American Tower Corporation (AMT) Q1 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the CoreSite Realty Corporation First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Derek McCandless, General Counsel. Thank you. Please go ahead. Derek S. McCandless - Secretary, Senior VP-Legal & General Counsel: Thank you. Hello, everyone, and welcome to our first quarter 2015 conference call. I am joined here today by Tom Ray, our President and CEO; and Jeff Finnin, our Chief Financial Officer. As we begin our call, I would like to remind everyone that our remarks on today's call may include forward-looking statements within the meaning of applicable securities laws, including statements regarding projections, plans or future expectations. These forward-looking statements reflect current views and expectations, which are based on currently available information and management's judgment. We assume no obligation to update these forward-looking statements, and we can give no assurance that the expectations will be attained. Actual results may differ materially from those described in the forward-looking statements and may be affected by a variety of risks and uncertainties, including those set forth in our SEC filings. 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 in the supplemental information that is part of the full earnings release, which can be accessed on the Investor Relations pages of our website at coresite.com. And now, I will turn the call over to Tom. Thomas M. Ray - President, Chief Executive Officer & Director: Good morning, and welcome to our first quarter earnings call. CoreSite had a solid first quarter, both in financial results and operating performance. We continue to execute our business plan, and are pleased that we were able to further increase efficiency across our company and see our work reflected in our quantitative results. Specifically, our financial results reflect an increase in our adjusted EBITDA margin to 48.1%, measured over the trailing four quarters ending with and including Q1 2015. This represents an increase of 166 basis points over the comparable period in the prior year. Additionally, we increased stabilized data center occupancy by 520 basis points over the last 12 months to 88.2%. Driven by these dynamics, our Q1 results reflect continued growth with increases in total operating revenue, adjusted EBITDA, and FFO of 17%, 26% and 27% respectively over Q1 2014. Leasing in Q1 was also solid with new and expansion leasing totaling $8.9 million in annualized GAAP rent comprised of 100 new and expansion leases totaling 54,000 net rentable square feet, at an average rental rate of $163 per square foot. During the quarter, we saw continued strength in leasing among mid-sized opportunities. Specifically in Q1, we executed five leases exceeding 1,000 square feet, totaling approximately 40,000 square feet for an average of 8,000 square feet each. Importantly, we also made progress towards our goal of increasing leasing volume to smaller customer requirements that we believe generate higher revenue per square foot than larger wholesale requirements. Specifically, in Q1 we executed 95 leases of less than 1,000 square feet, averaging a 152 square feet each. In total, we executed 100 new and expansion leases in Q1, representing a 4% increase in the number of leases signed over Q4 2014. As we communicated previously, we are focused upon increasing the total number of leases signed each quarter, and importantly, the number of small and mid-sized leases. While we are pleased to see an increase in total leases executed in Q1, going forward, we believe that we have an opportunity to drive additional growth in leasing volume among smaller deployments. In addition to strength in new and expansion leasing, our renewal activity in Q1 was similarly strong, as renewals sold approximately 40,000 square feet at an annualized GAAP rate of $179 per square foot, reflecting mark-to-market growth of 5.3% on a cash basis and 11.4% on a GAAP basis. In terms of geography, Q1 leasing was well distributed across our portfolio with our strongest markets in terms of annualized GAAP rent being the Bay Area, New York, and Northern Virginia, D.C. In New York, we executed a lease in Q1 with a global financial services enterprise, but leased a computer room at NY2. This lease reflects a lower than typical rent per square foot, driven by lower power density requirements than it's typical in our portfolio. We believe the return on capital associated with this lease remains attractive. In the Bay Area, we leased an additional computer room at SV3, backfilling that room approximately two years before the scheduled expiration of the lease with the previous full building customer. As of the end of Q1, we have backfilled 75% of the capacity at SV3, with the remaining computer room occupied by the original customer through April 2016, and with solid demand for that space. Turning to our vertical performance, we saw significant strength in our enterprise vertical, accounting for 52% of new and expansion leases executed, and 85% of annualized GAAP rent signed in the quarter. We also continued to see strength in our network and cloud verticals, together accounting for 48% of new and expansion leases executed in Q1. We believe this reflects continued strong demand for network connectivity coming from carriers, content providers, and larger enterprises that are increasingly integrating their corporate communication networks partly driven by deployments of private and/or hybrid clouds. In addition to our Q1 leasing results, subsequent to the end of the quarter, we executed a lease for and began construction on the powered shell build-to-suit for 136,500 square feet on land we own on our Santa Clara campus. This building will be known as SV6, and the build-to-suit supports the needs of a strategic customer. We believe this project will add strategic value to our Santa Clara campus, while also producing a return on capital in line with our stated objectives. We expect to invest approximately $27 million to construct SV6, and anticipate that the lease will commence in the first half of 2016. Upon completion of SV6, we expect our Santa Clara campus to be comprised of four operating data centers, comprising approximately 390,000 square feet, plus an additional land site, upon which we anticipate being able to construct a new data center. Moving on to supply and demand conditions in our markets, we see the market substantially consistently with how we saw them at the time of our call two months ago. Regarding our plans for growth, we continue to build out additional TKD capacity in our existing powered shells. Two key projects currently under development are the second phases of both NY2 and VA2, each representing approximately 50,000 net rentable square feet of incremental TKD capacity, which we anticipate substantially completing and placing into service in Q2. We continue to view our internal growth opportunity optimistically, and believe it is driven by three key factors. First is our ability to continue to achieve positive mark-to-market on renewals across the portfolio. Second is the continued lease-up of our currently available 207,000 square feet of TKD capacity. And third is the steady execution of our development program on land and in buildings we currently own. To wrap-up, our operating results for the first quarter reflect continued execution of our business plan. We believe that CoreSite remains well-positioned within our industry, and that the supply and demand dynamics in the markets we serve remain favorable. We will continue to focus upon providing our customers with industry-leading solutions and service, running our business efficiently, and managing our capital prudently, all with the goal to generate strong returns for our shareholders. With that, I'll turn the call over to Jeff.

