cor_Current_Folio_10K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended December 31, 2017

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Transition Period From                        To                      

Commission file number 001-34877

CoreSite Realty Corporation

(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization)

27-1925611
(I.R.S. Employer
Identification No.)

1001 17th Street, Suite 500
Denver, CO
(Address of principal executive offices)

80202
(Zip Code)

(866) 777-2673

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class

    

Name of Exchange On Which Registered

Common Stock, $0.01 par value per share

 

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒   No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐   No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐
(Do not check if a
smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐   No ☒

The aggregate market value of common equity held by non-affiliates of the registrant was approximately $2,571.3 million as of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter. For purposes of the foregoing calculation, all directors and executive officers of the registrant and holders of more than 10% of the registrant’s common equity are assumed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 7, 2018, there were 34,243,139 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed in conjunction with the registrant’s 2018 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the registrant’s fiscal year ended December 31, 2017, are incorporated by reference in Part III of this report.

 

 


 

Table of Contents

Table of Contents

 

 

 

Page

PART I 

4

ITEM 1. BUSINESS 

18

ITEM 1A. RISK FACTORS 

38

ITEM 1B. UNRESOLVED STAFF COMMENTS 

38

ITEM 2. PROPERTIES 

38

ITEM 3. LEGAL PROCEEDINGS 

38

ITEM 4. MINE SAFETY DISCLOSURES 

39

PART II 

40

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 

40

ITEM 6. SELECTED FINANCIAL DATA 

43

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

45

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

58

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 

59

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 

91

ITEM 9A. CONTROLS AND PROCEDURES 

91

ITEM 9B. OTHER INFORMATION 

92

PART III 

92

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 

92

ITEM 11. EXECUTIVE COMPENSATION 

92

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 

92

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 

92

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 

92

PART IV 

93

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 

93

SIGNATURES 

97

Exhibit 12.1

 

Exhibit 12.2

 

Exhibit 21.1

 

Exhibit 23.1

 

Exhibit 31.1

 

Exhibit 31.2

 

Exhibit 32.1

 

Exhibit 32.2

 

 

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Cautionary Note Regarding Forward‑Looking Statements

This Annual Report on Form 10‑K for the fiscal year ended December 31, 2017 (this “Annual Report”), together with other statements and information publicly disseminated by our company, contains certain forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), namely 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 PSLRA and include this statement for purposes of complying with these safe harbor provisions.

In particular, statements pertaining to our capital resources, portfolio performance, business strategies and results of operations contain 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 Real Estate Investment Trust (“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.

In addition, important factors that could cause actual results to differ materially from the forward‑looking statements include the risk factors in Item 1A. “Risk Factors” and elsewhere in this Annual Report. New risks and uncertainties arise from time to time, and we cannot predict those events or how they might affect us. We assume no obligation to update any forward‑looking statements after the date of this Annual Report, except as required by applicable law. Given these risks and uncertainties, investors should not place undue reliance on forward‑looking statements as a prediction of actual results.

When we use the terms “we,” “us,” “our,” the “Company,” “CoreSite” and “our company” in this Annual Report, we are referring to CoreSite Realty Corporation, a Maryland corporation, together with our consolidated subsidiaries, including CoreSite, L.P., a Delaware limited partnership of which we are the sole general partner and which we refer to as “our Operating Partnership.”

 

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PART I

ITEM 1.  BUSINESS

The Company

We deliver secure, reliable, high‑performance data center and interconnection solutions to a growing customer ecosystem across eight key North American communication markets. More than 1,200 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 Business

We are a fully integrated, self‑administered, and self‑managed real estate investment trust (“REIT”) for federal income tax purposes and we conduct certain activities through our taxable REIT subsidiaries. Through our controlling interest in CoreSite, L.P., a Delaware limited partnership, our “Operating Partnership,” we are engaged in the business of ownership, acquisition, construction and operation of strategically located data centers in some of the largest and fastest growing data center markets in the United States, including the Northern Virginia (including Washington D.C.), New York, and San Francisco Bay areas, Chicago, Los Angeles, Boston, Miami and Denver. We are a Maryland corporation organized in 2010.

