Data Center REITs

1

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY

DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its

research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should

consider this report as only a single factor in making their investment decision.

Credit Suisse Equity Research

Americas / United States

Data Center REITs Initiation: Enterprises Fueling the Next Colocation Boom

Sector Outlook: Overweight June 29, 2017

RESEARCH ANALYST

Sami Badri

Communications Infrastructure Research Tel: +1 (212) 538-1727 [email protected]

mailto:[email protected]



2

Launched Company Coverage, Ratings, & Target Prices Sector Outlook: Overweight

Sami Badri | 212-538-1727 | [email protected] Source: Thomson Eikon, Credit Suisse estimates, Company data

Targets & Ratings

Credit Suisse Target Price: The Credit Suisse Target Price leverages our valuation methodologies and reflects target prices we view as most achievable within the next 12 months. Our valuation methodology takes into account pricing multiples (P/AFFO & EV/EBITDA), DCF, NAV, and dividend growth values to drive company-specific target prices.

On a risk/reward basis, CyrusOne and Equinix are key calls and industry consolidators with strategic advantages.

Company TickerCurrent Market

Cap. ($mil)

Current

PriceRating Target Price

Implied Upside

or Downside

CONE $4,947 $56 OUTPERFORM $73 29.5%

EQIX $33,561 $431 OUTPERFORM $510 18.4%

QTS $2,551 $53 NEUTRAL $54 1.4%

COR $3,613 $106 NEUTRAL $103 -2.5%

Growing well above market, but AFFO growing below peers

Web Hosting business attractive, but not core bus., competitive market

Not a strategic acquirer, slow moving asset consolidator

Already very levered vs. peers, vulnerable to rising interest rates

Vulnerable to rising interest rates in the next five years

Solid execution across businesses, especially interconnection

Focused on U.S. DC markets, well integrated DC assets

Trading at a premium to the DC REIT group, expensive

Not an active acquirer or consolidator of industry participants

Needs to transform into a technology company, not real estate only

Company Details Credit Suisse Estimates - Ratings & Targets

Rating Summary & Key Points

Market interconnection leader, recurring and high margin long-term

CS estimates include Verizon data center acquisition & integration

Most global and distributed DC REIT, world class brand

Highest AFFO growth for the next two years

M&A consolidator, not captured in consensus or guidance

Ramping sales funnel, delivering record new leasing activity

Fastest industry DC build speeds, at low costs per megawatt

Highest conviction call in coverage


Lease pricing escalators and ramping interconnection driving growth

3

Table of Contents

I. Executive Summary

II. Five Key Market Drivers for Growth

III. Summary of Coverage Ratings & Target Prices

1. CyrusOne (Outperform, $73 TP) – Driving the Colocation Boom with the Fortune 1,000

2. Equinix (Outperform, $510 TP) – Pioneering the Interconnection of Things

3. QTS Realty (Neutral, $54 TP) – Secular Growth Is Not Enough

4. CoreSite Realty (Neutral, $103 TP) – Fairly Valued, Upside Priced In

IV. Investment Risks

V. Appendix

1. What Is a Multi-Tenant Data Center (MTDC)?

2. Potential Disruptors

Data Center REITs

“Data Center REITs,” “MTDC operators,” and “MTDC service providers” will be used interchangeably in this report. All Data

Center REITs are MTDCs, but not all MTDCs are REITs. “Colocation” will be used interchangeably with “MTDC capacity” where

contextually relevant and applicable.

Source: Credit Suisse estimates, Company data Sami Badri | 212-538-1727 | [email protected]

4

Executive Summary The multi-tenant data center (MTDC) market is growing at a ~9% CAGR from a $21bn base from 2016 to 2021, driven by accelerating data growth. This growth is

funneled from cloud providers and lifted by enterprise IT spending trends as traditional enterprises begin deploying hybrid IT infrastructures. As we delve into the Multi-

Tenant Data Center market, we have found five key growth drivers worth noting, unleashing significant value for the publicly traded Data Center REITs, in our view.

1. Data Center REIT End Markets Are Growing Rapidly: The MTDC industry is a segment within the Cloud Infrastructure-as-a-Service (IaaS) market. The IaaS

market is currently worth $48bn, growing at a CAGR of 23% for the next five years. The MTDC segment made up 43% of the IaaS market in 2016 and is

expected to make up ~23% of the market by 2021, a significant divergence. Despite this, we believe our 9% CAGR estimate may prove to be conservative

largely because the IaaS market does not accurately account for new types of IT equipment such as the interconnection market that is rapidly growing at a ~12%

CAGR for the coming five years within the MTDC market. We do not attempt to speculate over the uncaptured MTDC revenues at the moment but note that this

uncertainty will most likely positively surprise investors rather than disappoint given the underlying industry trends we highlight in our report. We find that as

enterprises consider transitioning to hybrid IT architectures, we expect the rapidly growing cloud end markets to continue, lifting the overall MTDC market.

2. Enterprises to Fuel the Next MTDC Colocation Boom: We believe that enterprises must adapt to the new low-latency, fast-deployment, and data-intensive

norms. In this section of our report, we illustrate the IT architecture shift that highlights the need for colocation and interconnection services achieved by moving

to a hybrid cloud architecture and away from traditionally centralized architectures. We illustrate the shift and benefits of hybrid clouds and note that by moving to

a multi-cloud architecture (or multi-colocation architecture), latency is reduced by 42%, increasing throughput, securing cloud connections directly, and reducing

latency for real-time analytics by 25%. As enterprises think about how they plan on being relevant and competitive, moving to a hybrid IT infrastructure will always

be a key consideration. In addition, we leverage enterprise IT surveys to support our view and compare the economical Total Costs of Ownership benefits of

moving to cloud architectures versus traditional IT architectures in quantitative detail.

3. Several Key MTDC Industry Dynamics Are Strengthening: As we assess the MTDC industry, we identify five different areas of strength to take the sector

further from a relevance and profitability perspective: (1) interconnection services are growing rapidly globally, accelerating as a % of colocation revenues, and

realizing price escalators over the coming five years; (2) costs of construction/development on the megawatt level are declining by ~20% within the coming five

years; (3) construction/development times are tightening rapidly; (4) market development absorption is increasing in key markets where power costs are most

economical; and (5) investment efficiency is consistently increasing across the DC REITs.

4. M&A, Enterprise Divestitures, and JVs to Drive the Sector Higher: The market has rewarded data center REITs that have made significant and strategic

acquisitions, announced joint venture potential, and taken on divested data center assets from enterprises. We expect industry consolidation to continue, with

more acquisitions and divestitures, and expect long-term institutional investors such as pension and sovereign wealth funds to begin announcing joint venture

agreements with data center REITs. This trend is likely to boost profits for the data center REITs, reducing the cost of capital for development projects and

diluting the risks of bringing data center capacity to the market. We see Equinix and CyrusOne as the main industry consolidators in the sector.

5. Multiple Levers Are Available to Push the Sector’s Valuation Higher: We identify a complete sector rerating driven by three main factors in 2017 and

2018: (1) capitalization rates will likely be revised downward to ~6%, boosting net asset value and market valuations; (2) P/AFFO ranges are expanding to ~21x

by the end of 2017 to reward high revenue and AFFO growth; and (3) dividend growth will attract new REIT investors that are currently on the sidelines.

Coverage Summary: Initiations, Ratings, & Target Prices:

• CyrusOne (Outperform, $73 TP) – Driving the Colocation Boom with the Fortune 1,000 – Multiple avenues to growth, trading at a discount to peer group.

• Equinix (Outperform, $510 TP) – Pioneering the Interconnection of Things – Global scale, interconnection sector leader with multiple levers for further upside.

• QTS Realty (Neutral, $54 TP) – Secular Growth Is Not Enough – Above industry average growth, but lacking scale in interconnection and overall IT density.

• CoreSite Realty (Neutral, $103 TP) – Fairly Valued, Upside Priced In – Solid execution with balanced interconnection revenues, but trading at a premium.

Sami Badri | 212-538-1727 | [email protected] Source: Credit Suisse estimates, Company data

Data Center REITs

5

Five Key Market Drivers for Growth

Sami Badri | 212-538-1727 | [email protected]

Market Drivers

6

Market (in $ millions) 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 13-'16 16-'21

Cloud Service Provider Market

Infrastructure as a Service (IaaS) 17,456 24,635 34,423 48,164 65,711 84,932 103,611 119,950 133,181 40.3% 22.6%

Physical facility 18,679 20,470 22,296 24,131 26,004 27,965 8.4%

IaaS other 29,485 45,242 62,636 79,480 93,946 105,216 29.0%

Cloud as a Service (CaaS) 1,917 3,772 6,958 12,118 20,331 31,386 43,711 54,880 63,275 84.9% 39.2%

Platform as a Service (PaaS) 1,580 3,194 6,431 10,746 17,728 26,814 36,641 45,492 52,330 89.5% 37.2%

Software as a Service (SaaS) 20,286 29,005 45,350 54,824 64,649 73,856 81,973 88,757 94,180 39.3% 11.4%

Total CSP Revenue 41,239 60,607 93,161 125,852 168,420 216,988 265,935 309,078 342,967 45.0% 22.2%

Y/Y Change 47% 54% 35% 34% 29% 23% 16% 11%

Multi-Tenant Data Center Market

Colocation 13,628 15,107 15,923 17,466 19,160 20,828 22,520 24,249 26,063 8.6% 8.3%

Interconnection 1,321 1,483 1,601 1,853 2,101 2,375 2,652 2,950 3,278 12.0% 12.1%

Other 1,095 1,184 1,204 1,213 1,310 1,467 1,611 1,755 1,902 3.5% 9.4%

Total MTDC Revneue 16,044 17,774 18,729 20,532 22,571 24,671 26,783 28,955 31,243 8.6% 8.8%

Y/Y Change 11% 5% 10% 10% 9% 9% 8% 8%

MTDC as a % of IaaS 92% 72% 54% 43% 34% 29% 26% 24% 23%

CAGR

Data Center End Markets Are Growing Rapidly

Sami Badri | 212-538-1727 | [email protected] Source: I.H.S. Markit, Credit Suisse Research

End-Market Growth

The Multi-Tenant Data Center (MTDC) End Markets Are Growing Rapidly: We note the following key data points when sizing and assessing the MTDC end market and factor our end market assumptions into our specific company valuations for the DC REIT group.

• Cloud Service Provider Revenues Are Growing at a 22% CAGR from a $126bn Base from 2016 to 2021, Expanding the Market by

~$43bn per Year: The most significant attributor to the growth of Data Center REITs in the past few years has been its positive correlation with the rapid growth of the Cloud Service Providers, largely driven by the major Big5 public, private, and hybrid cloud players Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform (GCP), IBM SoftLayer & Bluemix, and most recently Oracle Cloud. Specifically, data center REITs recognize their revenues within the Infrastructure-as-a-Service segment that is growing at a 23% CAGR from ’16 to ’21 from a $48bn base.

• MTDC Market Is Growing at a ~9% CAGR from a $21bn Base from 2016 to 2021, Expanding the Market by ~$2bn per Year: Based on our market projections, the MTDC market is projected to maintain the ~9% CAGR level not only through 2021 but beyond, driven by a combination of factors including lease price escalators (average at ~2% per year), higher demand for power (that is being passed through to the customer), space, and general onsite services (cloud hosting, smart hands, other) to accelerate processes. We note that MTDCs mainly generate “Physical Facility” revenues, found within the IaaS market, but also “IaaS Other” revenues, that include onsite services, cloud hosting services, various types of

interconnection offerings, and other bespoke requests from customers. Given MTDC’s ability to generate revenues in the adjacent “IaaS

Other” market, we believe our 9% CAGR estimate may prove conservative, especially after considering the IaaS Other market is

growing at a 29% CAGR.

7

0%

5%

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40%

45%

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2014A 2015A 2016A 2017E 2018E 2019E 2020E

To

tal Y

/Y

Gro

wth

(%

)

Re

ve

nu

e (

in $

millio

ns)

Infrastructure as a Service (IaaS)

Infrastructure-as-a-Service Growing at a 26% CAGR


IaaS growing at a 26% CAGR from a $48bn base in 2016, largely

driven higher by server, networking, storage, database, and

management hosting for customers

Of the Infrastructure-as-a-Service (IaaS) market, approximately half was

generated by MTDCs (physical facilities) or passed through from Cloud

Service Providers (such as Amazon Web Services, etc.). We estimate that of the $48bn IaaS market, ~$21bn is generated by or passed through to MTDCs. IaaS is made up of two distinct categories: Physical Facilities and IaaS Other.

1) Physical Facilities (~43% of IaaS market revenues) are environmentally controlled physical spaces that include fire protection, electrical, cooling, and physical security for IT hardware and software components.

2) IaaS Other (~57% of IaaS market revenues) includes (IT hardware equipment mainly) servers, storage, database, network (layer 4) applications, and management; does not include Cloud-as-a-Service.

Amazon Web Services, China Telecom, Equinix, Microsoft, and Digital

Realty are the Top 5 market share leaders with growing share. We highlight below that within the Data Center REIT coverage group, Equinix and Digital Realty are the only two Data Center REITs that make it into the IaaS Top 5.

The Physical Facilities (MTDC) market was ~43% of the IaaS

market in 2016 but declining as a % of total IaaS, largely driven

by technological efficiencies and higher processing computation

hardware, requiring less space & power from MTDCs

Source: I.H.S. Markit, Credit Suisse Research

2016’s Top 5 IaaS Included Equinix and Digital Realty

Other, 48%

Amazon, 25%

China Telecom,

6%

Equinix, 5%

Microsoft, 4%

Digital Realty,

3%

Rackspace, 3% China Unicom,

3%

CenturyLink,

2%

End-Market Growth

54%

43%

34%29%

26% 24%

0%

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80%

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2014A 2015A 2016A 2017E 2018E 2019E 2020E

MTD

C a

s a

% o

f Ia

aS

(%

)

Re

ve

nu

e (

in $

millio

ns)

IaaS Revenues Physical Facilites Revenues

8

Workload Forecasts Point to Surging Cloud Traffic


With 47% of Global Hyper. DCs Running Within the U.S.

With Hyper. DCs Taking 47% Share of Workload Servers LT Global Cloud Workloads Are Growing Significantly…

With N.A. & APAC Running ~75% of the World’s Hyper. DCs

Cisco’s Global Cloud Index Forecasts a Very Clear Growing Picture – Clouds and Hyper-Scalers Will Continue to Grow Rapidly: The Cisco Global Cloud Index (GCI) forecasts traffic within the data center, from data center to data center, and from data center to user.

United

States,

47%

China, 7%Japan, 7%

Austrail.,

5%

Singa.,

4%

Germany,

4%

Canada,

4%

India, 3%

UK, 3%

Ireland,

3%

Braz., 3%

Neths.,

2%

H.K., 1%

Other, 7%

0

100

200

300

400

500

600

2015 2016 2017 2018 2019 2020

Hyp

ers

cale

Data

Cente

rs

Midde East

and Africa

Central and

Eastern

EuropeLatin

America

Westeern

Europe

Asia Pacific

North

America

0%

5%

10%

15%

20%

25%

30%

35%

-

100

200

300

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600

2016 2017 2018 2019 2020

To

tal W

ork

load

s Y

/Y

Gro

wth

(%

)

DC

Wo

rklo

ad

s (

in $

millio

ns)

Traditional data center workloads Cloud data center workloads

Source: Cisco VNI, Credit Suisse Research

End-Market Growth

21%

27%

33%

38%

43%

47%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

100

200

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400

500

600

2015 2016 2017E 2018E 2019E 2020E

% s

hare

of

DC

serv

ers

(in

sta

lls)

Hyp

ers

cale

Data

Cente

rs

# of Hyperscale Data Centers

% Share of Data Center Servers (Installed Base)

Northern

Virginia

Represents a Significant % of Total U.S. Hyper-Scale

DCs

9 Sami Badri | 212-538-1727 | [email protected]

...Which Is Expected to Grow Significantly

Driven by Consumer Activity, Not Business/Enterprise Apps

77% of all DC Traffic Occurs Within the Same DC…

Source: Cisco VNI, Credit Suisse Research

End-Market Growth

Global DC IP Traffic Growing at a 24% CAGR ’16-20…

38%

32%

26%

19% 19%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

2

4

6

8

10

12

14

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18

2016 2017E 2018E 2019E 2020E

Zett

ab

yte

s Y

/Y

Gro

wth

Zett

ab

yte

s p

er

ye

ar

Zettabytues per Year Y/Y Growth

14%

9%

77%

Data center

to user

Data center

to data center

Within data

center

IP Traffic Within DCs Driving Surging Cloud IP Traffic

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2016 2017E 2018E 2019E 2020E

Exab

yte

s p

er

ye

ar

Data center to data center Data center to user Within data center

-

2,000

4,000

6,000

8,000

10,000

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18,000

2016 2017E 2018E 2019E 2020E

Exab

yte

s p

er

year

Business Consumer

10

MTDC Utilization, Pricing, and Demand All Rising


0-200KW Lease Sizes Making Up the Majority of the Market Asia Remains the Highest Growth Region Through ‘20

MTDC Utilization Levels Reaching ~81% Globally by 2020

MTDC Growing at a CAGR Below Global Hyper-Scalers and Clouds, but Still at a High Notable Clip Across Various Metrics: We highlight that within the rapidly growing IaaS market, regionally and by lease size, utilization levels and prices per megawatts are all rising as a result of high demand.

