CoreSite Reports Third Quarter 2019 Financial Results
-- Delivered
-- Placed in Service 54,000 square feet for Quarter, and 151,000 Year To Date --
-- Pre-leased 74% of Phase 1 Development at LA3 --
Q3 Quarterly Highlights
- Key Financial Results –
- Grew operating revenues to
$144.9 million , an increase of 4.1% year over year and 1.4% sequentially - Delivered net income of
$0.47 per common diluted share, a decrease of$0.05 year over year and$0.06 sequentially - Generated FFO of
$1.28 per diluted share and unit, an increase of$0.03 year over year and$0.01 sequentially
- Grew operating revenues to
- Lease Commencements –
- Commenced 130 new and expansion leases for 78,244 net rentable square feet (“NRSF”), representing
$15.7 million of annualized GAAP rent, for an average rate of$200 per square foot
- Commenced 130 new and expansion leases for 78,244 net rentable square feet (“NRSF”), representing
- Lease Sales Activity –
- Signed 122 new and expansion leases for 73,144 NRSF and
$14.4 million of annualized GAAP rent, for an average rate of$197 per square foot - Renewed 299 leases for 123,445 NRSF and
$20.4 million of annualized GAAP rent, for an average rate of$165 per square foot, reflecting a decrease of 2.2% in cash rent, an increase of 4.2% in GAAP rent, and 3.1% churn
- Signed 122 new and expansion leases for 73,144 NRSF and
Q3 2019 Notable Events
- Delivered SV8 Phase 1 into service with 100% occupancy –
- Placed into service SV8 Phase 1 for nearly 54,000 NRSF, and commenced the customer lease
- Construction of SV8 Phase 2 remains on track to be completed in late Q4 2019
- Executed a Pre-Lease at new
Los Angeles Data Center –- In
September 2019 , the Company executed a pre-lease for 74% of LA3 Phase 1 - Construction is on track to deliver LA3 Phase 1 late Q3 2020
- In
“We continue to execute on our 2019 building blocks for sustainable growth,” said
Sales Activity
CoreSite achieved new and expansion sales of
“We believe we are well positioned to continue to compete for retail colocation and new logos with our connected campuses, rich ecosystems, and ability to serve the network edge for new and future applications,” said
“We also delivered strong scale leasing this quarter, including a major pre-lease at LA3, and expect to continue to use our increased capacity to compete for scale opportunities with those customers who value and enrich our ecosystem,” said Smith.
Other Financial Results
CoreSite’s
Development Activity
CoreSite continues to execute on its property development pipeline. After entering 2019 with leasable capacity at a lower level than historical norms, the Company will exit 2019 with leasable capacity and quickly developable incremental capacity at the higher levels experienced in previous years.
- CoreSite’s ongoing data center development and operational position includes –
- the ability to increase its occupied footprint of land and buildings, both owned or leased, by about 2.1 million NRSF, or about 99.0%, 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
Completed Construction
During the third quarter, CoreSite completed construction of 54,000 NRSF of its development at SV8 Phase 1 and commenced the customer lease. For the year to date, the Company has completed and placed into service nearly 151,000 NRSF in 2019.
- Construction in
Progress
The Company continued to advance construction on its data center expansions at BO1, NY2 and SV8, as well as its new developments at CH2 and LA3. CoreSite successfully pre-leased 74% of Phase 1 of its new data center at LA3, a year in advance of its expected completion.
