamics.
<unk> and power there as well as anybody.
And you can't really say, it's done until it's done so we still have a couple more things we've got to finish up and hopefully we will get those finished up and havent shovel ready by the end of this quarter.
And I would just add as far as the overall supply demand dynamics are concerned we continue to see strong demand and the market and so we're bullish on where we're heading with those investments and where we sit with our overall capacity and pipeline and that space. So overall, we're confident with.
Where we sit today.
Thank you very much.
Thank you. Our next question comes from the line of Nate Crossett with Bamberg. Please proceed with your question.
Hi, Thanks for taking my question one of a big picture question. How are you guys thinking about the edge is in a risk to your business at all and.
Have you guys done any analysis in terms and why their workloads that are currently and you can't say it couldn't move closer to the edge overtime.
Yeah.
We have I don't think anyone can say right now that with certainty they know exactly what's going to evolve, but our expectation is that there's there's minimal exposure for us of workloads that are currently and our data centers, you know going to the edge exclusively.
And there is probably a good opportunity for our data centers as core peering places and the central markets.
The benefit and do the AR increase products and services that are offered at that further edge through five G. Iot things like that just because of the you know the.
The beautiful thing about data is that it works when there's a lot of it pool, together and and Youll see a lot of that necessary for those applications. So that's our high level view of it we continue to monitor it closely and evaluate potential product health.
To help and those areas.
And partners to work with but at a high level, we think it'll be ultimately beneficial.
And I guess, the last thing and I would just add there is.
<unk> can be defined by a lot of different people and a lot of different ways and we feel like we're well positioned and a lot of edge markets.
And you look at the key metro areas that we're in where Theres a lot of eyeballs a lot of enterprises that are.
Very low latency proximity to our data center campuses.
And many definitions that is edge, because we're right next to where those eyeballs and enterprises.
Okay. That's helpful. And then I just had one question on pricing.
Net renewal guy and he's doing it too and if youre looking forward kind of and the next four years and it looks like the lease expirations are at a higher rate and what you did in 2020 and I'm just kind of wondering should we expect and and pressure on pricing going forward and.
Net deer Hunter two per cent range, even go negative.
Hey, Nate let me I'll just offer a little bit there.
Obviously, the pricing and full year looking at it on a per foot basis and.
The.
On the renewal pricing when you look at what we did the share at the dollars per square foot for compressed largely due to the density inside those deployments. So.
And what's the density really plays into the fact, and you know and we're obviously competing and having those conversations with customers if pricing is going to be on a kilowatt basis and.
And so I wouldn't read too much into that on a per square foot basis, Theres, just a lot of variables entity being the largest in terms of what's going to ultimately resolved and that pricing, but obviously as we head into 'twenty and 'twenty one.
And you saw where we ended the 2020 right right about in the middle of our guidance for a mark to market at 8% and we expect to be somewhere in between net 012 percent as we work our way through this year and then obviously, we'll continue to watch it beyond that and give you additional color as needed.
Okay. Thanks, guys.
You bet.
Thank you. Our next question comes from the line of Jordan Saddler with Keybanc capital markets. Please proceed with your question.
Okay.
Thanks, and good morning out there.
So.
I wanted to just follow up and in terms of the pipeline and Santa Clara.
And so previously like you guys were pretty constructive and optimistic about the ability to backfill the outbound tenant there and what what are your sort of most current thoughts there.
Jordan. Thanks for the question current thoughts haven't changed we're still still optimistic about back filling that space and SB seven.
Yeah funds hands.
To do.
I'm, sorry, you're breaking up.
Is that is that at.
On the to do list from.
And the front half of 'twenty, one or.
And could that take longer.
I mean, we typically don't.
You know give previews of win like.
And something might be signed.
But when it is signed we'll announce it.
Okay.
And then in terms of.
Sure Jeff you did talk about the maybe pull forward from <unk> and can.
Can you maybe talk about what the source.
And the types of payments.
Sure you would just be a day.
The reacceleration and churn up to.
And then and did they have anything to do with the decisions around.
What youre doing with the U S Colo space and L. A 194.
Yeah Jordan.
And as it relates to the.
Churn and the fourth quarter, we had about 60 to 70 basis points incremental churn and the fourth quarter that really moved essentially from January of 'twenty, one and when.
