UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 2019
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To

Commission file number 001-34877

CoreSite Realty Corporation

(Exact name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation or organization)	27-1925611 (I.R.S. Employer Identification No.)
1001 17th Street, Suite 500 Denver, CO (Address of principal executive offices)	80202 (Zip Code)

(866) 777-2673

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value per share	COR	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐
​ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of common equity held by non-affiliates of the registrant was approximately $3,591.8 million as of June 28, 2019, the last trading day of the registrant’s most recently completed second fiscal quarter. For purposes of the foregoing calculation, all directors and executive officers of the registrant and holders of more than 10% of the registrant’s common equity are assumed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 5, 2020, there were 37,694,718 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed in conjunction with the registrant’s 2020 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the registrant’s fiscal year ended December 31, 2019, are incorporated by reference in Part III of this report.

Table of Contents

	Page
PART I	4
ITEM 1. BUSINESS	4
ITEM 1A. RISK FACTORS	17
ITEM 1B. UNRESOLVED STAFF COMMENTS	39
ITEM 2. PROPERTIES	39
ITEM 3. LEGAL PROCEEDINGS	39
ITEM 4. MINE SAFETY DISCLOSURES	39
PART II	40
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	40
ITEM 6. SELECTED FINANCIAL DATA	42
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	44
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	88
ITEM 9A. CONTROLS AND PROCEDURES	88
ITEM 9B. OTHER INFORMATION	89
PART III	89
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	89
ITEM 11. EXECUTIVE COMPENSATION	89
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	89
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	89
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES	89
PART IV	90
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES	90
ITEM 16. FORM 10-K SUMMARY	93
SIGNATURES	94
Exhibit 4.3
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (this “Annual 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 (the “Securities Act”), 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 level 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) delays or disruptions in third-party network connectivity; (xiv) service failures or price increases by third party power suppliers; (xv) inability to renew net leases on the data center properties we lease; and (xvi) other factors affecting the real estate or technology industries generally.

In addition, important factors that could cause actual results to differ materially from the forward-looking statements include the risk factors in Item 1A. “Risk Factors” and elsewhere in this Annual Report. New risks and uncertainties arise from time to time, and we cannot predict those events or how they might affect us. We assume no obligation to update any forward-looking statements after the date of this Annual Report, except as required by applicable law. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

When we use the terms “we,” “us,” “our,” the “Company,” “CoreSite” and “our company” in this Annual Report, we are referring to CoreSite Realty Corporation, a Maryland corporation, together with our consolidated subsidiaries, including CoreSite, L.P., a Delaware limited partnership of which we are the sole general partner and to which we refer to as “our Operating Partnership.”

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PART I

ITEM 1. BUSINESS

The Company

We deliver secure, reliable, high-performance data center and interconnection solutions to a growing customer ecosystem across eight key North American communication markets. More than 1,350 of the world’s leading enterprises, network operators, cloud providers, and supporting service providers choose CoreSite to connect, protect and optimize their performance-sensitive data, applications and computing workloads.

Our Business

We are a fully integrated, self-administered, and self-managed REIT for federal income tax purposes and we conduct certain activities through our taxable REIT subsidiaries. Through our controlling interest in CoreSite, L.P., a Delaware limited partnership, our “Operating Partnership,” 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 the United States, including the San Francisco Bay area, Los Angeles, the Northern Virginia area (including Washington D.C.), the New York area, Boston, Chicago, Denver and Miami. We are a Maryland corporation organized in 2010.

Our data centers are highly specialized and secure buildings that house networking, storage and communications technology infrastructure, including servers, storage devices, switches, routers and fiber optic transmission equipment. These buildings are designed to provide the power, cooling and network connectivity necessary to efficiently operate this mission-critical equipment. Data centers located at points where many communications networks converge can also function as interconnection hubs where customers are able to connect to multiple networks, cloud companies and other service providers to exchange traffic and interoperate with each other. Our data centers feature advanced reliable and efficient power, cooling and security systems, and many are points of network interconnection that provide the evolved ecosystems our customers need to meet their own competitive challenges, digital transformations, and other business goals. We believe we have the flexibility and scalability to satisfy the full spectrum of our customers’ growth requirements and corresponding data center needs by providing data center space ranging in size from an entire building or large dedicated suite to a cage or half cabinet. Our data center campuses are particularly suitable for customers serving consumers and businesses with low-latency digital products in our major metro markets as well as customers deploying hybrid-cloud / multi-cloud information technology architectures.

The first data center in our portfolio was purchased in 2000 by certain real estate funds (the “Funds”) affiliated with The Carlyle Group, our predecessor, and since then we have continued to acquire, develop and operate these types of data center facilities. Our properties are self-managed, including construction project management in connection with our development initiatives. As of December 31, 2019, our property portfolio included 23 operating data center facilities, office and light-industrial space and multiple development projects and space, which collectively comprise, when fully built-out, over 4.6 million net rentable square feet (“NRSF”), of which over 2.6 million NRSF is existing operating data center space.

Recent Developments

On April 12, 2019, we acquired a 3.8-acre land parcel with a single-story office building located adjacent to our Santa Clara campus for a purchase price of $26 million. We expect to develop an approximately 200,000 NRSF turn-key data center building on the acquired land parcel, which we refer to as SV9, as the existing office tenants vacate upon expiration of their leases and upon the receipt of necessary entitlements.

Our Competitive Strengths

We believe the following key competitive strengths position us to compete, efficiently scale our business, capitalize on the demand for data center space and interconnection services, and thereby grow our cash flow.

Secure, Reliable, and Compliant. We help businesses protect mission-critical data, performance sensitive applications and information technology (“IT”) infrastructure by delivering secure, reliable, and compliant data center

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solutions. Our data centers feature advanced efficient power and cooling infrastructure to support our customers’ IT infrastructures with additional power capacity to support continued growth. We provide twenty-four-hours-a-day, seven-days-a-week in-house data center operations with customizable security features. We also provide the infrastructure and physical security required to support many of our customers’ information, data, and security compliance needs across all of our properties.

