Market Overview

CoreSite Reports Second-Quarter 2018 Financial Results Reflecting Revenue Growth of 15.7% Year over Year

Share:

CoreSite Realty Corporation (NYSE:COR), a premier provider of secure,
reliable, high-performance data center and interconnection solutions
across the U.S., today announced financial results for the second
quarter ended June 30, 2018.

Quarterly Highlights

  • Second-quarter total operating revenues were $136.4 million, a 15.7%
    increase year over year
  • Second-quarter net income per diluted share was $0.57, a 23.9%
    increase year over year
  • Second-quarter funds from operations ("FFO") was $1.28 per diluted
    share and unit, a 16.4% increase year over year
  • Commenced 33,938 net rentable square feet (NRSF) of new and expansion
    leases representing $6.5 million of annualized GAAP rent at an average
    rate of $192 per square foot
  • Renewed leases with annualized GAAP rent of $19.6 million, with rent
    growth of 2.8% on a cash basis and 5.7% on a GAAP basis, and recorded
    rental churn of 1.3% in the second quarter
  • Executed 143 new and expansion data center leases for 65,037 NRSF,
    representing $10.4 million of net annualized GAAP rent at an average
    rate of $178 per square foot
  • On June 30, 2018, CoreSite renewed its existing approximately 160,000
    NRSF of space in LA1, expanded into an additional 17,000 NRSF, and
    extended its optionality on LA1 space through 2044, in order to
    continue to provide high-performance data center solutions to its
    customers in one of the most network-dense data centers in the world

"We continue to execute well, which was demonstrated by another quarter
of strong growth and achievement of key building blocks for the future,"
said Paul Szurek, CoreSite's Chief Executive Officer. "We had 8%
year-over-year growth in same-store monthly recurring revenue per
cabinet equivalent, solid cash rent growth on renewals, and low churn.
Our sales team capitalized on the continued strong demand environment,
signing more than $10 million in net annualized GAAP rent from new and
expansion leases. Our core retail colocation business continued its
strong leasing performance, we had a good quarter in scale colocation
leasing, and acquisition of new logos continued at a good pace."

Financial Results

CoreSite's net income attributable to common shares was $19.4 million,
or $0.57 per diluted share, for the three months ended June 30, 2018,
compared to $15.6 million, or $0.46 per diluted share, for the three
months ended June 30, 2017. Net income per diluted share decreased 3.4%
on a sequential-quarter basis, primarily reflecting the debt financings
executed in April 2018, which increased CoreSite's weighted average
interest rate to 3.64% from 3.55% in the first quarter.

CoreSite's FFO per diluted share and unit was $1.28 for the three months
ended June 30, 2018, an increase of 16.4% compared to $1.10 per diluted
share and unit for the three months ended June 30, 2017. FFO per diluted
share and unit increased 0.8% on a sequential-quarter basis, again
reflecting the debt financing transactions executed in April mentioned
above.

Total operating revenues for the three months ended June 30, 2018, were
$136.4 million, a 15.7% increase year over year and an increase of 5.3%
on a sequential-quarter basis.

Commencements and Renewals

CoreSite's second-quarter data center lease commencements totaled 33,938
NRSF at a weighted average GAAP rental rate of $192 per NRSF, which
represents $6.5 million of annualized GAAP rent.

CoreSite's renewal leases signed in the second quarter totaled $19.6
million in annualized GAAP rent, comprised of 143,017 NRSF at a
weighted-average GAAP rental rate of $137 per NRSF, a 2.8% increase in
rent on a cash basis and a 5.7% increase on a GAAP basis. The
second-quarter rental churn rate was 1.3%.

As a result of renewals and growth in interconnection and power
revenues, monthly recurring revenue per cabinet equivalent increased
8.3% over the prior-year period.

Sales Activity

CoreSite executed 143 new and expansion data center leases representing
$10.4 million of net annualized GAAP rent during the second quarter,
comprised of 65,037 NRSF at a weighted-average GAAP rental rate of $178
per NRSF.

