CORESITE REALTY CORPORATION Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report"), together with
other statements and information publicly disseminated by our company, contains
certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 ("PSLRA"), namely Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). We intend such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the PSLRA and include this statement for purposes of complying with these
safe harbor provisions.
In particular, statements pertaining to our capital resources, portfolio
performance, business strategies and results of operations contain
forward-looking statements. You can identify forward-looking statements by the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "intends," "plans," "pro forma" 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. You can also identify forward-looking statements by
discussions of strategy, plans or intentions. Such statements are subject to
risks, uncertainties and assumptions and are not guarantees of future
performance, which may be affected by known and unknown risks, trends,
uncertainties and factors that are beyond our control. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. The following factors, among others, could cause actual results
and future events to differ materially from those set forth or contemplated in
the forward-looking statements: (i) the geographic concentration of our data
centers in certain markets and any adverse developments in local economic
conditions or the amount of supply of or demand for data center space in these
markets; (ii) fluctuations in interest rates and increased operating costs;
(iii) difficulties in identifying properties to acquire and completing
acquisitions; (iv) the significant competition in our industry, including
indirect competition from cloud service providers, and an inability to lease
vacant space, renew existing leases or release space as leases expire; (v) lack
of sufficient customer demand to realize expected returns on our investments to
expand our property portfolio; (vi) decreased revenue from costs and disruptions
associated with any failure of our physical infrastructure or services;
(vii) our ability to develop and lease available space to existing or new
customers; (viii) our failure to obtain necessary outside financing; (ix) our
ability to service existing debt; (x) our failure to qualify or maintain our
status as a real estate investment trust ("REIT"); (xi) financial market
fluctuations; (xii) changes in real estate and zoning laws and increases in real
estate taxes; (xiii) the effects on our business operations, demand for our
services and general economic conditions resulting from the spread of the novel
coronavirus ("COVID-19") in our markets, as well as orders, directives and
legislative action by local, state and federal governments in response to the
spread of COVID-19; (xiv) delays or disruptions in third-party network
connectivity; (xv) service failures or price increases by third party power
suppliers; (xvi) inability to renew net leases on the data center properties we
lease; and (xvii) other factors affecting the real estate or technology
industries generally.
While forward-looking statements reflect our good faith beliefs, they are not
guarantees of future performance. We disclaim 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, except as required by applicable law. The risks included here are
not exhaustive, and additional factors could adversely affect our business and
financial performance, including factors and risks included in other sections of
this Quarterly Report, including in Item 1A. "Risk Factors" of this Quarterly
Report. Additional information concerning these and other risks and
uncertainties is contained in our other periodic filings with the United States
Securities and Exchange Commission ("SEC") pursuant to the Exchange Act. We
discussed a number of material risks in Item 1A. "Risk Factors" of our Annual
Report on Form 10-K for the year ended December 31, 2020. Those risks
continue to be relevant to our performance and financial condition. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
Overview
Unless the context requires otherwise, references in this Quarterly Report to "we," "our," "us" and "our company" refer toCoreSite Realty Corporation , aMaryland corporation, together with our consolidated subsidiaries, includingCoreSite, L.P. , aDelaware limited partnership of which we are the sole general partner and to which we refer in this Quarterly Report as our "Operating Partnership." 23 Table of Contents
We are engaged in the business of ownership, acquisition, construction and
operation of strategically located data centers in some of the largest and
fastest growing data center markets in
