Investor Presentation. March 2017

Transcription

1 Investor Presentation March 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; 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 $115 $110 $105 $100 $95 $90 $85 $80 $75 $70 $65 $60 $55 $50 $45 $40 Revenue Q4`13 Q1`14 Q2`14 Q3`14 Q4`14 Q1`15 Q2`15 Q3`15 Q4`15 Q1`16 Q2`16 Q3`16 Q4`16 $65 $60 $55 $50 $45 $40 $35 $30 $25 $20 Adjusted EBITDA Adjusted EBITDA Margin Q4`13Q1`14Q2`14Q3`14Q4`14Q1`15Q2`15Q3`15Q4`15Q1`16Q2`16Q3`16Q4`16 56% 54% 52% 50% 48% 46% 44% $55 $50 $45 $40 $35 $30 $25 $20 $15 $10 Funds From Operations (FFO) FFO Per Share Q4`13Q1`14Q2`14Q3`14Q4`14Q1`15Q2`15Q3`15Q4`15Q1`16Q2`16Q3`16Q4`16 $1.08 $1.04 $1.00 $0.96 $0.92 $0.88 $0.84 $0.80 $0.76 $0.72 $0.68 $0.64 $0.60 $0.56 $0.52 $0.48 $0.44 $0.40 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 Dividend Per Share Q4`13 Q1`14 Q2`14 Q3`14 Q4`14 Q1`15 Q2`15 Q3`15 Q4`15 Q1`16 Q2`16 Q3`16 Q4`16 Note: First half 2014 adjusted EBITDA and FFO exclude a net benefit of $3.7 million and $0.04 per share, respectively, related to one-time items. 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 and 27% of U.S. GDP generators with performance-sensitive applications and products across our 8 markets BOSTON BO1 SILICON VALLEY CHICAGO SV1 SV4 SV7 SV2 SV5 SV3 SV6 DENVER HQ DE1 DE2 CH1 NEW YORK LOS ANGELES NY1 NY2 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+ LA1 LA2 N VIRGINIA/DC VA1 DC1 DC2* VA2 RE* MIAMI MI1 * Reston Campus Expansion (RE) construction of Phase 1 expected to begin Q1 2017; DC2 lease was signed in Q and construction is expected to begin in Q Cloud Services Availability The CoreSite Open Cloud Exchange AWS Direct Connect Microsoft Azure ExpressRoute Google Cloud Platform SoftLayer Direct Link In addition to direct connect markets listed, AWS, Microsoft Azure, SoftLayer 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 Statement on Standards for Attestation Engagements (SSAE) No. 16 (SOC 1) Type 2 Service Organization Control (SOC) 2 Type 2 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 1,000+ 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 1.3 million NRSF, or 66%, 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.) Scored 2xs the industry average net promoter score (NPS) for telecommunications companies 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 Robust Portfolio of Products and Services Scalable, Flexible Deployments Interconnection Solutions Cloud Services Customer Support Services Cabinet Cage Private Suite Full building Infrastructured shell Powered shell N+1 and 2N systems Common or dedicated infrastructure High-density configurations Cross connections Global IX partnerships Intra- and inter-market connectivity, lit transport, dark fiber Any2Exchange for Internet peering Blended IP The CoreSite Open Cloud Exchange Public Cloud On-Ramp AWS Direct Connect Google Cloud Platform Microsoft Azure ExpressRoute SoftLayer Direct Link Access to best-in-class service providers Managed services Monitoring & security Hybrid & multi-cloud orchestration Remote hands Data center assessment, relocation/migration and implementation Regulatory compliant security Environmental monitoring Customer concierge Private portal On-site amenities 9

10 Customer Mix Overview We bring together strong network and cloud communities to support the needs of the enterprise Enterprise (50%) Network (20%) Cloud (30%) Note: percentages based on total data center annualized rent as of 12/31/16. 10