Development and Acquisition Activity

During the second quarter, CoreSite placed into service 15,630 square
feet of turn-key data center capacity at DE1 in Denver and 18,121 square
feet of turn-key data center capacity at NY2 in Secaucus, New Jersey.
This brings year-to-date expansions and new construction to 147,427
square feet of new capacity.

On June 30, 2018, CoreSite renewed its existing approximately 160,000
square feet of space in LA1, or One Wilshire, and expanded into an
additional 17,000 square feet in order to continue to provide
high-performance data center solutions to its customers in one of the
most network-dense data centers in the world. As part of CoreSite's
renewal and expansion at One Wilshire, CoreSite extended the term of its
original lease by seven years to 2029, and maintains its three,
five-year renewal options, with control over its space through 2044.

In addition, as of June 30, 2018, CoreSite had a total of 160,591 square
feet of turn-key data center capacity under construction and had spent
$56.3 million of the estimated $274.7 million required to complete the
projects, which consist of the following.

Los Angeles – CoreSite commenced construction on 28,191 square
feet of turn-key data center capacity at LA2, which capacity was 100%
pre-leased. CoreSite expects to spend $21.0 million to complete the
development and expects to complete construction during the second
quarter of 2019.

Reston – CoreSite had 49,837 square feet of turn-key data center
capacity under construction at VA3 (Phase 1B), inclusive of 9,837 square
feet of an infrastructure building to support this phase of the data
center campus. As of the end of the second quarter, CoreSite had
incurred $40.4 million of the estimated $106.7 million required to
complete VA3 Phase 1B and the related portion of the infrastructure
building, and expects to complete construction in the first quarter of
2019.

Washington D.C. – CoreSite had 24,563 square feet of turn-key
data center capacity under construction at DC2. As of the end of the
second quarter, CoreSite had spent $10.9 million of the estimated $20.0
million required to complete the project, and expects to complete
development in the fourth quarter of 2018.

Santa Clara – CoreSite received permits to demolish the existing
structure to clear the way for construction of a 175,000 square foot
building (SV8), the first phase of which comprises 58,000 square feet of
turn-key data center capacity. As of June 30, 2018, CoreSite had
incurred $4.9 million of the estimated $127.0 million required to
complete this phase of development and expects to complete construction
in the third quarter of 2019.

Balance Sheet and Liquidity

As of June 30, 2018, CoreSite had net principal debt outstanding of
$1,034.1 million, correlating to 3.5 times second-quarter annualized
adjusted EBITDA.

As of the end of the second quarter, CoreSite had $336.0 million of
total liquidity, consisting of available cash and capacity on its
revolving credit facility.

Dividend

On May 24, 2018, CoreSite announced a $0.05, or 5.1%, increase in its
quarterly dividend to $1.03 per share of common stock and common stock
equivalents for the second quarter of 2018. The second-quarter dividend
was paid on July 16, 2018, to shareholders of record on June 29, 2018.

2018 Guidance

CoreSite is updating its 2018 guidance of net income attributable to
common shares to a range of $2.12 to $2.20 per diluted share from the
previous range of $2.15 to $2.27 per diluted share. In addition,
CoreSite is increasing its guidance of FFO per diluted share and unit to
a range of $5.00 to $5.08 from the previous range of $4.92 to $5.04,
with the difference between net income and FFO being real estate
depreciation and amortization.

This outlook is based on current economic conditions, internal
assumptions about CoreSite's customer base, and the supply and demand
dynamics of the markets in which CoreSite operates. The guidance does
not include the impact of any future financing, investment or
disposition activities, beyond what has already been disclosed.

Upcoming Conferences and Events

CoreSite management will participate in the following upcoming investor
conferences and events:

  • The Cowen and Company Communications Infrastructure Summit on August 7th in Boulder,
    Colorado;
  • The KeyBanc 20th Annual Technology Leadership Forum on
    August 13th in Vail, Colorado;
  • The Raymond James Annual Park City Telecom Summit on August 14-15 in
    Park City, Utah;
  • The Bank of America Merrill Lynch 2018 Media, Communications &
    Entertainment Conference on September 6th in Beverly Hills,
    California; and
  • The Bank of America Merrill Lynch 2018 Global Real Estate Conference
    on September 25th in New York City.

