Greetings, and welcome to the CoreSite Realty Corporation First Quarter 2014 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Derek McCandless, Junior Vice President and General Counsel for CoreSite. Please go ahead. Derek S. McCandless: Thank you. Hello, everyone, and welcome to our first quarter 2014 conference call. I am joined here today by Tom Ray, our President and CEO; and Jeff Finnin, our Chief Financial Officer. As we begin our call, I would like to remind everyone that our remarks on today's call include forward-looking statements within the meaning of applicable securities laws, including statements regarding projections, plans or future expectations. These forward-looking statements reflect current views and expectations which are based on currently available information and management's judgment. We assume no obligation to update these forward-looking statements, and we can give no assurance that the expectations will be attained. Actual results may differ materially from those described in the forward-looking statements and may be affected by a variety of risks and uncertainties, including those set forth in our SEC filings. Also, on this 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 that is part of the full earnings release, which can be accessed on the Investor Relations page of our website at coresite.com. And now, I will turn the call over to Tom. Thomas M. Ray: Good morning, and welcome to our first quarter earnings call. Today, I'll discuss highlights of our financial results, review our sales results and update our view of market conditions. Jeff will then present a detailed review of our financial results, development activity and balance sheet position. First, our Q1 financial results reflect continued systematic growth. Total revenue increased 16% year-over-year, led by greater than 20% growth in revenue from interconnection and breakered-amp power and 11% growth in data center rental revenue. Adjusted EBITDA grew 21% year-over-year, and our adjusted EBITDA margin expanded by 220 basis points compared to the year-ago first quarter. FFO per share and unit of $0.49 correlates to a 20% increase over the prior year quarter. This $0.49 of FFO in Q1 incorporates a noncash expense of approximately $0.02 per share associated with the impairment of certain software development investments, which Jeff will discuss in more detail. Excluding this noncash charge, Q1 FFO was $0.51 per share and unit, correlating to 24% growth over the prior year quarter. Regarding new and expansion turnkey data center sales, in Q1, we executed 131 leases, representing annualized GAAP rental revenue of $5.1 million, comprised of approximately 40,000 square feet and an average GAAP rental rate of $129 per square foot. Total sales production of $5.1 million for the quarter is 12% above our trailing 12-month quarterly average and represents a greater than 50% increase over the prior sequential quarter. The $129 rental rate is 13% below our trailing 12-month average per foot. However, when normalized for power density, our Q1 rate was in line with the trailing 12-month average. We were pleased to see our normalized rental rate in line with the trailing year, in light of the greater total sales volume recorded in Q1 and, in particular, 4 larger leases in the Q1 sales mix. Additionally, we are encouraged to see sales volume increase in terms of the number of new and expansion leases signed, with our Q1 total of 131 leases representing a 16% increase over the trailing 4-quarter average and representing our highest number of leases executed in the quarter since we became a public company. Finally, our Q1 new and expansion executions reflect an average lease size of 306 square feet, increasing 12% from the trailing 12-month average. We attribute the increase to the fact that we executed 4 previously mentioned leases, each exceeding 2,000 square feet. Our execution of these 4 midsize leases is consistent with our long-standing goals and business model and is in contrast to the trailing 12 months only due to what we believe to be normal lumpiness in the execution of this size of lease. Reflecting continued strength in our network and cloud verticals, fiber cross-connect volume increased 17% year-over-year, with total connections growing by 9%. We focus upon the growth of fiber cross connections as an important metric for 2 reasons. First, we believe that fiber cross connections represent the true growth engine of the digital world and that their growth serves as a proxy for the health of the ecosystems in place and being developed in our data centers. Second, fiber cross connections, on average, realize unit pricing more than 90% greater than other physical cross-connects in our platform and currently account for more than 75% of total interconnection revenue. As such, fiber cross-connects are the predominant driver of revenue growth in our cross connection business. Beyond our cross connection product line, we were pleased to see continued expansion in our platform from our logical interconnection partners. Specifically, during the quarter, we announced another AWS Direct Connect deployment, bringing Direct Connect availability to our NY2 facility in Secaucus. Additionally, Frankfurt-based DE-CIX added a new deployment to our platform, placing a peering switch in our Reston campus. Importantly, we were pleased to see what we believe is greater success for our switch peering partners in our platform compared to that with most other U.S. data center providers, as reported by a respected public source. Regarding the geographic distribution of sales in the quarter, our strongest market in terms of annual GAAP rents signed in new and expansion leases were Los Angeles, Silicon Valley, Chicago and Virginia. Turning to the performance of our verticals. Our network and cloud verticals together accounted for 61% of leases and 38% of annualized GAAP rents signed in new and expansion leases in the quarter. Importantly, in Q1, we set another record for the number of leases signed in our network vertical. We believe that our strong position in the network and cloud verticals enables enterprises to reduce cost and accelerate performance in our platform, and we are seeing that play out in our Q1 sales results. Specifically, our enterprise vertical accounted for 17% of the annual GAAP rents signed in new and expansion leases in Q1. Importantly, we are realizing strong penetration of the Fortune 500's top computer software and information companies, with nearly 50% of those companies accounted among our current customers, including 9 of the top 10. Finally, with regard to leasing. In Q1, we took a meaningful step toward extending the contracted term of cash flows we expect from our SV3 facility in Santa Clara. To that objective, we executed an agreement with our customer at SV3 to restructure its lease, creating a win-win for both parties. The restructured lease enables us to recapture salable capacity in the building in phases, retain a component of the economics of the original lease, reduce the rental obligations of our existing customer in this space and enable our existing customer to relocate some portion of its capacity to other locations across our portfolio, subject to certain parameters. Following the execution of the restructuring agreement, in early Q2, we executed a new lease with one of our other customers for over 28,000 square feet at the site, or approximately 57% of total capacity. The new lease has a 5-year term and is with one of our current global ICT customers as it serves a global end user, who will be new to our portfolio, establishing and strengthening a set of relationships with great additional promise for all 3 organizations. Regarding sales staffing, we are now 83% staffed in terms of frontline sales reps on board with the company. After considering the extent to which newer reps are not yet fully off-ramp, the quota coverage of our current team correlates to approximately 60% of where we expect to finish 2014. In terms of the geographic distribution of our frontline sales reps, we are substantially staffed in each of our markets with the exception of our New York campus, where we currently have approximately half of the quota coverage in place, relative to what we target to have in place at the end of this year. Turning to our view of the markets where we participate. We do not see material changes from our last update in February. We continue to believe that Northern Virginia may see moderately softening rents for undifferentiated requirements, as the number of suppliers has increased and sublease exposure weighs on the market. Chicago is exhibiting strength in the prospect for improving rents, while we see Greater New York, the Bay Area, Los Angeles, Boston and Miami as substantially consistent with last