We deliver secure, reliable, high-performance data center, cloud access and interconnection solutions to a growing customer ecosystem across eight key North American communication markets. More than 1,375 customers, including many of the world's leading enterprises, network operators, cloud providers, and supporting service providers, choose us to connect, protect and optimize their performance-sensitive data, applications and computing workloads. Our focus is to bring together a network and cloud community to support the needs of enterprises, and create a diverse customer ecosystem. Our growth strategy includes (i) increasing cash flow from in-place data center space, (ii) capitalizing on embedded expansion opportunities within existing data centers, (iii) selectively pursuing acquisition and development opportunities in existing and new markets, (iv) expanding existing customer relationships, and (v) attracting new customers. Our Portfolio As ofMarch 31, 2021 , our property portfolio included 25 operating data center facilities, office and light-industrial space and multiple potential development projects that collectively comprise over 4.6 million net rentable square feet ("NRSF"), of which over 2.7 million NRSF is existing data center space. The approximately 1.5 million NRSF of development projects includes space available for development and construction of new data center facilities. We expect that this development potential plus any incremental investment into existing or new markets will enable us to accommodate existing and future customer demand and position us to continue to increase our operating cash flows. The following table provides an overview of our property portfolio as ofMarch 31, 2021 : Data Center Operating Portfolio(1) Stabilized Pre-Stabilized (2) Total Total Total Annualized Total Percent Total Percent Percent Development Portfolio Market Rent ($000 )(3) NRSF Occupied(4) NRSF Occupied(4) NRSF Occupied(4) NRSF (5) NRSF San Francisco Bay$ 107,079 888,108 86.7 % 52,201 76.2 % 940,309 86.2 % 240,000 1,180,309 Los Angeles(6) 92,128 563,943 91.1 67,614 69.1 631,557 88.7 119,128 750,685 Northern Virginia(7) 58,803 516,036 87.6 51,233 27.7 567,269 82.2 809,742 1,377,011 New York 24,006 168,267 88.5 34,589 19.8 202,856 76.8 81,799 284,655 Chicago 17,180 178,407 87.7 54,798 0.8 233,205 67.3 112,368 345,573 Boston 14,953 122,730 77.2 19,961 9.3 142,691 67.7 110,985 253,676 Denver 5,754 34,924 81.0 - - 34,924 81.0 - 34,924 Miami 1,775 30,176 81.7 - - 30,176 81.7 13,154 43,330
Total Data Center Facilities
39.2 % 2,782,987 82.6 % 1,487,176 4,270,163
Office and Light-Industrial(8) 8,427 418,110 79.6 - - 418,110 79.6 (49,799) 368,311 Total Portfolio$ 330,105 2,920,701 86.3 % 280,396 39.2 % 3,201,097 82.2 % 1,437,377 4,638,474
This table presents NRSF at each market that is currently occupied or readily
available for lease as data center space and pre-stabilized data center
space. Both occupied and available data center NRSF includes a factor based
on management's estimate to account for a customer's proportionate share of (1) the required data center support space (such as the mechanical,
telecommunications and utility rooms) and building common areas, which may be
updated on a periodic basis to reflect the most current build-out of our
properties. Operating data center NRSF may require investment of Deferred
Pre-stabilized NRSF represents projects or facilities that recently have been (2) developed and are in the initial lease-up phase. Pre-stabilized projects or
facilities become stabilized operating properties at the earlier of
achievement of 85% occupancy or 24 months after development completion.
"Annualized Rent" represents the monthly contractual rent under existing
commenced customer leases as of
reflects total annualized base rent before any one-time or non-recurring rent
abatements and excludes power revenue, interconnection revenue and operating
expense reimbursement. We use annualized rent as a supplemental performance (3) measure because, when compared quarter over quarter or year over year, it
captures profitability of our assets. We offer this measure because we
recognize that annualized base rent will be used by investors to compare our
profitability with that of other REITs. On a gross basis, our total portfolio
annualized rent was approximately
includes
gross and triple-net leases.
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"Percent Occupied" represents customer leases that have commenced and are
occupied as of
occupied square feet as a proportion of total operating NRSF as of
2021. We use percent occupied as a supplemental performance measure because,
when compared year-over-year, it captures trends in market demand for our
assets. We offer this measure because we recognize that percent occupied will (4) be used by investors as a basis to compare our operating performance with
that of other REITs. The percent occupied for stabilized data center space
would have been 89.3%, rather than 87.5%, if all leases signed in the current
and prior periods had commenced. The percent occupied for our total
portfolio, including stabilized data center space, pre-stabilized space and
office and light-industrial space, would have been 84.9%, rather than 82.2%,
if all leases signed in current and prior periods had commenced.
Represents incremental data center capacity currently vacant in existing
facilities in our portfolio that requires significant capital investment in
order to develop into data center facilities. Includes NRSF under (5) construction for which substantial activities are ongoing to prepare the
property for its intended use following development and NRSF in
pre-construction, which are projects in the design and permitting stages. The
NRSF reflects management's estimate of engineering drawings and required
support space and is subject to change based on final demising of space.
Due to our decision to exit and vacate our leased data center space at LA4 (6) and two computer rooms at LA1 by the end of 2021, we have excluded these
leased spaces from the reported
portfolio.
