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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020

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

27-1925611

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)

1001 17th Street, Suite 500
Denver, CO

80202

(Address of principal executive offices)

(Zip Code)

(866777-2673

(Registrant’s telephone number, including area code)

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

Title of Each Class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value per share

COR

New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files).  Yes   No

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

Large Accelerated Filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The number of shares of common stock outstanding at October 28, 2020, was 42,766,575.

Table of Contents

CORESITE REALTY CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED September 30, 2020

TABLE OF CONTENTS

six

 

    

PAGE

 

NO.

PART I. FINANCIAL INFORMATION

3

ITEM 1. Financial Statements

3

Condensed Consolidated Balance Sheets as of September 30, 2020, and December 31, 2019 (unaudited)

3

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020, and 2019 (unaudited)

4

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020, and 2019 (unaudited)

5

Condensed Consolidated Statements of Equity for the three months ended March 31, June 30, and September 30, 2020, and 2019 (unaudited)

6

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020, and 2019 (unaudited)

7

Notes to Condensed Consolidated Financial Statements (unaudited)

8

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

40

ITEM 4. Controls and Procedures

40

PART II. OTHER INFORMATION

41

ITEM 1. Legal Proceedings

41

ITEM 1A. Risk Factors

41

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

42

ITEM 3. Defaults Upon Senior Securities

42

ITEM 4. Mine Safety Disclosures

42

ITEM 5. Other Information

42

ITEM 6. Exhibits

43

Signatures

44

Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

Exhibit 32.2

EX-101 INSTANCE DOCUMENT

EX-101 SCHEMA DOCUMENT

EX-101 CALCULATION LINKBASE DOCUMENT

EX-101 LABELS LINKBASE DOCUMENT

EX-101 PRESENTATION LINKBASE DOCUMENT

EX-101 DEFINITION LINKBASE DOCUMENT

2

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CORESITE REALTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands except share and per share data)

September 30,

December 31,

    

2020

    

2019

ASSETS

Investments in real estate:

Land

$

100,432

$

94,593

Buildings and improvements

2,148,435

1,989,731

2,248,867

2,084,324

Less: Accumulated depreciation and amortization

(829,055)

(720,498)

Net investment in operating properties

1,419,812

1,363,826

Construction in progress

415,210

394,474

Net investments in real estate

1,835,022

1,758,300

Operating lease right-of-use assets, net

166,807

172,976

Cash and cash equivalents

2,894

3,048

Accounts and other receivables, net of allowance for doubtful accounts of $783 and $371 as of September 30, 2020, and December 31, 2019, respectively

31,388

21,008

Lease intangibles, net of accumulated amortization of $4,535 and $4,022 as of September 30, 2020, and December 31, 2019, respectively

2,959

3,939

Goodwill

40,646

40,646

Other assets, net

103,262

101,082

Total assets

$

2,182,978

$

2,100,999

LIABILITIES AND EQUITY

Liabilities:

Debt, net of unamortized deferred financing costs of $8,190 and $9,098 as of September 30, 2020, and December 31, 2019, respectively

$

1,686,810

$

1,478,402

Operating lease liabilities

182,068

187,443

Accounts payable and accrued expenses

91,310

123,304

Accrued dividends and distributions

62,796

62,332

Acquired below-market lease contracts, net of accumulated amortization of $1,634 and $1,511 as of September 30, 2020, and December 31, 2019, respectively

2,362

2,511

Unearned revenue, prepaid rent and other liabilities

54,848

33,119

Total liabilities

2,080,194

1,887,111

Stockholders' equity:

Common Stock, par value $0.01, 100,000,000 shares authorized and 42,766,487 and 37,701,042 shares issued and outstanding at September 30, 2020, and December 31, 2019, respectively

422

373

Additional paid-in capital

551,227

512,324

Accumulated other comprehensive loss

(22,355)

(6,026)

Distributions in excess of net income

(439,028)

(348,509)

Total stockholders' equity

90,266

158,162

Noncontrolling interests

12,518

55,726

Total equity

102,784

213,888

Total liabilities and equity

$

2,182,978

$

2,100,999

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

CORESITE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

    

2020

    

2019

    

2020

    

2019

    

Operating revenues:

