Investor Presentation. November 2017

Transcription

1 Investor Presentation November 2017

2 Forward Looking Statements This presentation may contain forward-looking statements within the meaning of the federal securities laws. Forwardlooking 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 CoreSite 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; CoreSite s failure to obtain necessary outside financing; the company s ability to service existing debt; 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 CoreSite s good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, CoreSite 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 CoreSite s future results to differ materially from any forward-looking statements, see the section entitled Risk Factors in CoreSite s most recent annual report on Form 10-K, and other risks described in documents subsequently filed by CoreSite from time to time with the Securities and Exchange Commission. 2

3 CoreSite at a Glance 3

4 Strong Historical Financial Performance Revenue Adjusted EBITDA Adjusted EBITDA Margin $500 $ % $450 $400 $ % $350 $300 $ % $250 $ % $200 $150 $ % $100 $50 $ % $ E* $ E* 30.0% Funds From Operations (FFO) FFO Per Share Dividend Per Share $250 $200 $150 $5.00 $4.50 $4.00 $3.50 $3.00 $4.00 $3.50 $3.00 $2.50 $2.50 $2.00 $100 $50 $2.00 $1.50 $1.00 $0.50 $1.50 $1.00 $0.50 $ E* $0.00 $ E* Note: 2014 adjusted EBITDA and FFO exclude a net benefit of $3.7 million and $0.04 per share, respectively, related to one-time items; 2017E based on YTD annualized results. 4

5 Our Focus and Strategy Bringing together a diverse community of leading network and cloud providers to support the needs of the enterprise High-performance data center solutions Network-dense locations in top U.S. markets; interconnected campuses On-premises access to top public cloud providers reduces network cost and complexity, optimizes cloud performance and resiliency, enhances scalability of enterprise requirements Centralized utilities to support rapid and efficient access to public clouds and technology-solutions partners Private IP on-ramps Ethernet fabric SLA-backed dual-core network architecture up to 100-gig APIs supporting leading global cloud providers and networks Since 2001, CoreSite has focused on providing secure, reliable, high-performance data center and interconnection solutions supported by industry-leading customer service 5

6 National Reach 8 Strategic Markets Our customers can reach 20% of the U.S. population representing 27% of U.S. GDP with performance-sensitive applications and products across our 8 markets BOSTON SILICON VALLEY SV1 SV4 SV7 SV2 SV5 SV3 SV6 DENVER HQ DE1 DE2 CHICAGO CH1 BO1 NEW YORK Market # of Networks Los Angeles 240+ Denver 60+ Northern Virginia/D.C. 60+ Silicon Valley 50+ New York/New Jersey 40+ Boston 35+ Chicago 30+ Miami 15+ LOS ANGELES LA1 LA2 N VIRGINIA/DC VA1 DC1 VA3* VA2 DC2* NY1 NY2 MIAMI MI1 * Under construction Cloud Services Availability The CoreSite Open Cloud Exchange AWS Direct Connect Microsoft Azure ExpressRoute Google Cloud Platform IBM Direct Link In addition to direct connect markets listed, AWS, Microsoft Azure, IBM Direct Link and Google Cloud Platform can be accessed through inter-site connectivity or network service providers in all eight of our markets 6

7 CoreSite Colocation: Secure, Reliable and High-Performance Secure and Compliant In-house facilities and security personnel provide greater process control and engagement Rigorous internal security training and certification Consistent compliance across all properties System and Organization Controls (SOC) 2 Type 2 examination SOC 1 Type 2 examination International Organization for Standardization certification (ISO 27001) Payment Card Industry (PCI) Data Security Standard (DSS) Health Insurance Portability and Accountability Act (HIPAA) validation Reliable 100% uptime SLA guarantees our commitment to delivering reliability to support customer applications Trusted by 1,200+ customers Scalable Scalable Serving customer requirements from half cabinet to full buildings 20 operating data centers in eight of the largest commercial and data center markets in the United States Ability to increase occupied data center footprint on land and buildings currently owned, including current space unoccupied, under construction and held for development by approximately 1.6 million NRSF, or 82%, of currently occupied space ~ 90% of data center square feet owned vs. leased High-Performance High-Performance Interconnections Interconnections Cloud-enabled, network-rich data center campuses that support Cloud-enabled, the enterprise network-rich data center campuses that Ability support to the cover enterprise more than 75% of US businesses within 5 Ability milliseconds to cover more than 75% of US businesses within The 5 milliseconds environment to build hybrid IT solutions The environment to build hybrid Over IT 375 solutions network service providers supported Over 375 network service More than 300 cloud and IT providers supported service providers including AWS, More than Microsoft, 300 cloud Google and and IT IBM service SoftLayer providers including AWS, Microsoft, Google and IBM SoftLayer Wrapped in Best-in-Class Customer Experience Experienced and committed operations and facility personnel with an average tenure of five years Smart hands by certified and experienced operations personnel (BICSI, Cisco, Brocade, CompTIA A+, etc.) Customer service evidenced by strong organic growth from existing customer expansions Dedicated implementation resources to ensure a seamless onboarding process Ranked 70th percentile of all North American B2B businesses for customer satisfaction 7

