-- Delivered $12.0 Million of New and
Expansion Sales for Quarter --
-- Achieved Highest Core Retail Colocation
Sales in Three and a Half Years --
-- Continued Progress on Capacity
Development Pipeline --
CoreSite Realty Corporation (NYSE:COR) (“the Company”), a
premier provider of secure, reliable, high-performance data center,
cloud access and interconnection solutions across the U.S., today
announced financial results for the first quarter ended March 31,
2020.
Q1 2020 Quarterly
Highlights
- Key Financial Results –
- Grew operating revenues to $147.4 million, an increase of 6.1%
year over year and 0.9% sequentially
- Delivered net income of $0.48 per common diluted share, a
decrease of $0.06 year over year and $0.03 sequentially
- Generated Funds From Operations “FFO” of $1.29 per diluted
share and unit, an increase of $0.04, or 3.2% year over year and a
decrease of $0.01 sequentially, or 0.8%
- Lease Commencements –
- Commenced 112 new and expansion leases for 45,322 net rentable
square feet (“NRSF”), representing $9.7 million of annualized GAAP
rent, for an average rate of $214 per square foot
- Leasing Activity –
- Signed 117 new and expansion leases for 59,354 NRSF and $12.0
million of annualized GAAP rent, for an average rate of $202 per
square foot
- Renewed 280 leases for 120,943 NRSF and $17.3 million of
annualized GAAP rent, for an average rate of $143 per square foot,
reflecting an increase of 1.4% in cash rent and 7.2% in GAAP rent,
and 3.3% churn
Q1 2020 Notable Events
- Placed into service approximately 35,000 square feet at NY2, a
data center expansion in New Jersey
- Pre-leased approximately 11% of SV8, Phase 3, a data center
expansion in Santa Clara
“We delivered strong sales, placed into service new data center
capacity, advanced our two major ground-up developments and other
capacity projects, while continuing to deliver exceptional customer
service,” said Paul Szurek, CoreSite’s President and Chief
Executive Officer. “Our preparations over the years and agile
responses enabled us to safely maintain operations in a challenging
pandemic environment while continuing to support customer success.
We turned up services quickly, solved for rapidly emerging customer
needs, demonstrated the value and effectiveness of our remote
capabilities for customers, and continued to meet their mission
critical needs.
“We believe the strategic nature of our diverse,
network-and-cloud-dense campuses, and the interoperability we
enable for customers in major metropolitan areas, continues to
position us well to benefit from the secular tailwinds for data
center services which drive demand for powerful, scalable cloud and
cloud adjacent solutions as well as network and content
capacity.”
Sales Activity
CoreSite achieved new and expansion sales of $12.0 million of
annualized GAAP rent for the quarter, driven primarily by
expansions from existing customers.
“We delivered strong new and expansion sales in the first
quarter, including ongoing growth in core retail colocation with
sales of $8.4 million, about three quarters of which came from
deployments of 1,000 to 5,000 square feet, and $3.6 million in
scale leasing,” said Steve Smith, CoreSite’s Chief Revenue Officer.
“Our sales included our highest core retail colocation sales in
three and a half years, driven by the strength of our platform,
including our network and cloud-dense data centers, ongoing
traction with enterprises moving to high performance hybrid and
multi cloud architectures, and our ability to anticipate and solve
our customers’ business needs.”
Development Activity
CoreSite continues to execute on its property development
pipeline. The Company advanced construction on its data center
expansion and ground-up development projects, and is on track for
completion of the construction projects noted below, assuming local
jurisdictions are able to be timely with inspections and permits
working under COVID-19 conditions.
- Completed Construction
During the first quarter, the Company completed and placed into
service a computer room of approximately 35,000 NRSF at NY2, Phase
3 in New Jersey, supported by the existing power structure, while
continuing an infrastructure power expansion supporting that and
other future capacity at NY2.
- Construction in Progress As
of March 31, 2020, CoreSite had a total of approximately 161,000
NRSF of turn-key data center capacity under construction, as
detailed below.
