DLR
#Hey <UNK>, it's <UNK> here.
We literally closed the transaction October 9, so we've gotten preliminary readouts on the numbers but obviously we haven't had our team go through and scrub all of the financials and get to a comfort level where we want to tell the public markets where we are coming out.
Preliminary review is that they are on track from a revenue and EBITDA standpoint.
Nothing is changing with our expectations for underwriting for 2016 where we're pacing.
We did commence, literally in conjunction with the closing, we commenced the execution of our synergy plan.
We had a handful of executives depart on that day.
We entered into transitional agreements with a handful of executives throughout the end of the year roughly.
And we've commenced on that rest of the expense plan, which we expect to be done with and deliver on those synergies before the end of the year.
That leads me to your second question.
NAREIT definition doesn't add back the transaction expenses.
So we will have transaction expenses associated with Telx including severance that will run through the P&L in the fourth quarter.
I think most of them will be done in the fourth quarter.
The large majority of it.
Yes that's basically timing, Vin.
The generators are a leading indicator and we would fully expect that the CapEx guidance will increase next year.
This is <UNK>.
Before you ask your second question, it's just a timing thing when you release to shelf, when you spend the money to construct.
We basically released to shelf a little bit later so the bulk of dollars are going to bleed into next year versus this fiscal year.
I think it will be closer to the high end of what we put out in investor day, plus or minus $50 million.
I don't think so.
I mean we are signing a lot of leases right now for space that doesn't exist.
So I think you're going to see a decent amount of pre-leasing percentage on everything that we develop next year.
So the table on page 10 ---+ all of the assumptions from the slightly positive renewals down to timing on the debt are all standalone and do not include Telx at all.
So you don't see $1.9 billion acquisition, you don't see the $250 million preferred, you don't see the $714 million of equity, nor the $950 million of bonds.
We are factoring the impact of Telx in our end results here.
So we think we will achieve this core FFO per share including Telx for 2.5 months in the results.
But the financings do not include it.
We've completed $500 million of debt this year it was a green bond.
We are still evaluating the potential Euro bond before the end of the year.
Now there's only so many weeks to the end of the year so that may roll into next year.
<UNK>, the reason it's not up higher is that we are factoring a couple of pennies maybe up to a nickel potential dilution from Telx.
For the fourth quarter.
That's not for 2016.
Remember we literally closed on the 9th.
Our assumptions for Telx 2016 include synergies being executed.
We're working through that plan but those individuals are still on the books.
We have not consolidated our office space and haven't achieved some of those expenses synergies.
And that doesn't include some of the underwritten growth so there is some dilution, a couple of pennies, from Telx that brings down that high end.
Does that make sense.
I hope we don't have less take up of the pre-stabilized stuff.
That stuff has already kind of ---+ I mean it's already staying in that rate so it should be easier to attack then from a leasing standpoint.
And if we're very focused on that in our sales discussions in our [vestment committee].
I'm just saying that 2.5 months is a very low time from sign to commencement.
And it feels like from looking at the business over a longer time period when you don't have lots of standing finished inventory, six months is a closer amount to a regular time period.
I think <UNK> wants to jump in and give a little more color as well.
<UNK>, thanks for asking a question to <UNK> then made him give me a curse look.
Our focus on the pre-stabilized space remains intent and I would say laser focused as we've been saying around the table.
And the history of the folks in my organization are such that pre-stabilized space has become a pretty profitable target for us.
So we're going to keep focused on it.
So <UNK>, I think your phone may have been on mute for the first second when you chatted so maybe just make sure we answer your full question.
On the mark-to-market piece two examples are northern New Jersey where we obviously have a heavy concentration of financial services.
A lot of activity that would happen on the backs of the financial crisis where it was a very tight supply market and we delivered and signed pretty great leases.
In that tight market some of those leases have rolled down historically and there's onesy, twosies in that market to come.
