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| COR > SEC Filings for COR > Form 10-Q on 2-Nov-2012 | All Recent SEC Filings |
2-Nov-2012
Quarterly Report
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 certain 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) service failures or price increases by third party power
suppliers; (xiv) inability to renew net leases on the data center properties we
lease; and (xv) 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 Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2011. Those risks continue to be relevant to our performance and financial condition. 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. We completed our IPO of common stock on September 28, 2010 and 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, Boston, New York City, Miami and Denver. 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 ended December 31, 2010.
Our Portfolio
As of September 30, 2012, our property portfolio included 14 operating data
center facilities and one development site, which collectively comprise over
2.1 million net rentable square feet of space ("NRSF"), of which approximately
1.2 million NRSF is existing data center space. These properties include 355,294
NRSF of space readily available for lease, of which 274,553 NRSF is available
for lease as data center space. Including the space currently under construction
or in preconstruction at September 30, 2012, and including currently operating
space targeted for future redevelopment, we own 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 that can be developed in Reston,
Virginia, and on land that we currently own at our 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 intend to 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 (in NRSF):
Three Months Ended:
September 30, June 30, March 31, December 31,
2012 2012 2012 2011
New and expansion leases signed but not
yet commenced at beginning of period 41,545 32,436 25,571 28,974
New and expansion leases signed during
the period 11,387 26,290 37,563 35,461
New and expansion leases signed during
the period which have commenced (5,699 ) (8,157 ) (15,195 ) (22,824 )
New and expansion leases signed in
previous periods which commenced during
period (34,292 ) (9,024 ) (15,503 ) (16,040 )
Total leases signed but not yet
commenced at end of period 12,941 41,545 32,436 25,571
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During the three months ended September 30, 2012, new and expansion leases signed were below our trailing quarterly average. We believe that this decrease in new and expansion leases signed was due primarily to a disruption in our staffing and execution model resulting from our realignment of our sales and marketing functions from a geographical structure to a vertical structure. This realignment to a vertical structure aligns our go to market platform with our customers by industry vertical. We also anticipate expanding our sales and marketing team and believe that this investment, together with our vertical focus, will benefit future periods by improving our ability to understand and address customer needs across our entire portfolio.
The following table provides an overview of our properties as of September 30, 2012:
NRSF
Operating(1)
Office and Light-
Data Center(2) Industrial(3) Total Redevelopment and Development(10)
Acquisition Annualized Percent Percent Percent Under Total
Market/Facilities Date(4) Rent ($000)(5) Total Leased(6) Total Leased(6) Total(7) Leased(6) Construction(11) Vacant Total Portfolio
Los Angeles
One Wilshire* Aug. 2007 $ 23,787 157,587 72.2 % 7,500 45.5 % 165,087 71.0 % - - - 165,087
900 N. Alameda Oct. 2006 12,172 159,617 78.0 8,360 33.7 167,977 75.8 - 266,183 266,183 434,160
Los Angeles Total 35,959 317,204 75.1 15,860 39.3 333,064 73.4 - 266,183 266,183 599,247
San Francisco Bay
55 S. Market Feb. 2000 11,173 84,045 88.6 206,255 80.2 290,300 82.6 - - - 290,300
