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Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Dec. 31, 2018	Feb. 06, 2019	Jun. 29, 2018
Document and Entity Information
Entity Registrant Name	CoreSite Realty Corp
Entity Central Index Key	0001490892
Document Type	10-K
Document Period End Date	Dec. 31, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Public Float			$ 2,807.5
Entity Common Stock, Shares Outstanding		36,708,691
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Investments in real estate:
Land	$ 86,955	$ 97,258
Buildings and improvements	1,730,329	1,561,056
Total investments in real estate	1,817,284	1,658,314
Less: Accumulated depreciation and amortization	(590,784)	(473,141)
Net investment in operating properties	1,226,500	1,185,173
Construction in progress	265,921	162,903
Net investments in real estate	1,492,421	1,348,076
Operating lease right-of-use assets	190,304	92,984
Cash and cash equivalents	2,599	5,247
Accounts and other receivables, net of allowance for doubtful accounts of $417 and $1,094 as of December 31, 2018, and December 31, 2017, respectively	18,464	28,875
Lease intangibles, net of accumulated amortization of $7,756 and $8,585 as of December 31, 2018, and December 31, 2017, respectively	6,943	6,314
Goodwill	40,646	40,646
Other assets, net	102,290	103,501
Total assets	1,853,667	1,625,643
Liabilities:
Debt, net of unamortized deferred financing costs of $5,677 and $4,930 as of December 31, 2018, and December 31, 2017, respectively	1,130,823	939,570
Operating lease liabilities	202,699	102,912
Accounts payable and accrued expenses	89,315	77,170
Accrued dividends and distributions	55,679	48,976
Acquired below-market lease contracts, net of accumulated amortization of $3,840 and $5,608 as of December 31, 2018, and December 31, 2017, respectively	2,846	3,504
Unearned revenue, prepaid rent and other liabilities	37,672	34,867
Total liabilities	1,519,034	1,206,999
Stockholders' equity:
Common Stock, par value $0.01, 100,000,000 shares authorized and 36,708,691 and 34,240,815 shares issued and outstanding at December 31, 2018, and December 31, 2017, respectively	363	338
Additional paid-in capital	491,314	457,495
Accumulated other comprehensive income (loss)	(2,193)	753
Distributions in excess of net income	(246,929)	(177,566)
Total stockholders' equity	242,555	281,020
Noncontrolling interests	92,078	137,624
Total equity	334,633	418,644
Total liabilities and equity	$ 1,853,667	$ 1,625,643

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Data center revenue:
Rental revenue	$ 474,683	$ 419,528	$ 347,275
Total operating revenues	544,392	481,821	400,352
Operating expenses:
Property operating and maintenance	152,357	132,820	107,212
Real estate taxes and insurance	19,239	14,913	14,250
Depreciation and amortization	141,633	129,251	108,652
Sales and marketing	21,023	18,176	17,495
General and administrative	40,090	37,548	35,369
Rent	27,696	24,125	22,631
Transaction costs	75	176	126
Total operating expenses	402,113	357,009	305,735
Operating income	142,279	124,812	94,617
Interest expense	(35,526)	(24,147)	(12,577)
Income before income taxes	106,753	100,665	82,040
Income tax (expense) benefit	10	(174)	(119)
Net income	106,763	100,491	81,921
Net income attributable to noncontrolling interests	28,841	25,636	23,212
Net income attributable to CoreSite Realty Corporation	77,922	74,855	58,709
Preferred stock dividends		(7,924)	(8,338)
Original issuance costs associated with redeemed preferred stock		(4,326)
Net income attributable to common shares	$ 77,922	$ 62,605	$ 50,371
Net income per share attributable to common shares:
Basic (in dollars per share)	$ 2.23	$ 1.85	$ 1.56
Diluted (in dollars per share)	$ 2.22	$ 1.84	$ 1.54
Weighted average common shares outstanding
Basic (in shares)	34,957,244	33,792,759	32,289,414
Diluted (in shares)	35,137,495	34,058,949	32,732,059
Rental Power And Related Revenue
Data center revenue:
Rental revenue	$ 463,086	$ 407,680	$ 338,687
Interconnection Revenue
Data center revenue:
Revenue	69,709	62,293	53,077
Office Light Industrial And Other Revenue
Data center revenue:
Rental revenue	$ 11,597	$ 11,848	$ 8,588

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 106,763	$ 100,491	$ 81,921
Other comprehensive income (loss):
Unrealized gain (loss) on derivative contracts	(3,676)	580	(1,112)
Reclassification of other comprehensive income (loss) to interest expense	(326)	623	1,740
Comprehensive income	102,761	101,694	82,549
Comprehensive income attributable to noncontrolling interests	27,912	25,985	23,242
Comprehensive income attributable to CoreSite Realty Corporation	$ 74,849	$ 75,709	$ 59,307

- Definition

The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

+ References

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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

CONSOLIDATED STATEMENTS OF EQUITY - USD ($) $ in Thousands	Preferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Distributions in Excess of Net Income	Total Stockholders' Equity	Noncontrolling Interests	Total
Balance at Dec. 31, 2015	$ 115,000	$ 301	$ 390,200	$ (493)	$ (88,891)	$ 416,117	$ 210,188	$ 626,305
Balance (in shares) at Dec. 31, 2015		30,650,703
Increase (Decrease) in Stockholders' Equity
Redemption of noncontrolling interests		$ 30	37,550	(206)		37,374	(37,374)
Redemption of noncontrolling interests (in shares)		3,007,000
Issuance of stock awards, net of forfeitures (in shares)		164,408
Exercise of stock options		$ 1	1,289			1,290		1,290
Exercise of stock options (in shares)		74,660
Share-based compensation		$ 2	9,492			9,494		9,494
Dividends declared on preferred stock					(8,338)	(8,338)		(8,338)
Dividends and distributions					(79,518)	(79,518)	(34,696)	(114,214)
Net income					58,709	58,709	23,212	81,921
Other comprehensive income				598		598	30	628
Balance at Dec. 31, 2016	115,000	$ 334	438,531	(101)	(118,038)	435,726	161,360	597,086
Balance (in shares) at Dec. 31, 2016		33,896,771
Increase (Decrease) in Stockholders' Equity
Redemption of noncontrolling interests			167			167	(167)
Redemption of noncontrolling interests (in shares)		15,011
Redemption of preferred stock	$ (115,000)		4,326		(4,326)	(115,000)		(115,000)
Issuance of stock awards, net of forfeitures (in shares)		131,272
Exercise of stock options		$ 2	4,818			4,820		4,820
Exercise of stock options (in shares)		197,761
Share-based compensation		$ 2	9,653			9,655		9,655
Dividends declared on preferred stock					(7,924)	(7,924)		(7,924)
Dividends and distributions					(122,133)	(122,133)	(49,554)	(171,687)
Net income					74,855	74,855	25,636	100,491
Other comprehensive income				854		854	349	1,203
Balance at Dec. 31, 2017		$ 338	457,495	753	(177,566)	281,020	137,624	418,644
Balance (in shares) at Dec. 31, 2017		34,240,815
Increase (Decrease) in Stockholders' Equity
Redemption of noncontrolling interests		$ 23	20,852	127		21,002	(21,002)
Redemption of noncontrolling interests (in shares)		2,261,068
Issuance of stock awards, net of forfeitures (in shares)		188,152
Exercise of stock options			310			310		310
Exercise of stock options (in shares)		18,656
Share-based compensation		$ 2	12,657			12,659		12,659
Dividends and distributions					(147,285)	(147,285)	(52,456)	(199,741)
Net income					77,922	77,922	28,841	106,763
Other comprehensive income				(3,073)		(3,073)	(929)	(4,002)
Balance at Dec. 31, 2018		$ 363	$ 491,314	$ (2,193)	$ (246,929)	$ 242,555	$ 92,078	$ 334,633
Balance (in shares) at Dec. 31, 2018		36,708,691