High Performance Interconnection. We offer cloud-enabled, network rich data center campuses with over 28,000 interconnections across our portfolio. Our customers have direct access to over 450 carriers and Internet Service Providers (“ISPs”) and over 325 leading cloud and IT service providers, including 10 cloud on-ramps deployed on-site in our campuses currently, which we expect to increase in 2020. In addition to standard interconnection offerings, we also operate the CoreSite Open Cloud Exchange™, and the Any2 Exchange for Internet Peering, the second largest peering exchange in the U.S. The diverse network and cloud connectivity options at many of our data centers provide us with a competitive advantage by creating an ideal environment for enterprises to build holistic, streamlined hybrid and multi-cloud architectures. Many providers in our data center facilities can leverage our sites as revenue opportunities by offering their services directly to other customers within our data centers, while enterprises can reduce their total cost of operations, while increasing their performance, by directly connecting to service providers in the same data center in a cost effective manner.

Scalable. Across 23 operating data centers in eight key North American markets, we lease space to enterprises, cloud and IT service providers, and network and mobility providers. We believe our ability to be both flexible and scalable is a key differentiator. We offer many space, power, and interconnection options that allow customers to select products and services that meet their needs. We believe we have a compelling combination of presence in most of the top data center markets in the U.S. with the ability to meet customers’ growing capacity requirements within those markets.

We have the ability to increase our occupied data center square footage by approximately 2,053,000 NRSF, or 93%, through leasing our 409,000 NRSF of unoccupied space and the development of 196,000 NRSF of space under construction and approximately 1,448,000 NRSF at multiple facilities that are held for future development based on market supply and demand, in each case, as of December 31, 2019.

High-Quality Customer Experience. We believe our 464 professionals deliver best-in-class service by placing customer needs first in supporting the planning, implementation and operating requirements of customers. We provide dedicated implementation resources to ensure a seamless onboarding process for our customers. Our leasing and sales professionals can develop complex data center solutions for the most demanding customer requirements and our experienced and committed operations and facilities personnel are available for extensive management support. We believe one of the data points validating our customer satisfaction is indicated by the 85% of annualized rent signed during the year ended December 31, 2019, which came from existing customers.

Facilities in Key Markets. Our portfolio is concentrated in some of the largest and most important U.S. metropolitan markets and we expect to continue benefitting from this concentration as customers seek new, high-quality data center space and interconnections within our markets, which are many of the key North American network, financial, cloud and commercial hubs. Our data centers are located in the San Francisco Bay area, Los Angeles, the Northern Virginia area (including Washington D.C.), the New York area, Boston, Chicago, Denver and Miami. Many of our facilities are also situated in close proximity to a concentration of key businesses and corporations, driving demand for our data center space and interconnection services.

Diversified Customer Base. We have a diverse, global customer base, which we believe is a reflection of our strong reputation and proven track record, as well as our customers’ trust in our ability to house their mission-critical applications and vital communications technology. Our diverse customer base spans many industries across eight key North America markets. In addition to geographic markets, we group our customers into the following industry verticals:

● Enterprises: digital content and multimedia, systems integrators and managed service providers (“SI & MSP”), financial, healthcare, education, government, manufacturing and professional services;

● Cloud and IT Service Providers; and

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● Networks and Mobility: domestic and international telecommunications carriers, subsea cables, ISPs and Content Delivery Networks (“CDNs”).

Business and Growth Strategies

Our business objective is to continue growing our position as a provider of strategically located data center space in North America. Key components of our strategy include the following:

Increase Cash Flow from In-Place Data Center Space. We actively manage and lease our properties to increase cash flow by:

● Leasing Available Space. We have the ability to increase both our revenue and our revenue per square foot by leasing additional space and power services to new and existing data center customers. As of December 31, 2019, our existing data center facilities had approximately 367,000 NRSF of data center space available to lease, or 14.0% of our current operating data center portfolio. We believe our available space, together with available power, enables us to generate incremental revenue within our existing data center footprint.

● Increasing Interconnection in our Facilities. As more customers deploy in our data center facilities, it benefits their business partners and customers to deploy with CoreSite in order to gain the full economic and performance benefits of our interconnection services. We believe this ecosystem of customers continues to drive new and existing customer growth, and in turn, increases the volume of interconnection services and the amount of value-add power services such as breakered AC and DC primary and redundant power.

Capitalize on Embedded Expansion Opportunities. We plan to grow by developing new secure, reliable and high-performance data center space. Our development opportunities include leveraging existing in-place infrastructure and entitlements in currently operating properties or campuses. In many cases, we are able to strategically deploy capital by developing space in incremental phases to meet customer demand. Including the space currently under construction, pre-construction projects, and space and land targeted for future development at December 31, 2019, we own land and buildings sufficient to develop approximately 1,644,000 NRSF of data center space. The following table summarizes the NRSF under construction and NRSF held for development throughout our portfolio, each as of December 31, 2019:

	Development Opportunities (in NRSF)
	Under	Held for
Facilities	Construction(1)	Development(2)	Total
San Francisco Bay
SV8	54,056	—	54,056
SV9(3)(4)	—	200,000	200,000
San Francisco Bay Total	54,056	200,000	254,056
One Wilshire campus
LA1	—	10,352	10,352
LA3	51,000	109,000	160,000
Los Angeles Total	51,000	119,352	170,352
Northern Virginia
Reston Campus Expansion(4)	—	809,742	809,742
New York
NY2	34,589	81,799	116,388
Boston
BO1	—	110,985	110,985
Chicago
CH2	56,000	113,000	169,000
Miami
MI1	—	13,154	13,154
Total Facilities(5)	195,645	1,448,032	1,643,677

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(1) Represents NRSF for which substantial construction activities are ongoing to 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.

(2) Represents estimated incremental data center capacity currently vacant in existing facilities or on vacant land in our portfolio that requires significant capital investment in order to develop into data center facilities.

(3) On April 12, 2019, we acquired a 3.8-acre land parcel with a single-story office building located adjacent to our Santa Clara campus for a purchase price of $26 million. We expect to develop an approximately 200,000 NRSF turn-key data center building on the acquired land parcel, which we refer to as SV9. We began pre-construction activities, including environmental permitting and other processes, and we anticipate commencing development as the existing office tenants vacate upon expiration of their leases and upon receipt of the necessary entitlements.

(4) The NRSF for these facilities reflect management’s estimates based on our 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.

(5) 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 lot. By utilizing this land, we believe that we could develop 100,000 NRSF on our available acreage in Secaucus, New Jersey, upon receipt of necessary entitlements.