And when we anticipated up to December here in the fourth quarter of this last year or so.
No not a real big economic impact it really is just a shift and the timing again that was about 60 to 70 basis points and.
And.
It was really with three customers one of them happened to be and probably the largest percentage of it was just another reseller that was in our portfolio.
We had anticipated to move out and and did it roughly 30 days prior to when we anticipated and.
And so hopefully that gives you some additional color and then what was the second half of the question Jordan, whether anything you can highlight for you.
Yeah no it's.
And as it relates to L. A for I appreciate you picking up on that and some of the disclosures there obviously.
And that La four is a location that's in close proximity to L. A one and two and three.
And obviously, our our objective is to drive business into our owned assets and from a core.
They're just much better longer term better assets to drive business too and we're and the and the <unk>.
Currently in process migrating over all those businesses that we can from la four and two two.
And so we've already done some of that and our team and la is working on getting the lion's share of that completed here. This year, but that churn that I had commented earlier had nothing to do with ally for at this point that is still in process and we'll walk through that and 2021.
Okay, and then and as you look through to the 2021 guide on churn and I noticed that that came down 50 basis points or so at the mid point Hunter and get them at the.
And Lo and I assume due to this pull forward.
Is there anything else to potentially be worried about and what are you guys doing because you didn't get your arms around.
This guide.
Well as you think about it obviously as we've pointed out we've got about 200 of that coming from the single customer at <unk> and that will occur and the second half of this year.
And.
In terms of what are we doing to get our arms around it I can tell you that between my team and Steve's team, it's something that we address on a weekly basis trying to continue to look as far forward as we can.
Both through conversations and relationships, we're having as well as looking at incremental data around each of those deployments to better understand ultimately what that information is telling us on customer behavior to help give us a point on which direction those are ultimately going to go and.
And you know from a customer service perspective, it's always been a very high part of our business and I would say, we're continuing to even elevate it to a higher level under the guide of our operations team and it's something we're continuing to get out in front of it and we want to make sure we retain those customers.
Time, we can and when it makes sense and you know hopefully avoid any of the surprises like we had in the past, but based on where we sit today and what we know today, we think that six five to eight 5% for 'twenty and 'twenty. One is a good number and as and right in line with what we anticipated George and the only thing I'd.
To add to what Jeff.
Said as that.
Categories of customers that drove churn over the last couple of years are now a very very small percentage.
And of our of our portfolio and those are business models that have been especially disrupted by cloud.
Yes, I mean, the reason I ask obviously and there's a little bit and this has been a little bit of that sort of a thorn in your side I think the churn number.
Over the past couple of years and you've got <unk>.
29% of your annual rent expiring and 21, right and 1200 and 77 different reasons, a lot and so I kind of.
No.
And it doesn't seem outside.
One.
The larger and move out net.
But kind of wiggle room in the seven 5% right.
And then move out and basically looking at I don't know one quarter per cent sure.
I Didnt normalized basis rates are outside of the known move out and that seems like a low number relative to at least the last four quarters and.
I don't know I don't know why it would be particularly low.
Next year.
This year I mean, we've had we've had numbers that low or even lower and prior years and again it relates to the cyclicality of some of these business models are the second X I should say the secular changes that some of these business models.
Again, that's our guidance, we wouldn't put it out there if we didn't feel that it was the right range to put out there.
And I guess I would just add as you know I don't know roughly 30% of our base.
Renewing and the year is not.
Our normal.
Typical for us actually and if you look at the average length of our leases of roughly three years to four years.
And what you can expect I think.
Yes, and I appreciate and I didn't mean to insinuate that are and will sort out.
Outside of the ordinary.
Feel like.
It's a big number and maybe the churn number.
Five and a half outside of it and then move out with a little bit low relative to history.
Is that or is that unfair.
Well I mean, it depends on which history.
I said, we certainly hit numbers that LOE and <unk>.
And the previous years.
Okay.
Well, thank you guys from the color.
Okay.
Thank you. Our next question comes from the line of Dave Rodgers with Baird. Please proceed with your question.
