CoreSite Reports Fourth Quarter FFO of $0.42 Per Share, up 23.5% Year-Over-Year

CoreSite Reports Fourth Quarter FFO of $0.42 Per Share, up 23.5% Year-Over-Year

DENVER--(BUSINESS WIRE)-- CoreSite Realty Corporation (NYS: COR) , provider of powerful, network-dense data center campuses and the CoreSite Mesh, which enable interconnected communities of service providers and enterprises, today announced financial results for the fourth quarter ended December 31, 2012.


Quarterly and Subsequent Highlights

  • Reported fourth-quarter funds from operations ("FFO") of $0.42 per diluted share and unit, representing a 5.0% increase over the prior quarter and a 23.5% increase over the prior-year quarter

  • Reported fourth-quarter revenue of $55.3 million, representing a 2.8% increase over the prior quarter and a 20.0% increase over the prior-year quarter

  • Executed new and expansion data center leases representing $11.6 million of annualized GAAP rent

  • Achieved 11.7% rent growth on signed renewals on a cash basis and 15.6% on a GAAP basis

  • Received net proceeds of $110.6 million from the company's first preferred stock offering

  • In January 2013, amended its credit facility by converting it to unsecured, expanding availability to $355.0 million from $225.0 million, extending its maturity and lowering the interest rate spread

  • In February 2013, acquired a 283,000 square-foot building on 10 acres of land in Secaucus, New Jersey, for development of a new data center campus (NY2)

  • Increased quarterly dividend by 50% to $0.27 per share

Tom Ray, CoreSite's Chief Executive Officer, commented, "During the fourth quarter we made measurable progress across key objectives. We executed strong sales across our customer verticals and platform, signing new and expansion agreements for turn-key data center ("TKD") capacity reflecting $8.4 million in annualized GAAP rent plus a pre lease to construct a powered-shell building on our Santa Clara campus. While we typically do not enter into large powered-shell leases, we were pleased to leverage off of an existing land holding to serve a strategic customer and further strengthen our Santa Clara campus as a key North American network and cloud hub."

"We were also pleased to execute upon our first preferred stock offering and recast our line of credit, creating the liquidity to fund our near-term growth objectives," Mr. Ray continued. "Related, to date in 2013, we acquired a land site to support the development of our NY2 data center in the New York region. We continue to be encouraged by CoreSite's growth opportunities and our vertical sales and marketing model is gaining momentum. Further, we believe that our platform is increasingly well-positioned to serve performance-sensitive applications and enable our customers to scale their businesses and increase profitability."

Financial Results

CoreSite reported FFO of $19.7 million attributable to dilutive shares and units for the three months ended December 31, 2012, an increase of 5.7% on a sequential quarter basis and a 25.0% increase over the same quarter of the prior year. On a per diluted share and unit basis, FFO was $0.42 for the three months ended December 31, 2012, as compared to $0.34 per diluted share and unit for the three months ended December 31, 2011. Total operating revenue for the three months ended December 31, 2012 was $55.3 million, a 2.8% increase on a sequential-quarter basis and a 20.0% increase over the same quarter of the prior year. The company reported net income for the three months ended December 31, 2012 of $4.6 million, and net income attributable to common shares of $1.9 million, or $0.09 per diluted share.

Sales Activity

Fourth-quarter lease commencements totaled 21,372 NRSF and $2.9 million of annualized GAAP rent at a weighted average GAAP rental rate of $137 per NRSF.

The fourth quarter rental churn rate was 2.1%. Rental churn is calculated based on the annualized rental revenue of leases terminated in the period compared with total annualized rental revenue at the beginning of the period. We signed renewals with a weighted average GAAP rate of $140 per NRSF, reflecting rent growth increases of 11.7% on a cash basis and 15.6% on a GAAP basis. The $140 per foot renewal rental rate includes the renewal of a lower powered, 9,127 NRSF private suite. Excluding that suite, the renewal rental rate was $158 per square foot.

Sales activity in the fourth quarter of 2012 reflects the company's realignment to a vertical selling model and targeted business strategy. New and expansion data center leases executed in the quarter represent $11.6 million of annualized GAAP rent and 156,704 NRSF. These results include a 101,250 NRSF build-to-suit powered shell lease for a valued and strategic customer at the company's Santa Clara Campus. TKD bookings totaled $8.4 million, comprised of 55,454 NRSF with a weighted average GAAP rate of $151 per NRSF. Included in our TKD sales is a strategic network-anchor agreement in our Chicago facility reflecting discounted rent on an application that we believe will drive material growth in cross connections over time. Excluding this agreement, our weighted average GAAP rent on TKD sales was $162 per NRSF.