CONSOLIDATED STATEMENTS OF CASH FLOWS $ in Thousands	12 Months Ended
CONSOLIDATED STATEMENTS OF CASH FLOWS $ in Thousands	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 106,763	$ 100,491	$ 81,921
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	141,633	129,251	108,652
Amortization of above/below market leases	(580)	(598)	(541)
Amortization of deferred financing costs	2,370	1,676	1,333
Share-based compensation	12,038	8,946	8,892
Bad debt expense	(229)	1,338	398
Changes in operating assets and liabilities:
Accounts receivable	10,923	(5,087)	(13,199)
Deferred rent receivable	(3,124)	(3,645)	(7,083)
Deferred leasing costs	(11,672)	(13,315)	(14,395)
Other assets	(4,079)	(10,924)	(8,819)
Accounts payable and accrued expenses	3,502	1,224	4,910
Unearned revenue, prepaid rent and other liabilities	(1,275)	(2,235)	8,696
Operating leases	2,491	2,234	(240)
Net cash provided by operating activities	258,761	209,356	170,525
CASH FLOWS FROM INVESTING ACTIVITIES
Tenant improvements	(5,247)	(7,850)	(5,878)
Real estate improvements	(239,715)	(153,956)	(293,359)
Business combinations and asset acquisitions	(10,681)	(12,158)	(64,965)
Net cash used in investing activities	(255,643)	(173,964)	(364,202)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options	310	4,820	1,290
Proceeds from revolving credit facility	253,036	274,000	299,500
Payments on revolving credit facility	(211,036)	(298,500)	(247,750)
Proceeds from unsecured debt	150,000	275,000	250,000
Payments of loan fees and costs	(5,038)	(2,410)	(2,981)
Redemption of preferred stock		(115,000)
Dividends and distributions	(193,038)	(172,484)	(108,807)
Net cash provided by (used in) financing activities	(5,766)	(34,574)	191,252
Net change in cash and cash equivalents	(2,648)	818	(2,425)
Cash and cash equivalents, beginning of year	5,247	4,429	6,854
Cash and cash equivalents, end of year	2,599	5,247	4,429
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of capitalized amounts	32,579	22,252	11,528
Cash paid for operating lease liabilities	21,994	20,764	20,184
NON-CASH INVESTING AND FINANCING ACTIVITY
Construction costs payable capitalized to real estate	41,328	32,228	28,805
Accrual of dividends and distributions	55,679	48,976	41,849
NON-CASH OPERATING ACTIVITY
Lease liabilities arising from obtaining right-of-use assets	$ 114,989	$ 8,330	$ 73,575

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements have been prepared by our management in accordance with U.S. generally accepted accounting principles (“GAAP”) and in compliance with the rules and regulations of the U.S. Securities and Exchange Commission. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

Our Operating Partnership meets the definition and criteria of a variable interest entity (“VIE”) and we are the primary beneficiary of the VIE. Our sole significant asset is the investment in our Operating Partnership, and consequently, substantially all of our assets and liabilities represent those assets and liabilities of our Operating Partnership. Our debt is an obligation of our Operating Partnership where the creditors also have recourse against the credit of the Company. Intercompany balances and transactions have been eliminated upon consolidation.

Recently Adopted Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance codified in Accounting Standards Codification (“ASC”) Topic 606, Revenue Recognition — Revenue from Contracts with Customers, which amends the guidance in former ASC Topic 605, Revenue Recognition. The standard establishes a five-step model framework which recognizes revenue as an entity transfers control of goods or services to the customer and requires enhanced disclosures.

The standard provides guidance for our nonlease revenue components. We adopted this standard effective January 1, 2018, using the cumulative effect method. The adoption did not result in a cumulative catch-up adjustment to opening equity and does not change the recognition pattern of our operating revenues. Under the standard, disclosures are required to provide information on the nature, amount, timing, and uncertainty of revenue, certain costs, and cash flows arising from contracts with customers. See additional discussion below and in Note 7, Lease Revenue.

Leases

In February 2016, the FASB issued guidance codified in ASC Topic 842, Leases, which amended the guidance in former ASC Topic 840, Leases. The new standard increases transparency and comparability by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

We elected to early adopt the lease standard effective January 1, 2018, concurrent with our adoption of the new revenue recognition standard. The lease standard required a modified retrospective transition approach as of the January 1, 2016, transition date. We elected the package of practical expedients, which permits us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment. The adoption of the lease standard did not result in a cumulative catch-up adjustment to opening equity.

Adoption of the lease standard had a material impact on our consolidated balance sheets. As a lessee, we adjusted certain previously reported financial statements to include the recognition of ROU assets and lease liabilities for operating leases. See the table below for the impact of adoption of the lease standard on our consolidated balance sheet as of December 31, 2017 (in thousands):


	As Previously Reported		New Lease Standard Adjustment		As Adjusted
Operating lease right-of-use assets	$	—	$	92,984	$	92,984
Operating lease liabilities		—		102,912		102,912
Deferred rent payable		9,928		(9,928)		—

As a lessor, our recognition of rental revenue remained mainly consistent with previous guidance, apart from the narrower definition of initial direct costs that can be capitalized. The new standard defines initial direct costs as only the incremental costs of signing a lease. Internal sales employees’ compensation, payroll-related fringe benefits and certain external legal fees related to the execution of successful lease agreements no longer meet the definition of initial direct costs under the new standard and will be accounted for as a sales and marketing expense or general and administrative expense in our consolidated statements of operations. As a result of electing the package of practical expedients described above, existing leases, including the allocation of consideration between lease and nonlease components, and related initial direct costs have not been reassessed prior to the effective date and therefore adoption of the lease standard did not have an impact on our previously reported consolidated statements of operations for initial direct costs.

In July 2018, the FASB issued guidance codified in Accounting Standards Update (“ASU”) 2018-11, Leases – Targeted Improvements. The ASU provides a practical expedient, which allows lessors to combine nonlease components with the related lease components if both the timing and pattern of transfer are the same for the nonlease component(s) and related lease component, and the lease component would be classified as an operating lease. The single combined component is accounted for under ASC 842 if the lease component is the predominant component and is accounted for under ASC 606 if the nonlease components are the predominant components. Lessors are permitted to apply the practical expedient to all existing leases on a retrospective or prospective basis. We elected the practical expedient to combine our lease and nonlease components that meet the defined criteria and will account for the combined lease component under ASC 842 on a retrospective basis. As a result of electing this practical expedient from ASU 2018-11, we have adjusted our prior period consolidated statements of operations to present our data center revenues and conform to our new presentation as follows:


	Previous Presentation		ASU 2018-11 Adjustment		Adjusted Presentation
Consolidated Statement of Operations
Year Ended December 31, 2017
Rental revenue	$	264,134	$	(264,134)	$	—
Power revenue		134,909		(134,909)		—
Tenant reimbursement and other		8,637		(8,637)		—
Rental, power, and related revenue		—		407,680		407,680

Year Ended December 31, 2016
Rental revenue	$	218,060	$	(218,060)	$	—
Power revenue		111,541		(111,541)		—
Tenant reimbursement and other		9,086		(9,086)		—
Rental, power, and related revenue		—		338,687		338,687

Statement of Cash Flows

In August 2016, the FASB issued guidance codified in ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The standard provides guidance on eight specific cash flow classification issues including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and separately identifiable cash flows and application of the predominance principle. We adopted this standard effective January 1, 2018, and the provisions of ASU 2016-15 did not have a material impact on our consolidated financial statements.