As of
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Costs Incurred |
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Estimated |
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Estimated |
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To-Date |
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Total Costs |
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Percent |
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Market |
Building |
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NRSF |
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Completion |
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(in millions) |
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(in millions) |
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Leased |
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Under Construction: |
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Data center expansion |
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Boston |
BO1 |
19,961 |
Q4 2019 |
$ |
5.2 |
$ |
9.0 |
— |
% |
||||||
New York |
NY2, Phase 3 |
34,589 |
Q1 2020 |
|
4.0 |
|
46.0 |
— |
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San Francisco Bay |
SV8, Phase 2 |
53,728 |
Q4 2019 |
|
13.1 |
|
44.0 |
100.0 |
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San Francisco Bay |
SV8, Phase 3 |
54,056 |
Q2 2020 |
|
— |
|
42.0 |
— |
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Total data center expansion |
|
162,334 |
|
$ |
22.3 |
$ |
141.0 |
33.1 |
% |
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New development |
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Chicago |
CH2, Phase 1 |
56,000 |
Q2 2020 |
$ |
69.0 |
$ |
120.0 |
— |
% |
||||||
Los Angeles |
LA3, Phase 1 |
51,000 |
Q3 / Q4 2020 |
|
37.6 |
|
134.0 |
74.3 |
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Total new development |
|
107,000 |
|
$ |
106.6 |
$ |
254.0 |
35.4 |
% |
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Total under construction |
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269,334 |
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$ |
128.9 |
$ |
395.0 |
34.0 |
% |
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Upcoming Conferences and Events
CoreSite’s management will participate in Nareit’s REITworld in
In addition, CoreSite will host a Los Angeles Data Center Campus Tour and a Networking Event in
Conference Call Details
CoreSite will host its third quarter 2019 earnings call on
A replay will be available after the call until
Concurrently with issuing its financial results, the Company will post its third quarter 2019 Supplemental Information on its website at CoreSite.com, under the “Investors” link.
About CoreSite
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 amount 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; 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
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
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
Consolidated Balance Sheets |
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(in thousands, except per share data) |
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September 30, |
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December 31, |
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2019 |
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2018 |
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Assets: |
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Investments in real estate: |
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Land |
$ |
|
90,300 |
|
$ |
|
86,955 |
|
||
Buildings and improvements |
|
1,896,820 |
|
|
1,730,329 |
|
||||
|
|
1,987,120 |
|
|
1,817,284 |
|
||||
Less: Accumulated depreciation and amortization |
|
(686,026 |
) |
|
(590,784 |
) |
||||
Net investment in operating properties |
|
1,301,094 |
|
|
1,226,500 |
|
||||
Construction in progress |
|
389,174 |
|
|
265,921 |
|
||||
Net investments in real estate |
|
1,690,268 |
|
|
1,492,421 |
|
||||
Operating lease right-of-use assets, net |
|
177,535 |
|
|
190,304 |
|
||||
Cash and cash equivalents |
