American Tower Corporation (AMT) Q2 2015 Earnings Report, Transcript and Summary

Thanks, Steve, and hello, everyone. I'll begin my remarks today by reviewing our Q2 financial results. Second, I will update you on our development CapEx and our balance sheet and liquidity capacity and, third, I will discuss our revised outlook and guidance for the remainder of the year. Turning to our financial performance in the second quarter, data center revenues were $79.5 million, a 9.5% increase on a sequential quarter basis and a 24.7% increase over the prior year quarter. Our Q2 data center revenue consisted of $66.6 million in rental and power revenue from data center space, up 9.2% on a sequential quarter basis and 24.5% year-over-year, $10.6 million from interconnection revenue, an increase of 3.7% on a sequential quarter basis and 23.3% year-over-year, and $2.3 million from tenant reimbursement and other revenues. Office and light industrial revenue was $2 million. Our second quarter FFO was $0.68 per diluted share and unit, an increase of 6.3% on a sequential quarter basis and a 33.3% increase year-over-year, excluding non-recurring items in Q2 2014. As Tom mentioned, FFO per diluted share and unit increased 19.3% year-over-year as reported in unadjusted. Adjusted EBITDA of $40.6 million increased 6.9% on a sequential quarter basis and 33.2% over the same quarter of last year, excluding non-recurring items. Our adjusted EBITDA margin of 49.8% increased 340 basis points year-over-year and declined 100 basis points sequentially. If you recall, our adjusted EBITDA has historically shown a seasonal decline on a sequential basis in both the second and third quarters, generally related to seasonal increases in the cost of power. Related, our Q2 results represent revenue growth flow through to annualized adjusted EBITDA and FFO of 64% and 51% respectively, which is a significant improvement on a year-over-year basis. Sales and marketing expenses in the second quarter totaled $4.3 million or approximately 5.2% of total operating revenues, up 10 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 Q2 correlating to 9.8% of total operating revenues. We expect G&A for 2015 to correlate to approximately 9.5% to 10% of total operating revenue. Regarding our same-store metrics, Q2 same-store turnkey data center occupancy increased 850 basis points to 84.9% from 76.4% in the second quarter of 2014. Additionally, same-store MRR per cabinet equivalent increased 4.1% year-over-year and 1% sequentially. As Steve discussed, we have now fully backfilled customer leasing at SV3. As we have communicated previously, we executed a restructured lease agreement with the original customer in order to meet current demand and backfill the space at SV3. Under the amended agreement, the original customer is making payments discounted from its original lease amount that maybe applied to new leases with us on a dollar-for-dollar basis until the staggered terms of the new agreement expire. Revenue associated with the restructured lease agreement is included in our financial results and the annualized rent reflected on the operating table shown on page 14 of the second quarter earnings supplemental. This revenue stream is scheduled to decline in increments and expire over the next two years, reflecting associated churn related to each expiring increment. We currently forecast that these expirations will be approximately $2.6 million in Q4 of 2015, $1.9 million in Q2 of 2016, and $4.2 million in Q2 of 2017. In turn, correlating to churn of approximately 150 basis points, 100 basis points, and 190 basis points respectively, absent any such amounts applied to new leases. Lastly, we commenced a 123,000 net rentable square feet of new and expansion leases at an annualized GAAP rent of $123 per square foot, which represents $15.1 million of annualized GAAP rent. Turning now to backlog. Our projected annualized GAAP rent from signed but not yet commenced leases is $18.5 million as of June 30, 2015 or $29.8 million on a cash basis. We expect approximately 37% or $6.8 million of the GAAP backlog to commence in the second half of 2015. Another 30% is expected to commence in the first half of 2016 and 15% of the GAAP backlog expected to commence in the second half of 2016. Within the total backlog amount is rents associated with the build-to-suit at SV6 as well as the SV7 pre-lease each forecasted to commence upon completion of construction in the first half of 2016. In the second quarter, we increased stabilized data center occupancy by approximately 160 basis points sequentially to 89.9%. Stabilized data center occupancy now reflects the addition of 44,000 square feet at VA2, which commenced on April 1, and is 100% leased and occupied by a single acre tenant. I would remind everyone that the recently developed data center projects that are in the initial lease up phase are classified as pre-stabilized until you reach 85% occupancy or have been in service for 24 months. To that point, in the second quarter 15,000 square feet at SV4 and 20,000 square feet at CH1 in Chicago moved from this pre-stabilized pool into our stabilized pool as they have now been in service for two years. Additionally, 16,000 square feet at NY2 associated with Phase 2 has been placed into our stabilized data center pool as it was 100% leased and occupied by a single customer as of June 30, 2015. Turning to development activity and expansion CapEx. During the second quarter, we placed into service Phase 2 at both NY2 and VA2 with 33,000 square feet and 48,000 square feet, now reflected in our pre-stabilized pool respectively. During the second quarter, we began construction of VA2 Phase 3 with 48,000 square feet under development, which is expected to be completed in the fourth quarter of 2015. During the second quarter, we also began construction on the powered shell build-to-suit at SV6. As we announced in early June, we expect to begin construction on SV7 in the third quarter with the first phase expected to be completed in the second quarter of 2016. Based on all of the development projects currently under construction and the expected construction of Phase 1 of SV7, we expect to spend approximately $140 million in incremental expansion CapEx, most of which will be spent through the first half of 2016. In a few moments, I will update you on our estimated capital expenditures for 2015. As a reminder, when we complete development projects we realize 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 30% to 35%, depending on the volume and pace of development during the year, including the expected commencement of construction on SV7 in the back half of the year. As shown on page 22 of the supplemental, the percentage of interest capitalized year-to-date is 43%. Turning to our balance sheet, as of June 30, 2015, our net debt to Q2 annualized adjusted EBITDA is 2.1 times, and if you include our preferred stock, it is 2.8 times. Based on the current and expected development projects disclosed on page 20 of the supplemental, we would expect our leverage to increase by year-end to approximately 3.1 times, comfortably within our stated target ratio of approximately 4 times. During the second quarter, we executed and amended and expanded $500 million senior unsecured credit facility, extending and staggering our debt maturity profile, lowering our overall borrowing cost and continuing to balance our mix between fixed and variable rate debt, including our preferred stock. The amended unsecured credit facility is comprised of a four-year $350 million revolving credit facility and a five-year $150 million term loan. Subsequent to the transaction, we used the term loan proceeds to pay down a portion of the existing revolving credit facility balance. The execution of the amended and expanded credit facility supports our goals of maintaining the liquidity and available capital necessary to execute our business plans and support growth. To that point, as of June 30, 2015, we had $102.3 million drawn on our revolver and approximately $241 million of available capacity. Finally, with regard to our outlook, we are increasing our 2015 FFO guidance to a range of $2.75 to $2.83 per share in OP unit, from the previous range of $2.55 to $2.65, an increase of 7.3% based on the midpoint of both ranges. The increased guidance reflects our performance in the first half of the year, increased visibility into financial and operating performance in the second half of 2015, and improved revenue growth flow through to both adjusted EBITDA and FFO as we continue to gain efficiencies as we scale the business. More specifically, we now expect total operating revenue to be $325 million to $330 million compared to the previous range of $313 million to $323 million. Data center revenue is now expected to be $317 million to $322 million, up from the previous range of $305 million to $315 million, driven primarily by our sales execution in the first half of 2015 and our expectations for solid growth in rental revenue, continued positive mark-to-market rent growth and increases in our interconnection revenue. Adjusted EBITDA is now expected to be $162 million to $167 million, up from our previous guidance of $153 million to $158 million, implying a full year 2015 adjusted EBITDA margin of 50.2% based on the midpoint of guidance. As I mentioned, we estimate improved revenue growth flow through to adjusted EBITDA as our guidance for general and administrative expenses remains unchanged. We now expect cash rent growth on renewals to be in the range of 3% to 5% for the full year, taking into account the cash rent growth in the first half of the year of 5.5%. Our guidance for annual churn is unchanged at 6% to 8% for the full year. We are increasing our guidance for 2015, total capital expenditures by $20 million to a range of $135 million to $165 million, primarily to reflect the development of the recently announced construction of SV7 in Santa Clara. A more detailed summary of 2015 guidance items can be found on page 24 of the second quarter earnings supplemental. I would remind you that our guidance is based on our current view of supply and demand dynamics and 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?

