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CoreSite Reports Third Quarter 2012 Results

  CoreSite Reports Third Quarter 2012 Results

Business Wire

DENVER -- November 01, 2012

CoreSite Realty Corporation (NYSE: 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 (NYSE: 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 or maintain 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,   December 31,
                                                  2012            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                (93,721  )     (64,428 )
  amortization
  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,   June 30,        March 31,        December 31,     September 30,
                   2012             2012             2012             2011             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             1,446            1,394            1,296            1,767            1,432
  reimbursement
  Other revenue     6,651          5,868          4,165          3,787          3,869      
  Total
  operating          53,762           50,636           47,284           46,029           44,367
  revenues
Operating
expenses:
  Property
  operating and      16,360           15,274           14,395           15,063           14,133
  maintenance
  Real estate
  taxes and          2,158            2,132            2,014            2,064            2,163
  insurance
  Depreciation
  and                16,583           15,947           15,461           15,743           16,091
  amortization
  Sales and          2,231            2,581            2,129            1,619            1,315
  marketing
  General and        6,389            6,036            6,352            5,880            4,747
  administrative
  Rent               4,689            4,691            4,577            4,588            4,601
  Transaction       293            161            122            -              192        
  costs
  Total
  operating         48,703         46,822         45,050         44,957         43,242     
  expenses
  Operating          5,059            3,814            2,234            1,072            1,125
  income
  Gain on early
  extinguishment     -                -                -                -                (10        )
  of debt
  Interest           5                5                2                2                9
  income
  Interest          (1,595     )    (1,309     )    (1,018     )    (838       )    (916       )
  expense
  Income before      3,469            2,510            1,218            236              208
  income taxes
  Income tax
  (expense)         (522       )    (662       )    125            226            55         
  benefit
  Net income         2,947            1,848            1,343            462              263
  Net income
  attributable
  to                1,627          1,022          743            283            151        
  noncontrolling
  interests
  Net income
  attributable     $ 1,320         $ 826           $ 600           $ 179           $ 112        
  to common
  shares
  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      June 30,       March 31,      December 31,   September
               30,           2012          2012          2011          30,
               2012                                                        2011
Net income     $ 2,947        $ 1,848        $ 1,343        $ 462          $ 263
Adjustments:
Real estate
depreciation   15,689       15,437       15,008       15,307       15,738
and
amortization
FFO
available to
common        $ 18,636      $ 17,285      $ 16,351      $ 15,769      $ 16,001
shareholders
and OP
unitholders
Weighted
average
common
shares and       46,374,440     46,260,783     46,039,937     45,862,220     45,822,653
OP units
outstanding
- diluted
FFO per
common share   $ 0.40         $ 0.37         $ 0.36         $ 0.34         $ 0.35
and OP unit
- diluted
                                                                           

CoreSite Realty Corporation considers FFO to be a supplemental measure of
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. The company calculates FFO in accordance
with the standards established by NAREIT. FFO represents net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from sales of
property and impairment write-downs of depreciable real estate, plus real
estate related depreciation and amortization (excluding amortization of
deferred financing costs) and after adjustments for unconsolidated
partnerships and joint ventures. 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.

The company offers this measure because management recognizes that FFO will be
used by investors as a basis to compare operating performance with that of
other REITs. However, because FFO excludes depreciation and amortization and
captures neither the changes in the value of the 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 the properties, all of which have real economic effect and
could materially impact financial condition and results from operations, the
utility of FFO as a measure of 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 cash needs, including the ability to pay dividends or make
distributions. In addition, the company’s 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. Investors in the company’s securities should not rely on these
measures as a substitute for any GAAP measure, including net income.

Reconciliation of Net Income to Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA)
(in thousands, except per share data)
                  Three Months Ended:
                   September   June 30,   March 31,    December     September
                   30,        2012      2012        31,         30,
                   2012                                2011         2011
Net income         $  2,947    $ 1,848    $ 1,343      $ 462        $ 263
Adjustments:
Interest
expense, net of       1,590      1,304      1,016        836          907
interest income
Income taxes          522        662        (125   )     (226   )     (55    )
Depreciation and    16,583   15,947   15,461    15,743    16,091 
amortization
EBITDA             $  21,642   $ 19,761   $ 17,695     $ 16,815     $ 17,206
Non-cash              1,556      1,779      747          693          879
compensation
Gain on early
extinguishment        -          -          -            -            10
of debt
Transaction
costs /
litigation          293      161      1,572     -         192    
settlement
expenses
Adjusted EBITDA   $  23,491  $ 21,701  $ 20,014   $ 17,508   $ 18,287 
                                                                             

EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. The company calculates adjusted EBITDA by adding non-cash
compensation expense and transaction costs to EBITDA as well as adjusting for
the impact of gains or losses on early extinguishment of debt. Management uses
EBITDA and adjusted EBITDA as indicators of the company’s ability to incur and
service debt. In addition, management considers EBITDA and adjusted EBITDA to
be appropriate supplemental measures of the company’s performance because they
eliminate depreciation and interest, which permits investors to view income
from operations without the impact of non-cash depreciation or the cost of
debt. However, because EBITDA and adjusted EBITDA are calculated before
recurring cash charges including interest expense and taxes, and are not
adjusted for capital expenditures or other recurring cash requirements of our
business, their utilization as a cash flow measurement is limited.

Contact:

CoreSite Investor Relations Contact
+1 303-222-7276
InvestorRelations@CoreSite.com
or
CoreSite Media Contact
Jeannie Zaemes, CoreSite Marketing Senior Director
+1-720-446-2006 or +1-866-777-CORE
Jeannie.Zaemes@CoreSite.com