Investor Presentation. September 2016

Transcription

1 Investor Presentation September 2016

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 * * Measured uptime for calendar years. 3

4 CoreSite Leadership Team Paul Szurek President and CEO Jeff Finnin CFO Derek McCandless SVP, Legal, General Counsel and Secretary Steve Smith SVP, Sales & Marketing Dominic Tobin SVP, Field Operations and Network Engineering Brian Warren SVP, Engineering & Product 4

5 Strong Historical Financial Performance Revenue $55 Adjusted EBITDA Adjusted EBITDA Margin 54% $100 $95 $50 52% $90 $45 $85 50% $80 $40 $75 48% $70 $35 $65 $60 $30 46% $55 $50 $25 44% $45 $40 $20 42% Q2`13 Q3`13 Q4`13 Q1`14 Q2`14 Q3`14 Q4`14 Q1`15 Q2`15 Q3`15 Q4`15 Q1`16 Q2`16 Q2`13 Q3`13 Q4`13 Q1`14 Q2`14 Q3`14 Q4`14 Q1`15 Q2`15 Q3`15 Q4`15 Q1`16 Q2`16 $45 $0.94 Funds From Operations (FFO) FFO Per Share $0.55 $0.90 Dividend Per Share $40 $0.86 $0.50 $0.82 $0.78 $0.45 $35 $0.74 $0.40 $0.70 $30 $0.66 $0.35 $0.62 $0.30 $25 $0.58 $0.54 $0.25 $0.50 $0.20 $20 $0.46 $0.42 $0.15 $15 $0.38 $0.10 Q2`13 Q3`13 Q4`13 Q1`14 Q2`14 Q3`14 Q4`14 Q1`15 Q2`15 Q3`15 Q4`15 Q1`16 Q2`16 Q2`13 Q3`13 Q4`13 Q1`14 Q2`14 Q3`14 Q4`14 Q1`15 Q2`15 Q3`15 Q4`15 Q1`16 Q2`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. 5

6 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 6

7 National Reach 8 Strategic Markets Ability to cover more than 75% of U.S. businesses within 5 milliseconds Low-latency, secure and reliable on-premises access to AWS, Microsoft, Google, and IBM SoftLayer from all 8 markets via inter-site connectivity and a robust set of network service providers Native and Exchange On-Ramp Availability BOSTON Amazon Web Services Direct Connect Available as 1G or 10G native connections or through the CoreSite Open Cloud Exchange SILICON VALLEY SV1 SV4 SV7* SV2 SV5 SV3 SV6 DENVER HQ DE1 DE2 CHICAGO CH1 BO1 ER Microsoft Azure ExpressRoute Available through the CoreSite Open Cloud Exchange Google Cloud Platform Available natively through Any2Exchange for Internet peering LOS ANGELES LA1 LA2 ER N VIRGINIA/DC VA1 DC1 VA2 NEW YORK NY1 NY2 SoftLayer Direct Link Available through 1G and 10G native connections MIAMI MI1 *SV7 expected completion in Q

8 CoreSite Colocation: Secure, Reliable and High-Performance Secure and Compliant Reliable Scalable High-Performance Interconnections In-house facilities and security personnel provide greater process control and engagement Rigorous internal security training and certification Consistent compliance across all properties SOC 1 & SOC 2 Type 2 reviews ISO certified Payment Card Industry (PCI) Data Security Standard compliant 100% uptime SLA guarantees our commitment to delivering reliability to support customer applications Six 9s ( %) historical portfolio uptime* Serving customer requirements from half cabinet to full buildings 18 operating data centers in eight of the largest commercial and data center markets in the United States One new data center on the Santa Clara campus to be delivered in Q 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 53% Cloud-enabled, network-rich data center campuses that support the enterprise Over 300 network service providers supported More than 275 cloud and IT service providers including AWS, Microsoft, Google and IBM SoftLayer Ability to cover more than 75% of US businesses within 5 milliseconds The environment to build your hybrid IT solution: on-ramps to leading public clouds and supporting service providers ~ 90% of data center square feet owned vs. leased 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.) * Measured uptime for calendar years. Ranked 70th percentile of all North American B2B businesses for customer satisfaction Scored 2x the industry average net promoter score (NPS) for telecommunications companies Dedicated implementation resources to ensure a seamless onboarding process 8