Selectively Pursue Acquisition and Development Opportunities in New and Existing Markets. We evaluate opportunities to acquire or develop data center space with abundant power and/or dense points of interconnection in key markets that will expand our customer base and broaden our geographic footprint. Such acquisitions may entail subsequent development, which requires significant capital expenditures. We also intend to continue to implement the “hub-and-spoke strategy” that we have deployed in our four largest markets, namely Los Angeles, New York, and the San Francisco Bay and Northern Virginia areas. In these markets, we have extended our data center footprint by connecting our newer facilities, the spokes, to our established data centers, our hubs, which allows our customers leasing space at the spokes to leverage the significant interconnection capabilities of our hubs. In order to deploy our “hub-and-spoke strategy,” we typically rely on third-party providers of network connectivity to establish highly reliable network connectivity within and between facilities. Our two ground-up development projects, CH2 and LA3, and our SV9 held-for-development project, when constructed, will be connected via dark fiber to their respective campus hubs.

Leverage Existing Customer Relationships and Reach New Customers. Our strong customer and industry relationships, combined with our national footprint and sales force, afford us insight into the size, timing and location of customers’ planned growth. We historically have been successful in leveraging this market visibility to expand our footprint and customer base in our markets. We intend to continue to strengthen and expand our relationships with existing customers and to further grow and diversify our customer base by targeting growing customers and segments, such as domestic and international telecommunications carriers, content and media entertainment providers, cloud providers and other enterprise customers, including financial, health care, educational institutions and government agencies.

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Our Portfolio

As of December 31, 2019, our property portfolio included 23 operating data center facilities, office and light-industrial space and multiple potential development projects that collectively comprise over 4.6 million NRSF, of which over 2.6 million NRSF is existing data center space. The approximately 1.6 million NRSF of development capacity 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 of December 31, 2019:

	Data Center Operating NRSF (1)											Development
			Stabilized			Pre-Stabilized (2)			Total			NRSF (3)	Total NRSF
	Annualized			Percent			Percent			Percent			Total
Market/Facilities	Rent ($000)(4)		Total	Occupied(5)		Total	Occupied(5)		Total	Occupied(5)		Total	Portfolio
San Francisco Bay
SV1	$	5,994	88,251	76.3	%	—	—	%	88,251	76.3	%	—	88,251
SV2		7,619	76,676	86.3		—	—		76,676	86.3		—	76,676
Santa Clara campus(6) (SV3-SV9)		96,575	723,181	96.9		—	—		723,181	96.9		254,056	977,237
San Francisco Bay Total		110,188	888,108	93.9		—	—		888,108	93.9		254,056	1,142,164
Los Angeles
One Wilshire campus
LA1*		30,653	145,776	94.6		17,238	1.6		163,014	84.7		10,352	173,366
LA2		50,578	384,965	92.0		39,925	23.6		424,890	85.5		—	424,890
LA3		—	—	—		—	—		—	—		160,000	160,000
LA4*		1,209	21,850	98.2		—	—		21,850	98.2		—	21,850
Los Angeles Total		82,440	552,591	92.9		57,163	17.0		609,754	85.8		170,352	780,106
Northern Virginia
VA1		25,798	201,719	81.0		—	—		201,719	81.0		—	201,719
VA2		22,560	188,446	99.5		—	—		188,446	99.5		—	188,446
VA3		3,398	52,758	100.0		77,646	14.0		130,404	48.8		—	130,404
DC1*		3,043	22,137	75.1		—	—		22,137	75.1		—	22,137
DC2*		175	—	—		24,563	4.4		24,563	4.4		—	24,563
Reston Campus Expansion(7)		—	—	—		—	—		—	—		809,742	809,742
Northern Virginia Total		54,974	465,060	90.4		102,209	11.7		567,269	76.2		809,742	1,377,011
New York
NY1*		6,098	48,404	93.8		—	—		48,404	93.8		—	48,404
NY2		16,232	101,742	92.9		18,121	18.5		119,863	81.6		116,388	236,251
New York Total		22,330	150,146	93.2		18,121	18.5		168,267	85.1		116,388	284,655
Chicago
CH1		16,348	178,407	81.4		—	—		178,407	81.4		—	178,407
CH2		—	—	—		—	—		—	—		169,000	169,000
Chicago Total		16,348	178,407	81.4		—	—		178,407	81.4		169,000	347,407
Boston
BO1		15,360	122,730	75.2		19,961	—		142,691	64.7		110,985	253,676
Denver
DE1*		4,248	14,154	88.7		15,630	35.6		29,784	60.8		—	29,784
DE2*		471	5,140	74.0		—	—		5,140	74.0		—	5,140
Denver Total		4,719	19,294	84.8		15,630	35.6		34,924	62.8		—	34,924
Miami
MI1		1,537	30,176	60.8		—	—		30,176	60.8		13,154	43,330
Total Data Center Facilities	$	307,896	2,406,512	90.6	%	213,084	14.3	%	2,619,596	84.4	%	1,643,677	4,263,273
Office and Light-Industrial(7)		8,655	364,941	78.0		—	—		364,941	78.0		—	364,941
Reston Office and Light-Industrial(8)		1,186	82,801	100.0		—	—		82,801	100.0		(82,801)	—
Total Portfolio	$	317,737	2,854,254	89.3	%	213,084	14.3	%	3,067,338	84.0	%	1,560,876	4,628,214

* Indicates properties in which we hold a leasehold interest.

(1) Represents NRSF at each operating facility 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 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 Expansion Capital (see definition on page 11).

(2) Pre-stabilized NRSF represents projects or facilities that recently have been 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.

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(3) 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 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.

(4) Represents the monthly contractual rent under existing commenced customer leases as of December 31, 2019, multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement. On a gross basis, our total portfolio annualized rent was approximately $323.6 million as of December 31, 2019, which includes $5.8 million in operating expense reimbursements under modified gross and triple-net leases.

(5) Includes customer leases that have commenced and are occupied as of December 31, 2019. The percent occupied is determined based on occupied square feet as a proportion of total operating NRSF as of December 31, 2019. The percent occupied for stabilized data center space would have been 91.4%, rather than 90.6%, 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 85.5%, rather than 84.0%, if all leases signed in current and prior periods had commenced.