11 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 11

12 Financial Overview

13 Summary of Financial Data (in thousands, except per share data) Three Months Ended Year Ended Summary of Results December 31, 2016 September 30, 2016 December 31, 2015 Y/Y Growth December 31, 2016 December 31, 2015 Y/Y Growth Operating revenues $110,508 $101,274 $90, % $400,352 $333, % Net income 23,161 19,319 17, % 81,921 56, % Net income attributable to common shares 14,895 12,180 9, % 50,371 26, % Funds from operations (FFO) to shares and units 50,430 42,768 38, % 176, , % Adjusted funds from operations (AFFO) 40,444 40,227 30, % 156, , % EBITDA 58,607 49,486 43, % 203, , % Adjusted EBITDA 60,625 52,114 47, % 212, , % Adjusted EBITDA Margin 54.9% 51.5% 52.5% 240bps 53.0% 51.0% 200bps Cash flow distributable to common equity (1) $38,481 $38,797 $28, % $146,302 $97, % Per share - diluted: Net income attributable to common shares $0.44 $0.36 $ % $1.54 $ % FFO per common share and OP unit $1.06 $0.90 $ % $3.71 $ % (1) Cash flow distributable to common equity defined as AFFO less non-recurring capital. 13

14 Summary of Financial Data (in thousands, except per share and NRSF data) As of December 31, 2016 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 Dividend Activity Dividends declared per share and OP unit $0.80 $0.53 $0.53 $0.53 $0.53 AFFO payout ratio 94.6% 63.0% 62.8% 71.1% 82.8% Operating Portfolio Statistics Operating data center properties Stabilized data center NRSF 1,985,592 1,786,638 1,775,007 1,597,764 1,524,406 Stabilized data center NRSF occupied 1,876,384 1,674,157 1,633,450 1,447,764 1,409,332 Stabilized data center % occupied 94.5% 93.7% 92.0% 90.6% 92.5% Turn-Key Data Center ("TKD") Same Store Statistics MRR per Cabinet Equivalent $1,529 $1,519 $1,478 $1,461 $1,422 TKD NRSF % occupied 90.0% 89.6% 88.9% 87.2% 88.6% Market Capitalization, Principal Debt & Preferred Stock Total enterprise value $4,598,768 $4,244,766 $4,852,439 $3,920,378 $3,201,961 Total principal debt outstanding 694, , , , ,250 Total principal debt and preferred stock outstanding 809, , , , ,250 Net Principal Debt to: Annualized Adjusted EBITDA 2.8x 2.8x 2.4x 2.4x 2.0x Enterprise Value 15.0% 13.9% 10.3% 11.7% 12.0% Net Principal Debt & Preferred Stock to: Annualized Adjusted EBITDA 3.3x 3.4x 3.0x 3.0x 2.6x Enterprise Value 17.5% 16.6% 12.6% 14.6% 15.6% 14

15 Operating Portfolio as of 12/31/16 * Indicates properties where we have a leasehold interest; for all footnotes, please see our Form 10-K for the year ended December 31, 2016 Note: The annualized rent for the Santa Clara campus includes amounts associated with a restructured lease agreement involving a customer that has vacated its leased space and is paying discounted rent payments that may be applied to new lease arrangements elsewhere in the portfolio on a dollar-for-dollar basis until the terms expire. The $4.2 million payable pursuant to this agreement is scheduled to expire in Q

16 Data Center Leasing Activity GAAP GAAP Leasing Number Annualized Total Annualized Rental Cash GAAP Activity of Rent Leased Rent per Churn Rent Rent Period Leases (1) ($000) NRSF Leased NRSF Rate Growth Growth New/expansion leases commenced YTD $58, ,112 $132 (2) Q , , Q ,493 50, Q , , (2) Q ,549 45, Q ,335 54, New/expansion leases signed YTD $48, ,853 $198 Q ,412 35, Q ,214 59, Q ,656 48, Q , , Q ,901 42, Renewal leases signed YTD $38, ,871 $ % 3.9% 7.6% Q ,490 51, Q ,872 76, Q ,512 70, Q ,732 56, Q ,089 49, (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 Q2 2015, we signed a 136,580 NRSF build-to-suit powered shell lease at our SV6 facility which was completed and commenced during Q