Derivatives and Hedging

In August 2017, the FASB issued guidance codified in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 simplifies hedge accounting by eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line item as the hedged item. The standard will be effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. We elected to early adopt this standard effective April 1, 2018, with an initial application date of January 1, 2018, using a modified retrospective transition and the provisions of ASU 2017-12 did not have a material impact on our consolidated financial statements.

Intangibles – Goodwill and Other

In January 2017, the FASB issued guidance codified in ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the process of measuring the implied value of goodwill, known as step two, from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The standard will be effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We elected to early adopt this standard effective October 1, 2018, and the provisions of ASU 2017-04 did not have a material impact on our consolidated financial statements.

Derivatives and Hedging

In October 2018, the FASB issued guidance codified in ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2018-16 permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. The standard will be effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted for entities that have already adopted ASU 2017-12. We elected to early adopt this standard upon issuance and the provisions of ASU 2018-16 did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Fair Value Measurement

In August 2018, the FASB issued guidance codified in ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 improves the overall usefulness of disclosures to financial statement users and reduces unnecessary costs in preparing fair value measurement disclosures. The standard will be effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We do not expect the provisions of ASU 2018-13 to have a material impact on our consolidated financial statements.

Intangibles – Goodwill and Other – Internal-Use Software

In August 2018, the FASB issued guidance codified in ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 clarifies that implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in software licensing arrangements under the internal-use software guidance. Additionally, ASU 2018-15 clarifies that all capitalized costs must be presented in the same financial statement line item as the cloud computing arrangement. The standard will be effective, on either a prospective or retrospective basis, for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the provisions of ASU 2018-15 and whether the provisions will have a material impact on our consolidated financial statements.

We determined that all other recently issued accounting pronouncements will not have a material impact on our consolidated financial statements or do not apply to our operations.

Use of Estimates

The preparation of these consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates, including those related to assessing our standalone selling prices, performance-based equity compensation plans and the carrying values of our real estate properties, goodwill and accrued liabilities. We base our estimates on historical experience, current market conditions, and various other assumptions that we believe to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could vary under different assumptions or conditions.

Reclassifications

Certain immaterial amounts included in the consolidated financial statements for 2017 and 2016 have been reclassified to conform to the 2018 financial statement presentation.

Investments in Real Estate

Real estate investments are carried at cost less accumulated depreciation and amortization. The cost of real estate includes the purchase price of property and leasehold improvements. Expenditures for maintenance and repairs are expensed as incurred. Significant renovations and betterments that extend the economic useful lives of assets are capitalized. During land development and construction periods, we capitalize construction costs, legal fees, financing costs, real estate taxes and insurance, rent expense and internal costs of personnel performing development, if such costs are incremental and identifiable to a specific development project. Capitalization of costs begins upon commencement of development efforts and ceases when the project is ready for its intended use and held available for occupancy. Interest is capitalized during the period of development based upon applying the weighted-average borrowing rate to the actual development costs expended. Capitalized interest costs were $5.6 million, $3.3 million and $4.1 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Depreciation and amortization are calculated using the straight‑line method over the following useful lives of the assets:

Depreciation and amortization are calculated using the straight‑line method over the following useful lives of the assets:Depreciation and amortization are calculated using the straight‑line method over the following useful lives of the assets:
Buildings		27 to 40 years
Building improvements		1 to 10 years
Leasehold improvements		The shorter of the lease term or useful life of the asset

Depreciation expense was $122.9 million, $108.1 million and $89.2 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Acquisition of Investment in Real Estate

When accounting for business combinations and asset acquisitions, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting primarily of land, building and building improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-place leases and the value of customer relationships. The primary difference between business combinations and asset acquisitions is that asset acquisitions require cost accumulation and allocation at a relative fair value. Acquisition costs are capitalized for asset acquisitions and expensed for business combinations.

The fair value of the land and building of an acquired property is determined by valuing the property as if it were vacant, and the “as-if-vacant” fair value is then allocated to land and building based on management’s determination of the fair values of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.

The fair value of intangibles related to in-place leases includes the value of lease intangibles for above-market and below-market leases, lease origination costs, and customer relationships, determined on a lease-by-lease basis. Above-market and below-market leases are valued based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management's estimate of market lease rates for the corresponding in-place leases, measured over a period equal to the remaining noncancelable term of the lease and, for below-market leases, over a time period equal to the initial term plus any below-market fixed rate renewal periods. Lease origination costs include estimates of costs avoided associated with leasing the property, including tenant allowances and improvements and leasing commissions. Customer relationship intangibles relate to the additional revenue opportunities expected to be generated through interconnection services and utility services to be provided to the in-place lease tenants.

The capitalized values for above and below-market lease intangibles, lease origination costs, and customer relationships are amortized over the term of the underlying leases or the expected customer relationship. Amortization related to above-market and below-market leases where the Company is the lessor is recorded as either a reduction of or an increase to rental revenue, amortization related to above-market and below-market leases where the Company is the lessee is recorded as either a reduction of or an increase to rent expense. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are written off.

The carrying value of intangible assets is reviewed for impairment in connection with its respective asset group whenever events or changes in circumstances indicate that the asset group may not be recoverable. An impairment loss is recognized if the carrying amount of the asset group is not recoverable and its carrying amount exceeds its estimated fair value. No impairment loss related to these intangible assets was recognized for the years ended December 31, 2018, 2017, or 2016.

The excess of the cost of an acquired business over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. As of December 31, 2018, and 2017, we had $40.6 million of goodwill at each date. The Company’s goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. No impairment loss was recognized for the years ended December 31, 2018, 2017, or 2016. During the year ended December 31, 2017, goodwill was reduced by $0.5 million due to the receipt of cash from an escrow account associated with an entity acquired at the time of the Company’s initial public offering (“IPO”).

Cash and Cash Equivalents

Cash and cash equivalents include all non‑restricted cash held in financial institutions and other non‑restricted highly liquid short‑term investments with original maturities at acquisition of three months or less.

Initial Direct Costs

Initial direct costs include commissions paid to third parties, including brokers, leasing and referral agents, and internal sales commissions paid to employees for successful execution of lease agreements. Initial direct costs are incremental costs that would not have been incurred if the lease agreement had not been executed. These initial direct costs are capitalized and generally amortized over the term of the related leases using the straight-line method. If a customer lease terminates prior to the expiration of its initial term, any unamortized initial direct costs related to the lease are written off to amortization expense. Amortization of initial direct costs was $15.6 million, $16.3 million, and $15.1 million for the years ended December 31, 2018, 2017, and 2016, respectively. Initial direct costs are included within other assets in the consolidated balance sheets and consisted of the following, net of amortization, as of December 31, 2018, and 2017 (in thousands):


	December 31,		December 31,
	2018		2017
Internal sales commissions	$	14,199	$	17,402
Third party commissions		9,855		11,802
Other		597		775
Total	$	24,651	$	29,979

Deferred Financing Costs

Deferred financing costs include costs incurred in connection with obtaining debt and extending existing debt. These financing costs are capitalized and amortized on a straight-line basis, which approximates the effective-interest method, over the term of the indebtedness and the amortization is included as a component of interest expense. Depending on the type of debt instrument, deferred financing costs are reported either in other assets or as a direct deduction from the carrying amount of the related debt liabilities in our consolidated balance sheets.

