cor_Current_Folio_10K

Table of Contents

 

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, 2016

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

7.25% Series A Cumulative Redeemable

 

New York Stock Exchange

Preferred Stock, $0.01 par value per share

 

 

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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 ☐

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 $2,493.3 million as of June 30, 2016, 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 8, 2017, there were 33,895,316 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 2017 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the registrant’s fiscal year ended December 31, 2016, are incorporated by reference in Part III of this report.

 

 


 

Table of Contents

Table of Contents

 

 

 

Page

PART I 

ITEM 1. BUSINESS 

17 

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 

42 

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

44 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

55 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 

57 

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

89 

ITEM 9A. CONTROLS AND PROCEDURES 

89 

ITEM 9B. OTHER INFORMATION 

89 

PART III 

90 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 

90 

ITEM 11. EXECUTIVE COMPENSATION 

90 

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

90 

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

90 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 

90 

PART IV 

91 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 

91 

SIGNATURES 

95 

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, 2016 (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 markets. More than 1,000 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, 2016, our property portfolio included 20 operating data center facilities, office and light‑industrial space and multiple development projects and space, which collectively comprise over 3.5 million net rentable square feet (“NRSF”), of which over 2.2 million NRSF is existing data center space.

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 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.

High Performance.  We offer cloud-enabled, network rich data center campuses with over 20,000 interconnections across our portfolio and direct access to over 375 carriers and ISPs (Internet Service Providers), over 300 leading cloud and IT service providers and inter‑site connectivity. Our offerings include the CoreSite Open Cloud Exchange and the Any2 Internet Exchange. We believe that the diverse network connectivity options at many of our data centers provide us with a competitive advantage because network‑dense facilities offering high levels of connectivity

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typically take many years to establish. 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.

At December 31, 2016, our data center facilities have approximately 281,000 NRSF of unoccupied space. We have the ability to increase our occupied data center square footage by approximately 1,275,000 NRSF, or 66%, through leasing our unoccupied space and the development of 27,000 NRSF space under construction as of December 31, 2016, and approximately 967,000 NRSF at multiple facilities that are available for future development based on market supply and demand.

Best‑in‑Class Customer Experience.  We believe our 422 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.

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 services providers (“SI & MSP”), financial, healthcare, education, government, manufacturing and professional services

·

Cloud and IT Service Providers

·

Networks and Mobility: domestic and international telecommunications carriers, ISPs and CDNs (Content Delivery Networks)

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 of 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, power and interconnection services to new and existing data center customers. As of December 31, 2016, 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

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they use per square foot. Our existing data center facilities have approximately 281,000 NRSF, or 12.6% of space currently unoccupied. 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 locate 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, 2016, vacant space and land targeted for future development, we own land and buildings sufficient to develop approximately 994,000 NRSF of data center space.

The following table summarizes the NRSF under construction and NRSF held for development throughout our portfolio, each as of December 31, 2016:

 

 

 

 

 

 

 

 

 

 

Development Opportunities (in NRSF)

 

 

 

Under

 

Held for

 

 

 

Facilities

 

Construction(1)

 

Development(2)

 

Total

 

One Wilshire campus

 

 

 

 

 

 

 

LA1

 

 —

 

10,352

 

10,352

 

LA2

 

4,726

 

122,476

 

127,202

 

Los Angeles Total

 

4,726

 

132,828

 

137,554

 

Northern Virginia

 

 

 

 

 

 

 

Reston Campus Expansion(3)

 

 —

 

611,072

 

611,072

 

Boston

 

 

 

 

 

 

 

BO1

 

13,735

 

59,884

 

73,619

 

New York

 

 

 

 

 

 

 

NY2

 

 —

 

134,508

 

134,508

 

Miami

 

 

 

 

 

 

 

MI1

 

 —

 

13,154

 

13,154

 

Denver

 

 

 

 

 

 

 

DE1

 

8,276

 

15,630

 

23,906

 

Total Facilities(4)

 

26,737

 

967,076

 

993,813

 


(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 in our portfolio that requires significant capital investment in order to develop into data center facilities.

