UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

þ		Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934

For The Fiscal Year Ended December 31, 2010

o		Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934

For The Transition Period From                      To                     

CoreSite Realty Corporation

Maryland		27-1925611
(State of incorporation)		(I.R.S. Employer Identification Number)
1050 17th Street, Suite 800
Denver, CO		80265
(Address of principal executive offices)		(Zip Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class		Name of Exchange upon Which Registered
Common Stock, $0.01 par value per share		New York Stock Exchange

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of common shares held by non-affiliates of the registrant was approximately $298.5 million as of March 9, 2011. The registrant has provided this information as of March 9, 2011 because its common equity was not publicly-traded as of the last business day of its most recently completed second fiscal quarter.

As of March 9, 2011, there were  19,690,661  shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be issued in conjunction with the registrant’s 2011 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the registrant’s fiscal year ended December 31, 2010, are incorporated by reference in Part III of this report. Except as expressly incorporated by reference, the registrant’s proxy statement shall not be deemed to be a part of this report on Form 10-K

 

 

TABLE OF CONTENTS

		Page
PART I
ITEM 1. BUSINESS			4
ITEM 1A. RISK FACTORS			14
ITEM 1B. UNRESOLVED STAFF COMMENTS			27
ITEM 2. PROPERTIES			27
ITEM 3. LEGAL PROCEEDINGS			28
ITEM 4. REMOVED AND RESERVED			28
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			29
ITEM 6. SELECTED FINANCIAL DATA			30
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			67
ITEM 9A. CONTROLS AND PROCEDURES			67
ITEM 9B. OTHER INFORMATION			67
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			67
ITEM 11. EXECUTIVE COMPENSATION			67
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS			68
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE			68
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES			68
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			68
SIGNATURES
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Cautionary Note Regarding Forward-Looking Statements

This Annual Report, together with other statements and information publicly disseminated by our company contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1955 (“PSLRA”), namely Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the PSLRA and include this statement for purposes of complying with these safe harbor provisions.

In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma” 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. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: (i) the geographic concentration of our data centers in certain markets and any adverse developments in local economic conditions or the demand for data center space in these markets; (ii) fluctuations in interest rates and increased operating costs; (iii) difficulties in identifying properties to acquire and completing acquisitions; (iv) the significant competition in our industry and an inability to lease vacant space, renew existing leases or release space as leases expire; (v) lack of sufficient customer demand to realize expected returns on our investments to expand our property portfolio; (vi) decreased revenue from costs and disruptions associated with any failure of our physical infrastructure or services; (vii) our ability to lease available space to existing or new customers; (viii) our failure to obtain necessary outside financing; (ix) our failure to qualify or maintain our status as a REIT; (x) financial market fluctuations; (xi) changes in real estate and zoning laws and increases in real property tax rates; (xii) delays or disruptions in third-party network connectivity; (xiii) inability to renew net leases on the data center properties we lease; and (xiv) other factors affecting the real estate industry generally.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim 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. The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. Additional information concerning these and other risks and uncertainties is contained in our other periodic filings with the United States Securities and Exchange Commission, or SEC, pursuant to the Exchange Act. In addition, we discussed a number of material risks in our prospectus, dated September 22, 2010, filed with the SEC on September 23, 2010 pursuant to Rule 424(b) under the Securities Act in connection with the initial public offering of our common stock. Those risks continue to be relevant to our performance and financial condition. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

When we use the terms “we,” “us,” “our,” “the Company” and “our company” in this Annual Report, we are referring to CoreSite Realty Corporation, a Maryland corporation and the issuer of the shares of $0.01 par value common stock that have been registered under the Exchange Act, together with our consolidated subsidiaries, including CoreSite, L.P., a Maryland limited partnership of which we are the sole general partner and which we refer to as “our Operating Partnership.”

PART I

ITEM 1. BUSINESS

Our Initial Public Offering and Formation

We are a fully integrated, self-administered, and self-managed real estate investment trust (“REIT”). Through our controlling interest in our Operating Partnership, we are engaged in the business of ownership, acquisition, construction and management of technology-related real estate.

On September 28, 2010, we closed on our initial public offering of common stock (the “IPO”) and completed the following transactions:

•

We issued 19,435,000 shares of our common stock in exchange for proceeds of $289.2 million net of underwriter discounts and commissions of $21.8 million,

•

As part of our formation transactions, our Operating Partnership acquired 100% of the ownership interests in the various entities that owned our “Predecessor,” comprised of the real estate activities and interconnection services of four of our operating properties, 1656 McCarthy, 32 Avenue of the Americas, 12100 Sunrise Valley and 70 Innerbelt, as well as the Coronado-Stender Business Park, from certain real estate funds (the “Funds”) affiliated with The Carlyle Group (“Carlyle”), in exchange for 14,797,755 Operating Partnership units, or $236.8 million in value based on the $16.00 per share IPO price for our common stock,

•

Our Operating Partnership also acquired 100% of the ownership interests in the entities that owned the “CoreSite Acquired Properties,” comprised of the continuing real estate operations at 55 S. Market, One Wilshire, 1275 K Street, 900 N. Alameda, 427 S. LaSalle, 2115 NW 22nd Street, and 1050 17th Street, a non-revenue generating property that we lease for our corporate headquarters, as well as CoreSite, LLC, our management company, from the Funds and their affiliates in exchange for 19,802,245 Operating Partnership units, or $316.8 million in value based on the $16.00 per share IPO price,

•

Concurrently with the closing of the IPO, we used a portion of the cash proceeds to purchase from the Funds and their affiliates 8,435,000 Operating Partnership units for an aggregate purchase price of $125.5 million,

•

We purchased an additional 11,000,000 newly-issued Operating Partnership units from our Operating Partnership for a purchase price of $163.7 million, and

•

We entered into a $110.0 million secured credit facility that contains an accordion feature that allows us to increase the total commitment by $90.0 million, to $200.0 million, under specified terms.

Our Business

We are an owner, developer and operator of strategically located data centers in some of the largest and fastest growing data center markets in the United States, including Los Angeles, the San Francisco Bay and Northern Virginia areas, Chicago and New York City. Our data centers feature advanced power, cooling and security systems, including twenty-four hours a day, seven days a week security staffing, and many are points of dense network interconnection. We are able to satisfy the full spectrum of our customers’ data center requirements by providing data center space ranging in size from an entire building or large dedicated suite to a cage or cabinet. We lease our space to a broad and growing customer base ranging from enterprise customers to less space-intensive, more network-centric customers. Our operational flexibility allows us to selectively lease data center space to its highest and best use depending on customer demand, regional economies and property characteristics.

The first data center in our portfolio was purchased in 2000 and since then we have continued to acquire, redevelop, develop and operate these types of facilities. Our properties are self-managed, including with respect to construction project management in connection with our redevelopment and development initiatives. As of December 31, 2010, our property portfolio included 11 operating data center facilities, one data center under construction and one development site, which collectively comprise over 2.0 million net rentable square feet (“NRSF”), of which over 1.1 million NRSF is existing data center space.

We formed CoreSite Realty Corporation as a Maryland corporation on February 17, 2010. While we initially elected to be treated as an S corporation for federal income tax purposes, we terminated our S corporation status shortly before completion of our IPO (thereby ending the S corporation tax year) and intend to qualify as a REIT for federal income tax purposes commencing with our partial taxable year ending on December 31, 2010. We also conduct certain activities through our taxable REIT subsidiary (“TRS”), CoreSite Services, Inc., a Delaware corporation.

Our corporate offices are located at 1050 17th Street, Suite 800, Denver, CO 80265. Our telephone number is (866) 777-2673. Our website is www.coresite.com. The information contained on, or accessible through, our website is not incorporated by reference into this Annual Report and should not be considered a part of this Annual Report.

Our Market Opportunity

Data centers are highly specialized and secure buildings that house networking, storage and communications technology infrastructure, including servers, storage devices, switches, routers and fiber optic transmission equipment. These buildings are designed to provide the power, cooling and network connectivity necessary to efficiently operate this mission-critical equipment. This infrastructure requires an uninterruptable power supply, backup generators, cooling, fire suppression systems and physical security. Data centers located at points where many communications networks converge can also function as interconnection hubs where customers are able to connect to multiple networks and exchange traffic with each other.

