Attached files
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EXCEL - IDEA: XBRL DOCUMENT - CoreSite Realty Corp | Financial_Report.xls |
EX-31.2 - EXHIBIT 31.2 - CoreSite Realty Corp | c23744exv31w2.htm |
EX-32.2 - EXHIBIT 32.2 - CoreSite Realty Corp | c23744exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - CoreSite Realty Corp | c23744exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - CoreSite Realty Corp | c23744exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2011.
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From to .
Commission file number 001-34877
CoreSite Realty Corporation
(Exact name of registrant as specified in its charter)
Maryland (State or other jurisdiction of incorporation) |
27-1925611 (IRS Employer Identification Number) |
|
1050 17th Street, Suite 800 Denver, CO (Address and zip code of principal executive offices) |
80265 (Zip Code) |
(866) 777-2673
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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 þ No o
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 Exchange Act). Yes o No þ
The
number of shares of common stock outstanding at November 3, 2011
was 19,848,795.
CORESITE REALTY CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2011
TABLE OF CONTENTS
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2011
TABLE OF CONTENTS
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
2
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
CORESITE REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Investments in real estate: |
||||||||
Land |
$ | 84,738 | $ | 84,738 | ||||
Building and building improvements |
480,053 | 450,097 | ||||||
Leasehold improvements |
80,760 | 75,800 | ||||||
645,551 | 610,635 | |||||||
Less: Accumulated depreciation and amortization |
(55,854 | ) | (32,943 | ) | ||||
Net investment in operating properties |
589,697 | 577,692 | ||||||
Construction in progress |
75,624 | 11,987 | ||||||
Net investments in real estate |
665,321 | 589,679 | ||||||
Cash and cash equivalents |
10,204 | 86,246 | ||||||
Restricted cash |
10,598 | 14,968 | ||||||
Accounts and other receivables, net of allowance for doubtful accounts of $328 and $305 as of September 30, 2011 and December 31, 2010, respectively |
7,045 | 5,332 | ||||||
Lease intangibles, net of accumulated amortization of $28,581 and $17,105 as of September 30, 2011 and December 31, 2010, respectively |
43,449 | 71,704 | ||||||
Goodwill |
41,191 | 41,191 | ||||||
Other assets |
30,833 | 23,906 | ||||||
Total assets |
$ | 808,641 | $ | 833,026 | ||||
LIABILITIES AND EQUITY |
||||||||
Liabilities: |
||||||||
Mortgage loans payable |
$ | 110,501 | $ | 124,873 | ||||
Accounts payable and accrued expenses |
42,978 | 26,393 | ||||||
Deferred rent payable |
3,284 | 2,277 | ||||||
Acquired below-market lease contracts, net of accumulated amortization of $8,241 and $4,989 as of September 30, 2011 and December 31, 2010, respectively |
13,021 | 16,415 | ||||||
Prepaid rent and other liabilities |
11,589 | 8,603 | ||||||
Total liabilities |
181,373 | 178,561 | ||||||
Stockholders equity: |
||||||||
Common stock, par value $0.01, 100,000,000 shares authorized and 19,849,222 and 19,644,042 shares issued and outstanding at September 30, 2011 and
December 31, 2010 |
195 | 194 | ||||||
Additional paid-in capital |
241,700 | 239,453 | ||||||
Accumulated other comprehensive income (loss) |
(43 | ) | 52 | |||||
Accumulated deficit |
(19,998 | ) | (7,460 | ) | ||||
Total stockholders equity |
221,854 | 232,239 | ||||||
Noncontrolling interests |
405,414 | 422,226 | ||||||
Total equity |
627,268 | 654,465 | ||||||
Total liabilities and equity |
$ | 808,641 | $ | 833,026 | ||||
See accompanying notes to condensed consolidated financial statements
3
Table of Contents
CORESITE REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands except share and per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Operating revenues: |
||||||||||||||||
Rental revenue |
$ | 27,616 | $ | 9,348 | $ | 79,533 | $ | 24,377 | ||||||||
Power revenue |
11,450 | 3,598 | 31,991 | 8,520 | ||||||||||||
Tenant reimbursement |
1,432 | 703 | 4,577 | 1,406 | ||||||||||||
Other revenue |
3,869 | 490 | 10,716 | 1,254 | ||||||||||||
Total operating revenues |
44,367 | 14,139 | 126,817 | 35,557 | ||||||||||||
Operating expenses: |
||||||||||||||||
Property operating and maintenance |
14,133 | 5,806 | 39,986 | 14,272 | ||||||||||||
Real estate taxes and insurance |
2,163 | 450 | 7,055 | 1,262 | ||||||||||||
Management fees to related party |
| 1,287 | | 3,582 | ||||||||||||
Depreciation and amortization |
16,091 | 4,900 | 53,224 | 11,848 | ||||||||||||
Sales and marketing |
1,315 | 65 | 4,125 | 125 | ||||||||||||
General and administrative |
4,747 | 1,997 | 15,966 | 2,498 | ||||||||||||
Transaction costs |
192 | 3,275 | 875 | 3,275 | ||||||||||||
Rent |
4,601 | 787 | 13,748 | 2,177 | ||||||||||||
Total operating expenses |
43,242 | 18,567 | 134,979 | 39,039 | ||||||||||||
Operating income (loss) |
1,125 | (4,428 | ) | (8,162 | ) | (3,482 | ) | |||||||||
Gain on early extinguishment of debt |
(10 | ) | | 939 | | |||||||||||
Interest income |
9 | 2 | 115 | 2 | ||||||||||||
Interest expense |
(916 | ) | (680 | ) | (4,437 | ) | (1,590 | ) | ||||||||
Income (loss) before income taxes |
208 | (5,106 | ) | (11,545 | ) | (5,070 | ) | |||||||||
Income taxes |
55 | | 304 | | ||||||||||||
Net income (loss) |
$ | 263 | $ | (5,106 | ) | $ | (11,241 | ) | $ | (5,070 | ) | |||||
Net income (loss) attributable to noncontrolling interests |
151 | (3,096 | ) | (6,446 | ) | (3,096 | ) | |||||||||
Net income (loss) attributable to common shares |
$ | 112 | $ | (2,010 | ) | $ | (4,795 | ) | $ | (1,974 | ) | |||||
Net income (loss) per share attributable to common shares: |
||||||||||||||||
Basic |
$ | 0.01 | $ | (3.14 | ) | $ | (0.25 | ) | $ | (9.14 | ) | |||||
Diluted |
$ | 0.01 | $ | (3.14 | ) | $ | (0.25 | ) | $ | (9.14 | ) | |||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
19,494,703 | 640,893 | 19,483,962 | 215,978 | ||||||||||||
Diluted |
19,587,961 | 640,893 | 19,483,962 | 215,978 |
See accompanying notes to condensed consolidated financial statements
4
Table of Contents
CORESITE REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(unaudited and in thousands except share data)
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||||||
Common Shares | Paid-in | Accumulated | Comprehensive | Stockholders | Noncontrolling | Total | ||||||||||||||||||||||||||
Number | Amount | Capital | Deficit | Income (Loss) | Equity | Interests | Equity | |||||||||||||||||||||||||
Balance at January 1, 2011 |
19,644,042 | $ | 194 | $ | 239,453 | $ | (7,460 | ) | $ | 52 | $ | 232,239 | $ | 422,226 | $ | 654,465 | ||||||||||||||||
Offering costs |
| | (17 | ) | | | (17 | ) | | (17 | ) | |||||||||||||||||||||
Issuance of restricted stock awards, net of forfeitures |
205,180 | | | | | | | | ||||||||||||||||||||||||
Amortization of deferred compensation |
| 1 | 2,264 | | | 2,265 | | 2,265 | ||||||||||||||||||||||||
Dividends and distributions |
| | | (7,743 | ) | | (7,743 | ) | (10,239 | ) | (17,982 | ) | ||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net loss |
| | | (4,795 | ) | | (4,795 | ) | (6,446 | ) | (11,241 | ) | ||||||||||||||||||||
Change in fair value on derivative contracts |
| | | | (151 | ) | (151 | ) | (202 | ) | (353 | ) | ||||||||||||||||||||
Reclassification of other comprehensive loss to
interest expense |
| | | | 56 | 56 | 75 | 131 | ||||||||||||||||||||||||
Comprehensive loss |
(4,890 | ) | (6,573 | ) | (11,463 | ) | ||||||||||||||||||||||||||
Balance at September 30, 2011 |
19,849,222 | $ | 195 | $ | 241,700 | $ | (19,998 | ) | $ | (43 | ) | $ | 221,854 | $ | 405,414 | $ | 627,268 | |||||||||||||||
See accompanying notes to condensed consolidated financial statements
5
Table of Contents
CORESITE REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income (loss) |
$ | (11,241 | ) | $ | (5,070 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
53,224 | 11,848 | ||||||
Amortization of above/below market leases |
(1,139 | ) | (584 | ) | ||||
Amortization of deferred financing costs |
1,185 | 352 | ||||||
Gain on early extinguishment of debt |
(939 | ) | | |||||
Amortization of share-based compensation |
2,265 | | ||||||
Amortization of discount to fair market value of acquired loan |
687 | | ||||||
Bad debt expense |
(36 | ) | (82 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Restricted cash |
(595 | ) | 610 | |||||
Accounts receivable |
(1,678 | ) | 4,076 | |||||
Due to and due from related parties |
2 | 660 | ||||||
Deferred rent receivable |
(3,680 | ) | (1,766 | ) | ||||
Deferred leasing costs |
(4,581 | ) | (4,545 | ) | ||||
Other assets |
(2,000 | ) | (1,226 | ) | ||||
Accounts payable and accrued expenses |
10,516 | (1,959 | ) | |||||
Prepaid rent and other liabilities |
2,629 | 86 | ||||||
Deferred rent payable |
1,007 | 176 | ||||||
Net cash provided by operating activities |
45,626 | 2,576 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Real estate improvements |
(94,644 | ) | (46,183 | ) | ||||
Assumption of cash balances in connection with the contribution of the CoreSite
Acquired Properties |
| 10,269 | ||||||
Changes in reserves for capital improvements |
4,964 | 2,085 | ||||||
Net cash used in investing activities |
(89,680 | ) | (33,829 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Issuance of common stock |
| 310,960 | ||||||
Offering costs |
(17 | ) | (25,019 | ) | ||||
Redemption of operating partnership units |
| (125,513 | ) | |||||
Proceeds from mortgage loans payable |
| 70,300 | ||||||
Repayments of mortgage loans payable |
(14,113 | ) | (152,600 | ) | ||||
Payments of loan fees and costs |
(14 | ) | (3,698 | ) | ||||
Contributions |
| 33,399 | ||||||
Dividends and distributions |
(17,844 | ) | (2,000 | ) | ||||
Net cash provided by (used in) financing activities |
(31,988 | ) | 105,829 | |||||
Net change in cash and cash equivalents |
(76,042 | ) | 74,576 | |||||
Cash and cash equivalents, beginning of period |
86,246 | 7,466 | ||||||
Cash and cash equivalents, end of period |
$ | 10,204 | $ | 82,042 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||
Cash paid for interest |
$ | 2,969 | $ | 2,136 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITY |
||||||||
Construction costs payable capitalized to real estate |
$ | 8,872 | $ | 1,516 | ||||
Accrual of dividends and distributions |
$ | 5,996 | $ | | ||||
Contribution of the CoreSite Acquired Properties for Operating Partnership units |
$ | | $ | 316,836 |
See accompanying notes to condensed consolidated financial statements
6
Table of Contents
CORESITE REALTY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(unaudited)
1. Organization
CoreSite Realty Corporation (the Company, we, or our) was organized in the state of
Maryland on February 17, 2010 and is a fully integrated, self-administered, and self-managed real
estate investment trust (REIT). Through our controlling interest in CoreSite, L.P. (our
Operating Partnership), we are engaged in the business of owning, acquiring, constructing and
managing technology-related real estate.
On
September 28, 2010, we completed our initial public offering (the IPO) which resulted in
the sale of 19,435,000 shares of our common stock, including 2,535,000 shares as a result of the
underwriters exercising their over-allotment option, at a price per share of $16.00, generating
gross proceeds to the Company of $311.0 million. The proceeds to the Company, net of
underwriters discounts, commissions and other offering costs were $285.6 million.
Upon completion of the IPO, our Operating Partnership entered into various formation
transactions and acquired 100% of the ownership interests in the entities that owned our
Predecessor, as defined below, from certain real estate funds (the Funds) affiliated with The
Carlyle Group. Our Predecessor includes the limited liability companies which were all wholly
owned, directly or indirectly, by CRP Fund V Holdings, LLC. We have determined that CRP Fund V
Holdings, LLC is the acquirer for accounting purposes and, therefore, interests contributed by
CRP Fund V Holdings, LLC in the formation transactions (the Predecessor entities and properties)
were recorded at historical cost.
Additionally, our Operating Partnership acquired 100% of the ownership interests in the
entities that owned the CoreSite Acquired Properties, as defined below, from the Funds and their
affiliates. The contribution or acquisition of interests in the CoreSite Acquired Properties was
accounted for as an acquisition under the acquisition method of accounting and recognized at the
estimated fair value of acquired assets and assumed liabilities on the date of the contribution.
Because these transactions occurred shortly before September 30, 2010, the financial
condition and results of operations for the entities acquired by our predecessor in connection
with the IPO and related formation transactions are only included in the condensed consolidated
financial statements since the date of the transactions. More specifically, our results of
operations for the three and nine month periods ending September 30, 2010 reflect the operations
of the consolidated CoreSite Predecessor entities, as defined in the table below, together with
the CoreSite Acquired Properties from the date of their acquisition, September 28, 2010. Changes
in our capital structure that occurred on September 28, 2010, including the acquisition of our
predecessor by our Operating Partnership, are reflected since that date in the financial
statements, including the allocation of net loss attributable to noncontrolling interest holders
and calculations of loss per share. The results of operations for the three and nine months ended
September 30, 2011 reflect the consolidated financial condition and results of operations of our
Predecessor and the CoreSite Acquired Properties. The accompanying condensed consolidated
financial statements include the following entities and properties:
CoreSite Predecessor | Coresite Acquired Properties | |
CRP Fund V Holdings, LLC |
One Wilshire | |
1656 McCarthy |
900 N. Alameda | |
2901 Coronado |
55 S. Market | |
Coronado-Stender Properties |
427 S. LaSalle | |
70 Innerbelt |
1275 K Street | |
32 Avenue of the Americas |
2115 NW 22nd Street | |
12100 Sunrise Valley |
CoreSite, LLC |
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by
management in accordance with U.S. generally accepted accounting principles (GAAP) for interim
financial information and in compliance with the rules and regulations of the United States
Securities and Exchange Commission. Accordingly, these condensed consolidated financial
statements do not include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been included. The
results of operations for the three and nine months ended September 30, 2011 are not necessarily
indicative of the
expected results for the year ending December 31, 2011. These condensed consolidated
financial statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in our annual report on Form 10-K for the year ended
December 31, 2010. Intercompany balances and transactions have been eliminated.
7
Table of Contents
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingencies at the date of the condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. We evaluate our estimates,
including those related to assessing the carrying values of our real estate properties, accrued
liabilities, performance-based equity compensation plans, and qualification as a REIT based on
estimates of historical experience, current market conditions, and various other assumptions that
are believed to be reasonable under the circumstances. Actual results may vary from those
estimates and those estimates could vary under different assumptions or conditions.
Investments in Real Estate
Real estate investments are carried at cost less accumulated depreciation and amortization.
The cost of real estate includes the purchase price of the property and leasehold improvements.
Expenditures for maintenance and repairs are expensed as incurred. Significant renovations and
betterments that extend the economic useful lives of assets are capitalized. During the
development of the properties, the capitalization of costs, which include interest, real estate
taxes and other direct and indirect costs, begins upon commencement of development efforts and
ceases when the property is ready for its intended use. Interest is capitalized during the period
of development based upon applying the weighted-average borrowing rate to the actual development
costs expended. Capitalized interest costs were $0.5 million and $0.1 million for the three
months ended September 30, 2011 and 2010, respectively, and $0.9 million and $0.5 million for the
nine months ended September 30, 2011 and 2010, respectively.
Depreciation and amortization are calculated using the straight-line method over the
following useful lives of the assets:
Buildings |
27 to 40 years | |
Building improvements |
1 to 15 years | |
Leasehold improvements |
The shorter of the lease term or useful life of the asset |
Depreciation expense was $8.4 million and $4.0 million for the three months ended September
30, 2011 and 2010, respectively, and $24.9 million and $9.6 million for the nine months ended
September 30, 2011 and 2010, respectively.
Acquisition of Investment in Real Estate
Purchase accounting is applied to the assets and liabilities related to all real estate
investments acquired. The fair value of the real estate acquired is allocated to the acquired
tangible assets, consisting primarily of land, building and improvements, and identified
intangible assets and liabilities, consisting of the value of above-market and below-market
leases, value of in-place leases and the value of customer relationships.
The fair value of the land and building of an acquired property is determined by valuing the
property as if it were vacant, and the as-if-vacant value is then allocated to land and
building based on managements determination of the fair values of these assets. Management
determines the as-if-vacant fair value of a property using methods similar to those used by
independent appraisers. Factors considered by management in performing these analyses include an
estimate of carrying costs during the expected lease-up periods considering current market
conditions and costs to execute similar leases.
