Greetings, and welcome to the CoreSite Realty's First Quarter 2021 Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Kate Ruppe, Manager of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to CoreSite's First Quarter 2021 Earnings Conference Call. I'm joined today by Paul Szurek, President and CEO; Steve Smith, Chief Revenue Officer; and Jeff Finnin, Chief Financial Officer.

Good morning, and thank you for joining our first quarter earnings call. Today, I will cover the quarter's highlights, and Steve and Jeff will discuss sales and financial results in more detail. We delivered strong first quarter financial results, including operating revenues of $157.6 million resulting in 7% year-over-year growth and FFO per share of $1.40, a year-over-year increase of 8.5%. First quarter sales results included new and expansion leases of $7 million of annualized GAAP rent, which consisted of $6.2 million of retail colocation and small-scale leasing, slightly below the trailing 12-month average and $0.8 million of large-scale leasing. We remain encouraged by our funnel and ongoing customer discussions, coupled with extensive available capacity which makes us more competitive for a wider range of large contiguous deployments. As a result, we expect more large-scale and hyperscale leasing in future quarters, the timing of which is always hard to predict. We will continue to bring together on our campuses, retail and scale customers of various sizes, along with selective hyperscale deployments, in order to both benefit from and to continue to grow the value of our diverse customer ecosystems. Turning to our property development. The LA3 Phase 2 construction project is on track for its estimated Q4 2021 delivery, and we signed a $0.8 million large-scale lease on April 1, not included in the Q1 results, which brings LA3 Phase 1 leasing to 89% just 6 months after being placed into service. We also continue to labor through permitting and power procurement for SV9 and hope to start the site work preceding vertical construction sometime this summer.

Thanks, Paul, and hello, everyone. I will recap our first quarter sales results and discuss the key drivers. We delivered new and expansion sales of $7 million of annualized GAAP rent during the first quarter, which included $3.6 million of annualized GAAP rent from retail colocation leases, $2.6 million of GAAP rent from small-scale leases and $0.8 million of GAAP rent from large-scale leases.

Thanks, Steve. Today, I will review our first quarter financial results and discuss our balance sheet, including leverage and liquidity. As Paul mentioned, we started off the year with strong financial results. Operating revenues of $157.6 million represents 7% growth year-over-year and 1.7% sequentially, including growth in interconnection revenue of 10.3% year-over-year and 1% sequentially, driven primarily by growth in volume of fiber cross-connects. Customer lease renewals, equaling $15.9 million of annualized GAAP rent, which represents a cash rent mark-to-market of 2.3% and GAAP mark-to-market of 6.1%. And we reported churn of 0.8% for the quarter, which marks our lowest level of quarterly churn in more than 3 years, in line with our expectations. Commencement of new and expansion leases of $5.9 million of annualized GAAP rent, revenue backlog consisting of $9.6 million of annualized GAAP rent or $19.3 million on a cash basis for leases signed but not yet commenced, which is inclusive of the large-scale lease at LA3 Phase 1 sign on April 1. We expect approximately 70% of the GAAP backlog to commence in the second quarter of 2021 and substantially all of the remaining GAAP backlog to commence during the third quarter of 2021. Adjusted EBITDA was $86.1 million for the quarter, an increase of 9.4% year-over-year and 4% sequentially, representing an adjusted EBITDA margin of 54.6%. Looking at the trailing 12 months, adjusted EBITDA margin was 53.8%, up 10 basis points from the previous trailing 12-month average. As I've stated previously, the near-term expansion of our margins is dependent on us increasing our overall occupancy to our goal of a high 80s leased percentage and leasing capacity in Phases 2 and 3 of our ground-up developments like LA3, CH2 and VA3, where we generally achieve higher revenue growth flow through, enabling us to scale our operations. Net income was $0.51 per diluted share, an increase of $0.03 year-over-year and $0.05 sequentially. FFO per share was $1.40, an increase of $0.11 or 8.5% year-over-year and $0.06 or 4.5% sequentially. Our Q1 financial results reflect an approximately $0.02 per share onetime benefit, resulting from certain compensation and benefits related accrual true-ups.

Ladies and gentlemen, we do apologize. There were some technical difficulties. However, at this time, we will go ahead and continue and conduct our question-and-answer session. Our first question is with Sami Badri with Crédit Suisse.