Conference Call Details

CoreSite will host a conference call on July 26, 2018, at 12:00 p.m.,
Eastern Time (10:00 a.m., Mountain Time), to discuss its financial
results, current business trends and market conditions.

The call will be accessible by dialing +1-877-407-3982 (domestic) or
+1-201-493-6780 (international). A replay will be available until August
9, 2018, and can be accessed shortly after the call by dialing +
1-844-512-2921 (domestic) or + 1-412-317-6671 (international). The
passcode for the replay is 13681015.

Interested parties may also listen to a simultaneous webcast of the
conference call by logging on to CoreSite's website at www.CoreSite.com
and clicking on the "Investors"
link. The on-line replay will be available for a limited time beginning
immediately following the call.

About CoreSite

CoreSite Realty Corporation (NYSE:COR) delivers secure, reliable,
high-performance data center and interconnection solutions to a growing
customer ecosystem across eight key North American markets. More than
1,350 of the world's leading enterprises, network operators, cloud
providers, and supporting service providers choose CoreSite to connect,
protect and optimize their performance-sensitive data, applications and
computing workloads. Our scalable, flexible solutions and 450+ dedicated
employees consistently deliver unmatched data center options — all of
which leads to a best-in-class customer experience and lasting
relationships. For more information, visit www.CoreSite.com.

Forward Looking Statements

This earnings release and accompanying supplemental information may
contain forward-looking statements within the meaning of the federal
securities laws. Forward-looking statements relate to expectations,
beliefs, projections, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not
historical facts. In some cases, you can identify forward-looking
statements by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "pro forma," "estimates" or "anticipates" or the negative of
these words and phrases or similar words or phrases that are predictions
of or indicate future events or trends and that do not relate solely to
historical matters. Forward-looking statements involve known and unknown
risks, uncertainties, assumptions and contingencies, many of which are
beyond CoreSite's control that may cause actual results to differ
significantly from those expressed in any forward-looking statement.
These risks include, without limitation: the geographic concentration of
the company's data centers in certain markets and any adverse
developments in local economic conditions or the demand for data center
space in these markets; fluctuations in interest rates and increased
operating costs; difficulties in identifying properties to acquire and
completing acquisitions; significant industry competition; the company's
failure to obtain necessary outside financing; the company's ability to
service existing debt; the company's failure to qualify or maintain its
status as a REIT; financial market fluctuations; changes in real estate
and zoning laws and increases in real property tax rates; and other
factors affecting the real estate industry generally. All
forward-looking statements reflect the company's good faith beliefs,
assumptions and expectations, but they are not guarantees of future
performance. Furthermore, the company disclaims any obligation to
publicly update or revise any forward-looking statement to reflect
changes in underlying assumptions or factors, of new information, data
or methods, future events or other changes. For a further discussion of
these and other factors that could cause the company's future results to
differ materially from any forward-looking statements, see the section
entitled "Risk Factors" in the company's most recent annual report on
Form 10-K, and other risks described in documents subsequently filed by
the company from time to time with the Securities and Exchange
Commission.

       
Consolidated Balance Sheets                
(in thousands, except per share data)
 
June 30,
2018
December 31,
2017 (1)
Assets:
Investments in real estate:
Land $ 97,636 $ 97,258
Buildings and improvements   1,689,569     1,561,056  
1,787,205 1,658,314
Less: Accumulated depreciation and amortization   (530,528 )   (473,141 )
Net investment in operating properties 1,256,677 1,185,173
Construction in progress   146,236     162,903  
Net investments in real estate   1,402,913     1,348,076  
Operating lease right-of-use assets 181,195 92,984
Cash and cash equivalents 2,834 5,247
Accounts and other receivables, net 25,064 28,875
Lease intangibles, net 8,259 6,314
Goodwill 40,646 40,646
Other assets, net   106,187     103,501  
Total assets $ 1,767,098   $ 1,625,643  
 
