CyrusOne Inc.
Q3 2017 Earnings Call Transcript

Published: 1 Nov 2017

[Operator:]

Good day, everyone, and welcome to the CyrusOne Third Quarter 2017 Earnings Conference Call. [Operator Instructions] And please do note that today's event is being recorded. I would now like to turn the conference over to Michael Schafer. Please go ahead.

[Michael Schafer:]

Thank you, William. Good morning everyone, and welcome to CyrusOne's third quarter 2017 earnings call. Today, I am joined by Gary Wojtaszek, President and CEO; and Diane Morefield, CFO. Before we begin, I would like to remind you that our third quarter earnings release, along with the third quarter financial tables, are available on the Investor Relations section of our website at cyrusone.com. I would also like to remind you that comments made on today's call and some of the responses to your questions deal with forward-looking statements related to CyrusOne and are subject to risks and uncertainties. Factors that may cause our actual results to differ from expectations are detailed in the company's filings with the SEC, which you may access on the SEC's website or on cyrusone.com. We undertake no obligation to revise these statements following the date of this conference call except as required by law. In addition, some of the company's remarks this morning contains non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in the earnings release, which is posted on the Investors Section of the company's website. I would now like to turn the call over to our President and CEO, Gary Wojtaszek.

[Gary Wojtaszek:]

Thanks Schafer. Howdy, everyone, and welcome to CyrusOne's third quarter 2017 earnings call. We had another great quarter with strong performance across all key operating and financial metrics. Additionally, I’m proud to announce our newest partner, William Huang and his entire team at GDS. We're excited to begin working with them. Slide 4 highlights the recent successes we’ve had beginning with high growth rates across our financial metrics. Revenue of $175.3 million was up 22% over the third quarter and adjusted EBITDA of $95.9 million is up 31%. Normalized FFO of $0.79 per share was up 18%. We leased 18 megawatts of power and 151,000 colocation square feet, and our bookings totaled $27 million in annualized GAAP revenue, another strong result. Out backlog of $37 million as of the end of the quarter represents nearly $300 million in total contract value. As you all know, we are very focused on customer acquisition as it is a leading indicator of future growth given the additional business we typically get from our customers beyond the initial lease. In the third quarter, we signed 18 new logs across numerous verticals, including five new fortune 1,000 logos accounting for 36% of total revenue signed. I am also really excited about the new relationship we have with GDS. They have built the most impressive data center company in China and count every major Chinese hyperscale company as their customer. Between us both, we count practically every major Cloud company in the world as customers, which create significant cross-selling opportunities as many of our customers have global expansion ambitions throughout North America, Asia, and Europe. Moving to Slide 5, our third quarter bookings of nearly $27 million in annualized revenue were right in line with the average over the prior four quarter period. On a trailing 12-month basis, we signed a $107 million in annualized GAAP revenue, which was equivalent to nearly 20% of base revenue over the same period, which shows that we continue to punch well above our weight and should translate into continued growth into 2018. As with the prior two quarters, we saw a meaningful contribution of bookings from smaller footprint deals. And the third quarter, nearly one-third of GAAP annualized revenue signed was associated with small co-location deals that were 500 kilowatts or less. This highlights the broad strength of our platform, which allows us to sell dozens of single cabinet deals as early and as easily as large 20-megawatt wholesale deals. As a result, we are not dependent on signing a handful of large deals each quarter to generate strong leasing results. We signed more than 400 leases over the third quarter in a row and pricing continues to remain healthy with MRR/kW signed during the quarter of $150, 2% above the prior four quarter average, and 10% above the prior eight quarter average. The consistency of our pricing over the last two years reflects the balance supply and demand, which even with record amounts of industrywide capital investment shows how strong the secular demand drivers are and how efficient the industry is at allocating capital. Moving to Slide 6, while the recent success we have had with hyperscale and Cloud companies has clearly accelerated our leasing velocity over the last couple of years, we had a strong record of leasing the enterprises broadly and specifically to Fortune 1000. This slide builds upon my earlier point regarding the diversification of our bookings profile. In the third quarter, we signed 18 new logos across a wide range of verticals, including among others Cloud financial services, healthcare, and energy. The five Fortune 1000 logos we signed represent four different verticals. Additionally, these new customers are deploying in our facilities across the country and nearly all of our US markets are represented in the Snapchat. As the pie chart in the upper right show, the MRR contributions from these customers was up slightly in the third quarter to 36%, compared to the prior four quarter average of 14%. We wanted to highlight these various points to illustrate that while people are focused on the demand from Cloud companies there are many enterprises across all verticals that are still outsourcing with the very first time and they need capacity throughout the country. Not everything is moving to the Cloud and as I mentioned earlier, continuing to bring new customers in the door bodes well for our future growth. That said, even with the strong demand from enterprises the contribution from the Cloud companies remain significant. The Cloud vertical now represents nearly 30% of our portfolio, up from nothing a few years ago. These customer's accounted for over half of our bookings in the quarter within the range we have seen over the past couple of years. We continue to see large footprint in multi-megawatt deals across these customers who were deploying across many of our markets. Slide 7 highlights the success we have had driving our growth in our interconnection business. We had our strong bookings quarter signing 2.4 million in annualized GAAP revenue, nearly 15% above the prior four quarter average of $2.1 million and over 90% of the leases signed in the third quarter included in interconnection product. We added approximately 700 new cross connects in the quarter and now have nearly 14,000 across our portfolio, up from more