At this time, we'll be conducting a question-and-answer session. Our first question is from Jordan Sadler with KeyBanc. Please proceed with your question.

Thank you, and good morning out there. The first question is just on the continued accelerated monetization, I believe you referred to of sort of land bank and really of capacity, and just maybe you could speak to the plans to backfill and if any of that is factored at this point into your 2015 guidance? Thomas M. Ray - President, Chief Executive Officer & Director: Sure, Jordan. I think, the location where we've monetized land in the powered shell build-to-suit is both of those leases were in Santa Clara, on our Santa Clara campus, where we had a significant amount of land. We thought long and hard about the most recent build-to-suit, it was a very attractive return on incremental capital and a good use of the land asset sitting there. We probably – what helped us make that decision to feel good about that deal was the size of SV7, which is more than double the size of SV5. So in kicking off our last building, we have a lot of runway there, the biggest building by far we've put on that site. So that gives us, we think, plenty of time to look in the market and look for the right next path of growth, but I think we have several years to figure that out. Santa Clara is – the Bay Area has been a very powerful market for us, so we appreciate that as we think about our long-term planning. So there you go, the bottom-line is, we still have a lot of room to run with SV7 and there you have it.

But your guidance, you're not anticipating taking down any additional land or buildings per se in your guidance for 2015? Thomas M. Ray - President, Chief Executive Officer & Director: That's right, not in the guidance.