According to the Cisco Visual Networking Index, global IP traffic, including Internet, non-Internet and mobile data, is expected to quadruple from 2009 to 2014, representing a compounded annual growth rate of 34%. We believe the data center industry enjoys strong demand dynamics principally driven by the continued growth of Internet traffic, the corresponding increase in processing and storage equipment and the increased need for network interconnection capabilities. Additionally, companies are increasingly outsourcing their data center needs due to the high cost of operating and maintaining in-house data center facilities, increasing power and cooling requirements for data centers and the growing focus on business and disaster recovery planning.

We believe that sufficiently capitalized operators with space and land available for redevelopment and development, as well as a proven track record and reputation for operating high-quality data center facilities, will enjoy a significant competitive advantage and be best-positioned to accommodate market demand.

Our Competitive Strengths

We believe the following key competitive strengths position us to efficiently scale our business, capitalize on the growing demand for data center space and interconnection services, and thereby grow our cash flow.

High Quality Data Center Portfolio. As of December 31, 2010, our property portfolio included 11 operating data center facilities, one data center under construction and one development site. Much of our data center portfolio has been recently constructed. Specifically, since January 1, 2006, we have redeveloped or developed 655,620 NRSF into data center space, or approximately 58.5% of our current data center portfolio. Based upon our portfolio as of December 31, 2010 and including the completion of the 102,686 NRSF of data center space under construction at that time, 62.0% of our data center portfolio will have been built since January 1, 2006. Our facilities have advanced power and cooling infrastructure with additional power capacity to support continued growth.

Significant Network Density. Many of our data centers are points of dense network interconnection that provide our customers with valuable networking opportunities that help us retain existing customers and attract new ones. We believe that the network connectivity at these data centers provides us with a significant competitive advantage because network-dense facilities offering high levels of connectivity typically take many years to establish. Our portfolio houses over 200 unique network providers, which includes over 100 unique network providers at our One Wilshire property. To facilitate access to these networking opportunities, we provide services enabling interconnection among our data center customers including private cross connections and publicly-switched peering services. Our private cross connection services entail installing fiber, or other connection media, between two customer spaces. Our publicly-switched peering services allow our customers to exchange digitalized information with each other by connecting to our Any2 Exchange^® networking switch. Currently, we actively manage over 9,000 interconnections across our portfolio.

Expansion Capability. By leasing readily available data center space and expanding our operating data center space, we anticipate that we will be able to meet the growing demand from our existing and prospective customers. Our data center facilities currently have 220,185 NRSF of space readily available for lease. We also have the ability to expand our operating data center square footage by approximately 86.2%, or 973,590 NRSF through the development or redevelopment of (1) 102,686 NRSF space under construction, (2) 326,820 NRSF of vacant space, (3) 148,234 NRSF of currently operating space, and (4) 395,850 NRSF of new data center space on land that we currently own at our Coronado-Stender properties of which 50,600 NRSF of unconditioned core and shell space was under construction as of December 31, 2010.

Facilities in Key Markets. Our portfolio is concentrated in some of the largest and most important U.S. metropolitan markets. As of December 31, 2010, over 80% of our leased operating NRSF, accounting for over 90% of our annualized rent, was located in five of the six North American markets identified by Tier1Research, LLC as markets of high data center demand. Our data centers are located in Los Angeles, the San Francisco Bay and Northern Virginia areas, Chicago, Boston, New York City and Miami. These locations offer access to the abundant power required to run and cool the facilities. Many of our facilities are also situated in close proximity to hundreds of businesses and corporations, which drives demand for our data center space and interconnection services. We expect to continue benefitting from this proximity as customers seek new, high-quality data center space in our markets.

Diversified Customer Base. We have a diverse, global base of over 630 customers, which we believe is a reflection of our strong reputation and proven track record, as well as our customers’ trust in our ability to house their mission-critical applications and vital communications technology. As of December 31, 2010, one customer represented 12.9% of our annualized rent and our top ten customers represented 36.1% of our annualized rent. Our diverse customer base spans many industries and includes:

	•		Global Telecommunications Carriers and Internet Service Providers: AT&T Inc., British Telecom (BT Group Plc.), China Netcom Group Corp., China Unicom (Hong Kong) Limited, Internap Network Services Corp., Japan Telecom Co., Ltd., Korea Telecom Corporation, Singapore Telecom Ltd., Sprint Nextel Corporation, Tata Communications Ltd., Telmex U.S.A., L.L.C. and Verizon Communications Inc.;
	•		Enterprise Companies, Financial and Educational Institutions and Government Agencies: Computer Science Corporation, the Government of the District of Columbia, Macmillan Inc., Microsoft Corporation, The NASDAQ OMX Group, Inc., NYSE Euronext and the University of Southern California; and
	•		Media and Content Providers: Akamai Technologies, Inc., CDNetworks Co. Ltd., DreamWorks Animation SKG, Inc., Facebook, Inc., Google Inc., NBC Universal Inc., Sony Pictures Imageworks Inc. and Warner Brothers Entertainment, Inc.

Experienced Management Team. Our management team has significant experience in the real estate, communications and technology industries. Notably, our Chief Executive Officer has over 22 years of experience in the acquisition, financing and operation of commercial real estate, which includes over 11 years in the data center industry and five years at publicly traded REITs. Additionally, our Chief Financial Officer has approximately 23 years of financial experience, including five years with a publicly traded REIT where he served as the Managing Director and Chief Accounting Officer and 18 years in public accounting with significant history as a partner with KPMG and Arthur Andersen, where he served as the Partner in charge of the real estate practice in Denver, Colorado.

Balance Sheet Positioned to Fund Continued Growth. With the cash remaining from our IPO, we believe that we are conservatively capitalized and that we have sufficient funds and available capacity to pursue our anticipated redevelopment and development plans. As of December 31, 2010, we had approximately $125.6 million of total long-term debt (excluding a $0.7 million fair value of debt adjustment resulting from our acquisition of the CoreSite Acquired Properties in connection with our IPO) equal to approximately 14.5% of the undepreciated book value of our total assets. In addition, as of December 31, 2010, we had $86.2 million of cash available on our balance sheet and the ability to borrow up to an additional $100.8 million under a $110.0 million revolving credit facility, subject to satisfying certain financial covenants, which we currently meet. We believe this available capital will be sufficient to fund our general corporate needs, including the completion of 102,686 NRSF of data center space under construction as of December 31, 2010 and the redevelopment or development of an additional 72,946 NRSF of space prior to December 31, 2011.

Business and Growth Strategies

Our business objective is to continue growing our position as a provider of strategically located data center space in North America. The key elements of our strategy are as follows:

Increase Cash Flow of Our In-Place Data Center Space. We actively manage and lease our properties to increase cash flow by:

	•		Increasing Rents. Approximately 93% of our annualized rent as of December 31, 2010 was derived from data center leases. Additionally, the occupancy rate of our data centers has remained strong with over 80% of our data center operating space under lease as of December 31, 2010. We retained approximately 79% of our data center leases that expired during the year ended December 31, 2010, while increasing rents under data center leases renewed by an average of 27.3% on a GAAP basis.
	•		Leasing up Available Space and Power. We have the ability to increase both our revenue and our revenue per square foot by leasing additional space and power to new and existing data center customers. As of December 31, 2010, substantially all of our data center facilities offered our customers the ability to increase their square footage under lease as well as the amount of power they use per square foot. In total, our existing data center facilities have 220,185 NRSF of space available for lease. We believe this space, together with available power, enables us to generate incremental revenue within our existing data center footprint without necessitating extensive capital expenditures.

Capitalize on Embedded Expansion Opportunities. Our portfolio includes 379,106 NRSF of vacant space that can be redeveloped into data center space. We believe that redevelopment provides attractive risk-adjusted returns because by leveraging existing in-place infrastructure and entitlements we are typically able to deliver redevelopment space at a lower cost and faster time-to-market than ground-up development. In many cases we are able to strategically deploy capital by redeveloping space in incremental phases to meet customer demand.