The fair value of intangibles related to in-place leases includes the value of lease
intangibles for above-market and below-market leases, lease origination costs, and customer
relationships, determined on a lease-by-lease basis. Above-market and below-market leases are
valued based on the present value (using an interest rate which reflects the risks associated
with the leases acquired) of the difference between (i) the contractual amounts to be paid
pursuant to the in-place leases and (ii) managements estimate of fair market lease rates for the
corresponding in-place leases, measured over a period equal to the remaining non-cancelable term
of the lease and, for below-market leases, over a period equal to the initial term plus any
below-market fixed rate renewal periods. Lease origination costs include estimates of costs
avoided associated with leasing the property, including tenant allowances and improvements and
leasing commissions. Customer relationship intangibles relate to the additional revenue
opportunities expected to be generated through interconnection services and utility services to
be provided to the in-place lease tenants.
8
Table of Contents
The capitalized values for above and below-market lease intangibles, lease origination
costs, and customer relationships are amortized over the term of the underlying leases.
Amortization related to above-market and below-market leases where the
Company is the lessor is recorded as either an increase to or a reduction of rental income,
amortization related to above-market and below-market leases where the Company is the lessee is
recorded as either an increase to or a reduction of rent expense and amortization for lease
origination costs and customer relationships are recorded as amortization expense. If a lease is
terminated prior to its stated expiration, all unamortized amounts relating to that lease are
written off. The carrying value of intangible assets is reviewed for impairment in connection
with its respective asset group whenever events or changes in circumstances indicate that the
asset group may not be recoverable. An impairment loss is recognized if the carrying amount of
the asset group is not recoverable and its carrying amount exceeds its estimated fair value.
The excess of the cost of an acquired business over the net of the amounts assigned to
assets acquired (including identified intangible assets) and liabilities assumed is recorded as
goodwill. As of September 30, 2011, we had approximately $41.2 million of goodwill. The Companys
goodwill has an indeterminate life and is not amortized, but is tested for impairment on an
annual basis, or more frequently if events or changes in circumstances indicate that the asset
might be impaired.
Cash and Cash Equivalents
Cash and cash equivalents include all non-restricted cash held in financial institutions and
other non-restricted highly liquid short-term investments with original maturities at acquisition
of three months or less.
Restricted Cash
The Company is required to maintain certain minimum cash balances in escrow by loan
agreements to cover various building improvements and obligations related to tax assessments and
insurance premiums. The Company is legally restricted by these agreements from using this cash
other than for the purposes specified therein.
Deferred Costs
Deferred leasing costs include commissions and other direct and incremental costs incurred
to obtain new customer leases, which are capitalized and amortized over the terms of the related
leases using the straight-line method. If a lease terminates prior to the expiration of its
initial term, any unamortized costs related to the lease are written off to amortization expense.
Deferred financing costs include costs incurred in connection with obtaining debt and
extending existing debt. These financing costs are capitalized and amortized on a straight-line
basis, which approximates the effective-interest method, over the term of the loan and are
included as a component of interest expense.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is
recognized when estimated expected future cash flows (undiscounted and without interest charges)
are less than the carrying amount of the assets. The estimation of expected future net cash flows
is inherently uncertain and relies to a considerable extent on assumptions regarding current and
future economics and market conditions and the availability of capital. If, in future periods,
there are changes in the estimates or assumptions incorporated into the impairment review
analysis, the changes could result in an adjustment to the carrying amount of the assets. To the
extent that an impairment has occurred, the excess of the carrying amount of long-lived assets
over its estimated fair value would be charged to income. For the three months and nine months
ended September 30, 2011 and 2010, no impairment was recognized.
Derivative Instruments and Hedging Activities
We reflect all derivative instruments at fair value as either assets or liabilities on the
condensed consolidated balance sheets. For those derivative instruments that are designated, and
qualify, as hedging instruments, we record the effective portion of the gain or loss on the hedge
instruments as a component of accumulated other comprehensive income. Any ineffective portion of
a derivatives change in fair value is immediately recognized in earnings. For derivatives that
do not meet the criteria for hedge accounting, changes in fair value are immediately recognized
in earnings.
Revenue Recognition
All leases are classified as operating leases and minimum rents are recognized on a
straight-line basis over the non-cancellable term of the agreements. The excess of rents
recognized over amounts contractually due pursuant to the underlying leases are included in
deferred rent receivable. If a lease terminates prior to its stated expiration, the deferred rent
receivable relating to that lease is written off to rental revenue.
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When arrangements include both lease and nonlease elements, the revenues associated with
separate elements are allocated
based on their relative fair values. The revenue associated with each element is then
recognized as earned. Interconnection, utility and power services are considered as separate
earnings processes that are provided and completed on a month-to-month basis and revenue is
recognized in the period in which the services are performed. Utility and power services are
included in power revenue in the accompanying statements of operations. Interconnection services
are included in other revenue in the accompanying statements of operations. Set-up charges and
utility installation fees are initially deferred and recognized over the term of the arrangement
as other revenue or the expected period of performance unless management determines a separate
earnings process exists related to an installation charge.
Tenant reimbursements for real estate taxes, common area maintenance, and other recoverable
costs are recognized in the period in which the expenses are incurred.
Above-market and below-market lease intangibles that were acquired are amortized on a
straight-line basis as decreases and increases, respectively, to rental revenue over the
remaining non-cancellable term of the underlying leases. For the three months ended September 30,
2011 and 2010, the net effect of amortization of acquired above-market and below-market leases
resulted in an increase to rental income of $0.4 million and $0.1 million, respectively. For the
nine months ended September 30, 2011 and 2010, the net effect of amortization of acquired
above-market and below-market leases resulted in an increase to rental income of $1.1 million and
$0.6 million, respectively. Balances, net of accumulated amortization, at September 30, 2011 and
December 31, 2010, are as follows (in thousands):
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Lease contracts above-market value |
$ | 8,668 | $ | 8,668 | ||||
Accumulated amortization |
(3,615 | ) | (1,360 | ) | ||||
Lease contracts above-market value,
net |
$ | 5,053 | $ | 7,308 | ||||
Lease contracts below-market value |
$ | 21,262 | $ | 21,404 | ||||
Accumulated amortization |
(8,241 | ) | (4,989 | ) | ||||
Lease contracts below-market value,
net |
$ | 13,021 | $ | 16,415 | ||||
A provision for uncollectible accounts is recorded if a receivable balance relating to
contractual rent, rent recorded on a straight-line basis, or tenant reimbursements is considered
by management to be uncollectible. At September 30, 2011 and December 31, 2010, the allowance for
doubtful accounts totaled $0.3 million and $0.3 million, respectively. Additions to the allowance
for doubtful accounts were less than $0.1 million and less than $0.3 million for the three months
ended September 30, 2011 and 2010, respectively, and less than $0.1 million and $0.2 million for
the nine months ended September 30, 2011 and 2010, respectively. Write-offs charged against the
allowance were less than $0.1 million and less than $0.1 million for the three months ended
September 30, 2011 and 2010, respectively, and $0.2 million and $0.1 million for the nine months
ended September 30, 2011 and 2010, respectively.
Share-Based Compensation
We account for share based compensation using the fair value method of accounting. The
estimated fair value of the stock options granted by us is being amortized on a straight-line
basis over the vesting period of the stock options. The fair value of restricted share-based and
Operating Partnership unit compensation is based on the market value of our common stock on the
date of the grant and is amortized on a straight-line basis over the vesting period.
Advertising Costs
Advertising costs are expensed as incurred and are included in sales and marketing expense.
Advertising costs were less than $0.1 million and less than $0.1 million for the three months
ended September 30, 2011 and 2010, respectively, and less than $0.1 million and less than $0.1
million for the nine months ended September 30, 2011 and 2010, respectively.
Asset Retirement Obligations
We record accruals for estimated retirement obligations. The asset retirement obligations
relate primarily to the removal of asbestos and contaminated soil during development or
redevelopment of the properties as well as the estimated equipment removal costs upon termination
of a certain lease under which the Company is the lessee. At September 30, 2011 and December 31,
2010, the amount included in other liabilities on the condensed consolidated balance sheets was
approximately $1.9 million and $2.1 million, respectively.
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Income Taxes
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended
(the Code), commencing
with our taxable year ending December 31, 2010. To qualify as a REIT, we are required to
distribute at least 90% of our taxable income to our stockholders and meet the various other
requirements imposed by the Code relating to such matters as operating results, asset holdings,
distribution levels and diversity of stock ownership. Provided we qualify for taxation as a REIT,
we are generally not subject to corporate level federal income tax on the earnings distributed
currently to our stockholders. If we fail to qualify as a REIT in any taxable year, and are
unable to avail ourselves of certain savings provisions set forth in the Code, all of our taxable
income would be subject to federal income tax at regular corporate rates, including any
applicable alternative minimum tax.
To maintain REIT status we will distribute a minimum of 90% of the Companys taxable income.
However, it is our policy and intent, subject to change, to distribute 100% of the Companys
taxable income and therefore no provision is required in the accompanying financial statements
for federal income taxes with regards to activities of the REIT and its subsidiary pass-through
entities. Any taxable income prior to the completion of the IPO is the responsibility of the
Companys prior members. The allocable share of income is included in the income tax returns of
the members. The Company is subject to the statutory requirements of the locations in which it
conducts business. State and local income taxes are accrued as deemed required in the best
judgment of management based on analysis and interpretation of respective tax laws.
We have elected to treat one of our subsidiaries as a taxable REIT subsidiary (TRS).
Certain activities that we undertake must be conducted by a TRS, such as services for our tenants
that would otherwise be impermissible for us to perform and holding assets that we cannot hold
directly. A TRS is subject to corporate level federal and state income taxes. Relative deferred
tax assets and liabilities arising from temporary differences in financial reporting versus tax
reporting are also established as determined by management.
Deferred income taxes are recognized in certain taxable entities. Deferred income tax is
generally a function of the periods temporary differences (items that are treated differently
for tax purposes than for financial reporting purposes), the utilization of tax net operating
losses generated in prior years that previously had been recognized as deferred income tax assets
and the reversal of any previously recorded deferred income tax liabilities. A valuation
allowance for deferred income tax assets is provided if we believe all or some portion of the
deferred income tax asset may not be realized. Any increase or decrease in the valuation
allowance resulting from a change in circumstances that causes a change in the estimated
realizability of the related deferred income tax asset is included in deferred tax expense. As of
September 30, 2011, the deferred income taxes were not material.
We currently have no liabilities for uncertain tax positions. The earliest tax year for
which the Company is subject to examination is 2010. Prior to their contribution to our Operating
Partnership, our subsidiaries were treated as pass-through entities for tax purposes and the
earliest year for which our subsidiaries are subject to examination is 2007.
Concentration of Credit Risks
The Companys cash and cash equivalents are maintained in various financial institutions,
which, at times, may exceed federally insured limits. The Company has not experienced any losses
in such accounts, and management believes that the Company is not exposed to any significant
credit risk in this area. The Company has no off-balance-sheet concentrations of credit risk,
such as foreign exchange contracts, option contracts, or foreign currency hedging arrangements.
For the three months ended September 30, 2011 and 2010 and the nine months ended September
30, 2011 and 2010, total operating revenues recognized from one customer accounted for 11.0%,
31.1%, 11.6% and 22.2%, respectively. For the three months ended September 30, 2011 and 2010 and
the nine months ended September 30, 2011 and 2010, total operating revenues recognized from
another customer accounted for 6.4%, 9.9%, 6.6% and 11.4%, respectively. The Company obtains
security deposits from most of its tenants.
Segment Information
The Company manages its business as one reportable segment consisting of investments in data
centers located in the United States. Although the Company provides services in several markets,
these operations have been aggregated into one reportable segment based on the similar economic
characteristics amongst all markets, including the nature of the services provided and the type
of customers purchasing these services.
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2011-08, IntangiblesGoodwill and Other (Topic 350): Testing Goodwill
for Impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to
determine whether it is more likely than not that the fair value of a reporting unit is less than
its carrying value. If it is determined through the qualitative assessment that a reporting
units fair value is more likely than not greater than its carrying value, the remaining
impairment steps would be unnecessary. The new standard is effective for annual and interim
goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with
early adoption permitted. The
Company adopted the provisions of this standard effective September 30, 2011. The adoption
of this standard did not have a material impact on the Companys consolidated financial
statements.
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In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income, which amends current comprehensive income guidance. This accounting update
eliminates the option to present the components of other comprehensive income as part of the
statement of stockholders equity. Instead, the Company must report comprehensive income in
either a single continuous statement of comprehensive income which contains two sections, net
income and other comprehensive income, or in two separate but consecutive statements. This new
guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The
adoption of this standard is not expected to have a material impact on the Companys consolidated
financial statements.
3. Investment in Real Estate
The following is a summary of the properties owned and leased at September 30, 2011 (in
thousands):
Acquisition | Buildings and | Leasehold | Construction | |||||||||||||||||||||||
Property Name | Location | Date | Land | Improvements | Improvements | in Progress | Total Cost | |||||||||||||||||||
1656 McCarthy |
Milpitas, CA | 12/6/2006 | $ | 5,086 | $ | 21,940 | $ | | $ | | $ | 27,026 | ||||||||||||||
2901 Coronado |
Santa Clara, CA | 2/2/2007 | 3,972 | 45,165 | | | 49,137 | |||||||||||||||||||
2972 Stender |
Santa Clara, CA | 2/2/2007 | 4,442 | 16,446 | 37,013 | 57,901 | ||||||||||||||||||||
Coronado-Stender Properties |
Santa Clara, CA | 2/2/2007 | 11,486 | 11,967 | | 184 | 23,637 | |||||||||||||||||||
70 Innerbelt |
Somerville, MA | 4/11/2007 | 6,100 | 61,302 | | 5,096 | 72,498 | |||||||||||||||||||
32 Avenue of the Americas |
New York, NY | 6/30/2007 | | | 30,881 | 1 | 30,882 | |||||||||||||||||||
12100 Sunrise Valley |
Reston, VA | 12/28/2007 | 12,100 | 65,936 | | 24,627 | 102,663 | |||||||||||||||||||
One Wilshire |
Los Angeles, CA | 9/28/2010 | | | 44,213 | 201 | 44,414 | |||||||||||||||||||
900 N. Alameda |
Los Angeles, CA | 9/28/2010 | 28,467 | 98,869 | | 4,998 | 132,334 | |||||||||||||||||||
55 S. Market |
San Jose, CA | 9/28/2010 | 6,863 | 94,270 | | 2,913 | 104,046 | |||||||||||||||||||
427 S. LaSalle |
Chicago, IL | 9/28/2010 | 5,493 | 54,678 | | 491 | 60,662 | |||||||||||||||||||
1275 K Street |
Washington, DC | 9/28/2010 | | | 5,666 | 39 | 5,705 | |||||||||||||||||||
2115 NW 22nd Street |
Miami, FL | 9/28/2010 | 729 | 9,480 | | 61 | 10,270 | |||||||||||||||||||
Total |
$ | 84,738 | $ | 480,053 | $ | 80,760 | $ | 75,624 | $ | 721,175 | ||||||||||||||||
4. Other Assets
Our other assets consisted of the following, net of amortization and depreciation, if
applicable, as of September 30, 2011 and December 31, 2010 (in thousands):
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Deferred leasing costs |
$ | 10,717 | $ | 7,954 | ||||
Deferred rent receivable |
9,745 | 6,065 | ||||||
Deferred financing costs |
2,247 | 3,426 | ||||||
Leasehold interests in corporate
headquarters |
2,634 | 2,959 | ||||||
Other |
5,490 | 3,502 | ||||||
Total |
$ | 30,833 | $ | 23,906 | ||||
12
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5. Debt
A summary of outstanding indebtedness as of September 30, 2011 and December 31, 2010 is as
follows (in thousands):
Maturity | September 30, | December 31, | ||||||||||||
Interest Rate | Date | 2011 | 2010 | |||||||||||
Senior secured credit facility
|
(1) | September 28, 2013 | $ | | $ | | ||||||||
427 S. LaSalle - Senior mortgage loan
|
LIBOR plus 0.60% (0.83% and 0.86% at September 30, 2011 and December 31, 2010) | March 9, 2012 | 25,000 | 25,000 | ||||||||||
427 S. LaSalle Subordinate mortgage
loan
|
LIBOR plus 2.95% (3.21% at December 31, 2010) | N/A | | 5,000 | ||||||||||
427 S. LaSalle - Mezzanine loan
|
LIBOR plus 4.83% (5.09% at December 31, 2010) | N/A | | 10,000 | ||||||||||
55 S. Market
|
LIBOR plus 3.50% (3.73% and 3.76% at September 30, 2011 and December 31, 2010) (2) | October 9, 2012 | (3) | 60,000 | 60,000 | |||||||||
12100 Sunrise Valley
|
LIBOR plus 2.75% (2.98% and 3.01% at September 30, 2011 and December 31, 2010) (2) | June 1, 2013 | 25,501 | 25,560 | ||||||||||
Total principal outstanding
|
110,501 | 125,560 | ||||||||||||
Unamortized acquired below-market debt adjustment on 427 S. LaSalle mortgage loans | | (687 | ) | |||||||||||
Total indebtedness
|
$ | 110,501 | $ | 124,873 | ||||||||||
(1) | At the Companys election, borrowings under the credit facility bear interest at a rate per
annum equal to either (i) LIBOR plus 350 basis points to 400 basis points, depending on our
leverage ratio, or (ii) a base rate plus 250 basis points to 300 basis points. |
|
(2) | In October 2010, we entered into an interest rate swap agreement with respect to 55 S. Market
and an interest rate cap agreement with respect to 12100 Sunrise Valley, each as a cash flow
hedge for interest incurred by these LIBOR based loans. |
|
(3) | The mortgage contains one two-year extension option subject to the Company meeting certain
financial and other customary conditions and the payment of an extension fee equal to 60 basis
points. |
Senior Secured Credit Facility
In conjunction with our IPO and formation transactions, our Operating Partnership entered
into a $110.0 million senior secured revolving credit facility with a group of lenders for which
KeyBank National Association acts as the administrative agent. The revolving credit facility is
unconditionally guaranteed on an unsecured basis by CoreSite Realty Corporation. CoreSite, L.P.
acts as the parent borrower and its subsidiaries that own the real estate properties known as
1656 McCarthy, 70 Innerbelt, 2901 Coronado and 900 N. Alameda are co-borrowers under the
facility, and such real estate properties provide security for the facility. Each of the parent
borrower and the subsidiary borrowers are liable under the facility on a joint and several basis.
