Q2 2021 CoreSite Realty Corp Earnings Call

Yeah.

Okay.

Okay.

Yes.

Greetings and welcome to correlate Realty second quarter, 2021 earnings call.

At this time all participants are in a listen only mode. A question and answer session will follow the for.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this call is being recorded I would now like to turn the conference over to your host Kate Whoopi manager of Investor Relations. Please go ahead.

Thank you good morning and welcome.

For more precise second quarter 2021 earnings conference call.

I'm joined today by Paul Zurich, President and CEO, Steve Smith, Chief revenue Officer, and Jeff fan 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 of.

As defined by federal Securities laws, including statements addressing projections plans or future expectations.

These 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.

Date. These forward looking statements and can give no assurance that the expectations will be obtained.

Detailed 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.

These non-GAAP financial measures are available in 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 our second quarter earnings call.

Day, I will go over the quarters.

And Steve and Jeff will discuss sales and financial results in more detail.

We delivered another strong quarter of financial results, including operating revenues of $162 million, resulting in 7.7% year over year growth and <unk> per share as adjusted of 1.

So I loaded too which is year over year growth of 5.2% ex.

Excluding the impact of a onetime benefit of <unk> <unk> per share of that Jeff will discuss later.

Second quarter sales results included new and expansion leases of $7.8 million of annualized GAAP revenue, which consisted of 17.

$7 million of retail co location and small scale leasing above the trailing 12 month average and zero for $8 million of large scale leasing.

We are pleased with our retail and small scale leasing so far this year and as Steve will discuss we expect more volume in large scale.

Dollar for us in future months as the funnel of these longer cycle opportunities should bear fruit.

Our sales trends confirm the findings in the 2021 state of the datacenter survey that international data group recently published which shows Colocation emerging as a key element for modern <unk>.

Enterprises bridging multiple cloud and service providers to provide a robust foundation for driving innovation.

Full survey is available on our website.

Turning to our property development.

The la 3 phase II construction project remains on track for Q4.2.

2021 delivery and we completed a pre lease for of scale deployment this quarter to an existing customer.

We also achieved the lease percentage of 89% of La 3 phase 1, reflecting the strength of our position in the Los Angeles market and solid sales activity.

In addition.

We placed a new for megawatt computer room at NY, 2 under development with an estimated Q1.2022 delivery day.

We continue to see strong demand in the New York market, particularly in the financial services industry.

The new Boston Chiller plant project has been completed.

We expect the chiller to provide a positive return on investment. They are proved power efficiency and utilization as you know from our 2020 sustainability report energy efficiency is a key focus for core site.

And finally, we received zoning approval from the Santa Clara City Council.

For our SB 9 development and important entitlement and we continue to work through the remaining preconstruction activities to bring <unk> 2 of shovel ready state.

We achieved the valuable milestone at our SBA data center, which reach stabilization during the quarter at 98% occupancy less than 2 years.

Years from the delivery of phase 1 with financial returns expected to achieve our underwriting with some additional time and the maturation.

On the connectivity front, we recently announced on debt availability to Google cloud natively on our Chicago in Silicon Valley campuses further supported.

And google's partner of interconnect and validating the importance attributed to our portfolio by key cloud partners.

In summary, we have solid accomplishments for the first half of the year and Jeff will discuss their positive impact from guidance, we are executing well on our 2021.

The goals to translate our new and vacant capacity into sales opportunities to attract high quality logos that value of our campus ecosystems to expand our connectivity options and relationships to assist the enterprises with their hybrid and multi cloud needs and to return to mid to high.

The 40 digit growth in revenues earnings and the <unk> per share.

We remain optimistic about the fundamental market drivers supporting our go to market strategy.

Technology, requiring low latency high performance hybrid cloud architectures continues to play an.

The single generally important role in the success of businesses and.

In core site is well positioned to capture an attractive share of the edge needs and our major metropolitan markets with that I will turn the call over to Steve.

Thanks, Paul and Hello, everyone.

I will start by recapping, our second quarter sales result.

The increase may discuss some key themes of notable wins.

As Paul mentioned, we delivered new and expansion sales of $7.8 million of annualized GAAP rent during the second quarter.

Which included $3.4 million annualized GAAP rent from retail collocation leases and for $4 million of GAAP rent from scale of leases.

Our new and expansion of sales were comprised of 32000 net rentable square feet, reflecting an average annualized GAAP rate of $235 per square foot.

As well as 26, new logos that were added to our customer ecosystem with the opportunities for future growth.

The highlight a few specific use cases from these new logos in a moment.

New and expansion pricing on the kilowatt basis. This quarter was above the trailing 12 month average by low to mid teens, reflecting the unique use cases and mid mix of both the size and location of leases signed this quarter.

Contributing to this are new and expansion sales of retail and small scale leasing was also above the trailing 12.

Rich.

These leasing categories. Our primary focus is the often represent performance sensitive applications, requiring high interoperability and hybrid cloud architectures.

These deployments also typically drive incremental power margin and interconnection revenues improving profitability, while enhancing the ecosystem.

The supplement the retail and small scale sales results. Our team is working hard to deliver more value at large scale and hyperscale leasing throughout the second half of 2021.

Although actual timing can be affected by the complexities and longer sales cycles of these larger deployments.

Consistent with our strategy we.

We saw strong organic growth and demand from existing customers, who accounted for 86% of annualized GAAP rent signed during the second quarter as our digital architectures evolve and expand.