Yes, good morning out there guys anything Jordan hit the renewable side of the equation and maybe I wanted to go back to the idea of sales cycles elongated, but Jeff and your comments. You also said you expect leasing to accelerate so maybe I'd ask you Steve to talk more about what's in the funnel last year, you guys were pretty positive about the funnel as well.
Can you talk about lease to touring activity any of those kind of early indicators that are going to give us that confidence that we will see this acceleration and leasing this year.
Behind the scenes that you Havent already mentioned.
Well I think it starts with kind of the fundamentals of our platform really as Paul mentioned in his prepared remarks around.
Available capacity and it's not just the amount of capacity is the fact that we have it.
<unk> consistently across really all of our top markets. So historically, we've had some capacity, but it's really been and a couple of markets and how to make sure that we really accelerated and we're in that specific market. So now we have more opportunity and I think across the portfolio to have.
And have better sales and then as I look at the pipeline the pipeline has been consistently strong heading.
Heading into the pandemic, but holding that strengthen.
And even through the end of the year so.
It's hard to to <unk>.
Porto exactly what the pipeline will result in Jeff as mentioned our guidance already so I think I'll, let that speak for itself, but we.
We feel like the between the volume of the pipeline customers getting more.
And I think familiar as I mentioned earlier with how they make these business decisions and and navigate the complexities of hybrid multi cloud.
The combination of all those things bodes well for the overall.
And our sales forecast for the year.
Is there any evidence and there that youre, losing more customers are winning more of those deals that you are pursuing it sounds like the funnel is bigger which is great.
Some of those wind versus loss.
Metrics that you might track.
Sure we track the win loss ratios very closely and.
And try to manage beneath the numbers to find out where we can improve on that.
There is a balance between and some cases, winning too many versus obviously, losing too. Many if you went in too many of and maybe youre, giving away pricing or doing something wrong, but.
We tried to make sure we are targeting and first of all the right customers the value of our platform and.
And then ensure that we are getting.
The most return for our shareholders at the same time, providing value valuable service to our customers. So it's about balance of all three of those things that we're working towards and.
Overall, I would say the sales team has gotten better and better over time.
And they've done and we got better and their skill set but we've continued to try to as I call. It deepen the moat on our competitiveness and what makes us unique compared to our peers out there. So I think that all adds up into us being more competitive and beat up the windows the right.
And the opportunities that they truly do value our ecosystem.
And I hope that answers your question, but.
I guess the short answer is yes.
And that helps thanks, Steve I appreciate that Jeff maybe on <unk>.
You I think 12 of your leases makeup and the 26 per cent of the revenues and 15% of square feet, that's kind of what you call that hyperscale.
As we look out either this year as part of the larger exploration.
Or into the next year or two do we see any of those at risk.
Or any of those expiring.
Yeah, obviously, it's.
And you know a big percentage from a square foot perspective, you know as you look at the number of leases there being.
The 12 as you pointed out.
And.
As I sit here today I don't think there is a significant risk given where they are on each of those.
And it's just something we're going to have to watch closely as we as we work our way through the year. Obviously one of those is included in our our churn guidance for this year so to take that one out of the equation and the remaining 11 other ones that I referred to and obviously something that we'll continue to watch closely I think we've always had a history of any.
Anytime we see something on the horizon that as you know.
Sizable like one of those and we'll try and give you guys got some heads up on that if if and when that becomes clear, but at this point and time, we don't see anything that we need to raise.
Raise at this point and time.
Okay, great. Thank you.
You bet.
Yes.
Thank you. Our next question comes from the line of Colby <unk> with Cowen. Please proceed with your question.
Alright, great. Thank you.
<unk>.
And as it relates to SD seven do you feel that you can backfill that with just one or two customers.
Or is your.
Our current expectation that to use that space more for retail.
And retail deployments and then as part of that what have you actually assumed in your guidance.
As it leads to the potential backfill opportunity with SB seven and in other words does guidance assume zero revenue from that to the course of the year have you assumed that maybe Ben and mid point of the year you backfill that just any color.
So you can get a sense of what the baseline assumption is and the guidance would be helpful. And then my second question has to do with margins.
Margins are expected to be down about 80 basis points year over year 2021 versus 2020 can you just give us a little bit of color and what's the primary driver of that and whether or not that might start to reverse.