The facility has an initial maturity date of September 28, 2013 with a one-time extension option,
which, if exercised, would extend the maturity date to March 28, 2014. The exercise of the
extension option is subject to the payment of an extension fee equal to 25 basis points of the
$110.0 million facility and certain other customary conditions. As of September 30, 2011, the
Company has not drawn any funds under the facility.
The Company can elect to have borrowings under the credit facility bear interest at a rate
per annum equal to (i) LIBOR plus 350 basis points to 400 basis points, depending on our leverage
ratio, or (ii) a base rate plus 250 basis points to 300 basis points, depending on our leverage
ratio. The secured revolving credit facility contains an accordion feature that allows us to
increase the total commitment by $90.0 million, to $200.0 million, under specified circumstances.
The total amount available for us to borrow under the facility will be subject to the lesser
of a percentage of the appraised value of our properties that form the designated borrowing base
properties of the facility, a minimum borrowing base debt service coverage ratio and a minimum
borrowing base debt yield. As of September 30, 2011, $101.3 million was available for us to
borrow under the facility. Our ability to borrow under the facility is subject to ongoing
compliance with a number of customary restrictive covenants, including:
a maximum leverage ratio (defined as consolidated total indebtedness to total gross asset
value) of 55%;
a minimum fixed charge coverage ratio (defined as adjusted consolidated earnings before
interest, taxes, depreciation and amortization to consolidated fixed charges) of 1.75 times;
a maximum unhedged variable rate debt ratio (defined as unhedged variable rate
indebtedness to gross asset value) of 30%;
a maximum recourse debt ratio (defined as recourse indebtedness other than indebtedness
under the revolving credit facility to gross asset value) of 30%; and
a minimum tangible net worth equal to at least 75% of our tangible net worth at the
closing of our IPO plus 80% of the net proceeds of any additional equity issuances.
13
Table of Contents
427 S. LaSalle
As of September 30, 2011, the 427 S. LaSalle property had a senior mortgage loan payable of
$25.0 million which matures
on March 9, 2012. This loan is secured by deeds of trust on the property and requires
payments of interest only until maturity. The mortgage requires ongoing compliance by us with
various nonfinancial covenants. As of September 30, 2011, the Company was in compliance with the
covenants.
On April 29, 2011, the Company repaid the $10.0 million mezzanine loan on the 427 S. LaSalle
property at a discount. As a result of this discounted payoff, we reduced our debt by $10.0
million, paying $9.5 million in cash and recognizing a $0.5 million gain, net of fees on the
transaction.
On June 3, 2011, the Company repaid the $5.0 million subordinate loan on the 427 S. LaSalle
property at a discount. As a result of this discounted payoff, we reduced our debt by $5.0
million, paying $4.6 million in cash and recognizing a $0.4 million gain, net of fees on the
transaction.
55 S. Market
As of September 30, 2011, the 55 S. Market property had a $60.0 million mortgage loan, which
matures on October 9, 2012. The mortgage payable contains one two-year extension option provided
the Company meets certain financial and other customary conditions and subject to the payment of
an extension fee equal to 60 basis points. The loan bears interest at LIBOR plus 350 basis points
and requires the payment of interest only until maturity. The mortgage requires ongoing
compliance by us with various covenants including liquidity and net operating income covenants.
As of September 30, 2011, the Company was in compliance with the covenants.
On October 7, 2010, the Company entered into a $60.0 million interest rate swap agreement to
protect against adverse fluctuations in interest rates by reducing its exposure to variability in
cash flows relating to interest payments on the $60.0 million 55 S. Market mortgage. The interest
rate swap matures on October 9, 2012 and effectively fixes the interest rate at 4.01%.
12100 Sunrise Valley
As of September 30, 2011, the 12100 Sunrise Valley property had a mortgage loan payable of
$25.5 million. We may make additional draws of up to $6.4 million to fund specified construction
under the loan agreement for a maximum total borrowing of
$31.9 million. On October 24, 2011, the Company
drew the remaining $6.4 million to fund construction activities at 12100 Sunrise Valley. The mortgage loan
payable is secured by the 12100 Sunrise Valley property and required payments of interest only
until the amortization commencement date on July 1, 2011. The loan matures on June 1, 2013 and
we may exercise the one remaining one-year extension option provided the Company meets certain
financial and other customary conditions and subject to the payment of an extension fee equal to
50 basis points. The mortgage loan payable contains certain financial and nonfinancial covenants.
As of September 30, 2011, the Company was in compliance with the covenants.
On October 8, 2010, the Company purchased an interest rate cap to hedge $25.0 million of the
indebtedness secured by our 12100 Sunrise Valley property. The interest rate cap matures on
October 1, 2012 and hedges against LIBOR interest rate increases above 2.0%.
Debt Maturities
The following table summarizes our debt maturities as of September 30, 2011 (in thousands):
Year | ||||
Remainder of 2011 |
$ | 63 | ||
2012 |
85,249 | |||
2013 |
25,189 | |||
Total |
$ | 110,501 | ||
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Table of Contents
6. Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and
economic conditions. The Company principally manages its exposures to a wide variety of business
and operational risks through management of its core business activities. The Company manages
economic risks, including interest rate, liquidity, and credit risk primarily by managing the
amount, sources, and duration of its debt funding and the use of derivative financial
instruments. Specifically, the Company enters into derivative financial instruments to manage
exposures that arise from business activities that result in the receipt or payment of future
known and uncertain cash amounts, the value of which are determined by interest rates. The
Companys derivative financial instruments are used to manage differences in the amount, timing,
and duration of the Companys known or expected cash receipts
and its known or expected cash payments principally related to the Companys investments and
borrowings.
Cash Flow Hedges of Interest Rate Risk
The Companys objectives in using interest rate derivatives are to add stability to interest
expense and to manage its exposure to interest rate movements. To accomplish this objective, the
Company primarily uses interest rate swaps and caps as part of its interest rate risk management
strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable
amounts from a counterparty in exchange for the Company making fixed-rate payments over the life
of the agreements without exchange of the underlying notional amount. Interest rate caps
designated as cash flow hedges involve the receipt of variable amounts from a counterparty if
interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The effective portion of changes in the fair value of derivatives designated and that
qualify as cash flow hedges is recorded in accumulated other comprehensive income and is
subsequently reclassified into earnings in the period that the hedged forecasted transaction
affects earnings. During the period, such derivatives were used to hedge the variable cash flows
associated with existing variable-rate debt. The ineffective portion of the change in fair value
of the derivatives is recognized directly in earnings. During the three and nine months ended
September 30, 2011 and 2010, the Company did not record any amount in earnings related to
derivatives due to hedge ineffectiveness.
Amounts reported in accumulated other comprehensive income related to derivatives will be
reclassified to interest expense as interest payments are made on the Companys variable-rate
debt. During 2011, the Company estimates that $0.1 million will be reclassified as an increase to
interest expense.
As of September 30, 2011, the Company had the following outstanding interest rate
derivatives that were designated as cash flow hedges of interest rate risk:
Cash Flow Hedge Derivative Summary
Number of | ||||||||
Instruments | Notional | |||||||
Derivative type |
||||||||
Interest rate swap |
1 | $ | 60,000,000 | |||||
Interest rate cap |
1 | 25,000,000 | ||||||
Total |
2 | $ | 85,000,000 | |||||
Non-designated Hedges
Additionally, the Company does not use derivatives for trading or speculative purposes.
Derivatives not designated as hedges are not speculative and are used to manage the Companys
exposure to interest rate movements but due to immateriality, are not designated for hedge
accounting purposes. The Companys derivatives detailed in the table below are not designated as
hedging instruments for accounting purposes and do not have material economic value as of
September 30, 2011. Changes in the fair value of derivatives not designated in hedging
relationships are recorded directly in earnings. As of September 30, 2011, the Company had the
following outstanding derivatives that were not designated as hedges in qualifying hedging
relationships:
Non-Designated Derivative Summary
Number of | ||||||||
Instruments | Notional | |||||||
Derivative type |
||||||||
Interest rate caps |
2 | $ | 40,000,000 | |||||
Total |
2 | $ | 40,000,000 | |||||
15
Table of Contents
Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Companys derivative financial instruments as
well as their classification on the balance sheet as of September 30, 2011 and December 31, 2010.
Fair Values of Derivative Instruments | ||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||
As of September 30, | As of December 31, | As of September 30, | As of December | |||||||||||||
2011 | 2010 | 2011 | 31, 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Derivatives designated as hedging instruments |
||||||||||||||||
Balance sheet location |
Other Assets | Other Assets | Other Liabilities | Other Liabilities | ||||||||||||
Interest rate caps |
$ | 1 | $ | 31 | $ | | $ | | ||||||||
Interest rate swaps |
| 117 | 77 | | ||||||||||||
Total |
$ | 1 | $ | 148 | $ | 77 | $ | | ||||||||
Derivatives not designated as hedging
instruments |
||||||||||||||||
Balance sheet location |
Other Assets | Other Assets | Other Liabilities | Other Liabilities | ||||||||||||
Interest rate caps |
$ | | $ | | $ | | $ | | ||||||||
Total |
$ | | $ | | $ | | $ | | ||||||||
Tabular Disclosure of the Effect of Derivative Instruments on the Income Statement
The table below presents the effect of the Companys derivative financial instruments on the
statement of operations for the three and nine months ended September 30, 2011 and 2010 (in
thousands).
Income Statement Impact of Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||
Amount of Gain or (Loss) Reclassified from | Location of Gain or (Loss) | Amount of Gain or (Loss) Recognized in | ||||||||||||||||||||||||||
Amount of Gain or (Loss) Recognized in | Location of Gain or (Loss) | Accumulated OCI into Income (Effective | Recognized in Income on | Income on Derivative (Ineffective Portion and | ||||||||||||||||||||||||
OCI on Derivative (Effective Portion) for | Reclassified from Accumulated | Portion) for the Three Months Ended | Derivative (Ineffective Portion | Amount Excluded from Effectiveness Testing) | ||||||||||||||||||||||||
the Three Months Ended September 30, | OCI into Income (Effective | September 30, | and Amount Excluded from | for the Three Months Ended September 30, | ||||||||||||||||||||||||
2011 | 2010 | Portion) | 2011 | 2010 | Effectiveness Testing) | 2011 | 2010 | |||||||||||||||||||||
Interest rate
derivatives |
||||||||||||||||||||||||||||
Interest rate caps |
$ | 3 | $ | | Interest income / (expense) | $ | 1 | $ | | Other income / (expense) | $ | | $ | | ||||||||||||||
Interest rate swap |
21 | | Interest income / (expense) | 47 | | Other income / (expense) | | | ||||||||||||||||||||
Total |
$ | 24 | $ | | $ | 48 | $ | | $ | | $ | | ||||||||||||||||
Amount of Gain or (Loss) Reclassified from | Location of Gain or (Loss) | Amount of Gain or (Loss) Recognized in | ||||||||||||||||||||||||||
Amount of Gain or (Loss) Recognized in | Location of Gain or (Loss) | Accumulated OCI into Income (Effective | Recognized in Income on | Income on Derivative (Ineffective Portion and | ||||||||||||||||||||||||
OCI on Derivative (Effective Portion) for | Reclassified from Accumulated | Portion) for the Nine Months Ended | Derivative (Ineffective Portion | Amount Excluded from Effectiveness Testing) | ||||||||||||||||||||||||
the Nine Months Ended September 30, | OCI into Income (Effective | September 30, | and Amount Excluded from | for the Nine Months Ended September 30, | ||||||||||||||||||||||||
2011 | 2010 | Portion) | 2011 | 2010 | Effectiveness Testing) | 2011 | 2010 | |||||||||||||||||||||
Interest rate
derivatives |
||||||||||||||||||||||||||||
Interest rate caps |
$ | 30 | $ | | Interest income / (expense) | $ | 2 | $ | | Other income / (expense) | $ | | $ | | ||||||||||||||
Interest rate swap |
323 | | Interest income / (expense) | 129 | | Other income / (expense) | | | ||||||||||||||||||||
Total |
$ | 353 | $ | | $ | 131 | $ | | $ | | $ | | ||||||||||||||||
Credit-Risk-Related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a
provision under which if the Company defaults on any of its indebtedness, including default when
repayment of the indebtedness has not been accelerated by the lender, the Company could also be
declared in default on its derivative obligations. Such a default may require the Company to
settle any outstanding derivatives at their then current fair value. As of September 30, 2011,
the derivative instruments with fair values in a net liability position were not material and the
Company has not posted any cash collateral related to these agreements.
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7. Noncontrolling Interests Operating Partnership
Noncontrolling interests represent the limited partnership interests in the Operating
Partnership held by individuals and entities other than CoreSite Realty Corporation. Since the first anniversary of the IPO, the current holders of Operating Partnership units have been
eligible to have the OP units redeemed for cash or, at our option, exchangeable into our common
stock on a one-for-one basis. We have evaluated whether we control the actions or events
necessary to issue the maximum number of shares that could be required to be delivered under the
share settlement of the Operating Partnership units. Based on the results of this analysis, we
concluded that the Operating Partnership units met the criteria to be classified within equity at
September 30, 2011.
The following table shows the ownership interest in the Operating Partnership as of
September 30, 2011:
September 30, 2011 | ||||||||
Number of Units | Percentage of Total | |||||||
The Company |
19,513,171 | 42.7 | % | |||||
Noncontrolling interests consist of: |
||||||||
Common units held
by third parties |
26,165,000 | 57.2 | % | |||||
Incentive units
held by employees |
69,692 | 0.1 | % | |||||
Total |
45,747,863 | 100.0 | % | |||||
For each share of common stock issued, the Operating Partnership issues an equivalent
Operating Partnership unit to the Company. During the nine months ended September 30, 2011, the
Company issued 54,566 shares of common stock related to employee compensation arrangements and
therefore an equivalent number of Operating Partnership units were issued. Additionally, during
the nine months ended September 30, 2011, 8,627 Operating Partnership units were issued to
employees upon their vesting in the incentive unit awards. The redemption value of the
noncontrolling interests at September 30, 2011 was $376.5 million based on the closing price of
the Companys stock of $14.35 on that date.
8. Stockholders Equity
During the nine months ended September 30, 2011, we issued 255,638 shares of restricted
stock and options to purchase 526,257 shares of common stock to certain employees in connection
with our 2010 equity incentive plan.
For their services as members of the Board of Directors, the independent directors not
affiliated with the Carlyle Group were each issued 2,475 restricted stock units during the nine
months ended September 30, 2011.
On March 15, 2011 we declared a regular cash dividend for the first quarter of 2011 of $0.13
per common share payable to stockholders of record as of March 31, 2011. In addition, holders of
Operating Partnership units also received a distribution of $0.13 per unit. The dividend and
distribution were paid on April 15, 2011.
On June 17, 2011 we declared a regular cash dividend for the second quarter of 2011 of $0.13
per common share payable to stockholders of record as of June 30, 2011. In addition, holders of
Operating Partnership units also received a distribution of $0.13 per unit. The dividend and
distribution were paid on July 15, 2011.
On September 19, 2011, we declared a regular cash dividend for the third quarter of 2011 of
$0.13 per common share payable on October 17, 2011 to stockholders of record as of September 30,
2011. In addition, holders of Operating Partnership units also received a distribution of $0.13
per unit. We recorded a payable as of September 30, 2011 of $6.0 million for this dividend and
distribution.
9. Equity Incentive Plan
In connection with our initial public offering, the Companys Board of Directors adopted the
2010 equity incentive plan, which we refer to as the 2010 Plan. The 2010 Plan is administered by
the Board of Directors, or the plan administrator. Awards issuable under the 2010 Plan include
common stock, stock options, restricted stock, stock appreciation rights, dividend equivalents
and other incentive awards. We have reserved a total of 3,000,000 shares of our common stock for
issuance pursuant to the 2010 Plan, which may be adjusted for changes in our capitalization and
certain corporate transactions. To the extent that an award expires, terminates or lapses, or an
award is settled in cash without the delivery of shares of common stock to the participant, then
any unexercised shares subject to the award will be available for future grant or sale under the
2010 Plan. Shares of restricted stock which are forfeited or repurchased by us pursuant to the
2010 Plan may again be optioned, granted or awarded under the 2010 Plan. The payment of dividend
equivalents in cash in conjunction with any outstanding awards will not be counted
against the shares available for issuance under the 2010 Plan.