(3)

During the fourth quarter of 2016, we acquired a 21.75-acre light-industrial / flex office park consisting of four operating buildings (the “Reston Campus Expansion”). Based upon our expectations regarding entitlements for the campus, we may build approximately 611,000 NRSF of incremental data center capacity across multiple phases. Currently, 178,712 NRSF and 48,928 NRSF is operating office and light-industrial space and powered shell data center space, respectively. We plan to begin construction of the first phase of the Reston Campus Expansion in the first quarter of 2017.

(4)

In addition to our development opportunities disclosed within this table, we have entitled and unentitled land adjacent to our NY2 and LA2 facilities, in the form of existing parking lots. By utilizing existing parking lots, we

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believe that we could develop 100,000 NRSF and 200,000 NRSF buildings at NY2 and LA2, respectively, 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 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.

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, 2016, our property portfolio included 20 operating data center facilities, office and light‑industrial space and multiple development projects that collectively comprise over 3.5 million NRSF, of which over 2.2 million NRSF is existing data center space. The approximately 1.0 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, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

6,335

 

85,932

 

82.3

%  

 —

 

 —

%  

85,932

 

82.3

%  

 —

 

85,932

 

SV2

 

 

8,367

 

76,676

 

93.7

 

 —

 

 —

 

76,676

 

93.7

 

 —

 

76,676

 

Santa Clara campus(6)

 

 

61,508

 

538,615

 

99.4

 

76,885

 

25.5

 

615,500

 

90.2

 

 —

 

615,500

 

San Francisco Bay Total

 

 

76,210

 

701,223

 

96.7

 

76,885

 

25.5

 

778,108

 

89.6

 

 —

 

778,108

 

Los Angeles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Wilshire campus

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LA1*

 

 

28,930

 

139,053

 

93.7

 

 —

 

 —

 

139,053

 

93.7

 

10,352

 

149,405

 

LA2

 

 

30,910

 

254,343

 

92.0

 

43,345

 

24.3

 

297,688

 

82.1

 

127,202

 

424,890

 

Los Angeles Total

 

 

59,840

 

393,396

 

92.6

 

43,345

 

24.3

 

436,741

 

85.8

 

137,554

 

574,295

 

Northern Virginia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VA1

 

 

26,779

 

201,719

 

94.0

 

 —

 

 —

 

201,719

 

94.0

 

 —

 

201,719

 

VA2

 

 

13,238

 

115,336

 

100.0

 

73,111

 

20.2

 

188,447

 

69.0

 

 —

 

188,447

 

DC1*

 

 

3,306

 

22,137

 

86.4

 

 —

 

 —

 

22,137

 

86.4

 

 —

 

22,137

 

Reston Campus Expansion(7)

 

 

1,125

 

48,928

 

100.0

 

 —

 

 —

 

48,928

 

100.0

 

611,072

 

660,000

 

Northern Virginia Total

 

 

44,448

 

388,120

 

96.1

 

73,111

 

20.2

 

461,231

 

84.1

 

611,072

 

1,072,303

 

Chicago

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CH1

 

 

18,403

 

178,407

 

93.8

 

 —

 

 —

 

178,407

 

93.8

 

 —

 

178,407

 

Boston

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BO1

 

 

17,209

 

166,026

 

98.7

 

14,031

 

56.1

 

180,057

 

95.3

 

73,619

 

253,676

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NY1*

 

 

4,999

 

48,404

 

71.8

 

 —

 

 —

 

48,404

 

71.8

 

 —

 

48,404

 

NY2

 

 

9,901

 

68,822

 

95.5

 

32,920

 

46.5

 

101,742

 

79.7

 

134,508

 

236,250

 

New York Total

 

 

14,900

 