Thanks, Tom, and hello everyone. I'll begin my remarks today by reviewing our Q1 financial results. Second, I will update you on our development activity and our balance sheet and liquidity capacity. And third, I will discuss our outlook for the remainder of the year. Turning to our financial performance in the first quarter, data center revenues were $72.6 million, a 2.8% increase on a sequential quarter basis, and a 17.7% increase over the prior-year quarter. Our Q1 data center revenue consisted of $61 million in rental and power revenue from data center space, up 3.2% on a sequential quarter basis, and 19.8% year-over-year; $10.2 million from interconnection revenue, an increase of 7.1% on a sequential quarter basis and 26.8% year-over-year, and $1.4 million from tenant reimbursement and other revenues. Office and light industrial revenue was $2.1 million. Our first quarter FFO was $0.64 per diluted share and unit, an increase of 4.9% on a sequential quarter basis, and a 25.5% increase year-over-year excluding non-recurring items in Q1 of 2014. Adjusted EBITDA of $38 million increased 4.7% on a sequential quarter basis and 26.3% over the same quarter last year. As Tom mentioned earlier, our adjusted EBITDA margin continued to expand through Q1; related, our Q1 results represent revenue flow through to annualized adjusted EBITDA and FFO of 72% and 58% respectively, which is a significant improvement on a year-over-year basis. In thinking about our margins for the remainder of the year, keep in mind that our adjusted EBITDA margin has historically been negatively impacted by seasonal increases in our cost of power, which typically occurs in the second and third quarters. Sales and marketing expenses in the first quarter totaled $3.8 million, approximately 5.1% of total operating revenues, up 40 basis points, compared to last quarter, and in line with our guidance of approximately 5% to 5.5% of total operating revenues for the full year. General and administrative expenses were $7.9 million in Q1 correlating to 10.5% of total operating revenues. We continue to expect G&A for 2015 to correlate to approximately 10% of total operating revenue. Regarding our same-store metrics, Q1 same-store turn-key data center occupancy increased by more than 11 percentage points to 83.1% from 71.6% in the first quarter of 2014. Additionally, same-store MRR per cabinet equivalent increased by 5.1% year-over-year. That said, same-store MRR per cabi was essentially flat on a sequential basis, as we expected, due to the greater proportion of wholesale leasing relative to total leasing we completed in 2014, compared to prior years. We expect a similar dynamic in MRR per cabinet equivalent in the near future, and are focused upon executing leases with higher MRR per cabi in 2015, with a view towards returning to a higher growth rate in this metric in the mid-term. Remember that our same-store pool is redefined annually in the first quarter, and only includes turn-key data center space that was leased or available to be leased to our co-location customers as of December 31, 2013, at each of our properties and excludes powered shell and SV3 data center space. Also, as we communicated previously, churn in Q1 was elevated above that of the recent past. However, it was elevated for positive reasons, pointing to the health of our business. Specifically, churn in the first quarter was 2.2%, which includes 120 basis points related to two transactions at SV3, each accelerating the backfill of space in the building currently leased by the building's original full building customer. Excluding these two transactions, Q1 churn would have been 1% in line with recent experience for our company. We note as well that leases signed at SV3 also point towards incremental churn of approximately 150 basis points during the fourth quarter. Our backlog of projected annualized GAAP rent from signed, but not yet commenced leases is $14 million as of March 31, 2015 or $20.9 million on a cash basis. We expect approximately 87% or $12.2 million of the GAAP backlog to commence by the end of the second quarter of 2015. To that, leases representing approximately $5.7 million or 41% of the GAAP backlog commenced on April 1, 2015. The remaining GAAP backlog is expected to commence over the next four quarters. Please note that all of the preceding information related to our backlog excludes the impact of the build-to-suit lease at SV6 executed subsequent to the end of the quarter. As Tom noted, the combination of solid new leasing in the first quarter and high retention drove an increase in occupancy in our stabilized operating data center portfolio by 80 basis points over Q4 to close Q1 at 88.2%. Keep in mind that the recently developed data center projects that are in the initial lease up phase are classified as pre-stabilized until they reach 85% occupancy or have been in service for 24 months. To that point, in the first quarter, two rooms at LA2 totaling 29,000 square feet moved from the pre-stabilized pool into our stabilized pool as they have now been in service for two years. Additionally, as shown on page 19 of the supplemental 15,000 square feet at SV4 and 20,000 square feet at CH1 will move into our stabilized pool in the second quarter. Turning to development activity, as Tom mentioned, we began construction on the build-to-suit powered shell data center on the Santa Clara campus during the first quarter. Incremental to that, we had 48,000 square feet of data center space under construction at VA2 Phase 2. We expect to complete construction of this project in the second quarter of 2015. We also had 49,000 square feet under construction at NY2 Phase 2, which is expected to be delivered in the second quarter of 2015. Additionally, we had 12,000 square feet of turn-key data center capacity under construction at CH1 in Chicago. At the end of the first quarter, we had invested $19.6 million of the estimated $78.1 million required to complete all of the projects currently under construction. As a reminder, when we complete development projects, we realized a reduction in our run rate of the capitalization of interest, real estate taxes and insurance, resulting in a corresponding increase in operating expense. For 2015, we estimate the percentage of interest capitalized to be in the range of 25% to 30% depending on the volume and pace of development during the year. Turning to our balance sheet. As of March 31, 2015, our debt to Q1 annualized adjusted EBITDA is 2.2 times. And if you include our preferred stock, it is three times. As we have discussed previously, we target a stabilized ratio of debt plus preferred stock to annualized adjusted EBITDA of approximately four times. We remain focused upon maintaining the liquidity and available capital necessary to execute our business plans and support growth. In support of those goals, as of March 31, 2015, we had $233.8 million drawn on our credit facility, and approximately $164 million of available capacity under the facility. Finally, we are reiterating our 2015 FFO guidance of $2.55 to $2.65 per share NOP unit. We are increasing our guidance for capital expenditures by $30 million to a range of $115 million to $145 million, primarily to account for the development of the powered shell build-to-suit on the Santa Clara campus. All other guidance metrics we disclosed in our fourth quarter earnings call remain unchanged, and a thorough summary of all 2015 guidance can found on page 24 of the first quarter earnings supplemental. I would remind you that our guidance is based on our current view of supply and demand dynamics in our markets, as well as the health of the broader economy. We do not factor in changes in our portfolio resulting from acquisitions, dispositions or capital markets activity other than what we've discussed today. Now, we'd like to open the call to questions. Operator?