2901 Coronado Feb. 2007 9,357 50,000 100.0 - - 50,000 100.0 - - - 50,000
1656 McCarthy Dec. 2006 5,433 76,676 68.5 - - 76,676 68.5 - - - 76,676
Coronado-Stender Properties(8) Feb. 2007 785 - - 70,760 91.6 70,760 91.6 - 58,440 58,440 129,200
2972 Stender(9) Feb. 2007 5,124 49,964 60.8 436 100.0 50,400 61.1 50,600 - 50,600 101,000
San Francisco Bay Total 31,872 260,685 79.5 277,451 83.2 538,136 81.4 50,600 58,440 109,040 647,176
Northern Virginia
12100 Sunrise Valley(12) Dec. 2007 20,571 201,719 72.0 61,050 77.1 262,769 73.2 - 50,000 - 312,769
1275 K Street* June 2006 1,883 22,137 72.0 - - 22,137 72.0 - - - 22,137
Northern Virginia Total 22,454 223,856 72.0 61,050 77.1 284,906 73.1 - 50,000 - 334,906
Boston
70 Innerbelt Apr. 2007 9,709 148,795 90.8 13,063 39.3 161,858 86.6 - 111,313 111,313 273,171
Chicago
427 S. LaSalle Feb. 2007 8,936 158,167 77.2 4,946 56.9 163,113 76.6 20,240 - 20,240 183,353
New York
32 Avenue of the Americas* June 2007 5,582 48,404 70.9 - - 48,404 70.9 - - - 48,404
Miami
2115 NW 22nd Street June 2006 1,690 30,176 55.2 1,890 82.6 32,066 56.8 - 13,198 13,198 45,264
Denver
910 15th Street* Apr. 2012 777 4,144 94.4 - - 4,144 94.4 - - - 4,144
639 E. 18th Avenue* Apr. 2012 177 5,140 60.6 - - 5,140 60.6 - - - 5,140
Denver Total 954 9,284 75.7 - - 9,284 75.7 - - - 9,284
Total Facilities $ 117,156 1,196,571 77.1 % 374,260 78.4 % 1,570,831 77.4 % 70,840 499,134 519,974 2,140,805
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(1) Represents the square feet at each building under lease as specified in existing customer lease agreements plus management's 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 customer's 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) Reflects date property was acquired by CoreSite or by certain real estate funds affiliated with the Carlyle Group 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.
(5) Represents the monthly contractual rent under existing customer leases as of September 30, 2012, 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 $120.4 million as of September 30, 2012, which reflects the addition of $3.2 million in operating expense reimbursements to contractual net rent under modified gross and triple-net leases.
(6) Includes customer leases that have commenced as of September 30, 2012. 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 77.7%, 78.4%, and 77.9%, respectively, if all leases signed in current and prior periods had commenced.
(7) Represents the NRSF at an operating facility currently leased or readily available for lease. This excludes existing vacant space held for redevelopment or development.
(8) 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.
(9) We have completed construction on 50,400 NRSF of space at this property. As of September 30, 2012, we have commenced construction on the remaining 50,600 NRSF of space at the building.
(10) 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.
(11) 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 70,840 NRSF under construction as of September 30, 2012, was data center space.
(12) The 12100 Sunrise Valley property became entitled for our proposed data center development from Fairfax County, Virginia, in the third quarter 2012. We have the ability to develop approximately 200,000 of useable square feet, comprised of data center, supporting infrastructure and general building support space, of which 50,000 NRSF is planned for near term development.
The following table shows the September 30, 2012, operating statistics for space that was leased and available to be leased as of December 31, 2010, at each of our properties, and excludes space for which development or redevelopment was completed and became available to be leased after December 31, 2010 (the "December 31, 2010, same store pool"). For comparison purposes, the operating activity totals as of December 31, 2011, and 2010, for this space are provided at the bottom of this table.