117,226

 

85.7

 

32,920

 

46.5

 

150,146

 

77.1

 

134,508

 

284,654

 

Miami

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MI1

 

 

1,357

 

30,176

 

61.0

 

 —

 

 —

 

30,176

 

61.0

 

13,154

 

43,330

 

Denver

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DE1*

 

 

1,418

 

5,878

 

100.0

 

 —

 

 —

 

5,878

 

100.0

 

23,906

 

29,784

 

DE2*

 

 

442

 

5,140

 

99.3

 

 —

 

 —

 

5,140

 

99.3

 

 —

 

5,140

 

Denver Total

 

 

1,860

 

11,018

 

99.7

 

 —

 

 —

 

11,018

 

99.7

 

23,906

 

34,924

 

Total Data Center Facilities

 

$

234,227

 

1,985,592

 

94.5

%  

240,292

 

28.3

%  

2,225,884

 

87.4

%  

993,813

 

3,219,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office and Light-Industrial(8)

 

 

7,748

 

354,721

 

76.2

 

 —

 

 —

 

354,721

 

76.2

 

 —

 

354,721

 

Reston Office and Light-Industrial(7)

 

 

2,865

 

178,712

 

100.0

 

 —

 

 —

 

178,712

 

100.0

 

(178,712)

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Portfolio

 

$

244,840

 

2,519,025

 

92.3

%  

240,292

 

28.3

%  

2,759,317

 

86.7

%  

815,101

 

3,574,418

 


*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 11.

(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.

(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

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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, 2016, 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 $250.8 million as of December 31, 2016, which includes $6.0 million in operating expense reimbursements under modified gross and triple‑net leases. See footnote (6) below for more information regarding annualized rent for the Santa Clara campus.

(5)

Includes customer leases that have commenced and are occupied as of December 31, 2016. The percent occupied is determined based on leased square feet as a proportion of total operating NRSF as of December 31, 2016. The percent occupied for stabilized data center space would have been 95.0%, rather than 94.5%, 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 87.6%, rather than 86.7%, if all leases signed in current and prior periods had commenced.

(6)

The annualized rent for the Santa Clara campus includes amounts associated with a restructured lease agreement involving a customer that has vacated its leased space and is paying discounted rent payments that may be applied to new lease arrangements elsewhere in our portfolio on a dollar‑for‑dollar basis until the original lease term expires. The $4.2 million payable pursuant to this agreement is scheduled to expire in the second quarter of 2017.

(7)

During the fourth quarter of 2016, we acquired a 21.75-acre light-industrial / flex office park consisting of four operating buildings (the “Reston Campus Expansion”). Based upon our expectations regarding entitlements for the Reston Campus Expansion, we may build approximately 611,000 NRSF of incremental data center capacity across multiple phases. Currently, 178,712 NRSF and 48,928 NRSF is operating office and light-industrial space and powered shell data center space, respectively. We plan to begin construction of the first phase of the Reston Campus Expansion in the first quarter of 2017, subject to obtaining the necessary permits and approvals. In the second quarter of 2017, a customer is scheduled to vacate its 28,337 NRSF office lease, which will result in a decrease of $0.8 million to annualized rent. This office space will not be re-leased based on our development plans.

(8)

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, 2014, excluding space for which development was completed and became available to be leased after December 31, 2014. 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, 2016, Same‑Store operating statistics. For comparison purposes, the operating activity totals as of December 31, 2015, and 2014, 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

 

$

11,994

 

85,932

 

82.3

%  

234,238

 

78.5

%  

320,170

 

79.5

%

SV2

 

 

8,367

 

76,676

 

93.7

 

 —

 

 —

 

76,676

 

93.7

 

Santa Clara campus(3)

 

 

33,971

 

252,009

 

98.7

 

712

 

84.3

 

252,721

 

98.6

 

San Francisco Bay Total

 

 

54,332

 

414,617

 

94.4

 