year. Our objective remains to focus our sales efforts upon differentiated opportunities that benefit from the network and cloud advantages we built into our platform, which we believe bring attractive interconnection and breaker-amp power revenue to our company. In addition, we continue to expect to augment our company-wide performance system strategy, with a near-term objective of executing a limited number of larger leases in our new buildings in Secaucus and Reston to accelerate occupancy in these new sites. As we look to the remainder of this year, our focus is well-defined and simple: execute our business plan and drive occupancy in our existing platform and markets; and capitalize upon the strong internal growth opportunity before us. Specifically, we believe that inherent in our existing assets, we have the ability to more than double the amount of leased square footage in our company, with that growth coming at an attractive incremental cost and return on incremental investment. Pointing toward our execution on our growth opportunity, we're encouraged by the momentum that our sales team established in Q1, and we believe we are well-positioned to build off of that. That said, we still have work to do in building out our sales team, particularly in the Greater New York area. Also, we see an opportunity to streamline our technology systems and internal processes, and we remain committed to that goal. Put simply, we believe that our future is bright, and that in Q1, we took meaningful steps towards accelerating our execution on the promise before us. With that, I'll turn the call over to Jeff. Jeffrey S. Finnin: Thanks, Tom, and hello, everyone. I'll begin my remarks today by reviewing our Q1 financial results. Second, I will update you on our development activity, and third, I will provide an update regarding our capital investments and our balance sheet and liquidity capacity. As a reminder, last quarter, we provided enhanced disclosures in our quarterly supplemental around the components of our operating revenue to provide more transparency into data center revenue trends. Many of my comments regarding revenue will relate to data center revenue performance, which can be found on Page 12 of the quarterly earnings supplemental. Our first quarter data center revenues were $61.7 million, a 3.9% increase on a sequential quarter basis and 16% increase over the prior year quarter. Our first quarter data center revenue consisted of: $50.9 million in rental and power revenue, up 2.5% sequentially and 13.5% year-over-year; $8.1 million from interconnection revenue, an increase of 2.5% sequentially and 22.6% year-over-year; and $2.8 million from tenant reimbursement and other revenues. Office and light industrial revenue was $2 million, substantially consistent with the fourth quarter, and an increase of 6.5% year-over-year. Q1 lease commencements represented $3.8 million of annualized GAAP revenue, comprised of approximately 28,000 square feet at an annualized GAAP rate of $134 per square foot. Renewals in the first quarter totaled approximately 22,000 square feet at an annualized GAAP rate of $159 per square foot, and represented mark-to-market growth of 4.7% and 9.4% on a cash and GAAP basis, respectively. Churn in the first quarter was 1.2%, in line with our expectations of 1% to 2% per quarter. Our backlog of projected annualized GAAP rent from signed but not yet commenced leases is $5.7 million. We expect approximately 85% of the backlog to commence in 2014. Our first quarter FFO was $0.49 per diluted share and unit, flat on a sequential basis and an increase of 19.5% year-over-year. During the first quarter, we recorded an impairment charge of approximately $920,000 or $0.02 per share to FFO. This charge is related to our ongoing IT initiatives and, more specifically, to internal-use software previously under development. Specifically, during the quarter, we elected to discontinue internal development efforts associated with certain software applications and, instead, pursue implementation of commercial, off-the-shelf software. Q1 adjusted EBITDA of $30.1 million reflects an increase of 6.1% sequentially and 21.4% over the same quarter of last year. As Tom mentioned, in the first quarter, our adjusted EBITDA margin increased 220 basis points to 47.2% of total operating revenues. This represents annualized revenue flow-through to adjusted EBITDA of 61%. Sales and marketing expenses in the first quarter were approximately 5.6% of total operating revenues, down 10 basis points sequentially and below the estimated range of 6% to 6.5% that we previously provided. This decrease is due to the timing of hiring sales and marketing resources. We expect sales and marketing expenses for the year to be closer to the lower end of the range we previously provided. Our G&A expenses were 13.5% of total revenues, up 200 basis points from the previous quarter, primarily due to the impairment charge I discussed previously and, to a lesser extent, a charge associated with the elimination of the Chief Operating Officer role, which we discussed on last quarter's call. Going forward, we expect G&A expenses to be approximately 11% of revenue. As shown on Page 18 of our supplemental, we spent and expensed $2.3 million during the first quarter related to ongoing repairs and maintenance, in line with the average amount spent over the trailing 12-month period. As of March 31, 2014, our stabilized operating data center portfolio was 83% occupied. Including leases executed as of the end of Q1 but not yet commenced, our stabilized data center occupancy rate would be 84.7%. I will now discuss our recently completed and ongoing development activity across the portfolio. At NY2 in Secaucus, New Jersey, we completed Phase 1 construction by delivering 2 additional computer rooms in March. As of the end of the first quarter, we have approximately 53,000 net rentable square feet of data center space at NY2 in our pre-stabilized pool, including the 18,000 square feet placed into service at the end of the fourth quarter. We have seen good momentum in leasing activity at NY2, with the first computer room now over 75% leased. At LA2, we delivered 33,700 square feet of turnkey data center capacity in the first quarter, all of which is now reflected in our pre-stabilized pool. We developed the additional computer room at LA2 in response to solid demand in that market, which, as Tom noted, was again our strongest market in terms of GAAP rents signed and number of leases executed. At our Reston, Virginia campus, we now expect to complete the first phase of our VA2 development late in the third or early in the fourth quarter as we timed the delivery of additional space to meet market demand. We continue to see solid demand for colocation capacity in Northern Virginia, with data center occupancy at VA1 up 260 basis points over the last 12 months. As we've discussed previously, as 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 the amount of operating expense. To provide increased transparency, we have included the percentage of gross interest capitalized on Page 20 of the supplemental. As you think about your models for 2014, keep in mind that we expect the capitalization of interest to decrease to approximately 40% to 50% of total interest expense incurred. Turning to our balance sheet. As of March 31, 2014, our debt to Q1 annualized adjusted EBITDA is 2.2x, and if you include our preferred stock, it is 3.1x. We anticipate our leverage to increase as we continue to execute our capital spending plans related to development activity. We continue to target a stabilized ratio of debt plus preferred stock to annualized adjusted EBITDA of approximately 4x. As of March 31, 2014, we had $160 million drawn on our credit facility, with approximately $236.6 million of available capacity. As we mentioned on our February call, in January, we entered into a $100 million 5-year senior unsecured term loan and executed a $100 million interest rate swap agreement to fix the rate in order to protect against adverse fluctuations in LIBOR. These transactions enabled us to retire the $58 million mortgage on SV1 and pay down a portion of the revolving credit facility, leaving us with ample liquidity to fund our development activity and growth plans for the remainder of 2014. Finally, we are reiterating our 2014 FFO guidance of $2 to $2.10 per share and OP unit, as well as additional guidance metrics we disclosed with our fourth quarter earnings call. A thorough summary of all 2014 guidance items can be found on Page 21 of the earnings supplemental. I would remind you that our guidance is based on our current view of supply and demand dynamics in 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 have discussed today. Now we'd like to open the call to questions. Operator?