Data center revenue:

Rental, power, and related revenue

$

130,300

$

122,598

$

381,913

$

361,534

Interconnection revenue

21,144

19,082

62,126

56,274

Office, light-industrial and other revenue

2,537

3,211

7,847

8,884

Total operating revenues

153,981

144,891

451,886

426,692

Operating expenses:

Property operating and maintenance

44,986

41,251

126,206

117,428

Real estate taxes and insurance

5,989

4,973

17,778

17,157

Depreciation and amortization

41,759

40,546

124,529

113,188

Sales and marketing

5,901

5,476

17,882

16,912

General and administrative

10,854

10,671

33,724

33,123

Rent

8,966

8,331

26,360

23,752

Total operating expenses

118,455

111,248

346,479

321,560

Operating income

35,526

33,643

105,407

105,132

Interest expense

(11,384)

(10,986)

(33,153)

(30,795)

Income before income taxes

24,142

22,657

72,254

74,337

Income tax expense

(10)

(13)

(46)

(45)

Net income

$

24,132

$

22,644

$

72,208

$

74,292

Net income attributable to noncontrolling interests

3,000

5,194

12,557

17,646

Net income attributable to common shares

$

21,132

$

17,450

$

59,651

$

56,646

Net income per share attributable to common shares:

Basic

$

0.50

$

0.47

$

1.50

$

1.55

Diluted

$

0.50

$

0.47

$

1.49

$

1.54

Weighted average common shares outstanding

Basic

42,234,534

36,950,950

39,823,394

36,589,593

Diluted

42,404,396

37,132,155

39,995,993

36,763,241

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

CORESITE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited and in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

 

2020

 

2019

 

2020

 

2019

 

Net income

$

24,132

$

22,644

$

72,208

$

74,292

Other comprehensive (loss) income:

Unrealized (loss) gain on derivative contracts

4

(463)

(21,394)

(5,608)

Reclassification of other comprehensive income (loss) to interest expense

1,836

137

3,149

(44)

Comprehensive income

25,972

22,318

53,963

68,640

Comprehensive income attributable to noncontrolling interests

3,224

5,125

7,916

16,293

Comprehensive income attributable to CoreSite Realty Corporation

$

22,748

$

17,193

$

46,047

$

52,347

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

CORESITE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited and in thousands except share data)

   

   

   

Accumulated

   

   

   

   

   

   

   

Additional

   

Other

   

Distributions

   

Total

   

   

   

   

Common Shares

   

Paid-in

   

Comprehensive

   

in Excess of

   

Stockholders'

   

Noncontrolling

   

Total

   

   

Number

    

Amount

   

Capital

   

Income (Loss)

   

Net Income

   

Equity

   

Interests

   

Equity

   

Balance at January 1, 2020

37,701,042

$

373

$

512,324

$

(6,026)

$

(348,509)

$

158,162

$

55,726

$

213,888

Redemption of noncontrolling interests

2,140

11

11

(11)

Issuance of stock awards, net of forfeitures

199,541

Exercise of stock options

3,210

73

73

73

Share-based compensation

1

3,725

3,726

3,726

Dividends and distributions

(46,174)

(46,174)

(13,139)

(59,313)

Net income

17,848

17,848

5,140

22,988

Other comprehensive loss

(13,132)

(13,132)

(3,782)

(16,914)

Balance at March 31, 2020

37,905,933

$

374

$

516,133

$

(19,158)

$

(376,835)

$

120,514

$

43,934

$

164,448

Redemption of noncontrolling interests

4,620,000

46

25,105

(2,594)

22,557

(22,557)

Issuance of stock awards, net of forfeitures

(1,185)

Exercise of stock options

8,672

99

99

99

Share-based compensation

4,477

4,477

4,477

Dividends and distributions

(51,857)

(51,857)

(7,502)

(59,359)

Net income

20,671

20,671

4,417

25,088

Other comprehensive loss

(2,088)

(2,088)

(1,083)

(3,171)

Balance at June 30, 2020

42,533,420

$

420

$

545,814

$

(23,840)

$

(408,021)

$

114,373

$

17,209

$

131,582

Redemption of noncontrolling interests

230,172

2

822

(131)

693

(693)