Okay. And then, interconnection, not to – I might not have caught the exact details there, but I just heard a plus 17% year-over-year number on cross connects, and I was curious obviously one quarter. There can be some volatility but relative to your previous growth, I think it's a little bit slower. I'm just curious about the thoughts on cross-connect and interconnection revenue growth going forward? And then, maybe if you can provide some context in terms of what you see your view as the outlook, if any, in terms of a shift at all as a result of the change in the capitalization or ownership of one-year larger competitors in that space? Thomas M. Ray - President, Chief Executive Officer & Director: Sure. Well, as to the cross connect, the growth rate of cross-connect revenue, we've said on the – at least one past call and we just reiterate over time that that growth rate should begin to align with the growth rate of volume plus whatever annual mark-to-market there is in the market. But we've been – and we really think it will align with the growth rate of the volume of fiber cross connects. So our copper cross connects have been a declining business for some time as it is in all parts of the communications landscape. Our fiber cross-connect volume has been growing organically pretty nicely at 17%. So if you think of over a couple years and it's really hard to predict the pacing, but if you think that at some point your growth rate in revenue is got to align with the growth rate in volume. And then if you add 2%, 3% a year, for inflation mark-to-market, that kind of thing, that's how we view it. So we'd just encourage people to align their models accordingly. So I guess what we're saying is we expect the growth rate to moderate to some extent, further over the next couple of years, but really you would expect – I would expect the growth rate of interconnection revenue to exceed that of rents on a same store basis. So hopefully that helps model. As to consolidation, look, I think with the Telx selling into DLRs footprint, there should be at some point over time, a little bit greater competition. At the same time, Telx has been in business a very long time. We've been here for a while, Equinix has been here for a while, and we've posted very consistent, very solid cross-connect growth. And we frankly expect that to continue. So it's a big market. The United States is a big place, and we expect to continue to be successful.

All right. Thank you. Last cleanup item here, just do you disclose your total number of cross-connects? Thomas M. Ray - President, Chief Executive Officer & Director: We have in the past.

Yeah. I think traditionally, Jordon, we've typically said that we're in excess of 15,000. We haven't given a more precise number other than that at this point. Thomas M. Ray - President, Chief Executive Officer & Director: It is something we're looking at in terms of trying to update just so you guys have better visibility. It's been that way for few years, but we haven't given anything beyond that.

Okay. Thank you.

Our next question is from Jonathan Atkins with RBC Capital Markets. Please proceed with your question.

Yeah. I wanted to just see if you can discuss a little bit about the opportunities, threats from the Digital Realty, Telx combination, not just with respect to cross-connects, but in the retail business, in the wholesale segment and so forth, how do you kind of view that? And then I was interested in just the new logo that you signed and which of the top four did you sign the greatest number of new logos? Was it Bay Area or LA or where were you seeing kind of the most success? Thomas M. Ray - President, Chief Executive Officer & Director: Sure. I think as to Telx and Digital, again our view – my sense is that over time, it will increase competition in the Colo segment. Just with a talented co-location sales platform and operating platform, now working on a larger base of assets. So I would expect that to result in some greater competition. There is certainly the theory that consolidation over a longer period may lead to more disciplined pricing. So you can put whatever stock into that theory you like. I just think that – I think there will be some period as they're integrating the Telx acquisition and rolling that operational capability out onto more assets. But they'll probably be reasonably aggressive in pricing.

And Jonathan, in terms of the new logos, I think you've probably heard in Steve's remarks, we signed 44 new logos in the quarter. I apologize, I don't have the vertical which produced the most. We'll try and get that by the end of the call, if not we'll follow back up with you? Thomas M. Ray - President, Chief Executive Officer & Director: The geographic breakout, yeah.

But by metro. Okay. And then SV7, I'm just interested all-in, not just the initial phase for this one-acre customer, but just when all is said and done, how can we think about that project in terms of cost per megawatt? Is it going to be similar to what you've put up on some of your slides in the supplemental? Or is there any reason why it would be higher or lower? And then related to that, I'm just interested in demand that you may be seeing from your customers in any of your markets for an N (0:39:05) type products and any shifts in your design or product to accommodate that? Thomas M. Ray - President, Chief Executive Officer & Director: Well, I think you hit the big question about the ultimate cost basis in SV7. We – four comparable products, which we expect to comprise the bulk of SV7, that is a Tier 3, N+1, 2N (0:39:27) type product. We expect that to be most of SV7, and we expect the cost there to be very similar to that of SV4 and other new developments, nothing unusual. We do anticipate productizing, if you will, different levels of resiliency as other folks have done, and as there seems to be a market for. So with that, we might spend less capital on some portion of SV7 and as such the weighted average costs, the total – the cost per meg in that might decline a little bit from some other buildings. But that story has yet to be told. And like everybody else, we build modularly. We build to meet the demand in the marketplace. And I do think there is a segment of demand that is looking for better pricing with lower resiliency. And we're focused on ensuring we meet that market segment.

And then finally, I was just interested in, to what extent your customers have been asking about your entering new metros where you currently don't operate? I know you've been fairly disciplined from a financial standpoint. There is a lot of interesting things happening, not just in your – in some of your top markets, but in other markets where you are currently absent, and is there a customer push in that direction that you're seeing? Thomas M. Ray - President, Chief Executive Officer & Director: Well, look, we've been asked to go to new markets since before we were public, right. I mean almost every large customer who has multimarket needs wants to know if we can meet them in additional markets, and that's domestic and abroad. But you nailed it, Jon. We've just tried to be disciplined about the use of our balance sheet. And we're just allocating capital by rank ordering projects based on risk and return. And we've been consistent in saying, we believe our lower risk, higher return opportunities in the immediately visible future are adding product into markets where we already have a team and interconnection density and some scale. And so that's just how we've been allocating capital. We don't have a positive or negative previous position toward markets. We just rank order the deployment of capital on a risk adjusted basis.