Noteworthy expansions from existing customers included scale edge deployments from a digital content customer kind of public cloud customer expanding their footprints in the Los Angeles.

To support their growing customer demand.

Our scale expansion from higher education customer and the New York market, leading to support its high performance research computing and.

And scale expansions from financial derivatives exchange in the global investment management firm enhancing our high quality financial services ecosystem.

The New York market.

From a geographic perspective, our strongest markets for new and expansion leases in terms of annualized GAAP rent signed where the.

Los Angeles, New York, and Northern Virginia, which combined represented 75% of our annualized GAAP rent signed during the quarter.

Turning to notable new customer wins.

Angela 26, new logos signed represents $1.1 million of.

GAAP rent of approximately 14% of our sales during the quarter include.

Including 6 new customers executing multi market contracts.

We effectively competed for and won 15 separate deployments across multiple market.

For the 6 customers as they look to solve for their distributed technical requirements, including the high interoperability robust security and enhanced reliability.

Attracting high quality, new logos looking for this type of interoperability further strengthens the flywheel effect of our densely interconnected campus model and portfolio.

<unk> ecosystem.

Enterprises contributed 93% of new logo annualized GAAP rent signed during the quarter.

And included an investment management firm joined the are rising financial services ecosystem, and New York market and another prominent law firm known for its strategic work for major enterprises deploying in both new.

New York, and the Northern Virginia markets.

Finally, we ended the second quarter at 84, 1% of total data center occupancy.

Increasing our occupancy by 220 basis points since the beginning of the year and furthering our progress towards our targeted goal in the high <unk> range.

As we look.

To the second half of 2021, we are well positioned to capture the demand for edge use cases with high performance hybrid and multi cloud requirements, which we expect to drive significant value through the lease up of our available capacity we.

We are working on attractive large scale and selective hyperscale opportunities that align with our campus value and shareholder.

And we remain optimistic about the sales funnel for the second half of 2021.

With that I will turn the call over to Jeff.

Thanks, Steve Today, I will review, our second quarter financial results balance sheet leverage and liquidity and then review our financial outlook and updated 2021 guide.

We achieved another strong quarter of financial results.

Operating revenues were $162.1 million, an increase of 7.7% year over year.

Year to date through Q2, the 3 components of datacenter revenues rent power and interconnection revenues.

Increased year over year at 6%, 10% and 9% respectively.

As a reminder, our reported new and expansion of sales results only include the rental revenue component of the new leases.

Lease renewals equaling $24 million of annualized.

GAAP rent were finalized during the quarter, resulting in cash rent mark to market of 4.2% and GAAP mark to market of 7.1%.

Year to date, our cash rent mark to market equals 3.4% exceeding our initial guidance range.

We also.

The churn of 1.3% for the quarter within our more normal historical range as we expected.

Commencement of new and expansion leases of $8.4 million of annualized GAAP rent.

Revenue backlog, consisting of $8.1 million of annualized GAAP rent or 15.

Incurred $6 million on a cash basis for leases signed but not yet commenced.

The difference between the GAAP and cash backlog is primarily driven by a handful of scale leases with power ramps in the early portion of their lease terms.

We expect approximately 70% of the GAAP backlog.

The commence in the third quarter of 2021 and substantially all of the remaining GAAP backlog to commence during the fourth quarter of 2021.

Adjusted EBITDA was $87.4 million for the quarter, an increase of 7.1% year over year.

Year to date.

Our adjusted EBITDA has increased 8.2% representing an adjusted EBITDA margin of 54, 3% also an improvement over the guidance provided at the beginning of the year.

Net income was <unk> 59 per diluted share an increase of 7%.

Year over year and 8 sequentially.

<unk> per share was $1.48.

I recommend you look at the <unk> per share results on an adjusted basis of $1.42 per share, which removes the impact of a 1 time benefit of 3.1.

$1 million or.

Or <unk> <unk> per share, resulting from the release of a tax liability that we no longer expect to be incurred.

<unk> per share as adjusted of $1.42.

Is an increase of 7 or 5.2% year over.

The year year to date of <unk> per share as adjusted increased 6.8%.

Moving to our balance sheet, our debt to annualized adjusted EBITDA.

Decreased 2.5 times as of June 30.

We saw organic deleveraging again this quarter as we continue to lease the capacity.

The city, we developed over the last few years and realize the corresponding adjusted EBITDA growth.

Inclusive of the current GAAP backlog mentioned earlier, our leverage ratio is 4.9 times.

We ended the quarter with approximately $264.3 million of liquidity and therefore the capital.

To fully fund our 2021 business plan.

Turning to 2021 guidance.

We are increasing our guidance related to net income attributable to common diluted shares to our new range of $1.99 to $2 <unk> per share.

Capital. In addition, our guidance related to 2021 <unk> per share as adjusted has been increased from our previous range of $5.42 to $5.52 per share.

To our new guidance range of $5.52 to $5.60.

<unk> per share.

The increase of 9.

At the midpoint or approximately 1.6%.

It's largely driven by an increase in operating revenues improved adjusted EBITDA margins and to a lesser extent by lower than anticipated interest expense.

We also increased our cash rent.

Mark to market guidance to a range of 2% to 4% from our previous range of zero to 2%.

Other than the changes noted here and those on page 21 of our supplemental our 2021 guidance and related drivers remain unchanged.

A.

To keep in mind related to our capital expenditures guidance a portion of expansion capital spend in the second half of 2021 is dependent on the timing of our development at SB, 9 which could push into 2022, resulting in lower than anticipated capital spend this year.