Liabilities and equity:
Liabilities
Debt, net $ 1,030,536 $ 939,570
Operating lease liabilities 191,494 102,912
Accounts payable and accrued expenses 71,404 77,170
Accrued dividends and distributions 51,760 48,976
Acquired below-market lease contracts, net 3,183 3,504
Unearned revenue, prepaid rent and other liabilities   34,121     34,867  
Total liabilities   1,382,498     1,206,999  
 
Stockholders' equity
Common stock, par value $0.01 340 338
Additional paid-in capital 463,887 457,495
Accumulated other comprehensive income 1,291 753
Distributions in excess of net income   (207,048 )   (177,566 )
Total stockholders' equity 258,470 281,020
Noncontrolling interests   126,130     137,624  
Total equity   384,600     418,644  
Total liabilities and equity $ 1,767,098   $ 1,625,643  

(1) Adoption of the new lease accounting standard required
that we adjust the consolidated balance sheet as of December 31, 2017,
to include the recognition of additional right-of-use assets and lease
liabilities for operating leases. See our SEC filings for additional
information.

                   
Consolidated Statements of Operations                        
(in thousands, except share and per share data)
 
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 2018 2017
Operating revenues:
Data center revenue:
Rental revenue $ 74,143 $ 71,033 $ 64,853 $ 145,176 $ 129,104
Power revenue 38,986 36,403 32,410 75,389 63,271
Interconnection revenue 17,422 16,560 15,325 33,982 29,837
Tenant reimbursement and other   3,018     2,572     2,329     5,590     4,605  
Total data center revenue 133,569 126,568 114,917 260,137 226,817
Office, light-industrial and other revenue   2,878     3,051     2,969     5,929     5,990  
Total operating revenues 136,447 129,619 117,886 266,066 232,807
 
Operating expenses:
Property operating and maintenance 37,861 33,848 31,781 71,709 61,007
Real estate taxes and insurance 4,693 4,937 3,824 9,630 8,328
Depreciation and amortization 35,558 33,776 32,207 69,334 64,545
Sales and marketing 5,369 5,080 4,414 10,449 8,917
General and administrative 10,297 9,185 9,508 19,482 17,632
Rent 6,547 6,400 5,931 12,947 11,893
Transaction costs   19     56     139     75     139  
Total operating expenses   100,344     93,282     87,804     193,626     172,461  
Operating income 36,103 36,337 30,082 72,440 60,346
Interest expense   (8,907 )   (7,738 )   (5,958 )   (16,645 )   (11,065 )
Income before income taxes 27,196 28,599 24,124 55,795 49,281
Income tax benefit (expense)   83     (33 )   11     50     (86 )
Net income 27,279 28,566 24,135 55,845 49,195
Net income attributable to noncontrolling interests   7,890     8,264     6,407     16,154     13,091  
Net income attributable to CoreSite Realty Corporation 19,389 20,302 17,728 39,691 36,104
Preferred stock dividends           (2,085 )       (4,169 )
Net income attributable to common shares $ 19,389   $ 20,302   $ 15,643   $ 39,691   $ 31,935  
 
Net income per share attributable to common shares:
Basic $ 0.57 $ 0.60 $ 0.46 $ 1.17 $ 0.95
Diluted $ 0.57   $ 0.59   $ 0.46   $ 1.16   $ 0.94  
 
Weighted average common shares outstanding:
Basic 34,049,391 33,935,564 33,835,727 33,992,792 33,698,022
Diluted 34,220,321 34,164,235 34,053,816 34,183,408 34,009,930
 
                   
Reconciliations of Net Income to FFO                                        
(in thousands, except per share data)
 
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 2018 2017
Net income $ 27,279 $ 28,566 $ 24,135 $ 55,845 $ 49,195
Real estate depreciation and amortization   34,245   32,432   30,879     66,677     61,908  
FFO $ 61,524 $ 60,998 $ 55,014 $ 122,522 $ 111,103
Preferred stock dividends       (2,085 )     (4,169 )
FFO available to common shareholders and OP unit holders $ 61,524 $ 60,998 $ 52,929   $ 122,522 $ 106,934  
 
Weighted average common shares outstanding - diluted 34,220 34,164 34,054 34,183 34,010
Weighted average OP units outstanding - diluted   13,829   13,835   13,849     13,832   13,850  
Total weighted average shares and units outstanding - diluted 48,049 47,999 47,903 48,015 47,860
 