Our data centers are highly specialized and secure buildings that house networking, storage and communications technology infrastructure, including servers, storage devices, switches, routers and fiber optic transmission equipment. These buildings are designed to provide the power, cooling and network connectivity necessary to efficiently operate this mission‑critical equipment. Data centers located at points where many communications networks converge can also function as interconnection hubs where customers are able to connect to multiple networks and exchange traffic with each other. Our data centers feature advanced reliable and efficient power, cooling and security systems, including generally twenty-four-hours-a-day, seven-days-a-week in‑house security staffing, and many are points of network interconnection that provide the evolved ecosystems our customers need to meet their own competitive challenges and business goals. We believe we have the flexibility and scalability to satisfy the full spectrum of our customers’ growth requirements and corresponding data center needs by providing data center space ranging in size from an entire building or large dedicated suite to a cage or half cabinet.

The first data center in our portfolio was purchased in 2000 by certain real estate funds (the “Funds”) affiliated with The Carlyle Group, our predecessor, and since then we have continued to acquire, develop and operate these types of data center facilities. Our properties are self‑managed, including construction project management in connection with our development initiatives. As of December 31, 2017, and including the two-acre land parcel acquired for CH2 on January 29, 2018, as described below, our property portfolio included 20 operating data center facilities, office and light‑industrial space and multiple development projects and space, which collectively comprise, when fully built-out, over 4.1 million net rentable square feet (“NRSF”), of which over 2.2 million NRSF is existing operating data center space.

Recent Developments

On January 29, 2018, we acquired a two-acre land parcel located in downtown Chicago, Illinois, for a purchase price of $4.5 million. We expect to build a 175,000 square foot turn-key data center building on the acquired land parcel, which we refer to as CH2, upon the receipt of necessary entitlements.

Our Competitive Strengths

We believe the following key competitive strengths position us to efficiently scale our business, capitalize on the demand for data center space and interconnection services, and thereby grow our cash flow.

Secure, Reliable, and Compliant.  We help businesses protect mission‑critical data, performance sensitive applications and IT infrastructure by delivering secure, reliable, and compliant data center solutions. Our data centers feature advanced efficient power and cooling infrastructure to support our customers’ IT infrastructure with additional power capacity to support continued growth. We provide twenty‑four‑hours‑a‑day, seven‑days‑a‑week in‑house security

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guard monitoring with customizable security features. We also provide the infrastructure and physical security required to support many of our customers’ information, data, and security compliance needs across all of our properties.

High Performance Interconnection.  We offer cloud-enabled, network rich data center campuses with over 25,000 interconnections across our portfolio. Our customers have direct access to over 400 carriers and Internet Service Providers (“ISPs”) and over 350 leading cloud and IT service providers. In addition to standard interconnection offerings, we also operate the CoreSite Open Cloud Exchange™, and the Any2 Exchange for Internet Peering, the second largest peering exchange in the U.S. The diverse network and cloud connectivity options at many of our data centers provide us with a competitive advantage by creating an ideal environment for enterprises to build holistic, streamlined hybrid cloud solutions. Many providers in our data center facilities can leverage our sites as revenue opportunities by offering their services directly to other customers within our data centers, while enterprises can reduce their total cost of operations by directly connecting to service providers in the same data center in a cost effective manner.

Scalable.  Across 20 operating data centers in eight key North American markets, we lease space to enterprises, cloud and IT service providers, and network and mobility providers. We believe our ability to be both flexible and scalable is a key differentiator. We offer many space, power, and interconnection options that allow customers to select products and services that meet their needs. We believe we have a compelling combination of presence in most of the top data center markets in the U.S. with the ability to meet customers’ growing capacity requirements within those markets.

We have the ability to increase our occupied data center square footage by approximately 1,719,000 NRSF, or 84%, through leasing our 203,000 NRSF of unoccupied space and the development of 220,000 NRSF space under construction as of December 31, 2017, and approximately 1,296,000 NRSF at multiple facilities that are available for future development based on market supply and demand, including the two-acre CH2 land parcel acquired on January 29, 2018.

High-Quality Customer Experience.  We believe our 465 professionals deliver best‑in‑class service by placing customer needs first in supporting the planning, implementation and operating requirements of customers. We provide dedicated implementation resources to ensure a seamless onboarding process for customers. Our leasing and sales professionals can develop complex data center solutions for the most demanding customer requirements and our experienced and committed operations and facilities personnel are available for extensive management support. We believe our customer satisfaction is indicated by the 92% of 2017 leasing volume which came from existing customers.

Facilities in Key Markets.  Our portfolio is concentrated in some of the largest and most important U.S. metropolitan markets and we expect to continue benefitting from this concentration as customers seek new, high‑quality data center space and interconnections within our markets, which are many of the key North American network, financial, cloud and commercial hubs. Our data centers are located in the Northern Virginia (including Washington D.C.), New York and San Francisco Bay areas, Chicago, Los Angeles, Boston, Miami and Denver. Many of our facilities are also situated in close proximity to a concentration of key businesses and corporations, driving demand for our data center space and interconnection services.