0%

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12%

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tal Y

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in $

millio

ns)

EMEA Asia Americas

-

5,000

10,000

15,000

20,000

25,000

30,000

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

Re

ve

nu

e (

in $

millio

ns)

> 1 MW 500.1 kW- 1 MW 200.1 kW - 500 kW 100 - 200 kW < 100 kW

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400

5,600

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

Ave

rag

e P

rice

pe

r M

W (

$th

ou

s)

Americas AVG Asia AVG EMEA AVG Global AVG

Seeing Rising Prices per MW in Asia & EMEA Most by 2020


72%

74%

76%

78%

80%

82%

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

Avera

ge M

TD

C U

tilizati

on (

%)

Americas Asia EMEA Global AVG

End-Market Growth

11

0%

10%

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30%

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60%

0

10

20

30

40

50

60

70

FY2010 FY2012 FY2014 FY2016 FY2018 FY2020

Y/Y

Gro

wth

(%

)

Cap

ex (

in $

bn

)

MSFT AMZN AWS FB EBAY

AAPL GOOGL YHOO BABA

TCEHY BIDU Y/Y Growth (%) Capex to Sales (%)

0%

5%

10%

15%

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25%

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40%

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FY2010 FY2012 FY2014 FY2016 FY2018 FY2020

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in $

bn

)

MSFT AMZN AWS FB EBAY AAPL GOOGL

YHOO BABA TCEHY BIDU Y/Y Growth

Hyper-Scale Capex Will Remain a Significant Driver

Sami Badri | 212-538-1727 | [email protected] Source: Thomson Eikon (consensus), Credit Suisse Research

Hyper-Scalers Will Continue to Boost

MTDCs in the Medium to Long Term

Despite a slowdown in capex spending in

’16-’20 to 9% CAGR vs. the prior five year level of 27% CAGR, we continue to see significant capex investments from hyper-scalers in the long

term into physical facilities and MTDCs, largely driven by end-market growth for cloud service provider products, services, and the proliferation

of connected devices.

We estimate that between 5% and 10% of

hyper-scale capex spend goes to data

center expenditures, allocated between

privately managed data centers (example: AWS S3 Data Center, Google Search Facility) and MTDCs. We see a larger percentage of hyper-

scale data center spend to be allocated to MTDCs as MTDCs’ scale, interconnection

capabilities, and expertise with enterprise data center customers continue to grow.

Continued capex from hyper-scale bellwethers will be invested in various areas of businesses, with Amazon focused on content, fulfillment, and

AWS; Facebook in support of the rising use of streaming video as well as Messenger and

WhatsApp; and Google in support of seven businesses with over 1bn users each and multiple

others with hundreds of users each (source: Credit Suisse Internet Research Team).

Note: We use consensus estimates to capture what the general market is forecasting for the hyper-scale category, except for Amazon Web Services, which are Credit Suisse Internet Team

estimates.

With Consensus Capex Spending Growth Slowing to a ~9% CAGR in ‘16-’20, In Line of

MTDC Market Growth That Is Also Growing at a CAGR of ~9% from ‘16-’20

Consensus Hyper-Scale Revenues Are Projected to Grow at a ~12% CAGR in

‘16-’20, Driven by Significant Consumer Adoption of Hyper-Scale Products/Services

End-Market Growth

12

The DC industry is fragmented and competes on many fronts… Competitive factors include price, power, space, reliability, and offerings


Most MTDC vendors compete by providing the best value for the lowest price. Price is fairly sensitive to differences between MTDCs and is affected by how much space,

power, and additional services the customers require in their deployment decision. Every customer has varying

requirements for deployment where various vendors are positioned favorably or unfavorably, making the playing field vast and fragmented across the industry.

Source: I.H.S. Markit, Uptime, Credit Suisse Research

Competition on Data Center Reliability Tier

Compete on Product and Services Offering

Tier 1 Tier 2 Tier 3 Tier 4

99.671% uptime 99.749% uptime 99.982% 99.995%

no redundancyPartial redundancy in power

and cooling

N+1 fault tolerant providing

at least 72 hour power

outage protection

2N+1 fully redundant

infrastructure with 96 hour

power outage protection

28.8 hours of annual

downtime

22 hours of annual

downtime

No more than 1.6 hours of

downtime per year

26.3 minutes of annual

downtime

Competition on Price for power, space, overall needs

Retail Feature Wholesale

1-3 years Typical Lease Length 5-10 years

1-25 Rack Spaces Space LeasedData Center Cages or Entire

Halls

0-500Power / IT Load Needs (in

Kilowatts)500+

Power cost typically included in

offerPower Consumption Terms

Power cost typically pass-

through

Almost Always Interconnection Services Sometimes

Little, Generally NoneCustomer Infrastructure

Build InflueunceSome Degree

Yes Web Hosting Services Generally Not Offered

500 Sq. Ft.Typical Leased Space per

Customer8,000 Sq. Ft.

Retail vs. Wholesale Data Centers

Others,

32.7%

Equinix,

17.7%

Digital

Realty,

8.2%

China

Telecom,

5.8%

China

Unicom,

3.1%

Century

Link, 3.1%

NTT, 3.0%

13

Enterprises to Fuel the Next MTDC Colocation Boom

Market Drivers


14

Enterprises Must Evolve into IT Cloud Hybrids


Hybrid Cloud IT: By moving to a multi-colocation

architecture, latency is reduced by 42%, increasing

throughput, securing cloud connections directly, and

reducing latency for real-time analytics by 25%.

Traditional IT: Enterprises have to change their data

center connectivity strategy, currently costing them

bandwidth costs, poor user performance, and creating

indirect and unsecure cloud connections.

Enterprises Must Adapt to the New Low-Latency, Fast-Deployment, and Data-Intensive Norms: Below we illustrate the IT architecture shift that highlights the need for both colocation and interconnection services achieved by moving to a hybrid cloud architecture, leaving traditionally centralized architectures. As MTDC customers move to hybrid IT infrastructures, using multiple data centers enables them to unleash a multitude of efficiencies in connectivity, user experience, and cost (reduction in CAPEX, moving cost to OPEX). Below we illustrate the shift and benefits of hybrid clouds and note that by moving to a multi-cloud architecture (or multi-colocation architecture), latency is reduced by 42%, increasing throughput, securing cloud connections directly, and reducing latency for real-time analytics by 25%. As enterprises think of how they plan on being relevant and competitive, moving to a hybrid IT infrastructure will always be a key consideration.

“The 480 leases signed in the quarter (1Q 2017) shattered our previous record with demand from both cloud and enterprise customers, and the volume was 32% above our prior 8-quarter average…We are excited about the prospects for growth over the coming years, given the underlying secular demand trends, and the value proposition that we offer equally to both enterprise customers and cloud companies.”

– Gary Wojtaszek, CEO, CyrusOne 1Q 2017 Earnings Conference Call

Enterprise Boom

Source: Equinix, CyrusOne, Credit Suisse Research

Old New - Hybrids

15

File-Read Throughput Test Results: In the best case scenario, using full caching and parallel processing:

Solution Total Data ThroughputSeconds to render

page

IBM Cloud Bluemix

over Internet5.5MB 415KB 13.3

IBM Cloud Bluemix

over X-Connect5.5MB 22,914KB 0.2

File-Read Latency Test Results: For a non-optimized application:

Solution Total Data Payload Roundtrips Latency/MSSeconds to render

page

IBM Cloud Bluemix

over Internet5.5 MB 64K 86 301 25.8

IBM Cloud Bluemix

over X-Connect5.5 MB 64K 86 4 0.3

55x Faster Cloud Architectures with Direct Cross Connects…


What is the difference between Internet vs.

X-Connect?

X-Connect involves a direct interconnection cross connect within a data center, while

Internet interconnection requires a wide area network (WAN) connection.

Digital Realty conducted a study to show how a well-designed hybrid cloud architecture (Direct Link Colocation, a solution that creates a private connection between IBM Cloud Bluemix services and customer-provided networks) performs versus one that leverages standard facilities. The report had five key findings:

1. By eliminating the need for a WAN connection between the customer’s data center infrastructure and IBM Cloud Bluemix services, the solution maximizes throughput to 22,914KB, reflecting 55.4x higher throughput vs. internet.

2. The solution solves the business challenge of maintaining control and privacy of data while extracting maximum value, allowing customers to transfer sensitive data between their private cloud and the IBM Cloud via a redundant, dedicated Layer 1 fiber, with no public Internet exposure.

3. Customers can easily manage storage to accommodate larger workloads as the solution supports storage scale-out to more than 17,000

drives, with latency as low as 4 ms, and 0.3 seconds to render pages.

4. Creating a private high bandwidth, low latency connection to expedite data migration maximizes productivity of computational and human resources, dramatically reducing the total cost of ownership.

5. IBM Cloud Bluemix Infrastructure-as-a-Service allows for faster server and storage provisioning, from 30 minutes to 2 hours.

Source: Digital Realty, Credit Suisse Research

Direct Link Colocation Using IBM Cloud Bluemix Reduces Latency and Increases Throughput for Interconnectivity

16

Cloud Momentum Well Supported


Enterprise Boom

Source: CS IT Hardware Research IT Survey 2016

0%10%20%30%40%50%60%70%80%90%

100%

0%

4%

8%

12%

16%

20%

0%

10%

20%

30%

40%

50%

60%

0%

10%

20%

30%

40%

50%

60%

70%

Q. Respondents asked priorities when looking for a cloud vendor Q. Respondents asked rationales of moving to Cloud

Q. Respondents asked concerns for the public Cloud Q. Respondents asked the most disruptive technology

Cloud Buyers Value Availabil ity, Perform., and Reputation over Price Reduce Capex and Agility Are the Top Reasons for Cloud

Public Cloud Well Received Despite Security Remaining Top Concern IaaS, Hyperconvergence Viewed as the Most Disruptive Technologies

Survey: Credit Suisse IT Hardware Research Survey 2016

17

Core Enterprise Applications Are Moving to the Cloud


Enterprise Boom

Source: CS IT Hardware Research IT Survey 2016

0%

20%

40%

60%

80%

0%

10%

20%

30%

40%

50%

Mostly new

workloads,

some

existing

ones

Only moving

existing

ones

NA-I am not

transitioning

to the cloud

Mostly

existing

workloads

Only brand

new

workloads

Other

Email, CRM, Productivity Apps Are Likely to Move to Cloud

Q. Respondents asked the likelihood to move use cases to public cloud

Mostly New Workloads Are Likely to Move to the Cloud

Q. Respondents asked the type of workload to migrate to Cloud

16%

18%

10%

12%

14%

16%

18%

20%

0%

10%

20%

30%

%IT

sp

end

to

Clo

ud

1 year 3 years

IT Spend Allocated to Private Cloud Increase by 2% Within 3 Years

Q. Respondents asked IT spend allocated to private Cloud within 1 or 3 years

Not All Applications (or Data Centers) Are Created Equally:

Applications can be workload intensive (big data analytics, high frequency trading, mission critical, etc.) or require significantly less constant uptime (storage, HR apps, finance and account back office apps, etc.), and the decision on where to run each respective application, on Clouds or off, can influence both the IT infrastructure used and how a data center is constructed in the first place. For instance, Amazon has an entire data center dedicated to its S3 storage business, which makes sense given the single purpose use case. However, there are downsides to this strategy as we have recently observed with Amazon’s S3 shutdown, which caused some companies to go offline for a couple of days. MTDCs are built to have a multitude of purposes, overbuilding in most cases to accommodate various customer needs and asks; however, we see the industry changing given its scale and scope. We expect to see workload purpose-built data centers such as hyper-scalers adopted by the MTDCs, increasing the appeal of leasing space and power.

Survey: Credit Suisse IT Hardware Research Survey 2016

18

MTDC and Interconnection Are IaaS Focuses for CSPs

Sami Badri | 212-538-1727 | [email protected] Source: I.H.S. Markit, Credit Suisse Research

Survey: I.H.S. Markit

Enterprise Boom

81%

75%

81%

75%

50%

69%

50%

56%

6%

19%

13%

13%

13%

25%

13%

19%

6%

6%

6%

12%

25%

18%

31%

38%

Storage

WAN/Internet

Computing

Physical facilities (MTDC)

Data center interconnect

Networked applications

Management

Database

Increased Decreased Remained constant Not offered

MTDCs and Interconnect Are a Growing Focus for IaaS CSPs

MTDC and Interconnect Are Clear Growth Areas for IaaS CSPs

94%

88%

82%

82%

76%

76%

65%

59%

94%

88%

88%

88%

82%

82%

76%

71%

Storage

WAN/Internet

Computing

Physical facilities (MTDC)

Data center interconnect

Networked applications

Management

Database

Now (March 2017) 2018

Q: What types of IaaS services are offered now and what types do you plan on offering by the end of 2018?

Q: What IaaS revenues decreased, remained constant, or increased over the past 2 years for each IaaS offered?

Cloud Service Providers (CSPs) That Are Focused on IaaS

Recognize Physical Facilities (MTDC) and Data Center

Connection as Areas of Importance: In a survey extended to 17 CSPs asking to assess their offerings and growth areas, as well as their enterprise profile (hybrid cloud, private cloud, or public cloud only), the survey confirmed three main points, in our view.

1) Physical Facility Demand Is Increasing, Driven by More

Economical Decisions by Enterprises and IaaS Customers: As enterprises seek to transition their IT architectures into hybrid clouds, they run into one key issue, which is “where should we host it?” A standalone enterprise running its own data center has many inefficiencies, not to mention unforeseen costs that break the economic rationale to build-your-own data center. Given this, enterprises find it more economical to outsource the data center aspect of their hybrid architecture strategy, allowing for MTDCs, that run very efficiently, to absorb the business. The survey results show that more IaaS vendors are moving into the physical facilities and interconnection opportunity, driving up MTDC traction.

2) Data Center Interconnection Is Also Increasing, and the Only

Real Option to Leverage Interconnection Is Through an

MTDC: The only feasible way to have a well-run interconnection system is to be physically located to other clouds, which means MTDCs benefit from the sole need for proximity by enterprises deploying their hybrid cloud architectures.

3) Security Remains a Top Priority, and Using an MTDC Is More

Reliable: Finally, security remains a recurring requirement for all things hybrid IT. Enterprise customers have admitted that established MTDCs with domain expertise execute a secure data center more effectively than building an in-house data center, further extending the MTDC advantage.

19

Manufacturing, Banking, Others All Moving to Cloud


Enterprise Boom

45

52

82

59

70

67

53

62

70

75

63

62

32

30

0

27

18

22

37

28

20

21

38

26

0 20 40 60 80 100

Healthcare

Transportation

Wholesale Trade

Manufactoring

Retail

Banking

Communications

Education

Government

Insurance

Utilities

Total

Percentage of Respondents (%)

By 2014 By 2017

Source: Gartner, CS IT Hardware Research

Q: When did or will your organization begin the use of these cloud service types (including both public and private cloud)?

