CoreSite Reports Fourth Quarter 2018 Financial Results

— Revenue Growth of 13% for the Year —

DENVER–(BUSINESS WIRE)–CoreSite Realty Corporation (NYSE:COR) (“the Company”), a premier
provider of secure, reliable, high-performance data center and
interconnection solutions across the U.S., today announced financial
results for the fourth quarter ended December 31, 2018.

Annual Highlights

• Key Financial Results, compared to 2017 —
  • Operating revenues of $544.4 million, increased 13.0%
  • Net income of $2.22 per diluted common share, increased 20.7%
  • Funds From Operations (“FFO”) of $5.06 per diluted share and unit –
    • increased 14.2% year over year, or 11.9% excluding 2017
      non-cash charge for redeemed preferred stock original issuance
      costs
  • Dividends declared of $4.14 per share and unit, increased 15.6%

Quarterly Highlights

• Key Financial Results —
  • Q4 operating revenues of $139.1 million –
    • increased 10.5% year over year, and was in line sequentially
  • Q4 net income of $0.54 per diluted common share –
    • increased 22.7% year over year, and 3.8% sequentially
  • Q4 FFO of $1.26 per diluted share and unit –
    • increased 15.6% year over year, or 6.8% excluding 2017
      non-cash charge for redeemed preferred stock original issuance
      costs and 0.8% sequentially
• Lease Commencements —
  • Commenced 116 new and expansion leases including –
    • 22,684 net rentable square feet (“NRSF”), representing $4.4
      million of annualized GAAP rent at an average rate of $192 per
      square foot
• Lease Sales Activity —
  • Signed 115 new and expansion leases including –
    • 16,125 NRSF, representing $4.2 million of annualized GAAP rent
      at an average rate of $259 per square foot
  • Renewed 303 existing leases including –
    • 125,078 NRSF, representing $22.5 million of annualized GAAP
      rent, at an average rate of $180 per square foot, including
      churn of 1.9%, reflecting 3.0% cash rent growth and 7.0% GAAP
      rent growth

“We delivered solid results in 2018, while expanding our customer
ecosystem and building our new capacity pipeline,” said Paul Szurek,
CoreSite’s Chief Executive Officer. “In 2019, our focus is to continue
executing on high-value edge and hybrid cloud deployments requiring
direct interconnection to networks and cloud on-ramps. This includes our
goals of delivering significant new capacity and translating it into
attractive sales growth, acquiring many new customers and continuing to
deliver a strong customer experience.”

Other Financial Results and Liquidity

CoreSite’s $139.1 million of operating revenues for the fourth quarter
included $118.3 million of rental, power and related revenue, $18.0
million of interconnection revenue and $2.8 million of office,
light-industrial and other revenue.

Net Income was $25.9 million for the fourth quarter and $106.8 million
for the year, or $0.54 and $2.22 attributable to each common diluted
share, respectively.

The Company’s balance sheet remains strong, with a ratio of net
principal debt to fourth quarter annualized adjusted EBITDA of 3.8
times. As of the end of the fourth quarter, CoreSite had $236.2 million
of total liquidity, including $2.6 million of cash and $233.6 million of
available capacity on its revolving credit facility.

Sales Activity

For the quarter, the Company continued to perform in the core retail
colocation space with solid pricing, ongoing acquisition of new logos
and expansion with key strategic customers. Additionally, the Company
achieved strong lease renewals, with churn lower than expected. Scale
colocation leasing for the quarter was impacted by the fact that
occupancies were high and therefore capacity was constrained for large
blocks of contiguous space in certain markets. In 2018, the Company made
solid progress on construction, and when coupled with its development
completion schedule for 2019, believes its new capacity will strengthen
its future sales opportunities, including for scale leasing.

“We are entering 2019 with a strong pipeline of construction and
development, new logo additions, and an ongoing value proposition that
we believe resonates with customers,” said Steven Smith, Chief Revenue
Officer. “These elements, along with our product enhancements, should
drive significant new leasing opportunities in 2019.”

Development Activity

CoreSite expects 2019 to be a positive transition year, entering the
year with leasable capacity at a low level compared to historical norms,
and plans to end 2019 with leasable capacity, plus quickly developable
incremental capacity, at the higher levels the Company experienced in
previous years.

CoreSite has a strong ongoing development and operational position that
includes —

• the ability to increase its occupied footprint of land and buildings,
  both owned or leased, by 89%, or about 1.9 million NRSF, including
  space unoccupied, under construction, pre-construction or held for
  development, and
• owning (versus leasing) 92% of its 4.1 million data center NRSF, which
  supports operational control, expansion and long-term cost management

In 2018, the Company placed into service nearly 172,000 NRSF of new
turn-key data center capacity, including completion late in the fourth
quarter of its DC2 data center, located in Washington DC, for nearly
25,000 NRSF.

As of December 31, 2018, CoreSite had a total of approximately 271,000
NRSF of turn-key data center capacity under construction, with $166.4
million incurred to date of the $530.2 million of total estimated costs
as detailed below. Included in these numbers are two development
projects in the pre-construction phase totaling 118,000 NRSF, with $39.4
million incurred to date of the $250.0 million of estimated total costs.