(7) Included within our
49,799 NRSF that is currently operating as office and light-industrial space.
Represents space that is currently occupied or readily available for lease as (8) space other than data center space, which typically is offered for office or
light-industrial uses.
"Same-Store" statistics are based on space within each data center facility that was leased or available to be leased as ofDecember 31, 2019 , excluding space for which development was completed and became available to be leased afterDecember 31, 2019 . We track Same-Store space leased or available to be leased at the computer room level within each data center facility. We use Same-Store statistics as a supplemental performance measure because they provide a performance comparison for the computer rooms that have been operating for two years or longer. Same-Store statistics will be used by investors as a basis to compare operating performance of our established computer rooms, excluding the impact of new computer rooms placed into service within the past two years, to that of other REITs. The following table shows theMarch 31, 2021 , Same-Store operating statistics. For comparison purposes, the operating activity totals as ofDecember 31, 2020 , and 2019, for this space are provided at the bottom of this table. Same-Store Property Portfolio Data Center Office and Light-Industrial Total Annualized Total Percent Total Percent Percent Market Rent ($000 ) NRSF Occupied NRSF Occupied NRSF Occupied San Francisco Bay$ 105,335 888,108 86.7 % 233,095 81.2 % 1,121,203 85.6 % Los Angeles 87,702 581,182 89.7 11,790 71.6 592,972 89.3 Northern Virginia 60,734 567,269 82.2 122,011 86.3 689,280 82.9 New York 23,700 168,266 88.5 20,944 65.4 189,210 85.9 Chicago 17,239 178,408 87.7 4,946 75.8 183,354 87.4 Boston 15,173 142,691 67.7 19,495 52.1 162,186 65.8 Denver 5,754 34,924 81.0 - - 34,924 81.0 Miami 1,791 30,176 81.7 1,934 37.2 32,110 79.0
Total Facilities at March 31, 2021(1)$ 317,428 2,591,024 85.4 % 414,215 80.0 % 3,005,239 84.7 % Total Facilities at December 31, 2020$ 314,709 84.8 % 80.2 % 84.1 % Total Facilities at December 31, 2019$ 295,753 83.5 % 80.9 % 83.2 %
The percent occupied for data center space, office and light-industrial (1) space, and total space would have been 87.4%, 85.8% and 87.2%, respectively,
if all leases signed in the current and prior periods had commenced.
Same-Store annualized rent increased to
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Development space is unoccupied space or land that requires significant capital
investment in order to develop data center facilities that are ready for use.
The following table summarizes the NRSF under construction and NRSF held for
development throughout our portfolio, each as of March 31, 2021 :
Development Opportunities (in NRSF)
Under Held for
Facilities Construction(1) Development(2) Total
San Francisco Bay
SV9(3) - 240,000 240,000
One Wilshire campus
LA1 - 10,352 10,352
LA3 54,388 54,388 108,776
Los Angeles Total 54,388 64,740 119,128
Northern Virginia
VA3 - 395,997 395,997
Reston Campus Expansion(3) - 363,946 363,946
Northern Virginia Total - 759,943 759,943
New York
NY2 - 81,799 81,799
Boston
BO1 - 110,985 110,985
Chicago
CH2 - 112,368 112,368
Miami
MI1 - 13,154 13,154
Total Facilities(4) 54,388 1,382,989 1,437,377
Represents NRSF for which substantial construction activities are ongoing to (1) prepare the property for its intended use following development. The NRSF
reflects management's estimate of engineering drawings and required support
space and is subject to change based on final demising of space.
Represents estimated incremental data center capacity currently vacant in (2) existing facilities or on vacant land in our portfolio that requires
significant capital investment in order to develop into data center
facilities.
The NRSF for these facilities reflect management's estimates based on our (3) current construction plans and expectations regarding entitlements. These
estimates are subject to change based on current economic conditions, final
zoning approvals, and the supply and demand dynamics of the market.
In addition to our development opportunities disclosed within this table, we
have land adjacent to our NY2 facility, in the form of an existing parking (4) lot. By utilizing this land, we believe that we could develop 100,000 NRSF on
our available acreage in
entitlements.
