CoreSite Reports Third Quarter 2020 Financial Results

Rhea-AI Summary

CoreSite Realty Corporation (NYSE:COR) reported third-quarter 2020 financial results, achieving operating revenues of $154.0 million, a 6.3% year-over-year increase. Net income rose to $0.50 per common diluted share, up $0.03 year-over-year. Funds From Operations (FFO) reached $1.33 per diluted share, marking a 3.9% annual growth. The company commenced 130 new leases totaling 33,233 NRSF and increased its 2020 net income guidance to $1.92 to $1.96 per share. CoreSite's balance sheet remains robust with $326.8 million in liquidity, enhancing its capacity for growth.

Positive

• Operating revenues grew to $154.0 million, up 6.3% year over year.
• Net income increased to $0.50 per diluted share, marking a $0.03 growth year over year.
• FFO of $1.33 per diluted share showed a 3.9% year-over-year increase.
• Commenced 130 new leases, generating $7.2 million of annual GAAP rent.
• Increased 2020 net income guidance to $1.92 to $1.96 per share.

Negative

• Net income decreased by $0.02 sequentially.
• FFO decreased by $0.02 sequentially, or 1.5%.
• Churn rate reported at 1.9%, indicating potential instability in tenant retention.

DENVER--(BUSINESS WIRE)--CoreSite Realty Corporation (NYSE:COR) (“the Company”), a premier provider of secure, reliable, high-performance data center, cloud and interconnection solutions across the U.S., today announced financial results for the third quarter ended September 30, 2020.

Q3 2020 Quarterly Highlights

• Key Financial Results –
  • Grew operating revenues to $154.0 million, an increase of 6.3% year over year and 2.3% sequentially
  • Delivered net income of $0.50 per common diluted share, an increase of $0.03 year over year and a decrease of $0.02 sequentially
  • Generated Funds From Operations (“FFO”) of $1.33 per diluted share and unit, an increase of $0.05, or 3.9%, year over year and a decrease of $0.02 sequentially, or 1.5%
  • Paid a dividend of $1.22 per share for the third quarter on October 15^th

• Lease Commencements –
  • Commenced 130 new and expansion leases for 33,233 net rentable square feet (“NRSF”), representing $7.2 million of annualized GAAP rent, for an average rate of $216 per square foot

• Leasing Activity –
  • Signed 129 new and expansion leases for 72,207 NRSF and $12.5 million of annualized GAAP rent, for an average rate of $173 per square foot
  • Renewed 309 leases for 135,959 NRSF and $20.7 million of annualized GAAP rent, for an average rate of $152 per square foot, reflecting an increase of 2.9% in cash rent and 5.1% in GAAP rent, and reported churn of 1.9%

Q3 2020 Notable Events

• Delivered new data center capacity on its Los Angeles campus in mid-October
  • Completed Phase 1 of its new LA3 data center, comprised of 51,000 NRSF and 6 megawatts (“MW”), and
  • Commenced its previously announced LA3 pre-lease for 38,000 NRSF and 4.5 MWs

• Completed the NY2 power infrastructure project
  • Added an incremental 4 MWs of power to support existing space at its NY2 data center

• Published its third annual Corporate Sustainability Report
  • The report summarizes our commitment to its customers, colleagues, and communities, and
  • Discusses the Company’s holistic focus on a broad range of success measures that take into account all of its stakeholders

“Over the last three years, we have added extensive data center capacity to strategically support organic growth, and continue to translate that capacity into larger and better customer communities in our markets,” said Paul Szurek, CoreSite’s President and Chief Executive Officer. “Our edge capacity is crucial to meeting the customer demand we continue to see in our major metro markets, especially for enterprises seeking the highest performance, cost effective, secure and reliable colocation solutions for multi- and hybrid-cloud IT architectures.”

Sales Activity

CoreSite achieved new and expansion sales of $12.5 million of annualized GAAP rent for the quarter, which included $5.6 million of core retail colocation sales and $6.9 million of scale leasing. Retail colocation pricing was stable, with continued expansion with strategic customers and strength in new logo acquisition.

“The hard work of our team resulted in strategic sales wins for the quarter,” said Steve Smith, CoreSite’s Chief Revenue Officer. “Although we continued to see elongated sales cycles due to the pandemic, we are now seeing more reprioritization of digital transformation by enterprises, and we continue to build on and maintain a robust pipeline to support future quarter sales.”

“Our strong scale leasing this quarter included one relatively modest hyperscale lease, and we expect to continue to use our increased capacity to compete for scale opportunities with those customers who enrich our ecosystem,” said Steve Smith.

As of September 30, 2020, CoreSite had annualized GAAP backlog of $17.8 million, or $23.6 million on a cash basis.