17 Data Center New / Expansion Leases Signed by Deployment Size New and expansion lease signings of less than 1,000 square feet have historically accounted for 90%-95% of quarterly transactions Q Q Q Q Q GAAP Annualized Rent ($000) Leases < 1,000 NRSF $2,078 $4,047 $2,957 $2,635 $2,771 Leases 1,000-5,000 NRSF 3,718 5,093 3,090 1,534 4,817 Leases <= 5,000 NRSF $5,796 $9,140 $6,047 $4,169 $7,588 Leases > 5,000 NRSF 1,616 2,074 1,609 18,309 1,313 Total GAAP Annualized Rent $7,412 $11,214 $7,656 $22,478 $8,901 17

18 Financial Strength a Competitive Advantage Debt commitments of $850 million $700 million in senior bank facilities $350 million revolving credit facility due 2019 with one-year extension option $100 million term loan due 2019 $150 million term loan due 2020 $100 million term loan due 2021 Pre-payable without yield maintenance Accordion features allow for incremental $300 million across various facilities $150 million in senior notes 7-year maturity due 2023 All-in fixed coupon of 4.19% Rated NAIC 2 All debt is 100% unsecured Total principal debt plus preferred stock of $809 million at 12/31/16 Debt and preferred stock fixed to variable interest rate ratio of 54% / 46% as of 12/31/16 Preferred stock $115 million perpetual preferred stock outstanding Coupon 7.25% Callable in December 2017 NYSE-traded REIT with strong balance sheet Equity market cap of $3.9 billion and enterprise value of $4.6 billion as of 12/31/16 Net principal debt / LQA adjusted EBITDA at 2.8x and net principal debt + preferred stock / LQA adjusted EBITDA at 3.3x as of 12/31/16 Unsecured borrower with staggered debt maturities $442 million annual revenue run rate as of 12/31/16 Current annualized dividend of $3.20 per share Historical 35% compounded annual dividend growth rate as a public company Component of S&P Small-Cap 600 Index, Russell 2000 Index, and MSCI US REIT Index 18

19 Continued Growth via Development Development Summary BO1 DC2 (1) DE1 LA2 Reston Campus Expansion (2) Rest of Portfolio Total Data center operating NRSF (stable & pre-stable) Leased 171, , ,402 48,928 1,474,620 1,945,423 Available 8, , , ,461 Total operating NRSF 180, , ,688 48,928 1,693,333 2,225,884 Operating NRSF % leased 95% 0% 100% 82% 0% 87% 87% NRSF under construction 13, ,276 4, ,737 % pre-leased 0% 0% 0% 100% 0% 0% 18% Core and shell NRSF for follow-on TKD build out 59,884 25,000 15, , , , ,076 Total forecasted data center NRSF 253,676 25,000 29, , ,000 1,851,347 3,244,697 Total data center NRSF % leased 68% 0% 20% 59% 7% 80% 60% Potential increase in Occupied NRSF based on land and buildings currently owned 48% n/a 407% 74% 1249% 26% 67% Capital 12/31/16 ($ in 000s) Capital invested to date $10 $0 $5,951 $1,699 $0 $1,635,916 $1,643,576 Estimated incremental capital for NRSF under construction $7,790 $0 $6,549 $301 $0 $7,470 $22,110 Estimated incremental deferred expansion capital $0 $0 $0 $0 $0 $25,000 $25,000 Estimated incremental capital for follow-on TKD build-out $32,200 $20,000 $8,000 $66,600 $500,000 $100,750 $727,550 Total forecasted investment $40,000 $20,000 $20,500 $68,600 $500,000 $1,769,136 $2,418,236 Phase 1 completion (estimated) Q3'17 Q4'17 Q2'17 Q1'17 Q2' (1) CoreSite signed a lease at DC2 in Q and construction is expected to commence in Q (2) Includes the maximum square footage and investment estimated for the Reston campus expansion announced in Q3 2016; capital investment at full build-out will be dependent on a number of factors including customer mix and utilization 19