than 11,000 cross connects 18 months ago. Third quarter interconnection revenue was up 21%, compared to the same period a year ago in-line with total revenue growth. This acceleration in growth is being driven by several things, as we have showed on the right half of the slide. As we have stated previously, we have partnerships with Amazon, Microsoft Azure, Google Cloud, we also have relationships with Megaport and PacketFabric, which provide SDN-enabled elastic connectivity to multiple customers. This is attractive for customers seeking a one stop multi-cloud solution. As our customers have increasingly look into the Cloud for a portion of their IT Solution, we are seeing strong cross connect growth because of these various partnerships. Additionally, within our data centers across the portfolio, we are continuing to develop ecosystems of carrier partners, enterprises, cloud companies, and network providers. Lastly, our National & Metro IX products also contributing to growth. Our National IX, which ties together our data centers across the portfolio allows enterprises to replicate their traditional multi-data architecture. Our Metro IX allows customers to connect between our datacenters and from our data centers to carry hotels within metros. I am very pleased with the progress we're making, growing our interconnection business and while it is still relatively small part of our revenue base it is growing at over 20% annually, making it one of the fastest-growing interconnection offerings in the industry. We continue to believe as we scale our company further, interconnection will continue to grow nicely. Moving to Slide 8, we have talked before about our design and construction expertise and the ability to deliver capacity of what we believe are the fastest times in the industry, which has contributed to our disproportionately higher bookings share relative to our size among public data center companies. We have essentially been sold out on our key markets at the end of last year given the strong demand and despite not having inventory, our sales team has done a fantastic job of selling product. Likewise, the construction team has done tremendous work in replenishing inventory across our key markets. In the third quarter, we completed eight projects totaling nearly 800,000 square feet yielding a company record 555,000 square feet of raised floor and 76 megawatts of power across our top markets, including Phoenix, Northern Virginia, Chicago, Dallas, and San Antonio. As a result, in a single quarter we grew the size of our CSF footprint by 22%. This built out capacity, plus the additional capacity we will be bringing online over the next two quarters, will position us very well to meet demand in our late stage funnel. And it is also the reason why our backlog has decreased this quarter. As you may recall, last quarter I indicated that the funnel was up 10% sequentially, despite a very strong leasing quarter. In the third quarter, even with the continued strong bookings performance, our funnel was up sequentially another 15% from the end of the second quarter. Year-over-year the funnel was up nearly 65% and it is the largest it’s ever been. We are now in a great position with this new capacity for Tesh and his team to convert this funnel with the bookings over the coming quarters. Nearly 50% of this race floor has already been released and we anticipate that when fully leased this capacity will generate between $75 million and $100 million of incremental revenue. Turning to Slide 9, as we announced last week, we have entered into a strategic partnership with GDS, the leading data center provider in China. Both companies are very excited about the opportunities this creates for us and the two largest economies and the fastest growing IT markets in the world. The transaction gives us access to more than 450 GDS customers. As I mentioned earlier, GDS like us in the United States is a leader in a hyperscale leasing space in China and accounts the largest Chinese Cloud and Internet companies as customers including Alibaba, and Tencent, Baidu among many others. They are growing even faster than us with adjusted EBITDA more than doubling in the second quarter, compared to the same period in 2016. While many companies are targeting China for global expansion it is a challenging market for companies to expand into without local expertise and GDS provides an easy button for our customers. Similarly, as the other customers look to expand into within the US, we can meet their specific IT requirements with flexible customized solutions. The partnership will leverage each company's strengths in our respective markets and collective expertise developed over more than 30 years of combined operating experience to create new opportunities to accelerate growth. Our $100 million investment in GDS provides capital for them to fund attractive development opportunities across their market and I would note that based on this morning's price, the stock price is up nearly 24% since the announcement of our investment. Lastly, the underpinnings of the transaction are immediately bearing fruit. At the day of the announcement, we had a customer reach out to us that was looking to expand in China and last week one of GDS' customers reached out to us for help in expanding in the US. Given how similar both companies are, I expect we will be sailing a lot together. While this was a unique strategic opportunity to partner with the premier data center company in China, we are still very focused on establishing a presence in Western Europe. We are currently diligencing property in Dublin that we will close before year-end and have slight selection teams in Amsterdam, Frankfurt, and London looking for greenfield real estate acquisitions. And additionally, Jonathan and his team kind of continue to work hard identifying and evaluating many other smaller companies to acquire. I would expect given the initial success we are seeing with GDS that we will see similar demand from our US customers wanting to expand in Europe. In summary, I think this was a great quarter, which sets us up well to continue momentum into 2018. We delivered another strong quarter of bookings, which is equivalent to a 26% market share in a trailing 12-month basis, which is well above our relative industry revenue share. We delivered 800,000 square feet of capacity in all the key markets that we were previously sold out in, which sets us up well for future opportunities to turn bookings into revenue faster. Our IX business grew at 21%. We had one of the lowest churn quarters ever generating at the highest EBITDA margins in our recent history, and in spite of all the strong bookings, our sales funnel is up 65% versus where we were a year ago. All-in-all, I’d say it was one of the best quarters we ever had. I will now turn the call over to Diane who will provide more color on our financial performance and updated guidance for the year. Thank you.