Other Financial Results

CoreSite’s $154.0 million of operating revenues for the third quarter included $130.3 million of rental, power and related revenue, reflecting 6.3% year over year growth, $21.1 million of interconnection revenue, 10.8% year over year growth, and $2.5 million of office, light-industrial and other revenue. Net income was $24.1 million for the quarter, or $0.50 attributable to each common diluted share.

Development Activity

CoreSite continues to execute on its property development pipeline. The Company has delivered a significant amount of capacity year-to-date, which enables it generally to turn up services for its customers quickly.

• During the third quarter, CoreSite completed its NY2 power infrastructure project, which adds an incremental 4 megawatts of power to support existing space and completed computer rooms.
• In mid-October, the Company completed and placed into service LA3 Phase 1, comprising 51,000 NRSF and an incremental 6 MWs of turn-key data center capacity. LA3 Phase 1 was 74% pre-leased, and the customer lease commenced in October.
• The Company has completed and placed into service 193,000 NRSF and 22 MWs of capacity year to date, including the completion of LA3 Phase 1.

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

• the ability to increase its occupied footprint of Tier 1, purpose-built data centers, both owned or leased, by approximately 2.1 million NRSF, or about 91.8%, including space unoccupied, under construction, pre-construction or held for development, and
• owning (versus leasing) 92.4% 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 third quarter annualized adjusted EBITDA of 5.2 times, or 4.9 times including backlog. As of the end of the third quarter, CoreSite had $326.8 million of current liquidity, including $2.9 million of cash and $323.9 million of available capacity on its revolving credit facility.

Financing

On July 14^th, the Company received the remaining $50 million of proceeds from the 7-year $150 million unsecured private placement of senior notes that it closed on May 6^th. CoreSite used the proceeds to repay outstanding amounts on its revolving credit facility and for general working capital. The Company ended the quarter with 7% variable debt and 93% fixed debt.

2020 Guidance

CoreSite increased its 2020 Guidance related to net income attributable to common diluted shares to its new guidance range of $1.92 to $1.96 per share from its previous range of $1.81 to $1.91 per share. In addition, CoreSite increased its 2020 FFO per share guidance to its new guidance range of $5.26 to $5.30 per share from its previous range of $5.15 to $5.25 per share, and increased its adjusted EBITDA to $323 million at the midpoint from its midpoint of $321 million previously. The increase of $0.08 per share at the midpoint of FFO, or 1.5%, is largely driven by COVID-related travel and entertainment expense savings, decreased property taxes and insurance expense, and management of other operating costs. CoreSite’s full 2020 guidance can be found in the Company’s third quarter 2020 Supplemental Earnings Information on page 23.

Upcoming Conferences and Events

CoreSite’s management will participate virtually in the Nareit REITworld Annual Conference on November 17^th and 18^th.

Conference Call Details

CoreSite will host its third quarter 2020 earnings call on Thursday, October 29, 2020, 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 November 5, 2020, and can be accessed dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international). The passcode for the replay is 13710893.

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 third quarter 2020 Supplemental Information on its website at CoreSite.com, under the “Investors” link.

About CoreSite

CoreSite Realty Corporation (NYSE:COR) delivers secure, reliable, high-performance data center, cloud and interconnection solutions to a growing customer ecosystem across eight key North American markets. More than 1,350 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 460+ 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. 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)
		September 30,				December 31,
		2020				2019
Assets:
Investments in real estate:
Land		$	100,432			$	94,593
Buildings and improvements			2,148,435				1,989,731
			2,248,867				2,084,324
Less: Accumulated depreciation and amortization			(829,055	)			(720,498	)
Net investment in operating properties			1,419,812				1,363,826
Construction in progress			415,210				394,474
Net investments in real estate			1,835,022				1,758,300
Operating lease right-of-use assets, net			166,807				172,976
Cash and cash equivalents			2,894				3,048
Accounts and other receivables, net			31,388				21,008
Lease intangibles, net			2,959				3,939
Goodwill			40,646				40,646
Other assets, net			103,262				101,082
Total assets		$	2,182,978			$	2,100,999
Liabilities and equity:
Liabilities
Debt, net		$	1,686,810			$	1,478,402
Operating lease liabilities			182,068				187,443
Accounts payable and accrued expenses			91,310				123,304
Accrued dividends and distributions			62,796				62,332
Acquired below-market lease contracts, net			2,362				2,511
Unearned revenue, prepaid rent and other liabilities			54,848				33,119
Total liabilities			2,080,194				1,887,111
Stockholders' equity
Common stock, par value $0.01			422				373
Additional paid-in capital			551,227				512,324
Accumulated other comprehensive loss			(22,355	)			(6,026	)
Distributions in excess of net income			(439,028	)			(348,509	)
Total stockholders' equity			90,266				158,162
Noncontrolling interests			12,518				55,726
Total equity			102,784				213,888
Total liabilities and equity		$	2,182,978			$	2,100,999

