Stockholders' Equity

12 Months Ended

Dec. 31, 2013

Stockholders' Equity

Stockholders' Equity

9. Stockholders' Equity

        At December 31, 2013, 120 million shares were authorized to be issued by CoreSite, of which 100 million shares represent common stock and 20 million represent preferred stock. The Board may, without stockholder approval, classify or reclassify any unissued shares of stock to increase or decrease the authorized number of shares of common stock and preferred stock and to establish the preferences and rights of any preferred stock or other class of series of shares to be issued.

Common Stock

        At December 31, 2013, we had 21.4 million shares of common stock issued and outstanding. Since IPO, we have issued common stock under our Equity Incentive Plan, in which certain of our employees and outside directors participate in stock-based compensation plans that provide compensation in the form of common stock. Under the Equity Incentive Plan, we received gross proceeds from the exercise of stock options of $0.9 million, $1.6 million, and less than $0.1 million for the years ended December 31, 2013, 2012, and 2011, respectively. Also, we issued shares of common stock as a result of RSA grants, net of forfeitures, and option exercises in the amount of 184,479, 454,879 and 214,142 during the years ended December 31, 2013, 2012, and 2011, respectively. See Note 11 for additional information on the plan.

        On November 15, 2011, 889,610 Operating Partnership units held by third parties were redeemed for common stock of the Company. This redemption was recorded as a $13.8 million reduction to noncontrolling interests in the Operating Partnership and an increase to common stock and additional paid in capital.

Preferred Stock

        On December 12, 2012, the Company issued an aggregate of 4,600,000 shares of its 7.25% Series A Cumulative Redeemable Preferred Stock, or the series A preferred stock, for net proceeds of $110.6 million. Dividends are cumulative on the series A preferred stock from the date of original issuance in the amount of $1.8125 per share each year, which is equivalent to 7.25% of the $25.00 liquidation preference per share. Dividends on the series A preferred stock are payable quarterly in arrears.

        The series A preferred stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, the series A preferred stock will rank senior to the Company common stock with respect to the payment of distributions and other amounts. The Company is not allowed to redeem the series A preferred stock before December 12, 2017, except in limited circumstances to preserve its status as a REIT. On or after December 12, 2017, the Company may, at its option, redeem the series A preferred stock, in whole or in part, at any time or from time to time, for cash at redemption price of $25.00 per share, plus all accrued and unpaid dividends on such series A preferred stock up to but excluding the redemption date. Holders of the series A preferred stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances. Upon the occurrence of specified changes of control, as a result of which neither the Company's common stock nor the common securities of the acquiring or surviving entity (or American Depositary Receipts representing such securities) is listed on the New York Stock Exchange, or NYSE, the NYSE Amex Equities or the NASDAQ Stock Market or listed or quoted on a successor exchange or quotation system, each holder of series A preferred stock will have the right (unless, prior to the change of control conversion date specified in the Articles Supplementary governing the series A preferred stock, the Company has provided or provides notice of its election to redeem the series A preferred stock) to convert some or all of the series A preferred stock held by it into a number of shares of the Company's common stock per share of series A preferred stock to be converted equal to the lesser of:

• •

  the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accrued and unpaid dividends to, but not including, the change of control conversion date (unless the change of control conversion date is after a record date for a series A preferred stock dividend payment and prior to the corresponding series A preferred stock dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the common stock price, as defined; and

  •

  1.944, or the share cap, subject to certain adjustments;

subject, in each case, to provisions for the receipt of alternative consideration as described in the Articles Supplementary governing the series A preferred stock. Except in connection with specified change of control transactions, the series A preferred stock is not convertible into or exchangeable for any other property or securities of the Company.

Dividends

        In 2013, 2012, and 2011, we paid all our dividends in cash. The following summarizes the taxability of our common and preferred stock dividends for the years then ended:

	2013		2012		2011
Common Stock:
Ordinary income	$	1.16	$	0.81	$	0.57
Qualified dividend		—		—		—
Capital gains		—		—		—
Return of capital		—		—		—
Total dividend(1)	$	1.16	$	0.81	$	0.57
Preferred Stock:
Ordinary income	$	1.98	$	—	$	—
Qualified dividend		—		—		—
Capital gains		—		—		—
Total dividend(2)	$	1.98		—		—

(1)

Of the $1.16 taxable dividend in 2013, $0.35 was paid in January 2014. Of the $0.81 taxable dividend in 2012, $0.27 was paid in January 2013. Of the $0.57 taxable dividend in 2011, $0.18 was paid in January 2012.

(2)

Of the $1.98 taxable dividend in 2013, $0.4531 was paid in January 2014. The 2013 dividend includes a pro rata dividend from and including the original issue date of December 12, 2012. There were no preferred stock dividends in 2012 and 2011.

        In order to comply with the real estate investment trust requirements of the Internal Revenue Code, we are generally required to make common stock distributions (other than capital gain distributions) to our stockholders at least equal to (i) the sum of (a) 90% of our "REIT taxable income" computed without regard to the dividends paid deduction and net capital gains and (b) 90% of the net income (after tax), if any, from foreclosure property, minus (ii) certain excess non-cash income. Our common stock dividend policy is to distribute a percentage of our cash flow to ensure we will meet the distribution requirements of the Internal Revenue Code, while allowing us to retain cash to meet other needs, such as capital improvements and other investment activities.

        Common stock dividends are characterized for federal income tax purposes as ordinary income, qualified dividend, capital gains, non-taxable return of capital or a combination of the four. Common stock dividends that exceed our current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and generally reduce the stockholder's basis in the common stock. To the extent that a dividend exceeds both current and accumulated earnings and profits and the stockholder's basis in the common stock, it will generally be treated as a gain from the sale or exchange of that stockholder's common stock. At the beginning of each year, we notify our stockholders of the taxability of the common stock dividends paid during the preceding year.

        Pursuant to the terms of our preferred stock, we are restricted from declaring or paying any dividend with respect to our common stock unless and until all cumulative dividends with respect to the preferred stock have been paid and sufficient funds have been set aside for dividends that have been declared for the relevant dividend period with respect to the preferred stock.

        Our tax return for the year ended December 31, 2013 has not been filed. The taxability information presented for our dividends paid in 2013 is based upon management's estimate.