234,950

 

78.5

 

649,567

 

88.6

 

Los Angeles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Wilshire campus

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LA1*

 

 

29,101

 

139,053

 

93.7

 

4,373

 

76.4

 

143,426

 

93.2

 

LA2

 

 

26,486

 

234,801

 

91.7

 

7,029

 

84.3

 

241,830

 

91.4

 

Los Angeles Total

 

 

55,587

 

373,854

 

92.4

 

11,402

 

81.3

 

385,256

 

92.1

 

Northern Virginia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VA1

 

 

27,852

 

201,719

 

94.0

 

61,050

 

87.2

 

262,769

 

92.4

 

DC1*

 

 

3,306

 

22,137

 

86.4

 

 —

 

 —

 

22,137

 

86.4

 

Northern Virginia Total

 

 

31,158

 

223,856

 

93.3

 

61,050

 

87.2

 

284,906

 

92.0

 

Chicago

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CH1

 

 

15,501

 

166,776

 

94.3

 

4,946

 

71.3

 

171,722

 

93.7

 

Boston

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BO1

 

 

16,133

 

166,026

 

98.7

 

19,495

 

75.7

 

185,521

 

96.2

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NY1*

 

 

5,013

 

48,404

 

71.8

 

209

 

100.0

 

48,613

 

72.0

 

NY2

 

 

6,451

 

52,692

 

94.2

 

20,735

 

19.4

 

73,427

 

73.1

 

New York Total

 

 

11,464

 

101,096

 

83.5

 

20,944

 

20.2

 

122,040

 

72.6

 

Miami

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MI1

 

 

1,380

 

30,176

 

61.0

 

1,934

 

37.3

 

32,110

 

59.6

 

Denver

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DE1*

 

 

1,169

 

4,726

 

100.0

 

 —

 

 —

 

4,726

 

100.0

 

DE2*

 

 

442

 

5,140

 

99.3

 

 —

 

 —

 

5,140

 

99.3

 

Denver Total

 

 

1,611

 

9,866

 

99.6

 

 —

 

 —

 

9,866

 

99.6

 

Total Facilities at December 31, 2016(4)

 

$

187,166

 

1,486,267

 

92.8

%  

354,721

 

76.2

%  

1,840,988

 

89.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Facilities at December 31, 2015

 

$

178,041

 

 

 

89.9

%  

 

 

71.9

%  

 

 

86.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Facilities at December 31, 2014

 

$

156,646

 

 

 

81.9

%  

 

 

75.8

%  

 

 

80.7

%


*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 leased square feet as a proportion of total operating NRSF.

(3)

The annualized rent for the Santa Clara campus includes amounts associated with a restructured lease agreement involving a customer that has vacated its leased space and is paying discounted rent payments that may be applied to new lease arrangements elsewhere in our portfolio on a dollar‑for‑dollar basis until the original lease term expires. The $4.2 million payable pursuant to this agreement is scheduled to expire in the second quarter of 2017.

(4)

The percent occupied for data center space, office and light‑industrial space, and total space would have been 93.4%, 76.8% and 90.2%, respectively, if all leases signed in the current and prior periods had commenced.

Same‑Store annualized rent increased to $187.2 million at December 31, 2016, compared to $178.0 million at December 31, 2015. The increase of $9.1 million in Same-Store annualized rent is due primarily to an increase of 38,612 occupied NRSF at our Los Angeles campus.