(6) On April 12, 2019, we acquired a 3.8-acre land parcel with a single-story office building located adjacent to our Santa Clara campus for a purchase price of $26 million. We expect to develop a turn-key data center building on the acquired land parcel, which we refer to as SV9, as the existing office tenants vacate upon expiration of their existing leases and upon receipt of the necessary entitlements. Included within our Santa Clara campus development NRSF is 200,000 NRSF that is being held for development related to SV9.

(7) Represents space that is currently occupied or readily available for lease as space other than data center space, which typically is offered for office or light-industrial uses.

(8) Included within our Reston Campus Expansion held for development space is 82,801 NRSF that is currently operating as office and light-industrial space.

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“Same-Store” statistics are based on space within each data center facility that was leased or available to be leased as of December 31, 2017, excluding space for which development was completed and became available to be leased after December 31, 2017. We track Same-Store space leased or available to be leased at the computer room level within each data center facility. The following table shows the December 31, 2019, Same-Store operating statistics. For comparison purposes, the operating activity totals as of December 31, 2018, and 2017, for this space are provided at the bottom of this table.

	Same-Store Property Portfolio (in NRSF)
			Data Center			Office and Light-Industrial			Total
	Annualized			Percent			Percent			Percent
Market/Facilities	Rent ($000)(1)		Total	Occupied(2)		Total	Occupied(2)		Total	Occupied(2)
San Francisco Bay
SV1	$	11,967	88,251	76.3	%	231,919	83.1	%	320,170	81.2	%
SV2		7,619	76,676	86.3		—	—		76,676	86.3
Santa Clara campus (SV3 - SV7)		76,595	615,500	96.3		1,176	87.8		616,676	96.3
San Francisco Bay Total		96,181	780,427	93.1		233,095	83.1		1,013,522	90.8
Los Angeles
One Wilshire campus
LA1*		30,362	139,053	94.2		4,373	64.7		143,426	93.3
LA2		36,213	309,437	90.0		7,417	80.1		316,854	89.8
Los Angeles Total		66,575	448,490	91.3		11,790	74.4		460,280	90.8
Northern Virginia
VA1		27,087	201,719	81.0		61,050	87.8		262,769	82.6
VA2		22,603	188,446	99.5		4,308	26.5		192,754	97.9
VA3		857	52,758	100.0		—	—		52,758	100.0
DC1*		3,043	22,137	75.1		—	—		22,137	75.1
Reston Campus Expansion		1,186	—	—		82,801	100.0		82,801	100.0
Northern Virginia Total		54,776	465,060	90.4		148,159	92.8		613,219	91.0
New York
NY1*		6,112	48,404	93.8		209	100.0		48,613	93.8
NY2		16,490	101,742	92.8		20,735	53.6		122,477	86.1
New York Total		22,602	150,146	93.1		20,944	54.1		171,090	88.3
Chicago
CH1		16,285	178,407	81.3		4,946	31.3		183,353	79.9
Boston
BO1		15,595	122,730	75.2		19,495	53.3		142,225	72.2
Denver
DE1*		2,891	14,154	88.7		—	—		14,154	88.7
DE2*		471	5,140	74.0		—	—		5,140	74.0
Denver Total		3,362	19,294	84.8		—	—		19,294	84.8
Miami
MI1		1,564	30,176	60.8		1,934	74.7		32,110	61.7
Total Facilities at December 31, 2019(3)	$	276,940	2,194,730	89.7	%	440,363	82.8	%	2,635,093	88.5	%
Total Facilities at December 31, 2018	$	283,758		92.1	%		81.6	%		90.4	%
Total Facilities at December 31, 2017	$	269,173		90.7	%		83.9	%		89.6	%

* Indicates properties in which we hold a leasehold interest.

(1) Represents the monthly contractual rent under existing commenced customer leases as of each respective period, multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement.

(2) Includes customer leases that have commenced and are occupied as of each respective period. The percent occupied is determined based on occupied square feet as a proportion of total operating NRSF.

(3) The percent occupied for data center space, office and light-industrial space, and total space as of December 31, 2019, would have been 90.6%, 83.2% and 89.3%, respectively, if all leases signed in the current and prior periods had commenced.

Same-Store annualized rent decreased to $276.9 million at December 31, 2019, compared to $283.8 million at December 31, 2018. The decrease of $6.8 million is primarily due to the move-out of a customer at our BO1 property during the year ended December 31, 2019, partially offset by the commencement of new and expansion leases.

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Capital Expenditures

The following table sets forth information regarding capital expenditures during the year ended December 31, 2019 (in thousands):

	Year Ended
	December 31, 2019
Data center expansion	$	382,761
Non-recurring investments		6,429
Tenant improvements		4,267
Recurring capital expenditures		7,404
Total capital expenditures	$	400,861

During the year ended December 31, 2019, we incurred approximately $400.9 million of capital expenditures, of which approximately $382.8 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 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.

During the year ended December 31, 2019, we completed development of 224,000 NRSF comprised of one computer room at BO1, one computer room at LA1, three computer rooms at LA2, two computer rooms at SV8, and at VA3 an infrastructure building, a data center core and shell building, and therein one computer room. As of December 31, 2019, we had ongoing construction projects at CH2, LA3, NY2, and SV8 scheduled to complete development at various times during the year ending December 31, 2020. The following table sets forth capital expenditures spent on data center expansion NRSF placed into service or acquired during the year ended December 31, 2019, and under construction as of December 31, 2019:

			NRSF
	Data Center		Placed into	Under
Property	Expansion		Service	Construction(1)
SV8	$	129,364	107,681	54,056
CH2		85,496	—	56,000
VA3		54,722	51,233	—
SV9(2)		27,614	—	—
NY2		22,896	—	34,589
LA3		19,652	—	51,000
LA2		14,003	28,191	—
LA1		11,450	17,238	—
BO1		9,620	19,961	—
Other		7,944	—	—
Total	$	382,761	224,304	195,645

(1) Represents NRSF under 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.

(2) On April 12, 2019, we acquired a 3.8-acre land parcel with a single story office building, located adjacent to our Santa Clara campus for a purchase price of $26 million. We expect to develop an approximately 200,000 NRSF turn-key data center building on the acquired land parcel, which we refer to as SV9. We began pre-construction activities, including environmental permitting and other processes, and we anticipate commencing development as the existing office tenants vacate upon expiration of their leases and upon receipt of the necessary entitlements.