In addition to our redevelopment space, as of December 31, 2010, our portfolio included the Coronado-Stender Business Park, a 15.75-acre property housing seven buildings in Santa Clara, California. The Coronado-Stender Business Park currently includes:

•

2901 Coronado, a 50,000 NRSF data center on 3.14 acres, representing the first phase of our development at the Coronado-Stender Business Park, which we completed during the second quarter of 2010. During March 2010, we fully leased this space to a leading online social networking company pursuant to a weighted average 6.5 year lease;

•

2972 Stender, a 50,400 NRSF data center under construction on 3.51 acres, which represents the second data center building in our development at the Coronado-Stender Business Park. Since obtaining the approved mitigated negative declaration from the City of Santa Clara, we have elected to construct the entire NRSF entitled for 2972 Stender, comprised of the initial 50,400 NRSF of data center space plus an incremental 50,600 NRSF of unconditioned core and shell space held for potential future development into data center space, for a total of up to 101,000 NRSF of data center space;

•

the Coronado-Stender Properties, a 9.1 acre development site with five buildings consisting of 78,800 NRSF of office and light-industrial operating space and 50,400 NRSF of vacant space on land held for development, portions of which generate revenue under short-term leases. This development site currently provides us with the ability to develop additional data center space in one of the fastest growing and most important data center markets in North America. We have the ability to develop up to 345,250 NRSF of data center space at this property.

The following table summarizes the redevelopment and development opportunities throughout our portfolio as of December 31, 2010.

														Currently																Currently Operating
		Operating												Vacant Redevelopment/																Redevelopment/
		NRSF												Development NRSF												Total				Development NRSF
		Data				Office & Light								Under												Facility
Facilities		Center				Industrial				Total				Construction(1)				Near-Term(2)				Long-Term				NRSF				Near-Term				Long-Term
Los Angeles
One Wilshire*			156,521				7,500				164,021				—				—				—				164,021				—				—
900 N. Alameda			281,078				8,360				289,438				—				—				144,721				434,159				—				102,951
Los Angeles Total			437,599				15,860				453,459				—				—				144,721				598,180				—				102,951
San Francisco Bay
55 S. Market			84,045				205,846				289,891				—				—				—				289,891				—				—
2901 Coronado			50,000				—				50,000				—				—				—				50,000				—				—
1656 McCarthy			76,676				—				76,676				—				—				—				76,676				—				—
Coronado-Stender Properties(3)			—				78,800				78,800				—				—				50,400				129,200				—				78,800
2972 Stender(4)			—				—				—				50,400				—				—				50,400				—				—
San Francisco Bay Total			210,721				284,646				495,367				50,400				—				50,400				596,167				—				78,800
Northern Virginia
12100 Sunrise Valley(5)			116,498				60,539				177,037				52,286				33,446				—				262,769				—				—
1275 K Street*			22,137				—				22,137				—				—				—				22,137				—				—
Northern Virginia Total			138,635				60,539				199,174				52,286				33,446				—				284,906				—				—
Chicago
427 S. LaSalle(6)			129,790				45,283				175,073				—				—				5,309				180,382				22,000				23,283
Boston
70 Innerbelt(7)			133,646				13,063				146,709				—				17,500				112,397				276,606				—				—
New York
32 Avenue of the Americas*			48,404				—				48,404				—				—				—				48,404				—				—
Miami
2115 NW 22nd Street			30,176				1,641				31,817				—				—				13,447				45,264				—				—
Total Facilities			1,128,971				421,032				1,550,003				102,686				50,946				326,274				2,029,909				22,000				205,034

Selectively Pursue Acquisition and Development Opportunities in New and Existing Markets. We are evaluating opportunities to acquire or develop data center space with abundant power and/or dense points of interconnection in key markets that will expand our customer base and broaden our geographic footprint. Such acquisitions may entail subsequent redevelopment or development which requires significant capital expenditures. We will also continue to implement the “hub-and-spoke strategy” that we have successfully deployed in our three largest markets, namely the Los Angeles, San Francisco Bay and Northern Virginia areas. In these markets, we have extended our data center footprint by connecting our newer facilities, the spokes, to our established data centers, our hubs, which allows our customers leasing space at the spokes to leverage the significant interconnection capabilities of our hubs. In order to deploy our “hub-and-spoke strategy,” we typically rely on third-party providers of network connectivity to establish highly reliable network connectivity within and between certain of our data centers, but we are not substantially dependent upon any one such service provider.

Leverage Existing Customer Relationships and Reach New Customers. Our strong customer and industry relationships, combined with our national footprint and sales force, afford us insight into the size, timing and location of customers’ planned growth. We have historically been successful in leveraging this market visibility to expand our footprint and customer base in existing and new markets. We intend to continue to strengthen our relationship with existing customers, including the pursuit of build-to-suit opportunities, and to expand and diversify our customer base by targeting growing enterprise customers and segments, such as healthcare, financial services, media and entertainment companies, as well as local, state and federal governments and agencies.

Our Portfolio

As of December 31, 2010, our property portfolio included 11 operating data center facilities, one data center under construction and one development site, which collectively comprise over 2.0 million NRSF, of which approximately 1.1 million NRSF is existing data center space. These properties include 315,261 NRSF of space readily available for lease, of which 220,185 NRSF is available for lease as data center space. As of December 31, 2010, we had the ability to expand our operating data center square footage by approximately 86.2%, or 973,590 NRSF through the development or redevelopment of (1) 102,686 NRSF space under construction, (2) 326,820 NRSF of vacant space, (3) 148,234 NRSF of currently operating space, and (4) 395,850 NRSF of new data center space on land that we currently own at our Coronado-Stender properties of which 50,600 NRSF of unconditioned core and shell space was under construction as of December 31, 2010. We expect that this redevelopment and development potential plus any potential expansion into new markets will enable us to accommodate existing and future customer demand and positions us to significantly increase our cash flows. We will pursue redevelopment and development projects and expansion into new markets when we believe those opportunities support the additional supply in those markets.

The following table provides an overview of our leasing activity during the three months ended December 31, 2010:

		NRSF
Total leases signed but not yet commenced as of September 30, 2010			14,968
Leases signed during the three months ended December 31, 2010			41,501
New leases signed during the three months ended December 31, 2010 which have commenced			(5,694	)
Leases signed in previous periods which commenced during the three months ended December 31, 2010			(11,509	)
Total leases signed but not yet commenced as of December 31, 2010			39,266

During the three months ended December 31, 2010, we increased our operating data center space by 20,955 NRSF with the completion of our recent redevelopments at 900 N. Alameda in Los Angeles and 1656 McCarthy in the San Francisco Bay area. We completed this space at a cost of approximately $6.1 million. We also completed the redevelopment of 22,189 NRSF of office space at our 12100 Sunrise Valley facility to accommodate the needs of data center customers.

The following table provides an overview of our properties as of December 31, 2010:

