CoreSite Reports Second Quarter 2021 Financial Results

Rhea-AI Summary

CoreSite Realty Corporation (NYSE:COR) reported strong Q2 2021 results, with operating revenues of $162.1 million, a 7.7% year-over-year increase. Net income was $28.5 million, translating to $0.59 per diluted share, up by $0.07 year-over-year. Adjusted EBITDA grew by 7.1% to $87.4 million. The company commenced 133 new leases, generating $8.4 million in annualized GAAP rent. Key developments included a new chiller plant project aimed at enhancing energy efficiency. CoreSite updated its full-year revenue guidance to $645-$653 million, reflecting positive growth projections.

Positive

• Operating revenues increased by 7.7% year-over-year to $162.1 million.
• Net income rose to $28.5 million, or $0.59 per diluted share, marking a $0.07 increase year-over-year.
• Adjusted EBITDA grew 7.1% year-over-year to $87.4 million.
• Increased dividend by 3.25% to $1.27 per share.
• Commenced 133 new leases generating $8.4 million in annualized GAAP rent.
• Updated guidance for total operating revenues to $645-$653 million for 2021.

Negative

• None.

CoreSite Realty Corporation (NYSE:COR) (“the Company”), a premier provider of secure, reliable high-uptime data center campuses with high-performance cloud access and interconnection solutions across the U.S., today announced financial results for quarter ended June 30, 2021.

Q2 2021 Quarterly Highlights

• Key Financial Results –
  • Grew operating revenues to $162.1 million, an increase of 7.7% year over year and 2.8% sequentially
  • Delivered net income of $0.59 per common diluted share, an increase of $0.07 year over year and $0.08 sequentially
  • Grew adjusted EBITDA to $87.4 million, an increase of 7.1% year over year and 1.6% sequentially
  • Generated FFO, as adjusted, of $1.42 per diluted share and unit, an increase of $0.07, or 5.2% year over year and $0.02, or 1.4% sequentially
  • Paid a dividend of $1.27 per share for the second quarter on July 15^th, an increase of 3.25% over the prior quarter
• Lease Commencements –
  • Commenced 133 new and expansion leases for 59,174 net rentable square feet (“NRSF”), representing $8.4 million of annualized GAAP rent, for an average rate of $142 per NRSF
• Leasing Activity –
  • Signed 112 new and expansion leases for 33,135 NRSF and $7.8 million of annualized GAAP rent, for an average rate of $235 per NRSF
  • Renewed 330 leases for 136,564 NRSF and $20.4 million of annualized GAAP rent, for an average rate of $149 per NRSF
  • Renewed leases reflected an increase of 4.2% in cash rent and 7.1% in GAAP rent, and we reported churn of 1.3%

Q2 Notable Events

• Achieved Stabilization at Our SV8 Data Center During the Quarter
  • During the second quarter, our SV8 data center reached 98% occupancy less than two years after the delivery of SV8 Phase 1

• Completed the New Boston Chiller Plant Project
  • The multipurpose chiller plant project will provide significantly expanded cooling capacity and generate a positive return on investment through improved power efficiency
  • This project is another leap forward in our ongoing energy efficiency improvement initiative described in our sustainability report

“We are optimistic about the fundamental market drivers supporting our go-to-market strategy,” said Paul Szurek, CoreSite’s President and Chief Executive Officer. “Technology requiring low-latency, high-performance, hybrid-cloud IT architectures continues to play an increasingly important role in the success of businesses. We believe we are well-positioned to capture a good share of the edge needs in our major metropolitan U.S. markets.”

Sales Activity

CoreSite achieved new and expansion sales of $7.8 million of annualized GAAP rent for the quarter, which included annualized GAAP rent of $3.4 million, $3.6 million, and $0.8 million from retail colocation, small scale, and large scale leases, respectively.

“We remain focused on targeting retail and scale customers with performance-sensitive applications requiring high-performance interoperability and hybrid-cloud architectures,” said Steve Smith, CoreSite’s Chief Revenue Officer. “We expect these leases to drive higher yields with incremental power margin and interconnection revenues that we typically see through these types of deployments, while we continue to work on a strong funnel of scale opportunities with longer sales cycles.”

CoreSite had annualized GAAP backlog of $8.1 million, or $15.6 million on a cash basis, for leases signed by not yet commenced. The difference between GAAP and cash backlog is primarily driven by a handful of scale leases with power ramps in the early portion of their lease terms.