												Costs Incurred				Estimated
									Estimated			To-Date				Total Costs
Market			Building			NRSF			Completion			(in millions)				(in millions)
Under Construction:
Los Angeles			LA1			17,238			Q2 2019			$	1.6			$	13.2
Los Angeles			LA2			28,191			Q2 2019				7.1				21.0
Northern Virginia			VA3, Phase 1B			49,837			Q2 2019				70.8				119.0
San Francisco Bay			SV8, Phase 1			58,000			Q3 2019				47.5				127.0
Pre-Construction:
Chicago			CH2, Phase 1			58,000			2020				10.1				120.0
Los Angeles			LA3, Phase 1			60,000			2020				29.3				130.0
Total						271,266						$	166.4			$	530.2

Operational Excellence

CoreSite made investments in 2017 and 2018 to drive operational
excellence with new technology, talent and staffing upgrades and
increased training.

In 2018, CoreSite achieved 99.99999% reliability, or “seven 9s,”
exceeding its target of “six 9s.” This achievement positively impacted
operating costs and correlated to high satisfaction from some of the
Company’s largest customers for its reliability and ease of doing
business.

In addition, CoreSite delivered approximately 7% improvement in Power
Utilization Efficiency on a same-store basis compared to 2017, enabled
by strategic infrastructure investments and an ongoing program of
operational efficiency improvements.

Financial Outlook

The Company’s outlook is based on current economic conditions, internal
assumptions about its customer base, and the supply and demand dynamics
of the markets in which it operates. The guidance does not include the
impact of any future financing, investment or disposition activities,
beyond what has already been disclosed.

The Company’s guidance for 2019 includes —

• Net income attributed to common share in a range of $2.15 to $2.25, and
• FFO per common diluted share and unit in the range of $5.21 to $5.31

The difference between net income and FFO represents real estate
depreciation and amortization.

For further detail on the Company’s 2019 guidance, including operating
revenues, Adjusted EBITDA, depreciation and amortization and capital
expenditures, along with guidance drivers, please see page 23 of
CoreSite’s Supplemental Information.

Upcoming Conferences and Events

CoreSite’s management will participate in Citi’s 2019 Global Property
CEO Conference in Hollywood, Florida on March 4-5.

Conference Call Details

CoreSite will host its fourth quarter 2018 earnings call on Thursday,
February 7, 2019, at 12:00 p.m. Eastern Time. The conference call will
be accessible by dialing 1-877-407-3982 (domestic) or 1-201-493-6780
(international). A replay will be available until February 21, 2019, and
can be accessed shortly after the call by dialing 1-844-512-2921
(domestic) or 1-412-317-6671 (international). The passcode for the
replay is 13686173. The quarterly conference call also will be offered
as a simultaneous webcast, accessible by visiting www.CoreSite.com
and clicking on the “Investors”
link. An on-line replay will be available for a limited time immediately
following the call.

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 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; failure to
obtain necessary outside financing; the ability to service existing
debt; the failure to qualify or maintain its status as a REIT; financial
market fluctuations; changes in real estate and zoning laws and
increases in real property tax rates; and other factors affecting the
real estate industry generally. All forward-looking statements reflect
the Company’s good faith beliefs, assumptions and expectations, but they
are not guarantees of future performance. Furthermore, the Company
disclaims any obligation to publicly update or revise any
forward-looking statement to reflect changes in underlying assumptions
or factors, of new information, data or methods, future events or other
changes. For a further discussion of these and other factors that could
cause the Company’s future results to differ materially from any
forward-looking statements, see the section entitled “Risk Factors” in
its most recent annual report on Form 10-K, and other risks described in
documents subsequently filed by the Company from time to time with the
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. FFO attributable to common shares and
units represents FFO less preferred stock dividends declared during the
period.

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)
			December 31,					December 31,
			2018					2017 (1)
Assets:
Investments in real estate:
Land			$	86,955				$	97,258
Buildings and improvements				1,730,329					1,561,056
				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				18,464					28,875
Lease intangibles, net				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 and equity:
Liabilities
Debt, net			$	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				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				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

(1)		Adoption of the new lease accounting standard effective January 1, 2018, required that the Company adjust the consolidated balance sheet as of December 31, 2017, to include the recognition of additional right-of-use assets and lease liabilities for operating leases. See the Company’s SEC filings for additional information.

Consolidated Statements of Operations
(in thousands, except per share data)
			Three Months Ended												Year Ended
			December 31,				September 30,				December 31,				December 31,				December 31,
			2018				2018				2017				2018				2017
Operating revenues:
Data center revenue:(1)
Rental, power, and related revenue			$	118,341			$	118,590			$	106,748			$	463,086			$	407,680
Interconnection revenue				18,026				17,701				16,255				69,709				62,293
Total data center revenue				136,367				136,291				123,003				532,795				469,973
Office, light-industrial and other revenue				2,779				2,889				2,943				11,597				11,848
Total operating revenues				139,146				139,180				125,946				544,392				481,821
Operating expenses:
Property operating and maintenance				39,487				41,161				34,722				152,357				132,820
Real estate taxes and insurance				4,910				4,699				3,963				19,239				14,913
Depreciation and amortization				36,035				36,264				32,629				141,633				129,251
Sales and marketing				5,394				5,180				4,616				21,023				18,176
General and administrative				10,534				10,074				10,157				40,090				37,548
Rent				7,420				7,329				6,155				27,696				24,125
Transaction costs				—				—				37				75				176
Total operating expenses				103,780				104,707				92,279				402,113				357,009
Operating income				35,366				34,473				33,667				142,279				124,812
Interest expense				(9,448	)			(9,433	)			(6,635	)			(35,526	)			(24,147	)
Income before income taxes				25,918				25,040				27,032				106,753				100,665
Income tax (expense) benefit				(20	)			(20	)			(24	)			10				(174	)
Net income				25,898				25,020				27,008				106,763				100,491
Net income attributable to noncontrolling interests				6,267				6,420				6,099				28,841				25,636
Net income attributable to CoreSite Realty Corporation				19,631				18,600				20,909				77,922				74,855
Preferred stock dividends				—				—				(1,671	)			—				(7,924	)
Original issuance costs associated with redeemed preferred stock				—				—				(4,326	)			—				(4,326	)
Net income attributable to common shares			$	19,631			$	18,600			$	14,912			$	77,922			$	62,605
Net income per share attributable to common shares:
Basic			$	0.54			$	0.52			$	0.44			$	2.23			$	1.85
Diluted			$	0.54			$	0.52			$	0.44			$	2.22			$	1.84
Weighted average common shares outstanding:
Basic				36,300				35,512				33,893				34,957				33,793
Diluted				36,486				35,721				34,145				35,137				34,059

(1)

During 2018, the Financial Accounting Standards Board (“FASB”) issued updates to the new lease accounting standard. As a result of the updates the Company has combined contractual data center rental, power, and tenant reimbursements and other revenue into a single line item as shown below:

			Three Months Ended									Year Ended
			December 31,			September 30,			December 31,			December 31,			December 31,
			2018			2018			2017			2018			2017
Rental revenue			$	74,326		$	74,321		$	68,373		$	293,823		$	264,134
Power revenue				41,637			40,967			36,528			157,993			134,909
Tenant reimbursement and other				2,378			3,302			1,847			11,270			8,637
Rental, power, and related revenue			$	118,341		$	118,590		$	106,748		$	463,086		$	407,680

Reconciliations of Net Income to FFO
(in thousands, except per share data)
			Three Months Ended										Year Ended
			December 31,			September 30,			December 31,				December 31,			December 31,
			2018			2018			2017				2018			2017
Net income			$	25,898		$	25,020		$	27,008			$	106,763		$	100,491
Real estate depreciation and amortization				34,853			34,928			31,213				136,458			123,848
FFO			$	60,751		$	59,948		$	58,221			$	243,221		$	224,339
Preferred stock dividends				—			—			(1,671	)			—			(7,924	)
Original issuance costs associated with redeemed preferred stock				—			—			(4,326	)			—			(4,326	)
FFO available to common shareholders and OP unit holders			$	60,751		$	59,948		$	52,224			$	243,221		$	212,089
Original issuance costs associated with redeemed preferred stock				—			—			4,326				—			4,326
FFO available to common shareholders and OP unit holders, as adjusted(1)			$	60,751		$	59,948		$	56,550			$	243,221		$	216,415
Weighted average common shares outstanding – diluted				36,486			35,721			34,145				35,137			34,059
Weighted average OP units outstanding – diluted				11,602			12,378			13,836				12,903			13,844
Total weighted average shares and units outstanding – diluted				48,088			48,099			47,981				48,040			47,903
FFO per common share and OP unit – diluted			$	1.26		$	1.25		$	1.09			$	5.06		$	4.43
FFO per common share and OP unit – diluted, as adjusted(1)			$	1.26		$	1.25		$	1.18			$	5.06		$	4.52

(1)		The three months and year ended December 31, 2017, excludes $4.3 million, or $0.09 per share and unit, of non-cash charge related to the original issuance costs associated with the Company’s redeemed preferred stock.

Reconciliations of Net Income to EBITDAre and Adjusted EBITDA:
(in thousands)
			Three Months Ended									Year Ended
			December 31,			September 30,			December 31,			December 31,				December 31,
			2018			2018			2017			2018				2017
Net income			$	25,898		$	25,020		$	27,008		$	106,763			$	100,491
Adjustments:
Interest expense				9,448			9,433			6,635			35,526				24,147
Income taxes				20			20			24			(10	)			174
Depreciation and amortization				36,035			36,264			32,629			141,633				129,251
EBITDAre			$	71,401		$	70,737		$	66,296		$	283,912			$	254,063
Non-cash compensation				3,174			3,052			2,401			12,038				8,946
Transaction costs / litigation				—			3			58			168				197
Adjusted EBITDA			$	74,575		$	73,792		$	68,755		$	296,118			$	263,206

Contacts

CoreSite Realty Corporation
Carole
Jorgensen
Vice President Investor Relations and Corporate
Communications
303-405-1012
InvestorRelations@CoreSite.com