Recoverability of Long‑Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized when estimated expected future cash flows (undiscounted and without interest charges) are less than the carrying amount of the assets. The estimation of expected future net cash flows is inherently uncertain and relies, to a considerable extent, on assumptions regarding current and future economics and market conditions and the availability of capital. If, in future periods, there are changes in the estimates or assumptions incorporated into the impairment review analysis, the changes could result in an adjustment to the carrying amount of the long-lived assets. To the extent that impairment has occurred, the excess of the carrying amount of long-lived assets over its estimated fair value would be recognized as an impairment loss charged to net income. For the years ended December 31, 2018, 2017, and 2016, no impairment of long-lived assets was recognized in the consolidated financial statements.

Derivative Instruments and Hedging Activities

We reflect all derivative instruments at fair value as either assets or liabilities on the consolidated balance sheets. For those derivative instruments that are designated and qualify as hedging instruments, we record the gain or loss on the hedging instruments as a component of accumulated other comprehensive income or loss. For derivatives that do not meet the criteria for hedge accounting, changes in fair value are immediately recognized within net income. See additional discussion in Note 9 Derivatives and Hedging Activities.

Internal-Use Software

We recognize internal-use software development costs based on the development stage of the project and nature of the cost. Internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred to develop internal-use software during the application development stage are capitalized. Internal and external training costs and maintenance costs during the post-implementation-operation stage are expensed as incurred. Completed projects are placed into service and amortized over the estimated useful life of the software. For the years ended December 31, 2018, 2017, and 2016, no impairment of internal-use software was recognized in the consolidated financial statements.

Revenue Recognition

Rental, Power, and Related Revenue

We derive our revenues from leases with customers for data center and office and light-industrial space. Our leases include rental revenue lease components and nonlease revenue components, such as power and tenant reimbursements. We have elected to combine all of our nonlease revenue components that have the same pattern of transfer as the related operating lease component into a single combined lease component.

Our leases with customers are classified as operating leases and rental revenue is recognized on a straight-line basis over the customer lease term. Occasionally, our customer leases include options to extend or terminate the lease agreements. We do not include any of these extension or termination options in a customer’s lease term for lease classification purposes or for recognizing rental revenue unless we are reasonably certain the customer will exercise these extension or termination options. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is recorded as deferred rent receivable within other assets on our consolidated balance sheets.

In general, we provide two power products for our data center leased space, consisting of a fixed (breakered-amperage) and a variable (sub-metered) model. Customer power arrangements are coterminous with the customer’s underlying lease and have the same pattern of transfer over the lease term and are therefore combined with lease revenue within our consolidated statements of operations. For variable power arrangements, a customer pays us variable monthly fees for the specific amount of power utilized at the current utility rates. We recognize variable power revenue each month as the uncertainty related to the consideration is resolved, as power is provided to our customers, and as our customers utilize the power.

Some of our leases contain provisions under which our customers reimburse us for common area maintenance and other executory costs. These customer reimbursements are variable and are recognized in the period that the expenses are recognized. These services have the same pattern of transfer over the lease term and are also combined with lease revenue within our consolidated statements of operations.

Interconnection Revenue

We also derive revenue from interconnection services, which are generally contracted on a month-to-month basis cancellable by us or the customer at any time. Interconnection services are accounted for as separate contracts and are not combined with lease and power arrangements. We recognize interconnection revenue each month as these services are delivered to, and utilized by, our customers.

A provision for uncollectible accounts is recorded if a receivable balance relating to contractual rent, rental revenue recorded on a straight-line basis, tenant reimbursements or other billed amounts is considered by management to be uncollectible. At December 31, 2018, and 2017, the allowance for doubtful accounts totaled $0.4 million and $1.1 million, respectively, on the consolidated balance sheets.

Lessee Accounting

We determine if an arrangement is a lease at inception. Our operating lease agreements are primarily for real estate space and are included within operating lease ROU assets and operating lease liabilities on the consolidated balance sheets. We elected the practical expedient to combine our lease and related nonlease components for our lessee building leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Our variable lease payments consist of nonlease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets also include any lease payments made and exclude lease incentives. Many of our lessee agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

Share‑Based Compensation

We account for share-based compensation using the fair value method of accounting. The estimated fair value of the stock options granted by us is calculated based on the Black-Scholes option-pricing model. The fair value of restricted share-based and Operating Partnership unit compensation is based on the fair value of our common stock on the date of the grant. The fair value of performance share awards, which have a market condition, is based on a Monte Carlo simulation. The fair value for all share-based compensation is amortized on a straight-line basis over the vesting period. We have elected to account for forfeitures as they occur.

Asset Retirement and Environmental Remediation Obligations

We record accruals for estimated asset retirement and environmental remediation obligations. The obligations relate primarily to the removal of asbestos during development of properties as well as the estimated equipment removal costs upon termination of a certain lease where we are the lessee. At December 31, 2018, and 2017, the amount included in unearned revenue, prepaid rent and other liabilities on the consolidated balance sheets was approximately $1.6 million and $1.5 million, respectively.

Income Taxes

We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2010. To qualify as a REIT, we are required to distribute at least 90% of our taxable income to our stockholders and meet various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided we qualify for taxation as a REIT, we generally are not subject to corporate level federal income tax on the earnings distributed currently to our stockholders. If we fail to qualify as a REIT in any taxable year, and are unable to avail ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to federal income tax at regular corporate rates.

To maintain REIT status, we must distribute a minimum of 90% of our taxable income. However, it is our policy and intent, subject to change, to distribute 100% of our taxable income and therefore, no provision is required in the accompanying consolidated financial statements for federal income taxes with regard to our activities and our subsidiary pass‑through entities. The allocable share of taxable income is included in the income tax returns of its stockholders. We are subject to the statutory requirements of the locations in which we conduct business. State and local income taxes are accrued as deemed required in the best judgment of management based on analysis and interpretation of respective tax laws.

We have elected to treat certain subsidiaries as taxable REIT subsidiaries (“TRS”). Certain activities that we undertake must be conducted by a TRS, such as services for our tenants that could be considered otherwise impermissible for us to perform and holding assets that we cannot hold directly. A TRS is subject to corporate level federal and state income taxes.

Deferred income taxes are recognized in certain taxable entities. Deferred income tax generally is a function of the period’s temporary differences (items that are treated differently for tax purposes than for financial reporting purposes), the utilization of tax net operating losses generated in prior years that previously had been recognized as deferred income tax assets and the reversal of any previously recorded deferred income tax liabilities. A valuation allowance for deferred income tax assets is provided if we believe all or some portion of the deferred income tax asset may more likely than not be realized. Any increase or decrease in the valuation allowance resulting from a change in circumstances that causes a change in the estimated realizability of the related deferred income tax asset is included in deferred tax expense. As of December 31, 2018, and 2017, the gross deferred income taxes were not material.

We currently have no liabilities for uncertain income tax positions. The earliest tax year for which we are subject to examination is 2015.

Concentration of Credit Risks

Our cash and cash equivalents are maintained in various financial institutions, which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts, and management believes that the Company is not exposed to any significant credit risk in this area. We have no off‑balance sheet concentrations of credit risk, such as foreign exchange contracts, option contracts, or foreign currency hedging arrangements.

Segment Information

We manage our business as one reportable segment consisting of investments in data centers located in the United States. Although we provide services in several markets, these operations have been aggregated into one reportable segment based on the similar economic characteristics amongst all markets, including the nature of the services provided and the type of customers purchasing these services.