And as you can move to the back half and to Syria and into next year. Thank you.
Hey, Colby thanks for the question.
Our current plan is to backfill <unk> seven with one or two customers.
You know and there.
Jeff can confirm but I believe there is some revenue from that and the guidance, but I don't I know, we don't give specifics about individual leases.
And Jeff can convert this as well but margins are simply.
The good news is we got 40 megawatts of capacity that we can lease.
But that has a margin impact because with baking capacity youre still paying all the expenses, but without offsetting revenue. So there is a there is definitely an opportunity to expand margins as we lease up that 40 megawatts.
Yeah, Colby just to confirm Paul has confirmed we do have some level of revenue associated with SB, seven and our guidance and I would point you to it's probably in the back half of this year versus the first half.
And then in terms of that and that was margins.
You know.
We do have some drag, especially here in the first half as we go through the lease up for instance, CH too.
And we're we're obviously incurring those expenses and.
And not only operating expenses, but the additional property tax insurance.
Expenses associated with those bringing those on and until we get those two call. It roughly 35% leases is probably about the breakeven point force theres going to be some drag as we work through the bottom level of that J curve and so.
We would expect those to improve over time as that asset and others and lease up.
It gives us an opportunity to accelerate our growth rate and the back half of the year. If we're successful with our sales.
With the margins also then subsequently go up and the back half of the year.
Yes, yes, yes.
Thank you.
Yep.
Thank you. Our next question comes from the line of Michael Rollins with Citigroup. Please proceed with your question.
Thanks, so much.
Just to follow on that.
And those extra carrying expenses.
Slightly and the G&A line unnoticed and the guidance that the growth I believe.
G&A was like 11% I think at the midpoint.
And just.
Separately, a different topic on the balance sheet I was curious if you could just provide a little bit more color of what the guidance and first for net debt leverage over the course of the year are you still trying to get below five times leverage net debt to EBITDA over time and over what timeframe do you see that happening.
Thanks.
You bet.
Mike in terms of the carry costs that are impacting those margins most of those carrying cost is going to be up and our operating expenses line out and that's where our our data center teams.
Get aggregated in terms of the expense recognition and.
In terms of the G&A growth of 11%.
Basically most of that is being driven by some non cash compensation increases and then some of that's being driven by expected increases in our travel and entertainment as we expect to get back to I guess, some normal sense of the level whenever and that looks like in 2021 and just to give you some.
We anticipate the first quarter to continue to.
Albeit from very low levels of travel, but as we work our way through the year anticipating some of that to start coming back and being introduced into the business and and we'll just see how things are performance and whether or not things open up to that extent, but that gives you some idea and what's driving that G&A.
And in terms of leverage we finished the year at five two and.
And if you think about 2021 based on our anticipated capital needs and the timing of that capital deployment and I would imagine we would oscillate somewhere between five two and five four times during 2021.
As we work our way through that through the year and so obviously a topic, we always talk with our board about and US here and some management team as well as our bar, we're comfortable continuing to let that.
Reside and those levels here in the near term. So that's kind of what we expect for 2021.
If you wrap these pay two questions together on the margin front with the balance sheet strength.
And Youre looking at the <unk> per share growth rate that's been below revenue for the last couple of years.
And when does that reverse and total when you take into accounts that you're trying to do with the balance sheet with the operating business when Ken.
<unk> per share and show the.
The underlying operating and financial leverage and that's typically built into the data center business model.
I may be wrong about this and Jeff and correct me, but I think because of the capital intensity and the data center business and you either have to issue shares or stock that once you get to a certain level of maturity and and occupancy.
You're always going to see lower <unk> per share growth and you see and <unk> growth and you see revenue growth because you've got to you've got to cover the cost of financing the capital expansion.
And we've certainly seen that as we've looked across the industry generally.
But I do think I mean getting back to your point, Mike It's a good one and.
And I'd circle back to the 40 megawatts versus 23 megawatts. We've just got more occupancy that we have and opportunities in Brazil.
As we do that will have a positive impact on our margins and our growth rate and our flow through <unk>.
Thank you.
Thank you. Our next question comes from the line of Nick del Deo with Moffett Nathanson. Please proceed with your question.
Yeah, Hi, thanks for taking my questions.