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During the year ended December 31, 2019, we incurred approximately $6.4 million in non-recurring investments, of which $2.5 million was a result of internal IT software development and the remaining $3.9 million was a result of other non-recurring investments, such as remodel or upgrade projects.

During the year ended December 31, 2019, we incurred approximately $4.3 million in tenant improvements, which related to tenant-specific power installations at various properties.

During the year ended December 31, 2019, we incurred approximately $7.4 million of recurring capital expenditures within our portfolio, which included required equipment upgrades at our various facilities that have a future economic benefit and was offset by a $1.7 million energy efficiency rebate received from the local power utility related to the replacement of our chiller plant at LA2.

Customer Diversification

The following table sets forth information regarding the ten largest customers in our portfolio based on total portfolio annualized rent as of December 31, 2019:

											Weighted
											Average
					Percentage				Percentage		Remaining
			Number	Total	of Total		Annualized		of Total		Lease
			of	Occupied	Operating		Rent		Annualized		Term in
	CoreSite Vertical	Customer Industry	Locations	NRSF(1)	NRSF(2)		($000)(3)		Rent(4)		Months(5)
1	Cloud	Public Cloud	8	203,876	6.6	%	$	40,338	12.7	%	95
2	Cloud	Public Cloud	11	305,446	10.0			18,312	5.8		58
3	Enterprise	Digital Content	6	119,447	3.9			17,623	5.5		36
4	Enterprise	Travel / Hospitality	3	73,158	2.4			15,277	4.8		14
5	Cloud	Public Cloud	3	118,691	3.9			13,344	4.2		41
6	Enterprise	SI & MSP	3	62,268	2.0			9,271	2.9		6
7	Network	Global Service Provider	8	31,962	1.0			6,442	2.0		29
8	Enterprise	SI & MSP	1	17,922	0.6			5,461	1.7		26
9	Network	US National Service Provider	16	42,853	1.4			5,245	1.7		42
10	Enterprise	Colocation / Reseller	5	35,469	1.2			4,594	1.5		7
	Total/Weighted Average			1,011,092	33.0	%	$	135,907	42.8	%	51

(1) Total occupied NRSF is determined based on contractually leased square feet for leases that have commenced on or before December 31, 2019. We calculate occupancy based on factors in addition to contractually occupied square feet, including required data center support space (such as the mechanical, telecommunications and utility rooms) and building common areas.

(2) Represents the customer’s total occupied square feet divided by the total operating NRSF in the portfolio as of December 31, 2019.

(3) Represents the monthly contractual rent under existing commenced customer leases as of December 31, 2019, multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement.

(4) Represents the customer’s total annualized rent divided by the total annualized rent in the portfolio as of December 31, 2019.

(5) Weighted average based on percentage of total annualized rent expiring calculated as of December 31, 2019.

Lease Expirations

The following summary table sets forth a schedule of the expirations for leases in place as of December 31, 2019, plus unoccupied space, for each of the five full calendar years beginning January 1, 2020, at the properties in our

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portfolio (excluding space held for development, under construction, or in pre-construction). The information set forth in the table assumes that customers exercise no renewal options or early termination rights.

		Total											Annualized
	Number	Operating	Percentage				Percentage		Annualized		Annualized		Rent Per
	of	NRSF of	of Total		Annualized		of Total		Rent Per		Rent at		Leased
	Leases	Expiring	Operating		Rent		Annualized		Leased		Expiration		NRSF at
Year of Lease Expiration	Expiring(1)	Leases	NRSF		($000)(2)		Rent		NRSF		($000)(3)		Expiration(4)
Unoccupied data center	—	409,180	13.4	%	$	—	—	%	$	—	$	—	$	—
Unoccupied office and light-industrial	—	80,149	2.6			—	—			—		—		—
2020	1,300	610,022	19.8			96,090	30.2			158		96,767		159
2021	629	347,782	11.3			56,329	17.7			162		58,033		167
2022	309	363,481	11.9			53,872	17.0			148		54,960		151
2023	71	192,055	6.3			24,330	7.7			127		26,634		139
2024	75	132,940	4.3			16,551	5.2			125		19,201		144
2025-Thereafter	32	564,136	18.4			60,724	19.1			108		72,373		128
Office and light-industrial (5)	140	367,593	12.0			9,841	3.1			27		10,463		28
Portfolio Total / Weighted Average	2,556	3,067,338	100.0	%	$	317,737	100.0	%	$	123	$	338,431	$	131

(1) Includes leases that upon expiration will automatically be renewed, primarily on a year-to-year basis. Number of leases represents each agreement with a customer; a lease agreement could include multiple spaces and a customer could have multiple leases.

(2) Represents the monthly contractual rent under existing customer leases as of December 31, 2019, multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement.

(3) Represents the final monthly contractual rent under existing customer leases as of December 31, 2019, multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement. Leases expiring during 2019 include annualized rent of $8.3 million associated with lease terms currently on a month-to-month basis.

(4) Annualized rent at expiration as defined above, divided by the square footage of leases expiring in the given year. This metric reflects the rent growth inherent in the existing base of lease agreements.

(5) The occupied office and light-industrial leases are scheduled to expire as follows:

	NRSF of	Annualized
	Expiring	Rent
Year	Leases	($000)
2020	37,083	$	1,200
2021	47,501		1,572
2022	78,431		1,470
2023	140,380		3,906
2024	9,190		218
2025-Thereafter	55,008		1,475
Total OLI	367,593	$	9,841

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Lease Distribution

The following table sets forth information relating to the distribution of leases in the properties in our portfolio, based on NRSF (excluding space held for development, under construction, or in pre-construction) under lease as of December 31, 2019:

				Total	Percentage				Percentage
	Number	Percentage		Operating	of Total		Annualized		of Total
	of	of All		NRSF of	Operating		Rent		Annualized
NRSF Under Lease(1)	Leases(2)	Leases		Leases	NRSF		($000)(3)		Rent
Unoccupied data center	—	—	%	409,180	13.4	%	$	—	—	%
Unoccupied office and light-industrial	—	—		80,149	2.6			—	—
Data center NRSF:
5,000 or less	2,332	91.2		814,987	26.5			136,733	43.0
5,001 - 10,000	38	1.5		261,469	8.5			43,322	13.6
10,001 - 25,000	21	0.8		325,513	10.6			46,667	14.7
Greater than 25,000	8	0.3		385,721	12.6			64,752	20.4
Powered shell	17	0.7		422,726	13.8			16,422	5.2
Office and light-industrial	140	5.5		367,593	12.0			9,841	3.1
Portfolio Total	2,556	100.0	%	3,067,338	100.0	%	$	317,737	100.0	%

(1) Represents all leases in our portfolio, including data center and office and light-industrial leases.