Thank you. Our first question comes from the line of Dave Rodgers with Robert W. Baird. Please go ahead with your question. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): Hey, good morning out there guys. Tom, maybe first question for you; I understand the power revenue impact with regard to the leasing that you had done in 2014. I guess, I wanted to maybe dig in little bit on the MRR per cabi in your outlook for 2015. I mean, do we expect it to be flat? I thought the last commentary on the last call was kind of slower growth, but obviously we saw it drop a little bit sequentially. And then, maybe just to tag one more into that whole confusing question was; the cross-connect impact. I mean, should we expect to see cross-connect revenue growth then kind of slow later in the year, the same that power is seeing, but on a delayed basis? Thomas M. Ray - President, Chief Executive Officer & Director: Well, as to the power revenue, Dave, I think that, MRR per cabi – so just – the bottom line is, the MRR per cabi on these wholesale deals is typically lower, and in some cases substantially lower than on the more transactional deals – the smaller deals. And last year, we signed a much greater proportion of larger wholesale deals, as we were getting out of the gate and stabilizing some – getting traction at VA2 and NY2. So those – the MRR per cabi off of those big deals, because the big deals get factored into our MRR per cabinet equivalent. So the MRR per cabi off of those big deals is lower than the installed base. We've got this kind of anchor this year that's dragging it down a little bit. You also have lease up activity going on this year, that's countervailing, pushing things up, but I think the net for this year as these big deals ramp, commence and get going, especially in the first half of the year will be fairly flat, maybe it's down a little bit, maybe it's up a little bit, but I think it will be a fairly flat. After those leases commence, and provided we continue to execute in the transaction engine, we expect the MRR per cabi of new sales to be greater than the big wholesale deals done last year, and to be greater than the MRR per cabi in the installed base. So we would hope that we'll get – we'll see a return to growth in the MRR per cabi stat, maybe late this year, maybe it's next year, but those wholesale (21:47) deals are just kind of an anchor in there, what we told people to expect, and those rates are below that of the installed base. Regarding interconnection revenue, I just think, you need to look at that separately from the wholesales deals. Again, the interconnection revenue is more driven by network-dense deployments that are typically not very large, super large wholesale deals by cloud-based deployments and by certain enterprise deployments. And so, that business line, if you will, is just distinct from this wholesale business line. So we've been seeing consistent growth in the more transactional side of our business. Even while last year, we layered a bunch of wholesale on top. And so, that should point toward fairly consistent growth in interconnection revenue going forward, because that business that generates that growth is still healthy. What we're really saying is, in 2015, we expect to do less large wholesale than we did in 2014, but we should – our objectives is frankly to accelerate sales around the transaction engine, even if total sales in terms of megawatts decline this year because we're doing less wholesale. Does that answer your question? Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): Yeah. I think, you got all the parts of it. So I do appreciate that. And then maybe a follow-up on that in terms of the sales force productivity, you spent last year building that out. Do you feel you're at, at the right run rate now, I mean, obviously there's always more to do, but are you pretty happy with the level of production now, where you're running the first quarter? Thomas M. Ray - President, Chief Executive Officer & Director: Well, I guess, I think, we're fully staffed. We have people in the seats that we want to have – have in. I do think we can continue to improve in terms of productivity, you know, some of those people are still newer and fewer of them are on ramps in the end of the last year, but some are still on ramp. And even for some who are off ramp, they're probably not as productive as we would expect or hope, later in the year. So I don't think we need to add positions, but we do believe that we can do better than we're doing right now; we're not displeased, but we think we can continue to improve. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): Great. Last question from me. Jeff, with regard to your debt comments, I think it's clear that you're indicating you don't need the equity, but in terms of terming out some of that debt, if you did comment, I might have missed it. But any thoughts on timing or how you might go to market to take some of that off the line?