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Stock Options
Stock option awards are granted with an exercise price equal to the closing market price of
the Companys common stock at the date of grant. The fair value of each option granted under the
2010 Plan is estimated on the date of the grant using the Black-Scholes option-pricing model. For
the nine months ended September 30, 2011, options to purchase 526,257 shares of common stock were
granted. The fair values are being expensed on a straight-line basis over the vesting periods.
The following table sets forth the 2010 Plans stock option activity for the nine months
ended September 30, 2011:
Number of | Weighted | |||||||
Shares Subject to | Average Exercise | |||||||
Option | Price | |||||||
Options outstanding,
December 31, 2010 |
587,555 | $ | 16.00 | |||||
Granted |
526,257 | 15.24 | ||||||
Forfeited |
(119,783 | ) | 15.81 | |||||
Exercised |
| | ||||||
Options outstanding,
September 30, 2011 |
994,029 | $ | 15.62 | |||||
The following table sets forth the number of shares subject to option that are unvested
as of September 30, 2011 and the fair value of these options at the grant date:
Weighted | ||||||||
Number of | Average Fair | |||||||
Shares Subject to | Value at Grant | |||||||
Option | Date | |||||||
Unvested balance,
December 31, 2010 |
587,555 | $ | 4.95 | |||||
Granted |
526,257 | 4.88 | ||||||
Forfeited |
(119,783 | ) | 4.94 | |||||
Vested |
(140,978 | ) | 4.92 | |||||
Unvested balance,
September 30, 2011 |
853,051 | $ | 4.91 | |||||
As of September 30, 2011, total unearned compensation on options was approximately $3.5
million, and the weighted average vesting period was 3.2 years.
Restricted Awards
During the nine months ended September 30, 2011, the Company issued 255,638 shares of
restricted stock. Additionally, the Company issued 9,900 restricted stock units, or RSUs. The
principal difference between these instruments is that RSUs are not shares of CoreSite Realty
Corporation common stock and do not have any of the rights or privileges thereof, including
voting rights. On the applicable vesting date, the holder of an RSU becomes entitled to a share
of common stock. The restricted awards will be amortized on a straight-line basis to expense over
the vesting period. The following table sets forth the number of unvested restricted awards and
the weighted average fair value of these awards at the date of grant:
Weighted | ||||||||
Average Fair | ||||||||
Restricted | Value at Grant | |||||||
Awards | Date | |||||||
Unvested balance,
December 31, 2010 |
195,437 | $ | 15.98 | |||||
Granted |
265,538 | 15.14 | ||||||
Forfeited |
(50,458 | ) | 15.82 | |||||
Vested |
(74,466 | ) | 16.10 | |||||
Unvested balance,
September 30, 2011 |
336,051 | $ | 15.31 | |||||
As of September 30, 2011, total unearned compensation on restricted awards was
approximately $4.3 million, and the weighted average vesting period was 3.0 years.
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Operating Partnership Units
In connection with the Companys IPO, we issued 25,883 Operating Partnership units, which
were fair valued at $15.98 per unit or $0.4 million in total. The Operating Partnership units
will be amortized on a straight-line basis to expense over the vesting period. As of September
30, 2011, 8,627 units have vested and 17,256 units were unvested. As of September 30, 2011, total
unearned compensation on Operating Partnership units was approximately $0.3 million, and the
weighted average vesting period was 2.0 years.
10. Earnings Per Share
The following is a summary of basic and diluted income (loss) per share (in thousands,
except share and per share amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) attributable to common shares |
$ | 112 | $ | (2,010 | ) | $ | (4,795 | ) | $ | (1,974 | ) | |||||
Weighted average common shares outstanding basic |
19,494,703 | 640,893 | 19,483,962 | 215,978 | ||||||||||||
Potentially dilutive common shares: |
||||||||||||||||
Unvested restricted awards |
93,258 | | | | ||||||||||||
Weighted average common shares outstanding diluted |
19,587,961 | 640,893 | 19,483,962 | 215,978 | ||||||||||||
Net income (loss) per share attributable to common
shares |
||||||||||||||||
Basic |
$ | 0.01 | $ | (3.14 | ) | $ | (0.25 | ) | $ | (9.14 | ) | |||||
Diluted |
$ | 0.01 | $ | (3.14 | ) | $ | (0.25 | ) | $ | (9.14 | ) |
We have excluded the following potentially dilutive securities in the calculations
above as their effect would have been antidilutive:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Stock options |
994,029 | 587,555 | 994,029 | 587,555 | ||||||||||||
Restricted awards |
242,793 | 195,435 | 336,051 | 195,435 | ||||||||||||
1,236,822 | 782,990 | 1,330,080 | 782,990 | |||||||||||||
11. Estimated Fair Value of Financial Instruments
Authoritative guidance issued by the Financial Accounting Standards Board establishes a
hierarchy of valuation techniques based on the observability of inputs utilized in measuring
assets and liabilities at fair values. This hierarchy establishes market-based or observable
inputs as the preferred source of values, followed by valuation models using management
assumptions in the absence of market inputs. The three levels of the hierarchy under the
authoritative guidance are as follows:
Level 1 Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs are quoted prices for similar assets or liabilities in an active market,
quoted prices for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable, and market-corroborated inputs which are
derived principally from or corroborated by observable market data.
Level 3 Inputs are derived from valuation techniques in which one or more significant
inputs or value drivers are unobservable.
Our financial instruments consist of cash and cash equivalents, restricted cash, accounts
and other receivables, interest rate caps, interest rate swaps, mortgage loans payable, interest
payable and accounts payable. The carrying values of cash and cash equivalents, restricted cash,
accounts and other receivables, interest payable and accounts payable approximate fair values due
to the short-term nature of these accounts. The interest rate caps and interest rate swap are
carried at fair value.
The combined balance of our mortgage loans payable was $110.5 million and $125.6 million
(excluding a $0.7 million fair value of acquired debt adjustment as of December 31, 2010) as of
September 30, 2011 and December 31, 2010, respectively, with a fair value of $109.6 million and
$123.8 million, respectively, based on Level 3 inputs from the fair value hierarchy. The fair
values of mortgage notes payable are based on the Companys assumptions of interest rates and
terms available incorporating the Companys credit risk.
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Measurements of asset retirement obligations upon initial recognition are based on Level 3
inputs. The significant unobservable inputs to this fair value measurement include estimates of
remediation costs, inflation rate, market risk premium and the expected timing of development or
redevelopment. The inputs are derived based on historical data as well as managements best
estimate of current costs.
Derivative financial instruments
Currently, the Company uses interest rate derivative instruments to manage interest rate
risk. The fair values of interest rate swaps are determined using the market standard methodology
of netting the discounted future fixed cash receipts (or payments) and the discounted expected
variable cash payments (or receipts). The variable cash payments (or receipts) are based on the
expectation of future interest rates (forward curves) derived from observed market interest rate
curves. In addition, to comply with the provisions of FASB ASC 820, credit valuation adjustments,
which consider the impact of any credit risk to the contracts, are incorporated in the fair
values to account for potential nonperformance risk. In adjusting the fair value of its
derivative contracts for the effect of nonperformance risk, the Company has considered any
applicable credit enhancements such as collateral postings, thresholds, mutual puts, and
guarantees.
Although the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments
associated with its derivatives utilize Level 3 inputs, such as estimates of current credit
spreads, to evaluate the likelihood of default by the Company and its counterparties. However, as
of September 30, 2011, the Company has assessed the significance of the impact of the credit
valuation adjustments on the overall valuation of its derivative positions and has determined
that the credit valuation adjustment is not significant to the overall valuation of its
derivative portfolios. As a result, the Company classifies its derivative valuations in Level 2
of the fair value hierarchy.
The table below presents the Companys assets and liabilities measured at fair value on a
recurring basis as of September 30, 2011 and December 31, 2010, aggregated by the level in the
fair value hierarchy within which those measurements fall.
Recurring Fair Value Measurements | ||||||||||||||||||||||||||||||||
Quoted Prices in Active Markets for | ||||||||||||||||||||||||||||||||
Identical Assets and Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total Fair Value | |||||||||||||||||||||||||||||
As of September | As of December 31, | As of September | As of December 31, | As of September | As of December 31, | As of September | As of December 31, | |||||||||||||||||||||||||
30, 2011 | 2010 | 30, 2011 | 2010 | 30, 2011 | 2010 | 30, 2011 | 2010 | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||
Derivative
Financial
Instruments |
$ | | $ | | $ | 1 | $ | 148 | $ | | $ | | $ | 1 | $ | 148 | ||||||||||||||||
Liabilities |
||||||||||||||||||||||||||||||||
Derivative
Financial
Instruments |
$ | | $ | | $ | 77 | $ | | $ | | $ | | $ | 77 | $ | | ||||||||||||||||
12. Related Party Transactions
Prior to the closing of the IPO on September 28, 2010, CoreSite, LLC was engaged to act as
the Companys agent for the purpose of coordinating the activities of the property manager, for
leasing and servicing the properties, and for overseeing property build-out activities.
Subsequent to our Predecessors acquisition of CoreSite, LLC as part of the IPO on September 28,
2010, all related party revenue and expenses incurred in connection with CoreSite, LLCs
activities have been eliminated in consolidation.
For the three months and nine months ended September 30, 2010, CoreSite, LLC earned
management fees from the Predecessor of $1.3 million and $3.6 million respectively. For the three
months and nine months ended September 30, 2010, CoreSite, LLC earned lease commissions from our
Predecessor of $0.2 million and $2.8 million, respectively. These commissions are included in
deferred leasing costs. For the three and nine months ended September 30, 2010, CoreSite, LLC
earned construction management fees from our Predecessor of $0.2 million and $1.2 million,
respectively. The construction management fees are included in building improvements and
construction in progress. For the three and nine months ended September 30, 2010, CoreSite, LLC
was reimbursed for payroll related expenses from our Predecessor of $0.4 million and $1.2
million, respectively. At September 30, 2011 and December 31, 2010, no such fees were payable to
CoreSite, LLC.
We lease 1,515 net rentable square feet of space at our 12100 Sunrise Valley property to an
affiliate of The Carlyle Group. The lease commenced on July 1, 2008 and expires on June 30, 2013.
Rental revenue was less than $0.1 million and less than $0.1 million for the three months ended
September 30, 2011 and 2010, respectively, and $0.2 million and $0.1 million for the nine months
ended September 30, 2011 and 2010, respectively.
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13. Commitments and Contingencies
The Company currently leases the data center space under noncancelable operating lease
agreements at 32 Avenue of the Americas, One Wilshire and 1275 K Street, and the Company leases
its headquarters located in Denver, Colorado under a noncancelable operating lease agreement. The
lease agreements provide for base rental rate increases at defined intervals during the term of
the lease. In addition, the Company has negotiated rent abatement periods to better match the
phased build-out of the data center space. The Company accounts for such abatements and
increasing base rentals using the straight-line method over the noncancelable term of the lease.
The difference between the straight-line expense and the cash payment is recorded as deferred
rent payable.
Additionally, the Company has commitments related to telecommunications capacity used to
connect data centers located within the same market or geographical area and power usage.
The following table summarizes our contractual obligations as of September 30, 2011 (in
thousands):
Remainder of | ||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
Operating leases |
$ | 4,218 | $ | 17,044 | $ | 17,457 | $ | 17,742 | $ | 17,620 | $ | 44,255 | $ | 118,336 | ||||||||||||||
Other(1) |
2,478 | 4,750 | 1,384 | 261 | 157 | 1,029 | 10,059 | |||||||||||||||||||||
Total |
$ | 6,696 | $ | 21,794 | $ | 18,841 | $ | 18,003 | $ | 17,777 | $ | 45,284 | $ | 128,395 | ||||||||||||||
(1) | Obligations for tenant improvement work at 55 S. Market Street, power contracts, telecommunications leases and insurance premiums. |
Rent expense for the three months ended September 30, 2011 and 2010 was $4.6 million
and $0.8 million, respectively, and for the nine months ended September 30, 2011 and 2010 rent
expense was $13.7 million and $2.2 million, respectively.
Our properties require periodic investments of capital for general capital improvements and
for tenant related capital expenditures. Additionally, the Company enters into various
construction contracts with third parties for the development and redevelopment of our
properties. At September 30, 2011, we had open commitments related to construction contracts of
approximately $17.6 million.
As previously disclosed, the Company is involved in litigation in Colorado District Court in
Denver with Ari Brumer, the former general counsel of its affiliate CoreSite, LLC, arising out of
the termination of Mr. Brumers employment. The allegations made by Mr. Brumer against the
Company in his complaint and the allegations by the Company against him in its counterclaims have
also been previously reported. The Company continues to believe that this litigation will not
have a material adverse effect on its business, financial position or liquidity.
One
of our former customers, Add2Net, Inc., brought an action against us
in April of 2009 before the American Arbitration Association in
California asserting claims of breach of contract, unfair business
practices, negligent misrepresentation and fraudulent inducement.
Add2Net alleges that it has suffered damages of approximately
$3.5 million, consisting of license and service fees paid to us,
loss of business income and equipment damage, and seeks
attorneys fees and punitive damages. We have counterclaimed for
breach of contract and bad faith dealing on account of
$1.25 million in unpaid license and service fees, plus
attorneys fees. We believe that we have valid defenses to
Add2Nets claims and that our claims for unpaid license and
service fees are valid and justified. We intend to vigorously defend
the claims against us and pursue the counterclaims for our unpaid
license and service fees.
Because
the arbitration is still in the discovery stage, the cost of the
litigations and its ultimate resolution are not estimable at this
time. Based on the information currently available, however, we do
not believe that it will have a material adverse effect on our
business, financial position or liquidity.
From time to time, the Company may have certain contingent liabilities that arise in the
ordinary course of its business activities. Management believes that the resolution of such
matters will not have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
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ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this Quarterly Report), together with other statements
and information publicly disseminated by our company, contains certain forward-looking statements
within the meaning of 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 Private Securities Litigation Reform Act of 1995 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 Quarterly 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.
We discussed a number of material risks in our annual report on Form 10-K for the year ended
December 31, 2010. 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 it assess the impact of all such risk factors on our companys 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.
Overview
Unless the context requires otherwise, references in this Quarterly Report to we, our,
us and our company refer to CoreSite Realty Corporation, a Maryland corporation, together
with its consolidated subsidiaries, including CoreSite, L.P., a Delaware limited partnership of
which CoreSite Realty Corporation is the sole general partner and which we refer to in this
Quarterly Report as our Operating Partnership and CoreSite Services, Inc., a Delaware
corporation, our taxable REIT subsidiary, or TRS.
We formed CoreSite Realty Corporation as a Maryland corporation on February 17, 2010, with
perpetual existence. Through our controlling interest in our Operating Partnership, we are
engaged in the business of ownership, acquisition, construction and management 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 high-quality data centers feature ample and redundant power, advanced cooling and
security systems and many are points of dense network interconnection. We have elected to be
taxed as a REIT under the Internal Revenue Code of 1986, as amended (the Code), commencing with
our taxable year ending December 31, 2010.
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On September 28, 2010, we completed our initial public offering (the IPO), which resulted
in the sale of 19,435,000 shares of our common stock, including 2,535,000 shares as a result of
the underwriters exercising their over-allotment option, at a price per share of $16.00,
generating gross proceeds to the Company of $311.0 million. The proceeds to the Company, net of
underwriters discounts, commissions and other offering costs were $285.6 million. Upon
completion of the IPO, our Operating Partnership used the proceeds to enter into various
formation transactions and acquire 100% of the ownership interests in the entities that owned our
Predecessor and the CoreSite Acquired Properties from certain real estate funds (the Funds)
affiliated with The Carlyle Group (Carlyle).
Our Portfolio
As of September 30, 2011, our property portfolio included 12 operating data center
facilities and one development site, which collectively comprise over 2.0 million net rentable
square feet (NRSF), of which approximately 1.1 million NRSF is existing data center space.
These properties include 254,408 NRSF of space readily available for lease, of which 175,023 NRSF
is available for lease as data center space. Including the space currently under construction or in
preconstruction at September 30, 2011, and including currently operating space targeted for
future redevelopment, we own land and buildings sufficient to develop or redevelop 964,037 feet of
data center space, comprised of (1) 161,385 NRSF of data center space
currently under construction, (2) 354,451 NRSF of office and
industrial space currently available for redevelopment, (3) 102,951
NRSF of currently operating data center space targeted for future
redevelopment, and (4) 345,250 NRSF of new data center space that can be developed on land that the Company currently owns at its Coronado-Stender Business Park.