Capital Expenditures
The following table sets forth information regarding capital expenditures during
the three months ended
Three Months Ended
March 31, 2021
Data center expansion $ 19,951
Non-recurring investments 551
Tenant improvements 2,770Recurring capital expenditures - Data Center 4,169 Recurring capital expenditures - Office and light-industrial
2,221
Total capital expenditures $ 29,662
During the three months ended March 31, 2021 , we incurred approximately $29.7
million of capital expenditures, of which approximately $20.0 million related to
data center expansion activities, including new data center construction, the
development of capacity within existing data centers and other revenue
generating investments. As we construct data center capacity, we work to
optimize both the amount of capital we deploy on power and cooling
infrastructure and the
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timing of that capital deployment. As such, we generally construct our power and
cooling infrastructure supporting our data center NRSF based on our estimate of
customer utilization. This practice can result in our investment at a later time
in "Deferred Expansion Capital ". We define Deferred Expansion Capital as our
estimate of the incremental capital we may invest in the future to add power or
cooling infrastructure to support existing or anticipated future customer
utilization of NRSF within our operating data centers.
The following table sets forth capital expenditures spent during the three
months ended
NRSF
Data Center Placed into Under
Property Expansion Service Construction(1)
CH1(2) $ 5,391 - -
LA3 3,259 - 54,388
NY2 2,579 - -
VA3 1,525 - -
BO1 1,480 - -
VA1 1,234 - -
SV9 960 - -
Other 3,523 - -
Total $ 19,951 - 54,388
(1) Represents NRSF under construction for which substantial activities are
ongoing to prepare the property for its intended use following development.
Of the
(2) months ended
parking lot adjacent to the data center property.
During the three months ended
During the three months endedMarch 31, 2021 , we incurred approximately$2.8 million in tenant improvements, which related to tenant-specific space build-out and power installations at various properties. During the three months endedMarch 31, 2021 , we incurred approximately$6.4 million of recurring capital expenditures within our portfolio, which includes required equipment upgrades at our various facilities that have a future economic benefit. We incurred approximately$4.2 million of recurring capital related to various data center spaces within our portfolio and another$2.2 million related to an office and light-industrial customer deployment expected to commence in the second quarter of 2021.
Factors that May Influence our Results of Operations
A complete discussion of factors that may influence our results of operations can be found in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with theSEC onFebruary 5, 2021 , which is accessible on theSEC's website at www.sec.gov. The ongoing COVID-19 pandemic has caused severe disruption in theU.S. and global economies, and we, our customers and vendors have been impacted to varying degrees. As of the date of this Quarterly Report, we have not seen a significantly adverse overall impact on the demand for data center space or on our ability to operate our business. See Item 1A. "Risk Factors-General Risks - Pandemics or disease outbreaks, such as the novel coronavirus ("COVID-19"), may disrupt our business, as a result of, among other things, increased customer defaults, increased customer bankruptcies or insolvencies, delays in the development and lease-up of our properties, and severe disruption in theU.S. and global economies, which may further disrupt financial markets and could materially adversely impact our financial condition, operations, and liquidity" in our Annual Report on Form 10-K for the year ended December 31, 2020. Our ability to re-lease expiring space at rental rates equal to or in excess of current rental rates will impact our results of operations. We have 969 and 788 data center leases representing approximately 16.5% and 13.8% of the NRSF in our operating property portfolio which are scheduled to expire during the remainder of 2021 and the year ending December 27
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31, 2022, respectively. These leases represent current annualized rent of$76.4 million , or 23.1% of total annualized rent, and$69.9 million , or 21.1% of total annualized rent, with annualized rental rates of$145 per NRSF and$161 per NRSF at expiration during the remainder of 2021 and the year endingDecember 31, 2022 , respectively. Results of operations may be affected by the amount of pre-stabilized properties in our portfolio. As we placed new development projects into service, such as LA3, SV8, CH2, and VA3 during 2020, the initial investment returns may be lower compared to stabilized properties due to operating expenses being less dependent on occupancy levels than revenues. We expect property operating expenses to increase as we place new data center NRSF into service and as projects become stabilized, we expect the investment returns to increase. During the three months endedMarch 31, 2021 , we did not place additional pre-stabilized data center space into service.