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Capital Expenditures

The following table sets forth information regarding capital expenditures during the year ended December 31, 2016 (in thousands):

 

 

 

 

 

 

 

Year Ended

 

 

    

December 31, 2016

 

Data center expansion

 

$

340,452

 

Non-recurring investments

 

 

10,250

 

Tenant improvements

 

 

6,865

 

Recurring capital expenditures

 

 

6,081

 

Total capital expenditures

 

$

363,648

 

 

During the year ended December 31, 2016, we incurred approximately $363.6 million of capital expenditures, of which approximately $340.5 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 the 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, 2016, we completed development of SV6, a 136,580 NRSF powered shell data center and SV7, a new 226,911 NRSF turn-key data center building, at our Santa Clara campus, as well as seven computer rooms within existing properties. We also acquired a 21.75 operating light-industrial / flex office park located in Reston, Virginia, we plan to build over 611,000 NRSF of incremental data center capacity across multiple phases, referred to as the Reston Campus Expansion. We plan to begin the first phase of the Reston Campus Expansion during the first quarter of 2017. The following table sets forth capital expenditures spent on data center NRSF placed into service or under construction during the year ended December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NRSF

 

 

 

Data Center

 

Placed into

 

Under

 

Property

    

Expansion

    

Service

    

Construction

 

BO1

 

$

3,075

 

14,031

 

13,735

 

DE1

 

 

6,380

 

 —

 

8,276

 

LA2

 

 

12,321

 

43,345

 

4,726

 

SV6

 

 

11,351

 

136,580

 

 —

 

SV7

 

 

204,803

 

226,911

 

 —

 

VA2

 

 

14,698

 

96,274

 

 —

 

Reston Expansion

 

 

66,089

 

 —

 

 —

 

Other

 

 

21,735

 

 —

 

 —

 

Total

 

$

340,452

 

517,141

 

26,737

 

 

During the year ended December 31, 2016, we incurred approximately $10.3 million in non‑recurring investments, of which $6.5 million is a result of internal IT software development and the remaining $3.8 million is a result of other non‑recurring investments, such as remodel or upgrade projects.

During the year ended December 31, 2016, we incurred approximately $6.9 million in tenant improvements, which relates to numerous small tenant improvement projects at various properties.

During the year ended December 31, 2016, we incurred approximately $6.1 million of recurring capital expenditures within our portfolio for 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, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

  

 

 

 

 

  

 

 

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

    

86,839

    

3.1

%

$

16,933

    

6.9

%

111

 

2

Cloud

 

Public Cloud

 

10

  

286,240

  

10.4

 

 

14,807

  

6.0

 

69

 

3

Enterprise

 

Travel / Hospitality

 

3

  

104,732

  

3.8

 

 

10,439

  

4.3

 

30

 

4

Cloud

 

Private Cloud

 

2

  

95,225

  

3.5

 

 

8,984

  

3.7

 

71

 

5

Enterprise

 

SI & MSP

 

3

  

63,859

  

2.3

 

 

8,597

  

3.5

 

26

 

6

Enterprise

 

SI & MSP

 

3

  

16,480

  

0.6

 

 

5,778

  

2.4

 

23

 

7

Networks & Mobility

 

Global Carrier

 

5

  

27,871

  

1.0

 

 

4,849

  

2.0

 

28

 

8

Enterprise

 

Government*(6)

 

2

  

164,757

  

6.0

 

 

4,743

  

1.9

 

61

 

9

Enterprise

 

SI & MSP

 

2

  

26,081

  

0.9

 

 

4,726

  

1.9

 

6

 

10

Cloud

 

Software as a Service

 

1

  

31,283

  

1.1

 

 

4,347

  

1.8

 

22

 

 

Total/Weighted Average

 

 

  

903,367

  

32.7

%

$

84,203

  

34.4

%

56

 


*Denotes customer using space for general office purposes.

(1)

Total occupied NRSF is determined based on contractually leased square feet for leases that have commenced on or before December 31, 2016. We calculate occupancy based on factors in addition to contractually leased 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, 2016.

(3)

Represents the monthly contractual rent under existing commenced customer leases as of December 31, 2016, 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, 2016.

(5)

Weighted average based on percentage of total annualized rent expiring calculated as of December 31, 2016.