9 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 guarantee and consistent network experience Ease of Business Access to ecosystem of leading network, cloud and supporting service providers 9

10 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 AWS Direct Connect Google Cloud Interconnect 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 10

11 The CoreSite Open Cloud Exchange Providing access to a community of public, private, and specialty cloud providers through a one-to-many connection Benefits: Access major public cloud providers in addition to security, disaster recovery, on-boarding, orchestration, storage or software-as-a-service providers Reduce build out costs through a one-to-many secure Ethernet connection that provides guaranteed performance Provision services on-demand as needed through our online portal Private Network OPTION A Enterprise Colocation CORESITE DATA CENTER The CoreSite Open Cloud Exchange OPTION B Enterprise Premise Network Service Providers 11

12 Multi-Cloud, Public Cloud and Hybrid IT Strategies Are Gaining Momentum Gartner's 2015 cloud adoption study shows a 300% increase in the number of organizations making investments in cloud services, including IaaS, PaaS and SaaS AWS, MSFT, IBM, GCP account for >50% total market share A multi-cloud strategy will become the common strategy for 70% of enterprises by 2019, up from less than 10% today. By 2018 more than 78% of workloads will be processed by cloudenabled data centers. Sources: Gartner, Synergy Research Group, IDG 12

13 Hybrid and Multi-Cloud Deployments CoreSite colocation provides a secure, high-performance platform that connects the enterprise s dedicated IT infrastructure to 275+ leading cloud and IT service providers Benefits: Single, secure, high-performance colocation environment PUBLIC CLOUD Scalable IT services provided to multiple users over the Internet or via a secure, dedicated connection. Examples include IaaS and PaaS. PRIVATE CLOUD Cloud computing that delivers similar advantages to public cloud, but with enhanced security through a proprietary architecture. SOFTWARE AS A SERVICE Cloud-based application management software that is owned, delivered, and managed on a subscription basis. MONITORING & SECURITY Outsourced monitoring and management of security such as DDoS protection and cyber security services. Reduce build out costs to several cloud providers Flexible connection options - dedicated cross connects or the CoreSite Open Cloud Exchange Access to leading public clouds such as AWS, Microsoft, Google and IBM SoftLayer and specialty providers MANAGED SERVICES Move and migration, orchestration, onboarding and, and e-management services provided by a third party. 13

14 Customer Mix Overview As of 6/30/16 We bring together strong network and cloud communities to support the needs of the enterprise Approximately 30% of revenue coming from Global 1,000 companies Connecting enterprises across the globe via global carriers and subsea cables Enterprise Digital Content & Multimedia (24%) Enterprise Other Enterprise (19%) Enterprise SI and MSP (10%) Network & Mobility (23%) Cloud (24%) Note: percentages based on total data center annualized rent 14

15 CoreSite One Wilshire Campus Los Angeles Cloud Content Distribution Network Enterprise and Digital Content Providers 200+ networks 100+ cloud and IT service providers 150+ enterprise and digital content providers A virtual campus connected via dark fiber Our Entertainment and Gaming ecosystem in Los Angeles is interconnected using approximately 2,400 cross connections Note: One Wilshire campus not entirely representative of total operating portfolio 15

16 Financial Overview

17 Summary of Financial Data (in thousands, except per share data) Three Months Ended Six Months Ended Summary of Results June 30, 2016 March 31, 2016 June 30, 2015 Y/Y Growth June 30, 2016 June 30, 2015 Y/Y Growth Operating revenues $96,090 $92,480 $81, % $188,570 $155, % Net income 19,835 19,606 12, % 39,441 24, % Net income attributable to common shares 12,035 11,261 5, % 23,296 10, % Funds from operations (FFO) to shares and units 42,614 40,907 32, % 83,521 62, % Adjusted funds from operations (AFFO) 40,299 35,581 26, % 75,880 51, % EBITDA 48,785 46,391 38, % 95,176 74, % Adjusted EBITDA 51,122 48,487 40, % 99,609 78, % Adjusted EBITDA margin 53.2% 52.4% 49.9% 330bps 52.8% 50.3% 250bps Per share - diluted: Net income attributable to common shares $0.37 $0.37 $ % $0.74 $ % FFO per common share and OP unit $0.89 $0.86 $ % $1.75 $ % 17

