American Tower Corporation (REIT)

Greetings and welcome to the CoreSite Realty's fourth quarter 2019 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Carol Jergensen, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you. Good morning and welcome to CoreSite's fourth quarter 2019 earnings conference call. I'm joined today by Paul Zurich, President and CEO, Jeff Finnan, Chief Financial Officer, and Steve Smith, Chief Revenue Officer. Before we begin, I would like to remind everyone that our remarks on today's call may include forward-looking statements as defined by federal security laws, including statements addressing projections, plans, or future expectations. These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons. We assume no obligation to update these forward-looking statements and can give no assurance that the expectations will be obtained. Detailed information about these risks is included in our filings with the SEC. Also on the conference call, we refer to certain non-GAAP financial measures such as funds from operations. Reconciliations of these non-GAAP financial measures are available in the supplemental information as part of our full earnings release, which can be found on the investor relations pages of our website at CoreSite.com. With that, I'll turn the call over to Paul.

Good morning, and thank you for joining us. Today, I'm going to cover our 2019 financial highlights and recap our 2019 priorities and key accomplishments. Jeff and Steve will follow with their respective discussions of financial and sales matters. Our 2019 financial results included new and expansion sales of $55 million, a record which nearly doubled the $27.7 million of annualized gap rent signed in 2018. Operating revenue of $572.7 million, which grew 5.2% over 2018, and FFO per share of $5.10. an increase of $0.04 year over year. A year ago, I shared four priorities for 2019, translating new construction into more abundant sales, acquiring additional new logos, bringing new connectivity products online to increase sales, and delivering a great customer experience and ongoing operational efficiencies. I'll review each of these relative to our 2019 accomplishments. We executed well on our first priority of translating new construction into higher sales. In 2019, we placed 224,000 square feet of data center capacity into service, including 108,000 square feet for the first two phases of SV8, our ground-up development in Santa Clara, and 116,000 square feet of campus expansions in Reston, Los Angeles, and Boston. As a result, we restored our available and developable capacity to 25% in our top five markets at the end of 2019, compared to 16% at the end of 2018. And we used the new capacity to achieve a record leasing year, including leasing 100% of the first two phases of SV8 and 74% of LA3 phase one, a year in advance of its expected completion in late Q3 of 2020. Our 2020 development pipeline continues to be strong, as we expect to deliver at least 196,000 square feet of new projects, including two ground-up developments, CH2 in Chicago and LA3 in Los Angeles, the final phase of SV8 in Santa Clara, and a data center expansion at NY2 in our New York market. Importantly, as we shift in the latter half of 2020 to delivering new computer rooms instead of completely new buildings, our agility and development yields should also increase. Our second priority of acquiring new logos also generated strong results. For the year, we acquired 145 new logos, our highest in three years, attracted valuable new strategic accounts in multiple markets, and grew annualized gap rent from new logos by 50% over 2018. Steve will provide more color on these new logos and their attraction to our hybrid cloud-friendly ecosystem. Our third priority was to bring new connectivity products online to increase sales, which we also executed well on in 2019. We increased participation 44% in the SDN-based open cloud exchange format we launched in late 2018. We added intersite service for connectivity between markets, providing route and site diversity to enterprises. And we continue to expand our relationships with and offerings from key cloud providers with additional on-campus edge cloud products and availability zones. Our fourth priority was to deliver a great customer experience and ongoing operational efficiencies. We achieved several major accomplishments in 2019 that significantly benefit our customers. We achieved an exceptional eight nines of power and cooling uptime for 2019 across our portfolio of data centers. This level of uptime is well above our six nines target and even higher above the five nines industry standard. High uptime is key to minimizing customer disruption and to increasing loyalty. and is especially important for high performance hybrid cloud deployments. In addition to our long term record of customer compliance certifications, we added a new NIST assessment that helps customers meet certain compliance regulations relating to federal government deployments, which helped us win some of our new logos in 2019. We again improved our power utilization effectiveness. this year by 4.8% on a same store basis compared to 2018. Our commitment to ongoing power efficiency improvements helps our customers and us to maintain margins while also making us all more environmentally sustainable. Finally, we deployed a new product in our customer portal which gives customers ongoing visibility into their operating environment to streamline their management of their core site deployments. Our 2019 achievements reflect a capable and committed team of colleagues and continuing strong demand across our markets. Even Northern Virginia, which was slow for most of 2019, saw good traction in Q4 leasing. We did encounter some unusual headwinds in 2019, which offset some of our accomplishments. Our churn was well above our typical range. with heavier lease expirations and terminations from customers with business and service models affected by competition from the public cloud. Importantly, we believe we have significantly reduced our exposure to these types of customers. Meanwhile, abundant supply in Northern Virginia extended the normal J curve on our new development in that market by making large-scale and hyperscale leases unattractive, therefore driving us to focus our leasing efforts near term on retail customers to preserve longer-term returns. As we move into 2020, our priorities are to build on our 2019 successes. Our primary goals this year include, number one, completing on time our new data center buildings in Chicago and Los Angeles and translating that new capacity into sales that build on our market-leading customer ecosystem in LA and create critical mass for our ecosystem in Chicago. Number two, improving on our strong 2019 performance in attracting major new enterprises to our hybrid cloud ecosystem. Number three, thoughtfully expanding our products to help enterprises with their hybrid and multi-cloud needs. And number four, maintaining high levels of facility performance and customer service while continuing to invest in PUE improvements and other sustainability-focused opportunities. In closing, We believe our diverse network and cloud-dense campuses and the interoperability we enable for customers through our ongoing capacity growth, new connectivity products, and superior customer experience position us well to benefit from the secular tailwinds for data center space and the demand for high performance hybrid cloud solutions. With that, I will hand the call over to Jeff.