(2) Number of leases represents each agreement with a customer; a lease agreement could include multiple spaces and a customer could have multiple leases.

(3) Represents the monthly contractual rent under existing commenced customer leases as of December 31, 2019, multiplied by 12. This amount reflects total annualized base rent before any one-time or non-recurring rent abatements and excludes power revenue, interconnection revenue and operating expense reimbursement.

Competition

We compete with numerous developers, public and private owners and operators of technology-related real estate and data centers, many of which own properties similar to ours in the same markets in which our properties are located, including CyrusOne, Inc., Cyxtera Technologies, Inc., Digital Realty Trust, Inc., Equinix, Inc., Evoque (formerly AT&T, Inc. Data Centers), Flexential, Internap Network Services Corporation, Quality Technology Services, RagingWire Data Centers, a NTT Communications company, SABEY Corporation, Stack Infrastructure, Switch, Inc., and Zayo Inc. In addition, we may face competition from new entrants into the data center market. Some of our competitors and potential competitors may have significant advantages over us, including greater name recognition, longer operating histories, pre-existing relationships with current or potential customers, significantly greater financial, marketing and other resources, ownership of more data centers more broadly distributed geographically, access to less expensive power, and more robust interconnected hubs in certain geographic markets, all of which could allow them to respond more quickly to new or changing opportunities. If our competitors offer space, power and/or interconnection services at rates below current market rates, or below the rates we currently charge our customers, we may lose potential customers and we may be pressured to reduce our rental rates below those we currently charge in order to retain customers when our customers’ leases expire.

As a developer of data center space and provider of interconnection services, we also compete for the services of key third-party providers of services, including engineers and contractors with expertise in the development of data centers. The competition for the services of specialized contractors and other third-party providers required for the development of data centers is intense, increasing the cost of engaging such providers and the risk of delays in completing our development projects.

In addition, we face competition from real estate developers in our sector and in other industries for the acquisition of additional properties suitable for the development of data centers. Such competition may reduce the number of properties available for acquisition or development, increase the price of these properties and reduce the demand for data center space in the markets we seek to serve.

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Regulation

General

Data centers in our markets are subject to various laws, ordinances and regulations, including regulations relating to common areas. We believe that each of our properties has the necessary permits and approvals to operate our business.

Americans with Disabilities Act

Our properties must comply with Title III of the American with Disabilities Act, or the ADA, to the extent that such properties are places of “public accommodation” or “commercial facilities” as defined by the ADA. The ADA requires properties that are places of “public accommodation” to, among other things, remove existing barriers to access by persons with disabilities where such removal is readily achievable. The ADA also requires places of “public accommodation” as well as “commercial facilities” undergoing new construction or alterations to conform to the ADA Accessibility Guidelines, which provide design standards that permit accessibility by individuals with disabilities. Further, if entities on our properties offer certain examinations or courses (i.e., those related to applications, licensing, certification, or credentialing for secondary or postsecondary education, professional, or trade purposes), they must be offered in an accessible place and manner or with alternative accessible arrangements. We believe that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to those properties to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of monetary damages and civil penalties in lawsuits brought by the Attorney General or an award of attorneys’ fees to private litigants. The obligation to make readily achievable accommodations as required by the ADA is an ongoing one, and we will continue to assess our properties and make alterations as appropriate.

Environmental Matters

Under various federal, state and local laws and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property, and may be required to investigate and clean up such contamination at that property or emanating from that property. Such laws and regulations often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and a party may be liable for all of the cleanup costs, even when more than one person was responsible for the contamination. Previous owners used some of our properties for industrial and retail purposes, so those properties may contain some level of environmental contamination. The presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability or materially adversely affect our ability to sell, lease or develop the real estate or to borrow using the real estate as collateral. In addition, we could incur costs to comply with such laws and regulations, the violation of which could lead to substantial fines and penalties.

Environmental laws and regulations also require that asbestos-containing building materials be properly managed and maintained and may impose fines and penalties on building owners or operators for failure to comply with these requirements. Further, third parties could potentially seek recovery from owners or operators for personal injury associated with exposure to asbestos-containing building materials.

In addition, certain of our customers, particularly those that lease light-industrial space from us, routinely handle hazardous substances and wastes as part of their operations at our properties. Environmental laws and regulations subject our customers, and potentially us, to liability resulting from these activities or from previous industrial or other uses of those properties. Environmental liabilities could also affect a customer’s ability to make rental payments to us. We require our customers to comply with these environmental laws and regulations and to indemnify us for any related liabilities.

Independent environmental consultants have conducted Phase I or similar environmental site assessments on all owned properties in our portfolio. Each of the site assessments has been either completed or updated since 2005. Site assessments are intended to collect and evaluate information regarding the environmental condition of the surveyed property and surrounding properties. These assessments do not generally include soil sampling, subsurface investigations or asbestos sampling. Although prior commercial or industrial operations at some of our properties may have released hazardous materials and some of our properties contain or may contain asbestos-containing building materials, none of

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the recent site assessments revealed any past or present environmental liability that we believe would have a material adverse effect on our business, assets or results of operations. However, the assessments may have failed to reveal all environmental conditions, liabilities or compliance concerns. Material environmental conditions, liabilities or compliance concerns may have arisen after the reviews were completed or may arise in the future; and future laws, ordinances or regulations may impose material additional environmental liability. See “Risk Factors—Risks Related to Our Business and Operations—Environmental problems are possible and can be costly.”