And.

And with the completion of our investments in the SB, 1 office for build out and the Boston cooling infrastructure, both of which are expected to generate attractive returns on investment.

Our recurring Capex will decrease and returned to more normal levels in the second half of this year and therefore.

Increase our <unk> to <unk> ratio prospectively.

In closing as we move into the second half of 2021, we will continue to focus on our goal to lease up our available capacity to achieve a portfolio occupancy percentage in the high eighties.

As Steve.

We've said, we increased occupancy 220 basis points since the beginning of the year.

We expect the increase in occupancy to create better revenue growth flow through and the incremental margin expansion ultimately, resulting in incremental value for our shareholders.

The incremental NOI, resulting from.

The ongoing lease up highlights the value creation of our development and the implicit value of our currently available and buildable capacity.

We remain focused on thoughtfully balancing future capacity development with customer opportunities our balance sheet remains strong we have plenty of liquidity.

And we believe we are well positioned to drive long term value creation.

With that operator, we would now like to open the call for questions.

Thank you we will now be conducting a question and answer session. If you would like to ask the question. Please press star 1 on your telephone keypad.

Quiddity information Carnival indicate your line is of the question queue.

The press Star 2 if you would like to remove your question from the queue for participants using speaker equipment. It made the necessary to pick up your handset before pressing the starkey.

Your first question comes from Sami Badri with Credit Suisse. Please go ahead.

Okay.

Hi, Thank you for the question.

You know 1 thing that I really want to address is the cash the cash renewal spreads and how you guys see those moving up and what I really kind of want to understand is what is functionally happening at the customer level, that's allowing core site to push these.

The increases or kind of negotiate these price increases I'm just trying to understand here structurally what is happening like in the demand environment and kind of like what the customers.

How they're reacting or you guys are executing that's just so we can understand the shift.

Jamie Let me just give you maybe something.

These price keep in mind, and then I'll, let Steve answer is a little bit more color on the actual conversations and a little bit more in tune with what you are asking about but I just think in general when you look at the past.

Several years.

As a public company, our mark to market rent growth has historically been somewhere between the.

The 2% to 5%.

Last year, we were lower than that and we started out the year expecting it to be a little bit lower in the obviously <unk> been able to execute higher than what we anticipated headed into the year.

So overall I think that that 2 to 5 range of something to think about as we continue to execute on those renewals, but Steve.

Steve can give you a little bit more color and commentary specific to your question.

The 2% to 5% spread is the right thing to focus on and there are some variables that come into play of any given quarter. Obviously, our goal is to remain market mix of that were in line with what the market supports out there where customers value and that's what we strive for.

For what we also strive for is creating unique value for our customers that they're willing to pay for so it's striking that balance of.

Where we are where the customer where their history is coming from as far as where they are coming off of their leases and instead.

That said overall mix that plays into the spread but I think it's more important to stay focused on the spread the Jeff mission.

Okay, and maybe just customer level of conversations I mean, we started off the year with a much different.

Cash rent growth profile and I hear you guys on the typical of spread but I think like what I'm really trying to understand is has something functionally changed in the industry and the supply demand dynamics of.

Enabled this revision in outlook.

No I don't think so I don't think anything has changed dramatically as far as supply demand or anything like that.

I do think that.

Our market and our model and how we really try to provide more embedded services around the interconnection and the stickiness of that.

Helps overall, so as much as we can differentiate our portfolio from others I think that provides additional value and stickiness in the ability to hopefully have that will be reflected in the rate, but it is also important for us to maintain that win win scenario with our customers and make sure that we're being fair.

Bear with the market.

Got it thank you.

Your next question comes from Frank Louthan with Raymond James. Please go ahead.

Great. Thank you can you talk to us a little bit about the impacts of inflation both on how youre looking at current jobs you're bidding for currently.

And how you've maybe protect yourself from the backlog and and and so forth and how youre viewing that over the next 12 months to 18 months.

Yes.

I'll talk about construction and then pass it over to Jeff to cover the rest of the question Frank and thanks for it.

I mean, I think we're like all of the other.

Data center.

<unk> and.

Builders in general debt, we are expecting increases.

Increases in prices on future projects <unk> would probably be the first major 1 where we would deal with that all of our current projects, we're already bought out and.

And we don't see any issues there.

<unk>.

I don't know exactly what that number is going to be because.

Some things are.

Mr. Pat Chairman, Paul since transitory and others may not be but I know that our construction team will work hard to manage those cost increases.

<unk> is down and I expect that all of our peers will be facing the same and that may have some impact of the market pricing as well. So theres a lot of variables and we'll just try to manage our way through it as best we can.

And Frank the only other thing I would add is maybe just 3 real quick items. In addition to the.

The construction side that Paul alluded to.

Obviously, we watch closely on the impact to our cost structure of salaries and related costs and it's something we're continuing to watch any of obviously work with our HR team advisors as to what we need to do there secondly.

The customers, we got to be aware of what it does to come from.

From a customer standpoint, our typical lease III for years, it does give us that opportunity too.

No.

Renegotiate, where those economics are fairly on a in a fairly near term basis. So.

Don't see a significant impact from that perspective, and then third of the other area that we're obviously watching and paying attention is to the extent.

We do start seeing the that inflation on a consistent basis, what does that do to interest rates and then how does that impact our overall timing associated with our our capital needs and the plans there.

The only other thing I'd add is that as it relates to the buildings that we've already built a lot.

