Cencora, Inc. Q1 FY2021 Earnings Call

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 signed 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.

I wanted to start by discussing your cash renewals, which seem to be slightly higher than your annual rate. Could you break down the strength by market? Where are you seeing some strength and where are some markets showing weakness 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, the market, as well as the 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 has 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 mentioned some opportunities in the pipeline. Could you elaborate on later stage, larger deals and the environment in areas like Santa Clara, Los Angeles, or others, where there may be significant space for sale? Also, I noticed the MRR metric on Slide 13 increased slightly. What contributed to that change, and do you expect it to maintain that level or continue to grow?

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 Jon, regarding the second part of your question on MRR per cab, I want to remind you that each first quarter we restate our new same-store pool at the start of the year. This occurred as expected. The increase in MRR per cab was primarily due to growth in our interconnections, which aligns with the overall growth of the company. This was the main factor contributing to the increase in MRR per cab. Looking ahead, I anticipate a year-over-year growth percentage around 2.7%, potentially rising slightly to a mid-single digit growth rate. So, we expect it to be between 2.5% and 5% for the remainder of the year.

There was a mention in the press about some delays concerning SV9. The Planning Commission referred the matter to the City Council, resulting in a bit of a delay regarding the permitting process. The main concern appears to involve environmental issues and emissions related to the generators. Is this a new development, or is it something that arises occasionally? Are there other markets where similar discussions might take place in the future?

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 finally, 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 represent 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, let me address the second question first. The $0.02 had not been included in the guidance. Regarding your other question about SV7 and its effect on guidance, it's important to remember that there will always be fluctuations in our results compared to our expectations as we progress through the year. We had a strong start to the year and are optimistic about the rest of 2021. To provide more context on guidance, over the past few years, we typically give annual guidance in February with our Q4 call and then update it as needed during our Q2 earnings call. Keep in mind that our expectations regarding the midpoint of our guidance may have adjusted, but we follow the common practice among public companies to update only when there is a significant change. This is important for understanding our results and guidance for the remainder of the year. I wanted to make sure to share this additional information.

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 in a multi-tenant 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 the 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 the 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. Our views are consistent with what we've previously shared, emphasizing the importance of building the density and scale of campus ecosystems in our key metropolitan markets. We see significant opportunities to communicate the value of these ecosystems, which ultimately leads to improved results. Our increased yields are not our primary goal; rather, they are a byproduct of creating and delivering value within these campus ecosystems in major cities. As I've mentioned before, there may be some smaller opportunities where potential customers or service providers insist on a global presence. However, we are witnessing a growing number of clients who are expanding globally through cloud services and other providers, which they can connect to directly within our ecosystems. We remain confident that our strategy has more strengths than weaknesses, and it continues to yield positive results for us. We are optimistic about its performance 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 non-core 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, that's a great question. In addition to the categories you mentioned, the best way to understand it is through our lease distribution table, which is on Page 14 of our supplemental materials. When you examine that table, you'll notice that although we have a significant majority of our leases in the retail category, the revenue contributions from each category are actually quite well distributed, ranging from 20% on the low end to about 27% on the high end. Therefore, when you consider the overall contribution from a churn perspective, it is fairly representative and closely aligned with 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?

You will see some variability from quarter to quarter due to the timing of customer departures. However, when you examine the data over a longer timeframe, such as 12 to 18 months, it should closely reflect the overall composition and be fairly evenly distributed across those four categories.

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.

I have one quick question regarding CapEx. The development schedule shows very little in terms of active data centers being constructed, yet the CapEx guidance is considerably higher. Are there any items or developments on the CapEx side that we should be aware of as the year progresses?

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, etc. 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 aligns with the discussions we've had about hyperscale. However, it appears that large-scale has faced challenges over the past few quarters. I understand that contiguous space is one obstacle, but are there any other challenges in securing business from those types of customers?

Hey Erik, it's Steve. There really isn't much to add. It really comes down to how well we fit and the timing as we align in various markets. If you examine the results from Q1, they are very solid and align with six of the past twelve quarters. We do expect to see some larger fluctuations in hyperscale or large scale as the year progresses. It's primarily about aligning those workloads, as Paul mentioned earlier; not all scale and hyperscale are the same, and how they each contribute to our ecosystem significantly influences that fit. We have a promising pipeline, and we aim to execute against it. We need to deliver those results as we move forward through 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. Please remember that the yield of 12% to 16% will be realized after we navigate through all the phases of our development. For example, at LA3, you won't see those returns until Phase 3 is significantly stabilized. Our underwriting indicates that our leased percentage is at 93%, which we use for our stabilization calculations.

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 timeframe, 3- to 6-year timeframe.

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 occurred is that whenever we are allocating some development assets, it exemplifies our disciplined approach to capital deployment. Approximately $9 million of that reduction is related to deferred capital. This is capital we might spend, but the exact amount won't be clear until we complete the data center, customers begin to deploy, and we assess the density and power utilization of each customer. Some portion of that will be utilized later as we gain better insight into these factors. This strategy supports our overall returns and reinforces our commitment to disciplined capital deployment.

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 timeframe? 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 think it really depends on the value achieved with the level of signings. However, I don't believe we would need to significantly alter our historical sales rate from the past year to achieve that. The key difference is whether we will reach mid-single digits or high single digits.

I wonder if the lower churn this quarter is due to economic factors or if it's because the customer base has shifted to higher value clients. After the final phase of SV7 later this year, will churn naturally decrease, or was this just a particularly good quarter?

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?

That's a great question, Tayo. I believe it aligns with what we've stated in previous quarters. Virginia is a strong market, but the dynamics there lean more towards supply, which has been the case for several years, though pricing has now stabilized. It was among our top three markets, as Steve mentioned, yet it remains highly competitive. The New Jersey market has seen improvements, mainly due to financial factors and the transition away from enterprise data centers. Similarly, we're noticing a trend in Chicago with more enterprises seeking to exit their data centers. Additionally, Los Angeles and Santa Clara continue to be robust markets for us.

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.