Yeah, Dave. I think in general from the type, I think, in general, we would continue to do what we enjoy, or I guess what we prefer, which is ultimately trying to maintain as much flexibility in our capital structure as possible. That, combined with the size of the proceeds – if we were looking at something today, our revolver only has about $233 million drawn on it today. So we don't need an enormous amount of capital. So that combined with maintaining flexibility is – leans towards doing something else, probably akin to a term loan, similar to what we did a little over a year ago. Timing, I think we're closer to it today than we were a year ago, and it's something we're looking at and continuing to monitor around the exact timing on. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): All right. Thanks for the color, guys. Thomas M. Ray - President, Chief Executive Officer & Director: And Dave, really quickly, regarding leasing and productivity, I want to reinforce this – the comment around the distinction between wholesale leasing and what we think of as our transaction engine. So when I say we're working to increase productivity and production, it's really on the transaction end. So we don't want people on the phone to take that statement of we think we can get more productive, as we're going to see more wholesale leasing come in and more kilowatts and square footage being sold. That's not what we're trying to do this year. So I just want to underscore that distinction. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): That's helpful. Thank you.

Thank you. And our next question comes from the line of Emmanuel Korchman with Citigroup. Please go ahead with your question.

Hey guys; just had a question for you on SV6. Is that lease at a set amount of power or do they have variable sort of uptake that they can take and they can expand their needs as they grow in the space. Thomas M. Ray - President, Chief Executive Officer & Director: It's a powered shell, Manny, with a maximum allocation from the substation onsite. They get their allocated share that they can use in the building. If they use less than that, fine, but they can't use more than that.

And the reason I asked, if you – based on your schedules here in the held for development bucket, the range for the – the rest of the campus dropped to 12 megawatts to 18 megawatts from 20 megawatts to 35 megawatts. So, SV6 is going to be somewhere between 8 megawatts and 17 megawatts. Is that the right way to think about it? Thomas M. Ray - President, Chief Executive Officer & Director: We can't speak specifically to SV6, Manny, we just – we'll ask you to just interpret this up. We can't say anything about that lease.

