Earnings Labs

American Tower Corporation (AMT)

Q2 2015 Earnings Call· Thu, Jul 23, 2015

$178.40

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Transcript

Jeffrey S. Finnin - Chief Financial Officer

Management

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…

Operator

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.

Jordan Sadler - KeyBanc Capital Markets, Inc.

Analyst

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.

Jordan Sadler - KeyBanc Capital Markets, Inc.

Analyst

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.

Jordan Sadler - KeyBanc Capital Markets, Inc.

Analyst

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.

Jordan Sadler - KeyBanc Capital Markets, Inc.

Analyst

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.

Jeffrey S. Finnin - Chief Financial Officer

Management

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.

Jordan Sadler - KeyBanc Capital Markets, Inc.

Analyst

Okay. Thank you.

Operator

Operator

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

Jonathan Atkin - RBC Capital Markets LLC

Analyst

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.

Jeffrey S. Finnin - Chief Financial Officer

Management

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.

Jonathan Atkin - RBC Capital Markets LLC

Analyst

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.

Jonathan Atkin - RBC Capital Markets LLC

Analyst

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.

Jonathan Atkin - RBC Capital Markets LLC

Analyst

Thank you.

Jeffrey S. Finnin - Chief Financial Officer

Management

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.

Jonathan Atkin - RBC Capital Markets LLC

Analyst

Thank you.

Jeffrey S. Finnin - Chief Financial Officer

Management

You bet.

Operator

Operator

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

Jonathan Schildkraut - Evercore ISI

Analyst · Evercore ISI. Please proceed with your question.

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

Jeffrey S. Finnin - Chief Financial Officer

Management

Yeah, Jonathan.

Jonathan Schildkraut - Evercore ISI

Analyst · Evercore ISI. Please proceed with your question.

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.

Jonathan Schildkraut - Evercore ISI

Analyst · Evercore ISI. Please proceed with your question.

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?

Jeffrey S. Finnin - Chief Financial Officer

Management

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.

Jonathan Schildkraut - Evercore ISI

Analyst · Evercore ISI. Please proceed with your question.

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.

Jonathan Schildkraut - Evercore ISI

Analyst · Evercore ISI. Please proceed with your question.

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

Jeffrey S. Finnin - Chief Financial Officer

Management

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.

Jonathan Schildkraut - Evercore ISI

Analyst · Evercore ISI. Please proceed with your question.

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.

Jonathan Schildkraut - Evercore ISI

Analyst · Evercore ISI. Please proceed with your question.

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

Operator

Operator

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

Emmanuel Korchman - Citigroup Global Markets, Inc.

Analyst · 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.

Emmanuel Korchman - Citigroup Global Markets, Inc.

Analyst · Citigroup. Please proceed with your question.

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.

Emmanuel Korchman - Citigroup Global Markets, Inc.

Analyst · Citigroup. Please proceed with your question.

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.

Emmanuel Korchman - Citigroup Global Markets, Inc.

Analyst · Citigroup. Please proceed with your question.

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

Jeffrey S. Finnin - Chief Financial Officer

Management

Thanks, Manny.

Operator

Operator

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…

Jeffrey S. Finnin - Chief Financial Officer

Management

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.

Jeffrey S. Finnin - Chief Financial Officer

Management

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

Jeffrey S. Finnin - Chief Financial Officer

Management

You bet.

Operator

Operator

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…

Jeffrey S. Finnin - Chief Financial Officer

Management

Thanks, Colby.

Operator

Operator

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…

Operator

Operator

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

John Bejjani - Green Street Advisors, Inc.

Analyst

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

John Bejjani - Green Street Advisors, Inc.

Analyst

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?

Jeffrey S. Finnin - Chief Financial Officer

Management

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.

John Bejjani - Green Street Advisors, Inc.

Analyst

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?

Jeffrey S. Finnin - Chief Financial Officer

Management

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.

John Bejjani - Green Street Advisors, Inc.

Analyst

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

Jeffrey S. Finnin - Chief Financial Officer

Management

Thanks, John.

Operator

Operator

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.

Jeffrey S. Finnin - Chief Financial Officer

Management

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.

Jeffrey S. Finnin - Chief Financial Officer

Management

Thanks, Jonathan.

Operator

Operator

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.

Operator

Operator

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