Just to kick things off. I wanted to just talk about your cash renewals. And they were probably a bit higher than your annual rate. And I just wanted -- so I hope you guys could break down strength by market. Where are you guys seeing some strength? Where are some markets slightly weaker on the renewable side?

Hey Sami, this is Steve. First of all, I apologize to the whole audience for the delay there. Obviously, some technical issues, but we appreciate you hanging in there. As it relates to renewals, we were a little bit positive to the trend this quarter. And I think you can expect that as we go through the year, there'll be some lumps and some peaks and valleys as we go, depending upon, to your point, market, as well as size of the opportunity, how long they've been with us and the strategic importance of each of those opportunities. So I think that just really speaks to more of the variability of it. But as Jeff mentioned in his prepared remarks, our overall guidance remains unchanged at this point, given that we just do not update guidance typically after our first quarter. As it relates to overall markets, you can see strength, primarily in the Bay Area as well as LA. Virginia as overall stabilized, as we've seen over the last several quarters. And New York is pretty stable as well. So overall, as you look at our pricing trends, you'll see pretty stable results over the trail.

And our next question is from Jon Atkin with RBC Capital Markets.

Steve, you had talked indirectly about other opportunities in the pipeline. And I wondered if you could talk a little bit about later stage, larger deals. And kind of the environment that you're seeing in, say, Santa Clara, Los Angeles or elsewhere, where would you look to see the bigger deals of -- given where you have large chunks of space for sale? And then the MRR on Slide 13, the MRR metric jumped up a bit. I wondered what drove that. And does it kind of stay at that level, or continues to grind higher?

Sure. Well, maybe I could answer the first question regarding the pipeline and what that looks like, and then I'll turn it over to Jeff for the MRR commentary. As far as the pipeline is concerned, in more of the large-scale or hyperscale opportunities, I think it's in the typical areas that you would expect, primarily in the Bay Area and Virginia. But also seeing more scale and larger scale opportunities in the New York area as well. So as Paul mentioned in his earlier remarks, we do have a good opportunity going forward with over 40 megawatts of capacity that we can sell to that are spread out across all of our markets. So in general, I would say that the opportunity is pretty consistently building across each of those markets. Ultimately, we need to convert some of those larger scale and hyperscale opportunities as we go through the remainder of the year. But those will be based off of how they fit within our portfolio, how they value or contribute to our ecosystem, and that remains to be seen. So more to come there, but we're optimistic about where things look for the future.

Hey John, on the second part of the question regarding MRR per cabi, just a quick reminder. Obviously, the first quarter, we're always going to restate our new same-store pool, and so -- at the beginning of every year. So that obviously happened here, just so everybody's aware. In terms of the increase, it was largely driven by growth in our interconnections, consistent with what you're seeing on the overall growth of the company. It was the largest contributor to the growth of that MRR per cabi. As you look forward, I would see that year-over-year growth percentage being at that 2.7%, and trending slightly higher, maybe up to the mid-single digit growth rate. So call it, 2.5% to 5% is what we would expect going through the rest of this year.

And then on SV9, there was an item in the press about just some delays. And I think the Planning Commission kicked it over to the City Council, and there's some -- a little bit of a delay around the permitting. And the underlying issue, I guess, relates to some environmental topics and emissions around the generators. Is that something that is new or kind of something that comes up sporadically and are there other markets where you're seeing that as a possible area of discussion going forward?

Jon, thanks for the question. I mean I think we're seeing the normal vicissitudes around zoning and entitlements in California. We got very fortunate with SV8. It went through a much faster than average pace. I think what we're experiencing with SV9 is more typical. And there have been some changeovers in the people that hold the seats on City Council and Planning Commission, and you see that a lot. But I think in Santa Clara and other markets like perhaps Loudoun County and others, you're seeing growing concern about how much increased data center capacity there is. On the other hand, there's a lot of support for the data center industry, because it's very positive for municipal finances and the economy and the local economy, especially the tech and innovation economy. At the Planning Commission level, the majority of the people that could actually vote, and there were 2 spots that couldn't vote, supported the proposition, and now it goes to City Council, and we're still optimistic that we'll get cleared there. But it is, as I said in my prepared remarks, it has taken longer than what we expected. And hopefully, we'll be through the permitting in the next 2 to 3 months.