And then, it looked like you had a couple of leases drop out in NY2 – the lease percentage went down a little bit. Can you talk more about that? Thomas M. Ray - President, Chief Executive Officer & Director: We had a lease that we signed in the prior Q that we had targeted to commence inside the Phase 1 in that building – Phase 1 space. And some of the things the customer is looking for were a little bit different as we worked toward implementation. We put them in Phase 2. So you saw a square footage come out of Phase 1 and go into Phase 2. Phase 1...

68%. Thomas M. Ray - President, Chief Executive Officer & Director: Yeah, 68% Phase 2, 50%...

68%, it's about 40% range. Thomas M. Ray - President, Chief Executive Officer & Director: Yes, the average is 53% I think.

54%, yeah. Thomas M. Ray - President, Chief Executive Officer & Director: 54%. But that's why Phase 1 bounced.

Got it. That was it for me guys. Thank you.

You bet. Thanks, Manny.

Our next question comes from the line of Matthew Heinz with Stifel. Please go ahead with your questions. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc.: Hi, good afternoon. Thanks for the incremental detail on the enterprise leasing activity this quarter. I'm just wondering if there are specific metros where you're seeing notable enterprise demand uptick or whether that's more of a broad-based function of your sales focused on smaller to mid-sized deployment?

It's really broad based. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc.: Okay. And then as a follow-up to that, just sort of reconciling the flattish MRR per cabi, kind of this quarter and subsequent quarters with the strong uptick in rate per square foot booked this quarter. Just given the heavy enterprise mixed book this quarter, I'm wondering kind of what the underlying dynamics there are between metered versus breakered power and kind of the appetite for fiber connectivity within that enterprise base?

Well, I think we need to distinguish between enterprise and wholesale. You can sign wholesale deals with enterprises, you can sign more transactional deals with enterprises that are on a breakered amp as opposed to a metered power base (29:08) would generate more cross connects per square foot. So the dynamic that is unfolding at the moment in terms of more MRR per cabi is, the rent on the wholesale deals we signed last year is, though in some cases not – generally speaking is not bad rent, but it doesn't generate a lot of cross connects, and it's all sold on a metered basis. So your MRR per cabi is total revenue. So when you throw a couple of big wholesale deals in the pot in a given year, they might have a strong space rent, but they're not going to have MRR per cabi, total revenue, like the rest of your base. And then as to the enterprise vertical and going forward, I think the key to focus on with us is, as you already enquired, what percent of the leases are likely to be – and what percent of square footage sold is likely to be on a breakered amp basis versus metered. We're trying to give people some insight into that when we say; we signed five deals that were greater than 1,000 feet. Everything else was less than 1,000 feet. And generally speaking, less than 1,000 feet is more often going to be breakered, and end up generating more cross connects per square foot. So, that's the map and those are the dynamics. Does that help? Matthew S. Heinz - Stifel, Nicolaus & Co., Inc.: That's helpful commentary. Thank you very much.

Yeah.

Thank you. And our next question comes from the line of Barry McCarver with Stephens. Please proceed with your questions.

Hey. Good morning, guys, and good quarter. Thanks for taking my questions. I guess first off, Tom, would you speak kind of broadly to all of your markets, what you're seeing in terms of the demand, and then supply coming on from some of your competitors? Any big changes there? Thomas M. Ray - President, Chief Executive Officer & Director: Well, not big ones, I think that, that broadly spoken Barry, I think most of the markets are getting better, showing a little bit of a price strengthening over the last few quarters. I probably carve out Los Angeles, Boston, and Miami that are not negative; they're just reasonably flat or maybe showing that 2% to 3% annual inflation-related market adjustment. The rest of the markets in general, I think are showing a little more health in that. I wouldn't point to one that I think is measurably different than we said it was a quarter ago.

Are you seeing any kind of unusual speculative building in some of the bigger markets or is that pretty even with demand? Thomas M. Ray - President, Chief Executive Officer & Director: I think it's pretty even with demand at least in terms of permits and breaking ground. There are – anytime rents are rising, I think you see more people looking for dirt and thinking about doing more. I wouldn't say the behavior around that right now is outsized, but we see a little more interest. I would expect that to accelerate over the next couple of years. And – but we haven't seen any speculative behavior that we think is going to be meaningfully disruptive in the near-term.

Okay. And then just let me touch again on the sales productivity, which I know we've already kind of beat to death, but you've had several really strong quarters in a row. And then in your prepared remarks early on, you mentioned that the thought the total number of leases you sign each quarter could continue to go up. I mean what are your kind of targets or thoughts for this year on just the number of deals on a quarterly basis, you're going to ramp up to? Thomas M. Ray - President, Chief Executive Officer & Director: Yeah. And Barry, we're really just thinking more up into the right in the transactional engine. So again, if you think of it this way, much for wholesale last year, we have a – we would hope to have less wholesale this year relative to total leasing. And we're not going to work to try and do more wholesale than that might suggest. If the markets are favorable, and if we get more production out of our team, we want to get that in that smaller transactional bucket. And look, all we can say is, we were up 4% or 5% this quarter over last quarter. And we think we have – we've staffed, and we've invested such to do better, and go up into the right, it's really hard to predict the slope of that curve, we're just focused on up into the right.