|
4,703 |
|
|
2,599 |
|
||||
Accounts and other receivables, net |
|
26,330 |
|
|
18,464 |
|
||||
Lease intangibles, net |
|
4,328 |
|
|
6,943 |
|
||||
Goodwill |
|
40,646 |
|
|
40,646 |
|
||||
Other assets, net |
|
102,932 |
|
|
102,290 |
|
||||
Total assets |
$ |
|
2,046,742 |
|
$ |
|
1,853,667 |
|
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Liabilities and equity: |
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Liabilities |
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Debt, net |
$ |
|
1,380,541 |
|
$ |
|
1,130,823 |
|
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Operating lease liabilities |
|
191,725 |
|
|
202,699 |
|
||||
Accounts payable and accrued expenses |
|
132,739 |
|
|
89,315 |
|
||||
Accrued dividends and distributions |
|
61,783 |
|
|
55,679 |
|
||||
Acquired below-market lease contracts, net |
|
2,562 |
|
|
2,846 |
|
||||
Unearned revenue, prepaid rent and other liabilities |
|
34,066 |
|
|
37,672 |
|
||||
Total liabilities |
|
1,803,416 |
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|
1,519,034 |
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||||
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Stockholders' equity |
|
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Common stock, par value $0.01 |
|
373 |
|
|
363 |
|
||||
Additional paid-in capital |
|
508,209 |
|
|
491,314 |
|
||||
Accumulated other comprehensive loss |
|
(6,666 |
) |
|
(2,193 |
) |
||||
Distributions in excess of net income |
|
(321,720 |
) |
|
(246,929 |
) |
||||
Total stockholders' equity |
|
180,196 |
|
|
242,555 |
|
||||
Noncontrolling interests |
|
63,130 |
|
|
92,078 |
|
||||
Total equity |
|
243,326 |
|
|
334,633 |
|
||||
Total liabilities and equity |
$ |
|
2,046,742 |
|
$ |
|
1,853,667 |
|
||
Consolidated Statements of Operations |
||||||||||||||||||||
(in thousands, except per share data) |
||||||||||||||||||||
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Three Months Ended |
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Nine Months Ended |
|||||||||||||||||
|
September 30, |
|
June 30, |
|
September 30, |
|
September 30, |
|
September 30, |
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|
2019 |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|||||||||||
Operating revenues: |
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||||||||||
Data center revenue:(1) |
|
|
|
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|
|
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||||||||||
Rental, power, and related revenue |
$ |
122,598 |
|
$ |
121,083 |
|
$ |
118,590 |
|
$ |
361,534 |
|
$ |
344,745 |
|
|||||
Interconnection revenue |
|
19,082 |
|
|
18,776 |
|
|
17,701 |
|
|
56,274 |
|
|
51,683 |
|
|||||
Total data center revenue |
|
141,680 |
|
|
139,859 |
|
|
136,291 |
|
|
417,808 |
|
|
396,428 |
|
|||||
Office, light-industrial and other revenue |
|
3,211 |
|
|
3,047 |
|
|
2,889 |
|
|
8,884 |
|
|
8,818 |
|
|||||
Total operating revenues |
|
144,891 |
|
|
142,906 |
|
|
139,180 |
|
|
426,692 |
|
|
405,246 |
|
|||||
|
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|
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|
||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
||||||||||
Property operating and maintenance |
|
41,251 |
|
|
38,067 |
|
|
41,161 |
|
|
117,428 |
|
|
112,870 |
|
|||||
Real estate taxes and insurance |
|
4,973 |
|
|
5,988 |
|
|
4,699 |
|
|
17,157 |
|
|
14,329 |
|
|||||
Depreciation and amortization |
|
40,546 |
|
|
36,996 |
|
|
36,264 |
|
|
113,188 |
|
|
105,598 |
|
|||||
Sales and marketing |
|
5,476 |
|
|
5,784 |
|
|
5,180 |
|
|
16,912 |
|
|
15,629 |
|
|||||
General and administrative |
|
10,671 |
|
|
12,282 |
|
|
10,074 |
|
|
33,123 |
|
|
29,556 |
|
|||||
Rent |
|
8,331 |
|
|
7,733 |
|
|
7,329 |
|
|
23,752 |
|
|
20,276 |
|
|||||
Transaction costs |
|
— |
|
— |
|
— |
|
— |
|
75 |
|
|||||||||
Total operating expenses |
|
111,248 |
|
|
106,850 |
|
|
104,707 |
|
|
321,560 |
|
|
298,333 |
|
|||||
Operating income |
|
33,643 |
|
|
36,056 |
|
|
34,473 |
|
|
105,132 |
|
|
106,913 |
|
|||||
Interest expense |
|
(10,986 |
) |
|
(10,311 |
) |
|
(9,433 |
) |
|
(30,795 |
) |