Operating NRSF
Office and Light-
Data Center Industrial Total
Annualized Percent Percent Percent
Market/Facilities Acquisition Date Rent ($000) Total Leased Total Leased Total Leased
Los Angeles
One Wilshire* Aug. 2007 $ 23,787 157,587 72.2 % 7,500 45.5 % 165,087 71.0 %
900 N. Alameda Oct. 2006 11,840 149,473 79.8 8,360 33.7 157,833 77.4
Los Angeles Total 35,627 307,060 75.9 15,860 39.3 322,920 74.1
San Francisco Bay
55 S. Market Feb. 2000 11,173 84,045 88.6 206,255 80.2 290,300 82.6
2901 Coronado Feb. 2007 9,357 50,000 100.0 - - 50,000 100.0
1656 McCarthy Dec. 2006 5,433 76,676 68.5 - - 76,676 68.5
Coronado-Stender
Properties Feb. 2007 375 - - 34,000 82.5 34,000 82.5
2972 Stender Feb. 2007 - - - - - - -
San Francisco Bay Total 26,338 210,721 84.0 240,255 80.5 450,976 82.2
Northern Virginia
12100 Sunrise Valley Dec. 2007 14,554 116,499 97.4 61,050 77.1 177,549 90.4
1275 K Street* June 2006 1,883 22,137 72.0 - - 22,137 72.0
Northern Virginia Total 16,437 138,636 93.4 61,050 77.1 199,686 88.4
Boston
70 Innerbelt Apr. 2007 9,402 133,646 98.6 13,063 39.3 146,709 93.3
Chicago
427 S. LaSalle Feb. 2007 8,890 128,906 94.8 - - 128,906 94.8
New York
32 Avenue of the
Americas* June 2007 5,582 48,404 70.9 - - 48,404 70.9
Miami
2115 NW 22nd Street June 2006 1,690 30,176 55.2 1,890 82.6 32,066 56.8
Total Facilities at
September 30, 2012(1) $ 103,966 997,549 84.6 % 332,118 76.3 % 1,329,667 82.6 %
Total Facilities at
December 31, 2011 $ 101,084 85.6 % 79.9 % 83.9 %
Total Facilities at
December 31, 2010 $ 89,364 80.5 % 76.5 % 79.4 %
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(1) The percent leased for data center space, office and light industrial space, and space in total would have been 85.1%, 76.3%, and 82.9%, respectively, if all leases signed in current and prior periods had commenced.
The following table summarizes the redevelopment and development opportunities throughout our portfolio as of September 30, 2012:
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
900 N. Alameda(3) - 19,250 246,933 266,183 - - - - 266,183
Los Angeles Total - 19,250 246,933 266,183 - - - - 266,183
San Francisco Bay
2972 Stender(4) 50,600 - 50,600 - - - - 50,600
San Francisco Bay Total 50,600 - - 50,600 - - - - 50,600
Boston
70 Innerbelt(3) - 20,000 91,313 111,313 - - - - 111,313
Chicago
427 S. LaSalle 20,240 - - 20,240 - - - - 20,240
Miami
2115 NW 22nd Street - - 13,198 13,198 - - - - 13,198
Total Redevelopment 70,840 39,250 351,444 461,534 - - - - 461,534
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Development NRSF San Francisco Bay Coronado-Stender Properties(5) - - 58,440 58,440 - 70,760 70,760 216,050 345,250 Northern Virginia 12100 Sunrise Valley(6) - 50,000 - 50,000 - - - 150,000 200,000 Total Development - 50,000 58,440 108,440 - 70,760 70,760 366,050 545,250 Total Facilities 70,840 89,250 409,884 569,974 - 70,760 70,760 366,050 1,006,784 |
(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, 2012, but prior to September 30, 2013.
(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 50,400 NRSF of space at this property. As of September 30, 2012, we have commenced construction on the remaining 50,600 NRSF of space at the building.
(5) 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.
(6) We are entitled to develop approximately 200,000 useable square feet, comprised of data center, supporting infrastructure and general building support space, which is in addition to the leased and vacant NRSF existing at the property. We expect 50,000 NRSF to commence development in the near term.
Customer Diversification
As of September 30, 2012, our portfolio was leased to over 750 customers, many of which are globally recognized firms. The following table sets forth information regarding the ten largest customers in our portfolio based on annualized rent as of September 30, 2012:
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. 2 50,625 3.2 % $ 9,461 8.1 % 49
2 Computer Sciences
Corporation 3 52,902 3.4 6,362 5.4 59
3 Akamai Technologies 7 35,573 2.3 4,170 3.6 12
4 General Services Admin
- IRS* (6) 1 141,774 9.0 4,011 3.4 25
. . .
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