Diversified Customer Base.    We have a diverse, global customer base, which we believe is a reflection of our strong reputation and proven track record, as well as our customers’ trust in our ability to house their mission‑critical applications and vital communications technology. Our diverse customer base spans many industries across eight key North America markets. In addition to geographic markets, we group our customers into the following industry verticals:

·

Enterprises: digital content and multimedia, systems integrators and managed service providers (“SI & MSP”), financial, healthcare, education, government, manufacturing and professional services

·

Cloud and IT Service Providers; and

·

Networks and Mobility: domestic and international telecommunications carriers, subsea cables, ISPs and Content Delivery Networks (“CDNs”)

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Business and Growth Strategies

Our business objective is to continue growing our position as a provider of strategically located data center space in North America. Key components of our strategy include the following:

Increase Cash Flow from In‑Place Data Center Space.  We actively manage and lease our properties to increase cash flow by:

·

Leasing Available Space.  We have the ability to increase both our revenue and our revenue per square foot by leasing additional space and power services to new and existing data center customers. As of December 31, 2017, substantially all of our data center facilities had space and power available to offer our customers the ability to increase their square footage under lease as well as the amount of power they use per square foot. Our existing data center facilities have approximately 203,000 NRSF of data center space available to lease, or 9.0% of our current operating data center portfolio. We believe this space, together with available power, enables us to generate incremental revenue within our existing data center footprint.

·

Increasing Interconnection in our Facilities.  As more customers colocate in our data center facilities, it benefits their business partners and customers to colocate with CoreSite in order to gain the full economic and performance benefits of our interconnection services. We believe this ecosystem of customers continues to drive new and existing customer growth, and in turn, increases the volume of interconnection services and the amount of value‑add power services such as breakered AC and DC primary and redundant power.

Capitalize on Embedded Expansion Opportunities.  We plan to grow by developing new secure, reliable and high‑performance data center space. Our development opportunities include leveraging existing in‑place infrastructure and entitlements in currently operating properties or campuses. In many cases, we are able to strategically deploy capital by developing space in incremental phases to meet customer demand. Including the space currently under construction at December 31, 2017, space and land targeted for future development, and the two-acre CH2 land parcel acquired on January 29, 2018, we own land and buildings sufficient to develop approximately 1,516,000 NRSF of data center space.

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The following table summarizes the NRSF under construction and NRSF held for development throughout our portfolio, each as of December 31, 2017, including the two-acre CH2 land parcel, which was acquired January 29, 2018:

 

 

 

 

 

 

 

 

 

 

Development Opportunities (in NRSF)

 

 

 

Under

 

Held for

 

 

 

Facilities

 

Construction(1)

 

Development(2)

 

Total

 

Santa Clara campus

 

 

 

 

 

 

 

SV8(3)

 

 —

 

175,000

 

175,000

 

San Francisco Bay Total

 

 —

 

175,000

 

175,000

 

One Wilshire campus

 

 

 

 

 

 

 

LA1

 

 —

 

10,352

 

10,352

 

LA2

 

87,263

 

29,770

 

117,033

 

LA3(3)

 

 —

 

180,000

 

180,000

 

Los Angeles Total

 

87,263

 

220,122

 

307,385

 

Northern Virginia

 

 

 

 

 

 

 

VA1

 

 —

 

 —

 

 —

 

DC2

 

24,563

 

 —

 

24,563

 

Reston Campus Expansion(4)

 

74,759

 

536,313

 

611,072

 

Northern Virginia Total

 

99,322

 

536,313

 

635,635

 

New York

 

 

 

 

 

 

 

NY2

 

18,121

 

116,387

 

134,508

 

Chicago

 

 

 

 

 

 

 

CH2(3)

 

 —

 

175,000

 

175,000

 

Boston

 

 

 

 

 

 

 

BO1

 

 —

 

59,884

 

59,884

 

Denver

 

 

 

 

 

 

 

DE1

 

15,630

 

 —

 

15,630

 

Miami

 

 

 

 

 

 

 

MI1

 

 —

 

13,154

 

13,154

 

Total Facilities(5)

 

220,336

 

1,295,860

 

1,516,196

 


(1)

Represents NRSF for which substantial construction activities are ongoing to prepare the property for its intended use following development. The NRSF reflects management’s estimate of engineering drawings and required support space and is subject to change based on final demising of space.