The inflation risk is taken out.

We just need to build out additional floors and computer rooms.

Alright, great. That's helpful. Thank you.

Your next question Nate Crossett with Baird. Please go ahead.

Hey, thanks for taking.

My question guys.

I just wanted to go back to the releasing spread question again.

I get the 2 to 5 <unk> historically done.

I'm looking at kind of the expiration schedule over the next few years.

It looks like the rates that are expiring.

A lot of pretty similar to what you've done year to date.

Just curious.

After this year.

What are you kind of thinking for what renewal spreads look like.

Yeah.

Yeah, Hey, Doug, let me try and address that as best as I can.

But I think the best way to think of it is in line with what Steve talked about from an analytical perspective.

I think our best data point is how we've been able to execute in the past the thing that will impact that positively or negatively ultimately is the the types of customer and leases that were renewing.

I E is it more of our retail and scale versus large scale and hyperscale those do play some impact and then the geographical.

Dispersion of where those leases are being renewed how is the supply and demand look in each of those markets and how hard is it really to lift and shift somewhat just deployment. So those of other things that enter.

For into and factor into how we are able to execute there.

Hard to say, where that's going ahead here over the next couple of years, but obviously, we will provide additional details as we get closer to next year.

Okay. That's helpful.

I think in the prepared remarks, there was kind of.

<unk>.

And the illusion to larger.

Deals maybe in the back half.

I'm just curious of any of those looking at at the sand then what's the update there and then I think it sounded like there would.

And move forward at the SG 9 after of Council meeting. So I'm just wondering what exactly are the next steps.

Type of project.

Yeah, just to give you some color on SB 7.

As I mentioned in my prepared remarks, we're excited to see where SBA has come and reaching 98% occupancy.

As I've mentioned in prior calls I think it's important to take a look at the campus overall.

As to how we manage space and try to drive efficient use of that and maximizing.

Shareholder value throughout the campus. So as we have now filled up.

Really all of SB 8 we now turn to the remaining larger spaces that are available, including SB 7 and look to populate.

That with customer demand. So the pipeline still is encouraging and in the Santa Clara market market and.

Without saying too much we work for.

I think we're well positioned so.

That's why I'd, just leave SB, 7 and I guess as far as SB 9 is concerned Paul I know if you wanted to mention.

Anything around the as benign. So we were very glad to received the unanimous approval of the Santa Clara City Council.

I mean, that's that's probably the biggest step in the process, but there are a couple of other steps you've got to complete the detailed permitting for.

Finalizing the power station plan.

And but meanwhile, with this with this the zoning entitlement, we can do a lot of Preconstruction work that will shorten the put once we start construction.

And that start will occur will depend upon.

Market conditions, so I E supply and demand in the market.

What our absorption rate and funnel looks like in the Santa Clara market.

Yes, as well as what kind of pre construction commitments, we can achieve to accelerate debt. So I can't really predict when we will start construction, but we will have.

Have a lot more optionality around that with the zoning approval behind us.

<unk> 1 of our I think I should also address the specific to your question is on lease spreads as I was thinking more about your question.

In this quarter, we did signing and renewing powered shell customer inside.

1 of our locations that did.

Bring that breaks down as you know powered shell rates are lower than our typical of turnkey. So just sort of where do you think about that $1.49 for this quarter.

Excluding the 1 powered shell deal of those rates would be much more in line with what we've done over the last several quarters. So just to.

Give you some additional insight there in the thinking about for next couple of years.

Okay.

And the deals for the end of the year.

Part of that funnel for kind of immediate take up of space.

Or could some of that and it would be front of our toward an eventual SV 9.

And of our goal is to maximize the space that we have before we start building new we obviously don't want to go dark in the market, but we've got good runway and if you look at the historical.

Absorption that we've seen in that market. We've typically sold roughly 6 megawatts a year in Santa Clara and we've got room to run there. So.

We'll sell the capacity that we have while we work on building Thats benign.

Okay. Thanks, guys.

Next question, Jon Atkin with RBC. Please go ahead.

Thanks, So I was interested in.

Ask you kind of just.

More broadly.

About the inventory.

The start of the year types of that 40 megawatts of cell. So where are we on that and are you confident of selling.

Alright.

Of your covenants kind of selling the 40.

Million I guess.

Then.

The.

The.

You look across the markets, where you've got some substantial capacity, whether it's the west coast Chicago.

The Virginia, where do you feel the kind of the most positive that the supply demand dynamics.

John Let me just to answer your first part of the question we ended.

With 37 megawatts of capacity, we can sell into the marketplace that includes the 4 megawatts that will be vacated here at the end of the third quarter early fourth quarter from SB 7.

And when you look at the distribution of those 37 megawatts. It is in large part.

The core of our top 5 markets. So think about the Bay area, where I think we've got about 12 megawatts.

L a Chicago, New York, and Virginia, each have somewhere between 4 to 6 just depending on the market.

Yes Ironically.

To the.

The overall supply demand.

And overall customer requirements for each of those markets I would say that as of.

Good position to be in because we've seen good growth in each of those markets of good opportunity I would say.

As you look at New York, we've seen good growth in the financial sector, there and continue to see good momentum there.

Good capacity to build.

Part of additional growth there Santa Clara between SB, 7 and Thats.

Benign we've got good capacity there in the market continues to support that we saw good growth out of L. A and additional phases. There. So I think across the board we've got good capacity.

We built out and where the customer demand is.