[Operator Instructions] Our first question comes from Emmanuel Korchman from Citi.

Jeff, if I'm looking at your capitalized leasing commissions, they look kind of high in the quarter, especially on a sequential or year-over-year basis. Could you help us figure out what that is? Thomas M. Ray: Yes. You might recall in the second half of 2013, we renewed our primary lease here in Denver. That Denver facility was part of the Confluent acquisition back in April 2012. As a result of that renewal, we were -- are now able to go and renew those customers inside that particular data center. And we've got emphasis and particular focus on getting that done here in 2014. And as a result, that led to the increase in the run rate associated with those lease commissions. I would say that on average, you could see those lease commissions on a quarterly basis being somewhere between $2 million to $4 million per quarter through 2014 as we get those leases renewed in Denver.

Got it. And then I think you guys have spoken in the past about increasingly using a channel partner program alongside increasing the quota of sales staff. Have you seen any progress in that program? Thomas M. Ray: We have. I don't have the data at my fingertips, Manny, but I think our channel production in Q1 was roughly double that of the trail. I wouldn't describe -- I wouldn't position that as a permanent increase in the run rate, although we do think we can get to that point, but the short strokes are we had a very good Q1 in terms of the channel. But I think that there's a lot of lumpiness in that outperformance. At the same time, we have been pretty methodically adding to our channel capabilities. Number one, signing agreements with new partners, that's been going very well. And now we're well into the process of training them, getting them up to speed on our product catalog and pricing and us doing the same with them so that the organizations can work effectively together. So yes, we have seen very good channel results in Q1. And that process of building that team continues.