And our next question is from Jordan Sadler with KeyBanc Capital Markets.

So just wanted to come back to the hyperscale discussion and sort of final, specifically, as it relates to the backfilling SV7. I feel like that's something we've talked about in the past, I'm not sure if I missed any detail on that. But I feel like we're a little bit past the point of when we would have expected to hear something there. And I'm just curious if there's anything in particular that you'd cite as sort of obstacles in getting something done there? Is it competition, pricing, scale or complexity of the deal? Anything that sort of, would shed some light on what's going on?

Hey Jordan, this is Steve. I guess the first, to just directly answer your question, no, there is no obstacles to fill that space. And as you look at our results coming out of the first quarter, it was primarily around retail and small-scale opportunities. And as I mentioned on prior calls, one of the benefits of having a campus is our ability to really kind of maximize how customers fit into individual spaces throughout that campus in order to drive the best possible utilization and therefore yield of each of those facilities. So that's really where we've been focused. And as we look to the remainder of the year, we do expect to sell more scale and hopefully some hyperscale that fits the criteria, the space that we have and specifically to that SV7 space. So we're still very optimistic on where that's going to land. And I know that there was some discussion and whispers on the street around some potential hyperscale opportunities within that SV7 space. And those things come and go. And right now, we're looking to continue to pursue those opportunities as they represented themselves, but it may be more beneficial for us to make that multi-tenant than single customer going forward. So we'll just see how the pipeline plays out, but we're still very optimistic about how that plays into our 2021 sales and our 2021 results as far as revenue is concerned.

So you no longer expect that to necessarily be a single-tenant backfill?

It remains to be seen, but we're exploring all of our options and not just banking on a single opportunity.

Okay. And then, Steve, maybe for you again, last quarter, we talked about the elongated leasing process and some of the challenges. How would you characterize the trend in your win ratio, on customer proposals?

Yes. Our win ratio is one thing that we do track very closely and look at the various reasons for it and so forth. And we have been trending better in that regard over time. So we look at it by market, by vertical and so forth and try to analyze what the underlying reasons are. There's always a drive to try to improve at that. But at the same time, winning every deal at the expense of earnings is not the best place to land either. So we try to balance all of those things to make sure that we're doing the right thing by our customers, but also by our shareholders. So overall, I would say our win rate is actually improving, and we're just trying to balance that out with the overall pricing yields that come along with it.

Our next question is from Colby Synesael with Cowen & Company.

Just following up on that. I believe the 2021 guidance assumes some level of backfill for SV7 in the back half of this year. And I believe the presumption had been that you would lease that to 1 or 2 bigger customers who kind of get a decent slug of revenue in the door at the same time. I guess, based on where we are in the calendar year, is that becoming in jeopardy, and I guess, to respond to Jordan's question, if you are looking to now maybe do that multi-tenant, is that also going to make it more difficult to achieve what's already been presumed in the guide? And then just quickly, the $0.02 onetime benefit that Jeff referenced, just curious if that had been assumed when you gave your guidance for 2021?

Hey Colby, just let me start with the second question first. The $0.02 had not been incorporated into the guidance. More broadly, to your other question around SV7 and its impact on guidance, I just think it's fair to keep in mind, there's always going to be some puts and some takes in all of our results relative to what we expected as we head into the year. As I mentioned in our prepared remarks, we had a strong start to the year. We're optimistic as we look to the rest of 2021. And I would just say, add some additional commentary specific around guidance more broadly, and that is that our -- over the last years, our -- over the last few years, our cadence has been to provide annual guidance in February with our Q4 call. And then we update that if and as necessary in connection with our Q2 earnings call. Just keep in mind, our expectations relative to the midpoint of our guidance may have changed. But we're just following the practice of many other public companies, whereby we only update when there has been a material change. Just keep that in mind, and I think it's helpful as everyone looks at our results and the guidance for the rest of the year. So I just wanted to make sure I added that additional commentary.