								NRSF
								Operating(1)
																Office
																and Light-																Redevelopment and
								Data Center(2)								Industrial(3)								Total								Development(4)
		Acquisition		Annualized								Percent								Percent								Percent				Under												Total
Market/Facilities		Date(5)		Rent ($000)(6)				Total				Leased(7)				Total				Leased(7)				Total(8)				Leased(7)				Construction(9)				Vacant				Total				Portfolio
Los Angeles
One Wilshire*		Aug. 2007		$	19,778				156,521				64.0	%			7,500				54.6	%			164,021				63.6	%			—				—				—				164,021
900 N. Alameda(10)		Oct. 2006			12,322				281,078				89.7				8,360				16.9				289,438				87.6				—				144,721				144,721				434,159
Los Angeles Total					32,100				437,599				80.5				15,860				34.8				453,459				78.9				—				144,721				144,721				598,180
San Francisco Bay
55 S. Market		Feb. 2000			11,064				84,045				88.7				205,846				85.0				289,891				86.1				—				—				—				289,891
2901 Coronado		Feb. 2007			8,820				50,000				100.0				—				—				50,000				100.0				—				—				—				50,000
1656 McCarthy		Dec. 2006			6,939				76,676				82.9				—				—				76,676				82.9				—				—				—				76,676
Coronado-Stender Properties(11)		Feb. 2007			681				—				—				78,800				74.3				78,800				74.3				—				50,400				50,400				129,200
2972 Stender(12)		Feb. 2007			—				—				—				—				—				—				—				50,400				—				50,400				50,400
San Francisco Bay Total					27,504				210,721				89.3				284,646				82.1				495,367				85.1				50,400				50,400				100,800				596,167
Northern Virginia
12100 Sunrise Valley		Dec. 2007			10,136				116,498				75.9				60,539				64.4				177,037				72.0				52,286				33,446				85,732				262,769
1275 K Street*		June 2006			1,881				22,137				86.0				—				—				22,137				86.0				—				—				—				22,137
Northern Virginia Total					12,017				138,635				77.5				60,539				64.4				199,174				73.5				52,286				33,446				85,732				284,906
Chicago
427 S. LaSalle		Feb. 2007			6,399				129,790				76.3				45,283				100.0				175,073				82.4				—				5,309				5,309				180,382
Boston
70 Innerbelt		Apr. 2007			5,998				133,646				84.0				13,063				16.2				146,709				78.0				—				129,897				129,897				276,606
New York
32 Avenue of the Americas*		June 2007			4,101				48,404				71.4				—				—				48,404				71.4				—				—				—				48,404
Miami
2115 NW 22nd Street		June 2006			1,245				30,176				50.1				1,641				100.0				31,817				52.6				—				13,447				13,447				45,264
Total Facilities				$	89,364				1,128,971				80.5	%			421,032				77.7	%			1,550,003				79.7	%			102,686				377,220				479,906				2,029,909

The following table provides an overview of our properties in operation as of June 30, 2010. For comparison purposes relative to the property table above, the table below excludes from the operating pool any space deliveries that occurred after June 30, 2010, as well as any leasing activity within those spaces:

								Operating NRSF
																Office and Light-
								Data Center								Industrial								Total
		Acquisition		Annualized Rent								Percent								Percent								Percent
Market/Facilities		Date		($000)				Total				Leased				Total				Leased				Total				Leased
Los Angeles
One Wilshire*		Aug. 2007		$	19,778				156,521				64.0	%			7,500				54.6	%			164,021				63.6	%
900 N. Alameda		Oct. 2006			12,322				264,952				95.2				8,360				16.9				273,312				92.8
Los Angeles Total					32,100				421,473				83.6				15,860				34.8				437,333				81.8
San Francisco Bay
55 S. Market		Feb. 2000			11,064				84,045				88.7				205,846				85.0				289,891				86.1
2901 Coronado		Feb. 2007			8,820				50,000				100.0				—				—				50,000				100.0
1656 McCarthy		Dec. 2006			6,939				71,847				88.5				—				—				71,847				88.5
Coronado-Stender Properties		Feb. 2007			681				—				—				78,800				74.3				78,800				74.3
2972 Stender		Feb. 2007			—				—				—				—				—				—				—
San Francisco Bay Total					27,504				205,892				91.4				284,646				82.1				490,538				86.0
Northern Virginia
12100 Sunrise Valley		Dec. 2007			10,032				116,498				75.9				38,350				90.2				154,848				79.4
1275 K Street*		June 2006			1,881				22,137				86.0				—				—				22,137				86.0
Northern Virginia Total					11,913				138,635				77.5				38,350				90.2				176,985				80.3
Chicago
427 S. LaSalle		Feb. 2007			6,399				129,790				76.3				45,283				100.0				175,073				82.4
Boston
70 Innerbelt		Apr. 2007			5,963				119,567				93.9				2,024				73.4				121,591				93.5
New York
32 Avenue of the Americas*		June 2007			4,101				48,404				71.4				—				—				48,404				71.4
Miami
2115 NW 22nd Street		June 2006			1,245				30,176				50.1				1,641				100.0				31,817				52.6
Total Facilities at December 31, 2010				$	89,225				1,093,937				83.1	%			387,804				83.1	%			1,481,741				83.1	%
Total Facilities at June 30, 2010				$	85,695								82.4	%							78.2	%							81.3	%

Customer Diversification

As of December 31, 2010, our portfolio was leased to over 630 customers, many of which are nationally recognized firms. The following table sets forth information regarding the ten largest customers in our portfolio based on annualized rent as of December 31, 2010:

																						Weighted
																						Average
										Percentage								Percentage				Remaining
				Number		Total				of Total				Annualized				of				Lease
				of		Leased				Operating				Rent				Annualized				Term in
		Customer		Locations		NRSF(1)				NRSF(2)				($000)(3)				Rent(4)				Months(5)
1		Facebook, Inc.		3			74,112				4.8	%		$	11,554				12.9	%			57
2		General Services Administration-IRS*(6)		1			132,370				8.5				3,427				3.8				17
3		Sprint Communications Corporation(7)		3			104,837				6.8				3,260				3.6				13
4		Verizon Communications		7			73,962				4.8				2,454				2.7				50
5		Gov’t of District of Columbia		2			22,118				1.4				2,158				2.4				31
6		Tata Communications		2			52,973				3.4				2,101				2.4				14
7		Nuance Communications(8)		1			19,211				1.2				2,050				2.3				94
8		Akamai Technologies(9)		4			17,738				1.1				1,998				2.2				12
9		Computer Sciences Corporation		1			18,950				1.2				1,688				1.9				74
10		NBC Universal		1			17,901				1.2				1,669				1.9				19
		Total/Weighted Average					534,172				34.4	%		$	32,359				36.1	%			38

Lease Distribution

The following table sets forth information relating to the distribution of leases in the properties in our portfolio, based on NRSF (excluding space held for redevelopment or development) under lease as of December 31, 2010:

										Total				Percentage								Percentage
		Number				Percentage				Operating				of Total								of
		of				of All				NRSF of				Operating				Annualized				Annualized
Square Feet Under Lease(1)		Leases(2)				Leases				Leases(3)				NRSF				Rent ($000)(4)				Rent
Available(5)			—				—	%			314,055				20.3	%		$	—				—	%
1,000 or less			896				86.1				149,456				9.6				24,534				27.5
1,001 - 2,000			66				6.3				95,677				6.2				11,151				12.5
2,001 - 5,000			46				4.4				129,983				8.4				10,887				12.2
5,001 - 10,000			12				1.2				83,209				5.4				7,141				8.0
10,001 - 25,000			12				1.1				203,180				13.1				13,801				15.4
Greater than 25,000			9				0.9				574,443				37.0				21,850				24.4
Portfolio Total			1,041				100.0	%			1,550,003				100.0	%		$	89,364				100.0	%

Lease Expirations

The following table sets forth a summary schedule of the expirations for leases in place as of December 31, 2010, plus available space for each of the ten full calendar years beginning January 1, 2011 at the properties in our portfolio. Unless otherwise stated in the footnotes, the information set forth in the table assumes that customers exercise no renewal options and all early termination rights.

						Total																								Annualized
		Number				Operating				Percentage								Percentage				Annualized				Annualized				Rent Per
		of				NRSF of				of Total								of				Rent Per				Rent at				Leased
		Leases				Expiring				Operating				Annualized				Annualized				Leased				Expiration				NRSF at
Year of Lease Expiration		Expiring(1)				Leases				NRSF				Rent ($000)(2)				Rent				NRSF(3)				($000)(4)				Expiration(5)
Available as of December 31, 2010(6)			—				314,055				20.3	%		$	—				—	%		$	—			$	—			$	—
2011(7)			525				325,772				21.0				24,235				27.1				74.39				24,519				75.26
2012(8)			227				382,122				24.7				25,076				28.1				65.62				26,035				68.13
2013			172				155,293				10.0				14,974				16.8				96.42				16,090				103.61
2014			47				46,782				3.0				4,391				4.9				93.86				4,887				104.46
2015			26				54,631				3.5				1,649				1.8				30.18				1,866				34.16
2016(9)			10				85,728				5.5				5,945				6.7				69.35				7,190				83.87
2017			21				61,403				4.0				8,622				9.6				140.42				10,512				171.20
2018			5				23,432				1.5				2,452				2.7				104.64				3,275				139.77
2019			1				71,062				4.6				1,233				1.4				17.35				1,445				20.33
2020-Thereafter			7				29,723				1.9				787				0.9				26.48				1,280				43.06
Portfolio Total / Weighted Average			1,041				1,550,003				100.0	%		$	89,364				100.0	%		$	72.30			$	97,099			$	78.56

Competition

We compete with numerous developers, owners and operators of technology-related real estate and data centers, many of which own properties similar to ours in the same markets in which our properties are located, including Digital Realty Trust, Inc., Dupont Fabros Technology, Inc., Equinix, Inc., Terremark Worldwide, Inc., Savvis, Inc., Telx Group Inc., SABEY Corporation and Quality Technology Services. In addition, we may face competition from new entrants into the data center market. Some of our competitors and potential competitors may have significant advantages over us, including greater name recognition, longer operating histories, pre-existing relationships with current or potential customers, significantly greater financial, marketing and other resources, and access to less expensive power, all of which could allow them to respond more quickly to new or changing opportunities. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our customers, we may lose potential customers and we may be pressured to reduce our rental rates below those we currently charge in order to retain customers when our customers’ leases expire.