Q: Has your organization made a significant investment in public cloud?

0% 20% 40% 60% 80% 100%

Total

Government

Insurance

Communicati…

Utilities

Healthcare

Wholesale Trade

Transportation

Retail

Education

Banking

Manufacturing

Yes No Not Sure

Q: What are the top-three reasons for considering a public-cloud-based model?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Overall cost reduction

0%

10%

20%

30%

40%

50%

60%

Operational agility and scaling (ability to react quickly to

opportunities)

0%

10%

20%

30%

40%

50%

60%

Improved development environment (faster time to

deployment, easy to develop, access to development tools)

Red line represents the % of total respondents selecting each category as a top reason to consider a public-cloud-based model.

88% of Enterprises to Begin IaaS by 2017, Up from 62% in 2014,

with Wholesale Trade Moving the Fastest

53% of Enterprises Have Made Significant Investments in Public Cloud, Led by Manufacturing, Banking, Educ., Retail

Lower Cost, Operational Agility, and Better DevOps Remain Top Reasons for Public-Cloud-Based Adoption

Survey: Gartner

20

So How Much More Economical Are Clouds?


Amazon Significantly Cheaper, even in Steady-State Usage: With respect to the use case of a web application that requires steady-state usage of six servers, Amazon’s AWS can be significantly cheaper than deploying resources on-premises. The gap between the TCO becomes even greater as usage exhibits “peaky” or unpredictable patterns.

Total Cost of Ownership (TCO) on Compute Is ~60% Cheaper, Slicing IT Costs Significantly

2 web servers &

2 application

servers

2 Database servers Support

$64,130

Three-year cost

$292 per month

or

$10,512

$1331per month

or

$47,935

$244 per month

or

$5,683

High-Memory Extra

Large 3-Year Heavy

Utilization Reserved EC2

$0.05/hr with one-time

$1314 up front

High-Memory Extra Large 3-Year Heavy

Utilization Reserved Amazon RDS DB

Instance

$0.71/hr with one-time $5,256 up front

Server

hardware

Network

hardware

Hardware

maintenance

Software/

Virtualization

Power &

cooling

Rack

infrastructure

cost Deployment

$153,137 Three-year cost

$705/mo

or

$25,375

$278/mo

or

$10,016

$386/mo

or

$13,886

$765/mo

or

$27,532

$1,694/mo

or

$60,998

$405/mo

or

$14,580

$21/mo

or

$750

2 web servers

2 app servers

2 DB servers

Networking

overhead 20% of server acquisition cost

Both server and

networking

Power

consumption of 2.25KW

Electricity price

of $0.12/kWH

Top-of-rack

switch included

One-time

deployment

Source: AWS TCO Calculator, CS IT Hardware Team

Enterprise Boom

Traditional Steady-State Web Application Scenario

“New” Steady-State Web Application Scenario

21

So How Much More Economical Are Clouds?

Data

content

Data

in

Data

out

Incremental network

bandwidth costs

$145,250 Annual cost

$60,000 $1,250 $72,000 $20,000

Monthly subscription

100 TB

$0.05/GB/month

$0.05/GB transfer-in rate

One-time initial transfer

$0.12/GB transfer-out rate

Data out/ month: 50%

Data

content

Redundancy

& utilization

Operating

costs

Warranty &

maintenance

Data

migration

$545,000 Annual cost

$50,000 $116,667 $248,000 $80,000 $50,000

100 TB

$2/GB@50% discount

Expected lifespan: 4 years

2 copies of data

for redundancy

Typical utilization: 60%

Storage admin:

2@ $120k/year

Facilities/power: $8.3k/year

Annualized

maintenance charge

Annualized data

migration charge

Sami Badri | 212-538-1727 | [email protected] Source: AWS TCO Calculator, CS IT Hardware Team

Traditional File Storage Systems Are Expensive to Buy and Run, but Moving to the Cloud Compresses Spend Significantly

Cloud Storage Is Often More Simple to Implement and Cheaper Than Traditional Storage

1 2

3

1

1) Storage Acquisition Cost Drives a Material Part of the Cost of the Internal Storage Model: Here, it is assumed for 100 TB that the cost would be around $200,000 exclusive the consideration of redundancy requirement and utilization issues.

2) Utilization and Replication Sizably Affect Costs of Internal Storage: Typically storage environments see raw capacity utilization (data written over raw capacity on hand) below 60%, and RAID protection requires at least two copies of data.

3) Staff, Facilities, and Maintenance Are a Major Part of Costs, Although Often Obscured: It is assumed here that cloud services store multiple copies of every piece of data to prevent loss of unavailability. If the included copy count is lower than three, Forrester assumes that you would have to pay for extra redundancy for the service to be effective for this use case.

Cloud TCO Is ~70% Lower than Traditional Storage, Slicing IT Costs Significantly

Enterprise Boom

22

The $150 million glitch, proving non-MTDC’s aren’t reliable


DC Outages

British Airways faces an outage in May 2017, costing them over $150 million

Source: CNN Money, Reuters, CNBC, Fortune, Credit Suisse Research

Delta Airlines faced two outages, both lasting over 3 hours and costing hundreds of millions

Delta’s systems have faced two separate outages, the first involving a fire that canceled 2,300

flights over three days and cost the airline $150 million. The first outage lasted approximately 5 hours but had lasting effects for the company. The second outage lasted a little under 4 hours, forcing Delta to cancel ~300 flights.

Last May 2017, a contractor doing maintenance work at a British Airways data center at Boadicea House inadvertently switched off the power supply, knocking out the airline’s computer systems. The outage lasted 15 minutes and brought down the website, stopping people from checking in. The outage forced British Airways to cancel 800 flights from Gatwick and Heathrow, leaving 75,000 people stranded and costing British Airways $100-140

million in compensation alone, with ~$40 million in lost revenue.

Amazon employee takes down one too many servers while debugging, leaving the internet in the dark

An Amazon employee was in the process of debugging an issue with the billing system and accidentally took more servers offline than intended. As the subsystems went offline, S3 was unable to service many requests, leaving a good portion of the internet in the dark, including companies such as Slack and Trello. The outage cost companies in the S&P 500 ~$150

million.

With just three cases, we arrive to almost $500 million in costs. The total cost of outages could be in the billions YTD 2017.

23

Multi-Tenant Data Center Industry Dynamics Are Strengthening

Market Drivers


24

Dynamics Are Strengthening – Led by Interconnection


Interconnection

5x Cross Connect Density over Five to Six Years of MTDC Operation

What Are Interconnection and Cross-

Connections-as-a-Service (CCaaS)?

Data center interconnection is a business involving connecting various tenants within the same MTDC to each other and charging a recurring fee per cross connect monthly. Cloud customers generally connect to numerous counterparts within the MTDC, such as their customers, whereas other types of customers, such as health care or oil & gas companies, have generally less cross connections.

5x Cross Connection Density over Five to

Six Years in a Single International Business

Exchange (IBX) Data Center.

Once a facility starts to fill up, interconnection density grows significantly, attracting more enterprises, clouds, content providers, and clouds of various types to be at the epicenter of data transmission, partly to achieve the lowest latencies.

Various Types of Cross Connects for

Various Speeds and Latencies Are Offered

by MTDCs.

The cross connect services vary from vendor to vendor, including copper & fiber hardware cables and software & services products. Equinix’s cross connection platform is unquestionably the most complete and global in the MTDC industry, followed by Digital Realty’s offering through its recently acquired Telx assets and CyrusOne’s recent rollout of National IX.

Source: Equinix, FS, Credit Suisse Research

Cross Connections Can Be Connected to as Many Cabinets as Needed

25

Interconnection Market Growth Is Accelerating


…with EQIX Taking ~35% of the Interconnection Market by 2020,

Driven by Both Hybrid IT Clouds and Enterprises Interconnectivity

…Accelerating as a % of Colocation Revenues Globally, Seeing

the Americas Pick Up the Most to ~13% by the End of 2017

Interconnection Is Growing at a 12% CAGR, Faster Than the

Overall MTDC Market

Monthly Recurring Revenues per Cross Connect Also Increasing,

Driven by Pricing Escalators and Increased Density Needs…

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2014 2015 2016 2017 2018 2019 2020

To

tal Y

/Y

Gro

wth

(%

)

Re

ve

nu

e (

in $

millio

ns)

EMEA APAC AMER Y/Y Growth

8%

9%

10%

11%

12%

13%

14%

Q1

2013

Q3

2013

Q1

2014

Q3

2014

Q1

2015

Q3

2015

Q1

2016

Q3

2016

Q1

2017

Q3

2017

Inte

rco

n.

as a

% o

f C

olo

. R

eve

nu

e

Americas Asia EMEA

$75

$125

$175

$225

$275

$325

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

Mo

nth

ly R

evenu

e P

er

Cro

ss C

onnect

($)

EQIX - AMER EQIX - EMEA EQIX - APAC EQIX - Global

DLR CONE COR QTS

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

200

400

600

800

1,000

1,200

2013 2014 2015 2016 2017 2018 2019 2020

Eq

uin

ix a

s %

of

Inte

rco

n m

ark

et

Inte

rco

nne

ctio

n R

eve

nu

e (

in $

mil)

Equinix Interconnection Revenues Equinix as a % of the Intercon. Market

Source: I.H.S. Markit, Credit Suisse estimates, company data

Interconnection

26

MTDC Development Builds Are Completing Faster


Faster Development

Data Center Construction and Development Timelines Are Contracting, Accelerating Time to Market and Increasing Relevance to the

Infrastructure-as-a-Service Market: New, highly modular multi-tenant data center design principles enable MTDCs to efficiently stage construction on a large scale and deliver critical power and colocation square feet (CSF) in a time frame that is leading in the industry. The design also allows for flexibility with respect to repurposing facilities for various customers if needed. Two key points explain why this is important within the MTDC industry:

1) MTDCs Can Now Build as Fast or Faster Than Hyper-Scale Customers: Based on our industry channel checks and data center REIT counterparts, we believe that MTDCs can now construct, develop, and operationalize data centers at a speed equivalent or faster than hyper-scale customers, marking a significant milestone for MTDCs. Historically, this has not been the case largely because hyper-scale data centers were built with a single-purpose, but MTDC developments have advanced to pivot facilities into single or multiple use cases without sacrificing dev. speeds.

2) MTDCs Methods and Approaches Are Solid: New powered shells can be acquired or constructed for a relatively inexpensive capital cost (~15% of the overall development cost of the data center facility). Once the building shell is ready, the MTDC can build individual data center halls in portions of the building space to meet the needs of customers on a modular basis. This modular data center hall construction can be completed in 12 to 16 weeks (most recently quoted at 10 to 12 weeks on 1Q 2017 earnings calls from specifically CyrusOne) to meet customers’ immediate needs. This short construction time frame ensures a very high utilization of assets and minimizes the time between capital investment and the recognition of customer revenue. This favorably affects return on investment while also translating into lower costs for customers since downtime is reduced significantly. MTDC design principles enable them to add incremental equipment to increase power densities as customer power needs increase, providing customers with a significant amount of flexibility to manage their IT demands. Overall, these build methods will increase MTDCs’ relevance to the hyper-scale, enterprise, and overall hybrid IT boom that we anticipate.

Source: CyrusOne, Credit Suisse Research

8 months 7 months 6 months 16 weeks 14 weeks 12 weeks

MTDCs Are Now Able to Build Powered Shells in Under 7

Months, Largely Driven by Changes in Development Methods

Completing New Data Center Halls in Under ~14 Weeks,

Progressing Fast Across the Entire MTDC Industry

27

Cost per Megawatt (MW) is calculated by taking the total cost of building or developing a data center facility and dividing by the number of MW capacity the facility has brought online. For example, if the cost to build and develop a facility is $100mil, bringing10MWs of capacity online equates to $10mil/MW.

Costs to Build Power Are Also Declining


Build Costs Declining

Build Costs Are Declining Across the MTDC Industry, Driven by Evolving Application and IT Load Needs by Customers: Below we show the differences between "2N" and "N" data center build costs that mainly pertain to the amount of power redundancy a facility is designed to have. We believe that not all data centers and applications require 99.999% (5N) engineered reliability and can see "N" being the standard in data center builds. We note that the DC REITs are coordinating this industry shift with their customers, meaning there is also a transition in the type of applications that are deployed in MTDCs to use outsourced data center space and power more efficiently. The benefit of this build shift is multi-pronged, reducing costs significantly, and by maintaining less redundant energy, more of the original megawatts built in data center facilities can be utilized, driving down the costs per megawatt. We see the "N" industry transition progressing slowly rather than an accelerated adoption.

2010 2013 (IPO) 2016 2020

$11mil/MW

$7mil/MW <$6.5mil/MW

“2N” Product $5.5mil/MW

“2N” Product

<$4mil/MW

“N” Product

$4.8mil/MW

“N” Product

Cost to Build New Megawatts (MW)

“N” Product Reduces Build Costs Significantly

Source: CyrusOne, Credit Suisse Research

28

MTDC Capacity Absorption Solid, Especially NOVA


Capacity Absorption

Source: Jones Lang LaSalle, Credit Suisse Research, Company data

0

20

40

60

80

100

120

Me

gaW

att

Ab

so

rpti

on

(M

W)

2016

2015

U.S. Data Center Markets Are Absorbing Significantly Larger Amounts of Power Versus International Markets: 2016 saw

several key markets grow off of already sizable bases versus 2015. For instance, the Northern Virginia market saw 78% Y/Y growth in the amount of power absorbed by the market (or contractually signed by customers with MTDCs), taking in 50 megawatts more in 2016 vs. 2015. However, not all markets saw growth, with Dallas/Fort Worth, the Pacific Northwest, Phoenix, and Toronto all flagging noticeable step-downs in power absorption. We note that power absorption is a key metric in the MTDC market to measure the supply and demand forces for new and existing capacity, influencing preleased or speculative data center development projects. We note that

Northern Virginia is particularly a hot spot for all things data centers because of two distinct factors: (1) power/electricity costs are significantly lower versus other major markets in the United States with equivalent network densities, and (2) Virginia Dominion Power, the local power company, has worked very closely with all MTDCs to guarantee high levels of power delivery when it is critically needed,

whereas other markets have not found a similar power company to partner with at the same scale as Virginia Dominion Power.

Note: Cities that do not have a 2015 figure were not tracked or forecast in 2015 by JLL; therefore, no values exist for those respective markets. Megawatt absorption is a good metric to follow to measure how much space and power is being absorbed in each market.

It is estimated (by CAPRE Industry Panel Professionals) that 200MW were absorbed by Public Cloud Providers in 2016 within the United

States, which is about 57% of all 2016 absorption.

29

CS HOLT®: COR, EQIX, & CONE Most Efficient


Based on HOLT’s Efficiency Metrics, specifically Asset Turnover (Revenue and Inflation-Adjusted Gross Investment), we find that

CoreSite, Equinix, and CyrusOne have achieved the most efficient asset turnover ratios in the past three years; however, we would note that three of the five Data Center REITs have seen gradually improving operating efficiency in the past three years, specifically in

2016 when CyrusOne and QTS were the only REITs in the group that saw a noticeable step-down in investment efficiency on an inflation-adjusted basis. We attribute this step-down to their shift in customer lease sizing and rapid growth, where both companies

grew revenues significantly.

Investment Efficiency Increasing

Source: Credit Suisse HOLT, Credit Suisse Research, Company data

Note: HOLT’s main differentiating feature when calculating asset efficiency is that it adds back all accumulated depreciation to the asset base, so calculated results are more conservative than what is actually the case, making us more confident in our company rating

distribution with Equinix and CyrusOne as Outperforms.