Got it. Last one for me, Tom, and correct me if I'm wrong here. I think you talked about the undifferentiated product landscape in a few different markets, including New York, New Jersey, as sort of being weaker. And then at the same time, you spoke about filling part of your space with larger requirements in, at least, in New York markets, if not the others. How do I reconcile those 2 statements of -- there's lots of product that suits that sort of large customer, but that's the customer you're targeting? Thomas M. Ray: Yes. I mean, you reconcile it just by NPV and IRR-based math. In New York and Virginia, I mean, to make this as clear as we can, we do expect to sign some larger deals that are probably going to be at pretty low rates. And if those markets, we were -- our assets there were 80% full, and as such, most of the capital that we'd outlaid in the market was already being productive, and we had a small amount of available capital deployed not yet leased, we would not go look to go to those deals. But in each of those markets where you have a large new development with a lot of run rate, as we've said, ever since we've been public, we found it advantageous. We found that NPV and IRR are positive to go out and sign -- to move velocity faster in a new development. What we are not interested in doing, what we try to avoid, is signing low rent deals without breaker power without a lot of cross-connects for -- when the tenant can tie up the space for 15 or 20 years. So look, if we can go to a 5-year deal that -- and the economics of that deal are highly to produce a strong return on the next tranche of capital to build out in that same building, our investors win. So that's been our model for 15 years. We've been very effective at what we call warehousing inventory with wholesale users until it's time to recycle back into our resale program. And early in the life cycle of large new developments, that's how we've always played the game, and we don't plan on changing that.

Our next question comes from Jonathan Schildkraut from Evercore. Jonathan A. Schildkraut: A few here, if I may. First, Tom, can you remind us from a competitive perspective, who you see most often out in the marketplace and how you differentiate against that next closest competitor? And then the second question has to do with sort of the cloud and enterprise verticals. You guys have done a very nice job of sort of building up a critical mass of cloud platforms; the AWS announcement today along those lines. And I'm just wondering if you're starting to see the sort of the second generation of demand coming in from the enterprises that want to take advantage of sort of the security and the consistent performance by dropping a cabinet into one of your data centers to access those cloud platforms. Thomas M. Ray: Regarding who we compete against, look, in each of our markets, we most strongly compete against the colocation provider that has the most dense interconnection offering, the best ability to offer high-performance solutions to performance-oriented apps and workloads and the best ability to connect lots of people and, as such, reduce operating cost. So in general, you see Equinix and, by market, other companies that are very strong, and those are the guys we compete against. And how we differentiate, look, the first differentiator -- the first and most important differentiator is again for the rest of the market. It's location, location, location. It's being on top of lots of networks, and it's having a business model that drives more and more networks, more cloud providers and more capability into the data centers. So the key differentiator is against everybody else. And then how do we differentiate against -- if we're the #2 solution in the market in terms of network density and cloud density, we really do look at it of how -- what percentage of workloads and applications will see a difference in performance between us and the other guy? And we actually think that percentage is quite low in most of our markets. And so our objectives are to drive customer service and provide the best experience in our marketplace. And we think we have an excellent reputation and a very good relationship with our customers around how we serve them. And secondly, I think we are an attractive, all-in value. We -- I think we've stated before that our all-in price point per unit of capital deployed is, in some areas, lower to substantially lower than the price point of whoever the incumbent might be in that area. And so as we've said for a long time, we can still make a tremendous amount of money and get very good returns relative to the past. And we have room to run around that while still providing our customers a very strong value. So the key is understanding the application and being able to communicate with the customer, "Okay. Somebody has 280 networks, and we have 50. Does that difference really matter to you for what you're doing here?" And we find that, that discussion has legs. What was the other question, Jon? I'm sorry. Jonathan A. Schildkraut: It was on the enterprises showing up to take advantage of the cloud platforms that have been set up inside your facilities. Thomas M. Ray: Yes. I think our experience is similar to the other guys in our space, as well as the cloud guys themselves. It is working. We're seeing it, and it is accelerating. But it is -- it's not going to revolutionize our portfolio and our sales results over the next 12 months. We are seeing growth of cross-connects that is disproportionate to that of other users. We're seeing growth of cross-connects to our larger cloud partners, and we're seeing that rate of growth beginning to accelerate. So all the arrows are moving in the right direction. But it's not going to change the world overnight. And I think that's what you see from Racks and the other guys, right? So I'd say our experience is similar to the market.

Our next question comes from Jonathan Atkin from RBC Capital Markets.

I was wondering if you could talk a little bit about your sales headcount versus your targets in light of the recent leadership transition in both sales and marketing. And then in Virginia, 2 questions. One is the DI-CEX deployment. Is that just a good solid win for you, kind of a one-off? Or do you view that as a magnet for incremental business that would come to you, either in the way cross-connects or just new cabinet-type deals? And then in light of the -- again in the Virginia market, in light of the Yahoo! situation and then CyrusOne opening up space later this year, yourselves opening up space, are you seeing delayed decisions by enterprises, maybe awaiting better price points as a lot of inventory comes into the market? Thomas M. Ray: Sure. I guess -- what was the first question? Jeffrey S. Finnin: Head -- sales count. Thomas M. Ray: Sales count -- the sales staffing. So we're -- look, I think we're making solid progress. Again the bodies in place are up 21% from when we last talked. Of course, those new bodies in place are not offramp, so they don't really add much to quota coverage right now. I think in the big picture, number one, the rate at which we are adding salespeople and getting them trained and making them productive and the rate at which we're increasing quota and productivity around quota has gone up over the last quarter. Steve Smith has been an extraordinarily strong hire and the vice presidents who've been here for a while and are working with Steve, are really producing, as are their people. So I guess, we just let our Q1 results stand for themselves and we look forward to working to build on that. Separately, we've tried to be transparent about where do we expect to drive quota coverage during the year, and we expect to drive that up substantially. So I don't know what else I can add on that, but if you want to follow on a question on that, feel free before we move on to the next topic.