Thank you.

And Jonathan just as – Jonathan just as a follow-up to your previous question in terms of the breakout by geo for the new verticals, the top two markets were LA, followed closely by the Bay Area in terms of the distribution of the 44 new logos.

Thank you.

You bet.

Our next question comes from the line of Jonathan Schildkraut with Evercore ISI. Please proceed with your question.

Hi, guys. Can you hear me? Thomas M. Ray - President, Chief Executive Officer & Director: Yeah.

Yeah, Jonathan.

All right. Thank you for taking the questions. Couple if I may, so Tom, you offered some, I thought, pretty positive commentary about the overall state of demand in the marketplace. And I was wondering if there was anything sort of driving in your view the overall demand that is, has anything changed, has something come into place that has allowed an acceleration in demand or is it just short of seeing more maturation of some of the trends that we've seen recently? And I'll follow-up with the second question. Thanks. Thomas M. Ray - President, Chief Executive Officer & Director: Sharing my view and then I'll ask Steve to weigh in as well. I think it's some of both. I think that in the major markets where you've seen the largest acceleration of demand, I think a big component of that has been driven by the big clouds. They've been in this cycle recently, have much greater absorption, much bigger blocks of space than historically. In addition to that, that general steady drumbeat of the, kind of that, steady co-location business, the performance end of the business has also seen an acceleration of demand, I think, more moderate than these big blocks you're seeing, taken down by the cloud guys. So, I think it's a little bit of both. Steve, what are your thoughts? Steven J. Smith - Senior Vice President-Sales & Sales Enablement: Yeah, I would agree, Tom. I think the maturation of the cloud industry, and the adoption in that space has driven obviously more absorption in our space, which has been positive. But, I think, that has also led to more adoption in just the enterprise. And as more enterprises go through their natural cycle of refreshing their hardware and their infrastructure that leads to more and more adoption of outsourcing and to co-location. So, I think we're starting to see more and more of that. So, I think it is primarily just more maturation in the market.

All right. Great. And then question for Jeff here. Jeff you know, you took us through some really good detail and through the financials. And I guess, I just had some questions around sort of the double dipping that's going on out on the West Coast. When you guys started the year, was it your expectation and was it in your initial guidance that you would be able to, sort of, both benefit from the exit of the customer out of the facility SV3, but also sort of backfill. So, just want to get a sense as to whether this is a change in expectation versus sort of where you were from a prior basis. And then, as a second question, in terms of the churn that you've pulled out for us, so for example $2.6 million in the fourth quarter, is that going to churn on sort of day one of the quarter, and that's the full quarter run rate or how should we think about that in terms of the quarter after the impact to that is?

Yeah. Let me hit your second question first, Jonathan, see if that helps. In terms of that $2.6 million in Q4, that will churn out at the end of that quarter. I think that term actually expires December 31. And so factor that in, as you look at your models as you go into 2016, but that will come in right at the end of the quarter. In terms of where we were heading into the year for our overall guidance, as it relates to that Bay Area property, I would say that we anticipated some of that in our guidance. And I would say maybe about solving for maybe about 50% of that. And the other 50% obviously, as Steve alluded to in this call and we alluded to in the previous call, we have solved for in the first half of this year and obviously that's helping to drive some of that incremental revenue growth. Thomas M. Ray - President, Chief Executive Officer & Director: And to be clear, Jonathan, we entered into an agreement with a structure with this customer a year ago.

Yeah. Thomas M. Ray - President, Chief Executive Officer & Director: And that's when we did the first backfill lease at SV3 and we created a structure whereby we've encouraged the customer to redeploy in smaller and the target is more performance dependent deployments across our portfolio and to use some of this rent bank to support them doing that but also whereby we would get a little higher rate, a rack rate on the deployments and more term. So we've created a structure where you're trying to reconstruct a wholesale deal into a series of on-ramps and other things and to create an incentive to support the customer in doing that. So that tale has yet to be written, right. They – that some of this – the churn that we've talked about, the forecasted churn that's in the supp is really kind of a worst case scenario or we'd assume that the customer doesn't utilize any of their remaining available rent bank elsewhere in the portfolio. And we're working with them actively to encourage them to do that and that the extent to which that's successful for both parties may soften a component of that churn. I bring that up both to explain what's going on and to say, as we entered the beginning of the year as Jeff said, we'd already taken back half the building under the structure. We had a good structure in place to move forward with the customer, and we've been fortunate that that's worked out a little bit sooner than we anticipated for the rest of the building.

Great. And those were annualized numbers, right? The churn, not quarterly?