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

COR EQIX CONE QTS DLR

Re

ve

nu

e /

In

flati

on

Ad

juste

d G

ross I

nve

stm

ent

(HO

LT A

sse

t Tu

rns,

x)

2014 2015 2016

30

M&A, Enterprise Divestitures, JVs to Grow the Sector Further

Market Drivers


31

50

100

150

200

250

300

350

1/2/2014 7/2/2014 1/2/2015 7/2/2015 1/2/2016 7/2/2016 1/2/2017

Lo

gari

thm

ic

Scale

fo

r S

hare

Pri

ces (

Base 1

00)

QTS COR CONE DLR EQIX

Sami Badri | 212-538-1727 | [email protected] Source: Thomson Eikon, Company data, Credit Suisse Research

Market Rewarding Data Center REIT M&A Activity

M&A

CyrusOne acquired Cervalis

CyrusOne acquired

Sentinel Data Centers

CyrusOne acquired

CME Group data center

Equinix acquired Bit-Isle

Equinix acquired Telecity

Equinix acquired

Digital Realty’s

Operating Business

and divested 8

European assets

Equinix acquired Verizon Data

Centers and Other

Digital Realty acquired Telx

Digital Realty acquired 8

Equinix European

assets

QTS acquired Carpathia data

centers

QTS acquired DuPont

Fabros NJ-1

QTS acquired Health Care Service Corp data center

Equinix converts to a REIT

CoreSite acquired Sunrise Technology Park

QTS acquired McGraw Hill

Financial facility

QTS acquired Sun Times Press

facility

In the past three years, data center REITs have significantly transacted, acquiring mainly smaller operators or companies with sought after businesses such as Digital

acquiring Telx for interconnection, Equinix acquiring Verizon data centers for Americas expansion, QTS acquiring several smaller facilities to develop into mega data

centers, and CyrusOne acquiring Sentinel data centers for industry mix and customer mix improvements/expansions. We note that the market has rewarded M&A activity,

and we see similar dynamics through the coming five years, driven by hybrid IT cloud growth. We anticipate Equinix and CyrusOne to be the major acquirers and

consolidators in the industry going forward in the DC REIT group and across the MTDC industry based on our findings in our company initiations.

Digital Realty announces

DuPont Fabr. Acquisition

32

There Are ~1,500 MTDC Vendors Globally

Globally, the MTDC market is fragmented with ~1,500 different entities leasing space and power to other organizations in some shape or form. ~52% of the market was made up of the top 10 MTDC vendors in 2016.

The Americas has ~650 different MTDC operators, followed by EMEA with ~620 and Asia-Pacific with ~200.

Every year, the total number of MTDC operators decline as the industry consolidates globally.

Fragmented Market


Source: I.H.S. Markit, Credit Suisse

Note: Estimates for Digital Realty includes "Turn-Key Flex" and "Colocation" products. It excludes "Powered-Base" revenue.

The top 10 MTDCs made up ~52% of global market revenues in 2016, with the remaining ~1,490 vendors making up the remainder of revenues, a scenario we see prone to industry-wide consolidation as smaller players are absorbed by the larger MTDC operators.

Others, 32.7%

Equinix, 17.7%Digital Realty, 8.2%

China Telecom,

5.8%

China Unicom,

3.1%

Century Link, 3.1%

NTT, 3.0%

Cyrus One, 2.6%

Dupont Fabros,

2.6%

Global Switch,

2.6%

Telehouse, 2.4%

Interxion, 2.3%

Level 3, 2.2%

Coresite, 1.9%

Colt, 1.7%

21Vianet, 1.6%

IO, 1.5% QTS, 1.4% ViaWest, 1.4% Sabey, 1.1% Verizon, 1.1%


33 Sami Badri | 212-538-1727 | [email protected] Source: Credit Suisse Research, QTS Realty

Enterprise Data Center Divestitures to Continue

Divestitures

Enterprise Divestitures Create a Win-Win Scenario for Enterprises and MTDCs: We believe that traditional enterprises that have constructed, developed, and maintained their own data centers for private and/or hybrid clouds will look to sell their physical data centers after realizing the cost-benefit is unfavorable to own versus outsourcing physical facilities for I.T. needs. We believe this trend will continue through 2017 and 2018.

Key Recent Example—QTS-HCSC Transaction: QTS acquired a 53 acre data center campus in Fort Worth, Texas, from Healthcare Service Corporation (HCSC) for $50mil with built out capacity of 40k square feet (raised floor) and 8MW of gross power. In addition, QTS was able to sign a 1MW lease with HCSC having HCSC remain as the anchor tenant in the facility that commenced shortly after the deal closed. We address the rationale of this transaction below with two key questions:

• Why Did HCSC Divest Their Data Center?: HCSC found that it is very expensive to construct, develop, and maintain a data center facility where it made more economical sense to outsource infrastructure to avoid the recurring capex and overall costs of maintaining a data center facility. First, building a data center facility without the in-house expertise can be very expensive, with an estimated ~$500mil of construction and development expenses and construction usually completed behind schedule. Second, the constructed facility is generally overprovisioned with too much space, power, and without the necessary physical facility staff to optimize the data center’s internal assets (include servers, network switches, storage, etc.). These factors create issues for the enterprise, driving up cost with only marginal benefits.

• Why Did QTS Acquire HCSC’s Facility?: Since QTS is an MTDC vendor, this transaction enabled QTS to acquire the facility with an anchor tenant leasing 1MW of the 8MW of gross power available and purchasing the facility at a cost per MW of ~$6mil, below the market average build rate. With the anchor tenant and excess gross power, QTS will be able to administer its colocation expertise on the facility and increase the facility’s utilization, leasing the entire facility’s available gross power, very similarly to its prior acquisitions.

Win-Win Transaction: In summary, we view enterprise data center facility divestitures to MTDCs as a win-win transaction, giving the enterprises access to interconnection services that MTDCs specialize in at lower overall OPEX and giving MTDCs facilities at price tags below their and the market’s average cost basis for similar facilities. We do not see a reason for the rate of enterprise data center facility divestitures to drop.

QTS-HCSC Data Center a Win-Win – Reduced Operating Costs for HCSC, Giving QTS a Facility Below Market Build Rates

34 Sami Badri | 212-538-1727 | [email protected] Source: Credit Suisse estimates, Company data

JVs – The Next Bastion of DC REIT Growth

Joint Ventures

Joint Ventures to Drive Another Avenue of Growth for Data Center REITs: Data center REITs have begun considering or have already engaged in JVs and other funds to finance real estate purchases, diversify their revenues through advisory and management fees, and leverage their businesses and their expertise. We expect JVs to be discussed and executed more, given management’s needs to drive earnings growth beyond most of the data center REIT double-digit growth averages. We would highlight that other REIT groups have entertained JVs when they realized low cap rates, unfavorable equity dilution circumstances, high current leverage, and low or negative earnings growth. For data centers, we would argue that they are considering JVs too early in their industry’s maturity cycle, but we welcome this avenue of growth to further prove our view that the data center REIT sector is undervalued.

JV Positives for DC REITs:

• Drive Higher and Diversified Revenues: JVs offer a revenue diversification opportunity for data center REITs driven by their ability to leverage their industry expertise in driving development results with external capital.

• Alternative Method of Raising Capital: Instead of diluting shareholders by issuing more shares, raising more debt, or refinancing current debt, the data center REIT can drive earnings growth by enabling the JV partner to commit capital and split the profits, driving earnings growth.

• Share Development Risks: In the event the data center development does not go as planned, the data center REIT does not absorb the full burden of developing an asset that is unable to be monetized as planned, lowering the development risk of the respective development project.

JV Negatives for DC REITs:

• Sharing Control of Investments: Given the JV partner’s committed capital, the data center REIT loses full control of developments, their timelines, and the investment lock-up periods. In this scenario, there is also counter-party risk in the event the JV partner experiences a significant occurrence.

• Results Can Be Very Variable: Historically, REIT JVs have shown variable outcomes, not always resulting in earnings growth.

• Security Investors and REITs Struggle with Transparency: Current disclosure requirements permit JVs to be treated as unconsolidated entities (off-balance sheet). A complete accurate credit picture can be obtained only by looking through the JV and fund structures to determine a data center REIT’s true debt exposures and financial interests in their JV and fund properties.

• May Come at the Expense of Expanding Cap. Rates: Given the opaque disclosures of REIT JVs, cap. rates may begin to expand, hindering other avenues of potential capital raising opportunities. (For example, secondary equity raises would be lower per share in the event of risking cap. rates.)

“On the strategic joint venture… it's in the conversation stage at this point, there's a lot of institutional capital that would love to get into data center space, that can't do it directly. They would have to invest through a platform or through specific assets. So I mean, the general framework that we're thinking through is that we would sell roughly a 50% interest in a couple of stabilized assets, and also the JV partner would have the ability to maybe invest in 1 or 2 of our developments alongside with us, and that's the pre-leased ones, the ones where they would take leasing risks along with us, it could be some meaningful capital dollars... I think our preference would really be to develop a very strong relationship with 1 JV partner that has significant capital to grow alongside us.” – Diane Morefield, CFO, CyrusOne 1Q 2017 Earnings Conference Call

“There has been a lot of new interest from long-term investors for JVs… looking to hold investments for 25 years or more, accept ing lower returns given the time horizon… interest has been coming from infrastructure, pension, and other long -term funds…” – Data Center Industries Next Chapter Panel, CAPRE Conference, New York City, May 5, 2017

35

Multiple Levers Available to Push the Sector’s Valuation Higher


Market Drivers

36

DC REITs have outperformed major indices since Jan. 2014

Cloud Proxy


Credit Suisse’s Data Center REIT index, composed of EQIX, DLR, COR, CONE, DFT, and QTS have significantly outperformed Major

Cloud Companies, the S&P 500 and the Dow Jones Equity REIT index since January 2014.

50

100

150

200

250

300

1/1/2014 7/1/2014 1/1/2015 7/1/2015 1/1/2016 7/1/2016 1/1/2017

Lo

gari

thm

ic

Scale

fo

r S

hare

Pri

ces (

Base 1

00)

CS Data Center REIT Index S&P 500 Index Dow Jones Equity REIT Index

GOOGL ORCL AMZN

IBM MSFT

37

DC REITs Revenues are Heavily Indexed to Clouds and Enterprises...


EQIX – 29% Indexed to Cloud, 15% Indexed to Enterprise CONE – 22% Indexed to Cloud, 43% Indexed to Enterprise

QTS – 23% Indexed to Cloud, 28% Indexed to Enterprise COR – 30% Indexed to Cloud, 20% Indexed to Enterprise

Cloud & IT

Services, 29%

Network, 24%Content, 14%

Financial,

18%

Enterprise,

15%Cloud & IT

Services, 22%

Network, 8%

Content, 5%

Financial,

22%

Enterprise,

43%

Cloud & IT

Services, 23%

Network, 9%

Content, 26%

Financial,

14%

Enterprise,

28%Cloud & IT

Services, 30%

Network, 21%

Content, 24%

Financial, 5%

Enterprise,

20%

38

0.0%

1.0%

2.0%

3.0%

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5.0%

6.0%

Div

ide

nd

Yie

ld

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10%

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30%

40%

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60%

70%

80%

AFFO

Payo

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o

-5%

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5%

10%

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ve

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row

th Y

/Y

2017 2018

0%

2%

4%

6%

8%

10%

12%

14%

AFFO

Gro

wth

FY

18


DC REITs are comparably attractive to other REIT sectors

Growing Revenues Highest Versus Other REIT Sectors Leading to Highest AFFO Growth vs. Other REITs

Paying Out AFFOs In-Line with Overall Sector Levels But with a Dividend Yield Below Other REIT Groups

On a Risk & Reward Basis, Taking into Account Revenue Growth and Dividend Yield, Data Center REITs Are the Most Attractive

REIT Group in the Market: In our view, given the high revenue and AFFO growth, we believe it is very difficult for investors to justify alternative REIT investments when data centers are being considered. We believe that, given the strong fundamental dynamics, more investors will gravitate to the data center REIT group, realizing the sector has sustained continued growth and yield driven by factors

highlighted in our sector initiation and company reports, largely attributable to the proliferation of the Cloud, IoT, 5G, and Artificial Intelligence.

Valuation Upside

39 Sami Badri | 212-538-1727 | [email protected] Source: Thomson Eikon, SNL, Credit Suisse estimates, Company data

P/AFFO Multiples Expanding Further…

Valuation Upside

Within the Past Two Years, the Data Center REIT Group Has Seen Its P/AFFO Multiple Expand by 4.9x: We would add a caveat to

this strong trend by mentioning that the data center REIT peer group was discounted compared with other more traditional REIT sectors, largely because REIT investors have had a difficult time comparing data centers with more traditional REIT investments such as malls, residential properties, hotels, etc. that have 50-70+ years of data to analyze, whereas the MTDC industry has been around for only ~30 years and has spent the majority of its history either in the private markets or as part of other non-REIT entities. We estimate that data center REIT multiples will continue to expand largely because data centers REITs are the only REITs that have AFFO growth in the double digits on

average, at significantly higher rates than traditional REITs, and investors will find this very attractive as they come to understand the data

center and cloud industries more comprehensively. We estimate a P/AFFO multiple average of ~21x for the entire peer group by the

end of 2017 which is where CoreSite and Equinix currently trade, giving the group 1x more of upside in multiple expansion.

0

50

100

150

200

250

300

9x

11x

13x

15x

17x

19x

21x

23x

25x

3/1/2014 6/1/2014 9/1/2014 12/1/2014 3/1/2015 6/1/2015 9/1/2015 12/1/2015 3/1/2016 6/1/2016 9/1/2016 12/1/2016 3/1/2017 6/1/2017

Backlo

g -

Re

po

rte

d &

CS

Esti

mate

d (

in $

millio

ns)

Pri

ce

/ F

Y2

AFFO

(C

on

se

nsu

s e

sti

mate

s,

x)

Backlog (Right Axis) CONE EQIX DLR COR QTS DCREIT AVG

Multiples expanded to ~20x due to high reported

leasing backlog levels in 1Q 2016. ~19x as of

June 2017

40

6.20%

6.40%

6.60%

6.80%

7.00%

7.20%

7.40%

7.60%

7.80%

8.00%

COR DLR DFT EQIX CONE QTS

Cap

. R

ate

(N

OI

/ M

ark

et

Valu

e o

f P

rop

ert

y)

Current 30 Days Ago 90 Days Ago 12 Months Ago

Sami Badri | 212-538-1727 | [email protected] Source: Thomson Eikon, SNL, Credit Suisse estimates, Company data

Capitalization Rates to Compress, Boosting Valuations

The Consensus Cap. Rates for Each DC REIT Have Consistently Been Revised Down over the Past 12 Months to Reflect the

Industry’s Maturity: This is important because some REIT investors solely value REITs on a Net Asset Value basis, making data centers

appear less attractive to other REITs on a valuation basis. We believe that once data center REITs have their own cap. rates published, valuations will increase since cap. rates could come in below 6%, unleashing significant value for data center REITs.

“Green Street Advisors will split out the cap rates for data centers alone, making it more obvious that the cap rates are actually lower (than current levels).”

– Data Center Industries Next Chapter Panel, CAPRE Conference, New York City, May 5, 2017

Lower Cap. Rates Drive

Higher Net Asset Values

Average Consensus DC REIT Cap. Rate Declined 53bps in the Past 12 Months,

Driving Net Asset Valuations Higher

We estimate cap rates to drop below 6% industry-wide for DCs overtime, implying

significant NAV upside.

Valuation Upside

41

Company Rating Summary & Target Prices

Data Center REITs


42

Launched Company Coverage, Ratings, & Target Prices Sector Outlook: Overweight


Targets & Ratings

Credit Suisse Target Price: The Credit Suisse Target Price leverages our valuation methodologies and reflects target prices we view as most achievable within the next 12 months. Our valuation methodology takes into account pricing multiples (P/AFFO & EV/EBITDA), DCF, NAV, and dividend growth values to drive company-specific target prices.

On a risk/reward basis, CyrusOne and Equinix are key calls and industry consolidators with strategic advantages.