(2)

Represents estimated incremental data center capacity currently vacant in existing facilities or on vacant land in our portfolio that requires significant capital investment in order to develop into data center facilities.

(3)

The NRSF for these facilities reflect management’s estimates based on our current construction plans and expectations regarding entitlements. These estimates are subject to change based on current economic conditions, final zoning approvals, and the supply and demand dynamics of the market.

(4)

The Reston Campus Expansion project is estimated to deliver 611,000 NRSF of incremental data center capacity (of which 74,759 NRSF is under construction) across multiple phases with new buildings and as existing light-industrial / flex office leases expire and customers vacate. Based on our design plan and entitlement application, we believe we may be able to build an additional 286,000 NRSF for a total of 897,000 NRSF of incremental data center capacity. These estimates are subject to change based on current economic conditions, final zoning approvals, and the supply and demand dynamics of the market. The table assumes the minimum expected zoning entitlement.

(5)

In addition to our development opportunities disclosed within this table, we have land adjacent to our NY2 facility, in the form of an existing parking lot. By utilizing this land, we believe that we could develop 100,000 NRSF on our available acreage in Secaucus, New Jersey, upon receipt of necessary entitlements.

Selectively Pursue Acquisition and Development Opportunities in New and Existing Markets.  We evaluate opportunities to acquire or develop data center space with abundant power and/or dense points of interconnection in key markets that will expand our customer base and broaden our geographic footprint. Such acquisitions may entail subsequent development, which requires significant capital expenditures. We also intend to

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continue to implement the “hub‑and‑spoke strategy” that we have deployed in our four largest markets, namely Los Angeles, New York, the San Francisco Bay area and Northern Virginia. In these markets, we have extended our data center footprint by connecting our newer facilities, the spokes, to our established data centers, our hubs, which allows our customers leasing space at the spokes to leverage the significant interconnection capabilities of our hubs. In order to deploy our “hub‑and‑spoke strategy,” we typically rely on third‑party providers of network connectivity to establish highly reliable network connectivity within and between facilities. We expect to build a 175,000 square foot turn-key data center building on the acquired land parcel, which we refer to as CH2, upon the receipt of necessary entitlements. The land is located close enough to our existing CH1 facility and network node to be connected via diverse, high-count, dark fiber to create campus interconnectivity.

Leverage Existing Customer Relationships and Reach New Customers.  Our strong customer and industry relationships, combined with our national footprint and sales force, afford us insight into the size, timing and location of customers’ planned growth. We historically have been successful in leveraging this market visibility to expand our footprint and customer base in existing and new markets. We intend to continue to strengthen and expand our relationships with existing customers and to further grow and diversify our customer base by targeting growing customers and segments, such as domestic and international telecommunications carriers, content and media entertainment providers, cloud providers and other enterprise customers, including financial, health care, educational institutions and government agencies.

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Our Portfolio

As of December 31, 2017, and including the two-acre CH2 land parcel acquired on January 29, 2018, our property portfolio included 20 operating data center facilities, office and light‑industrial space and multiple potential development projects that collectively comprise over 4.1 million NRSF, of which over 2.2 million NRSF is existing data center space. The approximately 1.5 million NRSF of development projects includes space available for development and construction of new data center facilities. We expect that this development potential plus any incremental investment into existing or new markets will enable us to accommodate existing and future customer demand and position us to continue to increase our operating cash flows. The following table provides an overview of our property portfolio as of December 31, 2017, including the two-acre CH2 land parcel acquired on January 29, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Data Center Operating NRSF (1)

 

Development

 

 

 

 

 

 

 

 

Stabilized

 

Pre-Stabilized (2)

 

Total

 

NRSF (3)

 

Total NRSF

 

 

 

Annualized

 

 

 

Percent

 

 

 

Percent

 

 

 

Percent

 

 

 

Total

 

Market/Facilities

 

Rent ($000)(4)

    

Total

    

Occupied(5)

    

Total

    

Occupied(5)

    

Total

    

Occupied(5)

    

Total

    

Portfolio

 

San Francisco Bay

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SV1

 

$

6,133

 

85,932

 

84.6

%

 —

 

 —

%

85,932

 

84.6

%

 —

 

85,932

 

SV2

 

 

8,114

 

76,676

 

94.0

 

 —

 

 —

 

76,676

 

94.0

 

 —

 

76,676

 

Santa Clara campus

 

 

66,564

 

538,615

 

98.9

 

76,885

 

54.4

 

615,500

 