[Diane Morefield:]

Thanks Gary, good morning everyone. As Gary mentioned, we are really pleased with our third quarter results and let me provide now some additional color on our financial results and an update on the outlook for the remainder of the year. Slide 12 highlights the continued significant growth in revenue, adjusted EBITDA, and normalized FFO driven primarily by the strong leasing across the portfolio, the impact of the Sentinel data center acquisition earlier this year, and strong performance from our expanding interconnection business. Revenue churn for the quarter was 0.6%, the lowest level since the fourth quarter of 2015 and significantly below our prior four quarter average of 2.1%. We now expect full-year 2017 churn to be slightly below the lower end of our assumed annual guidance range of 6% to 8% as we’ve been able to renew some of the leases for customers we had previously anticipated churning. Please keep in mind that again our churn metric includes both the rate reduction and termination. So even with the conservative definition for this metric, we anticipate a pretty good year absolute result for the year. That said, it can vary from year-to-year and in 2016 it was at the upper end of our assumed range; therefore, we still believe 6% to 8% is an appropriate annualized range. Moving to Slide 13, NOI increased 26%, driven primarily by the increase in revenue and the NOI margin expanded a very favorable 200 basis points. This increase in the NOI margin was driven primarily by the impact of a higher than normal level of low margin equipment sales in the third quarter of 2016. The adjusted EBITDA margin was up approximately four percentage points, driven by the improvement in the NOI margin as mentioned and a reduction in SG&A as a percent of revenue, reflecting the benefit of scaling the business with less incremental overhead. Normalized FFO increased 30% in-line with our adjusted EBITDA growth, while normalized FFO per share grew 18%. As the chart at the bottom of the slide shows, the net impact of adjustments to normalized FFO was positive in the third quarter, resulting in higher AFFO. Sequentially normalized FFO increased 5%, while AFFO increased 16%, and the improvement in the total adjustment was driven primarily by the sequential change in the deferred revenue in straight line rent adjustments line item. There was an increase in nonrecurring charges, which include upfront cash payments for various centers fees, including customer installations, but for which we recognized the revenue over the terms of the underlying related leases. The increase was driven primarily by the impact of cash received from these installations in the quarter associated with a few large deployments. As I have mentioned before, the deferred revenue and straight-line rent adjustment line item can be difficult to forecast when comparing quarters and does create some short-term volatility in AFFO. However, over the longer term AFFO should continue to grow relatively in-line with the growth of the underlying business. During the third quarter, we took a $55 million impairment on our three Connecticut assets. This market has been weaker than anticipated, mainly due to higher structural cost throughout the State, including high taxes and higher utility costs, which is driving businesses to other states in the Northeast. Given the weaker demand and shorter-term land leases, we impaired the assets per accounting guidelines. Consistent with the NAREIT definition, this impairment does not impact FFO. Slide 14 provides an overview of the portfolio by market. Our portfolio is very balanced geographically and it’s evidenced by the markets in which leases were signed by new customers shown on the earlier slide. We are seeing strong demand across all regions of the US. As Gary highlighted, in the third quarter we brought capacity online in our top markets, where we were essentially out of inventory as we were going into this year. The table on the right shows that utilization per stabilized properties as of the end of the third quarter was 93%, which is very high and indicative of the need for additional capacity. Total utilization was down slightly year-over-year, but this is on our 52% increase in colocation square feet over the same 12-month period. Slide 15 summarizes our development pipeline as of the end of the third quarter, which includes project in Dallas, Northern Virginia, Phoenix, Raleigh-Durham and Austin that will deliver 327,000 square feet and 53 megawatts power capacity. Approximately 25% of the pipeline is preleased and we expect meaningful additional leasing to have occurred by the time this capacity actually comes online given the strength of our late stage sales funnel across these markets as Gary mentioned. In Dallas, we brought the sixth data hall online at our Carrollton facility in the third quarter and this data hall is nearly 40% utilized. We are now adding more power capacity to this hall and will begin construction on our seventh and final data hall in our Carrollton facility later this year or early in 2018. We also recently broke ground at our Allan location and we will be building [indiscernible] first data hall that affords the strong demand in the Dallas market, which has been more of an enterprise market, but also includes increasing demand from cloud companies. In Northern Virginia, we brought the second data hall in Sterling IV online in the third quarter, which is fully leased. We also completed construction on the second data hall in Sterling V, and now are in the process of building the third and fourth data hall, which in aggregate are nearly 30% preleased. As you might expect, the sales funnel for this market in particular includes a significant contribution from cloud company. We have significant development activity in our Phoenix market supported by the robust sales funnel from both enterprise and cloud. We brought the fully leased Chandler IV facility online in the third quarter, as well as our Chandler Vi facility which is approximately 50% utilized. As of the end of the second quarter, we had anticipated initially building just the first data hall, but based on strong demand we also built a second data hall and we will be adding another 6 megawatts of power capacity in this facility. In addition, we're building the first data hall in Chandler V facility, which is roughly 50% preleased. In addition to the project mentioned, we also have projects underway in Raleigh-Durham and Austin to bring additional space and power online and we are building an adjacent shell in our Somerset location in New Jersey, which was acquired due to the Sentinel transaction since the existing facility is almost 90% utilized. Upon completion of all these projects, our portfolio would have increased to approximately 33,500,000 square feet of raised floor from just over 2 million square feet at the end of 2016. Moving to Slide 16, you can see that we continue to maintain a conservative capital structure and a strong balance sheet with leverage just about five times, no debt maturities until 2021, a fully unencumbered asset base with a gross book value of over $4.6 billion and available liquidity of nearly 800 million. On a market cap basis, shareholder's equity represents more than 70% of total enterprise value and our fixed floating interest rate mix is currently a little more weighted to floating rate debt that is relatively in-line with our 50-50 target. Following the Moody’s upgrade earlier in the summer, in August S&P upgraded our issue level rating to BB+ and our corporate credit rating to BB. The issue level rating is now just one notch below investment grade, and as we’ve mentioned before investment grade issuers have meaningfully lower cost of capital. So, we are managing the company with this objective in mind and are engaging in frequent dialogue with the rating agencies to update them on the business and our conservative financial policies. As we highlighted in our earnings release, our board has approved a 500 million ATM program authorization to replace the original program put in place in the July 2016. As you know, these programs are very common among REITs and earn efficient and cost-effective tool for funding capital requirements and managing leveraged. We feel it’s prudent to refresh the ATM program to the higher level, which represents less than 10% of our market and is a typical shelf size for REIT. There was no issuance of equity under our ATM during the second quarter. Turning to Slide 17, our revenue backlog as of the end of the quarter was $37 million, representing nearly 300 million in total contract value. As shown in the bottom chart, we expect 26 million of the backlog to commence by the end of the fourth quarter and the remainder to commence in the following two quarters. This positions us well for continued strong growth going into 2018. Lastly, Slide 18 shows our previous and revised guidance for 2017. We are tightening the range for total revenue and maintaining the midpoint at 673.5 million, but the composition of the guidance has shifted between base revenue and meter power reimbursements. We are increasing both ends of the range for the base revenue and tightening it resulting in a 6 million increase in the midpoint. This has driven by the stronger than anticipated leasing lower than expected churn and higher equipment sales. We are lowering both ends of the range for Metered power reimbursements and tightening that range resulting in a 6 million decrease in the midpoint. As I mentioned on our last earnings call, we are seeing a slower ramp in metered power than we originally anticipated going into this year and this is the primary driver of the decrease. However, we don't believe that is any read through from this to future demand as this was strictly a timing difference related to the phase-in in power for several large deployments. We are tightening the range for adjusted EBITDA increasing the midpoint by 1.5 million. The increase in midpoint is driven primarily again by the increase in base revenue, a portion of which is related to lower margin equipment sales that I just mentioned. We are also increasing the lower end of the guidance range for normalized FFO per share. The increase in the midpoint is driven by the increase in the adjusted EBITDA midpoint and slightly lower interest expense than anticipated. I would like to note that the new midpoint is 6% higher than the midpoint of our initial guidance for the year, up $2.90 a share. We have also increased the midpoint of the CapEx guidance range by $75 million, reflecting the development pipeline to support our strong leasing results, compared to our prior expectations. In closing, again we are really pleased with the performance across all areas of the business. The continued strong results are a function of hard work by the entire team, plus a differentiated product with broad appeal and the underlying demand, which is driving the outsized growth in the data sector relative to other REIT asset classes. We’re excited about the outlook for the business in the coming years and as Gary covered the new partnership with GDS will also enhance our international footprint and business model going into 2018. Thanks again for participating in the call, and we're now happy to open it up for question. Operator?

[Operator:]

[Operator Instructions] And our first question will be Robert Gutman with Guggenheim Securities. Please go ahead.