Company TickerCurrent Market

Cap. ($mil)

Current

PriceRating Target Price

Implied Upside

or Downside

CONE $4,947 $56 OUTPERFORM $73 29.5%

EQIX $33,561 $431 OUTPERFORM $510 18.4%

QTS $2,551 $53 NEUTRAL $54 1.4%

COR $3,613 $106 NEUTRAL $103 -2.5%

Growing well above market, but AFFO growing below peers

Web Hosting business attractive, but not core bus., competitive market

Not a strategic acquirer, slow moving asset consolidator

Already very levered vs. peers, vulnerable to rising interest rates

Vulnerable to rising interest rates in the next five years

Solid execution across businesses, especially interconnection

Focused on U.S. DC markets, well integrated DC assets

Trading at a premium to the DC REIT group, expensive

Not an active acquirer or consolidator of industry participants

Needs to transform into a technology company, not real estate only

Company Details Credit Suisse Estimates - Ratings & Targets

Rating Summary & Key Points

Market interconnection leader, recurring and high margin long-term

CS estimates include Verizon data center acquisition & integration

Most global and distributed DC REIT, world class brand

Highest AFFO growth for the next two years


Ramping sales funnel, delivering record new leasing activity

Fastest industry DC build speeds, at low costs per megawatt

Highest conviction call in coverage


Lease pricing escalators and ramping interconnection driving growth

43

CyrusOne (OP, $73 TP) – Driving the Colo. Boom with the F1,000

Initiating Coverage with an Outperform Rating: We are initiating coverage on CyrusOne with an Outperform rating and a $73 target price. CyrusOne is our highest conviction Outperform call in our sector launch based on several key factors that are both specific to CyrusOne and industry fundamentals, consolidation, and revenue growth over the next five years. Our $73 target price implies upside of 30% from current levels, based on the average of a multi-pronged valuation methodology.

CyrusOne Is Positioned to Run: CyrusOne operates slightly differently than the other multi-tenant data center REITs, with a strategic focus on the Fortune 1,000 companies, achieving industry-leading data center build speeds, maintaining a flexible acquisition strategy, and ramping up to seize the interconnection opportunity. We see strong execution from CyrusOne's growing enterprise oriented salesforce, tasked with on-boarding new logos, signing competitively priced leases with attractive price escalators, and a potential joint venture agreement signing within the next 12 months as all attractive reasons to own the stock.

Valuation–$73 Target Price, ~30% Upside: Based on a multi-pronged valuation approach, combining Price/AFFO, EV/EBITDA, net asset value, discounted cash flow, and forward dividend yield valuation methodologies, we arrive at a $73 target price, implying ~30% upside from current levels. We assign CyrusOne P/AFFO and EV/EBITDA multiples based on our proprietary methodology, forecasting further data center REIT sector sponsorship, reaching group trading levels of ~21x P/AFFO and ~17x EV/EBITDA inline with the peer average. For CyrusOne, we believe our estimates could prove conservative given the company's consistently strong sales execution, interconnection upside, potential hyper-scale deals, and effective M&A strategies, as all drivers for valuation upside.

Grey Sky and Blue Sky Scenarios: In a Grey Sky (downside) scenario, we project ~11% downside to $50 by negatively adjusting all the valuation assumptions to reflect less favorable market growth and discount conditions. In a Blue Sky (upside) scenario, we project a price of $83 per share, reflecting upside of 47%.

Risks: Key investment risks include technological disruption, market competition, rising interest rates, and REIT qualification loss.

Click here to see the full CyrusOne Report.


Revenues Growing at a ~21% CAGR Through 2020

CyrusOne Mini P&L

Source: Credit Suisse estimates, Company data

2015A 2016A 2017E 2018E

Base Revenue 354.60 476.70 607.00 716.89

Meter Power Reimbursement Revenue 44.70 52.40 76.56 90.16

Total Revenue 399.30 529.10 683.56 807.05

Total Revenue Y/Y Growth (%) 20.7% 32.5% 29.2% 18.1%

Net Operating Income (CONE defined) 250.60 341.60 447.67 536.65

NOI Margin 62.8% 64.6% 65.5% 66.5%

Adjusted EBITDA 211.70 278.50 369.11 440.54

Adjusted EBITDA Margin 53.0% 52.6% 54.0% 54.6%

FFO 150.7 210.2 265.6703 314.2432

FFO Per Share 2.17 2.65 3.02 3.31

AFFO 160.60 194.30 270.57 332.98

AFFO Per Share 2.31 2.45 3.07 3.51

AFFO Y/Y Growth 35% 6% 25% 14%

0%

5%

10%

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20%

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30%

35%

0

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400

600

800

1,000

1,200

2014A 2015A 2016A 2017E 2018E 2019E 2020E

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Gro

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)

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ve

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e (

in $

millio

ns)

Interconnection Revenue Total Revenue (ex-Interconnection)

https://plus.credit-suisse.com/u/V6SzJ72AN-8SW

44

CyrusOne – Key Focus Points

Source: I.H.S. Markit, Credit Suisse estimates, Company data Sami Badri | 212-538-1727 | [email protected]

Sales Funnel Is Scaling Rapidly, Growing 67% Y/Y in 1Q

2017 and Pulling Lease Backlog with It

62% of Leases Include Lease Price Escalators Versus Peers

That Have ~100% of Leases, Signaling Solid Organic Growth

Penetrating 19% of the Fortune 1,000 Scaling the Currently Sub-Scale Interconnection Business

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20

40

60

80

100

120

1Q15 3Q15 1Q16A 3Q16 1Q17 3Q17E

In $

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ns

Lease Backlog Quarterly Sales Funnel (Credit Suisse Est.)

10%

33%

58% 62%

90%

67%

42% 38%

FY14 FY15 FY16 YTD FY17

With Lease Escalators Without Lease Escalators

411 483 525

768 764 781

115

129 144

173 181 190

2012A 2013A 2014A 2015A 2016A YTD FY17

Nu

mb

er

of

Cu

sto

me

rs

Fortune 1,000 customers Non-Fortune 1,000 Customers

9,500 11,100

12,500

17,000

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15,000

20,000

25,000

2015A 2016A 2017E 2018E

To

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ross C

onnects

CONE COR QTS

45

CyrusOne (OP, $73 TP) – Multi-Pronged Valuation Framework


Credit Suisse Multi-Prong Valuation Methodology

Base Case Grey Sky Blue Sky

Price / AFFO

2018E AFFO $3.51 $3.51 $3.51

Peer average multiple 19.2x 19.2x 19.2x

Current market multiple 16.1x 16.1x 16.1x

Assumed multiple 21.0x 13.0x 22.5x

Implied share price 73.66$ 45.60$ 78.92$

EV / EBITDA

2018E Adj. EBITDA $441 $441 $441

Current Enterprise Value $6,693 $6,693 $6,693




Implied Enterprise Value 7,709 5,859 7,930

Less: Net debt (1,746) (1,746) (1,746)

Less: Preferred Equity - - -

Less: Minority Interest - - -

Implied Market Capitalization 5,963 4,113 6,183

Shares Outstanding 87.725 87.725 87.725


Net Asset Value

Assumed Cap. Rate 6.5% 9.9% 5.5%


Discounted Cash Flow

Assumed Terminal Growth Rate 3.3% 2.5% 4.0%

Assumed WACC 7.2% 7.2% 7.2%


Dividend Yield

2017E Dividend Per Share $1.68 $1.68 $1.68

Dividend Yield 3.0% 3.0% 3.0%

2018E Dividend Growth 28.6% 0.0% 30.0%


Target Price (Average of Methods):

Current Market Price $56.39 $56.39 $56.39

Upside/downside vs. current price 29.5% -11.3% 47.2%

Credit Suisse Target Price: $73.00 $50.00 $83.00

Base Case Target Price

Our Base Case Target Price is the

target price we view as most

achievable, reflecting our proprietary

valuation approach and published models. We use a combination of

market derived valuation frameworks

(P/AFFO & EV/EBITDA), long-term frameworks (DCF), static frameworks (NAV), and investor focused

frameworks (Dividend Yield).

Blue Sky Target Price

Our Blue Sky Target Price leverages

our proprietary valuation methodologies and assumes all multiples (P/AFFO & EV/EBITDA), capitalization rates (NAV), terminal growth & WACC (DCF), and dividend growth (Dividend Yield) metrics

are all at the higher-end of the

company's trading range that we see achievable within the next 12-months assuming favorable market dynamics.

Grey Sky Target Price

Our Grey Sky Target Price leverages

our proprietary valuation methodologies

and assumes all multiples (P/AFFO & EV/EBITDA), capitalization rates (NAV), terminal growth & WACC (DCF), and

dividend growth (Dividend Yield) metrics are all at the lower-end of the company's trading range that we see possible within the next 12-months, assuming unfavorable market dynamics.

46

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Interconnection Revenue Total Revenue (ex-Interconnection)

Equinix (OP, $510 TP) – Pioneering the Interconnection of Things

Initiating on Equinix with an Outperform Rating: We are initiating coverage of Equinix with an Outperform rating and a target price of $510, implying upside of ~18% from current levels. Currently trading at ~21x our 2018 AFFO per share estimate, a premium to the multi-tenant data center peer group average of ~20x, Equinix is one of our high-conviction calls as part of the data center REIT sector initiation. Equinix, by a wide lead, has a global stronghold on interconnection peering points and customer interconnection services, serving as the global go-to for all things interconnection. We strongly believe in the focus of Equinix's business model, pioneering the Interconnection of Things, and believe that its trading premium to the data center peer group is largely warranted.

Leading the Colocation Boom: Equinix is the global leader in all things interconnection, with premium pricing and strategic global positioning, and this comes before the rapid enterprise adoption we forecast for the multi-tenant data center market between 2017 and 2020. We have identified Equinix as the winner in this global I.T. architecture shift, moving traditional enterprise workloads to hybrid workloads, and parse the key points of every major acquisition Equinix has made in the last three years in our report. We also identify Equinix as a key beneficiary of enterprises moving workloads into hybrid cloud architectures as they deploy assets into data center network edges and connection nodes that Equinix hosts.

Valuation—$510 Target Price: Based on our multi-pronged valuation approach, combining Price/AFFO, EV/EBITDA, discounted cash flow, and dividend yield valuation methodologies, our $510 target price implies ~18% upside from current levels. We assign Equinix P/AFFO and EV/EBITDA multiples above the peer average to credit the interconnection-focused business model (which is a 90%+ margin business) and optionality to boost shareholder returns through increased leverage levels to fund strategic acquisitions, increasing AFFO payout ratios and global visibility in the overall colocation space.

Grey-Sky and Blue-Sky Scenarios: In our Grey-Sky (downside) scenario, we project a $392 price target with ~9% downside by compressing key valuation drivers (lower multiples, higher cap rates, and lower terminal growth, etc.) to reflect less favorable market growth and discount conditions. In our Blue-Sky (upside) scenario, we project $569 per share, implying upside of 32%.

Click here to see the full Equinix Report.


Revenues Growing at a 15% CAGR Through 2020

Equinix Mini P&L


(in $ thousands) 2015A 2016A 2017E 2018E

Co-location Revenue 2,019,875 2,647,094 3,134,248 3,635,806

Interconnection Revenue 441,749 543,045 669,858 772,859

Managed Infrastructure Revenue 96,836 210,292 241,642 280,009

Rental & Other 10,681 16,943 20,106 17,300

Total Recurring Revenue 2,569,141 3,417,374 4,065,853 4,705,974

Non-Recurring Revenue 156,726 194,615 240,133 247,309

Total Revenues 2,725,867 3,611,989 4,305,987 4,953,283

Total Revenue Y/Y Growth (%) 11.5% 32.5% 19.2% 15.0%

Adjusted EBITDA 1,271,627 1,657,474 2,037,528 2,420,388

Adjusted EBITDA Margin 46.7% 45.9% 46.8% 48.3%

FFO 642,704 730,637 1,068,987 1,373,765

FFO per share (diluted) 10.69 10.11 13.88 16.59

Adjusted FFO 837,856 1,080,062 1,405,746 1,719,518

Adjusted FFO per share (diluted) 13.92 15.03 18.29 20.77

AFFO Y/Y Growth 4.2% 7.9% 21.7% 13.6%

https://plus.credit-suisse.com/u/V6S3tg2AN-Ytkb

47

Equinix – Key Focus Points and Drivers

Source: I.H.S. Markit, Credit Suisse estimates, Company data Sami Badri | 212-538-1727 | [email protected]

~19% of the Global MTDC Market’s Revenues, ~32% of the

Global and Very Profitable Interconnection Market

Growing an Already Scaled Global Interconnection Business

to 16% of Revenues by FY18

Growing AFFO At Higher End of Peers in FY17 & FY18 But Paying Out the Least of AFFO to Shareholders

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Equinix is more than 2x the size of

Digital Realty when including Telecity and Verizon market share.

15%16% 16%

13%13% 13%

10%

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12%

6%5%

6%6% 6% 6%

0%

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12%

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2016A 2017E 2018E

Inte

rc.

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eve

nu

e

EQIX - Global COR DLR CONE QTS

0%

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15%

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CONE EQIX COR QTS DLR

AFFO

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are

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2017E 2018E

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30%

40%

50%

60%

70%

80%

90%

0.0%

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COR DLR QTS CONE EQIX

AFFO

Payo

ut

Rati

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Div

idend

Yie

ld

AFFO Payout Ratio Dividend Yield

48

Equinix (OP, $510 TP) – Multi-Pronged Valuation Framework




Price / AFFO

2018E AFFO $20.77 $20.77 $20.77




Imlied share price 461.13$ 357.27$ 471.52$

EV / EBITDA

2018E Adj. EBITDA $2,420,388 2,420,388 2,420,388

Current Enterprise Value $37,886,307 $37,886,307 $37,886,307




Implied Enterprise Value 43,566,975 32,675,231 53,248,525

Less: Net debt (7,924,983) (7,924,983) (7,924,983)



Implied Market Capitalization 35,641,992 24,750,248 45,323,542

Shares Outstanding 73,367 73,367 73,367






Dividend Yield



2018E Dividend Growth 25% 0% 30%





Credit Suisse Target Price: 510.00$ $392.00 $569.00




achievable, reflecting our proprietary valuation approach and published

models. We use a combination of market derived valuation frameworks(P/AFFO & EV/EBITDA), long-term frameworks (DCF), static frameworks

(NAV), and investor focused frameworks (Dividend Yield).


Our Blue Sky Target Price leverages our proprietary valuation methodologies

and assumes all multiples (P/AFFO &

EV/EBITDA), capitalization rates (NAV), terminal growth & WACC (DCF), and

dividend growth (Dividend Yield) metrics are all at the higher-end of the company's trading range that we see

achievable within the next 12-months assuming favorable markets dynamics.



our proprietary valuation methodologies and assumes all multiples (P/AFFO &

EV/EBITDA), capitalization rates (NAV),

terminal growth & WACC (DCF), and dividend growth (Dividend Yield) metrics are all at the lower-end of the company's trading range that we see possible within the next 12-months,

assuming unfavorable market dynamics.

49

QTS Realty (N, $54 TP) – Secular Growth Is Not Enough

Initiating Coverage on QTS Realty Trust with a Neutral Rating: Within the high-growth multi-tenant data center market, we commend QTS's high growth and unique business offering mix, but we believe there are more attractive data center REIT peers on a relative basis, especially when taking into account QTS's subscale interconnection business. We identify several key areas that require improvement to signal a positive inflection in the business trajectory and compare these metrics with peers to convey our view. We initiate coverage of QTS with a Neutral rating and $54 target price based on a multi-pronged valuation framework that we believe best reflects QTS's and Technology REITs' value.

Secular Growth Is Not Enough: We project QTS revenue growth of a ~14% CAGR from FY16 to FY20, which is above market growth rates; however, we identify interconnection, debt leverage, dividend yield, AFFO payout, and other fundamental metrics as pain points relative to peers, underscoring our view that the company requires a significant pivot to overhaul the business.

Valuation – Neutral, $54 Target Price: Based on a multi-pronged valuation approach, we arrive at a $54 target price, implying ~1% upside from current levels. We use a multi-pronged valuation methodology, averaging five different valuation figures, to address the various methods both Technology and REIT investors take when evaluating technology-focused REIT investments. We believe that, given the sector's early innings, our valuation approach is holistic, capturing the market-implied valuation (P/AFFO, EV/EBITDA multiples), standard REIT valuation approach (DCF, NAV), and the projected dividend growth method.

Grey Sky and Blue Sky Scenarios: In a Grey Sky (downside) scenario, we project a $45 target price with 16% downside by compressing key valuation drivers (lower multiples, higher cap rates, and lower terminal growth, etc.) and valuation assumptions to reflect less favorable market growth and discount conditions. In a Blue Sky (upside) scenario, we project $68 per share, reflecting upside of ~28%.

Click here to see the full QTS Realty Report.