As a developer of data center space, we also compete for the services of key third-party providers of services, including engineers and contractors with expertise in the development of data centers. The competition for the services of specialized contractors and other third-party providers required for the development of data centers is intense, increasing the cost of engaging such providers and the risk of delays in completing our development projects.

In addition, we face competition from real estate developers in our sector and in other industries for the acquisition of additional properties suitable for the development of data centers. Such competition may reduce the number of properties available for acquisition, increase the price of these properties and reduce the demand for data center space in the markets we seek to serve.

Regulation

General

Data centers in our markets are subject to various laws, ordinances and regulations, including regulations relating to common areas. We believe that each of our properties has the necessary permits and approvals to operate its business.

Americans with Disabilities Act

Our properties must comply with Title III of the American with Disabilities Act, or ADA, to the extent that such properties are places of “public accommodation” or “commercial facilities” as defined by the ADA. The ADA requires properties that are places of “public accommodation” to, among other things, remove existing barriers to access by persons with disabilities where such removal is readily achievable. The ADA also requires places of “public accommodation” as well as “commercial facilities” undergoing new construction or alterations to conform to the ADA Accessibility Guidelines, which provide design standards that permit accessibility by individuals with disabilities. Further, if entities on our properties offer certain examinations or courses (i.e., those related to applications, licensing, certification, or credentialing for secondary or postsecondary education, professional, or trade purposes), they must be offered in an accessible place and manner or with alternative accessible arrangements. We believe that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to those properties to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of monetary damages and civil penalties in lawsuits brought by the Attorney General or an award of attorneys’ fees to private litigants. The obligation to make readily achievable accommodations as required by the ADA is an ongoing one, and we will continue to assess our properties and make alterations as appropriate.

Environmental Matters

Under various federal, state and local laws and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property, and may be required to investigate and clean up such contamination at that property or emanating from that property. Such laws and regulations often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and a party may be liable for all of the cleanup costs, even when more than one person was responsible for the contamination. Previous owners used some of our properties for industrial and retail purposes, so those properties may contain some level of environmental contamination. The presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability or materially adversely affect our ability to sell, lease or develop the real estate or to borrow using the real estate as collateral. In addition, we could incur costs to comply with such laws and regulations, the violation of which could lead to substantial fines and penalties.

Environmental laws and regulations also require that asbestos-containing building materials be properly managed and maintained and may impose fines and penalties on building owners or operators for failure to comply with these requirements. Further, third parties could potentially seek recovery from owners or operators for personal injury associated with exposure to asbestos-containing building materials.

In addition, certain of our customers, particularly those leasing light-industrial space from us, routinely handle hazardous substances and wastes as part of their operations at our properties. Environmental laws and regulations subject our customers, and potentially us, to liability resulting from these activities or from previous industrial or other uses of those properties. Environmental liabilities could also affect a customer’s ability to make rental payments to us. We require our customers to comply with these environmental laws and regulations and to indemnify us for any related liabilities.

Independent environmental consultants have conducted Phase I or similar environmental site assessments on all owned properties in our portfolio. Each of the site assessments has been either completed or updated since 2005. Site assessments are intended to collect and evaluate information regarding the environmental condition of the surveyed property and surrounding properties. These assessments do not generally include soil sampling, subsurface investigations or asbestos sampling. Although prior commercial or industrial operations at some of our properties may have released hazardous materials and some of our properties contain or may contain asbestos-containing building materials, none of the recent site assessments revealed any past or present environmental liability that we believe would have a material adverse effect on our business, assets or results of operations. However, the assessments may have failed to reveal all environmental conditions, liabilities or compliance concerns. Material environmental conditions, liabilities or compliance concerns may have arisen after the reviews were completed or may arise in the future; and future laws, ordinances or regulations may impose material additional environmental liability. See “Risk Factors—Risks Related to the Real Estate Industry—Environmental problems are possible and can be costly.”

Insurance

We carry comprehensive liability, fire, extended coverage, earthquake, business interruption, rental loss, and umbrella liability insurance covering all of the properties in our portfolio augmented by excess liability coverage in an amount that we believe to be appropriate. We select policy specifications and insured limits which we believe to be appropriate given the relative risk of loss, the cost of the coverage and industry practice and, in the opinion of our company’s management, the properties in our portfolio are currently adequately insured. We do not carry insurance for generally uninsured losses such as loss from riots, war or acts of God. In addition, we carry earthquake insurance on our properties in an amount and with deductibles which we believe are commercially reasonable. Certain of the properties in our portfolio are located in areas believed to be seismically active. Potential losses to our properties may not be covered by insurance or may exceed our policy coverage limits. See “Risk Factors.”

Employees

As of December 31, 2010, we had 179 full-time and part-time employees of which 125 employees are salaried, and we pay the remainder on an hourly basis. None of our employees are members of labor unions and we believe that our relations with employees are good.

Offices

Our corporate offices are located at 1050 17th Street, Suite 800, Denver, CO 80265. We believe that our current offices are adequate for our present and future business operations.

How to Obtain Our SEC Filings

All reports we file with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. We also provide copies of our Forms 8-K, 10-K, 10-Q, Proxy, Annual Report and amendments to those documents at no charge to investors upon request and make electronic copies of such reports available through our website at www.coresite.com as soon as reasonably practicable after filing such material with the SEC. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a part of, this Annual Report on Form 10-K, or any other document that we file with the SEC.

Financial Information

For required financial information related to our operations, please refer to our consolidated financial statements, including the notes thereto, included with this Annual Report on Form 10-K.

ITEM 1A.		RISK FACTORS

Any of the following risks could materially and adversely affect our business, results of operations or financial condition. The risks and uncertainties described below are those that we currently believe may materially affect our company. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial also may become important factors that affect our company.

Risks Related to Our Business and Operations

Our portfolio of properties consists primarily of data centers geographically concentrated in certain markets and any adverse developments in local economic conditions or the demand for data center space in these markets may negatively impact our operating results.

Our portfolio of properties consists primarily of data centers geographically concentrated in Los Angeles, the San Francisco Bay and Northern Virginia areas, Chicago, Boston, New York City and Miami. These markets comprised 35.9%, 30.8%, 13.4%, 7.2%, 6.7%, 4.6% and 1.4%, respectively, of our annualized rent as of December 31, 2010. As such, we are susceptible to local economic conditions and the supply of and demand for data center space in these markets. If there is a downturn in the economy or an oversupply of or decrease in demand for data centers in these markets, our business could be materially adversely affected to a greater extent than if we owned a real estate portfolio that was more diversified in terms of both geography and industry focus.

We have experienced significant losses and we cannot assure you that we will achieve profitability.

For fiscal years 2008 and 2009, our Predecessor, on a consolidated basis, had net losses of $13.9 million and $7.0 million, respectively. For the year ended December 31, 2010, the Company had a net loss of $12.3 million. Our ability to achieve profitability is dependent upon a number of risks and uncertainties, many of which are beyond our control. We cannot assure you that we will be successful in executing our business strategy and become profitable. Our failure to do so could have a material adverse effect on the price of our common stock and our ability to satisfy our obligations, including making payments on our indebtedness. Even if we achieve profitability, given the competitive nature of the industry in which we operate, we may not be able to sustain or increase profitability on a quarterly or annual basis.