|
(26,078 |
) |
|||||
Income before income taxes |
|
22,657 |
|
|
25,745 |
|
|
25,040 |
|
|
74,337 |
|
|
80,835 |
|
|||||
Income tax (expense) benefit |
|
(13 |
) |
|
(2 |
) |
|
(20 |
) |
|
(45 |
) |
|
30 |
|
|||||
Net income |
|
22,644 |
|
|
25,743 |
|
|
25,020 |
|
|
74,292 |
|
|
80,865 |
|
|||||
Net income attributable to noncontrolling interests |
|
5,194 |
|
|
6,208 |
|
|
6,420 |
|
|
17,646 |
|
|
22,574 |
|
|||||
Net income attributable to common shares |
$ |
17,450 |
|
$ |
19,535 |
|
$ |
18,600 |
|
$ |
56,646 |
|
$ |
58,291 |
|
|||||
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||||||||||
Net income per share attributable to common shares: |
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic |
$ |
0.47 |
|
$ |
0.54 |
|
$ |
0.52 |
|
$ |
1.55 |
|
$ |
1.69 |
|
|||||
Diluted |
$ |
0.47 |
|
$ |
0.53 |
|
$ |
0.52 |
|
$ |
1.54 |
|
$ |
1.68 |
|
|||||
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|
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||||||||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic |
|
36,951 |
|
|
36,463 |
|
|
35,512 |
|
|
36,590 |
|
|
34,505 |
|
|||||
Diluted |
|
37,132 |
|
|
36,619 |
|
|
35,721 |
|
|
36,763 |
|
|
34,694 |
|
(1) |
During 2018, the Financial Accounting Standards Board (“FASB”) issued updates to the new lease accounting standard. As a result of the updates the Company has combined contractual data center rental, power, and tenant reimbursements and other revenue into a single line item as shown below: |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|||||||||||
|
|
September 30, |
|
June 30, |
|
September 30, |
|
|
September 30, |
|
September 30, |
|||||
|
|
2019 |
|
2019 |
|
2018 |
|
|
2019 |
|
2018 |
|||||
Rental revenue |
|
$ |
77,907 |
|
$ |
76,529 |
|
$ |
74,321 |
|
|
$ |
229,366 |
|
$ |
219,497 |
Power revenue |
|
|
41,783 |
|
|
41,316 |
|
|
40,967 |
|
|
|
123,602 |
|
|
116,356 |
Tenant reimbursement and other |
|
|
2,908 |
|
|
3,238 |
|
|
3,302 |
|
|
|
8,566 |
|
|
8,892 |
Rental, power, and related revenue |
|
$ |
122,598 |
|
$ |
121,083 |
|
$ |
118,590 |
|
|
$ |
361,534 |
|
$ |
344,745 |
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, |
||||||
|
2019 |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||
Net income |
$ |
22,644 |
$ |
25,743 |
$ |
25,020 |
$ |
74,292 |
$ |
80,865 |
|||||
Real estate depreciation and amortization |
|
39,092 |
|
35,573 |
|
34,928 |
|
108,852 |
|
101,605 |
|||||
FFO available to common shareholders and OP unit holders |
$ |
61,736 |
$ |
61,316 |
$ |
59,948 |
$ |
183,144 |
$ |
182,470 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Weighted average common shares outstanding - diluted |
|
37,132 |
|
36,619 |
|
35,721 |
|
36,763 |
|
34,694 |
|||||
Weighted average OP units outstanding - diluted |
|
11,118 |
|
11,599 |
|
12,378 |
|
11,437 |
|
13,342 |
|||||
Total weighted average shares and units outstanding - diluted |
|
48,250 |
|
48,218 |
|
48,099 |
|
48,200 |
|
48,036 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
FFO per common share and OP unit - diluted |
$ |
1.28 |
$ |
1.27 |
$ |
1.25 |
$ |
3.80 |
$ |
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, |
|||||||
|
2019 |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|||||||
Net income |
$ |
22,644 |
$ |
25,743 |
$ |
25,020 |
$ |
74,292 |
$ |
80,865 |
|
|||||
Adjustments: |
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense |
|
10,986 |
|
10,311 |
|
9,433 |
|
30,795 |
|
26,078 |
|
|||||
Income taxes |
|
13 |
|
2 |
|
20 |
|
45 |
|
(30 |
) |
|||||
Depreciation and amortization |
|
40,546 |
|
36,996 |
|
36,264 |
|
113,188 |
|
105,598 |
|
|||||
EBITDAre |
$ |
74,189 |
$ |
73,052 |
$ |
70,737 |
$ |
218,320 |
$ |
212,511 |
|
|||||
Non-cash compensation |
|
3,732 |
|
3,617 |
|
3,052 |
|
10,781 |
|
8,864 |
|
|||||
Transaction costs / litigation |
|
7 |
|
— |
|
3 |
|
7 |
|
168 |
|
|||||
Adjusted EBITDA |
$ |
77,928 |
$ |
76,669 |
$ |
73,792 |
$ |
229,108 |
$ |
221,543 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20191031005473/en/
Source:
CoreSite Contact
Carole Jorgensen
Vice President Investor Relations and Corporate Communications
303-405-1012
InvestorRelations@CoreSite.com