Investment in Real Estate

12 Months Ended

Dec. 31, 2018

Investment in Real Estate

Investment in Real Estate

4. Investment in Real Estate

The following is a summary of the properties owned or leased by market at December 31, 2018 (in thousands):


			Buildings and		Construction in
Market	Land		Improvements		Progress		Total Cost
Boston	$	5,154	$	107,596	$	1,644	$	114,394
Chicago(1)		5,493		113,875		14,478		133,846
Denver		—		30,740		476		31,216
Los Angeles(1)		18,672		338,011		51,688		408,371
Miami		728		14,014		69		14,811
New York		2,729		152,956		33,796		189,481
Northern Virginia		22,793		346,209		94,623		463,625
San Francisco Bay		31,386		626,928		69,147		727,461
Total	$	86,955	$	1,730,329	$	265,921	$	2,083,205

(1)

Refer to Note 3, Acquisitions, for further detail on CH2 and U.S. Colo acquisitions.

The following is a summary of the properties owned or leased by market at December 31, 2017 (in thousands):


			Buildings and		Construction in
Market	Land		Improvements		Progress		Total Cost
Boston	$	5,154	$	106,317	$	28	$	111,499
Chicago		5,493		101,798		10,470		117,761
Denver		—		19,193		187		19,380
Los Angeles		28,467		273,000		44,503		345,970
Miami		728		11,612		28		12,368
New York		2,388		132,413		41,195		175,996
Northern Virginia		23,642		300,329		50,336		374,307
San Francisco Bay		31,386		616,394		16,156		663,936
Total	$	97,258	$	1,561,056	$	162,903	$	1,821,217

Debt

12 Months Ended

Dec. 31, 2018

Debt

Debt

8. Debt

A summary of outstanding indebtedness as of December 31, 2018, and 2017, is as follows (in thousands):


		Maturity	December 31,		December 31,
	Interest Rate	Date	2018		2017
Revolving credit facility	3.95% and 3.11% at December 31, 2018, and December 31, 2017, respectively	April 19, 2022	$	211,500	$	169,500
2020 Senior unsecured term loan(1)	3.37% and 3.00% at December 31, 2018, and December 31, 2017, respectively	June 24, 2020		150,000		150,000
2021 Senior unsecured term loan	3.90% and 3.06% at December 31, 2018, and December 31, 2017, respectively	February 2, 2021		100,000		100,000
2022 Senior unsecured term loan(2)	3.65% and 3.04% at December 31, 2018, and December 31, 2017, respectively	April 19, 2022		200,000		200,000
2023 Senior unsecured term loan(3)	4.01% at December 31, 2018	April 19, 2023		150,000		—
2023 Senior unsecured notes	4.19% at December 31, 2018, and December 31, 2017, respectively	June 15, 2023		150,000		150,000
2024 Senior unsecured notes	3.91% at December 31, 2018, and December 31, 2017, respectively	April 20, 2024		175,000		175,000
Total principal outstanding		`		1,136,500		944,500
Unamortized deferred financing costs				(5,677)		(4,930)
Total debt			$	1,130,823	$	939,570

(1)

Our Operating Partnership has in place a swap agreement with respect to the 2020 Term Loan (as defined below), effective through May 5, 2020, to swap the variable interest rate associated with $75 million, or 50% of the principal amount, of the 2020 Term Loan to a fixed rate of approximately 2.83% per annum at our current leverage ratio as of December 31, 2018. The interest rate on the remaining $75 million of the 2020 Term Loan is based on the London Interbank Offered Rate (“LIBOR”) plus the applicable spread. The effective interest rate as of December 31, 2018, is 3.37%. See Note 9 – Derivatives and Hedging Activities.

(2)

Our Operating Partnership has in place a swap agreement with respect to the 2022 Term Loan (as defined below), effective through January 31, 2019, to swap the variable interest rate associated with $50 million, or 25% of the principal amount of the 2022 Term Loan to a fixed rate of approximately 2.88% per annum at our current leverage ratio as of December 31, 2018. The interest rate on the remaining $150 million of the 2022 Term Loan is based on LIBOR plus the applicable spread. The effective interest rate as of December 31, 2018, is 3.65%. See Note 9 – Derivatives and Hedging Activities. Effective January 31, 2019, the interest rate swap was terminated.

(3)

Our Operating Partnership has in place a swap agreement with respect to the 2023 Term Loan (as defined below), effective through April 5, 2023, to swap the variable interest rate associated with $75 million, or 50% of the principal amount of the 2023 Term Loan, to a fixed rate of approximately 4.12% per annum at our current leverage ratio as of December 31, 2018. The interest rate on the remaining $75 million of the 2023 Term Loan is based on LIBOR plus the applicable spread. The effective interest rate as of December 31, 2018, is 4.01%. See Note 9 – Derivatives and Hedging Activities.

Revolving Credit Facility

On April 19, 2018, our Operating Partnership and certain subsidiary co-borrowers entered into the Fourth Amended and Restated Credit Agreement (as amended and restated, the “Amended and Restated Credit Agreement”), which amended and restated our previous credit agreement, to provide additional liquidity of $250 million to the Company, which was used to pay down a portion of the then-existing revolving credit facility, fund continued development across our portfolio, and for general corporate purposes. The Amended and Restated Credit Agreement, among other things, increased the revolving credit facility from $350 million to $450 million, decreased the interest rates on borrowings under the revolving credit facility and certain term loans, and extended the maturity date from June 24, 2019, to April 19, 2022, with a one-time extension option, which, if exercised, would extend the maturity date to April 19, 2023. The exercise of the extension option is subject to the payment of an extension fee equal to 10 basis points of the total commitments under the Amended and Restated Credit Agreement at initial maturity and certain other customary conditions. The Amended and Restated Credit Agreement increased our total commitment from $600 million to $850 million, consisting of a $450 million revolving credit facility, a $150 million senior unsecured term loan scheduled to mature on June 24, 2020, a $100 million senior unsecured term loan scheduled to mature on February 2, 2021, and a new $150 million senior unsecured term loan scheduled to mature on April 19, 2023. See “2020 Senior Unsecured Term Loan,” “2021 Senior Unsecured Term Loan,” and “2023 Senior Unsecured Term Loan” below for a discussion of the $150 million, $100 million, and $150 million senior unsecured term loans, respectively. The Amended and Restated Credit Agreement also increased our accordion feature by $150 million to $350 million, which allows our Operating Partnership to increase the total commitments from $850 million to $1.2 billion, under specified circumstances, including securing capital from new or existing lenders.

Borrowings under the revolving credit facility have been amended to bear interest at a variable rate per annum equal to either (i) LIBOR plus 145 basis points to 205 basis points, or (ii) a base rate plus 45 basis points to 105 basis points, each depending on our Operating Partnership’s leverage ratio. At December 31, 2018, our Operating Partnership’s leverage ratio was 25.3% and the interest rate was LIBOR plus 145 basis points.

The total amount available for borrowing under the revolving credit facility, is equal to the lesser of $450.0 million or the availability calculated based on our unencumbered asset pool. As of December 31, 2018, the borrowing capacity was $450.0 million. As of December 31, 2018, $211.5 million was borrowed and outstanding, $4.9 million was outstanding under letters of credit, and therefore $233.6 million remained available for us to borrow under the revolving credit facility.

Our ability to borrow under the Amended and Restated Credit Agreement is subject to ongoing compliance with a number of financial covenants and other customary restrictive covenants, including, among others:

a maximum leverage ratio (defined as total consolidated indebtedness to total gross asset value) of 60%, which, as of December 31, 2018, was 25.3%;

a maximum secured debt ratio (defined as total consolidated secured debt to total gross asset value) of 40%, which, as of December 31, 2018, was 0%; and,

a minimum fixed charge coverage ratio (defined as adjusted consolidated earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 1.5 to 1.0, which, as of December 31, 2018, was 7.0. to 1.0.