Another example is in Phoenix, off the top of my head, where we bought a portfolio and when we bought the portfolio at the time it had above market lease; we underwrote that.
We factored that into what we paid the seller of the portfolio.
And there is a lease or two in that market from that portfolio acquisition that will come through in the next year or two and roll down.
And <UNK>, this is <UNK>, to answer your question on big cloud platforms and driving connections.
That's exactly the strategy that we have been looking at executing before the Telx acquisition, but the Telx acquisition just makes it that much more crisp.
We've been having conversations <UNK> and I have been having conversations with most of our major customers and all of the major cloud providers in the space.
And very specifically we've started to see an interest on their side to not just land the large compute, cloud compute loads in our facility, which we've become expert at, but also making sure that there is available co-location space right next to that at extremely low latency and providing some direct connect facilities so that they can connect securely as well as with low latency.
So we're seeing increased demand not just for the large cloud workloads to continue to land in our space, but to have those enterprise clients land right next to them in co-location space.
In fact I'm proud to announce that just late last night we were able to land another major cloud provider in our Chicago facility and the conversations have began on just that structure.
We've only ordered the generators, <UNK>, because we have clear visibility into the demand, which is to say that <UNK>'s team has been busy signing leases.
A decent amount of which has occurred at the end of the quarter so it's October business rather than September business.
Perfectly correlated.
<UNK>, so we're still going through budgets for next year to give you the most up-to-date data.
I mean we are looking at the numbers it looks like it's around flat across the entire portfolio.
We're trying to push it into the positive territory.
But it's these one-off exceptions which have reasons to it, not due to other anything other than being signed at peak rents or something we underwrote that are driving the down piece of it.
So you're going to get a full picture when we put out our guidance at the beginning of next year.
Sure <UNK>, this is <UNK>.
So out of the gates what we've said before and what we continue to plan to deliver is essentially $148 million of EBITDA from the 20 Telx locations, $15 million of expense synergies, $10 million of it roughly flowing through the P&L.
We expect to meet or outperform in all of those metrics.
Capital intensity, recurring CapEx associated with that 2016 plan is 20% of that EBITDA, there is a little bit more of expansion CapEx outside of that.
But obviously the expansion CapEx won't have a massive EBITDA contribution in 2016.
Anything beyond that we view as a revenue synergy which we've been doing a lot of work towards and continue to develop throughout 2016 but we think it will be a small contributor to 2016.
And those are the examples we've outlined before and some of which on this call, be it bringing Telx to an Ashburn, [domestically] expanding their presence in some of our Internet gateways.
[Tethering] in certain assets, we're eventually bringing the Telx product of co-location and connection into our international campuses such as a Singapore or London.
But I would say that's a more ---+ we'll be doing a whole lot of work on that in the next 12 to 18 months, but I don't think you'll see a ton of capital intensity or a ton of EBITDA contribution during that time period.
Thank you, Denise.
I like to wrap up our call today by recapping our third quarter highlights as outlined here on page 16.
First and foremost we picked up another 10 basis points of improvement in our ROIC during the third quarter bringing the total improvements since the fourth quarter of 2013 to 130 basis points.
I would also like to point out the 10 basis point improvement during the third quarter excludes the one-time property tax refund and the 130 basis points since year end 2013 likewise excludes the impairment charge we booked during the fourth quarter of 2014.
These items would've added another 10 basis points each to the total.
As you know, we recently closed on the acquisition of Telx, which we believe will be a truly transformational transaction for our Company.
We beat third quarter consensus estimates by $0.05 and we raised guidance for core FFO per share from the prior range of $5.05 to $5.15 up to $5.12 to $5.18.
In short, we continue to execute on our top priorities.
I would like to thank the incredibly talented team of Digital Realty employees around the world who were responsible for delivering yet another solid quarter.
Many of whom have been working around the clock on the Telx acquisition and integration.
That concludes our third quarter call.
Thank you all for joining us.