Other Financial Results

CoreSite’s $162.1 million of operating revenues for the second quarter, including $136.8 million of rental, power and related revenue, reflecting 7.6% year over year growth, $22.6 million of interconnection revenue, reflecting 8.2% year over year growth, and $2.7 million of office, light-industrial and other revenue. Net income was $28.5 million for the quarter, or $0.59 attributable to each common diluted share.

Development Activity

CoreSite continues to invest and develop new capacity as needed to meet market demand.

• LA3 Phase 2 comprised of 54,000 NRSF and 6 megawatts (“MW”) is under construction and continues to be on track for its estimated completion in the fourth quarter of 2021.
• NY2 Phase 4A comprised of 35,000 NRSF and 4 MWs commenced development during the quarter and is scheduled for completion in the first quarter of 2022.

CoreSite’s ongoing data center development and operational position includes –

• the ability to increase its occupied footprint of purpose-built data centers, both owned and leased, by approximately 1.9 million NRSF, or about 82.4%, including space unoccupied, under construction, pre-construction or held for development, and
• owning (versus leasing) 93.1% of its current and developable 4.3 million data center NRSF, supporting operational control, expansion and long-term expense management.

Balance Sheet and Liquidity

The Company’s balance sheet remains strong, with a ratio of net principal debt to second quarter annualized adjusted EBITDA of 5.0 times, or 4.9 times including GAAP backlog. As of the end of the second quarter, CoreSite had approximately $264.3 million of current liquidity, including $2.9 million of cash and $261.4 million of available capacity on its revolving credit facility.

2021 Updated Guidance

	Updated Guidance		Previous Guidance
Total operating revenues	$645 - $653 million		$642 - $652 million
General and administrative expenses	$46.5 - $50.5 million		$47 - $51 million
Adjusted EBITDA	$340 - $348 million		$336 - $346 million
Net income attributable to common diluted shares	$1.99 - $2.07		$1.81 - $1.91
FFO per common diluted share and OP unit, diluted – as adjusted	$5.52 -$5.60		$5.42 - $5.52
Cash rent growth on data center renewals	2% - 4%		0% - 2%

The increase of $0.09 per share, or 1.6%, at the midpoint of FFO per share, as adjusted, is largely driven by an increase in operating revenues, improved adjusted EBITDA margins, and to a lesser extent, by lower than anticipated interest expense. CoreSite’s full 2021 guidance can be found in the Company’s second quarter 2021 Supplemental Earnings Information on page 21.

Conference Call Details

CoreSite will host its second quarter 2021 earnings call on Thursday, July 29, 2021, at 12:00 p.m. (Eastern Time). The call will be accessible by dialing 1-877-407-3982 (domestic) or 1-201-493-6780 (international).

A replay will be available after the call until August 5, 2021, and can be accessed dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international). The passcode for the replay is 13720612.

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

Concurrently with issuing its financial results, the Company will post its second quarter 2021 Supplemental Information on its website at CoreSite.com, under the “Investors” link.

Upcoming Conferences and Events

CoreSite’s management will participate in the Cowen 7^th Annual Communications Infrastructure Summit on August 10^th.

About CoreSite

CoreSite Realty Corporation (NYSE:COR) delivers secure, reliable, high-uptime data center campuses with high-performance cloud access and interconnection solutions to a growing customer ecosystem across eight key North American markets. More than 1,375 of the world’s leading enterprises, network operators, cloud providers, and supporting service providers choose CoreSite to connect, protect and optimize their performance-sensitive data, applications and computing workloads. Our scalable, flexible solutions and 475+ dedicated employees consistently deliver unmatched data center options — all of which leads to a best-in-class customer experience and lasting relationships. 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 level of supply of or 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, including indirect competition from cloud service providers; failure to obtain necessary outside financing; the ability to service existing debt; the 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; the effects on our business operations, demand for our services and general economic conditions resulting from the spread of the novel coronavirus (“COVID-19”) in our markets, as well as orders, directives and legislative action by local, state and federal governments in response to such spread of COVID-19; 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 its 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.

Use of Funds From Operations (“FFO”)

FFO is a supplemental measure of CoreSite’s 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. The Company calculates 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 and undepreciated land 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.

CoreSite’s management uses FFO as a supplemental performance measure because, by 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.