And overall I think the supply and demand dynamics remain in balance. So Virginia also remains I think of good opportunity for us. So collectively I think we're in a better position than we have been in the past, where we've really had just kind of spotty capacity in certain markets and now we're able to address that in multiple markets, which as.

And thats supposed to be.

And then you talked about the sales pipeline.

Any way to qualitatively give us a little bit more color of the U S. Historically upper end of the range for record levels near record levels or kind of on par with the historical levels.

Do you think about the late stage.

Sales cycle.

I think the overall size of the pipeline has remained fairly consistent over the last several quarters I think the quality of the pipeline has actually gotten better and as you look at our retail and small scale leasing being above the 12 month trail I think thats the representation of that and as Ivan mentioned.

Think.

As we go forward, we look to build on that and then also execute opportunistically around that large scale and hyperscale opportunity as they present themselves in either contribute value to the ecosystem or value of what we bring to them. So we'll play that out as it goes.

Thank you.

Yes.

Next.

Question, Jordan Saddler with Keybanc capital markets. Please go ahead.

Thank you.

Good morning out there.

Just wanted to follow up so Jeff I think on.

Maybe the fourth quarter call, we talked a little bit about commencement.

Yeah.

And <unk>.

Potential for you guys to be of seeing something north of $40 million.

In this year and commencement of you're sitting at 14 or so year to date is that still on the table.

Yes, Jordan I am not sure if we <unk>.

Mentioned commencements or more specific I think it was just to our sales targets for the year that Steve just alluded to.

So I think Thats true.

Sales of execution rate range.

Yes ill just give you the kind of from it.

Theyre, Jordan, I mean and as.

As you look to where we pay so far I think were for patient.

Pacing towards that end.

We expect some lumpiness as we go through the second half of the year I think the $40 million is as a general target and that can be.

North of that or slightly less of that dependent upon the mix of opportunities in the profitability and the flow through so as you saw in some of the pricing and the the smaller.

The scale and retail sales that have been generated.

We'll see how that overall mix plays out, but so far we are we're still targeting that 40.

Okay, and then coming back to the lease spreads in the quarter, obviously, a good number historically when you've seen.

Something unusual you flagged.

<unk>.

Was this plus 4 plus 7 on the cash and GAAP renewals was that broad based on the 330 leases or was there.

A big lease or 2 that kind of drove the upside.

John It was.

Fairly dispersed across all.

All of our markets.

Nothing in which we would point out that was unusually high or low of the market or in the quarter. So overall it was pretty well dispersed throughout all of the the renewals we did this quarter.

Okay.

And then lastly, maybe Jeff.

While I have you.

The the chiller replacement I'm trying to better understand this is being is this maintenance capex or is revenue of return generating capex and maybe you can walk us through the.

The ROIC mass on this chiller plant total cost versus savings.

Yes no.

That investment we made is included in our recurring Capex dollar. So that overall investment is inside there and some of it is an expansion just to give you some idea.

Since the since the chiller.

We will facilitate cooling in the entire data center the portion that replaces the current cooling infrastructure is going through maintenance capital anything for new infrastructure is going through our expansion capital, but we've got about in total through several corners here over the last 3 quarters of about $15 million going through recurring overall investment I think for.

<unk> got about $25 million and returns are expected Paul can clarify, but it's somewhere in the mid to upper teens overall once it gets up and running and just of Edwards, Jeff said.

We when we did this chiller replacement, we actually replace some and some.

Chillers that work quite at the end of life, but it just made a whole lot more sense to replace them now build the chiller with tremendously greater economies of scale and efficiency and it's the energy savings that primarily drives the return, but it also enables us to better utilize the power throughout.

Some of our rate of center because of the the.

The cooling capacity it provides and on top of everything else. It tremendously strengthens the resiliency of that facility, especially from a cooling perspective because of the new chiller plant is dramatically more effective in that regard than what we had.

The out the door so it's.

These are these are small projects I hate to sound overly excited about them, but they make a big difference of love it when we get 1 of these done.

I appreciate the color thanks, guys.

Next question Michael Rollins.

Before the please go ahead.

Thanks, a couple of questions first is if you were to take the bookings and results from the retail and the small scale and look at the revenue that that creates from rent power interconnection what is that revenue.

With some stream growing at within your overall portfolio of revenue versus the large in hyperscale.

And just the second 1 if I could just with regards to.

On the topic on pricing are there any significant.

Revenue is that you may have or groups of leases.

Some point down the road, where we just need to be mindful of that.

For whatever the reason those rents got to be significantly above market.

Yes, Michael the FERC the answer to your first question.

Lethean, here's probably the best way to think about it when you look at the.

The rent component of our sales during the quarter as Steve alluded to $7.8 million and focus just on those smaller 2 components the retail and small scale on average of our rent makes up about.

The 55% of our overall revenue associated with those deals. So the other 45 is going to be comprised of power.

Generally around 25%, 25% to 30% and then the rest of it is going to be interconnection.

The important thing to understand is the overall economics that flow.

Down to the bottom line, obviously as we referred to it as RPX, which is rent power margin and cross connect revenue and those of the deals where we get better power margins on them because most of those deals are not on a metered.

The power model. So they are overall as Steve alluded to better economics for us in terms of overall growth.

I have to.

Back on a specific number but that gives you some idea of how to gauge the math around.

Each of those deals.

In terms of lease.

I'm sorry go ahead.

But as I said thank you.

And in terms of your other question around leases longer term of pricing.