So first just to follow up on net leverage question. It sounds like you expect the leverage ratio to kind of remaining the same zone as as it is today over the course of 2021.
And as we look out a little further and kind of bake and the potential cost of <unk> nine.
Is there any potential for equity issuances or do you feel comfortable that that would not be required.
Yeah.
Yeah, Nick obviously and in 2021, it's not currently and our business plan just based upon.
Capital needs and where our leverage is.
Honestly beyond that remains to be seen but.
And as Paul alluded to where we sit at 81, 9% occupancy at year end and.
Yes.
And as we work to drive that north call it to somewhere in the mid to upper 80%.
And that EBITDA growth can drive not only a lot of value inside this organization, but obviously will help us with that leverage and and then as we continue to look out in terms of when we're going to need capital, whether it's for SB nine or some incremental computer rooms, but near term most of our capital is going to be directed towards those.
Second and third phases of some of the new builds we've just completed and the EBITDA growth relative to capital deployed and those scenarios.
Are much much higher EBITDA growth, resulting just because of the all levels of capital needed to bring that capacity and market. Since we spent roughly 50% of it already so I think that's where we are and the cycle and we will continue to disclose what we can as we get closer to the need for bringing on more capacity and that's kind of how we're viewing things near term.
Okay. Okay. That's helpful.
And then maybe one more on northern Virginia, I think you guys mentioned that leasing and in that market was the best since I believe you said 2015 can you comment on how you feel about the sustainability of that performance and how the return attributes of the deals you've been signing there have been trending since that's something you've noted.
As presented some challenges and the past.
Thanks, Nick.
And we're pleased with how 2020 ended up in Virginia, We had some strong leasing there and.
If you look at the leasing and none of it is hyperscale.
Paul retail and scale leasing, which is really the core of our business and where we've been focused over time, so really to execute well against.
And that core piece of the business is great to see given that that market is very much.
Measured and oftentimes by Hyperscale leasing and so we still have the ability to.
And some of those larger leases if they fit the profile that we've discussed earlier as far as those that add to the ecosystem and value and ecosystem.
But overall it seems like that market.
And is stabilizing and we feel like we're in a good position to continue to execute on that retail scale, but also.
And well positioned for the right types of larger leases that may come along.
Okay. Thanks, Steve.
Yeah.
Thank you. Our next question comes from the line of Tim Long with Barclays. Please proceed with your question.
Thank you.
Two if I could first one a quick one.
Just talk a little bit about the maintenance capex. It looks like it's it's spiking next year or is that just some catch up or is there something else going on there and then second I just wanted to touch again on the connectivity focus you mentioned a lot of initiatives that you guys have gone through could you just.
And let us know kind of what other what other type of areas are there opportunities for for core site to expand those offerings.
And in the areas, where you have invested in and better connectivity what has that meant for you as far as churns or churn or or.
And when rates or pricing or anything.
Any color you can give us on the benefits of that that'd be great. Thank you.
ATM, let me just address the question on the maintenance Capex first of all.
Yes, we are anticipating.
Elevated maintenance Capex for 2021, and whats really driving that inside the data center business as we're replacing a chiller facility and Boston that has hit the end of life and so we're replacing and then enhancing that to handle the entire facility, there, which should drive us some very good saves.
<unk>.
And as we bring that on and that will all occur here and the first half of 2021, Secondly, I just wanted to point out and there is some additional recurring capex that we've anticipated and our our office business not something we talk about often here at core site, but we have signed and office lease and.
And at SB, one and downtown San Jose, which we're going to spend some dollars to bring that space up to what's needed before that tenant commences its.
Lease here and the first half of 2021 as well.
Steve.
Yeah, Thanks, Jeff and as far as the connectivity solutions are concerned Paul mentioned, a little bit about this and.
And his opening remarks as to some of the and I think milestones that we've made during 2020 and attracting additional cloud providers somebody enhancements to a peering exchange.
Higher speeds that we're able to accommodate customers for example.
<unk> direct connect and Chicago and those are just some examples of what we've done already but I think.
You mentioned, a question around win rates or churn and those kind of things and.
Last year, we announced that we were.
We implemented our inner side connectivity, which really connects all of our markets together and we've seen some strong uptake from that and.