One, and Colby, just to give you a bit more color around single-tenant revenue contribution for the year versus multi-tenant. Actually, as you look at the single-tenant scenario, as Jeff has mentioned in prior quarters, the likelihood of that impacting the very tail end of the year is really what was planned for. But I would also tell you that whether we go single-tenant or multi-tenant, in the case of multi-tenant, it actually opens us up for shorter-term revenue contribution than longer-term revenue contribution. So we can deploy customers much quicker, if we -- in a multi-tent scenario and therefore, drive more shorter-term revenue and likely at better returns. So we're just evaluating all of those various possibilities, but just to give you a bit more color there.

So I mean, just to kind of sum it up then, it sounds like then the way that you guys are describing it is, the first quarter was a solid quarter. You're trending above the midpoint. And while, even if you don't put in a single-tenant into SV7 in the combination of the strength from the first quarter plus potentially bringing on multi-tenant customers earlier would arguably more than offset that potential risk?

I think you said it well.

And our next question is from Mike Funk with Bank of America.

So first on interconnection, if I could. I think last quarter, you said there were a number of puts and takes with volume as well as transition showed relatively solid growth in first quarter, I think of around 10% year-over-year. So did that fall in line with your commentary from last quarter's call? Or were you tracking ahead of growth in first quarter?

Hey Michael, it's Jeff. Yes, specific around interconnection, as you just highlighted, our first quarter growth came in at about 10.3%. When you look at our interconnection revenue growth over the past several years, what has contributed to that growth on a quarterly basis as you've seen roughly 2/3 of it being driven by increases in just pure volume of our interconnection products. And then the other 1/3 really coming from increases in pricing or certain customers migrating to higher priced products. Now when you look at that ratio for the first quarter, that ratio was really driven 80% by volume growth, the other 20% by pricing and customers migrating to higher priced products. So it took a step in the direction we anticipated, and it remains to be seen whether or not it settles in at that ratio or whether the pure volume continues to increase to drive that revenue growth. But that's what we've seen so far year-to-date, but it did step in the direction we anticipated and we'll see how the rest of the year plays out.

Great. And then a higher-level question, if I could. I know you discussed in the past, the need or not having need for having scale outside of the U.S. and then across more markets. Just love to get your updated thoughts on that, and whether or not you're losing deals due to smaller scale versus some competitors who are not having seen kind of geographic reach, love to hear your thoughts there.

Thanks, Mike. I think our thoughts on that are similar to what we've said in the past, with a focus on building the density and scale of the campus ecosystems in our major metro markets. We see plenty of opportunity and plenty of opportunity, more importantly, to sell the value of that ecosystem, which enables us to get ultimately better results. Our better yields are not our target. They're a derivative of creating and selling value in these campus ecosystems in major metros. As I said in the past, there clearly are probably some, I think, in aggregate, smaller opportunities, that, where people were prospects or their service provider just insist on a global footprint. But there are and have been increasing numbers of customers who are deploying globally through cloud and other service providers whom they can access with direct interconnection in our ecosystems. So we continue to feel very strongly about the -- that our strategy has more strengths than the offsets and it continues to perform for us, and we are optimistic about how it's going to perform this year.

And I guess one more, if I could. It's the opposite direction with that. Your thoughts about recycling assets. You've seen very strong demand for data center assets, CBRE showed a 60% increase in data center revenue this quarter. Is there opportunity for some financial alchemy here, to maybe divest some noncore assets and take advantage of those evaluations?

I don't think to any material extent in our portfolio right now. 90-plus percent of our buildings are actively contributing to the value of a campus ecosystem in a major metro area.

Our next question is from Frank Louthan with Raymond James.

What is the pace of new logo adds this year versus last year? And where do you think that can end up? And then secondly, where are you as far as the sales force headcount for the year? And how many do you think you'll be able to grow that by, by the end of the year?

Yes, Frank, this is Steve. As we came out of Q1 there, we closed 32 new logos, and that's pretty much on pace with where we've been in the trail. I think you can expect that to grow slightly over time. And as we look at the overall mix of those logos, we do look to them to be more kind of larger scale opportunities as we go forward, but that remains to be seen. But I think that's probably a fairly rational number. We've been anywhere in the 30 to mid-40s, I guess, over time. And I think that number will remain consistent, although the mix may shift a little bit. As far as headcount is concerned, we've been able to solve for the sales requirements in each of our markets with the current headcount, which is roughly 28 to 30 salespeople that we have out there, with additional support teams that overlay them between sales, engineering, solution architects, channel resources and so forth. And we feel like that's really the right number that we need to meet the business plan as it exists today. We have modified where some of those resources sit and how they report in order to try to get better efficiencies out of those. And we continue to monitor that and make adjustments accordingly.