93.4

 

175,000

 

790,500

 

San Francisco Bay Total

 

 

80,811

 

701,223

 

96.6

 

76,885

 

54.4

 

778,108

 

92.5

 

175,000

 

953,108

 

Los Angeles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Wilshire campus

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LA1*

 

 

29,923

 

139,053

 

96.1

 

 —

 

 —

 

139,053

 

96.1

 

10,352

 

149,405

 

LA2

 

 

37,680

 

264,512

 

96.1

 

43,345

 

66.0

 

307,857

 

91.8

 

117,033

 

424,890

 

LA3

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

180,000

 

180,000

 

Los Angeles Total

 

 

67,603

 

403,565

 

96.1

 

43,345

 

66.0

 

446,910

 

93.2

 

307,385

 

754,295

 

Northern Virginia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VA1

 

 

29,232

 

198,632

 

90.5

 

3,087

 

 —

 

201,719

 

89.1

 

 —

 

201,719

 

VA2

 

 

17,817

 

139,033

 

97.8

 

49,414

 

63.4

 

188,447

 

88.7

 

 —

 

188,447

 

DC1*

 

 

3,295

 

22,137

 

79.5

 

 —

 

 —

 

22,137

 

79.5

 

 —

 

22,137

 

DC2*

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

24,563

 

24,563

 

Reston Campus Expansion(6)

 

 

1,136

 

48,928

 

100.0

 

 —

 

 —

 

48,928

 

100.0

 

611,072

 

660,000

 

Northern Virginia Total

 

 

51,480

 

408,730

 

93.5

 

52,501

 

59.6

 

461,231

 

89.7

 

635,635

 

1,096,866

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NY1*

 

 

6,068

 

48,404

 

83.2

 

 —

 

 —

 

48,404

 

83.2

 

 —

 

48,404

 

NY2

 

 

13,150

 

101,742

 

86.9

 

 —

 

 —

 

101,742

 

86.9

 

134,508

 

236,250

 

New York Total

 

 

19,218

 

150,146

 

85.7

 

 —

 

 —

 

150,146

 

85.7

 

134,508

 

284,654

 

Chicago

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CH1

 

 

19,191

 

178,407

 

92.5

 

 —

 

 —

 

178,407

 

92.5

 

 —

 

178,407

 

CH2

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

175,000

 

175,000

 

Chicago Total

 

 

19,191

 

178,407

 

92.5

 

 —

 

 —

 

178,407

 

92.5

 

175,000

 

353,407

 

Boston

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BO1

 

 

18,514

 

180,057

 

97.1

 

13,735

 

 —

 

193,792

 

90.3

 

59,884

 

253,676

 

Denver

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DE1*

 

 

2,587

 

9,813

 

100.0

 

4,341

 

53.6

 

14,154

 

85.8

 

15,630

 

29,784

 

DE2*

 

 

460

 

5,140

 

96.6

 

 —

 

 —

 

5,140

 

96.6

 

 —

 

5,140

 

Denver Total

 

 

3,047

 

14,953

 

98.8

 

4,341

 

53.6

 

19,294

 

88.7

 

15,630

 

34,924

 

Miami

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MI1

 

 

1,501

 

30,176

 

66.2

 

 —

 

 —

 

30,176

 

66.2

 

13,154

 

43,330

 

Total Data Center Facilities

 

$

261,365

 

2,067,257

 

94.4

%  

190,807

 

54.6

%  

2,258,064

 

91.0

%  

1,516,196

 

3,774,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office and Light-Industrial(7)

 

 

8,125

 

354,721

 

80.1

 

 —

 

 —

 

354,721

 

80.1

 

 —

 

354,721

 

Reston Office and Light-Industrial(6)

 

 

2,101

 

150,375

 

100.0

 

 —

 

 —

 

150,375

 

100.0

 

(150,375)

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Portfolio

 

$

271,591

 

2,572,353

 

92.7

%  

190,807

 

54.6

%  

2,763,160

 

90.1

%  

1,365,821

 

4,128,981

 


*Indicates properties in which we hold a leasehold interest.

(1)

Represents NRSF at each operating facility that is currently occupied or readily available for lease as data center space and pre‑stabilized data center space. Both occupied and available data center NRSF includes a factor based on management’s estimate 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. Operating data center NRSF may require investment of Deferred Expansion Capital (see definition on page 12).

(2)

Pre‑stabilized NRSF represents projects or facilities that recently have been developed and are in the initial lease‑up phase. Pre‑stabilized projects or facilities become stabilized operating properties at the earlier of achievement of 85% occupancy or 24 months after development completion.