And some cases, where we won opportunities because we had that service. So we continue to look at those types of services and how we can continue to enhance the ocs for example to provide more into and provisioning and their customers and the trade offs of demand versus the cost to enhance some of those features.
And those type of things I think are continuing to be top of mind for us and our customers. We announced earlier this year that we rolled out our Dci visibility to give customers visibility.
And as to what's going on and their environment over the portal and that's been very well received so it's all of those kinds of things its really kind of easy and the path for customers to become customers and making that interoperability and a lot more seamless for them.
Thank you.
Thank you. Our next question comes from line of Ari Klein with BMO capital markets. Please proceed with your question.
Thank you and.
Maybe just going back to the true.
And here it seems like if we adjust for some of the moving parts this year and.
Somewhere in the range of 5% and.
And.
Is that kind of the right way to think about it moving forward.
And this year.
As far as churn.
Yeah.
I think as you look at several of the years since we basically come public and 2000 and tandem and you saw.
Churn ranging from I think one year, we were down at five 5% and then obviously this year would have been the high and 11 six but when you look at and take away some of those.
The highs and lows on average we were somewhere right around seven 5% to 8% on a regular basis and so that's the way I would probably think of it somewhere around 1% to 2% per quarter is really what we would classify as fairly typical for us.
And as you think about 'twenty 'twenty one to.
To give you some sense for where are we see that I would anticipate our churn being somewhere between one and one 5% and in each of the first and second quarters, and then it would be a little bit elevated and the back half probably today.
I am sorry, one and.
Two to two and a half and the back half of the year.
And as we have the one customer moving out and.
And in September and some in October just to give you some sense for how we think the year will shape up for 'twenty and 'twenty one.
Got it that's helpful. And then maybe just on the day capacity frankly, you seem to be and a much better positioned today and then you were maybe the last day or two but how are you thinking about the need or how much capacity do you want to have on hand, and we moving forward you know a lot of it will obviously be dictated by the leasing.
But is there a right amount of capacity that you can consistently want to have on hand and available.
It's a good question Ari.
And I think it's more looked at by market, but I would say, we're a little bit over what we would ideally want right now and primarily that's because we haven't been as successful out the gate with CAH too as we would've liked to have gone into the reasons for that and the past, but we're still very happy with that asset and we think it's going to.
And for them well and.
And it has a good enterprise pipeline, but so far it's been a little bit slower than we expected.
Ideally we'd lease up.
At a faster pace this year and I think somewhere around somewhere in the 25 to 30 megawatts of capacity plus the ability to expand.
And you know and existing and.
And existing Datacenters with new computer rooms, and ready to develop lands that we have the optionality to expand capacity, that's probably the right way to think about the business model for our current size.
Thanks.
Thank you. Our next question comes from the line of Richard Choe with Jpmorgan. Please proceed with your question.
Alright, a lot of the business last year came from existing customers for guidance. This year are you still expecting most of the business to come from existing or is that mix going to change a little bit and how should we think about it going through the year.
Hey, Richard this is Steve.
As we mentioned on the call there I think we had 89%.
Income from existing customers and the last Q and that's it's not unnatural for US which is really part of the reason why there is such a focus for me and my team on driving new logos, because as we we win those new logos and they come in and the likelihood of them landing and expanding becomes much greater so not relying on just.
The base to continue to expand over and over and over it and so the ratios are probably fairly consistent although we look to try to overweight more and that new logo category, but as you look over time, you know I think anywhere from 70% to 90% and and <unk>.
Expansion is not uncommon.
And then in terms of the small scale and retail is there any difference on how quickly those signings turn to revenue or are they both about.
And the same timeframe.
I would say, they're both pretty similar as you get to the higher end of the scale those can be a bit more complex and private cages that take a little bit more time to deploy.
But theyre all relatively the same time period.
Great. Thank you.
Thank you. Our next question comes from the line of Frank Louthan with Raymond James. Please proceed with your question.
Great.
And I wanted to circle back again on the sales cycle, a little bit can you give us a little a couple a little more insight here is it a function of customers and how they're reacting broadly what do you think it's something more specific to how youre trying to sell them and you're trying to engage with larger initial deals are workloads or applications that are gen.