And our next question is from Michael Rollins with Citi.

Just curious, if you go to the new disclosures over the last couple of quarters, on how you segment deployment size, retail colo, small scale, large scale, hyperscale. And if you look at that relative to the annual rental churn rate guidance range of 6.5% to 8.5%, how does each of these buckets perform or are expected to perform on churn as you look out over the next 12 months or over time?

Mike, it's a good question. I think in addition to the buckets you reference, I think the best way to think about it is the -- our lease distribution table that shows up on Page 14 of our supplemental. And when you take a look at that, you can see that while we have an overwhelming majority of the number of leases sitting in our retail bucket, if you will, the revenue contribution from each of those buckets is actually pretty well distributed, 20% on the low end up to about 27% on the high end. And so as you look at the overall contribution from a churn perspective, it is relatively representative in close proximity to what you see here is the overall composition of that distribution.

And so the churn rate, therefore, is kind of similar in each of these buckets? Or is one significantly lower and one percentage rate significantly higher just because of the velocity of the business?

Now, you're going to get some variability on a quarter-by-quarter basis just based on the mix of when those customers are leaving. But when you look at it on a more -- on a longer period of time, over a 12-month, 18-month period of time, it's going to be fairly representative of the actual composition and equally distributed among those 4 buckets.

And just back to the hyperscale leasing question. How strategic, in the same figure you're referencing, that you have 12 leases with the hyperscale? How strategic are these hyperscale deployments on your campuses to bring in other customers across your different customer verticals? And have you thought about the kind of the cost benefit of becoming more aggressive on pricing to get share of these hyperscale customers?

Mike, thanks for the question. I mean, not all hyperscale is the same. Some hyperscale for edge cloud use cases and especially what we're seeing that we expect will support 5G and other edge use cases in the future, just drive a lot more cross-connect activity and attract and utilize other customers more significantly. Some hyperscale has very low ratios of cross-connect. And so I don't think it's as simple as going out and being more aggressive just to get more hyperscale. I think Steve and his team have done a good job of focusing on getting hyperscale where it's in a market where the value of that hyperscale to the customer is very high. And primarily focusing on hyperscale use cases that dramatically improve our ecosystem.

And just one other quick one, if I could. On the CapEx side, the development schedule doesn't really have a lot in there in terms of actively -- active data centers being built, but the CapEx guidance is significantly larger than that. Are there anything -- any items or any developments that we should just be mindful of on the CapEx side as you move through the year?

Yes, Mike, just keep in mind also, we've got obviously, LA3 Phase 2 that you're referencing is obviously under development. We will be spending CapEx as we roll through the year for that. We also have our deferred expansion dollars that we will incur as we work through the rest of the year. That's really spent throughout each of our markets, small dollars at each of our facilities as we need to add power capabilities or cooling capacity as customers deploy gear, et cetera. So some of that will be embedded into the CapEx guidance as well. I think further, as we work our way through the year and as we have better visibility in terms of where we need more capacity, will bring some additional developments online. And once we have better determination of where exactly that needs to be.

Our next question is from Erik Rasmussen with Stifel.

This more in lines with the hyperscale conversation we've had. But it seems like large-scale has been challenged the past few couple of quarters. And I know you mentioned contiguous space is sort of one of the hurdles there. But are there any other sort of challenges for you to win some of the business from that side of the -- those types of customers?

Hey Erik, it's Steve. No, there really isn't. I mean, it really does come down to fit and timing and how we align in the various markets. If you look at the results coming out of Q1, the very solid results as we -- as you look at the trailing 12 quarters, it's right in line with 6 of the past 12 quarters. So without some of those larger lumps in hyperscale or large scale, which we do expect to see some of those throughout the remainder of the year. It's just a matter of aligning those workloads, as Paul mentioned earlier, not all scale and hyperscale is created equal and how they both value our ecosystem or bring value to our ecosystem plays a lot into how that fit manifests itself. So we do have a promising pipeline, as I mentioned earlier, and we look to execute against that. And we got to deliver those results as we go through the rest of the year.