That's correct, those are annualized amounts. The only other thing, Jonathan, I'd add to your churn as you guys think about churn in total, we've obviously given guidance and that is unchanged at that 6% to 8% level for the full year. When you look at where we are in the first half, we're at 3.8%, the customer you're referring to in that $2.6 million at the end of the year, that adds an incremental 150 basis points to our churn. So, that combined with where we are year-to-date, you're at 5.3% you're all-in. If you think about our midpoint of typical guidance 1% to 2% per quarter, that's going to put you just up above the 8% churn for the year, I just want to – have guys think about that, it wouldn't surprise me that we end up at the higher end of our churn guidance for the year.

That makes sense. And if I can squeeze one more in here, the mark-to-marks, obviously great to see that you're able to take up the guide here. Is this a reflection of the pricing sort of things that you – the pricing dynamics that, Tom, you were talking about early in the call? Thomas M. Ray - President, Chief Executive Officer & Director: Yeah, I mean, I – look, I think, some markets pricing has firmed up and I think Steve and the team have just done a really good job of reinvigorating sales over the last couple of years and we've seen – as Steve's made it clear in his comments, you've seen acceleration in transactions. And as we've always talked about, think of our business as this core co-location business and there are times we elect to do wholesale on top and with the build-to-suit opportunity and then a new building SV7, we've layered that on top. So I think just execution from Steve, anything you want to add to the markets or the dynamics. Steven J. Smith - Senior Vice President-Sales & Sales Enablement: No, I think the market is also helping, right, as you look at supply and demand out there and the stickiness of our customer base. We obviously want to be fair with our customers, but also be fair to the market and so I think we've done a healthy job in striking that balance.

Thanks so much for taking the questions. Thomas M. Ray - President, Chief Executive Officer & Director: Thanks, Jonathan.

Our next question comes from Emmanuel Korchman with Citigroup. Please proceed with your question.

Hey guys, just wondering as both clients – tenants look for more flexibility and as you try to increase our interconnect opportunity. Are there any physical or design attributes that are changing in your new developments. You mentioned that SV7 will be much bigger than SV5. Is there anything else from just a building perceptive that we should watch for? Thomas M. Ray - President, Chief Executive Officer & Director: Not really, certainly nothing related to interconnection. That SV7 will leverage off of the interconnection already at the campus. It will be connected to the other buildings and have the advantage of all that carrier mass (0:50:40) day one. And so hopefully we'll just keep building off of that. But in terms of the physical construction of the building, no changes related to interconnection.

And then Tom, you mentioned before, customers have asked you to go to new markets. When you think about that opportunity, do you look at it on an asset basis, buying existing assets, developing into markets or perhaps buying portfolios? Thomas M. Ray - President, Chief Executive Officer & Director: We sincerely look at all the above, right. I mean we just – we work extremely hard to just make good decisions for our shareholders, and that mandates that you pay attention to every opportunity in the target markets. Again, we focused on the top 12 markets in the U.S. There are a handful that we're not yet in. We've talked about those for five years now, and that's where we spend our time, so that's the line of our strategy. But we are open minded as to whether it's ground-up development or a redevelopment or an acquisition.

Maybe if you can just give us a quick update on what you're seeing on the acquisition front in terms of valuations and types of properties coming to market? Thomas M. Ray - President, Chief Executive Officer & Director: Well, I don't know. I think the deals recently announced and certainly the Telx valuation, I think is probably the biggest indicator for large portfolios with interconnection density. I think it's probably prudent to make adjustments for owned versus leased and implicit debt and things of that nature, but that was – I don't know, I've heard the 15.5% or so multiples, so there is probably the biggest most recent comp. I think for smaller deals, there is a pretty big range depending on the attractiveness of the asset and can you scale. I mean, I think you see things trading close to 6% if they are really, really good, and we see things go up pretty significantly from there.

Great. Thank you very much. Thomas M. Ray - President, Chief Executive Officer & Director: Yes.

Thanks, Manny.