The amount of revenue generated by the properties in our portfolio depends on several factors, including our ability to lease available unoccupied and under construction space at attractive rental rates. As ofMarch 31, 2021 , we had approximately 540,000 NRSF of unoccupied or under construction data center space of which approximately 60,000 NRSF is leased with a future commencement date. The loss of multiple significant customers could have a material adverse effect on our results of operations because our top ten customers in the aggregate account for 31.9% of our total operating NRSF and 40.5% of our total annualized rent as ofMarch 31, 2021 . One of our top ten customers has$6.8 million of annualized rent expiring at the end of the third quarter and early in the fourth quarter of 2021, which will not be renewed. We are actively working to re-lease this space; however, there may be a period of time between the expiration of the current customer lease and a future customer backfill during which we will not earn revenue on this particular data center space. The following table summarizes our leasing activity during the three months endedMarch 31, 2021 : GAAP Total GAAP Number of Annualized Leased Rental GAAP Rent Three Months Ended Leases(1) Rent ($000 )(2) NRSF(3) Rates(4) Growth(5) New / expansion leases commenced March 31, 2021 130 $
5,926 28,776
New / expansion leases signed March 31, 2021 134 $
6,975 33,306 $ 209
Renewal leases signed March 31, 2021 276 $ 15,870 91,605 $ 173 6.1 %
(1) Number of leases represents each agreement with a customer; a lease agreement
could include multiple spaces and a customer could have multiple leases.
GAAP annualized rent represents the monthly average contractual rent as (2) stated on customer contracts, multiplied by 12. This amount is inclusive of
any one-time or non-recurring rent abatements and excludes power revenue,
interconnection revenue and operating reimbursement.
Total leased NRSF is determined based on contractually leased square feet, (3) including required data center support space (such as the mechanical,
telecommunications and utility rooms) and building common areas.
GAAP rental rates represent GAAP annualized rent divided by leased NRSF. We
use GAAP annualized rent and GAAP rental rates as supplemental performance (4) measures because, when compared quarter over quarter or year over year, they
provide a performance measure that captures sales volume and pricing trends.
We offer these measures because we recognize they will be used by investors
to compare our sales volume and pricing trends to those of other REITs.
GAAP rent growth represents the increase in rental rates on renewed leases (5) commencing during the period, as compared with the previous period's rental
rates for the same space.
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Results of Operations
Three Months Ended
The discussion below relates to our financial condition and results of operations for the three months endedMarch 31, 2021 , and 2020. A summary of our operating results for the three months endedMarch 31, 2021 , and 2020, is as follows (in thousands): Three Months Ended March 31, 2021 2020 $ Change % Change Operating revenue$ 157,642 $ 147,362 $ 10,280 7.0 % Operating expense 120,595 113,174 7,421 6.6 Operating income 37,047 34,188 2,859 8.4 Interest expense 12,123 11,183 940 8.4 Net income 24,915 22,988 1,927 8.4 Operating Revenue Operating revenue during the three months endedMarch 31, 2021 , and 2020, was as follows (in thousands): Three Months Ended March 31, 2021 2020 $ Change % Change Data center revenue: Rental, power, and related revenue$ 132,976 $ 124,505 $ 8,471 6.8 % Interconnection revenue 22,160 20,085 2,075 10.3 Total data center revenue 155,136 144,590 10,546 7.3 Office, light-industrial and other revenue 2,506 2,772 (266) (9.6) Total operating revenues$ 157,642 $ 147,362 $ 10,280 7.0 %
The increase in operating revenues was primarily due to a$8.5 million , or 6.8%, increase in data center rental, power, and related revenue during the three months endedMarch 31, 2021 , compared to the 2020 period. Data center rental, power, and related revenue increased due to the organic growth of our customer revenue base through favorable renewals, new customer leases and lease expansions into new and existing space, and increased power consumption by our customers within their deployments. Most notably, data center rental, power, and related revenue at SV8, LA3, LA2 and VA3, where we have placed into service large contiguous data center NRSF within the last two years, has increased$3.1 million ,$2.5 million ,$2.1 million and$1.3 