8 Differentiated Network and Cloud Value FUNCTIONAL Public Internet Anyone Anywhere Access to 1-3 networks with T1-10Gig services Suitable for non-critical workloads and many small enterprises Concerns Security Performance/undefined latency Reliability Cost BETTER Fixed-Bandwidth from Network Service or SD WAN Provider Undifferentiated Data Centers Access to 3-20 networks with T1-100Gig services Varying degrees of security, reliability and performance Concerns Limited network diversity Inelastic / Scalability Increasing costs Value of data center location correlated to number of network providers and the types of services provided at the data center BEST - CoreSite Scalable, secure, and SLA-backed private WAN services (MPLS and Ethernet) from network service providers Access to 20+ networks with T1-100Gig services Verizon Secure Cloud Interconnect ( SCI ) AT&T NetBond On-premises access to key cloud on-ramps AWS Direct Connect - Available as 1G or 10G native connections or through the CoreSite Open Cloud Exchange Microsoft Azure ExpressRoute Available as 1G or 10G NNI through the CoreSite Open Cloud Exchange Google Cloud Platform Available as 1G, 10G or 100G Direct Peer through Any2Exchange for Internet peering SoftLayer Direct Link - Available through 1G and 10G native connections Benefits Security Private inter-connection to network or cloud service providers bypassing public Internet Performance Low latency connectivity and guaranteed throughput to network and cloud service providers Cost Significant savings in data transfer costs from cloud service providers and reduced last mile cost to access Tier 1 networks Reliability 100% uptime SLA guarantee and consistent network experience Ease of Business Access to ecosystem of leading network, cloud and supporting service providers 8

9 Volume Robust Set of Interconnection Solutions Supporting Volume and Revenue Growth 30,000 80% 25,000 70% 60% 20,000 50% 15,000 40% Growth 10,000 30% 20% 5,000 10% * Fiber Volume Total IX Volume IX Revenue Growth Total IX Volume Growth Fiber Volume Growth 0% * 2017 based on YTD results. Note: CoreSite acquired Comfluent, a carrier-neutral, network-centric colocation provider, located in Denver, Colorado in April

10 Diverse and Growing Customer Base We ended Q with more than 1,200 customers compared to approximately 760 at the end of ,300 1,200 1,100 1, * * 2017 based on Q customer count. 10

11 Percent of Annual Lease Count Strong Organic Growth Driven by Expansions of Existing Customers 90% 100% 80% 90% 70% 60% 50% 40% 30% 20% 80% 70% 60% 50% 40% 30% 20% Percent of Annualized GAAP Rent 10% 10% 0% * 0% New Logo - Transactions New Logo - Annualized GAAP Rent Existing Expansion - Transactions Existing Expansion - Annualized GAAP Rent * 2017 based on YTD results. 11

12 Customer Mix Overview We bring together strong network and cloud communities to support the needs of the enterprise Enterprise (51%) Network (21%) Cloud (28%) Note: percentages based on total data center annualized rent as of 9/30/17. 12

13 CoreSite One Wilshire Campus Los Angeles A Virtual Campus Connected via Dark Fiber Content Distribution Cloud Network Enterprise and Digital Content Providers Our Entertainment and Gaming ecosystem in Los Angeles is interconnected using more than 2,000 cross connections Note: One Wilshire campus not entirely representative of total operating portfolio Networks 110+ Cloud & IT 150+ Enterprise & Digital Content 13

