CoreSite Reports Third Quarter 2012 Results

CoreSite Reports Third Quarter 2012 Results

DENVER--(BUSINESS WIRE)-- CoreSite Realty Corporation (NYS: COR) , a national provider of powerful, network-rich data centers, today announced financial results for the third quarter ended September 30, 2012.

Quarterly Highlights

  • Reported third-quarter funds from operations ("FFO") of $0.40 per diluted share and unit, representing an 8.1% increase over the prior quarter and a 14.3% increase over the prior-year quarter

  • Reported third-quarter revenue of $53.8 million, representing a 6.2% increase over the prior quarter and a 21.2% increase over the prior-year quarter

  • Executed new and expansion data center leases representing $2.0 million of annualized GAAP rent with a weighted-average GAAP rental rate of $177 per net rentable square foot ("NRSF")

  • Achieved a 91.8% retention ratio with 4.0% rent growth on signed renewals on a cash basis and 9.1% on a GAAP basis

  • Commenced 39,991 net rentable square feet of new and expansion leasing, with GAAP annualized rent of $146 per square foot

  • Obtained entitlements to expand at our Reston, Virginia, facility


Tom Ray, CoreSite's Chief Executive Officer, commented, "Our third-quarter results reflect solid top and bottom-line growth, continued margin expansion and strong lease commencements. New and expansion bookings were below our trailing average, driven by an absence of bookings exceeding 250 kilowatts and a temporary reduction of sales staff as we transformed to a vertical selling model. During the quarter we also made substantial progress on a new development opportunity, an expansion to our existing facility in Reston, Virginia.

"Important in the quarter were the steps we made in our transition from a local to a vertical sales model," Mr. Ray continued. "While implementing some of these changes was difficult, we believe that we will see a more rapid pace of growth moving forward due to this realignment. As a key component of this transition, we are pleased to welcome Chris Ancell to our executive team as Senior Vice President of Sales and Sales Engineering, as previously announced. Chris is already making progress in re-building his sales team and has integrated seamlessly with our senior leadership team. As we look ahead, we're excited about the new people we have in place and the rewards we are already seeing from our strategy. We believe that those rewards will begin to show up clearly in our future sales results."

Financial Results

CoreSite reported FFO of $18.6 million for the three months ended September 30, 2012, an increase of 7.8% on a sequential quarter basis and a 16.5% increase over the same quarter of the prior year. On a per diluted share and unit basis, FFO was $0.40 for the three months ended September 30, 2012, as compared to $0.35 per diluted share and unit for the three months ended September 30, 2011. Total operating revenue for the three months ended September 30, 2012, was $53.8 million, a 6.2% increase on a sequential-quarter basis and a 21.2% increase over the same quarter of the prior year. The company reported net income for the three months ended September 30, 2012, of $2.9 million and net income attributable to common shares of $1.3 million, or $0.06 per diluted share.

Sales Activity

CoreSite executed new and expansion data center leases representing $2.0 million of annualized GAAP rent during the quarter, comprised of 11,387 NRSF at a weighted average GAAP rate of $177 per NRSF and a weighted average lease term of 34 months.

During the third quarter, data center lease commencements totaled 39,991 NRSF at a weighted average GAAP rental rate of $146 per NRSF, which represents $5.9 million of annualized GAAP rent.

Renewal leases totaling 18,332 NRSF commenced in the third quarter at a weighted average GAAP rate of $164 per NRSF, reflecting a 4.0% increase in rent on a cash basis and a 9.1% increase on a GAAP basis. The company's rent-retention ratio for the third quarter was 91.8%.

Development, Redevelopment and Acquisition Activity

At September 30, 2012, the company had 70,840 NRSF of data center space under construction. This total is comprised of 50,600 NRSF in Santa Clara, representing the final phase of construction at CoreSite's building at 2972 Stender Way, and 20,240 NRSF in Chicago. Of the estimated $49.4 million required to complete the current Santa Clara and Chicago projects, the company had incurred costs of $32.2 million through September 30, 2012.

Including the space currently under construction or in preconstruction at September 30, 2012, as well as currently operating space targeted for future redevelopment, CoreSite owns land and buildings sufficient to develop or redevelop 1,006,784 square feet of data center space, comprised of (1) 70,840 NRSF of data center space currently under construction, (2) 390,694 NRSF of office and industrial space currently available for redevelopment, and (3) 545,250 NRSF of new data center space available for development in Reston, Virginia, and on land that CoreSite currently owns at its Coronado-Stender business park.

During the third quarter, CoreSite took steps to expand its platform by advancing expansion capability in Reston, Virginia. The company received entitlements to expand its facility in Reston, Virginia, by approximately 200,000 useable square feet, comprised of data center, supporting infrastructure and general building support space. CoreSite plans to commence construction on this project in the first half of 2013. The company estimates that construction costs to complete the first phase of development will total $60.0 million and anticipates delivering salable capacity by the beginning of 2014.

Balance Sheet and Liquidity

As of September 30, 2012, CoreSite had $154.4 million of total long-term debt equal to 11.0% of total enterprise value and equal to 1.6x annualized adjusted EBITDA for the quarter ended September 30, 2012. CoreSite exercised its option to extend the maturity of the loan on its 55 S. Market property to October 9, 2014, and has no further debt maturities until 2014 assuming other extension options are exercised.

At quarter end, the company had $13.4 million of cash available on its balance sheet and $131.1 million of available capacity under its revolving credit facility.

Dividend

On September 10, 2012, the company announced a dividend of $0.18 per share of common stock and common stock equivalents for the third quarter of 2012. The dividend was paid on October 15, 2012, to shareholders of record on September 28, 2012.