The <unk>.

Nothing.

For the highlight today of the only other thing I would add is as you think about our business maybe relative to some of our peers, where theres been some concern on some rent roll downs keep in mind, our business being much different we've only got 12 hyperscale leases in the entire portfolio.

And that's the area of that I think.

Has received most of that commentary out of the marketplace and it's just a different business model.

Obviously as you saw we've increased our rent growth guidance for this year as Steve and his team continue to execute on those those lease renewals coming up through the rest of the year, but.

Just keep that of minus.

You think about us relative to what else you might be hearing in the in the industry.

Thank you.

Next question Erik Rasmussen with Stifel. Please go ahead.

Yes, thanks for taking the questions.

It sounds like with the SBA near full.

The capacity.

Have a good opportunity to focus on the 7 can.

Can we expect to hear of an update soon regarding sort of back filling the space at this point of you're still expecting to do that with smaller retail leases rather than scale type deals.

Yes.

Overall of that is the spirit the larger space the rehab to sell on the campus at this point. So it can be anywhere from 6 to 9 megawatts of power upon the mix from the density but the.

That is the space that we're selling into today. So you can expect to see some leasing in that space and it will be likely multi tenant so that's probably the best.

Paul I can give you the only thing I'd add though is that we haven't in the past that it would be focused on retail we've said multi tenant and we do expect some of that to be scale.

Okay. Thanks.

And then maybe just my follow up.

So its been addressed the large scale as being sort of challenged for the last couple.

Quarters.

Any hurdles to winning this business or is it we know at the point, where there's enough momentum.

It's more of just a timing issue based on some of the sales funnel commentary that you've talked about.

Yes, it's really more of a timing issue.

Sure.

The issue of more than anything else.

As you look at the.

The trailing 2 years really around our leasing trend.

You pull out the 3 hyperscale deals that we've done over the past 2 years.

The sales results are actually up 5% or so so they are lumpy.

Of the deals make the difference in the averages and we do expect more lumpy as we go forward, but the timing of those and how they fit our portfolio.

As I mentioned bring either more value to our ecosystem or value of the ecosystem we've already built.

That does not every hyperscale deal Thats out there. So we won't compete on all of them, but the ones that do meet that criteria.

We expect to win and they are out there. So we're actively pursuing several of those and we'll see how they play out.

Okay.

Thanks, Good luck.

<unk>.

Next question Colby <unk> with Cowen. Please go ahead.

Okay. Thank you.

Sure.

The questions 1 for Silicon Valley 9 great to see the the.

The local board approval, but 1 of the things that we've heard of us.

The power constraints, particularly of Silicon Valley power.

Is that of the real concern for you do you think debt when you finally get to that point, you will be allocated power or is.

Yes potentially.

The long pole in the tent that could delay the project by.

Pretty material amount of time months, if not quarters.

And then secondly, you.

You mentioned the word edge a few times I'm just curious if you could be a little bit more debt.

Scripted in terms of what you mean by Youre seeing edge deployments.

Is that how these might be different than what you've.

Historically seen from these types of cash.

Customers. Thank you.

I'll, let Steve handle the second part of that question.

Good question about power.

We've obviously been working with the local utility extensively through the process.

<unk>, so we won't start the construction as you.

<unk> until we have a we have a.

Secure power for the for.

For the facility.

Our discussions are going well from what we've seen of their path to providing the power.

Look very reasonable and achievable.

The eyes and need to be dotted and the t's crossed but so for the timeline for that should not lead a significant delay.

But as you know in that market you can be surprised.

So as far as the the edge piece is concerned.

Colby.

As you've heard from us and I think youre seeing broad base across the market.

The hybrid multi cloud edge use cases continue to grow and become more commonplace with enterprises and with them become more demand for close proximity of cloud adjacent types of services.

<unk>.

So we're seeing more build out in more demand around that may not be hyperscale type of deployments, but they are more resident in the campus where customers can get in close access to them and in many cases on ramps.

You may have seen some of the press releases earlier this quarter around.

GCI.

Having their native deployments, both in Chicago and the the Bay area and we also had express route from from.

From Microsoft be delivered.

In Chicago as well, so having those 2 on ramps being native in our Chicago campus, we feel like really bolsters those edge type of deployments in the.

The system there.

Okay, great. Thank you.

Next question, David Guarino with Green Street. Please go ahead.

Hey, Thanks going back to the Chiller plant project in Boston and I think you did 1 in L. A of couple of years ago, how much of that maintenance Capex is.

Been driven by core sites desires of our tenants' desires and have you had any conversations with some of your larger customers that are pushing you towards upgrading equipment in order to meet some of the environmental goals.

Honestly, we pushed these 2 projects.

And it didn't they weren't responsive.

The overall at the customer request, but if you look at our ESG report on our website Youll see that energy efficiency is 1 of our big focuses and I think we stack up pretty well compared to the rest of the industry and what we've achieved and how we've improved over the last few years.

There is a lot of customer desire for their vendors to continue to work on improved energy efficiency and other elements of the environmental matrix and we continue we continue to move forward on those as well as wanting to make sure that facilities are resilient and have the right infrastructure.

Structure, and our operated well and we continue.

I think our team does a great job in that respect.

Meanwhile, we continue to look for where we need to invest to make it easier for them to do that job.

That's helpful. Do you anticipate of trend I guess of maybe customers pushing more.

So like the upgrading data centers is that something you guys are thinking of bad over the next few years.

You know honestly, we're not hearing it significantly from most customers.