We face significant competition and may be unable to lease vacant space, renew existing leases or release space as leases expire, which may have a material adverse effect on our business and results of operations.

We compete with numerous developers, owners and operators of technology-related real estate and data centers, many of which own properties similar to ours in the same markets, including Digital Realty Trust, Inc., Dupont Fabros Technology, Inc., Equinix, Inc., Terremark Worldwide, Inc., Savvis, Inc. and Telx Group, Inc. In addition, we may face competition from new entrants into the data center market. Some of our competitors have significant advantages over us, including greater name recognition, longer operating histories, lower operating costs, pre-existing relationships with current or potential customers, greater financial, marketing and other resources, and access to less expensive power. These advantages could allow our competitors to respond more quickly or effectively to strategic opportunities or changes in our industries or markets. If our competitors offer data center space that our existing or potential customers perceive to be superior to ours based on numerous factors, including power, security considerations, location or network connectivity, or if they offer rental rates below our or current market rates, we may lose existing or potential customers, incur costs to improve our properties or be forced reduce our rental rates. This risk is compounded by the fact that a significant percentage of our customer leases expire every year. For example, as of December 31, 2010, leases representing 27.1%, 28.1% and 16.8% of our annualized rent will expire during 2011, 2012 and 2013, respectively. If the rental rates for our properties decrease, our existing customers do not renew their leases or we are unable to lease vacant data center space or re-lease data center space for which leases are scheduled to expire, our business and results of operations could be materially adversely affected.

Our success depends on key personnel whose continued service is not guaranteed and we may not be able to retain or attract knowledgeable, experienced and qualified personnel.

We depend on the efforts of key personnel, particularly Mr. Thomas M. Ray, our President and Chief Executive Officer, and Jeffrey Finnin, our Chief Financial Officer. Our reputation and relationships with existing and potential customers, industry personnel and key lenders are the direct result of a significant investment of time and effort by our key personnel to build credibility in a highly specialized industry. Many of our senior executives have extensive experience and strong reputations in the real estate and technology industries, which aid us in capitalizing on strategic opportunities and negotiating with customers. While we believe that we will be able to find suitable replacements for key personnel who may depart from time to time, the loss of their services could diminish our business and investment opportunities and our customer, industry and lender relationships, which could have a material adverse effect on our operations.

In addition, our success depends, to a significant degree, on being able to employ and retain personnel who have the expertise required to successfully acquire, develop and operate high-quality data centers. Personnel with these skill sets are in limited supply so the demand and competition for such expertise is intense. We cannot assure you that we will be able to hire and retain a sufficient number of qualified employees at reasonable compensation levels to support our growth and maintain the high level of quality service our customers expect, and any failure to do so could have a material adverse effect on our business.

We are continuing to invest in our expansion efforts, but we may not have sufficient customer demand in the future to realize expected returns on these investments.

As part of our growth strategy, we intend to commit substantial operational and financial resources to develop new data centers and expand existing ones. However, we typically do not require pre-leasing commitments from customers before we develop or expand a data center, and we may not have sufficient customer demand to support the new data center space when completed. A lack of customer demand for data center space or excess capacity in the data center market could impair our ability to achieve our expected rate of return on our investment, which could have a material adverse effect on our financial condition, operating results and the market price of our common stock.

Any failure of our physical infrastructure or services could lead to significant costs and disruptions that could reduce our revenues, harm our business reputation and have a material adverse effect on our financial results.

Our business depends on providing customers with highly reliable service. We may fail to provide such service as a result of numerous factors, including:

•

human error;

•

power loss;

•

improper building maintenance by our landlords in the buildings that we lease;

•

physical or electronic security breaches;

•

fire, earthquake, hurricane, flood and other natural disasters;

•

water damage;

•

war, terrorism and any related conflicts or similar events worldwide; and

•

sabotage and vandalism.

Problems at one or more of our data centers, whether or not within our control, could result in service interruptions or equipment damage. We provide service level commitments to substantially all of our customers. As a result, service interruptions or equipment damage in our data centers could result in credits to these customers. In addition, although we have given such credits to our customers in the past, there can be no assurance that our customers will accept these credits as compensation in the future. Service interruptions and equipment failures may also expose us to additional legal liability and damage our brand image and reputation. Significant or frequent service interruptions could cause our customers to terminate or not renew their leases. In addition, we may be unable to attract new customers if we have a reputation for significant or frequent service disruptions in our data centers.

Even if we have additional space available for lease at any one of our data centers, our ability to lease this space to existing or new customers could be constrained by our access to sufficient electrical power.

Our properties have access to a finite amount of power, which limits the extent to which we can lease additional space for use at our data centers. As current and future customers increase their power footprint in our facilities over time, the remaining available power for future customers could limit our ability to increase occupancy rates or network density within our existing facilities.

Furthermore, at certain of our data centers, our aggregate maximum contractual obligation to provide power and cooling to our customers may exceed the physical capacity at such data centers if customers were to quickly increase their demand for power and cooling. If we are not able to increase the available power and/or cooling or move the customer to another location within our data centers with sufficient power and cooling to meet such demand, we could lose the customer as well as have liability under our leases. Any such material loss of customers or material liability could adversely affect our results of operations.

To fund our growth strategy and refinance our indebtedness, we depend on external sources of capital, which may not be available to us on commercially reasonable terms or at all.

In order to maintain our qualification as a REIT, we are required under the Internal Revenue Code (the “Code”) to distribute at least 90% of our net taxable income annually, determined without regard to the dividends paid deduction and excluding any net capital gains. We will also be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income, including any net capital gains. These distribution requirements may limit our ability to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we intend to rely on third-party sources for debt or equity financing to fund our growth strategy. In addition, we may need external sources of capital to refinance our indebtedness at maturity. We may not be able to obtain such financing or refinancing on favorable terms or at all. Our access to third-party sources of capital depends, in part, on:

•

general market conditions;

•

the market’s perception of our growth potential;

•

our then current debt levels;

•

our historical and expected future earnings, cash flow and cash distributions; and

•

the market price per share of our common stock.

In addition, our ability to access additional capital may be limited by the terms of our existing indebtedness, which restricts our incurrence of additional debt. If we cannot obtain capital when needed, we may not be able to acquire or develop properties when strategic opportunities arise or refinance our debt at maturity, which could have a material adverse effect on our business.

Our expenses may not decrease if our revenue decreases.

Most of the expenses associated with our business, such as debt service payments, real estate, personal and ad valorem taxes, insurance, utilities, employee wages and benefits and corporate expenses are relatively inflexible and do not necessarily decrease in tandem with a reduction in revenue from our business. Our expenses will also be affected by inflationary increases and certain of our costs may exceed the rate of inflation in any given period. As a result, we may not be able to fully offset our costs by higher lease rates, which could have a material adverse effect on our results of operations.

We depend on third parties to provide network connectivity within and between certain of our data centers, and any delays or disruptions in this connectivity may adversely affect our operating results and cash flow.

We depend upon carriers and other network providers to deliver network connectivity to customers within our data centers as well as the fiber network interconnection between our data centers. Our hub-and-spoke approach makes us dependent on these third parties to provide these services between our data centers. We cannot assure you that any network provider will elect to offer its services within new data centers that we develop or that once a network provider decides to provide connectivity to or between our data centers, it will continue to do so for any period of time. A significant interruption in or loss of these services could impair our ability to attract and retain customers and have a material adverse effect on our business.

Enabling connectivity within and between our data centers requires construction and operation of a sophisticated redundant fiber network. The construction required to connect our data centers is complex and may involve factors outside of our control, including the availability of construction resources. If highly reliable connectivity within and between certain of our data centers is not established, is materially delayed, is discontinued or fails, our reputation could be harmed, which could have a material adverse effect on our ability to attract new customers or retain existing ones.

Our data center infrastructure may become obsolete and we may not be able to upgrade our power and cooling systems cost-effectively or at all.