[Robert Gutman:]

Hi, thanks for taking the question and great progress this quarter. I was wondering did you specify, I didn’t hear if you specified were equipment sales and if there were any termination fees, specifically in the quarter and also, I was wondering if you can update us on the plans for development in Quincy, in terms of timing and the outlook there?

[Gary Wojtaszek:]

I will take the last part of that question on Quincy. No Rob, we’re still working through that we are getting all of the designs done. So, we are going to be in a position to have that permanent and now ready to go once we get a green light from a customer that’s when we will break ground. I mean, similar to what we do elsewhere we would be capable of delivering that property within six months from the time we get a contract signing.

[Diane Morefield:]

Yes, Rob on your questions, equipment sales were in the end of $2 million range relatively low this quarter, we did not have any material termination fees.

[Robert Gutman:]

Great, thank you very much.

[Diane Morefield:]

Welcome.

[Gary Wojtaszek:]

Sure.

[Operator:]

And our next question will be Jonathan Atkin with RBC Capital Markets. Please go ahead.

[Jonathan Atkin:]

Thanks. So, two questions one on GDS and I will take my answer in English I guess, how much cross-training has taken place between or home much cost-training do you have planned between the sales forces to kind of understand each other's products and so forth. And then the other question gets a little bit into the metered power reimbursements question and also kind of the new logo mix. The new logos seem to have diversified a bit this quarter and would you expect that to continue going forward because what I think I have seen in the numbers is that perhaps your largest customer is seeing a little bit of a slower moving pace and that’s affecting the guide down in metered power reimbursements. Thanks.

[Gary Wojtaszek:]

Okay. We can do it either in Cantonese or Mandarin, but if you prefer English, I'll address that. So, we are underway with that, we both are establishing our respective teams going through the product offerings, understanding what our MSAs are SLAs between both companies. They’ve identified three people I think on their outside that will be a part of their team. We’ve identified two folks on our team are looking at hiring another person on the team that can help with some of the translation work that we’re doing and we expect that we will be working very closely with them over the next couple of months with tour schedule, I think beginning next month where our forks will be heading over to China to visit their facilities and meet their teams and vice versa with their folks outcoming to China. And as I mentioned on my portion of the earnings call, on the day of the announcement we had one of our major customers reach out to us, looking for contacts to help expand into China. And lastly week one of their customers reached out to them looking for a capacity to help them expand with us. So, this is exactly what we envisioned was going to incur. With regards to your second point about logos, I think this was one of the strongest new logo acquisition quarters we have had, and what was really nice about it, it was broad based in terms of a number of different verticals, you know energy was nice to see in their healthcare, in addition to some of the other verticals that we have traditionally been involved in, but the other thing that was nice about it was not only the diversification of the different industries, but also the locations. We had strong strength in our bookings across every single region in the country and that just gives us really good hope that this trend for outsourcing at the enterprise base is still going to continue to accelerate. With regard to the point about the cloud companies, the slower ramping’s on power that is spot on. I mean our revenue guidance, we basically kind of unchanged, we have got a nice uptick in base revenue which is the one that brings profitability offset by a lower revision on the downside for power pass through, but I wouldn’t read anything into it. As I mentioned in my points, our funnel is the strongest it has ever been, so we are tracking the largest number of deals we ever have.

[Jonathan Atkin:]

And then I’m also interested then in the U.S. from the standpoint of competitive supply, sometimes on kind of a build-to-suit basis, it seems like, for cloud customers. And any kind of readthrough on, again, your pipeline or pricing in the market? Thanks.

[Gary Wojtaszek:]

No. Look, I mean, what you see on pricing, I mean, we had - our pricing was 2% above the last four quarters and 10% above the last 8. So, it was holding in really strong, and that's a really good indication for the health of the industry, because we are at a record amount of capital investment, along with, I think, all of our peers, right? And I think we're the last ones again, pretty much, to report. And what you saw is everyone had strong results across the board with really strong leasing. And so, while we continue to take more share in leasing, everyone is doing very well. And in spite of spending a tremendous amount of capital, it's very rational. And so, we feel really good about the health of the industry. And I think what that really says broadly about the industry is that it's difficult for folks to just come into the space, put a shingle on the door and say they are open for business and expect that you're going to get a lot of these cloud companies. That's just not the way it works. You really have to have a track record of proven capabilities to deliver in the time frames that they expect you to meet it by. So, we feel really good about where we stand in the industry, and I think just broadly speaking, everyone is doing very well.

[Jonathan Atkin:]

Thank you.

[Operator:]

And the next question will be Frank Louthan with Raymond James. Please go ahead.

[Frank Louthan:]

Great, thank you. Can you give us some color on - a little bit more color on the new logos, any new hyperscale cloud logos that you have there? And just give us a little more color on the write-down in Connecticut, sort of the history on that facility? And should we expect anything more from there?

[Gary Wojtaszek:]

Yes, no new logos on the cloud side. The one deal that we did in that was a pretty sizeable one and this was a pretty large deployment with a company that we've previously done business with, but this was the largest deployment that we've done with them. So that's really good for the future. Other than that, I mean, traditional Fortune 1000 logos across the board and some other large, but not Fortune 1000 logos across multiple industries and geographies. So, nothing really to read into there. I mean, as I mentioned, we are working on these deals for a really long time. I mean, it still takes upwards of two years, if a company has never outsourced, from the time that we're talking to them to the time we can turn that first conversation into a closed deal. So, you need to have a number of irons in the fire to continue to close the deals at the pace that we've been doing. The one soft spot in the overall market is in Connecticut, and that's really the result that you saw this quarter. We have been pushing that market really strong, but there's been a lack of demand for customers in that space. A lot of customers have been moving out. I mean, the most notable one being GE, but in addition to them, a bunch of hedge funds are also looking at leaving the state. So, it's been a difficult market for us to sell into. And the write-down is really what you see, the result of that. We don't have a strong enough funnel to support the asset valuations that we had there. So, we took down - a write-down to the point where you could - it's basically below the replacement value. So, you couldn't build those buildings for the value that we took it down for. But GAAP accounting doesn't take that into account. You're just basing it on the present value of the cash flow estimates that you are currently believing you're going to generate in there.

[Frank Louthan:]

Okay, great. Thank you very much.

[Operator:]

And the next questioner will be Sami Badri with Credit Suisse. Please go ahead.