14 Financial Overview

15 Summary of Financial Data Three Months Ended Nine Months Ended September 30, 2017 June 30, 2017 September 30, 2016 Y/Y Growth September 30, 2017 September 30, 2016 Y/Y Growth Summary of Results Operating revenues $123,068 $117,886 $101, % $355,875 $289, % Net income 24,288 24,135 19, % 73,483 58, % Net income attributable to common shares 15,758 15,643 12, % 47,693 35, % Funds from operations (FFO) to shares and units 52,931 52,929 42, % 159, , % Adjusted funds from operations (AFFO) 48,336 43,505 40, % 140, , % EBITDA 62,876 62,289 49, % 187, , % Adjusted EBITDA 65,250 64,797 52, % 194, , % Adjusted EBITDA Margin 53.0% 55.0% 51.5% 150bps 54.6% 52.3% 230bps Cash flow distributable to common equity (1) $45,376 $40,781 38, % $131,150 $107, % Per share - diluted: Net income attributable to common shares $0.46 $0.46 $ % $1.40 $ % FFO per common share and OP unit $1.10 $1.10 $ % $3.34 $ % (1) Cash flow distributable to common equity defined as AFFO less non-recurring capital. 15

16 Summary of Financial Data As of September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016 Dividend Activity Dividends declared per share and OP unit $0.90 $0.90 $0.80 $0.80 $0.53 TTM FFO payout ratio 77.4% 72.4% 66.9% 64.6% 61.5% TTM AFFO payout ratio (1) 90.2% 84.0% 75.1% 73.0% 69.0% Operating Portfolio Statistics Operating data center properties Stabilized data center NRSF 2,025,594 2,025,594 1,987,231 1,985,592 1,786,638 Stabilized data center NRSF occupied 1,891,014 1,900,699 1,881,908 1,876,384 1,674,157 Stabilized data center % occupied 93.4% 93.8% 94.7% 94.5% 93.7% Turn-Key Data Center ("TKD") Same-Store Statistics MRR per Cabinet Equivalent $1,503 $1,470 $1,439 $1,432 $1,417 TKD NRSF % occupied 90.3% 91.1% 90.9% 90.8% 90.5% Market Capitalization, Principal Debt & Preferred Stock Total enterprise value $6,288,910 $5,866,955 $5,164,449 $4,598,768 $4,244,766 Total principal debt outstanding $794,000 $775,000 $723,000 $694,000 $594,750 Total principal debt and preferred stock outstanding $909,000 $890,000 $838,000 $809,000 $709,750 Net Principal Debt to: Annualized Adjusted EBITDA 3.0x 2.9x 2.8x 2.8x 2.8x Enterprise Value 12.6% 12.8% 14.0% 15.0% 13.9% Net Principal Debt & Preferred Stock to: Annualized Adjusted EBITDA 3.5x 3.3x 3.2x 3.3x 3.4x Enterprise Value 14.4% 14.8% 16.2% 17.5% 16.6% (1) The TTM AFFO payout ratio for the three months ended September 30, 2017, and June 30, 2017, includes $0.3 million and $3.0 million, respectively, of recurring capital expenditures associated with replacing our chiller plant at LA2 that we expect to generate a significant return on investment. 16

17 Operating Portfolio as of 9/30/17 * Indicates properties where we have a leasehold interest; for all footnotes, please see our Form 10-Q for the quarter ended September 30,

18 Data Center Leasing Activity Leasing Activity Period Number of Leases (1) GAAP Annualized Rent ($000) Total Leased NRSF GAAP Annualized Rent per Leased NRSF Rental Churn Rate Cash Rent Growth GAAP Rent Growth New/expansion leases commenced YTD $24,556 84,681 $290 (2) Q ,855 21, (2) Q ,580 25, Q ,121 37, Q , , Q ,493 50, New/expansion leases signed YTD $31,718 (3) 138,894 $220 (2)(3) Q ,099 40, (2) Q ,918 (3) 51, (3) Q ,701 46, Q ,412 35, Q ,214 59, Renewal leases signed YTD $41, ,023 $ % 3.3% 7.6% Q ,370 80, % 5.5% 10.9% Q ,934 83, % (4) 2.6% 6.5% Q ,885 95, % 1.9% 5.5% Q ,490 51, % 2.9% 5.5% Q ,872 76, % 4.0% 6.8% (1) Number of leases represents each agreement with a customer; a lease agreement could include multiple spaces and a customer could have multiple leases. (2) During Q3 2017, we signed and commenced a high density expansion at our Santa Clara campus. (3) GAAP annualized rent includes contractual payments related to reserved dedicated expansion space, which is excluded from the GAAP annualized rent per leased NRSF rate. (4) During Q2 2017, $4.1 million in annualized rent associated with a restructured lease at our Santa Clara campus expired resulting in rental churn of 1.7% which does not represent space vacated during the quarter. 18