QTS Realty Mini P&L


0%

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45%

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wth

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ve

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e (

in $

millio

ns)

Interconnection Revenue Total Revenue (Ex-Interconnection)

(in $ millions) 2015A 2016A 2017E 2018E

Rental 230.51 295.72 328.50 369.29

Recoveries from customers 22.58 29.27 34.71 40.81

Cloud and managed services 51.99 68.49 85.04 100.80

Other 6.00 8.88 6.55 7.44

Total revenues 311.08 402.36 454.79 518.34

y/y growth 42.8% 29.3% 13.0% 14.0%

Adjusted EBITDA 140.04 184.34 208.16 241.43

Adjusted EBITDA Margin (%) 45.0% 45.8% 45.8% 46.6%

Operating FFO 103.92 140.67 156.79 189.43

Operating FFO per share (diluted) 2.24 2.61 2.71 3.03

Operating AFFO 99.83 134.12 160.78 196.15

Operating AFFO per share (diluted) 2.16 2.48 2.78 3.14

AFFO Y/Y Growth 15.9% 15.2% 12.0% 12.9%

https://plus.credit-suisse.com/u/V6SzHc2AN-Ytkb

50

QTS Realty – Key Focus Points


Leverage at the Higher End of Peers Without Pivotal Growth in the C3 Business in the Long Term

We Forecast ~82% Utilization in FY18, Below Peer Levels Growing Dividends Below the Group in the Long Term

70%

75%

80%

85%

90%

95%

100%

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

To

tal R

evenu

e M

ix (

%)

Other Cloud and managed services Recoveries from customers Rental

85%

91%

88%

90%

81%

74%

76%

78%

80%

82%

84%

86%

88%

90%

92%

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2014A 2015A 2016A 2017E 2018E

Uti

lizati

on

(%

)

Ne

t B

illin

g N

RS

F A

dd

s (

Sq

. Ft.

)

Source: Thomson Eikon, Credit Suisse estimates, Company data

5.4x

4.9x 4.7x

3.3x 3.2x

0x

1x

2x

3x

4x

5x

6x

DLR QTS CONE EQIX COR

Net Debt / Adjusted FY17 EBITDA (x)

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EQIX DLR CONE COR QTS Average

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2016A 2017E 2018E 2019E 2020E

51

QTS Realty (N, $54 TP) – Multi-Pronged Valuation Framework




Price / AFFO

2018E AFFO $3.14 $3.14 $3.14





EV / EBITDA

2018E Adj. EBITDA $241 $241 $241

Current Enterprise Value 3,564 $3,564 $3,564




Implied Enterprise Value 4,104 3,139 4,104

Less: Net debt (1,014) (1,014) (1,014)



Implied Market Capitalization 3,091 2,125 3,091

Shares Outstanding 55.620 55.620 55.620


Net Asset Value







Dividend Yield












achievable, reflecting our proprietary valuation approach and published models. We use a combination of

market derived valuation frameworks(P/AFFO & EV/EBITDA), long-term frameworks (DCF), static frameworks

(NAV), and investor focused




our proprietary valuation methodologies and assumes all multiples (P/AFFO & EV/EBITDA), capitalization rates (NAV),

terminal growth & WACC (DCF), and dividend growth (Dividend Yield) metrics

are all at the higher-end of the company's trading range that we see

achievable within the next 12-months assuming favorable market dynamics.




and assumes all multiples (P/AFFO & EV/EBITDA), capitalization rates (NAV),

terminal growth & WACC (DCF), and

dividend growth (Dividend Yield) metrics are all at the lower-end of the company's trading range that we see

possible within the next 12-months, assuming unfavorable market dynamics.

52

CoreSite Realty (N, $103 TP) – Fairly Valued, Upside Priced In

Initiating on CoreSite with a Neutral Rating: We are initiating coverage of CoreSite Realty with a Neutral rating and $103 target price. Despite COR's recent momentum, strong execution, and interconnection business in its data center portfolio, we view shares as fairly valued at these levels, with ~3% downside from current levels based on our target price. With CoreSite's data center portfolio utilization levels approaching the 90% level and an estimated 21k cross connects being monetized, we do not see a pivotal change and are comfortable with our rating and valuation at current trading levels.

Upside Priced In at Current Levels: CoreSite currently boasts one of the highest dividend growth rates for the next four years, at a CAGR of 18% through 2020, making the company noticeably attractive from a yield perspective; however, we would note that this reflects optimized dividend payout levels, interconnection profitability, interconnection attach rates, and high data center utilization levels, all reflected in CoreSite's premium share price that currently trades at 22x our 2018 FFO forecast, which is at the higher-end of the data center peer group and second to Equinix. Given these factors, we believe that the company's attractive fundamentals are currently priced in and see little upside potential.

Valuation – Neutral, $103 Target Price: Our $103 target price implies ~3% downside from current levels. We use a multi-pronged valuation methodology, averaging five different valuation figures, to address the various methods both technology and REIT investors take when evaluating technology-focused REIT investments. We believe that given the sector's early innings, our valuation approach is holistic, capturing the market implied valuation (P/AFFO, EV/EBITDA multiples), standard REIT valuation approach (DCF, NAV), and the projected dividend growth method.

Grey-Sky and Blue-Sky Scenarios: In our Grey-Sky (downside) scenario, we project a $79 price target with ~25% downside by compressing key valuation drivers (lower multiples, higher cap rates, and lower terminal growth, etc.) to reflect less favorable market growth and discount conditions. In our Blue-Sky (upside) scenario, we project $117 per share, implying upside of ~11%.

Click here to see the full CoreSite Report.



CoreSite Mini P&L


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in $

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Interconnection Revenue Total Revenue (Ex-Interconnection)

(in $ thousands) 2015A 2016A 2017E 2018E

Rental Revenue 183,300 218,060 263,037 291,178

Power Revenue 89,890 111,541 130,254 145,589

Interconnection Revenue 44,234 53,077 61,127 69,883

Tenant Reimbursement & other 8,295 9,086 10,863 12,011

Total Data Center Revenue 325,719 391,764 465,282 518,661

Office, light-industrial and other revenue 7,968 8,588 12,084 12,084

Total Revenue 333,687 400,352 477,366 530,745

y/y growth 22.5% 20.0% 19.2% 11.2%

Adjusted EBITDA 169,903 212,348 259,743 289,322

EBITDA Margin 50.9% 53.0% 54.4% 54.5%

FFO per share / OP unit 2.86 3.71 4.41 4.84

AFFO per share / OP unit 2.26 3.28 3.96 4.58

AFFO Y/Y Growth 28.2% 45.1% 20.6% 15.6%

https://plus.credit-suisse.com/u/V6SzHI2AN-8SW

53

CoreSite Realty – Key Focus Points


Highest Interconnection Revenue as a % of Rental Revenue Trading at the Higher End of the Group at 20x 2018 FFO

Boasting the Highest Dividend Growth Rate Versus Peers Already Paying Out at the Higher End of the Peer Group

Source: Thomson Eikon, Credit Suisse estimates, Company data

24%23% 24%

21%21% 21%

13%15%

17%

8% 8% 8%7% 6% 7%

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COR EQIX - Global DLR QTS CONE

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2016A 2017E 2018E 2019E 2020E

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COR DLR QTS CONE EQIX

AFFO

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AFFO Payout Ratio Dividend Yield

54

CoreSite Realty (N, $103 TP) – Multi-Pronged Valuation Framework




Price / FFO

2018E FFO $4.84 $4.84 $4.84





EV / EBITDA

2018E Adj. EBITDA $289,322 $289,322 $289,322

Current Enterprise Value $5,908,427 $5,908,427 $5,908,427




Implied Enterprise Value 5,294,588 4,050,505 6,509,740

Less: Net debt (717,271) (717,271) (717,271)

Less: Preferred Equity (115,000) (115,000) (115,000)


Implied Market Capitalization 4,462,317 3,218,234 5,677,469

Shares Outstanding 47,833 47,833 47,833


Net Asset Value







Dividend Yield







Upside/downside vs. current price -2.5% -25.2% 10.7%





achievable, reflecting our proprietary

valuation approach and published models. We use a combination of

market derived valuation frameworks

(P/AFFO & EV/EBITDA), long-term frameworks (DCF), static frameworks

(NAV), and investor focused




our proprietary valuation methodologies and assumes all multiples (P/AFFO & EV/EBITDA), capitalization rates (NAV),

terminal growth & WACC (DCF), and dividend growth (Dividend Yield) metrics are all at the higher-end of the company's trading range that we see

achievable within the next 12-months assuming favorable market dynamics.




and assumes all multiples (P/AFFO & EV/EBITDA), capitalization rates (NAV), terminal growth & WACC (DCF), and

dividend growth (Dividend Yield) metrics are all at the lower-end of the company's trading range that we see

possible within the next 12-months, assuming unfavorable market dynamics.

55

Data Center REITs


Investment Risks

56

Investment Risks

We identify a number of investment risks in Data Center REITs ("the companies") including the following:

1. Technological Disruption: Currently, the market environment is pushing enterprises and I.T. customers to outsource and decentralize their I.T. operations (specifically workloads), and we acknowledge that this theme could flip, pushing companies back to insourcing their operations, decreasing demand for data center space.

2. Data Center Space Demand & Supply: Space and power pricing have led to significant increases and decreases in lease pricing per square foot, which we believe is a risk, given some I.T. infrastructure operators may decide to flood the market with capacity in a speculative fashion, depressing market prices and challenging a data center REIT's ability to deploy capital at the right returns on investment.

3. Heavy Market Competition: Currently, the market is favoring data center REITs for their expertise and ecosystems; however, expertise, general technology, and ecosystems are becoming table stakes to operate in the industry, increasing the competition and differentiation and inevitably compressing prices.

4. Reliable Infrastructure: Data center REITs generally operate in locations that have direct, or close proximity to, dark fiber for Internet connectivity. If these infrastructure connections break or are rendered obsolete, they will challenge data center REITs from a latency perspective, making them less attractive solutions for I.T. customers.

5. Power Reliability and Cost: Power costs are currently stable and declining; however, it is possible that costs may increase, driven primarily by rising interest rates, affecting margins and valuation for the data center REIT group.

6. Macro and FX Risk: The companies may generate revenues or underwrite leases denominated in non-U.S. currency, exposing themselves to non-U.S. headwinds such as currency fluctuations in the international markets.

7. Political/Regulatory Risks: Data sovereignty is a major issue across continental, regional, national, and state borders, making some data center operators completely irrelevant to certain types of businesses or entities, specifically government entities, or companies that are domiciled in strictly regulated countries.

8. Rising Interest Rates: The general interest rate environment is trending upward based on the Fed's reviews, and even though data center REITs are not as levered as other assets such as utilities, interest rates may still have an adverse effect on equity valuations.

9. REIT Qualification Loss: The companies must abide by several complex rules to qualify for their tax-free status including the distribution of 90%+ of REIT taxable income (before dividends) or risk being subject to statutory tax rates. Of the value of assets, 75% must be cash equivalents or real estate assets. Further, no more than 50% of a data center REIT's shares may be owned by less than five owners. This structure may prevent data center REITs from funding future opportunities. Dividends payable by REITs generally are not eligible for the preferential tax rates on qualified dividend income, which could make data center REIT shares less attractive than normal corporations that pay dividends. The company’s REIT structure gives it the ability to limit investor ownership above 9.8% of outstanding shares and prevent a change in control. The company also cannot merge unless 35%+ of holders of its common and long-term incentive units agree. Further, holders of preferred shares can convert their holdings into common stock during a change of control.

Sami Badri | 212-538-1727 | [email protected] Source: Credit Suisse estimates, Company data

DC REITs – Investment Risks

57

Facebook’s Potential Disruptors


Source: Credit Suisse Equity Research

Six-Pack Wedge

(40GbE Switch)

Released: February11, 2015 Purpose: DC Networking About: The Six-Pack is a seven-rack chassis with eight 16-port Wedge switches and two fabric cards. The ports are 40GbE, and the top-of-rack switches aggregate connectivity in the racks, and six-pack interconnects all the TOR switches. The purpose of this new switch is to build a modular platform that can handle the increase in network traffic.

Voyager Optical

Appliance

Released: November 1, 2016 Purpose: Telecom Networking & DC About: The Voyager is an optical switch described as the first “white box” transponder for Open Packet DWDM optical networks. Unlike conventional copper-based networks, optical networks (also known as optical fiber networks) use light pulses to transfer data.

Backpack

(100GbE Switch)

Released: November 8, 2016 Purpose: DC Networking About: The Backpack is Facebook’s next-gen 100GbE switch platform for connecting all the racks inside of the data center together. Of note, the Backpack can power 2.5x the Wedge, but it also happens to consume 2.5x the power, which is an ongoing issue and requires close engineering alignment with manufacturers.

Aquila (Global

Internet Airplane)

Released: 2014-15 Purpose: Global Internet Connectivity About: The drone, Aquila, is part of Internet.org, Facebook’s plan to extend Web access to what it estimates are 1.1 to 2.8 billion people without it today. Aquila, which has the wingspan of a Boeing 737 but weighs only as much as a car, will be able to fly for three months without landing, transmitting Internet to towers and other planes continuously.

Source: Facebook, Structure 2016, Credit Suisse

Wedge

(TOR Switch)

Released: July 2014 Purpose: Data Center (DC) Networking About: The Wedge is a new Top-of-Rack (TOR) switch with a Linux-based operating system code named FBOSS. The switch uses the same modular micro-server architecture that Facebook has been deploying for the standard OCP server in its data centers. This means Wedge switches can slide seamlessly into Facebook’s existing software deployment system.

When Six-Pack was released:

“We’ve done this for racks, for the compute part of it, for

storage and for other parts of infrastructure but there is

this other lingering part, the network… it slowed us

down… It’s no longer a switch… it’s just a server.”