[Sami Badri:]

Thank you. On the interconnection growth slide, it shows that 91% of leases signed in 3Q 2017 included interconnection. Could we get an idea on what percent of the leasing portfolio currently includes interconnection? And has this recently accelerated?

[Gary Wojtaszek:]

Yes, on both measures, right? I mean, the rate of revenue growth in that business has absolutely accelerated versus where we were historically. I mean, typically, it was in the teens-type growth, and this was now over 20%. Really, just kind of goes to the focus that we've been putting on that business. And in particular, the other deals that we've been announcing and doing with PacketFabric, Megaport, as well as all the PoPs that we've done with Amazon, Google and Microsoft, has really helped develop that ecosystem. As more of our enterprise customers are seeing the value that we bring to them and vice versa, those cloud companies are seeing that we can be really great partners with them as they develop commercial relationships with all of our customers. So, we expect that that's going to continue to grow nicely over time. We're starting on a small base, so it should grow quickly. Historically, it has not grown as fast as our overall business, just because we have been signing up some of the largest deals in the industry and growing at the fastest pace organically because of those big deals. Now what you're seeing is just the benefits of scale driving the growth in the interconnection business.

[Sami Badri:]

Got it and then, sorry, go ahead.

[Michael Schafer:]

Sami, I was just going to say, in terms of the percentage in interconnect, generally, the attachment rate for new leases signed over the past three years has been north of 80%, in the 80% to 90% plus range. 91% this quarter.

[Sami Badri:]

Got it. Got it. And then I saw that there was a chart not in the slide deck reflecting the percent of leases, including pricing escalators. Could we get the percentage rate that we're at currently?

[Michael Schafer:]

I think it is 64%.

[Sami Badri:]

64%. Got it. And then I had another GDS-related question. When could we see some contribution from the GDS partnership? And is this a 2018 event? And more specifically, the Chinese customers you mentioned coming into the U.S., is that something we should bank on in 2018? Or is that - are we going to see meaningful impact more in 2019?

[Gary Wojtaszek:]

I think you're seeing meaningful impact already, right? The stock is up 24% from where we bought it. So, we made $24 million on that relationship currently. But outside of that, what I was talking about in my points is immediately upon the announcement, one of our customers reached out to us, and last week, one of their customers reached out to us to help expand here. So, we're seeing the beginnings of that. So, I would suspect that, in 2018, we're going to see the benefits of that relationship. I don't think it's going to be material where it's going to be something that we would call out. It would be more of an ad-hoc type of conversation to let you know, "Hey, we closed our first deal", or something along those lines. But I think more broadly, the bigger relationship with them is going to be really impressive as we try to scale this business globally. They've got great partners in STT, in SoftBank in them and we do as well. And I think jointly, together, we're going to do a lot of interesting things in the industry.

[Sami Badri:]

Got it. Thank you.

[Operator:]

And the next questioner will be John Hodulik with UBS. Please go ahead.

[John Hodulik:]

Great. Gary, during your remarks, you talked a little bit about looking at M&A in Europe. Can you give us a sense of sort of what the sort of optimal size is? Are you looking at land or individual data centers or deals? Or just sort of how you look at the market there? And then getting back to the interconnect, obviously, it's still sort of at a high single-digit percentage of overall revenues. How big of a contribution can that eventually get to? Maybe if you could sort of talk about what kind of contribution in terms of new deals, where you do have interconnected as a percentage of revenue? And sort of how you expect that to scale going forward?

[Gary Wojtaszek:]

Sure. Special guest appearance, Jonathan Schildkraut is with us this morning. And I'll turn over your first part of the question to him. And then I'll take the second part.

[Jonathan Schildkraut:]

John, good to hear your voice. So, look, as we go through and look at opportunities in Western Europe, I think it's important to understand that we're dual tracking in every market. And Gary sort of laid it out as two separate pieces, but it really is one piece. And so, we've taken a look at sort of the five big markets across Europe, and what we've done is we've mapped out each one of those markets, so we know where all the power is. And when you examine power, you really have to look at it as three vectors

[Gary Wojtaszek:]

And with regard to the second question on interconnection. So, it's roughly about 6% of our revenue currently. To give you some bookends, I mean, world-class interconnection companies, kind of like Equinix or CoreSite, are varying between 12% and 16%, 17% of the revenue. So, I think that gives you some of the upward bounds of what is the potential here. Clearly, we are not really a traditional interconnection-type play company. But I think what you get and what's really evidenced in our growing footprint is that through scale and size and the aggregation of vast numbers of customers at a particular location, the networking element just comes as a matter of course. And I think that's what you're seeing in our results. I mean, our interconnection - the number of interconnections was 11,000. It's more than 14,000 now over 18 months. So, I think you see a tremendous amount of growth there. So, it gives you some potential of what the upper bound of that is. I don't think we're ever going to see that level of penetration compared to those other two companies, but I think it's going to be much, much further along than it is currently.

[John Hodulik:]

Great, thanks guys.

[Gary Wojtaszek:]

Sure, thanks.

[Operator:]

And the next questioner will be Vincent Chao with Deutsche Bank. Please go ahead.

[Gary Wojtaszek:]

Hi Vince.

[Vincent Chao:]

Hi guys, how are you doing. Just a question, just turning back to the commentary about the funnel being as large as it's ever been, as well as having a lot more availability now within the in-process, as well as the under-construction buckets. So just curious, you've been running in this sort of high $20 million, $30-ish millions of bookings a quarter range, you've been telling folks $20 million is a reasonable way to think about it, but given the combo of a strong funnel and greater supply availability in your portfolio, I mean, should we expect to see that number pick up here in the next couple of quarters?

[Gary Wojtaszek:]

I would hope so, Vin, but we are comfortable with the $20 million. That's the $20 million. We are the leading player in terms of percentage of bookings relative to share. I think only Digital Realty is actually booking more in absolute basis than us. But on a relative share basis, we do really, really well. And so, at $27 million in this quarter, and higher amounts over the last two, I think that's really good. If we're at the point where we feel really confident, we've got a great line of sight that we would be willing to take it up, we'll do so then. But at $20 million, we've still got a really nice growing business. With regard to the point on capacity brought online, I mean, we've been struggling for basically a year, right? We have been sold out in all of our hot markets

[Vincent Chao:]

Okay. And just another question on the funnel itself. Can you give some color on sort of the mix within that funnel relative to sort of new logos versus existing, hyperscale versus enterprise? Any commentary on that?