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 position 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 new and expansion data center leasing
activity during the nine months ended September 30, 2011:
Three Months Ended: | ||||||||||||
September 30, | June 30, | March 31, | ||||||||||
2011 | 2011(1) | 2011 | ||||||||||
New and expansion leases signed but not yet commenced at beginning of period |
39,079 | 32,626 | 32,786 | |||||||||
New and expansion leases signed during the period |
28,553 | 29,853 | 41,652 | |||||||||
New and expansion leases signed during the period which have commenced |
(12,485 | ) | (9,436 | ) | (22,649 | ) | ||||||
New and expansion leases signed in previous periods which commenced during period |
(26,173 | ) | (13,964 | ) | (19,163 | ) | ||||||
Total leases signed but not yet commenced at end of period |
28,974 | 39,079 | 32,626 |
(1) | The previously reported rollforward at June 30, 2011 of 40,690 NRSF has been adjusted to remove
1,611 NRSF due to a change in the factor used to allocate support space to reflect the current
build out of certain properties. This adjustment does not alter the contractual rent we expect to
receive under the affected leases. |
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The following table provides an overview of our properties as of September 30, 2011:
NRSF | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating(1) | ||||||||||||||||||||||||||||||||||||||||||||||||
Office and | Redevelopment and | |||||||||||||||||||||||||||||||||||||||||||||||
Data Center(2) | Light-Industrial(3) | Total | Development(4) | |||||||||||||||||||||||||||||||||||||||||||||
Acquisition | Annualized Rent | Percent | Percent | Percent | Under | Total | ||||||||||||||||||||||||||||||||||||||||||
Market/Facilities | Date(5) | ($000)(6) | Total | Leased(7) | Total | Leased(7) | Total(8) | Leased(7) | Construction(9) | Vacant | Total | Portfolio | ||||||||||||||||||||||||||||||||||||
Los Angeles |
||||||||||||||||||||||||||||||||||||||||||||||||
One Wilshire* |
Aug. 2007 | $ | 21,837 | 157,587 | 67.2 | % | 7,500 | 57.5 | % | 165,087 | 66.8 | % | | | | 165,087 | ||||||||||||||||||||||||||||||||
900 N. Alameda |
Oct. 2006 | 13,173 | 246,817 | 91.5 | 8,360 | 20.4 | 255,177 | 89.2 | 25,000 | 153,982 | 178,982 | 434,159 | ||||||||||||||||||||||||||||||||||||
Los Angeles Total |
35,010 | 404,404 | 82.0 | 15,860 | 37.9 | 420,264 | 80.4 | 25,000 | 153,982 | 178,982 | 599,246 | |||||||||||||||||||||||||||||||||||||
San Francisco Bay |
||||||||||||||||||||||||||||||||||||||||||||||||
55 S. Market |
Feb. 2000 | 11,806 | 84,045 | 92.1 | 206,255 | 90.2 | 290,300 | 90.8 | | | | 290,300 | ||||||||||||||||||||||||||||||||||||
2901 Coronado |
Feb. 2007 | 9,085 | 50,000 | 100.0 | | | 50,000 | 100.0 | | | | 50,000 | ||||||||||||||||||||||||||||||||||||
1656 McCarthy |
Dec. 2006 | 7,606 | 76,676 | 86.6 | | | 76,676 | 86.6 | | | | 76,676 | ||||||||||||||||||||||||||||||||||||
Coronado-Stender Properties(10) |
Feb. 2007 | 937 | | | 115,560 | 82.5 | 115,560 | 82.5 | | 13,640 | 13,640 | 129,200 | ||||||||||||||||||||||||||||||||||||
2972 Stender(11) |
Feb. 2007 | 477 | 18,116 | 17.0 | | | 18,116 | 17.0 | 32,284 | 50,600 | 82,884 | 101,000 | ||||||||||||||||||||||||||||||||||||
San Francisco Bay Total |
29,911 | 228,837 | 86.1 | 321,815 | 87.5 | 550,652 | 86.9 | 32,284 | 64,240 | 96,524 | 647,176 | |||||||||||||||||||||||||||||||||||||
Northern Virginia |
||||||||||||||||||||||||||||||||||||||||||||||||
12100 Sunrise Valley |
Dec. 2007 | 13,362 | 137,669 | 90.6 | 60,539 | 70.1 | 198,208 | 84.3 | 64,561 | | 64,561 | 262,769 | ||||||||||||||||||||||||||||||||||||
1275 K Street* |
June 2006 | 1,707 | 22,137 | 71.5 | | | 22,137 | 71.5 | | | | 22,137 | ||||||||||||||||||||||||||||||||||||
Northern Virginia Total |
15,069 | 159,806 | 88.0 | 60,539 | 70.1 | 220,345 | 83.0 | 64,561 | | 64,561 | 284,906 | |||||||||||||||||||||||||||||||||||||
Boston |
||||||||||||||||||||||||||||||||||||||||||||||||
70 Innerbelt |
Apr. 2007 | 8,482 | 133,646 | 96.8 | 13,063 | 33.4 | 146,709 | 91.1 | 15,149 | 111,313 | 126,462 | 273,171 | ||||||||||||||||||||||||||||||||||||
Chicago |
||||||||||||||||||||||||||||||||||||||||||||||||
427 S. LaSalle |
Feb. 2007 | 6,405 | 128,888 | 83.2 | 4,946 | 52.6 | 133,834 | 82.1 | 24,391 | 25,109 | 49,500 | 183,334 | ||||||||||||||||||||||||||||||||||||
New York |
||||||||||||||||||||||||||||||||||||||||||||||||
32 Avenue of the Americas* |
June 2007 | 4,741 | 48,404 | 78.1 | | | 48,404 | 78.1 | | | | 48,404 | ||||||||||||||||||||||||||||||||||||
Miami |
||||||||||||||||||||||||||||||||||||||||||||||||
2115 NW 22nd Street |
June 2006 | 1,389 | 30,176 | 51.4 | 1,641 | 100.0 | 31,817 | 53.9 | | 13,447 | 13,447 | 45,264 | ||||||||||||||||||||||||||||||||||||
Total Facilities |
$ | 101,007 | 1,134,161 | 84.6 | % | 417,864 | 81.0 | % | 1,552,025 | 83.6 | % | 161,385 | 368,091 | 529,476 | 2,081,501 | |||||||||||||||||||||||||||||||||
* | Indicates properties in which we hold a leasehold interest. |
|
(1) | Represents the square feet at each building under lease as specified in existing customer lease agreements plus managements estimate of space available for lease to customers based on engineers drawings and other factors, including
required data center support space (such as the mechanical, telecommunications and utility rooms) and building common areas. Total NRSF at a given facility includes the total operating NRSF and total redevelopment and development NRSF,
but excludes our office space at a facility and our corporate headquarters. |
|
(2) | Represents the NRSF at each operating facility that is currently leased or readily available for lease as data center space. Both leased and available data center NRSF includes a factor to account for a customers proportionate share
of the required data center support space (such as the mechanical, telecommunications and utility rooms) and building common areas, which may be updated on a periodic basis to reflect the most current build out of our properties. |
|
(3) | Represents the NRSF at each operating facility that is currently leased or readily available for lease as space other than data center space, which is typically space offered for office or light-industrial uses. |
|
(4) | Represents vacant space in our portfolio that requires significant capital investment in order to redevelop or develop into data center facilities. Total redevelopment and development NRSF and total operating NRSF represent the total
NRSF at a given facility. |
|
(5) | Reflects date property was acquired by the Funds or their affiliates and not the date of our acquisition upon consummation of our initial public offering. In the case of a leased property, indicates the date the initial lease commenced. |
|
(6) | Represents the monthly contractual rent under existing customer leases as of September 30, 2011 multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent abatements and, for any
customer under a modified gross or triple-net lease, it excludes the operating expense reimbursement attributable to such lease. On a gross basis, our annualized rent was approximately $106,587,000 as of September 30, 2011, which
reflects the addition of $5,580,000 in operating expense reimbursements to contractual net rent under modified gross and triple-net leases. |
|
(7) | Includes customer leases that have commenced as of September 30, 2011. The percent leased is determined based on leased square feet as a proportion of total operating NRSF. The percent leased for data center space, office and light
industrial space, and space in total would have been 87.1%, 81.1%, and 85.5%, respectively, if all leases signed in current and prior periods had commenced. |
|
(8) | Represents the NRSF at an operating facility currently leased or readily available for lease. This excludes existing vacant space held for redevelopment or development. |
|
(9) | Reflects NRSF for which substantial activities are ongoing to prepare the property for its intended use following redevelopment or development, as applicable. All of the 161,385 NRSF under construction as of September 30, 2011, was
data center space. |
|
(10) | The Coronado-Stender Business Park became entitled for our proposed data center development upon receipt of the mitigated negative declaration from the city of Santa Clara in the first quarter of 2011. We have the ability to develop
345,250 NRSF of data center space at this property, which is in addition to the 50,400 NRSF of data center space and 50,600 NRSF of unconditioned core and shell space completed or under construction at 2972 Stender. |
|
(11) | We have completed construction on 18,116 NRSF of data center space at this property, and are under construction on an additional 32,284 NRSF of data center space. We have also developed an incremental 50,600 NRSF of unconditioned core
and shell space to be held for potential future development into data center space, subject to our assessment of market demand and alternative uses of our capital. |
24
Table of Contents
The following table shows the September 30, 2011 operating statistics for space that was
leased and available to be leased as of June 30, 2010 at each of our properties, and excludes
space for which development or redevelopment was completed and became available to be leased
after June 30, 2010. For comparison purposes, the operating activity totals at quarterly
intervals over the prior year for this space are provided at the bottom of this table.
Operating NRSF | ||||||||||||||||||||||||||||||||
Office and Light | ||||||||||||||||||||||||||||||||
Data Center | Industrial | Total | ||||||||||||||||||||||||||||||
Acquisition | Annualized | Percent | Percent | Percent | ||||||||||||||||||||||||||||
Market/Facilities | Date | Rent ($000) | Total | Leased | Total | Leased | Total | Leased | ||||||||||||||||||||||||
Los Angeles |
||||||||||||||||||||||||||||||||
One Wilshire* |
Aug. 2007 | $ | 21,837 | 157,587 | 67.2 | % | 7,500 | 57.5 | % | 165,087 | 66.8 | % | ||||||||||||||||||||
900 N. Alameda |
Oct. 2006 | 12,541 | 230,691 | 94.6 | 8,360 | 20.4 | 239,051 | 92.0 | ||||||||||||||||||||||||
Los Angeles Total |
34,378 | 388,278 | 83.5 | 15,860 | 37.9 | 404,138 | 81.7 | |||||||||||||||||||||||||
San Francisco Bay |
||||||||||||||||||||||||||||||||
55 S. Market |
Feb. 2000 | 11,807 | 84,045 | 92.1 | 206,255 | 90.2 | 290,300 | 90.8 | ||||||||||||||||||||||||
2901 Coronado |
Feb. 2007 | 9,085 | 50,000 | 100.0 | | | 50,000 | 100.0 | ||||||||||||||||||||||||
1656 McCarthy |
Dec. 2006 | 7,606 | 71,847 | 92.4 | | | 71,847 | 92.4 | ||||||||||||||||||||||||
Coronado-Stender Properties |
Feb. 2007 | 681 | | | 78,800 | 74.3 | 78,800 | 74.3 | ||||||||||||||||||||||||
2972 Stender |
Feb. 2007 | | | | | | | | ||||||||||||||||||||||||
San Francisco Bay Total |
29,179 | 205,892 | 94.1 | 285,055 | 85.8 | 490,947 | 89.3 | |||||||||||||||||||||||||
Northern Virginia |
||||||||||||||||||||||||||||||||
12100 Sunrise Valley |
Dec. 2007 | 12,641 | 116,498 | 97.8 | 38,350 | 91.6 | 154,848 | 96.3 | ||||||||||||||||||||||||
1275 K Street* |
June 2006 | 1,707 | 22,137 | 71.5 | | | 22,137 | 71.5 | ||||||||||||||||||||||||
Northern Virginia Total |
14,348 | 138,635 | 93.6 | 38,350 | 91.6 | 176,985 | 93.2 | |||||||||||||||||||||||||
Boston |
||||||||||||||||||||||||||||||||
70 Innerbelt |
Apr. 2007 | 6,996 | 119,567 | 98.6 | 2,024 | 100.0 | 121,591 | 98.6 | ||||||||||||||||||||||||
Chicago |
||||||||||||||||||||||||||||||||
427 S. LaSalle |
Feb. 2007 | 6,360 | 128,888 | 83.2 | | | 128,888 | 83.2 | ||||||||||||||||||||||||
New York |
||||||||||||||||||||||||||||||||
32 Avenue of the Americas* |
June 2007 | 4,741 | 48,404 | 78.1 | | | 48,404 | 78.1 | ||||||||||||||||||||||||
Miami |
||||||||||||||||||||||||||||||||
2115 NW 22nd Street |
June 2006 | 1,389 | 30,176 | 51.4 | 1,641 | 100.0 | 31,817 | 53.9 | ||||||||||||||||||||||||
Total Facilities at
September 30, 2011(1) |
$ | 97,391 | 1,059,840 | 87.4 | % | 342,930 | 84.4 | % | 1,402,770 | 86.7 | % | |||||||||||||||||||||
Total Facilities
at June 30, 2011 |
$ | 93,956 | 86.3 | % | 81.9 | % | 85.2 | % | ||||||||||||||||||||||||
Total Facilities at
March 31, 2011 |
$ | 92,174 | 85.9 | % | 83.0 | % | 85.1 | % | ||||||||||||||||||||||||
Total Facilities at
December 31, 2010 |
$ | 89,225 | 83.1 | % | 83.1 | % | 83.1 | % | ||||||||||||||||||||||||
Total Facilities at
September 30, 2010 |
$ | 86,939 | 81.9 | % | 81.9 | % | 81.9 | % | ||||||||||||||||||||||||
Total Facilities
at June 30, 2010 |
$ | 85,695 | 82.4 | % | 78.2 | % | 81.3 | % | ||||||||||||||||||||||||
* | Indicates properties in which we hold a leasehold interest.
|
|
(1) | The percent leased for data center space, office and light industrial space, and space in total would have been 89.2%, 84.5%, and 88.1%, respectively, if all leases signed in current and prior periods had
commenced.