Development and Acquisition Activity

The company's recent development and acquisition activities further strengthened the company's platform. On February 7, 2013, CoreSite acquired a 283,000 square-foot building ("NY2") on 10 acres of land in Secaucus, New Jersey, and will offer up to 18 critical megawatts of capacity and the flexibility to grow with market demand. CoreSite expects to invest $65.0 million to acquire the facility, develop the powered shell, and complete the initial phase of development consisting of 65,000 square feet of leasable space. The Company anticipates offering turn-key data center space in this facility by the end of the fourth quarter of 2013. This is in addition to the company's expansion in Northern Virginia and the Santa Clara campus as previously announced.

CoreSite had 94,650 NRSF of data center space at four key locations under construction as of December 31, 2012. As of the end of the fourth quarter, the Company had incurred $37.0 million of the estimated $50.7 million required to complete the projects.

Balance Sheet and Liquidity

As of December 31, 2012, CoreSite had $59.8 million of total long-term debt equal to 4.1% of total enterprise value and equal to 0.6x annualized adjusted EBITDA for the quarter ended December 31, 2012.

During the fourth quarter of 2012, CoreSite completed a public offering of 4,600,000 shares of 7.25% Series A Cumulative Redeemable Preferred Stock at a price of $25.00 per share for net proceeds of approximately $110.6 million, after deducting underwriting discounts and commissions and expenses. At December 31, 2012, CoreSite had $174.8 million of total long-term debt and preferred stock equal to 11.9% of total enterprise value and equal to 1.8x annualized adjusted EBITDA for the quarter ended December 31, 2012.

At quarter end, CoreSite had $8.1 million of cash available on its balance sheet. On January 3, 2013 CoreSite amended and restated its revolving credit facility, which was scheduled to mature on December 15, 2014. The new credit facility is unsecured compared to the prior facility, which was secured by five assets, and the borrowing capacity was increased from $225.0 million to $355.0 million. The facility has a five-year term through January 2018, including a one-year extension option. On January 3, 2013, the company had $346.5 million of available capacity under its revolving credit facility.

Dividend

On November 26, 2012, CoreSite announced a dividend of $0.27 per share of common stock and common stock equivalents for the fourth quarter of 2012. This dividend represented a $0.09 per share, or 50%, increase from the previous quarterly dividend rate of $0.18 per share. The dividend was paid on January 15, 2013 to shareholders of record on December 31, 2012.

2013 Guidance

The annual guidance provided below and on page 21 of the supplemental represents forward-looking projections, which are based on current economic conditions, internal assumptions about our existing customer base and the supply and demand dynamics of the markets in which CoreSite operates. Further, the guidance does not include the impact of any future financing, investment or disposition activities.

The company is introducing its 2013 guidance of FFO per diluted share and unit in the range of $1.72 to $1.82.

In addition, the company's estimate of the net income attributable to common shares is $0.37 to $0.47 per diluted share, with the difference between FFO and net income being real estate depreciation and amortization.

Conference Call Details

The company will host a conference call on February 22 at 12:00 p.m. (Eastern Time) to discuss its financial results, current business trends and market conditions.

The call will be accessible by dialing +1-877-407-3982 (domestic) or +1-201-493-6780 (international). A replay will be available until March 1, 2013 and can be accessed shortly after the call by dialing +1-877-870-5176 (domestic) or +1-858-384-5517 (international). The passcode for the replay is 407943.

The quarterly conference call also will be offered as a simultaneous webcast, accessible by visiting www.coresite.com and clicking on the "Investors" tab. An on-line replay will be available for a limited time immediately following the call.

Facility Names

CoreSite revised the names of its facilities. The chart below lists the new name for each facility, as well as its corresponding prior name.

New Property Name

Previous Property Name

BO1

70 Innerbelt

CH1

427 S. LaSalle

DC1

1275 K Street

DE1

910 15th Street

DE2

639 E. 18th Avenue

One Wilshire Campus

- LA1

One Wilshire

- LA2

900 N. Alameda

MI1

2115 NW 22nd Street

NY1

32 Avenue of the Americas

NY2

Secaucus, NJ

SV1

55 S. Market

SV2

1656 McCarthy

Santa Clara Campus

- SV3

2901 Coronado

- SV4

2972 Stender

- SV5

2900 Stender

VA1 & VA2

12100 Sunrise Valley

Reconciliations of Non-GAAP Financial Measures

Financial and operating measures found in this Earnings Release and the Q4 Supplemental Financial Report include certain measures used by CoreSite management that are not calculated in accordance with accounting principles generally accepted in the United States, or GAAP. These measures are defined in the Supplemental Information and, where appropriate, reconciled to the most comparable GAAP measures.