Taking longer than the traditional mix that you've had with enterprise customers is it or is it just something about the market in general where you're seeing the sales cycles like that.
Oh I'll just start I guess with the simple answer of yes.
It's all of that.
And I'll tell you that you know we are trying to get into sales cycles earlier, which is part of the reason they become protracted and its because were in earlier. So therefore, we're we're in them longer.
But they're also more complex as I mentioned earlier so.
As we look to really try to communicate our overall value and messaging to the marketplace around not just the nuts and bolts of the data center, but the value that they can.
They can extract from the datacenter and the ecosystem that has embedded within it.
That will hopefully allow us to position ourselves better with those enterprises earlier that may not be actually.
Elongate those sales cycles, as we've seen but hopefully better position us for more opportunities and give us a better position at the table as they make those decisions.
I mean had already identified where we know where maybe you were missing out on this and the past and and is this at what point does this sort of normalize and and and result, and maybe higher growth going forward.
Yeah.
Yeah, well I think it continues to normalize I mean, it's hard to know what normal is in today's environment, but I think the.
The process as I mentioned earlier has become more normalized it's still a long process and frankly, we still have more work to do with our sales team to get better and better at this and get better at our messaging and as.
As I mentioned earlier try to deepen our moat on our value.
So I don't think it's a static thing that we ever say mission accomplished and so.
Always trying to get better and trying to get in more deals and work them more efficiently.
So it's.
It's hard to say that it's you can expect a status quo going forward because I don't think there will be and high tech sector.
Alright, great and just wondering out of it.
Yeah, I would only add and some of our most valuable cut.
Customers that Steve and his team have brought in and added which have these and some of the longer sales cycles are the ones, who are going to come in and they're going to use multiple clouds multiple networks and probably some of the cloud adjacent storage and other cloud adjacent utilities.
And they're moving typically out of traditional kind of on premises environment. So theres, just a lot more moving parts for them and a lot more work with solution partners and our solution architects to to make sure we get their initial deployment and setup right. So that they can have the ability.
To expand and add new features as they grow into their hybrid multi cloud architecture.
Okay and have you seen any incremental activity or interest from many of the Chinese hyperscale or since November.
No nothing.
Its abnormal I would say pretty consistent.
Alright, great alright, thank you very much.
Thank you. Our next question comes from the line of David Guarino with Green Street. Please proceed with your question.
Hey, guys I know its core thanks adopted providing.
Providing property level disclosure and they now show market level of disclosure and a supplemental could you just talk about why the company thing providing investors with less disclosure, it's Ryan and the portfolio is the best way to communicate the story.
Hey, David its Jeff.
No.
Every year, we go through a process of.
Looking at the information, we disclose and.
How it's being received and how it's being utilized and we're always looking for ways to enhance the message by giving.
Good.
And many times more transparency and in certain situations like this one we felt summarizing the information just felt and gave and.
And tried to simplify the message we did the same thing and our debt disclosure table, but.
And that you can go to our 10-K and get all the Nitty gritty details that you need.
And as Steve pointed out, adding some additional disclosures around how we're managing the business from a sales perspective, we think helps with transparency and aligned it much better. So we're always looking for ways to improve upon it.
Specific to your question I'm trying to simplify it David.
And if there's something in there thats meaningful.
Meaningful and and is causing some real issues. Let me know what it is and we'll see if we can help you out.
Okay, that's great and maybe we can talk offline about that and and just a second question on the Chicago market, we didn't touch a lot on Nasdaq.
And activity, there and again this quarter, but it looked like there were two pretty large leases signed back and private data center operators. During Q4. So could you maybe give us an idea I guess of how you view the supply and demand dynamics and end market and then just kind of your expectations surrounding when that space might be leased and CH too.
So we're positive on the market.
Was it was in 2020 much more almost entirely a hyperscale and market in fact, I'm not sure if I'm not mistaken both of those two leases you mentioned wherewith, one hyperscale customer.
But it has traditionally been a very strong enterprise market, we actually had good leasing and that market or leasing and Chicago was our best since 2016. It was 19% ahead of 2019 levels, we brought our occupancy and CH, one up from 81% to <unk> 87 per.
Or said.
And and we.