million , respectively, compared to the three months endedMarch 31, 2020 . These increases were primarily due to the commencement of large scale customer leases throughout the past twelve months, which generate variable revenue growth as customers deploy their IT equipment and increase their power consumption. This activity was offset primarily by a customer move-out of 39,950 NRSF at SV7, as well as, other customer move-outs across various properties. In addition, interconnection revenue increased$2.1 million , or 10.3%, during the three months endedMarch 31, 2021 , compared to the 2020 period. The increase is primarily a result of a net increase in the volume of cross connects from new and existing customers during the three months endedMarch 31, 2021 , and revenue increases resulting from customers migrating to our higher priced fiber and logical cross connect products. 29 Table of Contents Operating Expenses
Operating expenses during the three months ended
Three Months Ended March 31,
2021 2020 $ Change % ChangeProperty operating and maintenance$ 42,632 $ 40,183 $ 2,449 6.1 % Real estate taxes and insurance 6,735 6,190 545 8.8 Depreciation and amortization 44,628 40,991 3,637 8.9 Sales and marketing 5,862 6,144 (282) (4.6) General and administrative 11,517 11,267 250 2.2 Rent 9,221 8,399 822 9.8 Total operating expenses$ 120,595 $ 113,174 $ 7,421 6.6 %
Property operating and maintenance expense increased$2.4 million , or 6.1%, during the three months endedMarch 31, 2021 , compared to the 2020 period, primarily as a result of an increase in power expense due to increased customer power utilization related to the commencement of new and expansion leases, net of customer move-outs, and new operations at SV8, CH2, and LA3, as well as, increased costs related to building out customer requirements for their data center deployments. Real estate taxes and insurance expense increased$0.5 million , or 8.8%, during the three months endedMarch 31, 2021 as compared with the 2020 period primarily due to the completion of SV8, CH2 Phase 1, and LA3 Phase 1, resulting in increased real estate tax assessments, ceased capitalization of expenses, and an increase in insurance expense. Depreciation and amortization expense increased$3.6 million , or 8.9%, during the three months endedMarch 31, 2021 , compared to the 2020 period primarily as a result of an increase in depreciation expense from approximately 157,000 NRSF of new data center expansion projects placed into service during the twelve months endedMarch 31, 2021 , with a cost basis of approximately$196.9 million . Sales and marketing expense decreased$0.3 million , or 4.6%, during the three months endedMarch 31, 2021 , primarily due to less travel and related expenses due to the COVID-19 pandemic incurred during the period when compared to the three months endedMarch 31, 2020 . General and administrative expense increased$0.3 million , or 2.2%, compared to the three months endedMarch 31, 2020 , primarily related to an increased headcount, resulting in higher salaries and non-cash compensation, partially offset by savings from reduced travel and events due to the COVID-19 pandemic. Rent expense increased by$0.8 million , or 9.8%, during the three months endedMarch 31, 2021 , compared to the 2020 period. The increase was primarily due to an increase in common area and maintenance expenses at LA1 and increased straight-line rent expense as a result of our decision to exit the LA4 property at the end of 2021. Interest Expense Interest expense for the three months endedMarch 31, 2021 , and 2020, was as follows (in thousands): Three Months Ended March 31, 2021 2020 $ Change % Change Interest expense and fees$ 13,700 $ 13,620 $ 80 0.6 %
Amortization of deferred financing costs 987 1,029 (42) and hedge amortization (4.1) Capitalized interest (2,564) (3,466) 902 26.0 Total interest expense$ 12,123 $ 11,183 $ 940 8.4 % Percent capitalized 17.5 % 23.7 % Total interest expense increased$0.9 million , or 8.4%, during the three months endedMarch 31, 2021 , compared to the 2020 period, primarily as a result of decreased capitalized interest due to placing SV8 Phase 3, CH2 Phase 1, and LA3 Phase 1 into service during the twelve months endedMarch 31, 2021 . In addition, the weighted average principal debt outstanding was$1.8 billion and$1.6 billion during the three months endedMarch 31, 2021 , and 2020, respectively. 30 Table of Contents This increase was partially offset by a decrease in our daily weighted average interest rate to 3.08% during the three months endedMarch 31, 2021 from 3.41% during the three months endedMarch 31, 2020 .
