What's Behind CoreSite's Fortune 100 Channel Partner Deals

With the barrage of news coverage around the UK's Brexit referendum in late June, as those in the business and technology world were attempting to wrap their heads around what it would all mean, it was easy to miss the announcement by CoreSite, a top performing US data center REIT (Real Estate Investment Trust), of a partnership it recently struck with the Fortune 100 IT services giant Ingram Micro. CoreSite made the announcement the same day Britons went to the polls.

This was a second such partnership the data center provider struck recently -- the first one was with Avnet in June -- and represents an effort by CoreSite to squeeze more profit out of its current facility portfolio that is largely occupied. As of March 31, CoreSite reported occupancy of 90.6 percent, or 1,447,000 of 1,597,000 stabilized rentable square feet. (While this represents high utilization, stabilized data center occupancy was actually down sequentially from 92.5 percent at year-end 2015.)

In a nutshell, it is highly profitable to add cabinet density to stabilized data centers. CoreSite hopes to learn if granular deployments from channel partners will help turbocharge occupancy when space utilization is running at such high levels, the company's VP of channel sales, Dave Sroka, and senior VP of sales and marketing, Steve Smith. said in an interview with Data Center Knowledge. The data center REIT expects to generate considerable business from Ingram Micro and Avnet by offering cabinet choices which are easy to configure and price.

See also: Brexit: Keep Calm and Hold Onto Data Center REITs

Channel Partners Expected to Drive Higher Profits

Both Ingram and Avnet are global IT services giants with multitudes of customers in every region of the globe. In comparison, CoreSite has a much smaller geographical footprint focused on eight key markets in the US. The CoreSite sales team simply does not have the headcount to reach out directly to hundreds of thousands of smaller enterprises.

While it isn't cost-effective for CoreSite to ramp up an internal effort to reach out to these customers, the availability of on-ramps to Amazon Web Services, Microsoft Azure, and Google Cloud Platform inside its data centers remains a compelling feature for companies of all sizes.

See also: CoreSite Shares Spike as Cloud Data Center Leasing Accelerates

In the announcement of the Avnet partnership, Sroka touted Avnet's ability to bring hybrid cloud solutions around the many networks and service providers present in CoreSite's data centers, including the three big cloud providers, while the Ingram Micro announcement promised SKU-based products that make it simple for resellers to quote and sell the data center REIT's colocation options.

Ingram Micro's website now offers an a la carte menu of about 60 different CoreSite products for resellers to offer their customers. The available products vary by location and include a few promotional items to help kick off this new channel program.

As we already mentioned, CoreSite has been a top-performing data center REIT, due in no small part to its ability to grow earnings and increase dividends at impressive double-digit rates. Like its biggest competitor, Equinix, it targets customers who value the connectivity options and dense ecosystems available at any particular location or through its Any2Exchange peering network.

Investor Takeaway

The plan to generate highly profitable revenue with minimal sales and administrative expenses may help management extend its string of impressive quarterly results well into the future.

There is, however, a downside to high utilization for a data center REIT. CoreSite still needs to announce expansion plans in major markets in order to continue with its growth trajectory.

Smith reiterated that CoreSite remains focused on allocating new capital in ways that generate the highest risk-adjusted returns. Therefore, despite persistent industry M&A rumors, expanding in existing markets like Chicago, Northern Virginia, and Santa Clara still trumps opening up new markets -- either in the US, or overseas.

However, a large anchor tenant or build-to-suit could serve to de-risk new market expansions which CoreSite views as being strategic.

See also: Report: Microsoft and Oracle Gobble Up Data Center Space in Virginia