We have a good funnel of enterprises with larger scale requirements that hopefully will start bearing fruit this year and 2021.
And anything you'd add not just minor crushers and 13% over 2019, but and.
And the ballpark.
True.
But yes. It was a good year, we'd like to be more I mean, I would like to see more we've got a beautiful building there that now.
And now we can extend all the value that we've had our 427 and Michele <unk>.
<unk> and <unk>.
And we're optimistic about the opportunity there.
As Paul mentioned, we did have good leasing and and we expect that to.
And accelerate as we go into 2021.
Great. Thanks for the color.
Okay.
Thank you. Our next question comes from the line of Amo Tayo Okusanya with Mizuho Securities. Please proceed with your question.
Hi, Yes, good afternoon and.
And your earlier comments you discussed the proposed New Jersey tax on financial service transactions and.
And that's kind of causing some you know some delay of some uncertainty here and the New Jersey, New York market could you talk a little bit about one what the latest is with that proposed tax and then sue if you're seeing any other kind of major market.
Thinking of doing something like that has all these municipalities are trying to watch shore up their revenues post the.
Post the pandemic.
So.
We don't have any real updated information it almost seems like there is a little bit of a pause.
Proposal has been reduced but hasn't gone away completely.
And who knows it may be tied to bigger fiscal things going on relative to Washington and.
You know the Covid relief slash stimulus bill but.
I honestly.
I don't have very good tea leaves and the political situation sales. So I can't really I can't really address that we havent seen anything similar in other markets I recall vaguely three or four years ago, Chicago floated something like that and then when they saw what the impact would be on business and their stay.
Right and their community.
They shut it down so I mean.
Thank all of these municipalities are focused on the fact that that business and that activity is portable to other jurisdictions and so they have to make a judgment as to whether they are cutting off their nose to spite their face.
They implemented tax like that.
Got it thank you.
Thank you ladies and gentlemen, our final question. This morning comes from the line of Michael Funk with Bank of America. Please proceed with your question.
Yeah. Thank you very much for the questions today quicker.
Quickly circling back interconnection and your comments earlier I'm, hoping you can pull apart and what's in your guidance for 'twenty and 'twenty. One you mentioned net number moving pieces, there volume growth helped and 2020 and migration to higher capacity price increases. So does your 'twenty one guidance does that assume a lower.
Lower volume growth.
Lower level of migration pruning by customers or less ability to increase pricing.
Yeah, Michael how are you.
In turn well thank you.
In terms of 2021 guidance as I mentioned earlier, our overall volume increases in 2020 were seven 7%, we actually expect volume increases for 2021 to be around 7%, which is right in line with where are our revenue growth is guidance at this point in time so.
What what we're not certain oven haven't baked into the guidance is how much.
And incremental revenue growth, we would receive from customers as they're rolling over on their new lease terms.
Or any migration to those higher priced products, we saw a lot of that activity and 2020 and at this point.
And have expected that to be fairly muted for 2021, and we'll just see how things.
And how that rolls out as we go through the year.
And then one more if I could on capital allocation you slowed the dividend growth recently.
You gave a target for leverage for 2021.
What does it take to get back to the historical level of dividend growth.
Well I.
And I would simply say.
We continue to target that <unk> payout ratio of somewhere around 90, and 92% and you can see we're just a little bit higher than that currently over the last trailing 12 months, but I don't anticipate that payout ratio, increasing and thats. The level, we're comfortable with at this point and time and so dividend increases aren't going to be very highly correlated to.
Revenue I'm, sorry cash flow growth. So I would say look closely at the <unk> growth and that's really going to give you a better indication on what that dividend growth is going to look like longer term.
Okay. Thank you guys for the time of day have a good day.
Thanks, Mike appreciate it.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to poser for any closing comments.
Thank you and thank you all for your interest and your time and learned more about core side today and I'll tell you I learned many good things about our team during the challenges of 2021 micron.
And my colleagues.
And increased depreciation for how conscientious agile and innovative they are not only to make the adjustments necessary to succeed and 2020, but to continue to build a better platform for how we go forward.
And they make me very optimistic that we can perform well with our strong business model and the abundant capacity that we have coming into this year.
So I look forward to 2021 and.
And hope you all have a great rest of your day. Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.