Consolidated Statements of Operations
(in thousands, except per share data)
		Three Months Ended													Nine Months Ended
		September 30,				June 30,				September 30,					September 30,				September 30,
		2020				2020				2019					2020				2019
Operating revenues:
Data center revenue:(1)
Rental, power, and related revenue		$	130,300			$	127,108			$	122,598				$	381,913			$	361,534
Interconnection revenue			21,144				20,897				19,082					62,126				56,274
Total data center revenue			151,444				148,005				141,680					444,039				417,808
Office, light-industrial and other revenue			2,537				2,538				3,211					7,847				8,884
Total operating revenues			153,981				150,543				144,891					451,886				426,692
Operating expenses:
Property operating and maintenance			44,986				41,037				41,251					126,206				117,428
Real estate taxes and insurance			5,989				5,599				4,973					17,778				17,157
Depreciation and amortization			41,759				41,779				40,546					124,529				113,188
Sales and marketing			5,901				5,837				5,476					17,882				16,912
General and administrative			10,854				11,603				10,671					33,724				33,123
Rent			8,966				8,995				8,331					26,360				23,752
Total operating expenses			118,455				114,850				111,248					346,479				321,560
Operating income			35,526				35,693				33,643					105,407				105,132
Interest expense			(11,384	)			(10,586	)			(10,986	)				(33,153	)			(30,795	)
Income before income taxes			24,142				25,107				22,657					72,254				74,337
Income tax expense			(10	)			(19	)			(13	)				(46	)			(45	)
Net income			24,132				25,088				22,644					72,208				74,292
Net income attributable to noncontrolling interests			3,000				4,417				5,194					12,557				17,646
Net income attributable to common shares		$	21,132			$	20,671			$	17,450				$	59,651			$	56,646
Net income per share attributable to common shares:
Basic		$	0.50			$	0.52			$	0.47				$	1.50			$	1.55
Diluted		$	0.50			$	0.52			$	0.47				$	1.49			$	1.54
Weighted average common shares outstanding:
Basic			42,235				39,873				36,951					39,823				36,590
Diluted			42,404				39,993				37,132					39,996				36,763

(1) Below is a breakout of our contractual data center rental, power, and tenant reimbursements and other revenue:
		Three Months Ended										Nine Months Ended
		September 30,			June 30,			September 30,				September 30,			September 30,
		2020			2020			2019				2020			2019
Rental revenue		$	82,943		$	81,612		$	77,907			$	245,441		$	229,366
Power revenue			43,112			41,902			41,783				126,292			123,602
Tenant reimbursement and other			4,245			3,594			2,908				10,180			8,566
Rental, power, and related revenue		$	130,300		$	127,108		$	122,598			$	381,913		$	361,534

Reconciliations of Net Income to FFO
(in thousands, except per share data)
		Three Months Ended										Nine Months Ended
		September 30,			June 30,			September 30,				September 30,			September 30,
		2020			2020			2019				2020			2019
Net income		$	24,132		$	25,088		$	22,644			$	72,208		$	74,292
Real estate depreciation and amortization			40,136			40,162			39,092				119,713			108,852
FFO available to common shareholders and OP unit holders		$	64,268		$	65,250		$	61,736			$	191,921		$	183,144
Weighted average common shares outstanding - diluted			42,404			39,993			37,132				39,996			36,763
Weighted average OP units outstanding - diluted			6,030			8,377			11,118				8,392			11,437
Total weighted average shares and units outstanding - diluted			48,434			48,370			48,250				48,388			48,200
FFO per common share and OP unit - diluted		$	1.33		$	1.35		$	1.28			$	3.97		$	3.80

Reconciliations of Net Income to EBITDAre and Adjusted EBITDA:
(in thousands)
		Three Months Ended										Nine Months Ended
		September 30,			June 30,			September 30,				September 30,			September 30,
		2020			2020			2019				2020			2019
Net income		$	24,132		$	25,088		$	22,644			$	72,208		$	74,292
Adjustments:
Interest expense			11,384			10,586			10,986				33,153			30,795
Income taxes			10			19			13				46			45
Depreciation and amortization			41,759			41,779			40,546				124,529			113,188
EBITDAre		$	77,285		$	77,472		$	74,189			$	229,936		$	218,320
Non-cash compensation			4,156			4,172			3,732				11,810			10,781
Transaction costs / litigation			—			—			7				—			7
Adjusted EBITDA		$	81,441		$	81,644		$	77,928			$	241,746		$	229,108