About CoreSite

CoreSite Realty Corporation (NYS: COR) is the data center provider chosen by more than 750 of the world's leading carriers and mobile operators, content and cloud providers, media and entertainment companies, and global enterprises to run their performance-sensitive applications and to connect and do business. CoreSite propels customer growth and long-term competitive advantage through the CoreSite Mesh by connecting the Internet, private networking, mobility, and cloud communities within and across its 14 high-performance data center campuses in nine markets in North America. With direct access to 275+ carriers and ISPs, over 180 leading cloud and IT service providers, inter-site connectivity, and the nation's first Open Cloud Exchange that provides access to thousands of lit buildings and multiple key cloud on-ramps, CoreSite provides easy, efficient and valuable gateways to global business opportunities. 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)

December 31,
2012

December 31,
2011

Assets:

Investments in real estate:

Land

$

85,868

$

84,738

Building and building improvements

593,020

499,717

Leasehold improvements

85,907

81,057

764,795

665,512

Less: Accumulated depreciation and amortization

(104,490

)

(64,428

)

Net investment in operating properties

660,305

601,084

Construction in progress

61,328

73,084

Net investments in real estate

721,633

674,168

Cash and cash equivalents

8,130

6,628

Restricted cash

468

9,291

Accounts and other receivables, net

9,901

6,562

Lease intangibles, net

19,453

36,643

Goodwill

41,191

41,191

Other assets

44,556

33,743

Total assets

$

845,332

$

808,226

Liabilities and equity:

Liabilities

Revolving credit facility

$

-

$

5,000

Mortgage loans payable

59,750

116,864

Accounts payable and accrued expenses

50,624

38,822

Deferred rent payable

4,329

3,535

Acquired below-market lease contracts, net

8,539

11,872

Prepaid rent and other liabilities

11,317

11,946

Total liabilities

134,559

188,039

Stockholders' equity

Series A cumulative preferred stock

115,000

-

Common stock, par value $0.01

207

204

Additional paid-in capital

259,009

256,183

Accumulated other comprehensive income (loss)

-

(34

)

Accumulated deficit

(35,987

)

(23,545

)

Total stockholders' equity

338,229

232,808

Noncontrolling interests

372,544

387,379

Total equity

710,773

620,187

Total liabilities and equity

$

845,332

$

808,226

Consolidated Statement of Operations

(in thousands, except share and per share data)

Three Months Ended:

December 31,
2012

September 30,
2012

June 30,
2012

March 31,
2012

December
31, 2011

Operating revenues:

Rental revenue

$

31,979

$

31,461

$

30,464

$

29,493

$

29,064

Power revenue

14,119

14,204

12,910

12,330

11,411

Interconnection revenue

6,155

5,955

5,244

3,533

3,273

Tenant reimbursement and other

2,999

2,142

2,018

1,928

2,281

Total operating revenues

55,252

53,762

50,636

47,284

46,029

Operating expenses:

Property operating and maintenance

15,206

16,360

15,274

14,395

15,063

Real estate taxes and insurance

2,461

2,158

2,132

2,014

2,064

Depreciation and amortization

16,336

16,583

15,947

15,461

15,743

Sales and marketing

3,389

2,231

2,581

2,129

1,619

General and administrative

7,133

6,389

6,036

6,352

5,880

Rent

4,754

4,689

4,691

4,577

4,588

Transaction costs

37

293

161

122

-

Total operating expenses

49,316

48,703

46,822

45,050

44,957

Operating income

5,936

5,059

3,814

2,234

1,072

Interest income

1

5

5

2

2

Interest expense

(1,314

)

(1,595

)

(1,309

)

(1,018

)

(838

)

Income before income taxes

4,623

3,469

2,510

1,218

236

Income tax (expense) benefit

(45

)

(522

)

(662

)

125

226

Net income

4,578

2,947

1,848

1,343

462

Net income attributable to noncontrolling interests

2,276

1,627

1,022

743

283

Net income attributable to CoreSite Realty Corporation

2,302

1,320

826

600