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(3)

Represents incremental data center capacity currently vacant in existing facilities in our portfolio that requires significant capital investment in order to develop into data center facilities. Includes NRSF under construction for which substantial activities are ongoing to prepare the property for its intended use following development. The NRSF reflects management’s estimate of engineering drawings and required support space and is subject to change based on final demising of space.

(4)

Represents the monthly contractual rent under existing commenced customer leases as of December 31, 2017, multiplied by 12. This amount reflects total annualized base rent before any one‑time or non‑recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement. On a gross basis, our total portfolio annualized rent was approximately $277.8 million as of December 31, 2017, which includes $6.2 million in operating expense reimbursements under modified gross and triple‑net leases.

(5)

Includes customer leases that have commenced and are occupied as of December 31, 2017. The percent occupied is determined based on occupied square feet as a proportion of total operating NRSF as of December 31, 2017. The percent occupied for stabilized data center space would have been 95.2%, rather than 94.4%, if all leases signed in the current and prior periods had commenced. The percent occupied for our total portfolio, including stabilized data center space, pre‑stabilized space and office and light‑industrial space, would have been 91.1%, rather than 90.1%, if all leases signed in current and prior periods had commenced.

(6)

Included within our Reston Campus Expansion held for development space is 150,375 NRSF that is currently operating as office and light-industrial space.

(7)

Represents space that is currently occupied or readily available for lease as space other than data center space, which typically is offered for office or light‑industrial uses.

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“Same‑Store” statistics are based on space within each data center facility that was leased or available to be leased as of December 31, 2015, excluding space for which development was completed and became available to be leased after December 31, 2015. We track Same‑Store space leased or available to be leased at the computer room level within each data center facility. The following table shows the December 31, 2017, Same‑Store operating statistics. For comparison purposes, the operating activity totals as of December 31, 2016, and 2015, for this space are provided at the bottom of this table.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same-Store Property Portfolio (in NRSF)

 

 

 

 

 

 

Data Center

 

Office and Light-Industrial

 

Total

 

 

 

Annualized

 

 

 

Percent

 

 

 

Percent

 

 

 

Percent

 

Market/Facilities

    

Rent ($000)(1)

    

Total

    

Occupied(2)

    

Total

    

Occupied(2)

    

Total

    

Occupied(2)

 

San Francisco Bay

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SV1

 

$

11,863

 

85,932

 

84.6

%  

234,238

 

80.9

%  

320,170

 

81.9

%

SV2

 

 

8,114

 

76,676

 

94.0

 

 —

 

 —

 

76,676

 

94.0

 

Santa Clara campus

 

 

30,651

 

252,009

 

97.7

 

712

 

95.0

 

252,721

 

97.7

 

San Francisco Bay Total

 

 

50,628

 

414,617

 

94.3

 

234,950

 

81.0

 

649,567

 

89.5

 

Los Angeles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Wilshire campus

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LA1*

 

 

30,100

 

139,053

 

96.1

 

4,373

 

79.4

 

143,426

 

95.6

 

LA2

 

 

30,072

 

259,786

 

96.0

 

7,029

 

75.8

 

266,815

 

95.4

 

Los Angeles Total

 

 

60,172

 

398,839

 

96.0

 

11,402

 

77.2

 

410,241

 

95.5

 

Northern Virginia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VA1

 

 

30,353

 

198,633

 

90.5

 

61,050

 

91.2

 

259,683

 

90.7

 

VA2

 

 

10,226

 

92,173

 

100.0

 

 —

 

 —

 

92,173

 

100.0

 

DC1*

 

 

3,295

 

22,137

 

79.5

 

 —

 

 —

 

22,137

 

79.5

 

Northern Virginia Total

 

 

43,874

 

312,943

 

92.5

 

61,050

 

91.2

 

373,993

 

92.3

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NY1*

 

 

6,081

 

48,404

 

83.2

 

209

 

100.0

 

48,613

 

83.3

 

NY2

 

 

13,580

 

101,742

 

86.9

 

20,735

 

45.8

 

122,477

 

79.9

 

New York Total

 

 

19,661

 

150,146

 

85.7

 

20,944

 

46.3

 

171,090

 

80.9

 

Chicago

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CH1

 

 

19,285

 

178,407

 

92.5

 

4,946

 

76.0

 

183,353

 

92.1

 

Boston

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BO1

 

 

16,328

 

166,026

 

97.8

 

19,495

 