FFO per common share and OP unit - diluted $ 1.28 $ 1.27 $ 1.10   $ 2.55 $ 2.23  
 

Funds From Operations "FFO" is a supplemental measure of our performance
which should be considered along with, but not as an alternative to, net
income and cash provided by operating activities as a measure of
operating performance and liquidity. We calculate FFO in accordance with
the standards established by the National Association of Real Estate
Investment Trusts ("Nareit"). FFO represents net income (loss) (computed
in accordance with GAAP), excluding gains (or losses) from sales of
property and undepreciated land and impairment write-downs of
depreciable real estate, plus real estate related depreciation and
amortization (excluding amortization of deferred financing costs) and
after adjustments for unconsolidated partnerships and joint ventures.
FFO attributable to common shares and units represents FFO less
preferred stock dividends declared during the period.

Our management uses FFO as a supplemental performance measure because,
in excluding real estate related depreciation and amortization and gains
and losses from property dispositions, it provides a performance measure
that, when compared year over year, captures trends in occupancy rates,
rental rates and operating costs.

We offer this measure because we recognize that FFO will be used by
investors as a basis to compare our operating performance with that of
other REITs. However, because FFO excludes depreciation and amortization
and captures neither the changes in the value of our properties that
result from use or market conditions, nor the level of capital
expenditures and capitalized leasing commissions necessary to maintain
the operating performance of our properties, all of which have real
economic effect and could materially impact our financial condition and
results from operations, the utility of FFO as a measure of our
performance is limited. FFO is a non-GAAP measure and should not be
considered a measure of liquidity, an alternative to net income, cash
provided by operating activities or any other performance measure
determined in accordance with GAAP, nor is it indicative of funds
available to fund our cash needs, including our ability to pay dividends
or make distributions. In addition, our calculations of FFO are not
necessarily comparable to FFO as calculated by other REITs that do not
use the same definition or implementation guidelines or interpret the
standards differently from us. Investors in our securities should not
rely on these measures as a substitute for any GAAP measure, including
net income.

                   
Reconciliations of Earnings Before Interest, Taxes, Depreciation
and Amortization for Real Estate (EBITDAre) and Adjusted EBITDA:
(in thousands)
 
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 2018 2017
Net income $ 27,279 $ 28,566 $ 24,135 $ 55,845 $ 49,195
Adjustments:
Interest expense 8,907 7,738 5,958 16,645 11,065
Income taxes (83 ) 33 (11 ) (50 ) 86
Depreciation and amortization   35,558     33,776   32,207     69,334     64,545
EBITDAre $ 71,661 $ 70,113 $ 62,289 $ 141,774 $ 124,891
Non-cash compensation 3,186 2,626 2,369 5,812 4,171
Transaction costs / litigation   26     139 139   165   139
Adjusted EBITDA $ 74,873   $ 72,878 $ 64,797   $ 147,751   $ 129,201
 

EBITDAre is calculated in accordance with the standards established by
the National Association of Real Estate Investment Trusts ("Nareit").
EBITDAre is defined as earnings before interest, taxes, depreciation and
amortization, gains or losses from the sale of depreciated property, and
impairment of depreciated property. We calculate adjusted EBITDA by
adding our non-cash compensation expense, transaction costs from
unsuccessful deals and business combinations and litigation expense to
EBITDAre as well as adjusting for the impact of other impairment
charges, gains or losses from sales of undepreciated land and gains or
losses on early extinguishment of debt. Management uses EBITDAre and
adjusted EBITDA as indicators of our ability to incur and service debt.
In addition, we consider EBITDAre and adjusted EBITDA to be appropriate
supplemental measures of our performance because they eliminate
depreciation and interest, which permits investors to view income from
operations without the impact of non-cash depreciation or the cost of
debt. However, because EBITDAre and adjusted EBITDA are calculated
before recurring cash charges including interest expense and taxes, and
are not adjusted for capital expenditures or other recurring cash
requirements of our business, their utilization as a cash flow
measurement is limited.

View Comments and Join the Discussion!