18 Summary of Financial Data (in thousands, except per share and NRSF data) As of June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015 June 30, 2015 Dividend Activity Dividends declared per share and OP unit $ 0.53 $ 0.53 $ 0.53 $ 0.42 $ 0.42 AFFO payout ratio 62.8% 71.1% 82.8% 77.6% 76.1% Operating Portfolio Statistics Operating data center properties Stabilized data center NRSF 1,775,007 1,597,764 1,524,406 1,474,472 1,449,498 Stabilized data center NRSF occupied 1,633,450 1,447,764 1,409,332 1,337,015 1,303,274 Stabilized data center % occupied 92.0% 90.6% 92.5% 90.7% 89.9% Turn-Key Data Center ("TKD") Same Store Statistics MRR per Cabinet Equivalent $ 1,471 $ 1,461 $ 1,422 $ 1,412 $ 1,387 TKD NRSF % occupied 88.4% 87.2% 88.6% 83.1% 81.9% Market Capitalization, Principal Debt & Preferred Stock Total enterprise value $ 4,852,519 $ 3,920,378 $ 3,201,961 $ 2,918,547 $ 2,620,743 Total principal debt outstanding 500, , , , ,250 Total principal debt and preferred stock outstanding 615, , , , ,250 Net Principal Debt to: Annualized Adjusted EBITDA 2.4x 2.4x 2.0x 2.0x 2.1x Enterprise Value 10.3% 11.7% 12.0% 12.0% 13.2% Net Principal Debt & Preferred Stock to: Annualized Adjusted EBITDA 3.0x 3.0x 2.6x 2.7x 2.8x Enterprise Value 12.6% 14.6% 15.6% 16.0% 17.5% 18

19 Operating Portfolio as of 6/30/16 * Indicates properties where we have a leasehold interest; for all footnotes, please see our Form 10-Q for the quarter ended June 30, 2016 Note: The annualized rent for the Santa Clara campus includes amounts associated with a restructured lease agreement involving a customer that has vacated the majority of 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

20 Financial Strength a Competitive Advantage Debt capacity 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% Rating from NAIC anticipated later in 2016 All debt is 100% unsecured Total principal debt plus preferred stock of $615 million at 6/30/16 Debt and preferred stock fixed to variable interest rate ratio of 72% / 28% as of 6/30/16 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 $4.4 billion and enterprise value of $4.9 billion as of 6/30/16 Net principal debt / LQA adjusted EBITDA at 2.4x and net principal debt + preferred stock / LQA adjusted EBITDA at 3.0x as of 6/30/16 Unsecured borrower with staggered debt maturities $384 million annual revenue run rate as of 6/30/16 Current annualized dividend of $2.12 per share Historical 32% 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 20

21 Continued Growth Via Development Development Summary STP SV7 Rest of Portfolio Total Data center operating NRSF (stable & pre-stable) Leased 0 0 1,659,488 1,659,488 Available , ,557 Total operating NRSF 0 0 1,950,045 1,950,045 Operating NRSF % leased 0% 0% 85% 85% NRSF under construction 0 230, ,000 % pre-leased 0% 59% 0% 59% Core and shell NRSF for follow-on TKD build out 660, ,835 1,018,835 Total forecasted data center NRSF 660, ,000 2,308,880 3,198,880 Total data center NRSF % leased 0% 59% 72% 56% Potential increase in Occupied NRSF based on land and buildings currently owned n/a n/a 39% 93% Capital 06/30/16 ($ in 000s) Capital invested to date $0 $160,857 $1,306,120 $1,466,977 Estimated incremental capital for NRSF under construction $0 $38,442 $11,899 $50,341 Estimated incremental deferred expansion capital $0 $0 $25,000 $25,000 Estimated incremental capital for follow-on TKD build-out $500,000 $0 $195,750 $695,750 Total forecasted investment $500,000 $199,299 $1,538,769 $2,238,068 Phase 1 completion (estimated) Q2'18 Q3' (1) Capital investment includes Deferred Expansion Capital (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 21