It's something that we're already doing in focused on any way so I don't know that.

We would feel the pressure as much as other fluid.

That's helpful. And then maybe just 1 last 1 following up on those comments you made that you might of been jets on re leasing rates holding up better for of course, the AC portfolio relative to some of the Hyperscale for case focused portfolio is that a similar trend across the entire retail co location market areas of your portfolio just outperforming in.

And I guess, how does the customer negotiations of work do they come to the table with some data points and say here's what market rents are that we see and this is what we want and you guys push back of it would be great to just kind of hear some color on how those negotiations work.

Yeah, David I would just say, obviously, we try to watch.

What our peers are doing in the space, especially those that are more aligned with some of the retail co location that we offer.

At the same time I do think.

It's not going to be complete apples to apples just given the differences in our assets and some of the network dense kind of cloud.

Cloud enabled data centers.

We have so it's not going to be completely apples to apples for something we clearly watch I really can't tell you at least for the private ones how theyre doing.

But we feel very comfortable and confident in our ability to.

<unk> get paid for the value of that Hasnt been built and are differentiating platform, but Steve can give you some.

Color on.

None of those conversations.

Part of the conversations are concerned its really customer by customer and what their deployment looks like.

What their use cases, how long they've been with us their historical rent roll and what how that is relative to market. So all of that comes into play and each customer converse.

<unk> and they are all different so.

We manage those accordingly based off of the market dynamics from the customer situation and that's probably the best I guess.

Color I can give you as to how those conversations go.

Alright, thanks for that Ken.

Next question Richard Choe with Jpmorgan. Please go ahead.

Hi, the retail business has been pretty steady for the small scale of business has kind of ramp from under 2 million of quarter to well over that.

Can you, let us know what's going on there in terms of the strength and then also is that return.

<unk> profile, a different and the retail the small scale versus retail thank you.

Yes, it really depends on the the deployment, but overall you know we kind of lump those in the similar buckets I would say.

And it's while it's good to look at those individually the use cases can be similar so most of our.

Our leasing as I mentioned earlier, especially the new leasing was around.

Enterprise sales and Thats. The primary focus of the team is driving new logos in the debt our enterprise and that are contributing for valuing the ecosystem. So.

I don't know if theres any radical trends there other than youre seeing I.

For enterprises kind of.

Gulf of towards that hybrid multi cloud environment, where they establish their own footprint in our datacenter and the leverage.

Cloud on ramps in order to kind of build out that overall cloud architecture. So I don't think theres any massive shift there other than just.

We're executing better against the enterprise and I think the enterprises.

I think continuing to kind of rationalize that cloud versus on Prem model.

And then it seems like overall strength has been pretty good if not better than expected.

Does that kind of I know churn guidance hasnt changed but it seems like that might put less pressure on churn overall any kind.

Sir.

Rises.

I don't think our guidance is our guidance for <unk> because it's the best estimate that we have so we'll continue to monitor it.

As I mentioned earlier, our goal is to sell unique value that customers want to come and stay and once they do build out their architecture is a bit more complex than.

A single network connection that makes it easier.

Year to leave so if we can provide more value that makes them want to stay longer than hopefully that reduced reduces the churn risk long term, but we will see how that plays out.

Great. Thank you.

The next question Brendan Lynch with Barclays. Please go ahead.

Hi, Thanks for taking the question.

It sounded.

Like you had about 26, new logos in the quarter and 6 with multi metro deployments. Maybe you can just put this in the context of what has been your true traditional historical run rate.

As far as the the number of logos of 26, it's a little bit lower than the trail.

Typically we're in the.

The roughly 30 ish range is probably the best way to think of the numbers, but if you look at the the dollars that are contributing from those logos, it's actually 1 of our higher quarters as far as current determined in terms of true dollar. So the sizes come up a bit I think the quality has come up a bit the actual numbers was a little lower but not outside of the trail.

I think some of your peers have suggested that they are starting to see more new logos kind of emerging post pandemic.

Is that something youre seeing as well is that these customers have kind of been on the sidelines, but they're coming back more aggressively at this point.

The overall the pipeline is strong as I mentioned earlier.

So it's been strong for the last year and a half I would say we are.

We entered the pandemic.

Really highlighted those enterprises that were challenged with distributed work how.

<unk> management of supply chain, how they sell remotely.

So it's been at the forefront for a lot of enterprises.

Now that they are kind of coming out of it we'll see how the latest dynamics play out but.

They are really trying to figure out how they rationalize that for the long term strategy.

All of the the trends that we see the analysts that we talk to point towards this hybrid multi cloud environment, which we think we're well positioned for so.

So yes, we're encouraged with where things are headed.

Great. Thank you for taking my question.

Yes.

Yes.

Next question, Nick del Deo with Moffett Nathanson. Please go ahead.

Hey, Thanks for taking my questions.

I guess first there's obviously been a lot of noise regarding.

The new regulations on Chinese tech companies and the kind of general friction between the U S and China I was wondering if you could update us on your exposure to to China based companies, whether they have contributed all of the leasing in recent periods end.

The whether you've observed any shift in tone or commentary regarding their intention is to remain in the U S or exit.

Yes.

Hey, good morning, Nick Yeah.

Honestly there has been some noise, we watch it closely as well.

I would just point you to we some.

Formation, we had put into 1 of our investor presentations in early 2020, I wanted to say maybe second quarter of 2000.

The marketing cadence shaking her head so I think that's it.