And just so, I'm clear on the concept, and certainly, I understand the difference between, your transactional deals and the wholesale deals, but for this strategic customer that you've announced that you'll be building here. And that's really more driven by that customer's demand, I mean that's not really something you're out there, selling or avoiding the sale, it's a current customer that needs additional space, is that the way to think about that? Thomas M. Ray - President, Chief Executive Officer & Director: Well yeah, I mean – I think we are now established as a highly capable developer, and there are – there's a market for those development services, so we don't shy away from it. It's not traditionally been a big piece of our business. I think you see that business more active where you already have land. And so you see that from us in Santa Clara, this is our second build-to-suit. Our general view on build-to-suits is, as we've said in the past, to build a 100,000 square foot or 200,000 square foot building on a TKD basis at today's rate, probably does not make sense for our balance sheet, but if you can serve an important need, accelerate monetization of land you own, and get a good yield on the capital going to build the shell, that's a business we've executed successfully in the past. I think we have another one this quarter, and we don't shy away from it in the future as well, but it's – I think the growth of that business probably has more to do with land, and we're pretty happy where we're right now in terms of having spec land lying around.

Very good. Thanks, guys. Thomas M. Ray - President, Chief Executive Officer & Director: I'd just say if we – to the extent we buy any more land in the future, it's going to be with a view towards putting it to use in our TKD program and it's going to make that clarification. We're not trying to go long on land and build a gigantic development services business. Development services is a good business, we will not shy away from it, we'll do it when it's smart. But probably not going to be a big piece of our balance sheet.

Thank you. And our next question comes from the line of Jonathan Schildkraut with Evercore. Please go ahead with your questions.

Hi. This Bob (35:53) for Jonathan. Pricing this quarter looked pretty good at $163 per square foot and above the trailing 12 month average. I was wondering if power density is a factor here or if this is just rising pricing on an apples-to-apples basis. And I was wondering also if you could just go through and reiterate the targeted stabilized trends for development project including SV6? Thomas M. Ray - President, Chief Executive Officer & Director: Thanks for the question. Regarding the increase in rates, power density for the Q is in line with the trail. So we just did see better rates in general, and better yield on the lease assigned in the last Q, that can be affected little bit by geography, and I just neglected to take that part of it apart this time, and compare it to the trail, we get higher rates in LA than we do in Miami. I think in terms of geographic distribution, it's reasonably consistent with the trail, nothing really anomalous. So that's the rent per foot answer. It was just a little bit better. And what was the other question, I'm sorry.

Stabilized deals – targeted stabilized deals on the development project, and the new ones, BTS – any BTS project? Thomas M. Ray - President, Chief Executive Officer & Director: Same old story. We've been saying for four and a half years, we target north of a 12% (37:15) on the use of our capital, and there are times when we do a whole lot better than that. The – we believe the build-to-suit, the return on incremental capital, we're going to invest in that is in line with our objectives. And the range of yields we get on our respective elements, again, we shoot for north of 12% (37:40) we've been, I think pretty good at making that happen, and we've had some that are considerably higher. We just don't really like pointing at that. And over time, as you compare us to others, just look at the change in EBITDA, and you look at the change in the balance sheet and yields over three-year or four-year period will be crystal clear in the math. And we invite people to continue to perform that diligence on us.

Great. Thanks for taking the questions.

Thank you. And our next question comes from the line of Jordan Sadler with KeyBanc. Please proceed with your questions.

Thank you for taking the question. Regarding rents rising, you made a comment in the response to a question here, and you've also said that the supply/demand dynamic remains favorable, which make some sense. Can you maybe quantify what you're seeing in terms of market rent increases or what you expect to see? Thomas M. Ray - President, Chief Executive Officer & Director: My best quantification, Jordan would be poquito (38:49). It's – you're seeing some. Nothing is going to wild, right. The – it's tighter in most of the markets, but most of the markets still have the same number of competitors who are still out there with some degree of capacity. I think you just see more discipline across the industry now. People have learned what works and what doesn't work and start to say no to things that don't work. And markets are a little bit tighter. So look, yeah it's moving in the right direction. I just don't think we're going to see huge spikes, and we're not seeing those right now.

Can it be more equilibrium oriented? Thomas M. Ray - President, Chief Executive Officer & Director: That's my guess. Yeah.