76.6

 

185,521

 

95.5

 

Denver

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DE1*

 

 

1,460

 

5,878

 

100.0

 

 —

 

 —

 

5,878

 

100.0

 

DE2*

 

 

460

 

5,140

 

96.6

 

 —

 

 —

 

5,140

 

96.6

 

Denver Total

 

 

1,920

 

11,018

 

98.4

 

 —

 

 —

 

11,018

 

98.4

 

Miami

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MI1

 

 

1,525

 

30,176

 

66.2

 

1,934

 

55.7

 

32,110

 

65.5

 

Total Facilities at December 31, 2017(3)

 

$

213,393

 

1,662,172

 

93.3

%  

354,721

 

80.1

%  

2,016,893

 

91.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Facilities at December 31, 2016

 

$

206,038

 

 

 

92.3

%  

 

 

76.2

%  

 

 

89.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Facilities at December 31, 2015

 

$

191,088

 

 

 

89.8

%  

 

 

72.6

%  

 

 

86.8

%


*Indicates properties in which we hold a leasehold interest.

(1)

Represents the monthly contractual rent under existing commenced customer leases as of each respective period, multiplied by 12. This amount reflects total annualized base rent before any one‑time or non‑recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement.

(2)

Includes customer leases that have commenced and are occupied as of each respective period. The percent occupied is determined based on occupied square feet as a proportion of total operating NRSF.

(3)

The percent occupied for data center space, office and light‑industrial space, and total space would have been 94.3%, 80.6% and 91.9%, respectively, if all leases signed in the current and prior periods had commenced.

Same‑Store annualized rent increased to $213.4 million at December 31, 2017, compared to $206.0 million at December 31, 2016. The increase of $7.4 million is due primarily to the increase of $4.6 million, $2.8 million, $2.5 million, and $0.8 million in Same-Store annualized rent at our New York, Northern Virginia (including Washington D.C.), Los Angeles, and Chicago markets, respectively. The increase was partially offset by the expiration of $4.1 million in annualized rent associated with a previously restructured lease agreement at our Santa Clara campus.

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Capital Expenditures

The following table sets forth information regarding capital expenditures during the year ended December 31, 2017 (in thousands):

 

 

 

 

 

 

 

Year Ended

 

 

    

December 31, 2017

 

Data center expansion

 

$

144,410

 

Non-recurring investments

 

 

11,664

 

Tenant improvements

 

 

6,764

 

Recurring capital expenditures

 

 

23,725

 

Total capital expenditures

 

$

186,563

 

 

During the year ended December 31, 2017, we incurred approximately $186.6 million of capital expenditures, of which approximately $144.4 million related to data center expansion activities, including new data center construction, the development of capacity within existing data centers and other revenue generating investments. As we construct data center capacity, we work to optimize both the amount of capital we deploy on power and cooling infrastructure and the timing of that capital deployment; as such, we generally construct our power and cooling infrastructure supporting our data center NRSF based on our estimate of customer utilization. This practice can result in our investment at a later time in “Deferred Expansion Capital”. We define Deferred Expansion Capital as our estimate of the incremental capital we may invest in the future to add power or cooling infrastructure to support existing or anticipated future customer utilization of NRSF within our operating data centers.

During the year ended December 31, 2017, we completed development of one computer room at LA2, two computer rooms at DE1, one computer room at BO1, and two computer rooms at VA1. As of December 31, 2017, we have ongoing development projects at LA2, VA3, DE1, DC2, and NY2 scheduled to complete at various times during the year ending December 31, 2018. The following table sets forth capital expenditures spent on data center NRSF placed into service during the year ended December 31, 2017, or under construction as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NRSF

 

 

 

Data Center

 

Placed into

 

Under

 

Property

    

Expansion

    

Service

    

Construction

 

LA2

 

$

56,090

 

4,726

 

87,263

 

Reston Expansion

 

 

30,691

 

 —

 

74,759

 

SV8(1)

 

 

13,337

 

 —

 

 —

 

BO1

 

 

8,264

 

13,735

 

 —

 

DE1

 

 

7,249

 

8,276

 

15,630

 

DC2

 

 

4,405

 

 —

 

24,563

 

Other

 

 

24,374

 

3,087

 

18,121

 

Total

 

$

144,410

 

29,824

 

220,336

 


(1)

On August 29, 2017, we acquired a two-acre land parcel adjacent to our existing Santa Clara campus with a total real estate value of $12.2 million. We plan to build a 175,000 NRSF turn-key data center on the acquired land parcel, which we refer to as SV8, upon the receipt of necessary entitlements.