The Amended and Restated Credit Agreement ranks pari passu with the 2020 Term Loan, the 2021 Term Loan, the 2022 Term Loan, the 2023 Term Loan, the 2023 Notes, and the 2024 Notes (each as defined herein) and contains the same financial covenants and other customary restrictive covenants as those debt instruments. In connection with the Amended and Restated Credit Agreement, the revolving credit facility and senior unsecured term loans were amended to remove or change certain financial covenants and other customary restrictive covenants, including removal of covenants limiting distributions (except upon an event of default), incurrence of unhedged variable rate debt, and increases or decreases, as applicable to a number of ratios and other figures in the Amended and Restated Credit Agreement resulting in increased flexibility for our Operating Partnership. As of December 31, 2018, we were in compliance with all of the financial covenants under the Amended and Restated Credit Agreement.

2020 Senior Unsecured Term Loan

Pursuant to the terms of the Amended and Restated Credit Agreement, our Operating Partnership and certain subsidiaries are party to a $150 million senior unsecured term loan (the "2020 Term Loan"), which was originally entered into on June 24, 2015. The 2020 Term Loan has a five-year term maturing on June 24, 2020. The 2020 Term Loan ranks pari passu with the 2021 Term Loan, the 2022 Term Loan, the 2023 Term Loan, the 2023 Notes, the 2024 Notes and the Amended and Restated Credit Agreement and contains the same financial covenants and other customary restrictive covenants as those debt instruments. As of December 31, 2018, we were in compliance with all of the financial covenants under the 2020 Term Loan.

Borrowings under the 2020 Term Loan bear interest at a variable rate per annum equal to either (i) LIBOR plus 140 basis points to 200 basis points, or (ii) a base rate plus 40 basis points to 100 basis points, each depending on our Operating Partnership' s leverage ratio. At December 31, 2018, the Operating Partnership's leverage ratio was 25.3% and the interest rate was LIBOR plus 140 basis points.

2021 Senior Unsecured Term Loan

On February 2, 2016, our Operating Partnership and certain subsidiaries partially exercised the accordion feature on our term loans under the Amended and Restated Credit Agreement, and entered into a $100 million senior unsecured term loan (the “2021 Term Loan”). The 2021 Term Loan is governed by the terms of the Amended and Restated Credit Agreement. The 2021 Term Loan has a five-year term maturing on February 2, 2021. The 2021 Term Loan ranks pari passu with the 2020 Term Loan, the 2022 Term Loan, the 2023 Term Loan, the 2023 Notes, the 2024 Notes and the Amended and Restated Credit Agreement and contains the same financial covenants and other customary restrictive covenants as those debt instruments. As of December 31, 2018, we were in compliance with all of the financial covenants under the 2021 Term Loan.

Borrowings under the 2021 Term Loan bear interest at a variable rate per annum equal to either (i) LIBOR plus 140 basis points to 200 basis points, or (ii) a base rate plus 40 basis points to 100 basis points, each depending on our Operating Partnership’s leverage ratio. At December 31, 2018, our Operating Partnership’s leverage ratio was 25.3% and the interest rate was LIBOR plus 140 basis points.

2022 Senior Unsecured Term Loan

On April 19, 2017, our Operating Partnership and certain subsidiaries entered into an Amended and Restated Term Loan Agreement (as amended and restated, the “Term Loan Agreement”), which amended and restated the $100 million senior unsecured term loan, originally entered into on January 31, 2014. The Term Loan Agreement was amended and restated to, among other things, (i) exercise the accordion feature to increase the total commitments to $200 million, (ii) extend the maturity of the term loan from January 31, 2019, to April 19, 2022, (iii) amend the accordion feature to allow an increase in total commitments from $200 million to $300 million, under specified circumstances, including securing capital from new or existing lenders, and (iv) explicitly permit the issuance of the 2024 Notes (the “2024 Notes”).

The 2022 Term Loan ranks pari passu with the 2020 Term Loan, the 2021 Term Loan, the 2023 Term Loan, the 2023 Notes, the 2024 Notes and the Amended and Restated Credit Agreement and contains the same financial covenants and other customary restrictive covenants as those debt instruments. As of December 31, 2018, we were in compliance with all of the financial covenants under the 2022 Term Loan.

Borrowings under the 2022 Term Loan bear interest at a variable rate per annum equal to either (i) LIBOR plus 140 basis points to 200 basis points, or (ii) a base rate plus 40 basis points to 100 basis points, each depending on our Operating Partnership's leverage ratio. At December 31, 2018, our Operating Partnership’s leverage ratio was 25.3% and the interest rate was LIBOR plus 140 basis points.

2023 Senior Unsecured Term Loan

On April 19, 2018, pursuant to the terms of, the Amended and Restated Credit Agreement, our Operating Partnership and certain subsidiaries entered into a $150 million senior unsecured term loan (the “2023 Term Loan”). The 2023 Term Loan has a five-year term maturing on April 19, 2023. The 2023 Term Loan ranks pari passu with the 2020 Term Loan, the 2021 Term Loan, the 2022 Term Loan, the 2023 Notes, the 2024 Notes and the Amended and Restated Credit Agreement and contains the same financial covenants and other customary restrictive covenants as those debt instruments. As of December 31, 2018, we were in compliance with all of the financial covenants under the 2023 Term Loan.

Borrowings under the 2023 Term Loan bear interest at a variable rate per annum equal to either (i) LIBOR plus 140 basis points to 200 basis points, or (ii) a base rate plus 40 basis points to 100 basis points, each depending on our Operating Partnership’s leverage ratio. At December 31, 2018, our Operating Partnership’s leverage ratio was 25.3% and the interest rate was LIBOR plus 140 basis points.

2023 Senior Unsecured Notes

On June 15, 2016, our Operating Partnership issued an aggregate principal amount of $150 million, 4.19% senior unsecured notes due June 15, 2023 (the “2023 Notes”), in a private placement to certain accredited investors. The terms of the 2023 Notes are governed by a note purchase agreement, dated June 15, 2016 (the “2023 Note Purchase Agreement”), by and among our Operating Partnership, the Company and the purchasers of the 2023 Notes.

Interest is payable semiannually, on the 15th day of June and December of each year, commencing on December 15, 2016. The 2023 Notes are senior unsecured obligations of our Operating Partnership and are jointly and severally guaranteed by the Company and each of our Operating Partnership’s subsidiaries that guarantees indebtedness under our Amended and Restated Credit Agreement (the “Subsidiary Guarantors”).

Our Operating Partnership may prepay all or a portion of the 2023 Notes upon notice to the holders for 100% of the principal amount so prepaid plus a make-whole premium as set forth in the 2023 Note Purchase Agreement. Upon the occurrence of certain change of control events, holders of the 2023 Notes have the right to require our Operating Partnership to purchase 100% of such holder’s 2023 Notes in cash at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase.

The 2023 Notes rank pari passu with the 2020 Term Loan, the 2021 Term Loan, the 2022 Term Loan, the 2023 Term Loan, the 2024 Notes and the Amended and Restated Credit Agreement. On June 12, 2018, the 2023 Note Purchase Agreement was amended to, among other things, conform to the same financial covenants as the Amended and Restated Credit Agreement, as described above. In addition, certain additional financial covenants in the Amended and Restated Credit Agreement were automatically incorporated into the 2023 Note Purchase Agreement, and, subject to certain conditions, these additional financial covenants will be deleted, removed, amended or otherwise modified to be more or less restrictive if the analogous covenant in the Credit Agreement is so deleted, removed, amended or otherwise modified. These covenants are subject to a number of exceptions and qualifications set forth in the 2023 Note Purchase Agreement. As of December 31, 2018, we were in compliance with all of the financial covenants under the 2023 Note Purchase Agreement.