[Gary Wojtaszek:]

Yes, sure. I mean, new versus existing, it's definitely skewed more towards existing. It's probably like 75%, 80% existing-type customers. If you look at it between cloud and non-cloud companies, it's a similar type of skewing. I mean, we are having conversations with every single large cloud company out there, talking about really big-scale projects. And we've been speaking to them for the last several months. And I think we expect that we're going to be closing a lot of these deals as we head into 2018.

[Vincent Chao:]

Okay. And maybe just one last question for me. Just in terms of the demand from some of the Internet and cloud players from China that you alluded to when you announced the GDS deal, it sounds - from DLR's call, they also specifically called out some leases signed with some Chinese tenants. Just curious if there's anything in particular that is causing that migration today versus any other period of time.

[Gary Wojtaszek:]

Sure, sure. Yes, I didn't talk about all the Japanese customers that we just signed as well, but those are in there. No, look, I think when you look at the broad cloud market, what you see is all of the largest cloud and Internet companies in the world are in the U.S. and in China. And developing and getting access into the Chinese market is incredibly difficult. So, we feel really lucky to have a partner with William and the team there that we've been talking to for really long time, because both of us recognize the value of working together jointly, because all of their customers have really big ambitions, just like our customers have really big ambitions. So just broadly speaking, only 4% of the global IT market is penetrated by cloud companies today. So, the opportunity for all of our customers to do more over the next decade is really incredible. And I think we're going to be a much stronger partner working together with each other, helping each other's customers grow. If you think about how you're engaging customers, the way we're going to be looking at this is we've got account management teams that are going to be really conversant and fluent in understanding all of GDS' offerings, similar to the way they sell our products in the U.S. here. So that when one of our customers want to be able to expand into China, and they all have to, right, because if you are any - any global company, if you're focused on growth, between the U.S. and China, that accounts for 50% of the world's growth, you need to be in these two locations, right? And the bigger share of that is in China. So, we expect that we're going to get a number of our customers that are looking to expand, and we'll be able to partner with GDS, help them grow in China and vice versa with them. I think the same thing with their customers coming over here. You look at Alibaba, Baidu, Tencent, I mean, these companies have really, really big ambitions. Whether it's cloud, whether it's social media, whether it's electronic payments, they're really doing a lot, and we're hoping to capitalize on the relationship that GDS has with them in China.

[Vincent Chao:]

Okay, thanks a lot.

[Operator:]

And the next questioner will be Colby Synesael with Cowen and Company. Please go ahead.

[Colby Synesael:]

When I look at your development pipeline, I guess, more specifically, your CapEx requirements, not just for the last quarter but really as we go into 2018, you're clearly going to need capital. Diane, any color on when you would expect to launch a debt offering? Or should we just assume that, that gets taken care of via the ATM? And then secondly, as it relates to the Cervalis acquisition you did in mid-2015 that you're now writing down, what did you miss? Or what's different now compared to when you did that transaction that you're already having to write that down? And is that deal still expected to be - or is it accretive to what you would have been doing otherwise on an AFFO basis? And then lastly, as it relates to the 15% increase in your pipeline, how much of that is potentially or explicitly tied to deals that might be coming as a result now of GDS or potentially deals you're seeking out in Europe?

[Diane Morefield:]

I'll deal with the funding first, Colby. As we highlighted, at the end of the third quarter, we had like $800 million of liquidity. So, we think our needs for the balance of the year are definitely met by our liquidity availability. And over time, we've been transparent that as our line gets more drawn, say, well over $500 million or more, that we will consider going longer term and repaying the line, but again, we have a lot of liquidity where we sit today.

[Gary Wojtaszek:]

Yes. With regard to the Cervalis acquisition, look, I mean it's been a really good acquisition for us. I mean, if you look at - the value of that business is up 50% from where we were when we acquired that relative to where we currently trade. What you don't see in those numbers is, and it's just because the way the U.S. GAAP accounting rules require, is that you're looking at valuations of specific cash flows tied to a very specific asset. But as you know, Colby, this is a networking business, right? And so, while we were not able to convince customers to drive continued deployments in Connecticut, a lot of those same financial customers we've been selling outside of Connecticut in Jersey, in Chicago and in South Carolina. So, I think what you're seeing here is very specific to some of the regulations and the difficulties in doing business in Connecticut broadly, and that was something that we did not anticipate heading into the deal, because if you look - I mean, I don't know if you toured the Norwalk asset. It's a beautiful facility, right? It's one of the nicest facilities in our portfolio. So, the asset quality is really high. The reality is just not a lot of companies want to do business there. I mean, all the financial companies that we've been talking about are trying to move their nexus outside of that state, because it's a really difficult and expensive state to do business in for them. What was your last question on the 18%?

[Michael Schafer:]

The composition of any GDS contribution.

[Gary Wojtaszek:]

No, we are not assuming that - yes, we're not - there's nothing in there now that's material.

[Colby Synesael:]

Okay, thank you.

[Operator:]

And the next question will be Simon Flannery with Morgan Stanley. Please go ahead.

[Simon Flannery:]

Thanks a lot. Question for Diane. Diane, you talked about the rating agencies and the upgrade there. Perhaps, could you just update us on the path to investment grade? I know it's a long-term goal. Do you have a sense for what you need to do, I think, both in terms of ratios but also in terms of overall scale? And what's the time line maybe to be in that position? And then on the floating/fixed, you mentioned you're a little bit over your 50-50. How are you thinking about that in a world where the Fed continues to raise rates, and maybe the cost advantage from being floating isn't quite as strong? Thanks.

[Diane Morefield:]

Sure. On the rating agencies, again, Michael and I spend a lot of time both meeting in person and speaking with the rating agencies throughout the year. Again, when we've shown on the benchmark slides that, compared to other REITs in our size category, with higher leverage and not as attractive of financial metrics as we have, are already rated investment grade. So, we would argue that we're already there, but we just - we've been consistent with them on our financial policies. We were encouraged that S&P upgraded us and that our actual securities issuance rating now is just one notch below. So, we will continue to work with them, and we also have a dialogue with Fitch. And if we can get to investment grade with at least one of the firms, we will also probably reach out to Fitch for a rating. So, we're hoping it’s in the not-too-distant future, particularly with S&P getting closer. I just think it's been an education process and a somewhat slow one with the rating agencies because they consider data centers nontraditional. I think that's how they looked at tower companies originally, and then they get over that hump. So, we feel we are a traditional REIT, we're just a very fast growth one. And we, obviously, already have great diversity in geography and verticals, as far as industry verticals, et cetera. So, we keep plugging away at that. I'm sorry, the second question?