Our next question is from Dave Rodgers with Robert W. Baird. Please proceed with your question. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): Yeah. Good morning, guys. Tom, I wanted to just dive in a little bit more on the New York, New Jersey markets. I think you characterized it as soft in your comments and Steve's comments obviously did give more color on the amount of leasing you're seeing, but I think you talked about a backlog pretty good about. So maybe just dive a little bit more on what you really are seeing in that market and how it's impacting you? Thomas M. Ray - President, Chief Executive Officer & Director: I think it's a continuation of what we've seen since we open the building, right. We've got out of the gate with very nice network traction, exceeded our expectations. We've had pretty consistent growth in smaller transaction co-location sales and this last quarter was no different. I think we signed 12 smaller deals and that drumbeat has been, I think over the last year accelerating. I mean this was the quarter where we didn't sign larger deals. We're not seeing a collection three to four multi-megawatt deals, but there is a pretty good funnel out there of kind of that 1 meg and down, 1.25 meg and down. So as you think about the opportunity to do the larger deals, I think it's still in the market and it's just difficult to predict when wholesale deal is signed. So we don't predict it. Anything to add? Steven J. Smith - Senior Vice President-Sales & Sales Enablement: No. I think that's accurate, Tom and the larger leases are much more lumpy as you mentioned. And I think as we look at those leases, we just need to be diligent about what makes sense for the asset that we're trying to sell, the value that we provide in that asset, provide value back to that customer, do they recognize that value and there's a lot of competition in that market, but at the same time, we do get traction from the sales team and overall, we're optimistic as of the future of where it's headed. Thomas M. Ray - President, Chief Executive Officer & Director: I'm encouraged in that the – we've had what we've got over the gate more strongly than we'd even hoped with regard to networks, but I think we're having more success with major clouds, in that location as opposed to Manhattan. So what is landing in the building is in line with the strategy and the thesis. And we continue to be believers in where that assets and that market is headed, just fewer big deals dropped in Q2. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): And these smaller deals that you do and the pricing on those, I mean are they improving from the day you open the building, are they pretty stable, any color on that? Steven J. Smith - Senior Vice President-Sales & Sales Enablement: Yeah, I think the pricing is generally improving, but it's pretty stable, it's a competitive market, but we're seeing the volume pick up and we're seeing pricing firm up somewhat. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): Okay. Thomas M. Ray - President, Chief Executive Officer & Director: Dave, I think from when we opened the building as we've done our first deal or two – larger deal or two, we were at very aggressive low rates and we kind of turned that off now. We're at market and as Steve said, I think it's fairly steady. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): Okay. Thanks. And, Tom, maybe shifting, one of your comments was stabilizing wholesale rents and I assume that part of that is just more control in competitive supply that's out there. But maybe talk a little bit about what you expect to see, are you seeing more permitting coming out, do you expect to see any kind of ramp in new construction, similar, I guess, we've seen in past years or is that landscape pretty stable as well? Thomas M. Ray - President, Chief Executive Officer & Director: Well, I think you see more stuff on – there's still a fair amount of ability to deliver inventory in Virginia. So I'd say shadow inventory of shelves that are ready to go or people that are in for permit. So, look I think Virginia can add supply more meaningfully, probably faster than any other market. I mean at the same time it still takes a year after you start swinging a hammer and that would suggest that the next year pricing there will probably firm up a little bit further, if demand continues the way it did in the first half of this year, which was exceedingly robust. So in the big picture, though, Dave, irrespective of permits and completed shelves over the next 12 months, I think anytime rents are firming up considerably, you'll see capital pour in, you'll see buildings get built and I think, wholesale rates will forever be somewhat cyclical. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): Okay, thanks. And then maybe finally for Jeff, I assume the answer, but I'll ask anyway, is in the expiration schedule, there's nothing in the expiration schedule for SV3 and the tenant that rolled out of there, right, this churn has kind of not embedded in that expiration schedule or is it?

No, the expiration schedule in terms of what we've put inside the supplemental, it is included in the respective periods in which that rent will churn out. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): It is. Okay, great.

Yes. Dave B. Rodgers - Robert W. Baird & Co., Inc. (Broker): Thank you.

You bet.

Our next question is from Colby Synesael, with Cowen & Company. Please proceed with your question. Colby A. Synesael - Cowen & Co. LLC: Great, thanks, two if I may. First one, I guess, just has to talk about cloud broadly speaking. As we've kind of started to see more of a shift from more public cloud type deployments in your facilities perhaps more to more enterprise oriented cloud deployments, maybe Oracle I guess being a good example, a company like that. Are you starting to see now a bigger pull through of enterprise type customers that are also now kind of coming to you whereas perhaps a year ago this just wasn't the type of customer that you were dealing with? And then the second question is, I know going into 2015, there was a pretty big focus on going after those smaller customers and also just more generally improving the efficiency return or contribution margin, I guess, in the – from an OpEx perspective. Is that largely done? And now, effectively the improvements we see on a go forward basis are going to be more one of scale or is there still some inefficiencies, if you will, that are inside the business that could lead to additional improvements beyond just kind of scaling up? Thanks. Steven J. Smith - Senior Vice President-Sales & Sales Enablement: Yeah, sure, and I'll take your – this is Steve, I'll take your first question, and then I'll have Tom answer your second. Relative to cloud and enterprises coming to us for more enterprise cloud type solutions, we are seeing more interest in that. I think the adoption of that is still being vetted out by a lot of enterprises. But I think the benefit to companies such as CoreSite is that we do see a lot of interest that's coming to us and exploring that and very interested in our open cloud exchange and how that provide on-ramps to those type of cloud environments. So the adoption of that I think is still being vetted, but I think the demand that it's driving is very positive for us. Thomas M. Ray - President, Chief Executive Officer & Director: And regarding efficiencies, I remain maniacally confident that we can continue to do better. And you know we haven't talked a lot about something we started about three years ago Encore, which was really an ERP and an IT and software reinvention of the company, if you will. We did a bad job the first two years. We wrote off some money related to that bad job. And we're transparent about that with the street. We haven't said much about Encore, because we decided to shut up and just do our work. We're very, very pleased that in Q2, we launched quite successfully the first very powerful phase of that effort. And our team there led by our VP of Corporate Operations, Jeff Dorr has done a phenomenal job. So we've made progress there. And I think we'll see more efficiencies flow out of just that launch over the next nine months. And then we've moved on to Phase II of that efforts of the Encore effort. Jeff and team are driving that forward. So I think across the company, via technology and via just again relentlessly simplifying our business and making simpler and simpler decisions, I'm convinced that we can continue to improve our efficiency. Colby A. Synesael - Cowen & Co. LLC: Yeah, I guess the other question to that, Tom, would be that as you start to see more of these enterprise type customers coming into your own facilities, I would think to some degree that there is some technological actual sophistication in products that might need to be made available to them to kind of hand hold and make it easier for them to adopt the type of services that you're selling. Is that something that you're seeing? Is that a focus for you? We've seeing obviously DLR as an example going higher, new CIO that's obviously been a focus for someone like for Equinix for some time, kind of where do you guys fit on that strategy or that thinking? Thomas M. Ray - President, Chief Executive Officer & Director: We're I think on the same page, DCIM or Data Center Infrastructure Management is, I think, a key component of any data center offering in the marketplace today. And I think this is going to get more and more important, so that's a key part of our Encore roadmap enabling the enterprise customer and all customers with a greater degree of visibility and self help and self provisioning and clarity supporting that relationship with us and with their capacity inside our data center. So that's a key part of our roadmap. And then I think also in the communications or the interconnection product set, the logical connections are open cloud exchange, you see the larger clouds wanting to align APIs and so that takes development cycles to line up with those guys and I think the folks who are out in front of that and have some scale and can make those investments tend to benefit from getting more and more of those cloud ramps and those relationships that support the hybrid cloud and the ability of the enterprise to meet different needs inside a data center. So, yeah, I mean we – in terms of our product developments around technology, both in the interconnection space and in the data center infrastructure management space, both those areas are key parts of our roadmap. We'd like to think we've been pretty good at them in the past frankly. But we're really working hard to continue to accelerate. Colby A. Synesael - Cowen & Co. LLC: Great. Thank you so much.