Costs Incurred
Estimated
Estimated
To-Date
Total Costs
Percent
Market
Building
NRSF
Completion
(in millions)
(in millions)
Leased
Under Construction:
Data center expansion
New York - NY2 Power
NY2, Phase 3
—
Q3 2020
$
19.4
$
38.8
—
%
San Francisco Bay
SV8, Phase 3
54,056
Q2 2020
15.8
42.0
11.0
Total data center expansion
54,056
$
35.2
$
80.8
11.0
%
New development
Chicago
CH2, Phase 1
56,000
Q2 2020
$
106.3
$
120.0
—
%
Los Angeles
LA3, Phase 1
51,000
Q3 / Q4 2020
68.9
134.0
74.3
Total new development
107,000
$
175.2
$
254.0
35.4
%
Total under construction
161,056
$
210.4
$
334.8
27.2
%
- CoreSite’s ongoing data center
development and operational position includes –
- the ability to increase its occupied footprint of land and
buildings, both owned or leased, by approximately 2.0 million NRSF,
or about 92.3%, including space unoccupied, under construction,
pre-construction or held for development, and
- owning (versus leasing) 92.4% of its current and developable
4.3 million data center NRSF, supporting operational control,
expansion and long-term expense management
Balance Sheet and
Liquidity
The Company’s balance sheet remains strong, with a ratio of net
principal debt to first quarter annualized adjusted EBITDA of 5.0
times. As of the end of the first quarter, CoreSite had $291.8
million of total liquidity, including $3.3 million of cash and
$288.5 million of available capacity on its revolving credit
facility. The Company’s liquidity will fully fund its 2020 data
center expansion plans, including $124.4 million of remaining
construction costs on its properties currently under
development.
To capitalize on a market opportunity and reduce the variability
to its near-term interest costs, the Company executed $450 million
of interest rate swap agreements during the quarter at attractive
rates. The Company increased its percentage of fixed rate debt from
71% as of December 31, 2019 to approximately 95% as of March
31.
Financing Subsequent
Event
On April 15, the Company priced a 7-year $150 million unsecured
private placement of notes, at an interest rate of 3.75%. The notes
are scheduled to close on May 6th, with $100 million funding at
closing and the remaining $50 million on July 14th. CoreSite plans
to use the proceeds to repay outstanding amounts on its revolving
credit facility and for general working capital. The private
placement is subject to customary closing conditions. The Company
does not have any debt maturities until April 2022. Pro forma for
this transaction the Company’s total liquidity as of March 31, was
$441.8 million.
2020 Guidance
CoreSite is maintaining its 2020 Guidance, which can be found in
the Company’s first quarter 2020 Supplemental Earnings Information
on page 23.
Upcoming Conferences and
Events
CoreSite’s management will participate virtually in the RBC
Capital Markets Data Center & Connectivity Conference on May
27, and also participate virtually on June 2 and 3 in the Nareit
ReitWeek 2020 Investor Conference.
Conference Call Details
CoreSite will host its first quarter 2020 earnings call on
Thursday, April 30, 2020, at 12:00 p.m. (Eastern Time). The call
will be accessible by dialing 1-877-407-3982 (domestic) or
1-201-493-6780 (international).
A replay will be available after the call until May 7, 2020, and
can be accessed dialing 1-844-512-2921 (domestic) or 1-412-317-6671
(international). The passcode for the replay is 13701528.
The quarterly conference call also will be offered as a
simultaneous webcast, accessible by visiting CoreSite.com and
clicking on the “Investors” link. An on-line replay will be
available for a limited time immediately following the call.
Concurrently with issuing its financial results, the Company
will post its first quarter 2020 Supplemental Information on its
website at CoreSite.com, under the “Investors” link.
About CoreSite
CoreSite Realty Corporation (NYSE:COR) delivers secure,
reliable, high-performance data center and interconnection
solutions to a growing customer ecosystem across eight key North
American markets. More than 1,350 of the world’s leading
enterprises, network operators, cloud providers, and supporting
service providers choose CoreSite to connect, protect and optimize
their performance-sensitive data, applications and computing
workloads. Our scalable, flexible solutions and 450+ dedicated
employees consistently deliver unmatched data center options — all
of which leads to a best-in-class customer experience and lasting
relationships. For more information, visit www.CoreSite.com.