Okay. Great. And then maybe, just as it relates to your retail business, are you seeing any lingering extension of the sales cycle and push out of projects? Or is this narrative sort of switch to things picking up in activity? And if so, how sustainable is this as we sort of progress through the year?

Yes. I think the complexity remains. IT is not getting less complex. And as you think about hybrid multi-cloud environments, having them interoperate seamlessly is complex. We feel like we bring a unique value to making that easier for customers, both in the services that we have on our campus, the low latency that we provide and make those things happen, that is unique for us compared to other data center providers. But it is a challenging construct for customers to work through. And that does elongate sales cycles. I think that's not unsurprising, and we've seen it over time, but customers are getting better at navigating that. As far as the overall projects and their likelihood of moving forward, I think, especially as the economy continues to rebound, I think, we're bullish about where things sit as far as customers willing to invest in technology and the reliance of that technology to run their business. So I think that bodes well for our position.

And our next question is from David Guarino with Green Street.

Could you remind us of the time frame it takes you to reach that stabilized yield target of 12% to 16%? And if that's changed at all over the past year?

Hey, David. Keep in mind that, that yield, that 12% to 16% is achieved once we work our way through each -- of all the phases of our development. So at LA3, for instance, you're going -- you're not going to hit those returns until you get through Phase 3 substantially stabilized. Our underwriting, just so you're aware, basically has our leased percentage at 93%, and which we basically utilize for our stabilization computations.

It sounds like it's dependent on demand in the market and how quickly you lease the project. But I guess, is there kind of a frame of reference you could add? Is it 3 years on average? Is it 5 or 10 years on average?

Yes. No, my apologies. I didn't answer that part of your question. I would say, it is very dependent on overall absorption and size of the market. I would say, in general, based on our markets, and the overall absorption there is it's probably a 3 to 6 time frame, 3- to 6-year time frame.

Okay, that's helpful. And then just real one quick one on LA3 Phase 2. It looks like the estimated development cost declined by about 25% from last quarter. So was that just a change in design with the facility or a different strategy at the data center?

David, what happened there is, any time we're putting up some development assets, it's really just an example of how we try to be very disciplined around our capital deployment. So some -- about $9 million of that reduction really relates to deferred capital. So that's capital that we may end up spending, but we won't know exactly how much of it until we finish the data center, customers start to deploy, we can see what type of density each of those customers has as well as power utilization. And so that will be spent, some portion of it down the road as we get better visibility into all of that. It just helps with our overall returns earlier and trying to be very disciplined around deploying that capital.

Our next question is from Nick Del Deo with MoffettNathanson.

First, in the past, I think you've talked about getting growth kind of sustainably into the high single-digit range. Do you feel like you're still on track to get there over the hoped for time frame? And then second one for Jeff. Rent expense ticked down noticeably, sequentially. Was that just from LA4 going away or other factors at work?

Let me address the rent expansion, and then Paul can add some commentary on the growth rates here. Now the rent expense declined in the first quarter, largely because we had about $1 million CAM charge come through late last year from one of our landlords. And so it's a bit of a, a little bit of a surprise to us given the timing in which that came through. That's really largely the result of that expense drop. I do want to touch on LA4 because I think it's another good topic. LA4, as you know, we're working with our customers there to migrate many of them over to LA2, and we're in the process of doing that, and we'll continue that effort through the rest of this year. However, because of our decision to shutter in that after the end of this year, we are accruing all of our rent expense that we would have incurred over the next 2 years in this year. So just so as you guys are aware, we are being burdened with that to some extent in 2021. That should drop off by the end of this year. And then Paul, anything on the

You know, Nick, we've been saying for, I think, many quarters that we believe the sustainable growth rate is mid- to high single digits annually. And all the building blocks for doing that appear to be in place, and we're generally executing on them. The big, big difference maker is going to be how well we execute on sales quarter in, quarter out, and how well we support that with the right connectivity products, and other service products to enhance the sales opportunities and the stickiness of our customers and the churn related to that. So far, all of that seems to be progressing as we expected. We continue to make improvements and changes across the board, and we feel pretty good about it.