2024 Senior Unsecured Notes

On April 20, 2017, our Operating Partnership issued an aggregate principal amount of $175 million, 3.91% senior unsecured notes due April 20, 2024 (the “2024 Notes”), in a private placement to certain accredited investors. The terms of the 2024 Notes are governed by a note purchase agreement, dated April 20, 2017 (the “2024 Note Purchase Agreement”), by and among our Operating Partnership, the Company and the purchasers of the 2024 Notes.

Interest is payable semiannually, on the 15th day of June and December of each year, commencing on December 15, 2017. The 2024 Notes are senior unsecured obligations of our Operating Partnership and are jointly and severally guaranteed by the Company and each of the Subsidiary Guarantors.

Our Operating Partnership may prepay all or a portion of the 2024 Notes upon notice to the holders for 100% of the principal amount so prepaid plus a make-whole premium as set forth in the 2024 Note Purchase Agreement. Upon the occurrence of certain change of control events, holders of the 2024 Notes will have the right to require our Operating Partnership to purchase 100% of such holders’ 2024 Notes in cash at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase.

The 2024 Notes rank pari passu with the 2020 Term Loan, the 2021 Term Loan, the 2022 Term Loan, the 2023 Term Loan, the 2023 Notes and the Amended and Restated Credit Agreement. On June 12, 2018, the 2024 Note Purchase Agreement was amended to, among other things, conform to the same financial covenants as the Amended and Restated Credit Agreement, as described above. In addition, certain additional financial covenants in the Amended and Restated Credit Agreement were automatically incorporated into the 2024 Note Purchase Agreement, and, subject to certain conditions, these additional financial covenants will be deleted, removed, amended or otherwise modified to be more or less restrictive if the analogous covenant in the Amended and Restated Credit Agreement is so deleted, removed, amended or otherwise modified. These covenants are subject to a number of exceptions and qualifications set forth in the 2024 Note Purchase Agreement. As of December 31, 2018, we were in compliance with all of the financial covenants under the 2024 Note Purchase Agreement.

Debt Maturities

The following table summarizes when our debt currently becomes due (in thousands):


Year Ending December 31,
2019	$	—
2020		150,000
2021		100,000
2022		411,500
2023		300,000
Thereafter		175,000
Total principal outstanding		1,136,500
Unamortized deferred financing costs		(5,677)
Total debt, net	$	1,130,823

Stockholders' Equity

12 Months Ended

Dec. 31, 2018

Stockholders' Equity

Stockholders' Equity

10. Stockholders’ Equity

At December 31, 2018, 120 million shares were authorized to be issued by the Company, of which 100 million shares represent common stock and 20 million represent preferred stock. The Board may, without stockholder approval, classify or reclassify any unissued shares of stock to increase or decrease the authorized number of shares of common stock and preferred stock and to establish the preferences and rights of any preferred stock or other class of series of shares to be issued.

Common Stock

At December 31, 2018, we had 36.7 million shares of common stock issued and outstanding. Since our IPO, we have issued common stock under our 2010 Plan (as defined in Note 12, Equity Incentive Award Plan), in which certain of our employees and outside directors participate to provide compensation in the form of common stock. Under the 2010 Plan, we received proceeds from the exercise of stock options of $0.3 million, $4.8 million, and $1.3 million for the years ended December 31, 2018, 2017, and 2016, respectively. Also, we issued shares of common stock as restricted stock award and performance stock award grants, net of forfeitures, and option exercises, net of settlements, in the amount of 206,808, 329,033 and 239,068 during the years ended December 31, 2018, 2017, and 2016, respectively. See Note 12, Equity Incentive Award Plan, for additional information on our 2010 Plan.

During the years ended December 31, 2018, 2017, and 2016, 11,068, 15,011 and 7,000 common Operating Partnership units held by other third parties were redeemed for shares of our common stock, respectively. During the years ended December 31, 2018, and 2016, 2,250,000, and 3,000,000 common Operating Partnership units held by the Carlyle Group and other third parties were redeemed for shares of our common stock in connection with the offer and sale of 2,250,000, and 3,000,000 shares of our common stock, respectively. See Note 11, Noncontrolling Interests – Operating Partnership, for additional information.

Preferred Stock

On December 12, 2017, the Company redeemed an aggregate of 4,600,000 shares of its 7.25% Series A Cumulative Redeemable Preferred Stock, or the Series A Preferred Stock, for $25.00 per share, plus all accrued and unpaid dividends in an amount equal to $0.292014 per share, for a total payment of $25.292014 per share, or $116.3 million in aggregate. The excess of the redemption price over the carrying value of the Series A Preferred Stock of approximately $4.3 million relates to the original issuance costs and was recorded as a reduction to net income attributable to common shares. The Series A Preferred Stock were originally issued on December 12, 2012, for net proceeds of $110.6 million. Dividends were cumulative on the Series A Preferred Stock from the date of original issuance in the amount of $1.8125 per share each year, which was equivalent to 7.25% of the $25.00 liquidation preference per share. Dividends on the Series A Preferred Stock were payable quarterly in arrears.

Dividends

In 2018, 2017, and 2016, we paid all our dividends in cash. The following summarizes the taxability of our common and preferred stock dividends per share for the years then ended:


	Year Ended December 31,
Record Date	2018		2017		2016
Common Stock:
Ordinary income(1)	$	3.09	$	2.13	$	2.36
Qualified dividend		—		—		—
Capital gains		—		—		—
Return of capital		0.93		0.91		—
Total dividend (2)	$	4.02	$	3.04	$	2.36

Preferred Stock:
Ordinary income	$	—	$	1.36	$	1.81
Qualified dividend		—		—		—
Capital gains		—		—		—
Total dividend (3)	$	—	$	1.36	$	1.81

(1)

All 2018 ordinary dividends are eligible for the 20% deduction generally allowable to non-corporate shareholders under Internal Revenue Code Section 199A. Shareholders are encouraged to consult with their tax advisors regarding their specific treatment of CoreSite distributions.

(2)

A $1.10 per share or unit distribution was paid in January, all of which will apply to tax year 2019. A $0.98 per share or unit distribution was paid in January 2018, all of which will apply to tax year 2018. Of the $2.36 taxable dividend in 2016, $0.80 was paid in January 2017, of which $0.44 applied to tax year 2017.

(3)

All outstanding shares and dividends of the 7.25% Series A Cumulative Redeemable Preferred Stock were redeemed at $25.292014 per share at December 12, 2017. Of the $1.81 taxable dividend in 2016, $0.45 was paid in January 2017.

In order to comply with the REIT requirements of the Code, we are generally required to make common stock distributions (other than capital gain distributions) to our stockholders at least equal to (i) the sum of (a) 90% of our “REIT taxable income” computed without regard to the dividends paid deduction and net capital gains and (b) 90% of the net taxable income (after tax), if any, from foreclosure property, minus (ii) certain excess non‑cash income. Our common stock dividend policy is to distribute, at a minimum, a percentage of our cash flow to ensure we will meet the distribution requirements of the Code, while allowing us to retain cash to meet other needs, such as capital improvements and other investment activities. Any subsequent increases and/or anticipated increases are correlated to increases in our growth of cash flow.