Whereby we quantified what that exposure is from some of our Chinese or I should say our customers domiciled in China and that was 7% at that time, it has not materially materially changed from that point in time.

This is something we continue to watch closely.

101 day, and any any qualitative commentary regarding how.

Customer intentions may have changed since the enter or nothing to update on.

No Nick I would say that as far as overall demand is concerned I think that has.

The bit muted.

Over the last year, I would say maybe a bit longer.

The gets absorbed by the other partners that we have that also support that market. So.

Collectively.

It helps us in that regard but.

Some of the larger players of the Hyperscale providers, that's not really the market that we play in many cases anyway. So I think we are.

A bit removed.

From a direct impact of what that might be anyway.

Okay, Okay, and then Steve maybe the follow up on 1 comment you made earlier in the call you'd noted that the the.

The quality of your scale of funnel you thought had improved over time, even though the size was roughly the same how do you define quality is that the quality of the customers as the potential.

Some of the contribution to your ecosystem.

Likelihood of the deal closing or some other measure.

I think it's all of that I think you summed it up well I mean, theres a lot of Theres a lot of larger opportunities and frankly, even smaller opportunities that just are not a good fit that are looking for the lowest cost provider out there with a network connection and.

We're probably.

Probably not a great fit for them for the.

Those customers that are looking for.

The resiliency high performance.

The connection.

To multi cloud types of architectures in multi markets that they can connect to were a better fit for us. So.

That does not hold true for every single.

Ingle quote opportunity that's out there, but those that do value us.

That's what we're really striving for so I think we are messaging is better on how we attract those our funnel is I think cleaner and better quality.

And youre seeing some of that show up I think so we'll see how it all plays out but we're encouraged by it so far.

Okay, great. Thanks, guys.

Yeah.

Next question, Michael Funk with Bank of America. Please go ahead.

Thank you for taking the questions.

First of all of interconnection I think the last year or maybe third quarter. You mentioned that you thought maybe some demand got pulled forward in the 2020 and we did see some.

Sequential deceleration of the rate of growth. There. This quarter is that part of what Youre seeing.

And if not do you expect that growth rate to pick back up ex.

In 2021.

Yeah, Michael I think.

As we came into 2021, what we anticipated.

Painted.

I should say what we've seen historically is roughly 2 thirds of that revenue growth was really just coming from pure increase in volumes, but the end of the third.

Increases in rates around renewals.

Migrating from a lower price product to a higher price product et cetera.

We felt as though.

Though that second portion of that 1 third of contribution would be more muted. This year as we headed into 2021, just given some of the activity we've seen over the last couple of years.

I think it has trended towards that direction, probably not as quickly as we anticipated.

And so we're still getting about 85% of our revenue growth coming from purity.

The increase in volumes the other of roughly 15% is coming from those customers, who are migrating to higher price products as they expand their business or.

<unk>.

Price increases on renewals with some of our customers et cetera.

Okay.

I think about the going forward. Please.

Your second part of your question as you think about.

Going forward I don't know how that plays out for 2022, yet we're still evaluating what that looks like based on behavior of the rest of this year and the types of deployments we have.

But we'll give some further clarification on it as we get a little bit closer.

Understood.

Churn of it in the churn dynamics are you seeing different driver.

As the customer churn today versus a couple of years ago, meaning.

You either more customers you know remaining your facility been hanging back some of space or more customers that are fully vacating has there been a shift in the driver of churn or is that pretty consistent with where it has been historically.

Yeah, the only thing.

Drive the AD.

And maybe comment on and we May have talked about this earlier is that.

A couple of years ago, we just saw some of that elevated churn, resulting from those business models that we felt were a little bit more compromised from the cloud than than others and that is largely.

I wouldn't know the left our portfolio at this point I think we got about 1 per cent out and what I'm thinking I'm talking about are some of those resellers.

And.

Managed service providers of many of which we used to have in our portfolio. That's the only thing I would point to in terms of changing I don't think the behavior of themselves of change customers are always looking.

Looking to either grow or maybe shrink the portfolio of based on what's going on with their individual applications, but I think thats been going on for years I don't think that that dynamic has changed the Steve has anything else to add there no I don't think so either I think.

Often been asked I think less often now.

As cloud friend or foe, and I think the the.

The answer at this point is yes.

No.

But overall I would say of trend and as you look at just the overall.

Adoption of technology across any business that technology ends up in the data center somewhere moving those resellers or cloud providers. The end up in the data center.

And many times our data centers. So the use cases may change how they deploy the may change, but the overall pie continues to grow in.

So we think we're well positioned to capture that.

Okay. Thank you very much guys.

Thanks, Michael.

Thank you I will turn the call back to Paul Zurich for.

For your closing comments. Please go ahead.

Well. Thank you all for your time and your interest in core site.

We're really glad for this quarter and we're looking forward to the future of.

Our business is built on the concepts debt in our data centers enterprises doing hybrid and multi cloud architectures can realize.

Realize significant performance and the agility of improvements and overall cost savings by taking advantage of our campus ecosystems as well as the fact that our network dense data centers provided tremendous.

Location for servicing the customers in our major markets.

I'm really grateful for the colleagues that I work with that we all work with they do a tremendous job.

They are the reason that we're able to continue to perform.

I expect them to enable us to continue to perform well going forward. So thank you very much and have a great rest of your day.

This concludes today's.

You may disconnect your lines at this time and thank you for your participation.

Sure.

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Carl.

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Yes.

Yes.

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