Our next question is from Richard Choe with JPMorgan.

Just a follow-up on that. What kind of signings would you need each quarter to reach that mid- to high single-digit growth rate?

I mean, I think it really depends on what the value achieved with the level of signings is. But I don't think we would have to meaningfully change from our historical sales rate over the last year or so to -- in order to achieve that. The difference is, are you going to hit mid-single digits or high single digits.

And I guess along with that, part of it is churn and it was a lot lower this quarter. Is this because something in the economy? Or is it the customer base is of kind of higher value one now, and you're kind of through -- after the last portion of later this year of SV7, is churn going to, kind of naturally trend down for you? Or was this just kind of a good quarter for it?

Hey, Richard. Yes, as you noted, our churn, and as I said in my prepared remarks, was the lowest we've seen in 3 years, that reduction in churn this quarter is right in line with what we had anticipated. And obviously is in line with the guidance for churn that we laid out for the year. So as Paul alluded to, it's a great start to the year. I think it helps provide some additional confirmation of where we expected it to be and to come back down to our historical amounts. But there was nothing specific out of it. Obviously, you're going to have some variability on a quarter-by-quarter basis when you have a large hyperscale churn out as you saw in Q4, and that will elevate it. But that decrease is right in line with our expectations for this year.

And our next question is from Omotayo Okusanya with Mizuho.

So quick question specifically on Chicago. There's some data we're tracking, just around kind of absorption trends, vacancy trends and kind of ongoing development trends. I mean just to us, that Chicago has a decent amount of vacancy, fair amount of ongoing development and kind of so, so absorption. So I guess, against that backdrop, again, first of all, I'm not sure if you kind of agree with that. But second of all, against that backdrop, I mean, how do you kind of think about lease-ups for your recent deliveries in that market?

Yes. Thanks for the question. I'll give you some color and then Paul, if you want to fill in any gaps, that would be great. But overall, we're excited to have our CH2 facility online. And as we mentioned in the prepared remarks, to get our first scale lease in there. So with any facility, it's breaking the ice with that first meaningful sale is exciting. And the pipeline actually looks pretty promising for Chicago at this point. There is a fair amount of capacity and development in the Chicago greater area. I think we do have a unique position there, giving proximity of our CH2 facility to the downtown area, the fact that it's connected to our CH1 facility and all of the robust network and connectivity options that are available there. So while there is a lot of options in Chicago, there's very few that have the value proposition that we feel like we bring to the market. And we're seeing the pipeline increase and are still optimistic about the future of that site.

I don't really have anything to add. I think Steve hit the key points on our view of the Chicago market.

Got you. And then are there any market assets where we kind of feel like kind of underperforming relative to your internal expectations and markets that are outperforming?

It's good question, Tayo. I think it -- consistent with what we've said in prior quarters. Virginia is a good market, but supply and demand there is more on the supply side and has been for a few years, although pricing there has stabilized. But it's -- we had -- it was one of our top 3 markets, as Steve said. But it's still a very competitive market. The New Jersey market has improved, primarily, I think, because of the financials and moving out of enterprise data centers. And frankly, we're seeing sort of the same thing in Chicago, with more enterprises looking to move out of their data centers, so. And L.A. and Santa Clara continue to be strong markets for us as well.

And we have reached the end of our question-and-answer session. And again, I would like to apologize for the technical difficulties. Therefore, I will now turn the call back to Paul Szurek for a few closing comments. Please go ahead.

So I think we saw, midway through this call, the importance of 100% uptime. And so I'd like to close the call once again by thanking our really great data center and network personnel who keep our uptime so high and keep our customers getting moved in on-time and able to execute their digital transformation quickly. I appreciate the strong efforts of our sales teams and our sales support team for the solid start to the year and building a base for a good year for sales. I'm encouraged. I continue to be encouraged by the opportunities that we see at CoreSite. We have a lot we need to execute on, but we have a great team to do it with. So that's why I'm optimistic. And I appreciate all of your participation in the call today and your interest in CoreSite. Thanks, and have a great day.

Thank you for joining us today. You may now disconnect your lines. Thanks, have a good day.