That's fine. So DE-CIX then? Thomas M. Ray: DE-CIX is kind of in the middle of what you said, Jonathan. I think -- we're very pleased to have them as a partner. We're pleased to have all of our public Swiss peering partners in as many of our data centers as they want to come into. It's additive to the value of our data center on the margin. It's nice. At the same time, it doesn't change the world and it -- having those partners in next to our Any2 Exchange is not meaningful to us in terms of our profitability or our stickiness with our customers. Having the European exchanges provide greater connection over to Europe is a service component that is nice to add to our portfolio, and that's it. Nothing more, nothing less. Jeffrey S. Finnin: Last one's the Yahoo! and CyrusOne, whether or not it's weighing on the market. Thomas M. Ray: Virginia, look, we just -- yes, I think -- I don't know that I've seen enterprises making decisions more slowly. I just think rents are softer in Virginia now than they were 1.5 years from now, and we've been calling that out and it's playing out the way we expected. I can't say I've seen a change in leasing velocity, but perhaps this is not transparent to me off of our data.

And if I can just follow on another East Coast question, with New York, too, given the activity there, which industry verticals -- is it broad-based or does anything kind of stand out in terms of the type of business that you're getting there? I imagine there were a lot of carriers that connect into your building initially. That might account for some of the leasing -- the volumes. But apart from that, any particular verticals stand out? Thomas M. Ray: Not really; I think you hit it. Again, we attack each new data center with a business plan of building value in it. So you start with the networks and you start working to bring clouds along with them. And so in terms of number of lease signings in the early days, that what has happened and it's been -- frankly, it's exceeded our expectations. It's been really good. Now with a very nice base in place, we're seeing a very broad set of demand from enterprises, including healthcare, in particular, and financial services in particular. No, not high-frequency trading. We've been clear, we don't expect to take that away from anybody else. But there are other aspects of that business that we are seeing in our funnel and we've seen nice movement from content. So it's -- if you think of it -- again, we look at it kind of this 3-legged stool of networks, clouds and then enterprises. And we talk about enterprises as separate from how we term enterprises or the content guys. Other people might call them enterprises, we could show an enterprise sales number of 50% of sales if we reconfigured our definitions. But the way we define it, we have content. That is very strong in the greater New York area. And then we have enterprise and that is doing very well for us in New York, in terms of the funnel and what we're seeing. So it's broadly based. And that evolution, once you establish some network and cloud density, toward those other verticals is a natural evolution that we've worked to achieve in each of our markets.

Our next question comes from David Toti from Cantor Fitzgerald.

Questions for you. The first has to do with sublease space, and my understanding from talking to different industry participants is that there's likely more sublease space coming on the market, probably more at the wholesale level. Do you see significant amounts of sublease space within your portfolio? And what are your expectations for that going forward? Thomas M. Ray: I think the only material sublease space I'm aware of, and frankly, it's the only sublease space I'm aware of in our portfolio is the space at SV3 in Silicon Valley. And we just took 57% of that out of the market on a 5-year term with the new customer. So we've been consistently clear for 2 years that our tenant -- our customer at SV3 isn't using a portion of their capacity and that at some point in time, we expected there to be something smart to do whereby everybody would win. And in early Q2, we -- in Q1, we executed an agreement with that customer that gave us the flexibility to go do something smart. And a couple of weeks later, we signed an attractive new lease with a customer that bid smart. It -- that set of events is NPV positive to our company, and we believe it's an attractive win for both the existing customer at SV3 and the new customer at SV3. So in our portfolio, with that building, and we've taken 57% out of the market. And we have 2 years to address the remaining 43% and now we have a mechanism in place to go do that freely where everybody can win. So we feel very good about our sublease exposure. We feel like it's small and we feel like we're in the driver's seat to be smart about dealing with it.

Okay, that's helpful. My other question has to do with sort of capital flows within your subsector. And if we step back and we look at development nationally, it would seem that development supplies are tapering, private equities pulling out of some of the more speculative construction of the merchant building. Number one, is that true in your perspective? And number two is, are you seeing more capital then move into acquisitions? And has the acquisition market changed, in your mind, in terms of there being more bidders and potentially some compressed cap rates in certain markets? Thomas M. Ray: So I think in terms of number of new entrants, I think that has cooled somewhat. We don't see as many new startups with $300 million of private equity money or $150 million of private equity money. That has not happened as much now as it did a couple or a few years ago. I think that the publics continue to bring capacity to market like production builders, and I haven't really seen a change in that. I don't know any of the larger publics who's saying, "In market X or Y, I'm completely out of the space. And I'm not going to bring any more to market." I think, practically, I'm not seeing anything really different from the public guys, and there you have it. On acquisitions, I think that -- I don't -- there are always small deals for people to look at. But some of those trades, I don't think many of them trade into data center guys and colo guys like us. They trade at either to PE guys or to telcos, that kind of a thing. And I don't really see the acquisition landscape as materially different. There'd be -- the reports of impending huge scale consolidation in our industry have been out there for about 3.5 years. All I can say is we get up every day and go to work and try to create value, and that's what we focus on.