Thanks, Colby.

Our next question comes from Matthew Heinz with Stifel. Please proceed with your question. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc.: Hi. Good afternoon, thanks. I'm curious to hear your thoughts on the commentary from Intel this quarter, who seemed to suggest that the weakness in enterprise server demand and simultaneous strength from hyper scale might reflect an acceleration in enterprise cloud migration as opposed to just an outright sort of decline in demand net-net, which seems to jive, I guess, with what you're saying around your business and major clouds. But the question is how do you see this playing out in the broader co-location space, and maybe if over time you expect more enterprises to come to you indirectly via service providers? Steven J. Smith - Senior Vice President-Sales & Sales Enablement: Yeah, I'll just start and then I'm sure Tom could add some color. In general, I do see more adoption of, really about the hybrid environment, where we see a lot of customers come into our data center, deploying their own enterprise solutions within our data center, and then wanting to connect to either public cloud or private cloud. So, I see that continuing. As I look at just my history and dealing with enterprises across various industries, I see very few that would go to a complete cloud environment. There's always something unique about their systems and back office that they need to have that hybrid environment. So, I think that will continue for some time, but I do see more and more adoption towards those cloud environments, and I think that will continue. Thomas M. Ray - President, Chief Executive Officer & Director: Well I think just – I think we're all speaking toward the disaggregation of the enterprise IT architecture. And I think that's going to – Steve and I both believe strongly, our whole management team believes, that's going to continue. But that disaggregation – that old enterprise IT architecture reconstitutes into very, a lot of different things. You've got infrastructure service, you've got platform and service, you have SaaS. And within SaaS, you've got a lot of different solutions for different enterprise needs and then you have the enterprises' own, a dedicated private cloud for the enterprise, so with the public cloud capability on top of it. So I think we're going to see more and more of that. It's been happening, I think, it will continue to happen. So the big question in our view has always been around the cloud, is it good or bad for co-location? And we've been consistent in our thesis to the street that if the cloud ends up being dominated by two players or three players, who control 60% or 70% of the marketplace, that's going to be bad for the multi-tenant data center. You'll have a shift in those quarter's five factors that customer dominance will shift, and that won't be good. We just don't see that happening. And again, we use the analog to the communications landscape after the Bell's reconsolidated, and you have more communications providers, more applications, more devices, more networks than ever before. And we think cloud is another component of that wave. And if that thesis is sound, more applications, more networks, more devices, then we expect the dynamics throughout our business to remain very robust. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc.: That's helpful. Thanks. And then just a follow up if I may. Been hearing a lot of kind of a pickup in demand from cloud providers for build-to-suit projects with security compliance being a major factor, and particularly in areas where they can find cheap power and decent connectivity. You've done a number of these types of deals for strategics in the past, and it seems like your return experience has been improved a little. I'm just wondering, if you're seeing more of these opportunities pop up in your radar, and maybe if the returns are strong enough for you to consider doing more custom deals, that might be outside of your core footprint? Thomas M. Ray - President, Chief Executive Officer & Director: Well, we've done two build-to-suits both in Santa Clara and both on land that we already owned. And as an old ProLogis guy from I think, a 137 years ago, I think, where you make premium returns in the build-to-suit business is off of your land. The incremental capital that goes into solving a build-to-suit with a large institution, that capital gets priced to the market, and with large companies with good credit and long-term leases, that market is highly competitive for cap rate. So you do see the build-to-suit business as a steady solid business out there, whether it be some infield locations like Santa Clara or the Pacific Northwest and Eastern Kentucky et cetera. Experience just suggests that where you make, the kind of returns we're really seeking is when you control an attractive infield land location. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc.: Okay, thanks very much. Thomas M. Ray - President, Chief Executive Officer & Director: You bet.