2012 Guidance

The company is increasing and tightening its 2012 guidance of FFO per diluted share and unit to a range of $1.50 to $1.54 from its prior range of $1.42 to $1.52. This outlook is predicated on current economic conditions, internal assumptions about its customer base, and the supply and demand dynamics of the markets in which it operates. Further, the company's guidance does not include the impact of any additional acquisitions or capital markets transactions that may become available.

In addition, the company's estimate of the net income attributable to common shares is $0.17 to $0.21 per diluted share with the difference between FFO and net income being real estate depreciation and amortization.

Upcoming Conferences and Events

CoreSite will participate in NAREIT's REITWorld conference from November 13 through November 14 at the Manchester Grand Hyatt in San Diego, CA.

Conference Call Details

The company will host a conference call November 1 at 12:00 p.m. (Eastern Time) to discuss its financial results, current business trends and market conditions.

The call can be accessed live over the phone by dialing 877-941-1429 for domestic callers or 480-629-9857 for international callers. A replay will be available shortly after the call and can be accessed by dialing 877-870-5176 for domestic callers, or for international callers, 858-384-5517. The passcode for the replay is 4573751. The replay will be available until November 8, 2012.

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

About CoreSite

CoreSite Realty Corporation (NYS: COR) is a national provider of data center products and interconnection services. More than 750 customers, such as Global 1000 enterprises, communications providers, cloud and content companies, financial firms, media and entertainment, healthcare, and government agencies choose CoreSite for the confidence that comes with customer-focused data center products, service and support systems, and scalability. CoreSite's network centric computing platform is a business catalyst, featuring the Any2 Internet exchange and network ecosystems, which include access to 225+ carriers and service providers and a growing mesh of more than 15,000 interconnections. The company features a diverse colocation offering from individual cabinets to custom cages and private suites, with 14 data center locations in nine major U.S. markets. For more information, visit www.CoreSite.com.

Forward Looking Statements

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

Consolidated Balance Sheet

(in thousands, except per share data)

September 30,
2012

December 31,
2011

Assets:

Investments in real estate:

Land

$

85,868

$

84,738

Building and building improvements

573,012

499,717

Leasehold improvements

84,133

81,057

743,013

665,512

Less: Accumulated depreciation and amortization

(93,721

)

(64,428

)

Net investment in operating properties

649,292

601,084

Construction in progress

51,565

73,084

Net investments in real estate

700,857

674,168

Cash and cash equivalents

13,421

6,628

Restricted cash

316

9,291

Accounts and other receivables, net

10,071

6,562

Lease intangibles, net

23,359

36,643

Goodwill

41,191

41,191

Other assets

38,187

33,743

Total assets

$

827,402

$

808,226

Liabilities and equity:

Liabilities

Revolving credit facility

$

62,750

$

5,000

Mortgage loans payable

91,615

116,864

Accounts payable and accrued expenses

44,291

38,822

Deferred rent payable

4,198

3,535

Acquired below-market lease contracts, net

9,171

11,872

Prepaid rent and other liabilities

9,049

11,946

Total liabilities

221,074

188,039

Stockholders' equity

Common stock, par value $0.01

206

204

Additional paid-in capital

261,138

256,183

Accumulated other comprehensive income (loss)

(4

)

(34

)

Accumulated deficit

(32,121

)

(23,545

)

Total stockholders' equity

229,219

232,808

Noncontrolling interests

377,109

387,379

Total equity

606,328

620,187

Total liabilities and equity

$

827,402

$

808,226

Consolidated Statement of Operations

(in thousands, except share and per share data)

Three Months Ended:

September 30,
2012

June 30,
2012

March 31,
2012

December 31,
2011

September 30,
2011

Operating revenues:

Rental revenue

$

31,461

$

30,464

$

29,493

$

29,064

$

27,616

Power revenue

14,204

12,910

12,330

11,411

11,450

Tenant reimbursement

1,446

1,394

1,296

1,767

1,432

Other revenue

6,651

5,868

4,165

3,787

3,869

Total operating revenues

53,762

50,636

47,284

46,029

44,367

Operating expenses:

Property operating and maintenance

16,360

15,274

14,395

15,063

14,133

Real estate taxes and insurance

2,158

2,132

2,014

2,064

2,163

Depreciation and amortization

16,583

15,947

15,461

15,743

16,091

Sales and marketing

2,231

2,581

2,129

1,619

1,315

General and administrative

6,389

6,036

6,352

5,880

4,747

Rent

4,689

4,691

4,577

4,588

4,601

Transaction costs

293

161

122

-

192

Total operating expenses

48,703

46,822

45,050

44,957

43,242

Operating income

5,059

3,814

2,234

1,072

1,125

Gain on early extinguishment of debt

-

-

-

-

(10

)

Interest income

5

5

2

2

9

Interest expense

(1,595

)

(1,309

)

(1,018

)

(838

)

(916

)

Income before income taxes

3,469

2,510

1,218

236

208

Income tax (expense) benefit

(522

)

(662

)

125

226

55

Net income

2,947

1,848

1,343

462

263

Net income attributable to noncontrolling interests

1,627

1,022

743

283

151

Net income attributable to common shares

$

1,320

$

826

$

600

$

179

$

112

Net income per share attributable to common shares:

Basic

$

0.06

$

0.04

$

0.03

$

0.01

$

0.01

Diluted

$

0.06

$

0.04

$

0.03

$

0.01

$

0.01

Weighted average common shares outstanding:

Basic

20,554,893

20,532,930

20,455,875

19,988,150

19,494,703

Diluted

21,027,635

20,914,686

20,694,855

20,082,003

19,587,961

Reconciliation of Net Income to Funds From Operations (FFO)

(in thousands, except per share data)

Three Months Ended:

September 30,
2012

June 30,
2012

March 31,
2012

December 31,
2011

?