|
25
Table of Contents
The following table summarizes the redevelopment and development opportunities throughout
our portfolio as of September 30, 2011:
Redevelopment NRSF | ||||||||||||||||||||||||||||||||||||
Currently Vacant | Currently Operating | |||||||||||||||||||||||||||||||||||
Under | Near- | Long- | Near- | Long- | Incremental | |||||||||||||||||||||||||||||||
Facilities | Construction(1) | Term(2) | Term | Total | Term(2) | Term | Total | Entitled | Total | |||||||||||||||||||||||||||
Los Angeles |
||||||||||||||||||||||||||||||||||||
One Wilshire* |
| | | | | | | | | |||||||||||||||||||||||||||
900 N. Alameda(3) |
25,000 | | 153,982 | 178,982 | | 102,951 | 102,951 | | 281,933 | |||||||||||||||||||||||||||
Los Angeles Total |
25,000 | | 153,982 | 178,982 | | 102,951 | 102,951 | | 281,933 | |||||||||||||||||||||||||||
San Francisco Bay |
||||||||||||||||||||||||||||||||||||
55 S. Market |
| | | | | | | | | |||||||||||||||||||||||||||
2901 Coronado |
| | | | | | | | | |||||||||||||||||||||||||||
1656 McCarthy |
| | | | | | | | | |||||||||||||||||||||||||||
2972 Stender(4) |
32,284 | | 50,600 | 82,884 | | | | | 82,884 | |||||||||||||||||||||||||||
San Francisco Bay Total |
32,284 | | 50,600 | 82,884 | | | | | 82,884 | |||||||||||||||||||||||||||
Northern Virginia |
||||||||||||||||||||||||||||||||||||
12100 Sunrise Valley(5) |
64,561 | | | 64,561 | | | | | 64,561 | |||||||||||||||||||||||||||
1275 K Street* |
| | | | | | | | | |||||||||||||||||||||||||||
Northern Virginia Total |
64,561 | | | 64,561 | | | | | 64,561 | |||||||||||||||||||||||||||
Boston |
||||||||||||||||||||||||||||||||||||
70 Innerbelt(3) |
15,149 | 15,000 | 96,313 | 126,462 | | | | | 126,462 | |||||||||||||||||||||||||||
Chicago |
||||||||||||||||||||||||||||||||||||
427 S. LaSalle |
24,391 | | 25,109 | 49,500 | | | | | 49,500 | |||||||||||||||||||||||||||
New York |
||||||||||||||||||||||||||||||||||||
32 Avenue of the Americas* |
| | | | | | | | | |||||||||||||||||||||||||||
Miami |
||||||||||||||||||||||||||||||||||||
2115 NW 22nd Street |
| 13,447 | | 13,447 | | | | | 13,447 | |||||||||||||||||||||||||||
Total Redevelopment |
161,385 | 28,447 | 326,004 | 515,836 | | 102,951 | 102,951 | | 618,787 | |||||||||||||||||||||||||||
Development NRSF | ||||||||||||||||||||||||||||||||||||
Currently Vacant | Currently Operating | |||||||||||||||||||||||||||||||||||
Under | Near- | Long- | Near- | Long- | Incremental | |||||||||||||||||||||||||||||||
Facilities | Construction(1) | Term(2) | Term | Total | Term(2) | Term | Total | Entitled | Total | |||||||||||||||||||||||||||
San Francisco Bay |
||||||||||||||||||||||||||||||||||||
Coronado-Stender Properties(6) |
| | 13,640 | 13,640 | | 115,560 | 115,560 | 216,050 | 345,250 | |||||||||||||||||||||||||||
Total Development |
| | 13,640 | 13,640 | | 115,560 | 115,560 | 216,050 | 345,250 | |||||||||||||||||||||||||||
Total Facilities |
161,385 | 28,447 | 339,644 | 529,476 | | 218,511 | 218,511 | 216,050 | 964,037 | |||||||||||||||||||||||||||
* | Indicates properties in which we hold a leasehold interest. |
|
(1) | Reflects NRSF at a facility for which the initiation of substantial activities to prepare the property for its intended use following redevelopment or development, as applicable, has commenced prior to the applicable period. |
|
(2) | Reflects NRSF at a facility for which the initiation of substantial activities to prepare the property for its intended use following redevelopment or development, as applicable, is planned to commence after September 30, 2011 but prior to September 30, 2012. |
|
(3) | The NRSF shown is our current estimate based on engineering drawings and required support space and is subject to change based on final demising of the space. |
|
(4) | We have completed construction on 18,116 NRSF of data center space at this property, and are under construction on an additional 32,284 NRSF of data center space. We have also completed development of an incremental 50,600 NRSF of unconditioned core and shell space
to be held for potential future development into data center space, subject to our assessment of market demand and alternative uses of our capital. |
|
(5) | The remaining 64,561 NRSF of
vacant space is being redeveloped into data center space in two phases
and is expected to deliver across the fourth quarter of 2011 and the first quarter of 2012. |
|
(6) | We are entitled to develop up to 345,250 NRSF of data center space at this property, or an incremental 216,050 NRSF, which is in addition to the leased and vacant NRSF existing at the property. |
26
Table of Contents
Customer Diversification
As of September 30, 2011, our portfolio was leased to over 700 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 September 30, 2011:
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 | 74,091 | 4.8 | % | $ | 11,902 | 11.8 | % | 48 | ||||||||||||||||||
2 | Computer Sciences Corporation |
2 | 45,090 | 2.9 | 4,045 | 4.0 | 72 | |||||||||||||||||||||
3 | General Services Administration-IRS*(6) |
1 | 141,774 | 9.1 | 3,709 | 3.7 | 14 | |||||||||||||||||||||
4 | Sprint Communications Corporation(7) |
4 | 104,769 | 6.8 | 3,268 | 3.2 | 7 | |||||||||||||||||||||
5 | Nuance Communications |
1 | 25,404 | 1.6 | 3,153 | 3.1 | 81 | |||||||||||||||||||||
6 | Akamai Technologies(8) |
5 | 23,929 | 1.5 | 2,687 | 2.7 | 12 | |||||||||||||||||||||
7 | Verizon Communications |
7 | 74,010 | 4.8 | 2,558 | 2.5 | 44 | |||||||||||||||||||||
8 | Govt of District of Columbia |
2 | 16,646 | 1.1 | 2,158 | 2.1 | 22 | |||||||||||||||||||||
9 | Tata Communications |
2 | 18,476 | 1.2 | 1,861 | 1.8 | 98 | |||||||||||||||||||||
10 | NBC Universal |
1 | 17,901 | 1.2 | 1,719 | 1.7 | 10 | |||||||||||||||||||||
Total/Weighted Average |
542,090 | 35.0 | % | $ | 37,060 | 36.6 | % | 41 | ||||||||||||||||||||
* | Denotes customer using space for general office purposes. |
|
(1) | Total leased NRSF is determined based on contractually leased square feet for leases that have commenced on or before September 30, 2011. We calculate occupancy
based on factors in addition to contractually leased square feet, including required data center support space (such as the mechanical, telecommunications and
utility rooms) and building common areas. |
|
(2) | Represents the customers total leased square feet divided by the total operating NRSF in the portfolio which, as of September 30, 2011, consisted of 1,552,025 NRSF. |
|
(3) | Represents the monthly contractual rent under existing customer leases as of September 30, 2011 multiplied by 12. This amount reflects total annualized base rent
before any one-time or non-recurring rent abatements and, for any customer under a modified gross or triple-net lease, it excludes the operating expense
reimbursement attributable to those leases. |
|
(4) | Represents the customers total annualized rent divided by the total annualized rent in the portfolio as of September 30, 2011, which was approximately $101,007,000. |
|
(5) | Weighted average based on percentage of total annualized rent expiring and is as of September 30, 2011. |
|
(6) | The data presented represents an interim lease in place that expires in May 2012. Upon expiration of the interim lease and the substantial completion of tenant
improvements by us, a new lease that has already been executed by both parties will commence. That lease includes 119,729 NRSF with a ten-year term and a
termination option at the end of year eight. |
|
(7) | Sprints 102,951 NRSF lease at 900 N. Alameda is scheduled to expire in the fourth quarter of 2011. We do not expect the customer to renew this lease. Upon
expiration, Sprint would no longer rank in the top 10 among our customers. |
|
(8) | We signed additional leases in the second and third quarters of 2011 that commenced or will commence in the third and fourth quarters of 2011. Upon stabilization
of those leases, Akamai will be our second largest customer in terms of annualized rent, with 38,138 NRSF leased and an annualized rent of $4,450,000. |
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 September 30, 2011:
Total | Percentage | Percentage | ||||||||||||||||||||||
Number | Percentage | Operating | of Total | Annualized | of | |||||||||||||||||||
of | of All | NRSF of | Operating | Rent | Annualized | |||||||||||||||||||
Square Feet Under Lease(1) | Leases(2) | Leases | Leases(3) | NRSF | ($000)(4) | Rent | ||||||||||||||||||
Available(5) |
| | % | 254,408 | 16.4 | % | $ | | | % | ||||||||||||||
1,000 or less |
959 | 85.6 | 164,185 | 10.6 | 27,520 | 27.2 | ||||||||||||||||||
1,001 - 2,000 |
64 | 5.7 | 91,176 | 5.8 | 11,266 | 11.2 | ||||||||||||||||||
2,001 - 5,000 |
58 | 5.2 | 170,679 | 11.0 | 14,786 | 14.6 | ||||||||||||||||||
5,001 - 10,000 |
19 | 1.7 | 137,750 | 8.9 | 12,247 | 12.1 | ||||||||||||||||||
10,001 - 25,000 |
12 | 1.1 | 218,731 | 14.1 | 15,392 | 15.3 | ||||||||||||||||||
Greater than 25,000 |
8 | 0.7 | 515,096 | 33.2 | 19,796 | 19.6 | ||||||||||||||||||
Portfolio Total |
1,120 | 100.0 | % | 1,552,025 | 100.0 | % | $ | 101,007 | 100.0 | % | ||||||||||||||
(1) | Represents all leases in our portfolio, including data center and office and light-industrial leases. |
|
(2) | Includes leases that upon expiration will be automatically renewed, primarily on a month-to-month basis.
Number of leases represents each agreement with a customer; a lease agreement could include multiple spaces
and a customer could have multiple leases. |
|
(3) | Represents the square feet at a building under lease as specified in the lease agreements plus managements
estimate of space available for lease to third parties based on engineers drawings and other factors,
including required data center support space (such as the mechanical, telecommunications and utility rooms)
and building common areas. |
|
(4) | Represents the monthly contractual rent under existing customer leases as of September 30, 2011 multiplied by
12. This amount reflects total annualized base rent before any one-time or non-recurring rent abatements and,
for any customer under a modified gross or triple-net lease, it excludes the operating expense reimbursement
attributable to those leases. |
|
(5) | Excludes approximately 529,476 vacant NRSF held for redevelopment or under construction at September 30, 2011. |
27
Table of Contents
Lease Expirations
The following table sets forth a summary schedule of the expirations for leases in place as
of September 30, 2011, plus available space, for the remainder of 2011 and for each of the ten
full calendar years beginning January 1, 2012 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 September 30, 2011(6) |
| 254,408 | 16.4 | % | $ | | | % | $ | | $ | | $ | | ||||||||||||||||||
Remainder of 2011(7) |
210 | 185,172 | 11.9 | 12,277 | 12.2 | 66.30 | 12,400 | 66.96 | ||||||||||||||||||||||||
2012(8) |
345 | 348,965 | 22.5 | 25,568 | 25.3 | 73.27 | 25,978 | 74.44 | ||||||||||||||||||||||||
2013 |
232 | 182,349 | 11.7 | 19,291 | 19.1 | 105.79 | 20,088 | 110.16 | ||||||||||||||||||||||||
2014 |
171 | 102,193 | 6.6 | 11,870 | 11.8 | 116.15 | 14,707 | 143.91 | ||||||||||||||||||||||||
2015 |
40 | 71,550 | 4.6 | 3,506 | 3.5 | 49.00 | 4,664 | 65.19 | ||||||||||||||||||||||||
2016(9) |
79 | 158,239 | 10.2 | 10,740 | 10.6 | 67.87 | 13,158 | 83.15 | ||||||||||||||||||||||||
2017 |
19 | 43,609 | 2.8 | 7,315 | 7.2 | 167.74 | 8,739 | 200.39 | ||||||||||||||||||||||||
2018 |
10 | 71,476 | 4.6 | 6,581 | 6.5 | 92.07 | 8,828 | 123.51 | ||||||||||||||||||||||||
2019 |
2 | 80,466 | 5.2 | 1,515 | 1.5 | 18.83 | 1,727 | 21.46 | ||||||||||||||||||||||||
2020 |
2 | 1,427 | 0.1 | 142 | 0.1 | 99.51 | 178 | 124.74 | ||||||||||||||||||||||||
2021-Thereafter |
10 | 52,171 | 3.4 | 2,202 | 2.2 | 42.21 | 3,774 | 72.34 | ||||||||||||||||||||||||
Portfolio Total / Weighted Average |
1,120 | 1,552,025 | 100.0 | % | $ | 101,007 | 100.0 | % | $ | 77.84 | $ | 114,241 | $ | 88.04 | ||||||||||||||||||
(1) | Includes leases that upon expiration will be automatically renewed, primarily on a month-to-month basis. Number of leases represents each agreement with a customer; a lease agreement could include multiple
spaces and a customer could have multiple leases. |
|
(2) | Represents the monthly contractual rent under existing customer leases as of September 30, 2011 multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent
abatements and, for any customer under a modified gross or triple-net lease, it excludes the operating expense reimbursement attributable to those leases. |
|
(3) | Annualized rent as defined above, divided by the square footage of leases expiring in the given year. |
|
(4) | Represents the final monthly contractual rent under existing customer leases as of September 30, 2011 multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent
abatements and, for any customer under a modified gross or triple-net lease, it excludes the operating expense reimbursement attributable to those leases. |
|
(5) | Annualized rent at expiration as defined above, divided by the square footage of leases expiring in the given year. This metric reflects the rent growth inherent in the existing base of lease agreements. |
|
(6) | Excludes approximately 529,476 vacant NRSF held for redevelopment or under construction at September 30, 2011. |
|
(7) | Includes a lease with Sprint at 900 N. Alameda for 102,951 NRSF scheduled to expire in the fourth quarter of 2011. We anticipate redeveloping the subject space as data center space upon expiration of that lease. |
|
(8) | Includes an office lease with General Services Administration IRS, which is an interim lease in place that expires on May 31, 2012. Upon the expiration of the interim lease and the substantial completion of
tenant improvements by us, a new lease that has already been executed by both parties will commence. The new lease includes 119,729 NRSF with a ten-year term and a termination option at the end of year eight. |
|
(9) | Total operating NRSF of expiring leases in 2016 reflects the expiration of half of a 50,000 NRSF lease, the other half of which expires in 2017. |
Results of Operations
Prior to the formation transactions on September 28, 2010, we had no corporate activity
other than the issuance of shares of common stock in connection with the initial capitalization
of our company. The results of operations for the three and nine months ended September 30, 2010
reflect the financial condition and operating results of the consolidated CoreSite Predecessor
entities together with the CoreSite Acquired Properties from the date of their acquisition,
September 28, 2010. The results of operations for the three and nine months ended September 30,
2011 reflect the consolidated financial condition and results of operations of our Predecessor
and the CoreSite Acquired Properties. Our results of operations may not be indicative of our
future results of operations.
Our Predecessor was 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. The CoreSite Acquired Properties
include our continuing real estate operations at 55 S. Market, One Wilshire, 1275 K Street, 900
N. Alameda, 427 S. LaSalle and 2115 NW 22nd Street, as well as 1050 17th Street, a property we
lease for our corporate headquarters, which does not generate operating revenue.
Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010
Three Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Operating revenue |
$ | 44,367 | $ | 14,139 | ||||
Operating expense |
$ | 43,242 | $ | 18,567 | ||||
Interest expense |
$ | (916 | ) | $ | (680 | ) | ||
Net income (loss) |
$ | 263 | $ | (5,106 | ) |
Operating Revenue. Operating revenue for the three months ended September 30, 2011 was $44.4
million. This includes rental revenue of $27.6 million, power revenue of $11.5 million, tenant
reimbursements of $1.4 million and other revenue of $3.9 million, primarily from interconnection
services. This compares to revenue of $14.1 million for the three months ended September 30,
2010. The increase of $30.2 million was due primarily to the acquisition of the CoreSite Acquired
Properties on September 28, 2010.
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Operating Expenses. Operating expenses for the three months ended September 30, 2011 were
$43.2 million compared to $18.6 million for the three months ended September 30, 2010. The
increase of $24.7 million was primarily due to the acquisition of the CoreSite Acquired
Properties and the resulting internalization of the management function through the acquisition
of CoreSite, LLC, our management company. These costs were partially offset by a decrease in
transaction costs.
Interest Expense. Interest expense, including amortization of deferred financing costs, for
the three months ended September 30, 2011 was $0.9 million compared to interest expense of $0.7
million for the three months ended September 30, 2010. The increase in interest expense was due
to increased debt balances from the acquisition of the CoreSite Acquired Properties.
Net Income (Loss). Net income for the three months ended September 30, 2011 was $0.3 million
compared to net loss of $5.1 million for the three months ended September 30, 2010. The increase
of $5.4 million was primarily due to the increased operating revenue from the acquisition of the
CoreSite Acquired Properties and a reduction in transaction costs associated with our acquisition
of the CoreSite Acquired Properties. The increased revenue and decreased transaction costs were
partially offset by increased costs associated with the internalization of the management
function through the acquisition of CoreSite, LLC, our management company.
Nine months ended September 30, 2011 Compared to Nine months ended September 30, 2010
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Operating revenue |
$ | 126,817 | $ | 35,557 | ||||
Operating expense |
$ | 134,979 | $ | 39,039 | ||||
Interest expense |
$ | (4,437 | ) | $ | (1,590 | ) | ||
Net income (loss) |
$ | (11,241 | ) | $ | (5,070 | ) |
Operating Revenue. Operating revenue for the nine months ended September 30, 2011 was $126.8
million. This includes rental revenue of $79.5 million, power revenue of $32.0 million, tenant
reimbursements of $4.6 million and other revenue of $10.7 million, primarily from interconnection
services. This compares to revenue of $35.6 million for the nine months ended September 30, 2010.
The increase of $91.3 million was due primarily to the acquisition of the CoreSite Acquired
Properties on September 28, 2010.
Operating Expenses. Operating expenses for the nine months ended September 30, 2011 were
$135.0 million compared to $39.0 million for the nine months ended September 30, 2010. The
increase of $95.9 million was primarily due to the acquisition of the CoreSite Acquired
Properties and the resulting internalization of the management function through the acquisition
of CoreSite, LLC, our management company. These costs were partially offset by a decrease in
transaction costs.
Interest Expense. Interest expense, including amortization of deferred financing costs, for
the nine months ended September 30, 2011 was $4.4 million compared to interest expense of
$1.6 million for the nine months ended September 30, 2010. The increase in interest expense was
due to increased debt balances from the acquisition of the CoreSite Acquired Properties.
Net Income (Loss). Net loss for the nine months ended September 30, 2011 was $11.2 million
compared to net loss of $5.1 million for the nine months ended September 30, 2010. The decrease
of $6.2 million was primarily due to the acquisition of the CoreSite Acquired Properties and the
resulting internalization of the management function through the acquisition of CoreSite, LLC,
our management company, transaction related costs for an acquisition that was not consummated,
and increased interest expense. These increased costs were partially offset by increased
operating revenue from the acquisition of the CoreSite Acquired Properties and a reduction in
transaction costs associated with our acquisition of the CoreSite Acquired Properties.
Factors that May Influence our Results of Operations
A complete discussion of factors that may influence our results of operations can be found
in our Annual Report on Form 10-K, filed with the SEC on March 11, 2011 pursuant to Section 15(d)
of the Exchange Act, which is accessible on the SECs website at www.sec.gov.
Liquidity and Capital Resources
Discussion of Cash Flows
Nine months ended September 30, 2011 Compared to Nine months ended September 30, 2010
Net cash provided by operating activities was $45.6 million for the nine months ended
September 30, 2011, compared to $2.6 million for the prior period. The increased cash provided by
operating activities of $43.1 million was primarily due to the increased number of operating
properties acquired in connection with our IPO and an increase in accounts payable and accrued
expenses.
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Table of Contents
Net cash used in investing activities increased by $55.9 million to $89.7 million for the
nine months ended September 30, 2011 compared to $33.8 million for the nine months ended
September 30, 2010. This increase was primarily due to an increase in cash paid for capital
expenditures related to redevelopment and development of data center space.
Net cash used in financing activities was $32.0 million for the nine months ended September
30, 2011 compared to cash provided by financing activities of $105.8 million for the nine months
ended September 30, 2010. The increase in cash used in financing activities of $137.8 million was
primarily due to the net proceeds received in connection with our IPO and a decrease in capital
contributions received from the member of the Predecessor. These amounts were partially offset by
a decrease in the repayments of mortgage loans payable and redemption of operating partnership
units.