Forward-Looking
Statements
This earnings release and accompanying supplemental information
may contain forward-looking statements within the meaning of the
federal securities laws. Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies,
anticipated events or trends and similar expressions concerning
matters that are not historical facts. In some cases, you can
identify forward-looking statements by the use of forward-looking
terminology such as “believes,” “expects,” “may,” “will,” “should,”
“seeks,” “approximately,” “intends,” “plans,” “pro forma,”
“estimates” or “anticipates” or the negative of these words and
phrases or similar words or phrases that are predictions of or
indicate future events or trends and that do not relate solely to
historical matters. Forward-looking statements involve known and
unknown risks, uncertainties, assumptions and contingencies, many
of which are beyond CoreSite’s control that may cause actual
results to differ significantly from those expressed in any
forward-looking statement. These risks include, without limitation:
the geographic concentration of the Company’s data centers in
certain markets and any adverse developments in local economic
conditions or the level of supply of or demand for data center
space in these markets; fluctuations in interest rates and
increased operating costs; difficulties in identifying properties
to acquire and completing acquisitions; significant industry
competition, including indirect competition from cloud service
providers; failure to obtain necessary outside financing; the
ability to service existing debt; the failure to qualify or
maintain its status as a REIT; financial market fluctuations;
changes in real estate and zoning laws and increases in real
property tax rates; the effects on our business operations, demand
for our services and general economic conditions resulting from the
spread of the novel coronavirus (COVID-19) in our markets, as well
as orders, directives and legislative action by local, state and
federal governments in response to such spread of COVID-19; and
other factors affecting the real estate industry generally. All
forward-looking statements reflect the Company’s good faith
beliefs, assumptions and expectations, but they are not guarantees
of future performance. Furthermore, the Company disclaims any
obligation to publicly update or revise any forward-looking
statement to reflect changes in underlying assumptions or factors,
of new information, data or methods, future events or other
changes. For a further discussion of these and other factors that
could cause the Company’s future results to differ materially from
any forward-looking statements, see the section entitled “Risk
Factors” in its most recent annual report on Form 10-K, and other
risks described in documents subsequently filed by the Company from
time to time with the Securities and Exchange Commission.
Use of Funds From Operations
(“FFO”)
FFO is a supplemental measure of CoreSite’s performance which
should be considered along with, but not as an alternative to, net
income and cash provided by operating activities as a measure of
operating performance. The Company calculates FFO in accordance
with the standards established by the National Association of Real
Estate Investment Trusts (“Nareit”). FFO represents net income
(loss) (computed in accordance with GAAP), excluding gains (or
losses) from sales of property and undepreciated land and
impairment write-downs of depreciable real estate, plus real estate
related depreciation and amortization (excluding amortization of
deferred financing costs) and after adjustments for unconsolidated
partnerships and joint ventures.
CoreSite’s management uses FFO as a supplemental performance
measure because, by excluding real estate related depreciation and
amortization and gains and losses from property dispositions, it
provides a performance measure that, when compared year over year,
captures trends in occupancy rates, rental rates and operating
costs.
CoreSite offers this measure because it recognizes that
investors use FFO as a basis to compare its operating performance
with that of other REITs. However, the utility of FFO as a measure
of the Company’s performance is limited because FFO excludes
depreciation and amortization and captures neither the changes in
the value of its properties that result from use or market
conditions, nor the level of capital expenditures and capitalized
leasing commissions necessary to maintain the operating performance
of its properties, all of which have real economic effect and could
materially impact the Company’s financial condition and results
from operations. FFO is a non-GAAP measure and should not be
considered a measure of liquidity, an alternative to net income,
cash provided by operating activities or any other performance
measure determined in accordance with GAAP, nor is it indicative of
funds available to fund the Company’s cash needs, including its
ability to pay dividends or make distributions. In addition,
CoreSite’s calculations of FFO are not necessarily comparable to
FFO as calculated by other REITs that do not use the same
definition or implementation guidelines or interpret the standards
differently from the Company. Investors in CoreSite’s securities
should not rely on these measures as a substitute for any GAAP
measure, including net income.
Use of Earnings Before Interest, Taxes,
Depreciation and Amortization for Real Estate
(“EBITDAre”)
EBITDAre is calculated in accordance with the standards
established by the National Association of Real Estate Investment
Trusts (“Nareit”). EBITDAre is defined as earnings before interest,
taxes, depreciation and amortization, gains or losses from the sale
of depreciated property, and impairment of depreciated property.
CoreSite calculates adjusted EBITDA by adding its non-cash
compensation expense, transaction costs from unsuccessful deals and
business combinations and litigation expense to EBITDAre as well as
adjusting for the impact of other impairment charges, gains or
losses from sales of undepreciated land and gains or losses on
early extinguishment of debt. Management uses EBITDAre and adjusted
EBITDA as indicators of the Company’s ability to incur and service
debt. In addition, CoreSite considers EBITDAre and adjusted EBITDA
to be appropriate supplemental measures of its performance because
they eliminate depreciation and interest, which permits investors
to view income from operations without the impact of non-cash
depreciation or the cost of debt. However, because EBITDAre and
adjusted EBITDA are calculated before recurring cash charges
including interest expense and taxes, and are not adjusted for
capital expenditures or other recurring cash requirements of the
Company’s business, their utilization as a cash flow measurement is
limited.