Liquidity and Capital Resources
Discussion of Cash Flows
Three Months Ended
Operating Activities Net cash provided by operating activities was$70.4 million for the three months endedMarch 31, 2021 , compared to$54.6 million for the three months endedMarch 31, 2020 . The increase of$15.8 million , or 29.1%, was driven by organic growth of our operating cash flows from completing and placing approximately 157,000 NRSF of new data center space into service and successfully leasing a portion of the new space during the twelve months endedMarch 31, 2021 . The increase was partially offset by the timing of vendor payments and customer receipts. Investing Activities
Net cash used in investing activities decreased by$55.6 million , or 63.8%, to$31.5 million for the three months endedMarch 31, 2021 , compared to$87.2 million for the three months endedMarch 31, 2020 . This decrease was primarily due to lower construction expenditures after placing SV8 Phase 3, CH2 Phase 1, and LA3 Phase 1 into service during the year endedDecember 31, 2020 . Financing Activities Net cash used in financing activities was$40.7 million during the three months endedMarch 31, 2021 , compared to$32.9 million provided by financing activities during the three months endedMarch 31, 2020 . During the three months endedMarch 31, 2021 , we received cash proceeds, net of payments, of$20.5 million from the revolving credit facility. During the three months endedMarch 31, 2020 , we received cash proceeds, net of payments, of$93.0 million from the revolving credit facility. We paid$61.1 million in dividends and distributions on our common stock andOperating Partnership units during the three months endedMarch 31, 2021 , compared to$60.0 million during the three months endedMarch 31, 2020 , as a result of an increase in our quarterly dividend to$1.23 per share or unit paid during the three months endedMarch 31, 2021 , from$1.22 per share or unit paid during the three months endedMarch 31, 2020 .
Analysis of Liquidity and Capital Resources
We have an effective shelf registration statement that allows us to offer for sale various unspecified classes of equity and debt securities. As circumstances warrant, we may issue debt and/or equity securities from time to time on an opportunistic basis, dependent upon market conditions and available pricing. We make no assurance that we can issue and sell such securities on acceptable terms or at all, especially in light of the market volatility and uncertainty as a result of the COVID-19 pandemic. Our short-term liquidity requirements primarily consist of funds needed for interest expense, operating costs, including utilities, site maintenance costs, real estate and personal property taxes, insurance, rental expenses, sales and marketing and general and administrative expenses, certain capital expenditures, including for the development of data center space, discussed below, and future distributions to common stockholders and holders of our commonOperating Partnership units during the next twelve months.
We expect to meet our short-term liquidity requirements through net cash on
hand, cash provided by operations, and the
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Our anticipated capital investment over the next twelve months includes a
portion of the remaining estimated capital required to fund our current
expansion projects under construction as of
Costs (in thousands)
Metropolitan Estimated Incurred to- Estimated Percent Power
Projects / Facilities Market Completion NRSF Date Total Leased (MW)
Turn-Key Data Center
(TKD) expansion
LA3 Phase 2 Los Angeles Q4 2021 54,388 $ 2,898 $ 30,100 - % 6.0
Total development 54,388 $ 2,898 $ 30,100 - % 6.0
Our long-term liquidity requirements primarily consist of the costs to fund the Reston Campus Expansion, the ground up construction of new data center buildings,Deferred Expansion Capital , additional phases of our current projects held for development, future development of other space in our portfolio not currently scheduled, property acquisitions, future distributions to common stockholders and holders of our commonOperating Partnership units, scheduled debt maturities and other capital expenditures. We expect to meet our long-term liquidity requirements through net cash provided by operations, and by incurring long-term indebtedness, such as drawing on our revolving credit facility, exercising our senior unsecured term loan accordion features or entering into new debt agreements with our bank group or existing and new accredited investors. We also may raise capital in the future through the issuance of additional equity or debt securities, subject to prevailing market conditions, and/or through the issuance of commonOperating Partnership units. However, there is no assurance that we will be able to successfully raise additional capital on acceptable terms or at all. OnMarch 5, 2021 , theFinancial Conduct Authority ("FCA") announced that USD LIBOR will no longer be published afterJune 30, 2023 . This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the Secured Overnight Financing Rate ("SOFR"), which the Alternative Reference Rates Committee ("ARRC") and theInternal Swaps and Derivatives Association ("ISDA") have both identified as the preferred alternative rate for USD-LIBOR. Additionally, banking regulators are encouraging banks to discontinue new LIBOR debt issuances byDecember 31, 2021 . While we expect LIBOR to be available in