Analysis of Liquidity and Capital Resources
As of September 30, 2011, we had $10.2 million of cash and equivalents, excluding $10.6
million of restricted cash. Restricted cash primarily consists of interest bearing cash deposits
required by the terms of our loans and cash impound accounts for real estate taxes, insurance and
anticipated or contractually obligated tenant improvements as required by several of our mortgage
loans.
Our short-term liquidity requirements primarily consist of funds needed for future
distributions to stockholders and holders of our operating partnership units, interest expense,
operating costs, including utilities, site maintenance costs, real estate and personal property
taxes, insurance, rental expenses and selling, general and administrative expenses and certain
recurring and non-recurring capital expenditures, including costs relating to the redevelopment
and development of data center space during the next 12 months. We expect to meet our short-term
liquidity requirements through net cash provided by operations, reserves established for certain
future payments, the remaining net proceeds from our IPO and by incurring additional
indebtedness, including by drawing on our revolving credit facility.
Our long-term liquidity requirements primarily consist of the costs to fund the development
of the Coronado-Stender business park, our 9.1 acre development site that houses five buildings
in Santa Clara, California, future redevelopment or development of other space in our portfolio
not currently scheduled, property or other acquisitions, scheduled debt maturities and recurring
and non-recurring capital improvements. We expect to meet our long-term liquidity requirements
primarily by incurring long-term indebtedness and drawing on our revolving credit facility. We
also may raise capital in the future through the issuance of additional equity securities,
subject to prevailing market conditions, and/or through the issuance of operating partnership
units.
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Indebtedness
A summary of outstanding indebtedness as of September 30, 2011 and December 31, 2010 is as
follows (in thousands):
Maturity | September 30, | December 31, | ||||||||||||
Interest Rate | Date | 2011 | 2010 | |||||||||||
Senior secured credit facility |
(1) | September 28, 2013 | $ | | $ | | ||||||||
427 S. LaSalle - |
LIBOR plus 0.60% (0.83% and 0.86% at September 30, 2011 and December 31, 2010) | March 9, 2012 | 25,000 | 25,000 | ||||||||||
Senior mortgage loan |
||||||||||||||
427 S. LaSalle Subordinate mortgage loan |
LIBOR plus 2.95% (3.21% at December 31, 2010) | N/A | | 5,000 | ||||||||||
427 S. LaSalle - |
LIBOR plus 4.83% (5.09% at December 31, 2010) | N/A | | 10,000 | ||||||||||
Mezzanine loan |
||||||||||||||
55 S. Market |
LIBOR plus 3.50% (3.73% and 3.76% at September 30, 2011 and December 31, 2010)(2) | October 9, 2012(3) | 60,000 | 60,000 | ||||||||||
12100 Sunrise Valley |
LIBOR plus 2.75% (2.98% and 3.01% at September 30, 2011 and December 31, 2010)(2) | June 1, 2013 | 25,501 | 25,560 | ||||||||||
Total principal outstanding |
110,501 | 125,560 | ||||||||||||
Unamortized acquired below-market debt adjustment on 427 S. LaSalle mortgage loans | | (687 | ) | |||||||||||
Total indebtedness |
$ | 110,501 | $ | 124,873 | ||||||||||
(1) | At the Companys election, borrowings under the credit facility bear interest at a rate per annum equal to either (i) LIBOR plus 350 basis
points to 400 basis points, depending on our leverage ratio, or (ii) a base rate plus 250 basis points to 300 basis points. |
|
(2) | In October 2010, we entered into an interest rate swap agreement with respect to 55 S. Market and an interest rate cap agreement with
respect to 12100 Sunrise Valley, each as a cash flow hedge for interest incurred by these LIBOR based loans. |
|
(3) | The mortgage contains one two-year extension option subject to the Company meeting certain financial and other customary conditions and
the payment of an extension fee equal to 60 basis points. |
Senior Secured Credit Facility
In conjunction with our IPO and formation transactions, our Operating Partnership entered
into a $110.0 million senior secured revolving credit facility with a group of lenders for which
KeyBank National Association acts as the administrative agent. The revolving credit facility is
unconditionally guaranteed on an unsecured basis by CoreSite Realty Corporation. CoreSite, L.P.
acts as the parent borrower and its subsidiaries that own the real estate properties known as
1656 McCarthy, 70 Innerbelt, 2901 Coronado and 900 N. Alameda are co-borrowers under the
facility, and such real estate properties provide security for the facility. Each of the parent
borrower and the subsidiary borrowers are liable under the facility on a joint and several basis.
The facility has an initial maturity date of September 28, 2013 with a one-time extension option,
which, if exercised, would extend the maturity date to March 28, 2014. The exercise of the
extension option is subject to the payment of an extension fee equal to 25 basis points of the
$110.0 million facility and certain other customary conditions. As of September 30, 2011, the
Company has not drawn any funds under the facility.
The Company can elect to have borrowings under the credit facility bear interest at a rate
per annum equal to (i) LIBOR plus 350 basis points to 400 basis points, depending on our leverage
ratio, or (ii) a base rate plus 250 basis points to 300 basis points, depending on our leverage
ratio. The secured revolving credit facility contains an accordion feature that allows us to
increase the total commitment by $90.0 million, to $200.0 million, under specified circumstances.
The total amount available for us to borrow under the facility will be subject to the lesser
of a percentage of the appraised value of our properties that form the designated borrowing base
properties of the facility, a minimum borrowing base debt service coverage ratio and a minimum
borrowing base debt yield. As of September 30, 2011, $101.3 million was available for us to
borrow under the facility. Our ability to borrow under the facility is subject to ongoing
compliance with a number of customary restrictive covenants, including:
a maximum leverage ratio (defined as consolidated total indebtedness to total gross asset
value) of 55%;
a minimum fixed charge coverage ratio (defined as adjusted consolidated earnings before
interest, taxes, depreciation and amortization to consolidated fixed charges) of 1.75 times;
a maximum unhedged variable rate debt ratio (defined as unhedged variable rate
indebtedness to gross asset value) of 30%;
a maximum recourse debt ratio (defined as recourse indebtedness other than indebtedness
under the revolving credit facility to gross asset value) of 30%; and
a minimum tangible net worth equal to at least 75% of our tangible net worth at the
closing of our IPO plus 80% of the net proceeds of any additional equity issuances.
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Table of Contents
427 S. LaSalle
As of September 30, 2011, the 427 S. LaSalle property had a senior mortgage loan payable of
$25.0 million which matures on March 9, 2012. This loan is secured by deeds of trust on the
property and requires payments of interest only until maturity. The mortgage requires ongoing
compliance by us with various nonfinancial covenants. As of September 30, 2011, the Company was
in compliance with the covenants.
On April 29, 2011, the Company repaid the $10.0 million mezzanine loan on the 427 S. LaSalle
property at a discount. As a result of this discounted payoff, we reduced our debt by $10.0
million, paying $9.5 million in cash and recognizing a $0.5 million gain, net of fees on the
transaction.
On June 3, 2011, the Company repaid the $5.0 million subordinate loan on the 427 S. LaSalle
property at a discount. As a result of this discounted payoff, we reduced our debt by $5.0
million, paying $4.6 million in cash and recognizing a $0.4 million gain, net of fees on the
transaction.
55 S. Market
As of September 30, 2011, the 55 S. Market property had a $60.0 million mortgage loan, which
matures on October 9, 2012. The mortgage payable contains one two-year extension option provided
the Company meets certain financial and other customary conditions and subject to the payment of
an extension fee equal to 60 basis points. The loan bears interest at LIBOR plus 350 basis points
and requires the payment of interest only until maturity. The mortgage requires ongoing
compliance by us with various covenants including liquidity and net operating income covenants.
As of September 30, 2011, the Company was in compliance with the covenants.
On October 7, 2010, the Company entered into a $60.0 million interest rate swap agreement to
protect against adverse fluctuations in interest rates by reducing its exposure to variability in
cash flows relating to interest payments on the $60.0 million 55 S. Market mortgage. The interest
rate swap matures on October 9, 2012 and effectively fixes the interest rate at 4.01%.
12100 Sunrise Valley
As of September 30, 2011, the 12100 Sunrise Valley property had a mortgage loan payable of
$25.5 million. We may make additional draws of up to $6.4 million to fund specified construction
under the loan agreement for a maximum total borrowing of $31.9 million. On October 24, 2011, the Company drew the remaining
$6.4 million to fund construction activities at 12100 Sunrise Valley. The mortgage loan
payable is secured by 12100 Sunrise Valley and required payments of interest only until the
amortization commencement date on July 1, 2011. The loan matures on June 1, 2013 and we may
exercise the one remaining one-year extension option provided the Company meets certain financial
and other customary conditions and subject to the payment of an extension fee equal to 50 basis
points. The mortgage loan payable contains certain financial and nonfinancial covenants. As of
September 30, 2011, the Company was in compliance with all covenants.
On October 8, 2010, the Company purchased an interest rate cap to hedge $25.0 million of the
indebtedness secured by our 12100 Sunrise Valley property. The interest rate cap matures on
October 1, 2012 and hedges against LIBOR interest rate increases above 2.0%.
Debt Maturities
The following table summarizes our debt maturities as of September 30, 2011 (in thousands):
Year | ||||
Remainder of 2011 |
$ | 63 | ||
2012 |
85,249 | |||
2013 |
25,189 | |||
Total |
$ | 110,501 | ||
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Commitments and Contingencies
The following table summarizes our contractual obligations as of September 30, 2011,
including the maturities and scheduled principal repayments of indebtedness (in thousands):
Remainder of | ||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
Operating leases |
$ | 4,218 | $ | 17,044 | $ | 17,457 | $ | 17,742 | $ | 17,620 | $ | 44,255 | $ | 118,336 | ||||||||||||||
Credit Facility |
| | | | | | | |||||||||||||||||||||
Mortgages payable |
63 | 85,249 | 25,189 | | | | 110,501 | |||||||||||||||||||||
Construction contracts |
17,629 | | | | | | 17,629 | |||||||||||||||||||||
Other (1) |
2,478 | 4,750 | 1,384 | 261 | 157 | 1,029 | 10,059 | |||||||||||||||||||||
Total |
$ | 24,388 | $ | 107,043 | $ | 44,030 | $ | 18,003 | $ | 17,777 | $ | 45,284 | $ | 256,525 | ||||||||||||||
(1) | Obligations for tenant improvement work at 55 S. Market Street, power contracts, telecommunications leases and insurance premiums. |
Off-Balance Sheet Arrangements
As of September 30, 2011, our Company did not have any off-balance sheet arrangements.
Related Party Transactions
We lease 1,515 net rentable square feet of space at our 12100 Sunrise Valley property to an
affiliate of the Carlyle Group. The lease commenced on July 1, 2008 and expires on June 30, 2013.
Rental revenue was less than $0.1 million and less than $0.1 million for the three months ended
September 30, 2011 and 2010, respectively, and $0.2 million and $0.1 million for the nine months
ended September 30, 2011 and 2010, respectively.
Funds From Operations
We consider funds from operations (FFO) to be a supplemental measure of our performance
which should be considered along with, but not as an alternative to, net income and cash provided
by operating activities as a measure of operating performance and liquidity. We calculate FFO in
accordance with the standards established by the National Association of Real Estate Investment
Trusts (NAREIT). FFO represents net income (loss) (computed in accordance with GAAP), excluding
gains (or losses) from sales of property, plus real estate related depreciation and amortization
(excluding amortization of deferred financing costs) and after adjustments for unconsolidated
partnerships and joint ventures.
Our management uses FFO as a supplemental performance measure because, in excluding real
estate related depreciation and amortization and gains and losses from property dispositions, it
provides a performance measure that, when compared year over year, captures trends in occupancy
rates, rental rates and operating costs.
We offer this measure because we recognize that FFO will be used by investors as a basis to
compare our operating performance with that of other REITs. However, because FFO excludes
depreciation and amortization and captures neither the changes in the value of our properties
that result from use or market conditions, nor the level of capital expenditures and capitalized
leasing commissions necessary to maintain the operating performance of our properties, all of
which have real economic effect and could materially impact our financial condition and results
from operations, the utility of FFO as a measure of our performance is limited. FFO is a non-GAAP
measure and should not be considered a measure of liquidity, an alternative to net income, cash
provided by operating activities or any other performance measure determined in accordance with
GAAP, nor is it indicative of funds available to fund our cash needs, including our ability to
pay dividends or make distributions. In addition, our calculations of FFO are not necessarily
comparable to FFO as calculated by other REITs that do not use the same definition or
implementation guidelines or interpret the standards differently from us. Investors in our
securities should not rely on these measures as a substitute for any GAAP measure, including net
income. The following table is a reconciliation of our net income (loss) to FFO:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net income (loss) |
$ | 263 | $ | (5,106 | ) | $ | (11,241 | ) | $ | (5,070 | ) | |||||
Real estate
depreciation and
amortization |
15,738 | 4,852 | 52,366 | 11,747 | ||||||||||||
FFO |
$ | 16,001 | $ | (254 | ) | $ | 41,125 | $ | 6,677 | |||||||
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with GAAP. The
preparation of these financial statements in conformity with GAAP requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the reporting
period. Our actual results may differ from these estimates. We have provided a summary of our
significant accounting policies in Note 2 to our consolidated financial statements included
elsewhere in this report. We describe below those accounting policies that require material
subjective or complex judgments and that have the most significant impact on our financial
condition and results of operations. Our management evaluates these estimates on an ongoing
basis, based upon information currently available and on various assumptions management believes
are reasonable as of the date of this prospectus.
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Table of Contents
Acquisition of Real Estate. We apply purchase accounting to the assets and liabilities
related to all of our real estate investments acquired. Accordingly, we are required to make
subjective assessments to allocate the purchase price paid to the acquired tangible assets,
consisting primarily of land, building and improvements, and identified intangible assets and
liabilities, consisting of the value of above-market and below-market leases and lease
origination costs. These allocation assessments involve significant judgment and complex
calculations and have a direct impact on our results of operations.
Capitalization of Costs. We capitalize direct and indirect costs related to leasing,
construction, redevelopment and development, including property taxes, insurance and financing
costs relating to properties under development. We cease cost capitalization on redevelopment and
development space once the space is ready for its intended use and held available for occupancy.
All renovations and betterments that extend the economic useful lives of assets are capitalized.
Useful Lives of Assets. We are required to make subjective assessments as to the useful
lives of our properties for purposes of determining the amount of depreciation to record on an
annual basis with respect to our investments in real estate. These assessments have a direct
impact on our net income. Buildings are depreciated on a straight-line basis over 27 to 40 years.
Additionally we depreciate building improvements over ten years for owned properties and the
remaining term of the original lease for leased properties. Leasehold improvements are
depreciated over the shorter of the lease term or useful life of the asset.
Impairment of Long-Lived Assets. We review the carrying value of our properties for
impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Impairment is recognized when estimated expected future cash flows
(undiscounted and without interest charges) from an asset are less than the carrying amount of
the asset. The estimation of expected future net cash flows is inherently uncertain and relies to
a considerable extent on assumptions regarding current and future economic and market conditions
and the availability of capital. If, in future periods, there are changes in the estimates or
assumptions incorporated into an impairment review analysis, these changes could result in an
adjustment to the carrying amount of our assets. To the extent that an impairment has occurred,
the excess of the carrying amount of the property over its estimated fair value would be charged
to income. No such impairment losses have been recognized to date.
Goodwill. The excess of the cost of an acquired business over the net of the amounts
assigned to assets acquired (including identified intangible assets) and liabilities assumed is
recorded as goodwill. The Companys goodwill has an indeterminate life and is not amortized, but
is tested for impairment on an annual basis, or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
Revenue Recognition. Rental income is recognized on a straight-line basis over the
non-cancellable term of customer leases. The excess of rents recognized over amounts
contractually due pursuant to the underlying leases are recorded as deferred rent receivable on
our balance sheets. Many of our leases contain provisions under which our customers reimburse us
for a portion of direct operating expenses, including power, as well as real estate taxes and
insurance. Such reimbursements are recognized in the period that the expenses are recognized. We
recognize the amortization of the acquired above-market and below-market leases as decreases and
increases, respectively, to rental revenue over the remaining non-cancellable term of the
underlying leases. If the value of below-market leases includes renewal option periods, we
include such renewal periods in the amortization period utilized.
Interconnection and utility services are considered separate earnings processes that are
typically provided and completed on a month-to-month basis and revenue is recognized in the
period that the services are performed. Set-up charges and utility installation fees are
initially deferred and recognized over the term of the arrangement or the expected period of
performance unless management determines a separate earnings process exists related to an
installation charge.
We must make subjective estimates as to when our revenue is earned and the collectability of
our accounts receivable related to rent, deferred rent, expense reimbursements and other income.
We analyze individual accounts receivable and historical bad debts, customer concentrations,
customer creditworthiness and current economic trends when evaluating the adequacy of the
allowance for bad debts. These estimates have a direct impact on our net income because a higher
bad debt allowance would result in lower net income and recognizing rental revenue as earned in
one period versus another would result in higher or lower net income for a particular period.
Share-Based Awards. We generally recognize compensation expense related to share-based
awards on a straight-line basis over the vesting period of the award. The calculation of the fair
value of share-based awards is subjective and requires several assumptions over such items as
expected stock volatility, dividend payments and interest rates. These assumptions have a direct
impact on our net income because a higher share-based awards amount would result in lower net
income for a particular period.