The markets for the data centers that we own and operate, as well as the industries in which our customers operate, are characterized by rapidly changing technology, evolving industry standards, frequent new product introductions and changing customer demands. Our ability to deliver technologically sophisticated power and cooling are significant factors in our customers’ decisions to rent space in our data centers. Our data center infrastructure may become obsolete due to the development of new systems to deliver power to, or eliminate heat from, the servers and other customer equipment that we house. Additionally, our data center infrastructure could become obsolete as a result of the development of new technology that requires levels of power and cooling that our facilities are not designed to provide. Our power and cooling systems are also difficult and expensive to upgrade. Accordingly, we may not be able to efficiently upgrade or change these systems to meet new demands without incurring significant costs that we may not be able to pass on to our customers. The obsolescence of our power and cooling systems would have a material adverse effect on our business. In addition, evolving customer demand could require services or infrastructure improvements that we do not provide or that would be difficult or expensive for us to provide in our current data centers, and we may be unable to adequately adapt our properties or acquire new properties that can compete successfully. We risk losing customers to our competitors if we are unable to adapt to this rapidly evolving marketplace.

Furthermore, potential future regulations that apply to industries we serve may require customers in those industries to seek specific requirements from their data centers that we are unable to provide. These may include physical security requirements applicable to the defense industry and government contractors and privacy and security regulations applicable to the financial services and health care industries. If such regulations were adopted, we could lose some customers or be unable to attract new customers in certain industries, which would have a material adverse effect on our results of operations.

Potential losses to our properties may not be covered by insurance or may exceed our policy coverage limits.

We do not carry insurance for generally uninsured losses, such as losses from riots, war, terrorist attacks or acts of God. The properties in our portfolio located in California are subject to higher risks from earthquakes and our property in Miami is potentially subject to greater risks arising from tropical storms, hurricanes and floods. Together, these properties represented approximately 68.1% of total annualized rent as of December 31, 2010. While we do carry earthquake, hurricane and flood insurance on our properties, the amount of our insurance coverage may not be sufficient to fully cover such losses. In addition, we may discontinue earthquake, hurricane or flood insurance on some or all of our properties in the future if the cost of premiums for any of these policies exceeds, in our judgment, the value of the coverage relative to the risk of loss.

If we experience a loss which is uninsured or which exceeds our policy coverage limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

In addition, even if damage to our properties is covered by insurance, a disruption of our business caused by a casualty event may result in the loss of business or customers. We carry a limited amount of business interruption insurance, but such insurance may not fully compensate us for the loss of business or customers due to an interruption caused by a casualty event.

The recent disruption in the financial markets makes it more difficult to evaluate the stability and net assets or capitalization of insurance companies, and any insurer’s ability to meet its claim payment obligations. A failure of an insurance company to make payments to us upon an event of loss covered by an insurance policy could have a material adverse effect on our business and financial condition.

A small number of customers account for a significant portion of our revenues, and the loss of any of these customers could significantly harm our business, financial condition and results of operations.

Our top ten customers accounted for approximately 36.1% of our total annualized rent as of December 31, 2010. During the second quarter of 2010, we expanded our relationship with our largest customer, Facebook, Inc. This customer represented 12.9% of our annualized rent as of December 31, 2010. We currently depend, and expect to continue to depend, upon a relatively small number of customers for a significant percentage of our net revenue. Some of our customers may experience a downturn in their businesses or other factors that may weaken their financial condition and result in them failing to make timely rental payments, defaulting on their leases, reducing the level of interconnection services they obtain or the amount of space they lease from us or terminating their relationship with us. The loss of one or more of our significant customers or a customer exerting significant pricing pressure on us could also have a material adverse effect on our results of operations.

In addition, our largest customers may choose to develop new data centers or expand existing data centers of their own. In the event that any of our key customers were to do so, it could result in a loss of business to us or increase pricing pressure on us. If we lose a customer, there is no guarantee that we would be able to replace that customer at a competitive rate or at all.

Some of our largest customers may also compete with one another in various aspects of their businesses. The competitive pressures on our customers may have a negative impact on our operations. For instance, one customer could determine that it is not in that customer’s interest to house mission-critical servers in a facility operated by the same company that relies on a key competitor for a significant part of its annual revenue. Our loss of a large customer for this or any other reason could have a material adverse effect on our results of operations.

We are dependent upon third-party suppliers for power and certain other services, and we are vulnerable to service failures of our third-party suppliers and to price increases by such suppliers.

We rely on third parties to provide power to our data centers, and we cannot ensure that these third parties will deliver such power in adequate quantities or on a consistent basis. If the amount of power available to us is inadequate to support our customer requirements, we may be unable to satisfy our obligations to our customers or grow our business. In addition, our data centers are susceptible to power shortages and planned or unplanned power outages caused by these shortages. While we attempt to limit exposure to power shortages by using backup generators and batteries, power outages may last beyond our backup and alternative power arrangements, which would harm our customers and our business. In the past, a limited number of our customers have experienced temporary losses of power. Pursuant to the terms of some of our customer leases, continuous or chronic power outages may give certain of our tenants the right to terminate their leases or cause us to incur financial obligations in connection with a power loss. In addition, any loss of services or equipment damage could reduce the confidence of our customers in our services thereby impairing our ability to attract and retain customers, which would adversely affect both our ability to generate revenues and our operating results.

In addition, we may be subject to risks and unanticipated costs associated with obtaining power from various utility companies. Municipal utilities in areas experiencing financial distress may increase rates to compensate for financial shortfalls unrelated to either the cost of production or the demand for electricity. Other utilities that serve our data centers may be dependent on, and sensitive to price increases for, a particular type of fuel, such as coal, oil or natural gas. In addition, the price of these fuels and the electricity generated from them could increase as a result of proposed legislative measures related to climate change or efforts to regulate carbon emissions. In any of these cases, increases in the cost of power at any of our data centers would put those locations at a competitive disadvantage relative to data centers served by utilities that can provide less expensive power.

We may be unable to identify and complete acquisitions and successfully operate acquired properties.

We continually evaluate the market for available properties and may acquire data centers or properties suited for data center development when opportunities exist. Our ability to acquire properties on favorable terms and successfully develop and operate them involves significant risks including, but not limited to:

	•		we may be unable to acquire a desired property because of competition from other data center companies or real estate investors with more capital;
	•		even if we are able to acquire a desired property, competition from other potential acquirors may significantly increase the purchase price of such property;
	•		we may be unable to realize the intended benefits from acquisitions or achieve anticipated operating or financial results;
	•		we may be unable to finance the acquisition on favorable terms or at all;
	•		we may underestimate the costs to make necessary improvements to acquired properties;
	•		we may be unable to quickly and efficiently integrate new acquisitions into our existing operations resulting in disruptions to our operations or the diversion of our management’s attention;
	•		acquired properties may be subject to reassessment, which may result in higher than expected tax payments;
	•		we may not be able to access sufficient power on favorable terms or at all; and
	•		market conditions may result in higher than expected vacancy rates and lower than expected rental rates.

In the past we have acquired properties that did not perform up to our expectations and there can be no assurance that this will not happen again. If we are unable to successfully acquire, redevelop, develop and operate data center properties, our ability to grow our business, compete and meet market expectations will be significantly impaired, which would have a material adverse effect on the price of our common stock.

We may be subject to unknown or contingent liabilities related to properties or businesses that we acquire for which we may have limited or no recourse against the sellers.

Assets and entities that we have acquired or may acquire in the future, including the properties contributed by the Funds or their affiliates, may be subject to unknown or contingent liabilities for which we may have limited or no recourse against the sellers. Unknown or contingent liabilities might include liabilities for clean-up or remediation of environmental conditions, claims of customers, vendors or other persons dealing with the acquired entities, tax liabilities and other liabilities whether incurred in the ordinary course of business or otherwise. In the future we may enter into transactions with limited representations and warranties or with representations and warranties that do not survive the closing of the transactions, in which event we would have no or limited recourse against the sellers of such properties. While we usually require the sellers to indemnify us with respect to breaches of representations and warranties that survive, such indemnification (including the indemnification by the Funds or their affiliates) is often limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses.