20 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 (1) : Trailing 4-years 64,032 30,412 30,179 19, ,843 5,051 9, , ,376 Trailing 2-years 49,880 45,255 33,294 12, ,143 6,583 7, , ,703 Currently available NRSF: Available 80,923 62,017 73,336 34, ,660 8,463 11, ,769 31, ,985 Under construction 4,726 4,726 13,735 8,276 22,011 26,737 Current backlog (1,853) (9,048) (8,531) (3,122) (22,553) (257) (2,443) (225) (2,925) (25,477) Net available NRSF 79,070 57,696 64,805 31, ,833 21,941 8,619 8,084 11,769 50, ,245 Years of supply available (based on trailing 4-year absorption) Years of supply available (based on trailing 2-year absorption) Held for development (2) 132, , , ,408 59,884 15,630 13,154 88, ,076 Total potential capacity 79, , , ,770 1,136,241 81,825 8,619 23,714 24, ,080 1,275,321 Years of supply available (based on trailing 4-year absorption) Years of supply available (based on trailing 2-year absorption) (1) Trailing absorption excludes the 80K square foot lease signed at SV7 in Q (2) Held for development in Denver includes the expansion lease signed in Q3 2016; in Northern Virginia it includes the maximum square footage estimated for the Reston campus expansion announced in Q and the 25,000 square foot lease signed at DC2 in Q

21 Top 10 Customers As of 12/31/16 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 ($000) Rent Months 1 Cloud Public Cloud 5 86, % $16, % Cloud Public Cloud , , Enterprise Travel / Hospitality 3 104, , Cloud Private Cloud 2 95, , Enterprise SI & MSP 3 63, , Enterprise SI & MSP 3 16, , Networks & Mobility Global Carrier 5 27, , Enterprise Government* (1) 2 164, , Enterprise SI & MSP 2 26, , Cloud Software as a Service 1 31, , Total/Weighted Average 903, % $84, % 56 (1) In connection with the acquisition of our Reston Campus Expansion in Q4 2016, we assumed a 28,337 NRSF office lease for this customer, which is reflected in the totals above. This customer is scheduled to vacate its office lease during Q2 2017, which will not be re-leased given our current development plans. * Denotes customer using space for general office purposes. 21

22 2017 Guidance Projected per share and OP unit information: 2017 Implied Low High Mid 2016 Growth (1) Net income attributable to common shares $1.65 $1.75 $1.70 $ % Real estate depreciation and amortization FFO $4.25 $4.35 $4.30 $ % Projected operating results: Total operating revenues $470,000 $480,000 $475,000 $400, % General and administrative expenses 37,000 39,000 38,000 35, % Adjusted EBITDA 253, , , , % 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 $212,000 $228,000 $220,000 $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 13,000 17,000 15,000 6,081 Total capital expenditures $243,000 $271,000 $257,000 $363,648 For all footnotes, please see our earnings supplemental for the quarter ended December 31,

23 2017 Guidance Drivers The following assumptions are included in CoreSite s 2017 guidance: 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. Adjusted EBITDA margin CoreSite s guidance for adjusted EBITDA implies adjusted EBITDA margin of approximately 53.8% based on the midpoint of guidance, and revenue flow-through to adjusted EBITDA of approximately 58%. Financing transaction CoreSite expects to add incremental debt financing during the first half of 2017 to increase liquidity and extend term on existing debt drawn on its credit facility. Timing, pricing, and the type of debt are dependent on market conditions and CoreSite has targeted a total issuance amount of approximately $150 million-$250 million. o Due to the expected timing and amount, CoreSite expects FFO per share results to be fairly balanced in the first and second halves of the year, and therefore, FFO growth to be weighted toward the first half of the year. This is due to the anticipated incremental interest expense resulting from higher priced fixed debt as compared to current variable priced debt. o CoreSite also anticipates this to result in a decreased revenue flow-through to FFO, which is estimated at approximately 40% based on the mid-point of 2017 FFO guidance. 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. Churn CoreSite expects an elevated level of churn in the second quarter of 2017 due to the final portion of rent associated with its original full-building customer at SV3. The amount is equal to $4.2 million in annualized rent, or an incremental 180 basis points of churn. Cash rent growth CoreSite expects cash rent growth to be 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. 23

24 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 December 31,

25 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 December 31,

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