Insurance

We carry comprehensive liability, fire, extended coverage, earthquake, business interruption, rental loss, and umbrella liability insurance covering all of the properties in our portfolio augmented by excess liability coverage in an amount that we believe to be appropriate. We select policy specifications and insured limits which we believe to be appropriate given the relative risk of loss, the cost of the coverage and industry practice and, in the opinion of our management, the properties in our portfolio are currently adequately insured. We do not carry insurance for generally uninsured losses such as loss from riots, war or acts of God. In addition, we carry earthquake insurance on our properties in an amount and with deductibles which we believe are commercially reasonable. Certain of the properties in our portfolio are located in areas believed to be seismically active. Potential losses to our properties may not be covered by insurance or may exceed our policy coverage limits. See “Risk Factors—Risks Related to Our Business and Operations—Potential losses to our properties may not be covered by insurance or may exceed our policy coverage limits” in Item 1A. of this Annual Report.

Employees

As of December 31, 2019, we had 464 full-time and part-time employees, of which 242 employees were salaried with the remainder paid on an hourly basis. None of our employees is a member of a labor union and we believe that our relations with employees are good.

Offices

Our corporate offices are located at 1001 17th Street, Suite 500, Denver, CO 80202.

How to Obtain Our SEC Filings

All reports we file with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. We also provide copies of our Forms 8-K, 10-K, 10-Q, Proxy Statement, Annual Report and amendments to those documents at no charge to investors upon request and make electronic copies of such reports available through our website at www.coresite.com as soon as reasonably practicable after filing such material with the SEC. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a part of, this Annual Report on Form 10-K, or any other document that we file with the SEC.

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ITEM 1A. RISK FACTORS

Any of the following risks could materially and adversely affect our business, results of operations or financial condition. The risks and uncertainties described below are those that we currently believe may materially affect our Company. Additional risks and uncertainties of which we are unaware or that we currently deem immaterial also may become important factors that affect our Company. See “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business and Operations

Our portfolio of properties consists primarily of data centers geographically concentrated in certain markets and any adverse developments in local economic conditions or the demand for data center space in these markets may negatively impact our operating results.

Our portfolio of properties consists of data centers geographically concentrated in the San Francisco Bay area, Los Angeles, the Northern Virginia area (including Washington D.C.), the New York area, Chicago, Boston, Denver and Miami. These markets comprised 35.8%, 26.8%, 17.8%, 7.3%, 5.3%, 5.0%, 1.5%, and 0.5%, respectively, of our annualized data center rent as of December 31, 2019. As such, we are susceptible to local economic conditions and the supply of and demand for data center space in these markets. If there is a downturn in the economy or an oversupply of or decrease in demand for data centers in these markets, our business could be materially adversely affected to a greater extent than if we owned a real estate portfolio that was more diversified in terms of both geography and industry focus.

We may be vulnerable to physical and electronic security breaches and cyber-attacks which could disrupt our operations and have a material adverse effect on our financial performance and operating results.

A party who is able to compromise the security measures on our networks or the security of our infrastructure could, among other things, misappropriate our proprietary information and the personal information of our customers and employees, cause interruptions or malfunctions in our or our customers’ operations, cause delays or interruptions to our ability to meet customer needs, cause us to breach our legal, regulatory or contractual obligations, create an inability to access or rely upon critical business records or cause other disruptions in our operations. These breaches may result from human errors, equipment failure, or fraud or malice on the part of employees or third parties. Our exposure to cybersecurity threats and negative consequences of cybersecurity breaches will likely increase as we store increasing amounts of customer data. Additionally, as we increasingly market the security features in our data centers, our data centers may be targeted by computer hackers seeking to compromise data security.

We expend significant financial resources to protect against such threats and may be required to further expend financial resources to alleviate problems caused by physical, electronic, and cyber security breaches. As techniques used to breach security are growing in frequency and sophistication and are generally not recognized until launched against a target, regardless of our expenditures and protection efforts, we may not be able to implement security measures in a timely manner or, if and when implemented, these measures could be circumvented. Any breaches that may occur could expose us to increased risk of lawsuits, loss of existing or potential future customers, harm to our reputation and increases in our security costs, which could have a material adverse effect on our financial performance and operating results.

In the event of a breach resulting in loss of data, such as personally identifiable information or other such data protected by data privacy or other laws, we may be liable for damages, fines and penalties for such losses under applicable regulatory frameworks despite not handling the data. Furthermore, if a high profile security breach or cyber-attack occurs with respect to another provider of mission-critical data center facilities, our customers and potential customers may lose trust in the security of these business models generally, which could harm our reputation and brand image as well as our ability to retain existing customers or attract new ones. In addition, the regulatory framework around data custody, data privacy and breaches varies by jurisdiction and is an evolving area of law. We may not be able to limit our liability or damages in the event of such a loss.

Our properties depend upon the demand for technology-related real estate.

Our portfolio of properties consists primarily of technology-related real estate and data center facilities in particular. A decrease in the demand for data center space, Internet gateway facilities or other technology-related real

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estate would have a greater adverse effect on our business and financial condition than if we owned a portfolio with a more diversified customer base or less specialized use. Our substantial development activities make us particularly susceptible to general economic slowdowns, including recessions, as well as adverse developments in the corporate data center, Internet and data communications and broader technology industries. Any such slowdown or adverse development could lead to reduced corporate IT spending or reduced demand for data center space. Reduced demand could also result from business relocations, including to markets that we do not currently serve. Changes in industry practice or in technology, such as virtualization technology, more efficient or miniaturization of computing or networking devices, or devices that require higher power densities than today’s devices, could also reduce demand for the physical data center space and infrastructure we provide or make the tenant improvements in our facilities obsolete or in need of significant upgrades to remain viable. The development of new technologies, the adoption of new industry standards or other factors could render many of our customers’ current products and services obsolete or unmarketable and contribute to a downturn in their businesses, thereby increasing the likelihood that they default under their leases, become insolvent or file for bankruptcy. In addition, existing initiatives relating to the formation of Internet exchange alternatives could have a negative effect on the demand for and pricing of the subset of our interconnection revenue relating to Internet exchanges.

Our products and services have a long sales cycle that may harm our revenues and operating results.

A customer’s decision to lease space in one of our data centers and to purchase additional services typically involves a significant commitment of resources. In addition, some customers will be reluctant to commit to locating in our data centers until they are confident that the data center has adequate network connections. As a result, we have a long sales cycle. Furthermore, we may expend significant time and resources in pursuing a particular sale or customer that ultimately does not result in revenue.