During the year ended December 31, 2017, we incurred approximately $11.7 million in non‑recurring investments, of which $7.4 million is a result of internal IT software development and the remaining $4.3 million is a result of other non‑recurring investments, such as remodel or upgrade projects.

During the year ended December 31, 2017, we incurred approximately $6.8 million in tenant improvements, of which $6.2 million relates to tenant specific power installations and the remaining $0.6 million relates to numerous small tenant improvement projects at various properties.

During the year ended December 31, 2017, we incurred approximately $23.7 million of recurring capital expenditures within our portfolio, of which $11.9 million relates to the replacement and upgrade of an existing chiller system at our LA2 facility and the remaining $11.8 million is for other required equipment upgrades that have a future economic benefit.

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Customer Diversification

The following table sets forth information regarding the ten largest customers in our portfolio based on total portfolio annualized rent as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

  

 

 

 

 

  

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

Percentage

 

 

 

Percentage

 

Remaining

 

 

 

 

 

 

Number

 

Total

 

of Total

 

Annualized

 

of Total

 

Lease

 

 

 

 

 

 

of

 

Occupied

 

Operating

 

Rent

 

Annualized

 

Term in

 

 

CoreSite Vertical

 

Customer Industry

 

Locations

 

NRSF(1)

 

NRSF(2)

 

($000)(3)

 

Rent(4)

 

Months(5)

 

1

Cloud

    

Public Cloud

    

5

    

86,892

    

3.2

%

$

17,438

    

6.4

%

99

 

2

Cloud

 

Public Cloud

 

11

  

293,085

  

10.6

 

 

16,295

  

6.0

 

55

 

3

Enterprise

 

Travel / Hospitality

 

3

  

103,959

  

3.8

 

 

15,257

  

5.6

 

25

 

4

Cloud

 

Private Cloud

 

2

  

115,811

  

4.2

 

 

10,903

  

4.0

 

62

 

5

Enterprise

 

SI & MSP

 

3

  

63,671

  

2.3

 

 

8,622

  

3.2

 

20

 

6

Enterprise

 

SI & MSP

 

3

  

16,421

  

0.6

 

 

5,951

  

2.2

 

11

 

7

Enterprise

 

SI & MSP

 

2

  

23,311

  

0.8

 

 

5,714

  

2.1

 

23

 

8

Network

 

Global Carrier

 

6

  

28,002

  

1.0

 

 

5,023

  

1.8

 

16

 

9

Cloud

 

Software as a Service

 

1

  

30,618

  

1.1

 

 

4,466

  

1.7

 

10

 

10

Enterprise

 

Digital Content

 

4

  

33,327

  

1.2

 

 

4,192

  

1.6

 

23

 

 

Total/Weighted Average

 

 

  

795,097

  

28.8

%

$

93,861

  

34.6

%

46

 


(1)

Total occupied NRSF is determined based on contractually leased square feet for leases that have commenced on or before December 31, 2017. We calculate occupancy based on factors in addition to contractually occupied square feet, including required data center support space (such as the mechanical, telecommunications and utility rooms) and building common areas.

(2)

Represents the customer’s total occupied square feet divided by the total operating NRSF in the portfolio as of December 31, 2017.

(3)

Represents the monthly contractual rent under existing commenced customer leases as of December 31, 2017, multiplied by 12. This amount reflects total annualized base rent before any one‑time or non‑recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement.

(4)

Represents the customer’s total annualized rent divided by the total annualized rent in the portfolio as of December 31, 2017.

(5)

Weighted average based on percentage of total annualized rent expiring calculated as of December 31, 2017.

Lease Expirations

The following summary table sets forth a schedule of the expirations for leases in place as of December 31, 2017, plus unoccupied space, for each of the five full calendar years beginning January 1, 2018, at the properties in our

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portfolio (excluding space held for development or under construction). The information set forth in the table assumes that customers exercise no renewal options or early termination rights.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Annualized

 

 

 

Number

 

Operating

 

Percentage

 

 

 

 

Percentage

 

Annualized

 

Annualized

 

Rent Per

 

 

 

of

 

NRSF of

 

of Total

 

Annualized

 

of Total

 

Rent Per

 

Rent at

 

Leased

 

 

 

Leases

 

Expiring

 

Operating

 

Rent

 

Annualized

 

Leased

 

Expiration

 

NRSF at

 

Year of Lease Expiration

 

Expiring(1)

 

Leases

 

NRSF