(6)

In connection with the acquisition of our Reston Campus Expansion during the fourth quarter of 2016, we assumed a 28,337 NRSF office lease for this customer which is reflected in the totals above. This customer is scheduled to vacate the 28,337 NRSF office lease during the second quarter of 2017, which will not be re-leased given our current development plans.

Lease Expirations

The following summary table sets forth a schedule of the expirations for leases in place as of December 31, 2016, plus unoccupied space, for each of the five full calendar years beginning January 1, 2017, 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

 

($000)(2)

 

Rent

 

NRSF(3)

 

($000)(4)

 

Expiration(5)

 

Unoccupied data center

 

 —

 

281,392

 

10.2

%

$

 —

 

 —

%

$

 —

 

$

 —

 

$

 —

 

Unoccupied office and light-industrial

 

 —

 

84,541

 

3.1

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

2017

 

1,020

 

460,730

 

16.6

 

 

73,544

 

30.1

 

 

151

 

 

74,077

 

 

152

 

2018

 

547

 

357,726

 

12.9

 

 

53,399

 

21.8

 

 

149

 

 

55,875

 

 

156

 

2019

 

294

 

341,204

 

12.4

 

 

35,581

 

14.5

 

 

104

 

 

40,327

 

 

118

 

2020

 

45

 

150,730

 

5.5

 

 

13,767

 

5.6

 

 

91

 

 

16,856

 

 

112

 

2021

 

57

 

88,191

 

3.2

 

 

9,267

 

3.8

 

 

105

 

 

14,553

 

 

165

 

2022-Thereafter

 

34

 

545,911

 

19.8

 

 

48,668

 

19.9

 

 

89

 

 

61,732

 

 

113

 

Office and light-industrial (6)

 

114

 

448,892

 

16.3

 

 

10,613

 

4.3

 

 

24

 

 

11,337

 

 

25

 

Portfolio Total / Weighted Average

 

2,111

 

2,759,317

 

100.0

%

$

244,839

 

100.0

%

$

101

 

$

274,757

 

$

113

 


(1)

Includes leases that upon expiration will automatically renew, primarily on a year‑to‑year basis. Number of leases represents each agreement with a customer; a lease agreement could include multiple spaces and a customer could have multiple leases.

(2)

Represents the monthly contractual rent under existing commenced customer leases as of December 31, 2016, 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 reimbursements.

(3)

The annualized rent per leased NRSF and per leased NRSF at expiration does not include annualized rent of $4.2 million associated with a restructured lease agreement involving a customer at the Santa Clara campus that has vacated its leased space and is paying discounted rent payments that may be applied to new lease arrangements elsewhere in our portfolio on a dollar‑for‑dollar basis until the original lease term expires in the second quarter of 2017.

(4)

Represents the final monthly contractual rent under existing customer leases as of December 31, 2016, multiplied by 12. This amount reflects total annualized base rent before any one‑time or non‑recurring rent abatements and excludes operating expense reimbursement, power revenue and interconnection revenue. Leases expiring during 2017 include annualized rent of $6.2 million associated with lease terms currently on a month-to-month basis.

(5)

Annualized rent at expiration as defined above, divided by the square footage of leases expiring in the given year. This metric reflects the rent growth inherent in the existing base of lease agreements.

(6)

The occupied office and light-industrial leases, 56,669 NRSF, 46,943 NRSF, 43,630 NRSF, 18,553 NRSF, 26,655 NRSF and 256,442 NRSF are scheduled to expire in 2017, 2018, 2019, 2020, 2021 and 2022 and thereafter, respectively, which accounts for (in thousands) $1,580, $980, $1,001, $431, $916 and $5,705 of annualized rent scheduled to expire during each respective period.

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Table of Contents

Lease Distribution

The following table sets forth information relating to the distribution of leases in the properties in our portfolio, based on NRSF (excluding space held for development or under construction) under lease as of December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Percentage

 

 

 

Percentage

 

 

 

Number

 

Percentage

 

Operating

 

of Total

 

Annualized

 

of Total