Issuance of stock awards, net of forfeitures

(5,037)

Exercise of stock options

7,932

126

126

126

Share-based compensation

4,465

4,465

4,465

Dividends and distributions

(52,139)

(52,139)

(7,222)

(59,361)

Net income

21,132

21,132

3,000

24,132

Other comprehensive income

1,616

1,616

224

1,840

Balance at September 30, 2020

42,766,487

$

422

$

551,227

$

(22,355)

$

(439,028)

$

90,266

$

12,518

$

102,784

   

   

   

Accumulated

   

   

   

   

   

   

Additional

   

Other

   

Distributions

   

Total

   

   

   

Common Shares

   

Paid-in

   

Comprehensive

   

in Excess of

   

Stockholders'

   

Noncontrolling

   

Total

   

Number

    

Amount

   

Capital

   

Income (Loss)

   

Net Income

   

Equity

   

Interests

   

Equity

Balance at January 1, 2019

36,708,691

$

363

$

491,314

$

(2,193)

$

(246,929)

$

242,555

$

92,078

$

334,633

Issuance of stock awards, net of forfeitures

192,009

Exercise of stock options

1,129

17

17

17

Share-based compensation

1

3,592

3,593

3,593

Dividends and distributions

(40,581)

(40,581)

(12,733)

(53,314)

Net income

19,661

19,661

6,244

25,905

Other comprehensive loss

(3,540)

(3,540)

(1,124)

(4,664)

Balance at March 31, 2019

36,901,829

$

364

$

494,923

$

(5,733)

$

(267,849)

$

221,705

$

84,465

$

306,170

Redemption of noncontrolling interests

2,770

20

20

(20)

Issuance of stock awards, net of forfeitures

(15,567)

Exercise of stock options

1,339

21

21

21

Share-based compensation

3,864

3,864

3,864

Dividends and distributions

(44,895)

(44,895)

(14,118)

(59,013)

Net income

19,535

19,535

6,208

25,743

Other comprehensive loss

(502)

(502)

(160)

(662)

Balance at June 30, 2019

36,890,371

$

364

$

498,828

$

(6,235)

$

(293,209)

$

199,748

$

76,375

$

276,123

Redemption of noncontrolling interests

800,840

8

5,394

(174)

5,228

(5,228)

Issuance of stock awards, net of forfeitures

(3,983)

Exercise of stock options

1,154

28

28

28

Share-based compensation

1

3,959

3,960

3,960

Dividends and distributions

(45,961)

(45,961)

(13,142)

(59,103)

Net income

17,450

17,450

5,194

22,644

Other comprehensive loss

(257)

(257)

(69)

(326)

Balance at September 30, 2019

37,688,382

$

373

$

508,209

$

(6,666)

$

(321,720)

$

180,196

$

63,130

$

243,326

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

CORESITE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

Nine Months Ended September 30,

  

2020

  

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

72,208

$

74,292

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

124,529

113,188

Amortization of above/below market leases

(102)

(219)

Amortization of deferred financing costs and hedge amortization

3,100

2,368

Share-based compensation

11,810

10,781

Bad debt expense

890

106

Changes in operating assets and liabilities:

Accounts receivable

(11,271)

(7,971)

Deferred rent receivable

(1,252)

4,218

Initial direct costs

(13,517)

(9,727)

Other assets

(3,642)

(8,395)

Accounts payable and accrued expenses

8,195

15,800

Unearned revenue, prepaid rent and other liabilities

3,043

(8,765)

Operating leases

801

2,035

Net cash provided by operating activities

194,792

187,711

CASH FLOWS FROM INVESTING ACTIVITIES

Tenant improvements

(4,555)

(3,167)

Real estate improvements

(219,512)

(239,526)

Business combinations and asset acquisitions

(26,060)

Net cash used in investing activities

(224,067)

(268,753)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from exercise of stock options

298

66

Proceeds from revolving credit facility

201,000

286,250

Payments on revolving credit facility

(143,500)

(435,500)

Proceeds from unsecured debt

150,000

400,000

Payments of loan fees and costs

(1,108)

(2,344)

Dividends and distributions

(177,569)

(165,326)

Net cash provided by financing activities

29,121

83,146

Net change in cash and cash equivalents