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

Use of Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”)

EBITDAre is calculated in accordance with the standards established by the National Association of Real Estate Investment Trusts (“Nareit”). EBITDAre is defined as earnings before interest, taxes, depreciation and amortization, gains or losses from the sale of depreciated property, and impairment of depreciated property. CoreSite calculates adjusted EBITDA by adding its non-cash compensation expense, transaction costs from unsuccessful deals and business combinations and litigation expense to EBITDAre as well as adjusting for the impact of other impairment charges, gains or losses from sales of undepreciated land and gains or losses on early extinguishment of debt. In Q2 2021, we excluded from adjusted EBITDA a one-time, non-cash benefit of $3.1 million as a result of the release of a tax liability during the quarter that is no longer expected to be incurred.

Management uses EBITDAre and adjusted EBITDA as indicators of the Company’s ability to incur and service debt. In addition, CoreSite considers EBITDAre and adjusted EBITDA to be appropriate supplemental measures of its 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 EBITDAre 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 the Company’s business, their utilization as a cash flow measurement is limited.

Consolidated Balance Sheets (in thousands, except per share data)
		June 30,			December 31,
		2021			2020
Assets:
Investments in real estate:
Land		$	109,400		$	104,734
Buildings and improvements			2,289,445			2,273,536
			2,398,845			2,378,270
Less: Accumulated depreciation and amortization			(946,668)			(867,975)
Net investment in operating properties			1,452,177			1,510,295
Construction in progress			365,430			319,411
Net investments in real estate			1,817,607			1,829,706
Operating lease right-of-use assets, net			164,282			173,928
Cash and cash equivalents			2,866			5,543
Accounts and other receivables, net			24,804			20,849
Lease intangibles, net			1,612			2,507
Goodwill			40,646			40,646
Other assets, net			105,406			103,094
Total assets		$	2,157,223		$	2,176,273
Liabilities and equity:
Liabilities
Debt, net		$	1,751,005		$	1,715,911
Operating lease liabilities			180,709			189,404
Accounts payable and accrued expenses			84,599			79,140
Accrued dividends and distributions			65,154			63,878
Acquired below-market lease contracts, net			2,214			2,313
Unearned revenue, prepaid rent and other liabilities			51,907			53,149
Total liabilities			2,135,588			2,103,795
Stockholders' equity
Common stock, par value $0.01			436			422
Additional paid-in capital			566,370			555,595
Accumulated other comprehensive loss			(13,828)			(20,526)
Distributions in excess of net income			(533,451)			(471,910)
Total stockholders' equity			19,527			63,581
Noncontrolling interests			2,108			8,897
Total equity			21,635			72,478
Total liabilities and equity		$	2,157,223		$	2,176,273

Consolidated Statements of Operations (in thousands, except per share data)
		Three Months Ended													Six Months Ended
		June 30,				March 31,				June 30,					June 30,				June 30,
		2021				2021				2020					2021				2020
Operating revenues:
Data center revenue:(1)
Rental, power, and related revenue		$	136,793			$	132,976			$	127,108				$	269,769			$	251,613
Interconnection revenue			22,606				22,160				20,897					44,766				40,982
Total data center revenue			159,399				155,136				148,005					314,535				292,595
Office, light-industrial and other revenue			2,725				2,506				2,538					5,231				5,310
Total operating revenues			162,124				157,642				150,543					319,766				297,905
Operating expenses:
Property operating and maintenance			45,964				42,632				41,037					88,596				81,220
Real estate taxes and insurance			7,006				6,735				5,599					13,741				11,789
Depreciation and amortization			45,367				44,628				41,779					89,995				82,770
Sales and marketing			5,804				5,862				5,837					11,666				11,981
General and administrative			11,781				11,517				11,603					23,298				22,870
Rent			8,839				9,221				8,995					18,060				17,394
Total operating expenses			124,761				120,595				114,850					245,356				228,024
Operating income			37,363				37,047				35,693					74,410				69,881
Other income			3,098				—				—					3,098				—
Interest expense			(11,982	)			(12,123	)			(10,586	)				(24,105	)			(21,769	)
Income before income taxes			28,479				24,924				25,107					53,403				48,112
Income tax expense			(4	)			(9	)			(19	)				(13	)			(36	)
Net income			28,475				24,915				25,088					53,390				48,076
Net income attributable to noncontrolling interests			3,226				3,047				4,417					6,273				9,557
Net income attributable to common shares		$	25,249			$	21,868			$	20,671				$	47,117			$	38,519
Net income per share attributable to common shares:
Basic		$	0.59			$	0.52			$	0.52				$	1.11			$	1.00
Diluted		$	0.59			$	0.51			$	0.52				$	1.10			$	0.99
Weighted average common shares outstanding:
Basic			42,786				42,378				39,873					42,583				38,605
Diluted			42,939				42,592				39,993					42,781				38,759