[Simon Flannery:]

On the floating-rate debt?

[Diane Morefield:]

Yes, again, generally, floating is always significantly less than fixed-rate debt. Now I think once we get to investment grade, we may be more interested in going a little more fixed. But at this point and with the hopes to get to investment grade, having roughly 50% floating to be able to fix in the future, we just think is the right strategy during this period.

[Gary Wojtaszek:]

Yes, Simon, just to add in on that. I don't think a lot of people really quite give it the kudos that it deserves, but our bookings strength is really fantastic. What you saw this quarter was on a trailing four-quarter basis that we booked 20% of our revenue organically. So that is the highest amount of return that we get on anything that we do, and we're doing it at a really fast pace. So, I think a couple of more quarters of that and you're going to see that we're going to grow into a really sized, scaled company. The other thing that you see in these results is that broad diversification from an industry perspective and a geography perspective, which the rating agencies like, and, oh, by the way, they're all basically investment-grade credits as well. So, I think it's going to happen sooner than we think, as long as we just stay on that same path, doing what we do and manage our balance sheet appropriately as we have been doing for the last couple of years.

[Simon Flannery:]

Right, thank you.

[Operator:]

And our next questioner will be Richard Choe with JPMorgan. Please go ahead.

[Richard Choe:]

Great, thank you. I wanted to follow up on churn, 6% to 8% is still kind of the target. But with these deals kind of being bigger and longer, should we expect that to go to the lower end of the range over time? And then, is there any potential impact from the Connecticut churn coming?

[Gary Wojtaszek:]

Yes.

[Diane Morefield:]

As I said in my remarks, Richard, we do think that total churn for this year will, in fact, be below the 6% range. And last year, it was closer to the high end of our 6% to 8% range that we provide. Again, we think that 6% to 8% is probably the right range on a normalized annual basis, but we haven't given any guidance for 2018. And we'll address the range when we do give guidance for next year.

[Gary Wojtaszek:]

Yes. And on Norwalk, you're coming on that like the write-down there is - we didn't lose a customer, we just never gained as many customers as we had originally anticipated. That's what's really creating the accounting issue there.

[Richard Choe:]

Great. And then on the development, which market do you think was the most constrained? And now you have the most space, I assume it could be Phoenix or Northern Dallas, but where could we see a ramp in signings pretty quickly there?

[Gary Wojtaszek:]

Yes. I mean, we're probably tracking - I mean, from a geography perspective, the biggest deals we're tracking our funnel is Virginia, followed by Phoenix, and then Dallas and Chicago.

[Richard Choe:]

And then finally on the interconnections, is that centered in a particular market? Or is it broad-based? Kind of, what's driving the interconnection growth in maybe more of a regional basis?

[Gary Wojtaszek:]

It's broad-based. It's everywhere. I think what you saw in some of our press releases, just the past couple of months, we put out press releases that we just signed up Amazon, we signed up Azure, we signed up PacketFabric, Megaport. All of these companies are now having PoPs in our facilities. And I think that will continue to accelerate our interconnection performance because all of those cloud companies are trying to target and sell to the enterprise, and all of those enterprises are trying to diversify and have a multi-cloud strategy. So, I think we're going to continue to see nice growth in that over time.

[Richard Choe:]

Great, thank you.

[Operator:]

And the next questioner will be Eric Luebchow with Wells Fargo. Please go ahead.

[Eric Luebchow:]

Hi thanks for taking the question. Just two, if I may. If you look at your domestic footprint right now, are there any areas where you don't have a geographic presence you might be interested in expanding into? I know the southeast and Atlanta have come up as possible areas. And then maybe quickly, just curious how the Sentinel assets you acquired earlier this year have been tracking, and specifically some more color on New Jersey and North Carolina, both where you are expanding your pipeline.

[Gary Wojtaszek:]

Yes, yes. We've just closed on Sentinel. A couple of nice deals in that facility. So that's going well. We've got three of them that were closed, and the funnel for that is building nicely. We're bringing on the capacity in Jersey, where they were sold out and where we were actually sold out, too, on an aggregate basis. That's going really, really well for us.

[Michael Schafer:]

It's Michael. And Raleigh-Durham actually was one of our top leasing markets in the third quarter. So really good start there.

[Eric Luebchow:]

Got you. And do you feel, from a geographic expansion standpoint, is the southeast still an area that you would like to expand into? Or you obviously have enough on your plate right now?

[Gary Wojtaszek:]

Yes. I mean, look, I mean, we've got some effort going on in Atlanta that's come out. We're continuing to work on that, on that site. So, we'll see how that develops. It's to be seen whether that's going to develop into a really large hyperscale market, but we'll have the option to expand there, nonetheless.

[Eric Luebchow:]

Okay, great. Thanks.

[Operator:]

And the next questioner will be Andrew DeGasperi with Macquarie. Please go ahead.

[Andrew DeGasperi:]

Thank you. Maybe, Gary. I know most of the questions have been answered, but could you comment if you've seen any enterprise customers go off 100% cloud platforms and maybe move into hybrid at this point? And then Diane, if you could maybe talk about the impact to your financials in terms of the GDS 8% stake. Are we likely to see some kind of offset to - below the line?

[Diane Morefield:]

So, let me address the GDS accounting first. Obviously, the investment will be on the balance sheet, likely under other assets or potentially just a separate line on the balance sheet. It's -- where the accounting is going to change literally as of 1/1/2018. So, this year, in 2017, which is just really the fourth quarter, any mark-to-market goes through OCI on the balance sheet. But there is new ASU that starts - is effective 1/1/2018, where the mark-to-market would go through GAAP P&L, but we will exclude it from FFO, since it's just a noncash, adjusting the gain or loss to the market share price at the end of each quarter.

[Andrew DeGasperi:]

Great and on the...

[Gary Wojtaszek:]

Yes, what was your other question? The first one.

[Andrew DeGasperi:]

No, just trying to understand, we've heard that some enterprise customers might be moving off to, let's say, AWS, or something like that, and moving into hybrid data centers. Are you seeing that?