-Jay Parikh, VP of Infrastructure Engineering at Facebook, June 18, 2014

MTDC Disruptors

Facebook Opening Compute Technology to Global Community

58

Data Center REITs


Appendix

59

Data Center REIT Comp Sheet

Source: Thomson Eikon, Credit Suisse estimates, Company data Sami Badri | 212-538-1727 | [email protected]

DC REITs

2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E

Equinix EQIX $431 $33,561 $4,325 $37,886 Outperform 8.7x 7.6x 18.6x 15.7x 46.8% 48.3% 31.0x 26.0x 23.5x 20.7x 20.4% 15.3% 22.9% 18.8% 37.3% 19.6% 22.1% 13.4% 1.9% 43.7%

Digital Realty DLR 115 18,432 7,189 25,621 Consensus 11.2x 10.4x 19.2x 17.9x 58.5% 58.2% 18.5x 17.7x 20.2x 19.1x 6.5% 8.0% 10.4% 7.4% 10.3% 4.4% 8.0% 5.4% 3.2% 65.0%

CyrusOne CONE 56 4,947 1,746 6,693 Outperform 9.8x 8.3x 18.1x 15.2x 54.0% 54.6% 18.7x 17.0x 18.4x 16.1x 29.2% 18.1% 32.5% 19.4% 14.0% 9.7% 25.2% 14.3% 3.0% 54.7%

CoreSite Realty COR 106 5,076 832 5,908 Neutral 12.4x 11.1x 22.7x 20.4x 54.4% 54.5% 24.0x 21.8x 26.7x 23.1x 19.2% 11.2% 22.3% 11.4% 18.9% 9.9% 20.6% 15.6% 3.0% 80.8%

QTS Realty QTS 53 2,551 1,014 3,564 Neutral 7.8x 6.9x 17.1x 14.8x 45.8% 46.6% 19.6x 17.5x 19.1x 16.9x 13.0% 14.0% 12.9% 16.0% 4.0% 11.9% 12.0% 12.9% 2.9% 56.1%

Data Center REITs Avg. $11,575 $2,755 $14,330 10.0x 8.8x 19.2x 16.8x 51.9% 52.4% 22.4x 20.0x 21.6x 19.2x 17.7% 13.3% 20.2% 14.6% 16.9% 11.1% 17.6% 12.3% 2.8% 60.1%

American Tower AMT $135 $57,177 $19,834 $77,011 Consensus 11.6x 10.9x 19.0x 17.8x 61.1% 61.3% 20.4x 18.1x 21.0x 18.5x 14.4% 6.9% 13.9% 7.1% 13.5% 12.7% 14.6% 13.6% 1.9% 40.0%

Crowne Castle CCI 101 37,043 13,288 50,331 Consensus 12.0x 11.4x 21.2x 20.0x 56.6% 57.3% 20.1x 18.6x 21.4x 20.0x 6.8% 5.0% 15.3% 6.2% 6.4% 8.2% 12.8% 7.0% 3.8% 80.4%

SBA Comm. SBAC 134 16,297 8,534 24,831 Consensus 14.5x 13.7x 21.1x 19.6x 68.8% 69.9% 19.8x 17.9x 19.4x 17.5x 4.9% 5.7% 15.0% 7.4% 11.6% 10.4% 13.5% 10.9% 0.0% 0.0%

Tower REITs Avg. $36,839 $13,885 $50,724 12.7x 12.0x 20.4x 19.1x 62.2% 62.8% 20.1x 18.2x 20.6x 18.7x 8.7% 5.9% 14.7% 6.9% 10.5% 10.4% 13.6% 10.5% 1.9% 40.1%

Apartment Investment and Mgmt. AIV $43 $6,699 $4,281 $10,979 Consensus 11.3x 11.0x 18.5x 18.1x 61.1% 60.8% 17.5x 16.8x 17.5x 16.7x -0.3% 2.4% 2.2% 2.1% 5.3% 4.6% 5.0% 4.9% 3.4% 59.1%

Essex Property Trust Inc ESS 260 17,071 5,689 22,760 Consensus 16.9x 16.1x 24.3x 22.7x 69.6% 71.2% 22.0x 21.0x 22.0x 20.9x 4.1% 4.6% 2.9% 7.1% 6.9% 5.2% 7.0% 5.2% 2.7% 59.3%

UDR Inc UDR 39 10,439 4,490 14,929 Consensus 15.2x 14.4x 23.5x 21.9x 64.5% 66.0% 21.0x 20.0x 21.2x 20.2x 3.7% 5.0% 5.8% 7.5% 3.8% 4.9% 3.0% 4.8% 3.2% 67.2%

AvalonBay Communities Inc AVB 193 26,528 6,893 33,421 Consensus 15.6x 14.9x 23.9x 22.5x 65.4% 65.9% 22.3x 21.0x 22.3x 21.0x 4.9% 5.1% 6.7% 6.0% 4.6% 6.2% 5.5% 6.1% 3.0% 65.8%

Equity Residential EQR 66 24,368 9,520 33,888 Consensus 13.9x 13.4x 21.4x 20.6x 64.7% 65.0% 21.4x 20.5x 21.8x 20.9x 0.9% 3.4% 0.9% 3.8% 0.5% 4.4% -1.4% 4.4% 3.0% 66.1%

Mid-America Apartment Comm. MAA 106 12,067 4,768 16,836 Consensus 10.9x 10.5x 19.3x 18.1x 56.6% 57.8% 18.0x 16.7x 17.8x 16.7x 37.0% 4.5% 62.6% 6.7% -0.2% 7.8% 1.1% 6.3% 3.3% 58.2%

Camden Property Trust CPT 86 7,549 2,285 9,834 Consensus 11.0x 10.5x 19.3x 18.5x 56.7% 57.1% 18.8x 18.0x 19.0x 18.2x 2.2% 4.2% 2.1% 4.9% -1.3% 4.3% -2.4% 4.8% 3.5% 66.2%

Apart./Multi-Fam. REITs Avg. $14,960 $5,418 $20,378 13.5x 13.0x 21.5x 20.3x 62.7% 63.4% 20.2x 19.1x 20.2x 19.2x 7.5% 4.2% 11.9% 5.4% 2.8% 5.3% 2.6% 5.2% 3.1% 63.1%

Store Capital Corp STOR $23 $3,952 $2,425 $6,377 Consensus 14.6x 12.6x 15.4x 13.0x 94.8% 96.4% 13.8x 12.9x 13.7x 12.8x 22.7% 16.0% 78.6% 18.1% 8.6% 6.8% 9.5% 6.6% 5.0% 68.8%

Federal Realty Investment Trust FRT 128 9,256 3,239 12,495 Consensus 14.8x 14.0x 23.0x 21.6x 64.2% 64.9% 21.7x 20.6x 22.5x 21.3x 5.6% 5.4% 5.6% 6.7% 4.4% 5.7% 0.8% 5.6% 3.1% 68.8%

Regency Centers Corp REG 63 10,740 972 11,712 Consensus 11.9x 10.8x 18.2x 15.8x 65.2% 68.4% 17.6x 16.7x 17.8x 16.9x 10.0% 71.9% 15.3% 9.2% 5.4% 7.8% 5.4% 3.4% 59.7%

Kimco Realty Corp KIM 19 8,002 5,203 13,205 Consensus 11.2x 10.8x 16.2x 15.6x 68.9% 69.5% 12.4x 11.7x 12.4x 11.8x 2.3% 3.3% 23.8% 4.2% 15.0% 5.8% 1.3% 5.1% 5.7% 71.1%

DDR Corp DDR 9 3,318 4,860 8,178 Consensus 9.2x 9.6x 13.9x 14.6x 66.2% 66.0% 8.0x 8.8x 8.1x 8.7x -8.1% -4.6% 8.1% -4.8% -12.2% -8.4% -12.8% -7.2% 8.4% 68.1%

Strip Mall REITs Avg. $7,054 $3,340 $10,394 12.3x 11.6x 17.4x 16.1x 71.9% 73.1% 14.7x 14.1x 14.9x 14.3x 5.6% 6.0% 37.6% 7.9% 5.0% 3.1% 1.3% 3.1% 5.1% 67.3%

Taubman Centers Inc TCO $61 $3,675 $3,098 $6,773 Consensus 11.1x 10.7x 16.6x 15.5x 66.9% 69.2% 16.3x 15.1x 16.7x 15.6x -0.5% 3.3% 26.7% 6.9% -2.4% 7.7% 1.1% 7.5% 4.1% 69.1%

GGP Inc GGP 24 21,253 13,086 34,339 Consensus 15.3x 14.7x 15.3x 14.8x 100.0% 98.9% 15.5x 14.8x 15.8x 15.1x -4.5% 4.5% 53.4% 3.3% -1.2% 5.2% -0.6% 5.0% 3.7% 57.9%

Simon Property Group Inc SPG 164 51,139 23,468 74,606 Consensus 13.6x 13.0x 17.0x 16.1x 80.3% 80.8% 14.7x 13.5x 14.5x 13.6x 0.8% 4.4% 10.7% 5.2% 2.8% 8.8% 3.6% 7.1% 4.3% 62.2%

Macerich Co MAC 59 8,427 5,127 13,554 Consensus 13.8x 13.4x 22.0x 19.8x 62.9% 67.6% 15.0x 14.4x 15.1x 14.5x -5.8% 3.1% 1.6% 10.9% -3.2% 4.8% -3.2% 4.1% 4.8% 72.1%

Regional Mall REITs Avg. $21,124 $11,194 $32,318 13.5x 13.0x 17.7x 16.6x 77.5% 79.1% 15.4x 14.4x 15.5x 14.7x -2.5% 3.8% 23.1% 6.6% -1.0% 6.6% 0.2% 5.9% 4.2% 65.3%

Brandywine Realty Trust BDN $17 $3,044 $1,795 $4,839 Consensus 8.9x 8.7x 15.5x 14.7x 57.7% 59.0% 12.7x 11.6x 12.5x 11.5x 3.0% 3.3% 25.4% 5.8% 46.0% 9.6% 47.5% 9.1% 3.7% 46.2%

SL Green Realty Corp SLG 106 10,760 7,609 18,369 Consensus 16.3x 15.5x 19.9x 19.6x 81.5% 79.4% 16.3x 15.4x 17.1x 16.0x -14.6% 4.6% -19.0% 1.9% -22.0% 6.2% -25.3% 6.9% 2.9% 50.1%

Douglas Emmett Inc DEI 38 5,911 5,393 11,304 Consensus 14.2x 13.6x 22.1x 21.1x 64.2% 64.6% 19.9x 18.7x 20.6x 19.4x 7.1% 4.6% 8.7% 5.1% 6.0% 6.3% 2.4% 6.4% 2.4% 49.6%

Kilroy Realty Corp KRC 76 7,473 2,391 9,864 Consensus 15.7x 14.8x 22.2x 20.9x 70.7% 71.0% 21.9x 19.9x 21.8x 19.6x 9.5% 5.9% 8.1% 6.4% 0.5% 10.0% 0.7% 11.3% 2.2% 48.8%

Vornado Realty Trust VNO 94 17,706 12,156 29,862 Consensus 11.9x 12.0x 21.9x 20.9x 54.3% 57.4% 18.9x 17.7x 20.6x 18.6x 0.3% -0.7% 19.0% 5.0% -35.5% 6.7% -2.6% 10.9% 3.0% 62.6%

Boston Properties Inc BXP 123 18,984 11,931 30,915 Consensus 12.1x 11.4x 20.3x 19.0x 59.5% 59.7% 19.9x 18.8x 20.0x 18.8x 0.5% 6.0% 0.3% 6.4% 2.9% 6.1% 2.5% 6.1% 2.4% 48.5%

Hudson Pacific Properties HPP 35 5,423 2,603 8,026 Consensus 11.0x 10.4x 19.3x 18.1x 56.9% 57.7% 17.7x 16.6x 19.4x 18.1x 14.1% 5.3% 16.0% 6.6% 10.4% 6.4% 0.6% 7.5% 2.9% 55.9%

Corporate Office Properties OFC 35 3,505 1,940 5,445 Consensus 10.6x 10.0x 18.3x 17.2x 57.9% 58.3% 17.2x 16.1x 17.1x 16.1x -2.1% 5.3% -3.2% 6.0% 1.7% 6.8% 2.3% 6.7% 3.1% 53.5%

Office REITs Avg. $9,101 $5,727 $14,828 12.6x 12.1x 19.9x 18.9x 62.8% 63.4% 18.1x 16.8x 18.6x 17.3x 2.2% 4.3% 6.9% 5.4% 1.3% 7.3% 3.5% 8.1% 2.8% 51.9%

Eastgroup Properties Inc EGP $84 $2,855 $1,113 $3,968 Consensus 14.7x 14.0x 22.2x 20.9x 66.1% 66.8% 19.9x 18.9x 20.3x 19.2x 6.9% 5.1% 8.1% 6.3% 5.1% 5.4% 3.0% 5.7% 2.9% 59.9%

Liberty Property Trust LPT 41 6,100 2,700 8,801 Consensus 12.6x 12.0x 19.4x 18.2x 64.8% 66.1% 16.8x 15.8x 17.3x 16.5x -6.3% 4.4% -1.4% 6.4% 4.4% 6.1% 1.1% 5.0% 3.9% 66.8%

DCT Industrial Trust Inc DCT 54 4,956 1,748 6,704 Consensus 15.7x 14.9x 22.6x 21.3x 69.5% 70.3% 22.3x 21.3x 22.4x 21.3x 8.8% 5.0% 10.3% 6.2% 6.3% 5.1% 6.0% 5.2% 2.3% 51.5%

First Industrial Realty Trust FR 29 3,446 1,395 4,841 Consensus 12.3x 12.0x 19.2x 18.5x 64.2% 64.7% 18.7x 17.6x 19.3x 18.2x 4.0% 3.0% 5.8% 3.7% 6.2% 5.9% 2.6% 6.2% 2.9% 56.4%

Prologis Inc PLD 59 31,389 13,571 44,960 Consensus 19.5x 18.6x 23.7x 23.3x 82.1% 79.9% 21.5x 20.4x 21.7x 20.5x 4.0% 4.5% 18.6% 1.7% 7.2% 5.5% 6.2% 5.7% 3.0% 64.5%

Gramercy Property Trust GPT 30 4,533 2,537 7,070 Consensus 16.4x 14.9x 17.4x 15.6x 94.4% 95.6% 14.0x 13.2x 14.0x 13.2x 11.2% 10.1% 12.5% 11.4% -3.5% 6.2% -3.8% 6.4% 5.0% 70.5%

Industrial REITs Avg. $8,880 $3,844 $12,724 15.2x 14.4x 20.7x 19.6x 73.5% 73.9% 18.9x 17.9x 19.2x 18.1x 4.8% 5.3% 9.0% 5.9% 4.3% 5.7% 2.5% 5.7% 3.3% 61.6%

Pebblebrook Hotel Trust PEB $33 $2,291 $1,045 $3,336 Consensus 4.3x 4.3x 14.5x 14.4x 29.7% 29.8% 13.3x 13.0x 13.4x 12.9x -5.3% 0.3% -15.9% 0.7% -11.1% 2.4% -11.3% 3.6% 4.6% 61.6%

RLJ Lodging Trust RLJ 20 2,537 1,145 3,682 Consensus 3.3x 3.3x 10.1x 10.0x 32.7% 32.8% 8.6x 8.4x 8.7x 8.6x -4.0% 1.0% -7.3% 1.4% -10.9% 1.6% -12.4% 0.6% 6.5% 56.4%

DiamondRock Hospitality DRH 11 2,277 806 3,083 Consensus 3.5x 3.4x 12.3x 12.3x 28.4% 28.1% 11.4x 11.2x 11.6x 11.3x -2.0% 1.8% -2.0% 0.4% -2.0% 1.6% -3.6% 2.4% 4.4% 50.8%

Host Hotels & Resorts HST 19 13,759 3,778 17,537 Consensus 3.2x 3.2x 12.1x 12.1x 26.8% 26.6% 11.2x 11.2x 11.2x 11.1x -0.2% 0.9% 3.2% 0.0% -1.9% 0.4% -1.9% 1.2% 4.3% 48.3%

Sunstone Hotel Investors SHO 17 3,649 804 4,453 Consensus 3.8x 3.7x 13.5x 13.2x 27.9% 28.0% 13.8x 13.6x 13.9x 13.5x -0.5% 1.8% 0.2% 1.9% -0.8% 1.3% -1.4% 3.0% 1.2% 16.8%

LaSalle Hotel Properties LHO 31 3,453 761 4,214 Consensus 3.6x 3.6x 11.5x 11.8x 31.6% 30.8% 11.7x 11.7x 11.5x -5.8% 0.5% -8.0% -1.7% -9.8% -0.2% -8.9% 5.9% 68.2%

Ashford Hospitality Trust AHT 6 608 3,526 4,134 Consensus 2.8x 2.8x 9.7x 9.4x 29.2% 29.3% 4.2x 4.1x 4.2x 4.2x -1.7% 2.5% -0.8% 2.9% -2.6% 3.2% -2.5% -0.1% 7.7% 32.6%

Hotel REITs Avg. $4,082 $1,695 $5,777 3.5x 3.5x 12.0x 11.9x 29.5% 29.3% 10.6x 10.5x 10.6x 10.3x -2.8% 1.3% -4.4% 0.8% -5.6% 1.5% -6.0% 1.8% 4.9% 47.8%

Credit Suisse Defined REIT Avg. $12,155 $5,181 $17,336 11.4x 10.8x 18.5x 17.4x 60.1% 60.7% 17.3x 16.3x 17.5x 16.5x 4.7% 5.2% 13.1% 6.3% 3.4% 6.0% 3.5% 6.3% 3.6% 57.3%

Basic Information

Current

Price

Current Market

Cap ($mil)EV ($mil)Company / Group Ticker

Net Debt

($mil)

Rating /

Consensus

EBITDA FFO/share AFFO/share Dividend

Yield

Dividend /

AFFO per sh.

Growth

Sales

Valuation Yield (FY17E)

P/AFFOP/FFOEV/Revenue EV/EBITDA EBITDA Margin

60

What Is a Multi-Tenant Data Center? MTDCs are facilities that power, interconnect, and house I.T. hardware for multiple customers in a single data center facility, including multiple public cloud vendors, private cloud focused enterprises, Internet-connected content providers, and telecom networks. The business of leasing data center space, capacity, and power is referred to as “colocation.”

Model Data Center Facility

Appendix

Sami Badri | 212-538-1727 | [email protected] Source: Digital Realty, Credit Suisse

61

What Is a Multi-Tenant Data Center?