(1) Below is a breakout of our contractual data center rental, power, and tenant reimbursements and other revenue:

		Three Months Ended										Six Months Ended
		June 30,			March 31,			June 30,				June 30,			June 30,
		2021			2021			2020				2021			2020
Rental revenue		$	86,960		$	85,207		$	81,612			$	172,167		$	162,498
Power revenue			47,014			44,360			41,902				91,374			83,180
Tenant reimbursement and other			2,819			3,409			3,594				6,228			5,935
Rental, power, and related revenue		$	136,793		$	132,976		$	127,108			$	269,769		$	251,613

Reconciliations of Net Income to FFO (in thousands, except per share data)
		Three Months Ended										Six Months Ended
		June 30,			March 31,			June 30,				June 30,			June 30,
		2021			2021			2020				2021			2020
Net income		$	28,475		$	24,915		$	25,088			$	53,390		$48,076
Real estate depreciation and amortization			43,636			42,889			40,162				86,525		79,577
FFO available to common shareholders and OP unit holders		$	72,111		$	67,804		$	65,250			$	139,915		$127,653
Other Income Adjustment(1)			(3,098)			—			—				(3,098)		—
FFO available to common shareholders and OP unit holders, as adjusted(1)		$	69,013		$	67,804		$	65,250			$	136,817		$127,653
Weighted average common shares outstanding - diluted			42,939			42,592			39,993				42,781		38,759
Weighted average OP units outstanding - diluted			5,664			5,941			8,377				5,801		9,586
Total weighted average shares and units outstanding - diluted			48,603			48,533			48,370				48,582		48,345
FFO per common share and OP unit - diluted		$	1.48		$	1.40		$	1.35			$	2.88		$2.64
FFO per common share and OP unit - diluted, as adjusted(1)		$	1.42		$	1.40		$	1.35			$	2.82		$2.64

(1) FFO available to shares and units, as adjusted, excludes a one-time benefit of $3.1 million, or $0.06 per share and unit, as a result of the release of a tax liability during the quarter that is no longer expected to be incurred.

Reconciliations of Net Income to EBITDAre and Adjusted EBITDA: (in thousands)
		Three Months Ended											Six Months Ended
		June 30,				March 31,			June 30,				June 30,				June 30,
		2021				2021			2020				2021				2020
Net income		$	28,475			$	24,915		$	25,088			$	53,390			$	48,076
Adjustments:
Interest expense			11,982				12,123			10,586				24,105				21,769
Income taxes			4				9			19				13				36
Depreciation and amortization			45,367				44,628			41,779				89,995				82,770
EBITDAre		$	85,828			$	81,675		$	77,472			$	167,503			$	152,651
Non-cash compensation			4,680				4,393			4,172				9,073				7,654
Transaction costs / litigation			—				3			—				3				—
Other income adjustment			(3,098	)			—			—				(3,098	)			—
Adjusted EBITDA		$	87,410			$	86,071		$	81,644			$	173,481			$	160,305

 

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FAQ

What were CoreSite's Q2 2021 earnings results?

CoreSite reported Q2 2021 earnings with a net income of $28.5 million, or $0.59 per diluted share, and operating revenues of $162.1 million.

What is CoreSite's updated guidance for 2021?

CoreSite updated its guidance for total operating revenues to $645-$653 million for 2021.

How did CoreSite's adjusted EBITDA perform in Q2 2021?

Adjusted EBITDA for Q2 2021 was $87.4 million, reflecting a year-over-year increase of 7.1%.

What new leases did CoreSite commence in Q2 2021?

CoreSite commenced 133 new and expansion leases for 59,174 net rentable square feet, representing $8.4 million of annualized GAAP rent.

What was the dividend declared by CoreSite for Q2 2021?

CoreSite declared a dividend of $1.27 per share for Q2 2021, an increase of 3.25% over the prior quarter.