For example, under the contribution agreement pursuant to which the Funds or their affiliates contributed the properties that comprise our portfolio to the operating partnership, each of the Funds or their affiliates made certain representations and warranties as to certain material matters related to the property being contributed by such fund or affiliate such as title to any owned property, compliance with laws (including environmental laws) and the enforceability of certain material customer contracts and leases. In the event that such representations and warranties are not true and correct when made and as of the date the offering was priced, the party that contributed the property to which such losses relate will indemnify the operating partnership for any resulting losses, but only to the extent the amount of losses exceeds 1% of the aggregate value of the operating partnership units received by all of the Funds or their affiliates (based upon the initial offering price) and provided that the liability of each contributor will be limited to 10% of the value of the operating partnership units (based upon the initial offering price) received by such contributor (adjusted for any operating partnership units purchased by us from the Funds or their affiliates at closing) in connection with the restructuring transactions and with respect to any liability that arises from a specific contributed property, the indemnification by such Fund or its affiliate will be limited to 10% of the value of the operating partnership units issued in respect of such contributed property. As a result, we will be solely responsible and will not be able to seek indemnification from the Funds or their affiliates to the extent that any losses do not meet this minimum threshold amount or exceed the maximum threshold amount. In addition, the representations and warranties made by the Funds or their affiliates will only survive for a period of one year after the completion of the IPO and in the event that we do not become aware of a breach until after the end of such period or if we otherwise fail to assert a claim prior to such date, we will have no further recourse against the contributors.

As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that we may incur with respect to liabilities associated with acquired properties and entities may exceed our expectations, which may adversely affect our operating results and financial condition. Finally, indemnification agreements between us and the sellers typically provide that the sellers will retain certain specified liabilities relating to the assets and entities acquired by us. While the sellers are generally contractually obligated to pay all losses and other expenses relating to such retained liabilities, there can be no guarantee that such arrangements will not require us to incur losses or other expenses as well.

Our growth depends on the successful redevelopment and development of our properties and any delays or unexpected costs associated with such projects may harm our growth prospects, future operating results and financial condition.

As of December 31, 2010, we had the ability to expand our operating data center square footage by approximately 86.2%, or 973,590 NRSF through the development or redevelopment of (1) 102,686 NRSF space under construction, (2) 326,820 NRSF of vacant space, (3) 148,234 NRSF of currently operating space, and (4) 395,850 NRSF of new data center space on land that we currently own at our Coronado-Stender properties of which 50,600 NRSF of unconditioned core and shell space was under construction as of December 31, 2010. Our growth depends upon the successful completion of the redevelopment and development of this space and similar projects in the future. Current and future redevelopment and development projects and expansion into new markets will involve substantial planning, allocation of significant company resources and certain risks, including risks related to financing, zoning, regulatory approvals, construction costs and delays. These projects will also require us to carefully select and rely on the experience of one or more general contractors and associated subcontractors during the construction process. Should a general contractor or significant subcontractor experience financial or other problems during the construction process, we could experience significant delays, increased costs to complete the project and other negative impacts to our expected returns. Site selection in current and expansion markets is also a critical factor in our expansion plans, and there may not be suitable properties available in our markets at a location that is attractive to our customers and has the necessary combination of access to multiple network providers, a significant supply of electrical power, high ceilings and the ability to sustain heavy floor loading. Furthermore, while we may prefer to locate new data centers adjacent to our existing data centers, we may be limited by the inventory and location of suitable properties.

In addition, we will be subject to risks and, potentially, unanticipated costs associated with obtaining access to a sufficient amount of power from local utilities, including the need, in some cases, to develop utility substations on our properties in order to accommodate our power needs, constraints on the amount of electricity that a particular locality’s power grid is capable of providing at any given time, and risks associated with the negotiation of long-term power contracts with utility providers. We cannot assure you that we will be able to successfully negotiate such contracts on acceptable terms or at all. Any inability to negotiate utility contracts on a timely basis or on acceptable financial terms or in volumes sufficient to supply the requisite power for our development properties would have a material negative impact on our growth and future results of operations and financial condition.

These and other risks could result in delays or increased costs or prevent the completion of our redevelopment and development projects, any of which could have a material adverse effect on our financial condition, results of operations, cash flow, the trading price of our common stock and our ability to satisfy our debt service obligations or pay dividends.

We do not own all of the buildings in which our data centers are located. Instead, we lease certain of our data center space and the ability to renew these leases could be a significant risk to our ongoing operations.

We do not own the buildings for three of our data centers and our business could be harmed if we are unable to renew the leases for these data centers at favorable terms or at all. The following table summarizes the remaining primary term and renewal rights associated with each of our leased properties:

Property		Current Lease Term Expiration		Renewal Rights		Base Rent Increases at Renewal(1)
32 Avenue of the Americas		Apr. 2023		2 x 5 yrs		FMR
One Wilshire		July 2017		3 x 5 yrs		103% of previous monthly base rent
1275 K Street		May 2016		3 x 5 yrs		Greater of 103% of previous monthly base rent or 95% of FMR

When the primary term of our leases expire, we have the right to extend the terms of our leases as indicated above. For two of these leases, the rent will be determined based on the fair market value of rental rates for this property and the then prevailing rental rates may be higher than rental rates under the applicable lease. To maintain the operating profitability associated with our present cost structure, we must increase revenues within existing data centers to offset the anticipated increase in lease payments at the end of the original and renewal terms. Failure to increase revenues to sufficiently offset these projected higher costs would adversely impact our operating income. Upon the end of our renewal options, we would have to renegotiate our lease terms with the landlord.

If we are not able to renew the lease at any of our data centers, the costs of relocating the equipment in such data centers and redeveloping a new location into a high-quality data center could be prohibitive. In addition, we could lose customers due to the disruptions in their operations caused by the relocation. We could also lose those customers that choose our data centers based on their locations.

Our level of indebtedness and debt service obligations could have adverse effects on our business.

As of December 31, 2010, we had a total indebtedness of approximately $125.6 million (excluding a $0.7 million fair value of debt adjustment resulting from our acquisition of the CoreSite Acquired Properties), all of which is secured indebtedness. We also have the ability to borrow up to an additional $100.8 million under our $110.0 million revolving credit facility, subject to satisfying certain financial tests, all of which, if incurred, will be secured indebtedness. While there are limits in our revolving credit facility and our mortgage loan agreements on the amount of debt that we may incur, and additional limits on our indebtedness may be imposed by future agreements or by a policy adopted by our Board of Directors, we have the ability to increase our indebtedness over current levels. A substantial increase in our indebtedness may have adverse consequences for our business, results of operations and financial condition because it could, among other things:

	•		require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing our cash flow available to fund working capital, capital expenditures and other general corporate purposes, including to pay dividends on our common stock as currently contemplated or necessary to maintain our qualification as a REIT;
	•		make it more difficult for us to satisfy our financial obligations, including borrowings under our new revolving credit facility;
	•		increase our vulnerability to general adverse economic and industry conditions;
	•		expose us to increases in interest rates for our variable rate debt;
	•		limit our ability to borrow additional funds on favorable terms or at all to expand our business or ease liquidity constraints;
	•		limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms or at all;
	•		limit our flexibility in planning for, or reacting to, changes in our business and our industry;
	•		place us at a competitive disadvantage relative to competitors that have less indebtedness; and
	•		require us to dispose of one or more of our properties at disadvantageous prices or raise equity that may dilute the value of our common stock in order to service our indebtedness or to raise funds to pay such indebtedness at maturity.

The agreements governing our indebtedness place restrictions on us and our subsidiaries, reducing operational flexibility and creating default risks.

The agreements governing our indebtedness contain covenants that place restrictions on us and our subsidiaries. These covenants may restrict, among other things, our and our subsidiaries’ ability to:

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merge, consolidate or transfer all or substantially all of our or our subsidiaries’ assets;

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incur additional debt or issue preferred stock;

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make certain investments or acquisitions;

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create liens on our or our subsidiaries’ assets;

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sell assets;

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make capital expenditures;

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pay dividends on or repurchase our capital stock;

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enter into transactions with affiliates;

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issue or sell stock of our subsidiaries; and

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change the nature of our business.