19 Annualized GAAP Rent ($M) Data Center New & Expansion Leasing Trends $60 $50 $40 $30 $20 $10 $ * New & Expansion Annualized GAAP Rent * 2017 based on YTD annualized results. 19

20 Data Center New / Expansion Leases Signed by Deployment Size Recent leasing results reflected a shift in customer behavior towards larger deployments consistent with cloud services and cloud adoption, as well as higher volumes of enterprise customers, including content distribution, digital content and media Q Q Q Q Q GAAP Annualized Rent ($000) Leases < 1,000 NRSF $2,180 $3,208 $3,292 $2,078 $4,047 Leases 1,000-5,000 NRSF 2,001 1,667 3,050 3,718 5,093 Leases <= 5,000 NRSF $4,181 $4,875 $6,342 $5,796 $9,140 Leases > 5,000 NRSF 5,918 7,043 3,359 1,616 2,074 Total GAAP Annualized Rent $10,099 $11,918 $9,701 $7,412 $11,214 20

21 Commencements Data Center Commencements Driven by Development Projects Strong pre-leasing at SV7 contributed to a significant increase in commencements during ,000 35% 450, , , , , , , ,000 50,000 $22, ,735 $42, ,328 $58, ,112 $24,556 84,681 30% 25% 20% 15% 10% 5% Commencements as % of Embedded Base YTD 0% Commencements - Annualized GAAP Rent Commencements as % of Begninning of Period Rent Commencements - NRSF NRSF as % of Beginning of Period NRSF 21

22 Solid Track Record of Development * Expansion Capex $102.7 $67.7 $195.6 $84.3 $132.9 $340.5 $99.0 Total Undepreciated Assets $873.1 $949.8 $1,172.2 $1,291.4 $1,446.8 $1,820.6 $1,906.3 Expansion Capex as % of Total Assets 11.8% 7.1% 16.7% 6.5% 9.2% 18.7% 5.2% * 2017 based on YTD results. 22

23 Financial Strength a Competitive Advantage $400 $350 Debt commitments of $1.13 billion to support growth $350 $300 $250 $200 $150 $100 $150 $100 $200 $150 $175 $50 $ Revolving credit facility Senior unsecured term loan Senior unsecured notes Unsecured borrower with staggered debt maturities Weighted average cost of debt of 3.30% as of 9/30/17 $115 million perpetual preferred stock outstanding; to be redeemed on 12/12/17 Total principal debt plus preferred stock of $909 million at 9/30/17 Debt and preferred stock fixed to variable interest rate ratio of 62% / 38% as of 9/30/17 NYSE-traded REIT with strong balance sheet Equity market cap of $5.5 billion and enterprise value of $6.3 billion as of 9/30/17 Net principal debt / LQA adjusted EBITDA at 3.0x and net principal debt + preferred stock / LQA adjusted EBITDA at 3.5x as of 9/30/17 Component of S&P Mid-Cap 400 Index, Russell 2000 Index, and MSCI US REIT Index 23

24 Continued Growth via Development Development Summary BO1 DC2 DE1 LA2 LA3 VA1 VA3 SV8 Rest of Portfolio Total Data center operating NRSF (stable & pre-stable) Leased 173, , , ,529 48, ,296,295 1,974,534 Available 6, ,421 45, , , ,708 Total operating NRSF 180, , , ,632 48, ,491,614 2,241,242 Operating NRSF % leased 97% 0% 62% 85% 0% 93% 0% 0% 87% 88% NRSF under construction 13,735 24,563 15,630 87, ,087 74, ,037 % pre-leased 0% 0% 0% 43% 0% 0% 0% 0% 0% 16% Core and shell NRSF for follow-on TKD build out 59, , , , , ,014 1,123,981 Total forecasted data center NRSF 253,676 24,563 29, , , , , ,000 1,649,628 3,584,260 Total data center NRSF % leased 68% 0% 29% 70% 0% 91% 7% 0% 79% 56% Capital 9/30/17 ($ in 000s) Capital invested to date $5,418 $3,758 $5 $31,431 $0 $878 $20,850 $0 $1,700,012 $1,762,352 Estimated incremental capital for NRSF under construction $2,382 $13,642 $7,495 $28,769 $0 $822 $101,650 $0 $6,222 $160,982 Estimated incremental deferred expansion capital $0 $0 $0 $0 $0 $0 $0 $0 $35,000 $35,000 Estimated incremental capital for follow-on TKD build-out $32,200 $0 $0 $10,000 $210,000 $0 $435,000 $210,000 $100,750 $997,950 Total forecasted investment $40,000 $17,400 $7,500 $70,200 $210,000 $1,700 $557,500 $210,000 $1,841,984 $2,956,284 24