Common stock dividends are characterized for federal income tax purposes as ordinary income, qualified dividend, capital gains, non‑taxable return of capital or a combination of the four. Common stock dividends that exceed our current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and generally reduce the stockholder’s basis in the common stock. To the extent that a dividend exceeds both current and accumulated earnings and profits and the stockholder’s basis in the common stock, it will generally be treated as a gain from the sale or exchange of that stockholder’s common stock. At the beginning of each year, we notify our stockholders of the taxability of the common stock dividends paid during the preceding year. Following passage of the Tax Cuts and Jobs Act in late 2017, beginning with tax year 2018 REIT, ordinary dividends are eligible for a 20% deduction generally allowable to non-corporate shareholders.

Pursuant to the terms of our preferred stock, we were restricted from declaring or paying any dividend with respect to our common stock unless and until all cumulative dividends with respect to the preferred stock had been paid and sufficient funds had been set aside for dividends that had been declared for the relevant dividend period with respect to the preferred stock. On December 12, 2017, we redeemed our preferred stock in its entirety.

Our federal tax return for the year ended December 31, 2018, has not been filed. The taxability information presented for our dividends paid in 2018 is based upon management’s estimates.

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance for doubtful accounts (in dollars)	$ 417	$ 1,094
Accumulated amortization, lease intangibles (in dollars)	7,756	8,585
Unamortized Debt Issuance Expense	5,677	4,930
Accumulated amortization, acquired below-market lease contracts (in dollars)	$ 3,840	$ 5,608
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common Stock, shares issued	36,708,691	34,240,815
Common Stock, shares outstanding	36,708,691	34,240,815

Organization and Description of Business	12 Months Ended
Organization and Description of Business	Dec. 31, 2018
Organization and Description of Business
Organization and Description of Business	1. Organization and Description of Business CoreSite Realty Corporation (the “Company,” “we,” “us,” or “our”) was organized in the State of Maryland on February 17, 2010 and is a fully integrated, self-administered, and self-managed real estate investment trust (“REIT”). Through our controlling interest in CoreSite, L.P. (our “Operating Partnership”), we are engaged in the business of owning, acquiring, constructing and operating data centers. As of December 31, 2018, the Company owns a 75.8% common interest in our Operating Partnership, and affiliates of The Carlyle Group and others own a 24.2% interest in our Operating Partnership. See additional discussion in Note 11, Noncontrolling Interests – Operating Partnership. Information with respect to square footage and acres of land is unaudited.

Acquisitions	12 Months Ended
Acquisitions	Dec. 31, 2018
Acquisitions
Acquisitions	3. Acquisitions On November 10, 2016, we paid cash consideration of $65.0 million to acquire a 21.75-acre operating light-industrial / flex office park located in Reston, Virginia, referred to as the Reston Campus Expansion. The transaction was accounted for as an asset acquisition. We have started to redevelop the existing buildings into approximately 890,000 of incremental data center NRSF across multiple phases as existing light-industrial / flex office leases expire and customers vacate. The acquisition and redevelopment of the Reston Campus Expansion will extend our position as a multi-tenant data center provider in the Northern Virginia market. On August 29, 2017, we acquired a two-acre land parcel adjacent to our existing Santa Clara campus, with a total real estate cost of $12.2 million. We are currently constructing a turn-key data center on the acquired land parcel, which we refer to as SV8. 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 plan 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 permits and entitlements. On April 20, 2018, we acquired U.S. Colo, a carrier-neutral, network-dense colocation provider, located in Los Angeles, California, for a purchase price of $6.3 million, net of previously accrued legal expense. In connection with the U.S. Colo acquisition, we assumed a leasehold interest of 6,723 square feet at our existing LA1 facility. We also assumed a leasehold interest of 21,850 square feet at a nearby colocation data center facility, which we refer to as LA4. On January 23, 2019, we entered into a contract to acquire a 3.8-acre operating light-industrial / flex office building and land parcel located adjacent to our Santa Clara campus, for a purchase price of $26 million. Pursuant to the purchase agreement and subject to customary closing conditions, we agreed to purchase the property following the customary due diligence period. We plan to build a turn-key data center building on the acquired land parcel, which we refer to as SV9, as the existing customers vacate upon expiration of their leases and upon the receipt of necessary entitlements.

Derivatives and Hedging Activities	12 Months Ended
Derivatives and Hedging Activities	Dec. 31, 2018
Derivatives and Hedging Activities
Derivatives and Hedging Activities	9. Derivatives and Hedging Activities On December 6, 2018, we entered into a $175 million forward starting seven-year interest rate swap agreement, effective upon issuance of future indebtedness within the terms of the agreement, to protect against adverse fluctuation in interest rates. The swap reduces our exposure to variability in cash flows relating to interest payments on $175 million of fixed or floating rate debt and effectively fixes the interest rate at approximately 2.91% per annum plus an applicable spread determined at the time of the future debt issuance. On April 19, 2018, we entered into a $75 million forward starting five-year interest rate swap agreement, effective May 5, 2018, to protect against adverse fluctuation in interest rates. The swap reduces our exposure to variability in cash flows relating to interest payments on $75 million of one-month LIBOR variable rate debt and effectively fixes the interest rate at approximately 4.12% per annum. On April 21, 2017, we terminated $50 million of our previously existing $100 million five-year interest rate swap agreement that reduces our exposure to variability in cash flows relating to interest payments based on one-month LIBOR variable rate debt, resulting in a remaining $50 million interest rate swap effective through January 31, 2019, at approximately 2.88% per annum and 2.98% per annum for the years ending December 31, 2018, and 2017, respectively. Effective January 31, 2019, the interest rate swap was terminated. On April 9, 2015, we entered into a $75 million forward starting five-year interest rate swap agreement, effective May 5, 2015, to protect against adverse fluctuation in interest rates. The swap reduces our exposure to variability in cash flows relating to interest payments on $75 million of one-month LIBOR variable rate debt and effectively fixes the interest rate at approximately 2.83% and 2.93% per annum as of December 31, 2018, and 2017, respectively. All of these interest rate swap agreements were designated as effective cash flow hedges of interest rate risk for hedge accounting. Risk Management Objective of Using Derivatives We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our investments and borrowings. Cash Flow Hedges of Interest Rate Risk Our objectives in using interest rate derivatives are to reduce variability in interest expense and to manage our exposure to adverse interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of derivatives designated and that qualify as effective cash flow hedges is recorded in accumulated other comprehensive income or loss on the consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The amounts recorded in other comprehensive income or loss related to the unrealized gain or loss on derivative contracts were a loss of $3.7 million, a gain of $0.6 million, and a loss of $1.1 million for the years ended December 31, 2018, 2017, and 2016, respectively. The amounts reclassified from other comprehensive income (loss) to interest expense on the consolidated statements of operations were ($0.3) million, $0.6 million, and $1.7 million for the years ended December 31, 2018, 2017, and 2016, respectively. Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded were $35.5 million, $24.1 million, and $12.6 million for the years ended December 31, 2018, 2017, and 2016, respectively. Amounts reported in accumulated other comprehensive income or loss related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the subsequent twelve months, beginning January 1, 2019, we estimate that $0.5 million will be reclassified as an increase to interest expense. Derivatives are recorded at fair value in our consolidated balance sheets in other assets or unearned revenue, prepaid rent and other liabilities, as applicable. We do not net our derivative position by counterparty for purposes of balance sheet presentation and disclosure. We had $4.1 million and zero in derivative liabilities recognized in unearned revenue, prepaid rent and other liabilities in our consolidated balance sheets as of December 31, 2018, and 2017, respectively. We also had $1.1 million derivative assets recognized in other assets in our consolidated balance sheet as of both December 31, 2018, and 2017.

Equity Incentive Plan	12 Months Ended
Equity Incentive Plan	Dec. 31, 2018
Equity Incentive Award Plan
Equity Incentive Plan