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Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2011-08, IntangiblesGoodwill and Other (Topic 350): Testing Goodwill
for Impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to
determine whether it is more likely than not that the fair value of a reporting unit is less than
its carrying value. If it is determined through the qualitative assessment that a reporting
units fair value is more likely than not greater than its carrying value, the remaining
impairment steps would be unnecessary. The new standard is effective for annual and interim
goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with
early adoption permitted. The Company adopted the provisions of this standard effective September
30, 2011. The adoption of this standard did not have a material impact on the Companys
consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income, which amends current comprehensive income guidance. This accounting update
eliminates the option to present the components of other comprehensive income as part of the
statement of stockholders equity. Instead, the Company must report comprehensive income in
either a single continuous statement of comprehensive income which contains two sections, net
income and other comprehensive income, or in two separate but consecutive statements. This new
guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The
adoption of this standard is not expected to have a material impact on the Companys consolidated
financial statements.
Distribution Policy
In order to comply with the REIT requirements of the Code, we are generally required to make
annual distributions to our shareholders of at least 90% of our taxable net income. Our common
share distribution policy is to distribute a percentage of our cash flow that ensures that we
will meet the distribution requirements of the Code and that allows us to maximize the cash
retained to meet other cash needs, such as capital improvements and other investment activities.
We have made distributions every quarter since our IPO. While we plan to continue to make
quarterly distributions, no assurances can be made as to the frequency or amounts of any future
distributions. The payment of common share distributions is dependent upon our financial
condition, operating results and REIT distribution requirements and may be adjusted at the
discretion of the Board during the year.
Inflation
Substantially all of our leases contain annual rent increases. As a result, we believe that
we are largely insulated from the effects of inflation. However, any increases in the costs of
redevelopment or development of our properties will generally result in a higher cost of the
property, which will result in increased cash requirements to develop our properties and
increased depreciation expense in future periods, and, in some circumstances, we may not be able
to directly pass along the increase in these development costs to our customers in the form of
higher rents.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our future income, cash flows and fair values relevant to financial instruments are
dependent upon prevalent market interest rates. Market risk refers to the risk of loss from
adverse changes in market prices and interest rates. The primary market risk to which we believe
we are exposed is interest rate risk. Many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations and other factors that
are beyond our control contribute to interest rate risk.
As of September 30, 2011, we had $110.5 million of consolidated indebtedness that bore
interest at variable rates. $25.0 million and $25.0 million of our consolidated indebtedness is
hedged against LIBOR interest rate increases above 7.24% and 2.0%, respectively. In addition, we
entered into a swap agreement that effectively fixed the interest rate on $60.0 million of
consolidated indebtedness under our 55 S. Market mortgage at 4.01% through the maturity date of
such indebtedness.
We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis
estimates the exposure to market risk sensitive instruments assuming a hypothetical 1% change in
year-end interest rates. If interest rates were to increase by 1%, the increase in interest
expense on our variable rate debt (excluding the $60.0 million of consolidated indebtedness under
our 55 S. Market mortgage that is hedged through our interest rate swap) would decrease future
earnings and cash flows by less than $0.5 million annually. If interest rates were to decrease
1%, the decrease in interest expense (excluding the $60.0 million of consolidated indebtedness
under our 55 S. Market mortgage that is hedged through our interest rate swap) on the variable
rate debt would be less than $0.5 million annually. Interest risk amounts were determined by
considering the impact of hypothetical interest rates on our financial instruments.
These analyses do not consider the effect of any change in overall economic activity that
could occur in that environment. Further, in the event of a change of that magnitude, we may take
actions to further mitigate our exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, these analyses assume no changes
in our financial structure.
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ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be
disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported
within the time periods specified in the SECs rules and regulations and that such information is
accumulated and communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management is required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
As of September 30, 2011, the end of the period covered by this Quarterly Report, we carried
out an evaluation, under the supervision and with the participation of management, including our
Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our
disclosure controls and procedures at the end of the period covered by this Quarterly Report.
Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded, as of
that time, that our disclosure controls and procedures were effective in ensuring that
information required to be disclosed by us in reports filed or submitted under the Exchange Act
(i) is processed, recorded, summarized and reported within the time periods specified in the
SECs rules and forms and (ii) is accumulated and communicated to our management, including our
Chief Executive Officer and our Chief Financial Officer, as appropriate to allow for timely
decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during our last
fiscal quarter that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
As previously disclosed, the Company is involved in litigation in Colorado District Court in
Denver with Ari Brumer, the former general counsel of its affiliate CoreSite, LLC, arising out of
the termination of Mr. Brumers employment. The allegations made by Mr. Brumer against the
Company in his complaint and the allegations by the Company against him in its counterclaims have
also been previously reported. The Company continues to believe that this litigation will not
have a material adverse effect on its business, financial position or liquidity.
One of our former customers, Add2Net, Inc., brought an action against us in April of 2009 before
the American Arbitration Association in California asserting claims of breach of contract, unfair
business practices, negligent misrepresentation and fraudulent inducement. Add2Net alleges that it
has suffered damages of approximately $3.5 million, consisting of license and service fees
paid to us, loss of business income and equipment damage, and seeks
attorneys fees and punitive damages. We have counterclaimed for breach of contract and bad faith dealing
on account of $1.25 million in unpaid license and service fees, plus attorneys fees. We believe that we have valid defenses to Add2Nets
claims and that our claims for unpaid license and service fees are valid and justified. We
intend to vigorously defend the claims against us and pursue the counterclaims for our unpaid
license and service fees.
Because the arbitration is still in the discovery stage, the cost of the litigation and its
ultimate resolution are not estimable at this time. Based on the information currently available,
however, we do not believe that it will have a material adverse effect on our business, financial
position or liquidity.
In the ordinary course of our business, we are subject to claims for negligence and other
claims and administrative proceedings, none of which we believe are material or would be expected
to have, individually or in the aggregate, a material adverse effect on our business, financial
condition or results of operations.
ITEM 1.A | RISK FACTORS |
There have been no material changes to the risk factors included in the section entitled
Risk Factors beginning on page 14 of our Annual Report on Form 10-K, filed with the SEC on
March 11, 2011 pursuant to Section 15(d) of the Exchange Act, which is accessible on the SECs
website at www.sec.gov.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
On September 22, 2010, our registration statement on Form S-11 (File No. 333-166810),
relating to our initial public offering, was declared effective by the SEC. We intend to use the
remainder of the net proceeds from the offering to redevelop and develop additional data center
space and for general corporate purposes. During the quarter ended September 30, 2011, we did not
issue or sell any shares of our common stock or other equity securities pursuant to unregistered
transactions in reliance upon any exception from registration requirements of the Securities Act.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
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ITEM 4. | Reserved |
ITEM 5. | Other Information |
On
September 28, 2011, we filed a resale registration statement on
Form S-3 with the United States
Securities and Exchange Commission, or SEC. This registration statement relates to the possible
issuance of up to 26,165,000 shares of our common stock in exchange for units representing common
limited partnership interests (partnership units) in our Operating Partnership, upon any
redemption by one or more of the selling stockholders named in the prospectus that forms a part
of the registration statement (the prospectus), and, following any such issuance, the possible
resale by such selling stockholders from time to time of some or all of such shares so issued.
The 26,165,000 units that may be redeemed were issued to the selling stockholders, certain
real estate funds affiliated with The Carlyle Group, as part of the restructuring transactions
that were effected on September 28, 2010 in connection with our initial public
offering. We registered the resale of the applicable shares of our common stock to provide the
selling stockholders with freely tradable securities pursuant to our contractual obligations
under a registration rights agreement entered into with the selling stockholders concurrently
with the consummation of our initial public offering.
At September 28, 2011, as the sole general partner of our Operating Partnership, we owned
approximately 43% of the total outstanding partnership units. DBD Investors V, L.L.C. and TCG
Holdings, L.L.C., the selling stockholders named in the prospectus, beneficially owned 25,275,389
and 889,611 partnership units, respectively, or collectively approximately 57% of the total
outstanding partnership units.
The registration of the resale by the selling stockholders of the shares of common stock
covered by the prospectus does not necessarily mean that any of the holders of partnership units
will redeem their units, that upon any such redemption we will elect, in our discretion, to
exchange some or all of the partnership units for shares of common stock in lieu of cash or that
any shares of common stock received in exchange for partnership units will be resold by the
selling stockholders.
On September 28, 2011, we also filed with the SEC a registration statement using a shelf
registration process. Under this process, we may sell debt securities, common stock, preferred
stock, depository shares, warrants, rights and units in one or more offerings up to a total
dollar amount of $800,000,000. The prospectus that forms a part of the registration statement
provides a general description of the securities we may offer. At such time we offer securities,
if at all, we will provide a prospectus supplement containing specific information about the
terms of the applicable offering.
Registration Statements relating to these securities have been filed with the SEC. The
information contained in this Quarterly Report shall not constitute an offer to sell or a
solicitation of an offer to buy these securities.
ITEM 6. | Exhibits |
Exhibit | ||||
No. | Description | |||
3.1 | Articles of Amendment and Restatement of CoreSite Realty Corporation.(1) |
|||
3.2 | Amended and Restated Bylaws of CoreSite Realty.(1) |
|||
10.1 | Limited Partnership Agreement of CoreSite, L.P.(3) |
|||
10.2 | Form of 2010 Equity Incentive Plan.(1)* |
|||
10.3 | Form of 2010 Equity Incentive Plan Restricted Stock Unit Award Agreement.(1)* |
|||
10.4 | Form of 2010 Equity Incentive Plan Stock Option Agreement.(1)* |
|||
10.5 | Form of 2010 Equity Incentive Plan Restricted Stock Agreement.(1)* |
|||
10.6 | Form of 2010 Equity Incentive Plan Restricted Stock Agreement for Non-Employee Directors.(1)* |
|||
10.7 | Employment Agreement between CoreSite Realty Corporation and Thomas M. Ray.(1)* |
|||
10.8 | Employment Agreement between CoreSite Realty Corporation and Jeffrey S. Finnin.(4)* |
|||
10.9 | Employment Agreement between CoreSite Realty Corporation and Derek McCandless.(5)* |
|||
10.10 | Form of Indemnification Agreement for directors and officers of CoreSite Realty Corporation.(1)* |
|||
10.11 | Registration Rights Agreement.(3) |
|||
10.12 | Tax Protection Agreement.(3) |
|||
10.13 | Contribution Agreement.(3) |
|||
10.14 | Lease Agreement between Hines REIT One Wilshire Services, Inc. and CRG West One Wilshire,
L.L.C., dated as of August 1, 2007.(1) |
|||
10.15 | Lease Agreement between Hines REIT One Wilshire, LP and CRG West One Wilshire, L.L.C., dated as
of August 1, 2007.(1) |
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Exhibit | ||||
No. | Description | |||
10.16 | First Amendment to Lease between Hines REIT One Wilshire, LP and CRG West One Wilshire, L.L.C.,
dated as of May 1, 2008.(1) |
|||
10.17 | Form of Restricted Stock Agreement.(1)* |
|||
10.18 | Form of Restricted Unit Agreement.(1)* |
|||
10.19 | Form of Management Rights Agreement.(1)* |
|||
10.20 | CoreSite Realty Corporation and CoreSite, L.P. Senior Management Severance and Change in
Control Program.(1)* |
|||
10.21 | CoreSite Realty Corporation Non-Employee Director Compensation Policy.(1)* |
|||
10.22 | Credit Agreement among CoreSite, L.P., as parent borrower, CoreSite Real Estate 70 Innerbelt,
L.L.C., CoreSite Real Estate 900 N. Alameda, L.L.C., CoreSite Real Estate 2901 Coronado, L.L.C.
and CoreSite Real Estate 1656 McCarthy, L.L.C., as subsidiary borrowers, Keybank National
Association, the other lenders party thereto and other lenders that may become parties thereto,
Keybank National Association, as agent, and Keybanc Capital Markets and RBC Capital Markets
Corporation, as joint lead arrangers and joint book managers, dated as of September 28,
2010.(3) |
|||
10.23 | Form of Restricted Stock Agreement.(3)* |
|||
31.1 | Certification of Principal Executive Officer Pursuant To Section 302 Of The SarbanesOxley Act
Of 2002. |
|||
31.2 | Certification of Principal Financial Officer Pursuant To Section 302 Of The SarbanesOxley Act
Of 2002. |
|||
32.1 | Certifications of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Represents management contract or compensatory plan or agreement. |
|
(1) | Incorporated by reference to our Registration Statement (Amendment No. 7) on Form
S-11 (Registration No. 333-166810) filed on September 22, 2010. |
|
(2) | Incorporated by reference to our Post-Effective Amendment to the companys
Registration Statement on Form S-11 (Registration No. 333-166810) filed on September
22, 2010. |
|
(3) | Incorporated by reference to our Current Report on Form 8-K filed on October 1, 2010. |
|
(4) | Incorporated by reference to our Current Report on Form 8-K filed January 6, 2011. |
|
(5) | Incorporated by reference to our Current Report on Form 8-K filed February 11, 2011. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CORESITE REALTY CORPORATION |
||||
Date: November 4, 2011 | By: | /s/ Thomas M. Ray | ||
Thomas M. Ray | ||||
President and Chief Executive Officer (Principal Executive Officer) | ||||
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Exhibit Index
Exhibit | ||||
No. | Description | |||
3.1 | Articles of Amendment and Restatement of CoreSite Realty Corporation.(1) |
|||
3.2 | Amended and Restated Bylaws of CoreSite Realty Corporation.(1) |
|||
4.1 | Specimen certificate representing the Common Stock of CoreSite Realty Corporation.(2) |
|||
10.1 | Limited Partnership Agreement of CoreSite, L.P.(3) |
|||
10.2 | Form of 2010 Equity Incentive Plan.(1)* |
|||
10.3 | Form of 2010 Equity Incentive Plan Restricted Stock Unit Award Agreement.(1)* |
|||
10.4 | Form of 2010 Equity Incentive Plan Stock Option Agreement.(1)* |
|||
10.5 | Form of 2010 Equity Incentive Plan Restricted Stock Agreement.(1)* |
|||
10.6 | Form of 2010 Equity Incentive Plan Restricted Stock Agreement for Non-Employee Directors.(1)* |
|||
10.7 | Employment Agreement between CoreSite Realty Corporation and Thomas M. Ray.(1)* |
|||
10.8 | Employment Agreement between CoreSite Realty Corporation and Jeffrey S. Finnin.(4)* |
|||
10.9 | Employment Agreement between CoreSite Realty Corporation and Derek McCandless.(5)* |
|||
10.10 | Form of Indemnification Agreement for directors and officers of CoreSite Realty Corporation.(1)* |
|||
10.11 | Registration Rights Agreement.(3) |
|||
10.12 | Tax Protection Agreement.(3) |
|||
10.13 | Contribution Agreement.(3) |
|||
10.14 | Lease Agreement between Hines REIT One Wilshire Services, Inc. and CRG West One Wilshire,
L.L.C., dated as of August 1, 2007.(1) |
|||
10.15 | Lease Agreement between Hines REIT One Wilshire, LP and CRG West One Wilshire, L.L.C., dated as
of August 1, 2007.(1) |
|||
10.16 | First Amendment to Lease between Hines REIT One Wilshire, LP and CRG West One Wilshire, L.L.C.,
dated as of May 1, 2008.(1) |
|||
10.17 | Form of Restricted Stock Agreement.(1)* |
|||
10.18 | Form of Restricted Unit Agreement.(1)* |
|||
10.19 | Form of Management Rights Agreement.(1)* |
|||
10.20 | CoreSite Realty Corporation and CoreSite, L.P. Senior Management Severance and Change in
Control Program.(1)* |
|||
10.21 | CoreSite Realty Corporation Non-Employee Director Compensation Policy.(1)* |
|||
10.22 | Credit Agreement among CoreSite, L.P., as parent borrower, CoreSite Real Estate 70 Innerbelt,
L.L.C., CoreSite Real Estate 900 N. Alameda, L.L.C., CoreSite Real Estate 2901 Coronado, L.L.C.
and CoreSite Real Estate 1656 McCarthy, L.L.C., as subsidiary borrowers, Keybank National
Association, the other lenders party thereto and other lenders that may become parties thereto,
Keybank National Association, as agent, and Keybanc Capital Markets and RBC Capital Markets
Corporation, as joint lead arrangers and joint book managers, dated as of September 28,
2010.(3) |
|||
10.23 | Form of Restricted Stock Agreement.(3)* |
|||
31.1 | Certification of Principal Executive Officer Pursuant To Section 302 Of The SarbanesOxley Act
Of 2002. |
|||
31.2 | Certification of Principal Financial Officer Pursuant To Section 302 Of The SarbanesOxley Act
Of 2002. |
|||
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Represents management contract or compensatory plan or agreement. |
|
(1) | Incorporated by reference to our Registration Statement (Amendment No. 7) on Form S-11 (Registration No. 333-166810) filed on September 22, 2010. |
|
(2) | Incorporated by reference to our Post-Effective Amendment to the companys Registration Statement on Form S-11 (Registration No. 333-166810) filed on September 22,
2010. |
|
(3) | Incorporated by reference to our Current Report on Form 8-K filed on October 1, 2010. |
|
(4) | Incorporated by reference to our Current Report on Form 8-K filed January 6, 2011. |
|
(5) | Incorporated by reference to our Current Report on Form 8-K filed February 11, 2011. Incorporated by reference to our Annual Report on Form 8-K filed February 11,
2011. |
40