Sami Badri | 212-538-1727 | [email protected] Source: Digital Realty, Credit Suisse Research, I.H.S. Markit

MTDCs are the facilities that build, power, interconnect, and maintain the world’s Internet connectivity, and more specifically Private & Public Clouds.

Digital Realty Example

Customers: The largest customers include Public Cloud Service Providers, Network Providers, Communication Infrastructure providers,

enterprises, and Internet hyper-scalers.

Competitors: Competitors include any company offering data center capacity, power, and interconnection services in a facility. As of FY2016, there were ~1,500 different MTDCs, globally.

Appendix

62

Key REIT Terms and Metrics

Sami Badri | 212-538-1727 | [email protected] Source: CFA Institute, Credit Suisse Research

Appendix

Funds From Operations (FFO) is the most commonly accepted and reported measure of REIT operating performance. It is equal to a REIT’s net income, excluding gains or losses from sales of property, plus real estate depreciation.

Adjusted Funds From Operations (AFFO) refers to a computation that measures a real estate company’s operational cash flow. AFFO is considered to be a more accurate measure of economic income than funds from operations (FFO). It is calculated by adjusting FFO to remove any noncash rent that has been recognized and subtracting maintenance-type capital expenditures and leasing costs (including leasing agents’ commissions and tenants’ improvement allowances).

Net Asset Value (NAV) is the net market value of a company’s assets, including but not limited to its properties, after subtracting all its liabilities and obligations.

Capitalization Rates (or Cap Rate) for properties are determined by dividing the property’s net operating income (NOI) by its purchase price. Generally, high cap rates indicate higher returns and greater perceived risk. The Cap Rate can also be known as the “property yield.”

Net Operating Income is computed as follows: Total Revenue - Property Operating Expenses (includes: Direct Cost of Revenue and Power Metered costs) = NOI (GAAP basis).

Occupancy rate is the estimated rental value of leased units as a percentage of the total estimated rental value of the portfolio, excluding development properties. It includes accommodations under offer or subject to asset management (meaning they have been taken back for refurbishment and are not available to lease as of the balance sheet date).

The National Association of Real Estate Investment Trusts (NAREIT) is an association representing publicly traded real estate companies with an interest in US real estate and capital markets.

An Equity REIT is one that owns, or has an equity interest in, rental real estate (rather than making loans secured by real estate collateral).

63

Summary REIT Filing Qualification Requirements


The company must abide by several complex rules to qualify for its tax-free status, including:

Distribution of 90%+ of REIT taxable income (before dividends) or risk being subject to statutory tax rates.

75% of the value of the assets must be cash equivalents or real estate assets.

No more than 50% of a data center REIT's shares may be owned by less than five owners. This structure may prevent data center REITs from funding future opportunities.

Dividends payable by REITs generally are not eligible for the preferential tax rates on

qualified dividend income, which could make data center REIT shares less attractive than normal corporations that pay dividends.

Investor ownership limited above 9.8% of outstanding shares and prevent a change in control.

Cannot merge with another company unless 35%+ of holders of its common and long-term incentive units agree. Holders of preferred shares can convert their holdings into common stock during a change of control.

Source: SEC.gov, CFA Institute, Credit Suisse Research

Appendix

64

Definitions of Key Terms What Is a Public Cloud?

Simply, a public cloud is a data center managed by a third party (Amazon Web Services, Microsoft Azure, Google Cloud Platform, IBM SoftLayer/Bluemix) located in a remote site (off the premise of a potential or existing customer), servicing ranges of basic or scalable needs for companies (Pinterest, Snapchat, Netflix, etc.) and advanced enterprise customers (General Electric, C.I.A., etc.). Customers such as Netflix and GE pay for the public cloud services as operating expenses and can defer or completely eliminate capex spend on IT infrastructure given the services the public cloud vendors can offer.

What Is a Private Cloud?

A private cloud is a remote data center that is managed by a single entity and enables users to remote into that data center for compute, storage, and software needs, regardless of where the user is located. Generally, a large enterprise will have one private cloud, which could contain multiple data centers around the world, and does not have these data centers open to any other users from other entities.

What Is a Hybrid Cloud?

A hybrid cloud is when an entity has its own IT infrastructure, or private cloud, and leverages the public cloud for additional capacity, data workloads, or application testing environments without the need to invest in more IT infrastructure. Basically, hybrid clouds are a combination of both public and private clouds for entities and enterprises.

Sami Badri | 212-538-1727 | [email protected] Source: Credit Suisse Equity Research

Appendix

65

Companies Mentioned (Price as of 28-Jun-2017)

Aimco (AIV.N, $42.66) Alibaba Group Holding Limited (BABA.N, $143.95) Alphabet (GOOGL.OQ, $961.01) Altisource Residential Corp (RESI.N, $13.13) Amazon com Inc. (AMZN.OQ, $990.33) American Tower Corp (AMT.N, $134.53) Apple Inc (AAPL.OQ, $145.83) Ashford Hospitality Trust (AHT.N, $6.24)

AvalonBay Communities, Inc. (AVB.N, $192.53) Baidu (BIDU.OQ, $178.0) Boston Properties, Inc. (BXP.N, $123.39) Brandywine Realty Trust (BDN.N, $17.38) British Airways (BAY.LÂ11) British Airways (BAY.LÂ11) British Airways (BAY.LÂ11) Camden Property Trust (CPT.N, $86.13) CenturyLink (CTL.N, $24.86) China Telecom (0728.HK, HK$3.75) China Unicom Hong Kong Ltd (0762.HK, HK$11.62) Cisco Systems Inc. (CSCO.OQ, $32.08)

CoreSite Realty Corp. (COR.N, $105.65, NEUTRAL, TP $103.0) Corporate Office Properties Trust (OFC.N, $35.25) Crown Castle International Corp (CCI.N, $101.18) CyrusOne Inc. (CONE.OQ, $56.39, OUTPERFORM, TP $73.0) DCT Industrial Trust Inc. (DCT.N, $53.91) DDR (DDR.N, $9.04) Delta Air Lines, Inc. (DAL.N, $53.84) DiamondRock Hospitality Co. (DRH.N, $11.37) Digital Realty Trust, Inc. (DLR.N, $115.36) Douglas Emmett Inc. (DEI.N, $38.24) DuPont Fabros Technology, Inc. (DFT.N, $62.71) Eastgroup Properties Inc. (EGP.N, $84.23) Equinix, Inc. (EQIX.OQ, $430.76, OUTPERFORM, TP $510.0)

Equity Residential (EQR.N, $66.37) Essex Property Trust, Inc. (ESS.N, $260.24) Facebook Inc. (FB.OQ, $153.24) Federal Realty Investment Trust (FRT.N, $128.13) Frontier Real Estate Inv Corp (8964.T, ¥468,500) GPT Group (GPT.AX, A$5.07) General Growth Properties (GGP.N, $24.08) Hewlett Packard Enterprise (HPE.N, $16.9) Host Hotel & Resorts Inc. (HST.N, $18.6) Hudson Pacific Properties (HPP.N, $34.75) International Business Machines Corp. (IBM.N, $155.32) Kilroy Realty Corp. (KRC.N, $76.04) Kimco Realty (KIM.N, $18.8)

LaSalle Hotel Properties (LHO.N, $30.5) Liberty Prop Tst (LPT.N, $41.44) Mapletree Commercial Trust (MACT.SI, S$1.57) Microsoft (MSFT.OQ, $69.8) Mid-America Apt (MAA.N, $106.25) Oracle Corporation (ORCL.N, $50.87) Pebblebrook Hotel Trust (PEB.N, $32.94) Prologis, Inc. (PLD.N, $59.19) QTS Realty Trust, Inc. (QTS.N, $53.24, NEUTRAL, TP $54.0) RLJ Lodging Trust (RLJ.N, $20.35) Regency Centers (REG.N, $63.15) SBA Communications Corp (SBAC.OQ, $134.35) SL Green Realty Corp. (SLG.N, $105.72)

Silver Bay Realty Trust Corp (SBY.NÊ17) Silver Bay Realty Trust Corp (SBY.NÊ17) Silver Bay Realty Trust Corp (SBY.NÊ17) Silver Bay Realty Trust Corp (SBY.NÊ17) Silver Bay Realty Trust Corp (SBY.NÊ17) Simon Property Group, Inc. (SPG.N, $163.8) Store Capital (STOR.N, $23.06) Sunstone Hotel Investors (SHO.N, $16.55) Taubman Centers, Inc. (TCO.N, $60.55) Tencent Holdings (0700.HK, HK$282.8) UDR, Inc (UDR.N, $39.04) Verizon Communications Inc (VZ.N, $44.84) Vornado Realty Trust (VNO.N, $93.51)

Yahoo Japan (4689.T, ¥485) eBay Inc. (EBAY.OQ, $35.31)

Disclosure Appendix

Analyst Certification

I, Sami Badri, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to th e analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive,

Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector , with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12 -month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.

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Restricted 2%

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Target Price and Rating Valuation Methodology and Risks: (12 months) for CoreSite Realty Corp. (COR.N)

Method: We value CoreSite at $103 based on the average of a multi-pronged valuation methodology, including P/AFFO, EV/EBITDA, Net Asset Value, Dividend Growth, and Discounted Cash Flow analysis.

Risk: We identify five major risks to our $103 target price, including: 1) changes in I.T. architecture displacing CoreSite's technology and real estate, 2) speculative data center developments that may compress market pricing and impact CoreSite's margins and profits, 3) economic risk associated with a slowdown in overall I.T. spending, 4) regulatory risks associated with changes in data sovereignty laws, requiring companies to own and manage their own data centers rather than leasing from multi-tenant data centers, and 5) REIT qualification risk where the company must abide by numerous complex rules to qualify for its tax free status.

Target Price and Rating Valuation Methodology and Risks: (12 months) for CyrusOne Inc. (CONE.OQ)

Method: We value CyrusOne at $73 based on the average of a five pronged valuation methodology, including EV/EBITDA, P/AFFO, Net Asset Value, NTM Dividend Yield Model, Net Asset Value, and Discounted Cash Flow analysis.

66

Risk: We identify five major risks to our $73 target price, includuing: 1) change in I.T. architecture displacing CyrusOne's technology, 2) speculative data center developments that may compress market pricing and impact CyrusOne's profits, 3) macro-economic risk associated with a slowdown in overall I.T. spending, 4) regulatory risks associated with changes in data sovereignty laws, requiring companeis to own and manage their own data centers rather than leasing from CyrusOne, and 5) REIT qualification risk where the company must abide by several complex rules to qualify for its tax free status including the distribution of 90%+ of REIT taxable income (before dividends) or risk being subject to statutory tax rates.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Equinix, Inc. (EQIX.OQ)

Method: We value Equinix at $510 based on the average of a multi-pronged valuation methodology, including P/AFFO, EV/EBITDA, Dividend Growth, and Discounted Cash Flow analysis.

Risk: We identify five major risks to our $510 target price, including: 1) changes in I.T. architecture displacing Equinix's technology and real estate, 2) speculative data center developments that may compress market pricing and impact Equinix's margins and profits, 3) economic risk associated with a slowdown in overall I.T. spending, 4) regulatory risks associated with changes in data sovereignty laws, requiring companies to own and manage their own data centers rather than leasing from multi-tenant data centers, and 5) REIT qualification risk where the company must abide by numerous complex rules to qualify for its tax free status.

Target Price and Rating Valuation Methodology and Risks: (12 months) for QTS Realty Trust, Inc. (QTS.N)

Method: We value QTS Realty at $54 based on the average of a multi-pronged valuation methodology, including P/AFFO, EV/EBITDA, Net Asset Value, Dividend Growth, and Discounted Cash Flow analysis.

Risk: We identify five major risks to our $54 target price, including: 1) changes in I.T. architecture displacing QTS Realty's technology and real estate, 2) speculative data center developments that may compress market pricing and impact QTS Realty's margins and profits, 3) economic risk associated with a slowdown in overall I.T. spending, 4) regulatory risks associated with changes in data sovereignty laws, requiring companies to own and manage their own data centers rather than leasing from multi-tenant data centers, and 5) REIT qualification risk where the company must abide by numerous complex rules to qualify for its tax free status.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): EQIX.OQ, CONE.OQ, QTS.N, RESI.N, AAPL.OQ, AMZN.OQ, CCI.N, MACT.SI, CSCO.OQ, DFT.N, DLR.N, HPE.N, IBM.N, MSFT.OQ, ORCL.N, STOR.N, VZ.N, 0700.HK, BABA.N, 4689.T, BIDU.OQ, FB.OQ, EBAY.OQ, GOOGL.OQ

Credit Suisse provided investment banking services to the subject company (RESI.N, AAPL.OQ, MACT.SI, CSCO.OQ, DFT.N, DLR.N, HPE.N, IBM.N, MSFT.OQ, ORCL.N, STOR.N, VZ.N, BABA.N, 4689.T, FB.OQ, EBAY.OQ, GOOGL.OQ) within the past 12 months.

Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, securities-related: RESI.N, AAPL.OQ, CSCO.OQ, DLR.N, HPE.N, IBM.N, MSFT.OQ, STOR.N, VZ.N, BABA.N, EBAY.OQ, 0728.HK, 0762.HK, GOOGL.OQ

Credit Suisse has managed or co-managed a public offering of securities for the subject company (MACT.SI, CSCO.OQ, IBM.N, MSFT.OQ, ORCL.N, STOR.N, VZ.N, EBAY.OQ, GOOGL.OQ) within the past 12 months.

Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): RESI.N, AAPL.OQ, MACT.SI, CSCO.OQ, DFT.N, DLR.N, HPE.N, IBM.N, MSFT.OQ, ORCL.N, STOR.N, VZ.N, BABA.N, 4689.T, FB.OQ, EBAY.OQ, GOOGL.OQ

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (EQIX.OQ, CONE.OQ, QTS.N, SBAC.OQ, RESI.N, AAPL.OQ, AMZN.OQ, CCI.N, MACT.SI, CSCO.OQ, DFT.N, DLR.N, HPE.N, IBM.N, MSFT.OQ, ORCL.N, STOR.N, VZ.N, 0700.HK, BABA.N, 4689.T, BIDU.OQ, FB.OQ, EBAY.OQ, 0728.HK, 0762.HK, GOOGL.OQ) within the next 3 months.

Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): RESI.N, AAPL.OQ, CSCO.OQ, DLR.N, HPE.N, IBM.N, MSFT.OQ, STOR.N, VZ.N, BABA.N, EBAY.OQ, 0728.HK, 0762.HK, GOOGL.OQ

As of the date of this report, Credit Suisse makes a market in the following subject companies (AAPL.OQ, MSFT.OQ, 0700.HK, 0728.HK, 0762.HK).

A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (COR.N, CONE.OQ, QTS.N, SBAC.OQ, GPT.AX, RESI.N, 8964.T, AMZN.OQ, CCI.N, MACT.SI, CSCO.OQ, DFT.N, DLR.N, HPE.N, IBM.N, MSFT.OQ, ORCL.N, STOR.N, VZ.N, 0700.HK, BABA.N, 4689.T, BIDU.OQ, FB.OQ, EBAY.OQ, 0728.HK, GOOGL.OQ) within the past 12 months.

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (0728.HK).

Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (GOOGL.OQ).

Credit Suisse has a material conflict of interest with the subject company (FB.OQ) . Credit Suisse has been named as a defendant in various putative shareholder class-action lawsuits relating to Facebook, Inc.’s May 2012 initial public offering. Credit Suisse’s practice is not to comment in research reports on pending litigations to which it is a party. Nothing in this report should be construed as an opinion on the merits or potential outcome of the lawsuits.

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Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

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Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (QTS.N, AAPL.OQ, MACT.SI, CSCO.OQ, DFT.N, DLR.N, IBM.N, MSFT.OQ, ORCL.N, STOR.N, VZ.N, 0700.HK, BABA.N, EBAY.OQ, GOOGL.OQ) within the past 3 years.

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Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

This research report is authored by:

Credit Suisse Securities (USA) LLC ........................................................................................................................................................ Sami Badri

Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.

The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.

Additional information about the Credit Suisse HOLT methodology is available on request.

The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur.

CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

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