Consolidated Balance
Sheets
(in thousands, except per share
data)
March 31,
December 31,
2020
2019
Assets:
Investments in real estate:
Land
$
94,593
$
94,593
Buildings and improvements
2,015,530
1,989,731
2,110,123
2,084,324
Less: Accumulated depreciation and
amortization
(756,025
)
(720,498
)
Net investment in operating properties
1,354,098
1,363,826
Construction in progress
437,794
394,474
Net investments in real estate
1,791,892
1,758,300
Operating lease right-of-use assets,
net
175,999
172,976
Cash and cash equivalents
3,307
3,048
Accounts and other receivables, net
24,260
21,008
Lease intangibles, net
3,600
3,939
Goodwill
40,646
40,646
Other assets, net
104,555
101,082
Total assets
$
2,144,259
$
2,100,999
Liabilities and equity:
Liabilities
Debt, net
$
1,572,007
$
1,478,402
Operating lease liabilities
190,759
187,443
Accounts payable and accrued expenses
102,148
123,304
Accrued dividends and distributions
61,637
62,332
Acquired below-market lease contracts,
net
2,462
2,511
Unearned revenue, prepaid rent and other
liabilities
50,798
33,119
Total liabilities
1,979,811
1,887,111
Stockholders' equity
Common stock, par value $0.01
374
373
Additional paid-in capital
516,133
512,324
Accumulated other comprehensive loss
(19,158
)
(6,026
)
Distributions in excess of net income
(376,835
)
(348,509
)
Total stockholders' equity
120,514
158,162
Noncontrolling interests
43,934
55,726
Total equity
164,448
213,888
Total liabilities and equity
$
2,144,259
$
2,100,999
Consolidated Statements of
Operations
(in thousands, except per share data)
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
Operating revenues:
Data center revenue:(1)
Rental, power, and related revenue
$
124,505
$
123,597
$
117,853
Interconnection revenue
20,085
19,477
18,416
Total data center revenue
144,590
143,074
136,269
Office, light-industrial and other
revenue
2,772
2,961
2,626
Total operating revenues
147,362
146,035
138,895
Operating expenses:
Property operating and maintenance
40,183
39,865
38,110
Real estate taxes and insurance
6,190
5,709
6,196
Depreciation and amortization
40,991
39,737
35,646
Sales and marketing
6,144
5,527
5,652
General and administrative
11,267
10,641
10,170
Rent
8,399
8,872
7,688
Total operating expenses
113,174
110,351
103,462
Operating income
34,188
35,684
35,433
Interest expense
(11,183
)
(10,917
)
(9,498
)
Income before income taxes
23,005
24,767
25,935
Income tax expense
(17
)
(22
)
(30
)
Net income
22,988
24,745
25,905
Net income attributable to noncontrolling
interests
5,140
5,551
6,244
Net income attributable to common
shares
$
17,848
$
19,194
$
19,661
Net income per share attributable to
common shares:
Basic
$
0.48
$
0.51
$
0.54
Diluted
$
0.48
$
0.51
$
0.54
Weighted average common shares
outstanding:
Basic
37,336
37,291
36,348
Diluted
37,504
37,489
36,547
(1) Below is a breakout of our contractual
data center rental, power, and tenant reimbursements and other
revenue:
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
Rental revenue
$
80,886
$
79,257
$
74,930
Power revenue
41,278
41,804
40,503
Tenant reimbursement and other
2,341
2,536
2,420
Rental, power, and related revenue
$
124,505
$
123,597
$
117,853
Reconciliations of Net Income to
FFO
(in thousands, except per share data)
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
Net income
$
22,988
$
24,745
$
25,905
Real estate depreciation and
amortization
39,415
38,190
34,187
FFO available to common shareholders
and OP unit holders
$
62,403
$
62,935
$
60,092
Weighted average common shares outstanding
- diluted
37,504
37,489
36,547
Weighted average OP units outstanding -
diluted
10,796
10,797
11,600
Total weighted average shares and units
outstanding - diluted
48,300
48,286
48,147
FFO per common share and OP unit -
diluted
$
1.29
$
1.30
$
1.25
Reconciliations of Net Income to
EBITDAre and Adjusted EBITDA:
(in thousands)
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
Net income
$
22,988
$
24,745
$
25,905
Adjustments:
Interest expense
11,183
10,917
9,498
Income taxes
17
22
30
Depreciation and amortization
40,991
39,737
35,646
EBITDAre
$
75,179
$
75,421
$
71,079
Non-cash compensation
3,482
3,603
3,432
Transaction costs / litigation
—
—
—
Adjusted EBITDA
$
78,661
$
79,024
$
74,511
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200430005114/en/
Carole Jorgensen Vice President Investor Relations and Corporate
Communications 303-405-1012 InvestorRelations@CoreSite.com
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