25 Years of Turn-Key Data Center Supply Silicon Valley Los Angeles Northern Virginia New York/New Jersey Big Four Sub-total Boston Chicago Denver Miami Rest of Portfolio Sub-total Total Net Absorption: Trailing 4-years 66,152 36,004 31,290 17, ,741 5,032 6,821 1, , ,690 Trailing 2-years 41,403 50,904 20,374 9, ,675 6,385 1,835 2, , ,524 Currently available NRSF: Available 84,036 56,311 66,889 21, ,007 6,302 14,273 6,078 11,376 38, ,035 Under construction 87, , ,672 13,735 15,630 29, ,037 Current backlog (4,234) (38,771) (25,052) (309) (68,366) (2,268) (608) (2,876) (71,242) Net available NRSF 79, , ,246 21, ,313 20,037 12,005 21,100 11,376 64, ,830 Years of supply available (based on trailing 4-year absorption) Years of supply available (based on trailing 2-year absorption) Held for development 160, , , ,508 1,050,943 59,884 13,154 73,038 1,123,981 Total potential capacity 239, , , ,970 1,401,256 79,921 12,005 21,100 24, ,556 1,538,811 (1) Trailing absorption excludes the 80K square foot lease signed at SV7 in Q

26 Top 10 Customers As of 9/30/17 Weighted Percentage Percentage Average Number Total of Total Annualized of Total Remaining of Occupied Operating Rent Annualized Lease Term in CoreSite Vertical Customer Industry Locations NRSF NRSF (1) ($000) Rent (2) Months (3) Cloud Public Cloud 5 86, % $16, % 102 Cloud Public Cloud , , Enterprise Travel / Hospitality 3 103, , Cloud Private Cloud 2 95, , Enterprise SI & MSP 3 64, , Enterprise SI & MSP 3 16, , Enterprise SI & MSP 2 26, , Networks and Mobility Global Carrier 6 27, , Cloud Software as a Service 1 31, , Enterprise Digital Content 4 28, , Total / Weighted Average 772, % $91, % 48 26

27 2017 Guidance Projected per share and OP unit information: 2017 Implied Low High Mid 2016 Growth Net income attributable to common shares $1.78 $1.86 $1.82 $ % Real estate depreciation and amortization FFO $4.39 $4.47 $4.43 $ % Projected operating results: Total operating revenues $473,500 $483,500 $478,500 $400, % General and administrative expenses 35,000 37,000 36,000 35, % Net Income $93,600 $97,500 $95,600 $81, % Depreciation and amortization 130, , , , % Other adjustments (2) 33,400 34,500 33,900 21, % Adjusted EBITDA $257,500 $262,500 $260,000 $212, % Guidance drivers: Annual rental churn rate 6.0% 8.0% 7.0% 7.8% Cash rent growth on data center renewals 2.0% 4.0% 3.0% 3.9% Capital expenditures: Data center expansion $211,000 $239,000 $225,000 $340,452 Non-recurring investments 14,000 18,000 16,000 10,250 Tenant improvements 4,000 8,000 6,000 6,865 Recurring capital expenditures 21,000 25,000 23,000 6,081 Total capital expenditures $250,000 $290,000 $270,000 $363,648 For all footnotes, please see our earnings supplemental for the quarter ended September 30,