(39:30) increases. Okay. Okay. Along the same lines, this build-to-suit, I noticed that the cost on a per square foot basis was plus 5% or so relative to SV5, and number one, I'm hoping, I'm comparing apples-to-apples in terms of what you're building, but separately would it be safe to assume that the rents would be up a similar amount? Thomas M. Ray - President, Chief Executive Officer & Director: Just can't speak to that lease at all, Jordan. We – I thought we met somebody's need in a way that was very good for our company last time. I think the markets are little bit more competitive right now and we're responsive to that, but we still felt very good about the new lease, and again our statements that we feel, it's in line with our hurdle is where we stand. But we can't point to anything about that lease in particular.

Okay. Okay, and that's fair, I guess I'm – I think, I'm curious more about you guys building PBB, and it seems like you're saying look we'll do PBB when everything makes sense. But I know, your land is inventory in a market like Silicon Valley or Santa Clara is kind of scarce or becoming increasingly scarce. How do you think about – and you have another lot of left, and I think you said, you'd build another data center on there; can you maybe talk about that, is that something you're looking to do on speculative basis? Thomas M. Ray - President, Chief Executive Officer & Director: Well, our comments in the prepared remarks were that we believe we have the opportunity to build another data center there, and it's certainly something we look at. We are getting very full in the Bay Area, and then it turns to a question of – discussions with our Board around what's the best use of the balance sheet, and what are the most attractive alternatives on not only return, but a risk adjusted return basis. And certainly Santa Clara is in the mix of things that we're looking hard at. But there are a lot of, we believe, intelligent things to do with our capital, and we're still working through that prioritization with our Board.

Okay. Can you just remind us what the cost of power is at Stender, roughly? Thomas M. Ray - President, Chief Executive Officer & Director: Going from $0.10 to close to $0.11 plus or minus. Yeah.

Okay. Thomas M. Ray - President, Chief Executive Officer & Director: About $0.11 currently. It's gone up again in that whole area.

Okay. Thank you. Thomas M. Ray - President, Chief Executive Officer & Director: You bet.

Our next question comes from the line of Colby Synesael with Cowen & Company. Please go ahead with your questions. Colby A. Synesael - Cowen & Co. LLC: Great. Thank you. When you look at the growth rate that you've been achieving, call it the last 12 months, and arguably the growth rate that you aspire to achieve the next 12 months, relative to your current development pipeline, how comfortably do you feel with the number and the timing – the number of projects and the timing to which those projects are expected to come online to effectively have enough capacity in the market, based on the type of demand that you're seeing in those markets, to continue at those growth rates? And then, I just wanted to go back to the question related to metered versus breakered. Certainly appreciate that you see the majority of call it sub-500 kW deals being breakered. But are you seeing an increasing number of those deals or those customers asking for metered? I guess, are we seeing a trend potentially developing there? Thank you. Thomas M. Ray - President, Chief Executive Officer & Director: Yeah. I mean, you do see more of the markets, sub-500 kW, and this is consistent with past statements over the last year, year and a half. There is clearly market pressure in that 130 kilowatts to 500 kilowatts range, for more of that to be either metered or a synthetic meter basis – a draw cap model or other models that have less return on them in terms of total revenue than a pure breakered model that is smaller. That threshold is pushed from 500 kilowatts down to 250 kilowatts to 130 kilowatts, and it's a little muddy in that 130 kilowatts to 500 kilowatts range, but you are seeing pressure – downward pressure. Colby A. Synesael - Cowen & Co. LLC: Growth and development pipeline? Thomas M. Ray - President, Chief Executive Officer & Director: Yeah. I think on growth and development – look in the – certainly in the foreseeable future, we feel very good about our ability to grow the company. And if you look at how we've done that in the recent history, the last four and half years, a significant amount of our growth comes from the Bay Area, D.C./Virginia, LA. A year, year and a half ago, we added New York to that; so that's kind of our big four. Chicago and Boston have been kind of medium-sized growth contributors, and then Denver and Miami are frankly pretty small. And so, the key for us is continuing to fuel in these big markets. We've accomplished a significant growth rate really three out of those four markets over the years, because we didn't have NY2. Now we have NY2 and we have plenty of room to run in three markets: NY2, Virginia and LA, and we're certainly looking at the Bay Area, because that's where we are constrained. But even without that, I think we can continue to do a good job of growing the company. Colby A. Synesael - Cowen & Co. LLC: If I can then Tom, just a follow-up to that line of questioning. What is the – what should we be expecting as it relates to announcements for newbuilds as we go into call it the middle or the back half of next year. Is it fair to assume that there should be another two or three announcements that we'll see come across the tape? Or is it something different? Thomas M. Ray - President, Chief Executive Officer & Director: Well look, we just – we – first we look at growth the way we've described it, with these four layers. And the first layer is depth inside markets we're currently active in. And we look at how much room is left to – how much capacity can we continue to deliver really in those big four markets, and to some extent the other two, Chicago and Boston, and we look at our balance sheet capability, and we match those things up. I'll encourage you guys to do the same. If there's a point where your forecast says we've delevered below where we are right now in terms of times EBITDA coverage, and your model says we're running out of inventory in Virginia, that's probably something we're going to – want to use that debt capacity to go address. But it's a dynamic relationship between these four prioritizations of capital, the first one being the markets we're in and our balance sheet and specifically our leverage capacity. Colby A. Synesael - Cowen & Co. LLC: Okay. Thank you. Thomas M. Ray - President, Chief Executive Officer & Director: So we're toggling those two things all the time and encourage you guys to think about your models the same way.

Thank you. Our next question comes from the line of Tayo Okusanya with Jefferies. Please go ahead with your questions.

Yes. Good afternoon, everyone. Congrats on a great quarter.

Thanks, Tayo.

Yeah. I'm just trying to reconcile the guidance versus results and your outlook. So you beat for the quarter, there's a focus left on wholesale going forward, which should improve margins. You have a strong development pipeline. So I'm just curious why guidance numbers did not go up given the positive momentum. I'm just – is there anything I'm kind of missing in the back-half of the year?

Hey, Tayo. It's Jeff. Thanks for the comments. I think just in general when you look at our results for Q1, obviously we're happy with the results, and that would equate out to a run rate of about $2.56 per share, that's obviously at the – right at the low end of our guidance for the year.

Right.

I think as you think about your models going forward, I just want to point you to a couple of things that I mentioned on the prepared remarks. First, we always have margin compression around our power in the second quarter and third quarter of every year, that was at the times when the rates increased, so just focus a little bit on that. And then secondly, the other item is, as we're finishing development obviously, we finish development on the first phase at VA2 this quarter, and we'll finish the second phases of development at both NY2 and VA2 next quarter, that's going to lead to a lower amount of capitalized interest, taxes and insurance.

Right.

Broadly speaking, we've guided the last quarter to say that our percentage of capitalized interest would drop to somewhere between 25% and 30% for the year. In the first quarter, we are right at about 50%. So if you take that run rate for the quarter from the first quarter, that difference between the 50% actual and 30% where we think it'll be for the whole year is roughly $500,000 to $600,000 per quarter. So just factor that into your modeling as well.

Got it. All very helpful tidbits (49:05). Appreciated. Thank you.

You bet.

Thank you. And our next question comes from the line of Matthew Heinz with Stifel. Please go ahead with your question. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc.: Hi. Thanks for fitting me in. Just one last follow-up on the macro picture. So we're still presumably in the early innings here on the turn in – in industry pricing, and you talked about kind of a better discipline across the space in terms of spec development. But I guess, the last time we had bullish pricing cycle that didn't take long for the non-traditional capital to kind of come in and chase a little bit. Do you think it's different this time around and just given the maturation of the industry over the last several years or could we once again see more new non-traditional players coming into – to the space? Thomas M. Ray - President, Chief Executive Officer & Director: I do think, the highest level that real estate development cycles tend to repeat themselves, I think it's hard to get away from that. So – and again, I think that, that activity has a much greater impact on wholesale rents. We're really trying to really drive growth in the non-wholesale part of our business, but it takes time to get land, get power, get entitled and get built. So certainly over the next year or maybe even two years, you have pretty good visibility that – it's highly unlikely that supply is going to get out of hands. Two years or three years from now, I think if yields are gone up, I think alternative capital is going find its way back into the sector, and I think the wholesale business will remain somewhat cyclical. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc.: Okay. Thomas M. Ray - President, Chief Executive Officer & Director: Into the cycles – cycles is the amplitude, start to decrease a little bit as people get wiser or maybe as markets get bigger, maybe, but I still think you're going to see meaningful cyclicality in the wholesale sector over time. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc.: Appreciate the thoughts. Thank you. Thomas M. Ray - President, Chief Executive Officer & Director: Sure.

Thanks, Matt.

Thank you. This concludes our question-and-answer session. I'd like to turn the floor back to Tom Ray for closing remarks. Thomas M. Ray - President, Chief Executive Officer & Director: Well, we just want to say thank you to, again to everybody on the call, investors and the analyst community. Thanks for putting the time to trying to understand our company better and better. We want to say thanks to our employees who've been working incredibly hard and continuing to do so and continuing to get sharper, better, faster more productive. And we're going to keep trying to move that trend forward and generate returns for our investors. Thanks again for your time.