Our next question is from John Bejjani with Green Street Advisors. Please proceed with your question.

Good morning guys. Thomas M. Ray - President, Chief Executive Officer & Director: Good morning.

I know you – Jeff, I know you just expanded your credit lines. But you guys now have around $350 million of net debt outstanding and a healthy amount of upcoming development spend? At what point or under what conditions would it make sense to look to tap the public debt markets and further diversify your funding sources?

Yeah, I think, broadly speaking, when you think about the – some of the commentary we gave on the call, John, I think we said based on everything we've announced today we've got total CapEx of about $140 million that is queued up and obviously, we'll be spending through about the second quarter of 2016, with current liquidity of about $240 million, it gives us an incremental $100 million of liquidity. And as we go into 2016, it's obviously something we will look at and consider given the relevant pricing, the flexibility that we'd like to maintain inside the capital structure and obviously the size of the capital need. It's something we'll factor in every time we look at it. But it's clearly been on the table, it just hasn't been the financing of choice to date.

Okay. And then just a couple of small income statement questions, I haven't had a chance to look into. First, is there anything one-time in nature driving the sequential increase in your real estate taxes and insurance? And then second, I noticed your rent expense ticked down a little bit over the quarter. Did you guys give back any space or renew any leases at lower rents or is there anything interesting there?

Yeah. Two things on the real estate taxes and insurance. We did end up recording about, call it $600,000 of incremental property tax expense this quarter. As we continue to work through some of the challenges in the Bay Area around increases in value and ultimately, what is appropriate for them to be billing us, I think it's clear we have challenges every quarter and we're just working through that on a period-by-period basis. But there's about $600,000 in the quarter associated with that. In terms of rent expense, really the dip in this quarter really relates to some CAM reimbursements that came in lower than what was expected from one of our lessors.

All right. That's it from me. Thanks. Thomas M. Ray - President, Chief Executive Officer & Director: You bet.

Thanks, John.

Our next question is from Tayo Okusanya with Jefferies. Please proceed with your question. Jon M. Petersen - MLV & Co. LLC: Hey actually it's Jon Petersen, here. Just a couple of quick questions. I hope I didn't miss this, but in terms of your lease volume, your new and expansion volume in the quarter obviously a lot higher because of the SV6 power base building and SV7 wholesale lease. Can you give us an indication of what the leasing volumes would be, what the $19.6 million would be if you took out those two leases.

I think the combination, I guess, actually for purposes of what we can and can't disclose, Jon, I don't think we can actually give you the amounts just due to confidentiality purposes. Jon M. Petersen - MLV & Co. LLC: Okay, all right. And then maybe the same answer for this question, but maybe you can kind of dance around it, but earlier in response to a question, Tom, you talked about how with the power based lease, one of the reasons you did it is because the return on incremental capital was attractive. So when you say that, is that comparable to a normal co-location development, or you usually expect the 12% plus EBITDA yield. Should we expect a similar or more attractive yield on that investment? Thomas M. Ray - President, Chief Executive Officer & Director: Again, we can't speak to anything that would point too closely to the economics on that lease. But we're just not in the sub 12% business. I don't care what piece of our business it is, it's just not what we're trying to accomplish. And again we said we rank order opportunities based on risk-adjusted returns, build-to-suit preleased have a little bit lower risk, but we have a lot of investment opportunities with premium returns and we try to maintain that discipline no matter what we invest in. Jon M. Petersen - MLV & Co. LLC: Okay. That makes sense and then I guess outside of the economics of that deal, I mean you referred to that tenant as a strategic tenant. I'm curious whether their presence on your Santa Clara campus creates any sort of revenue synergies with the rest of your tenants, whether like you guys can do interconnection or any other reason that that would want people to be located in SV1 through SV5 and SV7? Thomas M. Ray - President, Chief Executive Officer & Director: Well. Look I think Santa Clara is, we all know, it's the heart of the data centers in the Bay Area. And I think that was important to this customer in their site selection criteria. And then in value to our portfolio, this is a larger customer. We have a broad relationship with and being able to serve them in ways that help their company just fosters a good relationship that has benefits for everybody quite broadly. So, excuse me, we're delighted to be of service. Jon M. Petersen - MLV & Co. LLC: Okay. All right. That makes sense. Thanks for your – thanks of the time.

Thanks, Jonathan.

There are no further questions at this time. At this point, I'd like to turn the call over to Thomas Ray for closing remarks. Thomas M. Ray - President, Chief Executive Officer & Director: Well, I just want to say again thanks to everybody for the interest in and support of the company and what we're trying to accomplish and special thanks to the people at CoreSite, working extremely hard and doing a very, very good job. We continue to believe we have a very bright future in front of us and we're going to keep working hard for our investors to execute upon that promise. Thanks again.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.