28 Guidance Drivers The following assumptions are included in CoreSite s 2017 guidance: 1. Interconnection revenue growth CoreSite expects the 2017 growth rate to be between 13% and 16%, which, at the lower end, is generally in line with overall projected volume growth. 2. Adjusted EBITDA margin CoreSite s guidance for adjusted EBITDA implies adjusted EBITDA margin of approximately 54.3% based on the midpoint of guidance, and revenue flow-through to adjusted EBITDA of approximately 61%. 3. GAAP backlog CoreSite s projected annualized GAAP rent from signed but not yet commenced leases was $13.7 million as of September 30, CoreSite expects approximately 35% of the GAAP backlog to commence during the remainder of 2017 with the balance expected to commence during the first half of Capitalized interest CoreSite expects the percentage of interest capitalized in 2017 to be in the range of 10%-15%, reflecting the lower level of development relative to increases in interest expense. 5. Cash rent growth CoreSite expects cash rent growth to be modestly weighted toward the second half of the year, due to expected renewals of strategic deployments resulting in lower mark-to-market rent increases in the first half of the year. 6. Commencements CoreSite expects lease commencements of approximately $30 million in annualized GAAP rent in The following assumptions are being provided as part of CoreSite s 2018 outlook: 1. Financing transaction CoreSite expects to add incremental debt financing during the first half of 2018 to increase liquidity and fund continued development across the portfolio. Timing, pricing, and the type of debt instrument are dependent on market conditions and CoreSite has targeted a total issuance amount of approximately $225 million-$300 million. 2. Capital expenditures CoreSite currently expects total capital investment to be between $250 million and $300 million in 2018, based on its current view of markets and absorption. 3. New accounting standards CoreSite is anticipating adopting two new accounting standards revenue recognition and lease accounting effective January 1, The adoption of these new standards predominantly impacts CoreSite in three ways: a. CoreSite will be required to gross up its balance sheet by $100 million-$300 million dollars to reflect the estimated lease liability for the properties it leases from third parties. The lower range is based on noncancellable lease terms and the upper range is based on noncancellable lease terms plus all of our renewal options. b. Depending upon the quantification of the balance sheet impact, the adoption of the new lease accounting standard may increase CoreSite s rental expense to reflect increased levels of lease expense as a result of including additional renewal options in its current lease terms, with an estimated impact of $0.00 to $0.07 per share. c. Lastly, CoreSite will no longer capitalize indirect sales and marketing payroll costs associated with successful leasing, which is estimated to have a negative impact of $0.03 per share. Formal 2018 guidance will be provided in connection with CoreSite s fourth-quarter 2017 earnings call in February

29 Definition of Non-GAAP Financial Measures This document includes certain non-gaap financial measures that management believes are helpful in understanding our business, as further described below. Our definition and calculation of non-gaap financial measures may differ from those of other REITs, and therefore, may not be comparable. The non-gaap measures should not be considered an alternative to net income as an indicator of our performance and should be considered only a supplement to net income, cash flows from operating, investing or financing activities as a measure of profitability and/or liquidity, computed in accordance with GAAP. Definitions Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA EBITDA is defined as earnings before interest, taxes, depreciation and amortization. We calculate adjusted EBITDA by adding our non-cash compensation expense, transaction costs from unsuccessful deals and business combinations and litigation expense to EBITDA as well as adjusting for the impact of impairment charges, gains or losses from sales of property and undepreciated land and gains or losses on early extinguishment of debt. Management uses EBITDA and adjusted EBITDA as indicators of our ability to incur and service debt. In addition, we consider EBITDA and adjusted EBITDA to be appropriate supplemental measures of our 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 EBITDA 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 our business, their utilization as a cash flow measurement is limited. Funds from Operations FFO FFO is a supplemental measure of our 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 and liquidity. We calculate 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. We use 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. Additional definitions can be found in our earnings supplemental for the quarter ended September 30,

30 Definition of Non-GAAP Financial Measures Adjusted Funds from Operations AFFO AFFO is a non-gaap measure that is used as a supplemental operating measure specifically for comparing year over year ability to fund dividend distribution from operating activities. We use AFFO as a basis to address our ability to fund our dividend payments. AFFO is calculated by adding to or subtracting from FFO: 1. Plus: Amortization of deferred financing costs 2. Plus: Non-cash compensation 3. Plus: Non-real estate depreciation 4. Plus: Impairment charges 5. Plus: Below market debt amortization 6. Less: Straight line rents adjustments 7. Less: Amortization of above and below market leases 8. Less: Recurring capital expenditures 9. Less: Tenant improvements 10. Less: Capitalized leasing costs Capitalized leasing costs consist of commissions payable to third parties, including brokers, leasing agents, referral agents, and internal sales commissions payable to employees. Capitalized leasing costs are accrued and deducted from AFFO generally in the period the lease is executed. Leasing costs are generally paid a) to third party brokers and internal sales employees 50% at customer lease signing and 50% at lease commencement and b) to referral and leasing agents monthly over the lease term as and to the extent we receive payment from the end customer. AFFO is not intended to represent cash flow from operations for the period, and is only intended to provide an additional measure of performance by adjusting for the effect of certain items noted above included in FFO. Other REITs widely report AFFO, however, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to other REITs. Additional definitions can be found in our earnings supplemental for the quarter ended September 30,

31 Thank You CoreSite Investor Relations th Street, Suite 500 Denver, CO USA CORE CoreSite.com