DENVER, CO—CoreSite Realty recently reported a solid quarter, with leasing volumes above long-term averages and leasing spreads remaining in positive territory. Management maintained 2014 FFO guidance, which implies that COR will record its third consecutive year of double-digit FFO/sh growth.
Trading at a 9.2% implied cap rate, that research firm MLV & Co. believe COR's stock is well below its true value given the in-fill nature of its well-connected portfolio and the significant upside potential from the development pipeline. “We estimate that COR is trading 15% below NAV but believes the company should trade at a premium to NAV given its growth potential and the value of its platform. We maintain our $38 price target and BUY rating,” says the firm.
In the earnings call, Tom Ray, CoreSite's CEO, said that “Our first-quarter results reflect continued execution of our business plan, with total operating revenues and adjusted EBITDA increasing 16% and 21% year over year, respectively.”
He explained that “Importantly, we recorded an increase in new and expansion sales, with 131 new and expansion leases executed representing $5.1 million in annualized GAAP rent. This represents a 48% increase over the prior quarter and a 12% increase over the trailing-year quarterly average. In addition, we increased the number of quota-bearing sales reps across our platform by 21%, reflecting progress against our goal to increase in-place quota coverage by approximately 35% over the course of 2014.”
According to MLV analyst Jonathan Petersen, his firm's COR thesis is driven by the following: the company's focus on connecting its data centers to multiple networks and exchanges will attract customers that need data center space for their “performance-sensitive” applications—these tenants are more likely to renew and pay premium rents; as the smallest company under our coverage, COR has the opportunity to grow more rapidly through development than its peers; and the company trades at a discount to Digital Realty Trust and private market transactions.
What would concern Peterson's team is that “G&A costs are high relative to peers due to the smaller relative size of the company and the large sales force that the business model requires; and Carlyle owns about 50% of the company, which creates an equity overhang on the stock.”
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