Our next question comes from Colby Synesael from Cowen and Company.

Two questions, if I may. A lot of headlines this past quarter about price reductions at public cloud providers, AWS, Google and Microsoft, Azure. Just curious, when you see stuff like that, how do you think about that as it relates to potentially impacting your business? I guess one could argue that with AWS direct connecting some of your facilities, the more demand the AWS sees, the more benefit that is to someone like yourself. But is there also a negative potential impact to that, and just kind of your thoughts on how you think about these things and how it overall impacts your business? And then, I guess, the second part, speaking specifically about Secaucus and Reston and the desire to fill that up with what you've just called, I guess, more wholesale or larger footprint type of space to kind of fill up those facilities. Just for point of clarification, are those going to be wholesale type deals, where there is no real value proposition to the ecosystems that you built into those facilities? Or did I hear you correctly that you're actually looking for customers, that may be taking large space, but also value that aspect of your business and still could ultimately become very sticky customers over time? Thomas M. Ray: Sure. On the first one, compressing -- perhaps, compressing margins for the cloud guys, I think its impact on our industry is a function of the business model of the companies with the industry. We really focus on the part of the cloud service provider architecture that is oriented towards accessing a large volume of customers and being on top of a lot of networks that support that, and where performance matters to them. And there's a component of their architecture where that does matter and we've seen our pricing hold up just fine in that and I don't see it changing meaningfully. I haven't seen it change meaningfully, if at all. I think the other component of the cloud service provider's architecture that is, perhaps, more traditionally thought of as wholesale, a big block of space. Those guys are very intelligent buyers. And to the extent they gain market power, I think that will -- can have an impact on the wholesale sector. At the same time, I mean, I think those guys have been achieving quite favorable, customer-friendly rates for a couple of years now. And I don't see it going a lot lower. You just -- I would think for the wholesalers, you reach a point where you're just going to say no to putting capital out for that use. So I mean, that's how we look at it. I think, for us, we -- the cloud has been very good for our business and we think it will continue to be so, but we're not trying to land every piece of all -- of each cloud service provider's architecture. Regarding Secaucus in Virginia, I want to be clear, we're absolutely not trying to fill up those buildings with wholesale users. We're -- if you -- the Secaucus building is a plus or minus 20-megawatt building. I can see us going out and getting 1/3 of that leased. If we can get 1/3 of that leased on 3- or 5-year deals, that is going to be NPV, cash flow, IRR-positive to our company, but we do not want to load up those buildings as wholesalers. We're -- we didn't go there to be in the wholesale business.

Okay. And I guess, just one quick follow-up to the cloud question. Do you have -- what about, I guess, the risk that there's actually some customers that have chosen to go to the colocation route, who may potentially now look at the pricing at an AWS and ultimately change their mind, at least for a specific application, and ultimately change how they purchase services to go less to colo and more to actually directly purchasing from a cloud provider. Is that something you've seen in your business in the past? And is that something that you guys spend much time on thinking about? Thomas M. Ray: Well, we've seen it go both ways, and it's a fair point, and it's -- it does happen. It also happens and I think today, we've probably seen it balance, where somebody is purchasing cloud services with an AWS and then they reach a certain level of scale, where they rolloff and go hybrid, and then they take colocation space. So I look at the general dynamic, kind of like I've looked at Moore’s Law in our industry for the last 15 years. There've always been dynamics, a component of which will point toward less demand, right, for our business. But there've always been other dynamics that point toward greater demand. And we've -- throughout all of these changes, we've seen demand grow very, very consistently. I would say 5 years ago, we worried a lot about what you've just described and we've done a tremendous amount of work around it. And we paid a lot of attention to it and we're actually very comfortable with it now with the -- the cloud has been a friend, and we expect it to continue to be so.

[Operator Instructions] Our next question comes from Barry McCarver from Stephens, Inc.

I think you've got most of my questions, but I just wanted to clarify a couple of things. On the restructuring of the lease for SV3, is that going to have any -- a lumpy effect on churn during the year or do you think that will be pretty evenly spaced out? Jeffrey S. Finnin: Barry, in terms of the churn, we don't think it will have an impact. As Tom talked about in his prepared remarks, most -- or the customer has the option to take some of that deployment and relocate in some of our other markets. And as such, if it's advantageous for them to do so, we think that, that might be the end results. We don't think it will have much impact on the churn. Thomas M. Ray: Sorry, I'm going to -- my CFO should kick me here, but I think it -- I think we'll be adding 20,000, 25,000 feet of churn into the system over the next 2 years, with the chunk of that in this year, maybe half of that this year was -- we hadn't built it in. It's not net churn, right, because it's already back-filled with a new lease. But in terms of gross churn, yes, I mean, we didn't factor the technical departure of that SV3 customer until 2 years from now at the end of their lease. Now that churn out will hit our gross churn number. But on a net basis, it's -- again, it's a positive to us. If it's a loss in terms of square footage, it's a positive in terms of cash flow.

That's very helpful. And then just secondly, talking about larger deals, not necessarily wholesale deals. I think we kind of beat that to death. But last quarter, you mentioned the fact that creating opportunity to bring larger deployments in was something you were focused on. Can you talk about the mix of business this quarter and maybe the pipeline for some larger deals? Thomas M. Ray: Well, I think the big picture was in the latter half of 2013, we just didn't sign any, frankly, even many mid-sized deals, much less larger ones. And in Q1, we kind of saw a return to normalcy of -- and we executed a handful of 2,000-foot, 1,000-foot, 1,500 square-foot deals, which maybe those are 100-kilowatt to 200-kilowatt deals each. So these are mid-sized deals that for whatever reason, we just didn't execute on them in the second half of Q3. We have a long history of executing very well on them and we're pleased that in Q1, we again executed well. In terms of larger deals -- in terms of that business, we're optimistic that: number one, our productivity in close rates around those deals has returned to norm; and number two, that by adding more resources during the year, we're optimistic that we'll actually be able to drive sales around that up a little bit, again, by the end of the year. As for the larger deals, after 14, 15 years in this business, I've just learned that they are lumpy. There's just no way to forecast them. Our funnel is, I think, stronger around that than it's been in some time. But you never know until deals are signed. And I would -- I want to go back to the churn question. I think what we'll start doing -- what you'll probably see from us this year is you might see us report churn with, "Here's churn and here's churn excluding that one lease." And I think churn, excluding that lease, is not going to be any different than what we had been forecasting to the Street. But we'll just need to be clear about the delta with this new restructure.

Our next question comes from Jordan Sadler from KeyBanc.

I wanted to just follow up on the guidance and as it relates to SV3, specifically. So 2 points here, one, your -- you did $0.49 of FFO and then you had a $0.02 charge related to the impairment. But there was also -- was it $0.02 related to the departure? So was it safe to assume that the clean number, if you will, would've been a $0.53 number, Jeff? Jeffrey S. Finnin: Yes, Jordan. Yes, you're right. We had a $0.02 impairment charge, as we alluded to. And then if you look at the full quarter of 2014 as compared to the full quarter of 2013 for that departure, it's really about $400,000 in -- for the full quarter, difference this quarter over last. That was largely offset by with a couple of lease terminations that we received during the quarter, but it's about $400,000 for that particular departure. Thomas M. Ray: Jordan, I think at a high level, you see the onetime cost of eliminating the COO position is essentially offset by other one-time gains, so scattering of onetime gains in Q1. And so the real delta is the $0.02 impairment on the software. And then separately, I mean -- it would be normal to say, "If your run rate is $0.51, then why did you move guidance up?" And I think that it's important to discuss quickly here. We continue -- right now, we're still evaluating the rest of our software. And so we just -- we have uncertainty as to whether we might -- as to how much longer we're going to use certain things. We just have uncertainty. So on a core basis, excluding any of those, any of that variability, there might be a little bit of upside to the midpoint of our guidance, but we're just not clear yet on those other issues. And so we stand by the guidance we've given and we're confident right now we'll make it.

Well, I'm not going to let -- that wasn't going to be my question. So I'm going to make that your question about the guidance going higher, Tom. But in terms of the actual SV3 economics, can you kind of share a little bit more with us as it relates to that specifically? What did that look like? I mean, I assume that was 21 -- 2901 Coronado? Thomas M. Ray: The SV3 is 2901 Coronado.

And so that was a legacy lease at a big number. Tenant was expiring in the '16 and '17. What was the mark-to-market on that 28,000 square feet? Thomas M. Ray: Yes, we won't disclose any specific economics about either lease, the new one or the old one. We will say, we were able to offer an aggressive, a customer-friendly rental rate for the new customer, by which CoreSite, the new customer and the old customer, all came out ahead of where they otherwise would've been. And we wouldn't...

A lease termination fee sort of helping to ease the pain there a little bit? Is that the right way to think of it? Thomas M. Ray: The old customer, the prior customer will continue to pay some degree of rent. And so the net of the new rent and old rent is favorable compared to the old rent. And I think comparing to mark-to-market, it would be strongly negative, but we would not have done this aggressive of a deal at this point in time but for the totality of the circumstances, putting all these pieces together. And again, that's what we've been trying to say forever. We're confident there'll be a chance for us to do something smart, and we believe we just did.

And the expiration, the remainder of the original lease, is that now a '17 or a '16 departure? The other 20% -- the 50% -- the 43% that was not dealt with. Thomas M. Ray: 2/3 of what remains are in '16 and 1/3 of what remains is in '17.

Okay. Will we see a lease termination fee in the second quarter or third quarter, or not necessarily? And we saw in 1Q, and that's it? Jeffrey S. Finnin: Yes, that -- Jordan, that lease termination fee in the first quarter was not associated with the particular transaction Tom's talking about at SV3. And again, as Tom alluded to, there will not be a lease termination fee going forward that you'd see on a one-time basis.

Our next question comes from Jon Petersen from MLV & Co. Jonathan M. Petersen: I have a feeling, at some point this year, everyone's going to know -- want to know exactly how much exposure each of the data center leases has to high-frequency trading. My understanding is you have a very minimal exposure, but I just wanted to get you on the record saying that. But then also, Tom, get your overall kind of macro thoughts on if that business goes away or contracts significantly, what kind of ripple effect that might have on the New York and Jersey markets? Thomas M. Ray: Well, guilty as charged for the company not having much high-frequency trading in our portfolio. And I'm sorry to say it, right? I mean the guys that do have very high-class problems. So we don't have that in -- to a meaningful extent in our company. And I wish we were struggling with where this is headed, but we're not. For the broader industry, again, I think there's -- we have estimated in the past that perhaps 20% of the space or capacity demand for data centers from the financial services market is HFT-related. So 80% is not. And if HFT contracts some, I don't think it's going to have a massive disruption on greater Jersey, New York. So there you go. I mean, I think it will impact a small part of that market, which has historically been enormously profitable, and we don't have much of that in here and that's not something we're proud about saying. Jonathan M. Petersen: Well -- so when you say 20% of financial services are now having high-frequency trading, are you talking about colocation or does that include wholesale? Because I assume the HFT guys are almost entirely colocation. Is the high percent -- is it colo? Thomas M. Ray: Yes, that's colo. That's colo.

Our next question comes from Tayo Okusanya from Jefferies. We do have a follow-up coming from Jordan Sadler from KeyBanc.

Sorry, on the -- I have sort of a little bit of a macro question, and you've touched on it in different ways. But in terms of the overall fundamentals, you've kind of run through it by business, but some of the larger competitors in the marketplace have supposedly reduced the amount of speculative construction that's been going on. And allegedly, there's been net absorption of space. And so, I'm curious as to -- are you seeing that in those conditions? I know Northern Virginia you flagged as experiencing some pressure. But are you seeing net absorption of space and then an overall improvement in the supply-demand equilibrium? Thomas M. Ray: I think we're starting to, Jordan, probably everywhere other than Virginia. I think we're starting to. We are optimistic that 2015 might offer a little bit better balance between supply and demand in favor of the service provider, guys like us. But right now, I think, yes, there might be fewer megs [ph] under construction or breaking ground at the moment. But if you go around at each of the major markets, each one of the publics is still selling capacity. So that the current competitive landscape, I don't think has changed much and I think the combination of additional construction starts and sublease potential in Virginia means that will be a little bit softer, a little bit longer.

Our next question comes from Dave Rodgers from Robert W. Baird. David B. Rodgers: I got in really late, so if I -- if this is answered, I'll go back and read the transcript. But could you comment, if you haven't on any cross-connect pricing pressure that you're seeing and more broadly and even maybe within specific verticals where you're seeing greater or lesser success in getting that pricing? Thomas M. Ray: Sure. Our -- we've not seen pressure on our cross-connects. I think there is some pressure on cross-connect pricing for providers whose price points are measurably higher than ours. But for ours, no. I mean, we actually think there's probably still room to run on that. So no, we're not seeing pressure on cross-connects. And separately, I think it can be challenging to kind of follow the delta between Open-IX and public peering and cross-connects and on the Open -- or on the public peering side of our business, we're not seeing any pressure on our rates at all because our rates are incredibly low. Our -- look, our average port price across our company is now in the order of $300 a month. And so Equinix might have gone from $3,500 to $5,000, 3 or 4 years ago to $1,500 to $1,000 now. We offer our ports, our -- that business is at best a breakeven business, and that's at scale. So I think if you talked with the MCIX guys and the DE-CIX guys and the providers that things like Open-IX are trying to bring in the data centers, I think those providers would tell you their breakeven for their members is north of our price. So no, we're not seeing any pressure on our prices at all. We actually think we still have room to run and I mean, that's where we stand in the market. David B. Rodgers: Okay. Second question, and I appreciate that color. With regard to Santa Clara in Northern California, the demand for you and some of your peers seems to be improving again after it had kind of lulled for a while. Anything incrementally new in that market in terms of driving demand or is it just kind of the same types of customers, but they finally kind of revived with lower overall new supply? Thomas M. Ray: Well, I guess the only thing different that we would point to, that we've seen is, we've done some more business now with offshore companies, Asia-based companies. So I think there's more of -- there's more native deployment from those guys now, as opposed to going through -- as opposed to just taking colo with a U.S. reseller or a U.S. guy, they are now putting more architecture across the water.

At this time, we have no further questions. I will turn the call the back over to Tom Ray for closing comments. Thomas M. Ray: Thank you very much. And thanks, everybody, for sharing time with us today. Well, look, we're pleased that our Q1 results showed good financial results, but most importantly to us, frankly, strengthening, accelerating sales and importantly, accelerating sales productivity. We've been through a tremendous amount of change over the last couple of years and a tremendous amount of change over the last handful of months. And we're just proud of and thankful for the skill and the energy and the heart of our colleagues here at CoreSite. We feel like we have good things going on, that there is very strong momentum that we've captured in Q1 and we can keep driving throughout the year. So we're pretty darned excited. It's because of the people here, and we're thankful. As we go forward, look, we're just trying to drive clarity, focus and execution around the existing portfolio and the development deals we have ongoing right now. And with that, we're going to work hard to keep growing our company and driving strong returns to our investors. Thank you, again.

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