22 Years of Turn-Key Data Center Supply Silicon Valley Los Angeles Reston New York/ New Jersey Big Four Sub-total Boston Chicago Denver Miami Rest of Portfolio Sub-total Total Currently available NRSF Available 43,545 89,095 82,873 42, ,554 11,524 15, ,552 33, ,834 Under construction 230, , ,000 Current backlog (138,444) (8,731) (4,884) (6,161) (158,220) (194) (2,198) (345) (820) (3,557) (161,777) Net available NRSF 135,101 80,364 77,989 35, ,334 11,330 13, ,732 29, ,057 Held for development (1) 137, , , ,062 73,619 23,000 13, ,773 1,041,835 Total potential capacity 135, , , ,388 1,261,396 84,949 13,323 23,338 17, ,497 1,400,892 Capacity including vacancy (2) 129, , , ,045 1,240,025 79,606 7,981 21,637 15, ,944 1,364,969 Trailing 4-year annual net absorption (3) 62,524 24,605 32,586 18, ,535 7,036 11, , ,324 Trailing 2-year annual net absorption (3) 52,702 34,314 45,394 21, ,487 5,912 13,361 1, , ,487 Years of supply available (based on trailing 4-year absorption) Years of supply available (based on trailing 2-year absorption) (1) Held for development in Denver includes the expansion lease signed in Q3 2016; in Reston it includes the maximum square footage estimated for the Reston campus expansion announced in Q (2) Vacancy estimated at the lesser of 5% or 500kw (3) Trailing absorption excludes the 80K square foot lease signed at SV7 in Q

23 Top Ten Customers As of 6/30/16 Customer Industry CoreSite Vertical Weighted Percentage Percentage Average Number Total of Total Annualized of Total Remaining of Occupied Operating Rent Annualized Lease Term in Locations NRSF NRSF ($000) Rent Months 1 Technology Cloud , % $14, % 76 2 Technology Enterprise - SI & MSP 4 63, , Technology Cloud 2 95, , Technology* Enterprise - Digital Content 10 68, , Technology Enterprise - Digital Content 2 31, , Technology Enterprise Other 3 15, , Technology Network 5 27, , Technology Enterprise Other 2 26, , Technology Cloud 1 31, , Government** Enterprise - Other 1 136, , Total/Weighted Average 779, % $64, % 45 * During Q we successfully renewed and extended portions of the customer s deployments. We are currently negotiating renewal leases for the remaining locations.. We anticipate that the lease negotiations will be finalized at some of the locations during 2016 and that other locations will be vacated; ** Denotes customer using space for general office purposes. 23

24 2016 Guidance Projected per share and OP unit information: 2016 Implied Low High Mid 2015 Growth (1) Net income attributable to common shares $ 1.41 $ 1.49 $ 1.45 $ % Real estate depreciation and amortization FFO $ 3.56 $ 3.64 $ 3.60 $ % Projected operating results: Total operating revenues $ 392,500 $ 402,500 $ 397,500 $ 333, % General and administrative expenses 35,000 37,000 36,000 34, % Adjusted EBITDA 205, , , , % Guidance drivers: Annual rental churn rate 6.0% 8.0% 7.0% 7.5% Cash rent growth on data center renewals 3.0% 5.0% 4.0% 4.6% Capital expenditures: Data center expansion $ 225,000 $ 240,000 $ 232,500 $ 132,786 Non-recurring investments 15,000 20,000 17,500 9,971 Tenant improvements 5,000 10,000 7,500 8,037 Recurring capital expenditures 5,000 10,000 7,500 5,828 Total capital expenditures $ 250,000 $ 280,000 $ 265,000 $ 156,622 For all footnotes, please see our earnings supplemental for the quarter ended June 30,

25 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 and litigation settlement expense to EBITDA as well as adjusting for the impact of 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 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. We use FFO as a supplemental performance measure because, in 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 June 30,

26 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. AFFO is used by us as a basis to address our ability to fund our dividend payments. We calculate adjusted funds from operations 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 include commissions payable to third party brokers and leasing agents and internal sales commissions payable to employees. Capitalized leasing costs are accrued and deducted from AFFO generally in the period that 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 leasing agents monthly over the lease term as and to the extent the Company receives 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 the effect of certain items noted above included in FFO. AFFO is a widely reported measure by other REITs, however, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to other REITs. We offer this measure because we recognize that FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our 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 our properties, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. 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 our cash needs, including our ability to pay dividends or make distributions. In addition, our 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 us. Investors in our securities should not rely on these measures as a substitute for any GAAP measure, including net income. Additional definitions can be found in our earnings supplemental for the quarter ended June 30,

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