[Gary Wojtaszek:]

Yes. Well, I think you got to be - the way you define the enterprise, I think, you need to be focused on it. So, when you hear solely focused or cloud-based enterprises, those are traditionally kind of West Coast-type companies that are in a tech space that have basically grown up on, generally speaking, mostly the Amazon Cloud. Those companies get to a certain size and scale, where economically, they make the decision to move off of the cloud platform onto some - either a shared platform or their own platform that they stand up. They are traditional enterprise companies, so the traditional brick-and-mortar Fortune 1000 that we're typically targeting, they're doing everything in-house currently. And so, you're only seeing the beginning stages of an outsourcing trend to cloud companies, and it's a multi-cloud approach. So, they typically are going with at least two cloud providers or maybe three, but we are in the early stages of that migration. I mean, there's a lot of potential growth to go yet there.

[Andrew DeGasperi:]

Great, thank you. A - Gary Wojtaszek Sure.

[Operator:]

And the next questioner will be Amir Rozwadowski with Barclays. Please go ahead.

[Amir Rozwadowski:]

Thank you, very much, and good morning folks.

[Gary Wojtaszek:]

Good morning Roz.

[Diane Morefield:]

Good morning Amir.

[Amir Rozwadowski:]

Gary, can I - just wanted to drill down a bit on the organic growth. If we make some rough assumptions based on what you guys reported for CME and Sentinel, it does seem like the organic sales growth for the business has dipped a bit here. One would assume that part of that has to do with what's happening in Connecticut as opposed to any changes in the demand patterns. I just wanted to make sure to clarify that.

[Gary Wojtaszek:]

Yes - no. So, look, I think if you look at the growth, you got to look at the bookings, right? And you've got to look at how strong those bookings are. So, on a trailing 12-month basis, we have booked new deals equivalent to 20% of our revenue. That is, by far and away, the biggest percentage in the industry today. So, when you look at the organic growth there, it's really, really strong. I think what you're seeing is, relatively speaking, on the size of the company basis, it's difficult to keep up those levels - those growth levels as you become larger. I think our growth this quarter organically, if you strip out the Sentinel, was probably around 15% or so. So that's really strong organic growth, I think, relative to the rest of the folks in the industry. I'd say that's doing pretty well.

[Amir Rozwadowski:]

And then - I mean, it also seems like that is at the upper end of the organic growth outlook that you provided a bit ago, the multi-year CAGR. So, I mean, do you expect that to continue here? It seems as though you'd been punching above that, but it also seems like inorganic activity could be picking up here as well. So, just trying to assess how we should be thinking about you folks tracking relative to that.

[Gary Wojtaszek:]

Yes. And I think what you're referring to is the 20% CAGR that we laid out at our Investor Day a couple of years ago, where we estimated that we do about 20% a year. So, we're obviously tracking ahead of that plan. So, we're doing better than what we originally anticipated that we would be doing. And that's on both measures, on organic and M&A, right? So, this quarter, we were up, say, 15% organically. I think if you looked at those numbers from a couple of years ago, we were estimating about 13% annual growth, with the delta picked up - the 7% being covered by inorganic growth. And so, I think you're seeing now that we're nicely ahead of where that plan was, and that's because of the strength of the bookings organically, as well as some of the M&A that we've been doing. So, we feel pretty comfortable about that 20% number over the next several years.

[Amir Rozwadowski:]

Thanks very much for the incremental color.

[Gary Wojtaszek:]

Sure.

[Operator:]

And the next questioner will be Jordan Sadler with KeyBanc Capital. Please go ahead.

[Gary Wojtaszek:]

Hi Jordan.

[Jordan Sadler:]

Good morning. So, I wanted to follow up on the capital discussion a little bit, if I may. I think the second consecutive quarter, but - that we've seen a significant uptake in your expected expansion CapEx. And I'm curious, given the pipeline being at its all-time high levels, is it safe to assume that next year will look similar to this year in terms of capital spend?

[Diane Morefield:]

We haven't given any guidance on 2018, so we can't address that at all. But the increase in the CapEx for the development pipeline that we just did this quarter, we - look, we're basically at November. We know what we spent through the end of the quarter and what the outlook was. Now timing can slip, but we just thought it was prudent to bring it up based on what could be spent between now and the end of the year, given that we still have a very robust development pipeline.

[Gary Wojtaszek:]

Yes. I would add a little more color to that, Jordan, is that when you look at our capital investment, you should think of that as a derivative of the sales that we are tracking and the strength of the funnel that we’re tracking, that we're willing to bring on additional capital. And so, we look at capital relative to our sales funnel and not the other way around. So, you should always look at that as a derivative measure of how strong the business is that we're looking at. The other thing on capital that - this year, we spent a lot of capital bringing on new capacity to give us inventory, which we didn't have next year, right? So, there's a lot of extra inventory that we just brought on this quarter, and we will in the next two quarters, that will give us a lot of capacity. So, if we stayed at that same level of bookings, we would not need as much just because we've got more inventory now this year that we didn't have last year, so - but on the next call, we'll give a lot more color in terms of what the guidance looks like.

[Jordan Sadler:]

Okay. And then, in terms of the funding, you touched on this, Diane, a little bit with the liquidity. I think the liquidity dips down in October a little bit because of obviously the GDS announcement or investment, but also the continued spend. So, I'm kind of curious in terms of the funding, you've got the ATM, you could do a bond deal. Is a JV still potentially on the table here?

[Diane Morefield:]

We still have discussions with potential JV capital partners. As we said, I think, on the last call, that wasn't probably going to be anything executed this year, but again, given the significant capital needs to support our exciting growth, we still have those conversations, but we'll see how that plays out more into 2018.

[Jordan Sadler:]

Okay. And then lastly just looking at the pricing, looked like it held up nicely, sequentially. Thinking about the overall portfolio, particularly next year's 20% is rolling, how do we think about re-leasing spreads or the mark-to-market on that?

[Diane Morefield:]

Well, it's been pretty flat, so plus or minus a couple of percent. So, it's really stayed in that range.

[Gary Wojtaszek:]

Look, I think what you should just look at is in our churn number, right, that includes any rent roll-downs, right? It includes any type of price reduction or customers leaving. And you're seeing our churn number this year at the - below the low end of our guidance. So, the business continues to do pretty well. But we think that longer term, like, 6% to 8% is like a good long term - that's what we actually use in our five-year modeling is that range.

[Jordan Sadler:]

Thank you.

[Gary Wojtaszek:]

Great.

[Diane Morefield:]

So, operator, we've really sort of gone over the hour. Gary, do you have...

[Gary Wojtaszek:]

No. We thank everyone for your time today. We appreciate you dialing in. We look forward to talking to you further over the next couple of weeks, particularly at NAREIT, which is being held in Dallas. So, thanks you all.

[Operator:]

And the conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines.