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CoreSite Kicks Off Data Center REIT Earnings With Record Q2 Leasing

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CoreSite Kicks Off Data Center REIT Earnings With Record Q2 Leasing
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On July 23, data center REIT CoreSite Realty (NYSE: COR) hosted a conference call to discuss strong Q2 results and update FY2015 guidance.

CEO Thomas Ray said, "In our core focus around the performance sensitive market segment, the location, network and cloud strengths of our facilities has supported and continues to support steady and favorable pricing dynamics."

He was referring to the 1,500 leases of 5,000 square feet or less which represent 90 percent of the total CoreSite in place leases. Ray estimated that this average tenant size corresponded to an average of less than 30 kilowatts, a he believes "…this size segment represents the most profitable segment in our company."

Notably, during Q2 CoreSite also executed two large "wholesale" leases, which contributed to the record leasing activity for the quarter: 1) A 35,000 SF pre-lease at SV-7, and 2) A 136,500 SF powered-shell build-to-suit (BTS) at SV-6, only the second BTS since the COR was listed five years ago.

CoreSite Shares Gap Up On Q2 Results

CoreSite is increasing its 2015 guidance of FFO per diluted share to a range of $2.75 to $2.83 from the previous range of $2.55 to $2.65.

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During the past 52-weeks CoreSite shares have traded from $30.97 - $50.57 per share, and posted gains of 3.25 percent since earnings were announced, despite broader market declines.

Tale Of The Tape vs Peers Past Year

CoreSite has a market cap of $2.4 billion and pays out a dividend yield of 3.4 percent.

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Data center REITs which are network dense and provide cloud computing services have outperformed vs peers focused on wholesale leasing of powered shells or large custom/turnkey build-outs.

Related Link: Why Investors Should Consider Data Center REITs, According To Jefferies

Competitive Landscape

QTS Realty (NYSE: QTS) $1.65 billion cap, 3.2 percent yield. QTS has a "3C" strategy: custom data center builds, colocation, and a growing cloud and managed services segment. QTS has recently acquired Carpathia to grow its base and boost its FedRamp (government agency) business segment.

CyrusOne (NASDAQ: CONE) $2 billion cap, 4.2 percent yield. CONE has a main focus on enterprise data centers for Fortune 500 companies. CONE has recently purchased Cervalis, which greatly expands its efforts in the financial vertical, with its New York/New Jersey customer base.

Equinix, Inc. (NASDAQ: EQIX) $15.7 billion, 2.5 percent yield. Global interconnection giant Equinix has over 6,200 customers, and has invested over $7 billion in its network to create a dominant business ecosystem. Equinix recently acquired TelecityGroup, to bolster its European network.

Digital Realty (NYSE: DLR) $9.6 billion cap, 5.2 percent yield. DLR has a global footprint of 130 data centers, and has the largest group of wholesale customers, including multiple Equinix locations. Digital Realty just announced the acquisition of Telx to jumpstart its interconnection and colocation business. Notably, Digital has a 10-year track record of raising its dividend payout.

Related Link: Now It's Official: A Look At Digital Realty's Strategic Telx Acquisition


CoreSite Overview

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CoreSite Q2 Earnings Highlights

FFO Q2: $0.68 per share, 19.3 percent Y/Y unadjusted growth, and 33.3 percent growth Y/Y excluding one-time items in 2Q14.

Adjusted EBITDA: CFO Jeffrey Finnin explained 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."

Operating Revenues: $81.5 million, a 24 percent increase Y/Y.

Leasing Activity: Executed a record 243,477 SF of new and expansion data center leases, with 44 new logos signed during the quarter.

Occupancy: Increased stabilized data center occupancy to ~90 percent.

Renewals: Rent increased by 5.7 percent on a cash basis, and 9.1 percent on a GAAP basis; rental churn of 1.6 percent.

Capex: "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," according to Finnin.

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