substantially its current form until at least the end ofJune 30, 2023 , it is possible that LIBOR will become unavailable prior to that point. In the event that USD-LIBOR is not available, each of our financial contracts contain fallback provisions to determine the applicable replacement base rate. We anticipate managing the transition to an alternative rate using the language set out in our agreements and through potentially modifying our debt and derivative instruments. However, future market conditions may not allow immediate implementation of our desired modifications and we may incur significant associated costs in doing so. We will continue to monitor and evaluate the potential impact any such event could have on our financial results. As ofMarch 31, 2021 , we have$869.0 million of USD-LIBOR based variable-rate debt and$700.0 million of notional derivative contracts. 32 Table of Contents Indebtedness
A summary of outstanding indebtedness as of
Maturity March 31, December 31,
Interest Rate Date 2021 2020
Revolving credit 1.36% and 1.39% at March November 8, 2023 $ 169,000 $ 148,500
facility 31, 2021, and December
31, 2020, respectively
2022 Senior unsecured 1.76% and 1.76% at March April 19, 2022 200,000 200,000
term loan 31, 2021, and December
31, 2020, respectively
2023 Senior unsecured 4.19% at March 31, 2021 June 15, 2023 150,000 150,000
notes and December 31, 2020
2024 Senior unsecured 2.86% and 2.86% at March April 19, 2024 150,000 150,000
term loan 31, 2021, and December
31, 2020, respectively
2024 Senior unsecured 3.91% at March 31, 2021 April 20, 2024 175,000 175,000
notes and December 31, 2020
2025 Senior unsecured 2.32% and 2.32% at March April 1, 2025 350,000 350,000
term loan 31, 2021, and December
31, 2020, respectively
2026 Senior unsecured 4.52% at March 31, 2021 April 17, 2026 200,000 200,000
notes and December 31, 2020
2027 Senior unsecured 3.75% at March 31, 2021 May 6, 2027 150,000 150,000
notes and December 31, 2020
2029 Senior unsecured 4.31% at March 31, 2021 April 17, 2029 200,000 200,000 notes and December 31, 2020 Total principal 1,744,000 1,723,500 outstanding
Unamortized deferred
(7,028) (7,589) financing costs Total debt$ 1,736,972 $ 1,715,911 As ofMarch 31, 2021 , we were in compliance with the financial covenants under our revolving credit facility, senior unsecured term loans and senior unsecured notes. For additional information with respect to our outstanding indebtedness as ofMarch 31, 2021 , andDecember 31, 2020 , as well as the available borrowing capacity under our existing revolving credit facility, debt covenant requirements, and future debt maturities, refer to Note 7, Debt to the consolidated financial statements. Funds From Operations We consider funds from operations ("FFO"), a non-generally accepted accounting principles ("GAAP") measure, to be 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. We calculate FFO in accordance with the standards established by theNational Association of Real Estate Investment Trusts ("Nareit"). Nareit defined FFO represents net income (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. 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. 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 real estate related 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 33 Table of Contents
guidelines or interpret the Nareit standards differently from us. Investors in
our securities should not rely on these measures as a substitute for any GAAP
measure, including net income. The following table provides a reconciliation of
our net income to FFO (in thousands, except per share data):
Three Months Ended March 31,
2021 2020
Net income $ 24,915 $ 22,988 Real estate depreciation and amortization 42,889 39,415 FFO attributable to common shares and units$ 67,804 $ 62,403 Total weighted average shares and OP units outstanding - 48,533 48,300
diluted
FFO per common share and OP unit - diluted $ 1.40
$ 1.29
Distribution Policy
In order to comply with the REIT requirements of the Code, we generally are required to make annual distributions to our stockholders of at least 90% of our net taxable income. Our common stock distribution policy is to distribute as dividends, at a minimum, a percentage of our cash flow that ensures that we will meet the distribution requirements of the Code and any subsequent increases and/or anticipated increases are correlated to increases in our growth of cash flow. We have made distributions every quarter since the completion of our initial public offering in 2010. During the three months endedMarch 31, 2021 , we declared quarterly dividends totaling$1.23 per share of common stock andOperating Partnership unit. While we plan to continue to make quarterly distributions, no assurances can be made as to the frequency or amounts of any future distributions. The payment of common stock distributions is dependent upon, among other things, restriction in agreements governing out indebtedness, our financial condition, operating results and REIT distribution requirements and may be adjusted at the discretion of our Board of Directors during the year.
The following table summarizes the taxability of our common stock dividends per
share for the years ended
Year Ended December 31,
Record Date 2020 2019
Common Stock:
Ordinary income $ 3.14 $ 3.07
Qualified dividend - -
Capital gains - -
Return of capital 1.74 1.57
Total dividend $ 4.88 $ 4.64
34
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