Macroeconomic conditions, including economic and market downturns may further impact this long sales cycle by making it extremely difficult for customers to accurately forecast and plan future business activities. This could cause customers to slow spending or delay decision-making on our products and services, which would delay and lengthen our sales cycle.

Delays due to the length of our sales cycle may materially and adversely affect our revenues and operating results, which could harm our ability to meet our financial forecasts for a given quarter and cause volatility in our stock price.

Our interconnection and value-add power services depend on establishing highly evolved customer ecosystems and we may not be able to establish those ecosystems within a particular market.

One of our corporate objectives is to increase the volume of higher margin interconnection services and value-add power services, as well as to increase rental rates and obtain attractive customers, by developing highly evolved ecosystems comprised of cross-connected customers within each market. We have attained varying levels of success in developing these customer ecosystems across our markets. While we believe that we are able to attract network and cloud deployments and to grow the customer ecosystem to some degree in all markets, it may be difficult in some markets to develop ecosystems on the scale of our most highly evolved interconnected ecosystems due to the presence of incumbent interconnection and network-dense data centers in those markets. Our ability to establish highly interconnected data centers in certain markets may be further negatively impacted by industry consolidation. If we are unable to establish highly evolved customer ecosystems within a particular market, we may have difficulty attracting or retaining customer deployments requiring such ecosystems, and increasing the volume of higher margin interconnection services and value-add power services within that market to levels that are comparable to our most highly evolved interconnected ecosystems, which may have a material adverse effect on our financial condition and results of operations.

Our data center infrastructure may become obsolete and we may not be able to upgrade our power and cooling systems cost-effectively or at all.

The markets for the data centers that we own and operate, as well as the industries in which our customers operate, are characterized by rapidly changing technology, evolving industry standards, frequent new product introductions and changing customer demands. Our ability to deliver technologically sophisticated power and cooling is a significant factor in our customers’ decisions to lease space in our data centers. Our data center infrastructure may

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become obsolete due to the development of new systems that deliver power to, or eliminate heat from, the servers and other customer equipment that we house. Additionally, our data center infrastructure could become obsolete as a result of the development of new technology that requires levels of power and cooling that our facilities are not designed to provide. Our power and cooling systems are also sophisticated, expensive and time consuming to upgrade. Accordingly, we may not be able to efficiently upgrade or change these systems to meet new demands without incurring significant costs that we may not be able to pass on to our customers. The obsolescence of our power and cooling systems would have a material adverse effect on our business. In addition, evolving customer demand could require services or infrastructure improvements that we do not provide or that would be difficult or expensive for us to provide in our current data centers, and we may be unable to adequately adapt our properties or acquire new properties that can compete successfully. We risk losing customers to our competitors if we are unable to adapt within this rapidly evolving marketplace.

Furthermore, potential future regulations that apply to industries we serve may require customers in those industries to seek specific requirements from their data centers that we are unable to provide. These may include physical security requirements applicable to the defense industry and government contractors and privacy and security regulations applicable to the financial services and health care industries. If such regulations were adopted or such extra requirements demanded by certain customers, we could lose some customers or be unable to attract new customers in certain industries, which would have a material adverse effect on our results of operations.

Any failure of our physical infrastructure or services could lead to significant costs and disruptions that could reduce our revenues, harm our business reputation and have a material adverse effect on our financial results.

Our business depends on providing customers with highly reliable service. We may fail to provide such service as a result of numerous factors, including:

● human error;

● power loss;

● equipment failure;

● exposure to temperature, humidity, smoke and other environmental hazards;

● improper building maintenance by our landlords in the buildings that we lease;

● physical, electronic or cyber security breaches;

● fire, earthquake, hurricane, flood and other natural disasters;

● water damage;

● war, terrorism and any related conflicts or similar events worldwide; and

● sabotage and vandalism.

Problems at one or more of our data centers, whether or not within our control, could result in service interruptions or equipment damage. We provide service level commitments to substantially all of our customers. As a result, service interruptions or equipment damage in our data centers could result in billing abatements to these customers. In addition, although we have given such abatements to our customers in the past, there can be no assurance that our customers will accept these abatements as compensation in the future. Service interruptions and equipment failures may also expose us to additional legal liability and damage our brand image and reputation. Service interruptions, especially if significant or frequent, could cause our customers to terminate or not renew their leases. In addition, we may be unable to attract new customers if we have a reputation for significant or frequent service disruptions in our data centers.

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We depend on third parties to provide network connectivity within and between certain of our data centers, and any delays or disruptions in this connectivity may adversely affect our operating results and cash flow.

We depend upon carriers and other network providers to deliver network connectivity to customers within our data centers as well as the fiber network interconnection between certain of our data centers. Our hub-and-spoke approach makes us dependent on these third parties to provide these services between our data centers. There can be no assurance that any network provider will elect to offer its services within new data centers that we develop or that once a network provider decides to provide connectivity to or between our data centers, it will continue to do so for any period of time. A significant interruption in or loss of these services could impair our ability to attract and retain customers and have a material adverse effect on our business.

Enabling connectivity within and between our data centers requires construction and operation of a sophisticated redundant fiber network. The construction required to connect our data centers is complex and may involve factors outside of our control, including the availability of construction resources. If highly reliable network connectivity within and between certain of our data centers is not established, is materially delayed, is discontinued or fails, our reputation could be harmed, which could have a material adverse effect on our ability to attract new customers or retain existing ones.

We are dependent upon third-party suppliers for power and certain other services, and we are vulnerable to service failures of our third-party suppliers and to price increases by such suppliers.

We rely on third parties to provide power to our data centers, and we cannot ensure that these third parties will deliver such power in adequate quantities or on a consistent basis. Since our properties have access to a finite amount of power, it may be inadequate to support our customer requirements and we may be unable to satisfy our obligations to our customers. As current and future customers increase their power usage in our facilities over time, the remaining available power for future customers could limit our ability to grow our business and increase occupancy rates or network density within our existing facilities. At certain of our data centers, our aggregate maximum contractual obligation to provide power and cooling to our customers may exceed the physical capacity at such data centers if customers were to quickly increase their demand for power and cooling. If we are not able to increase the available power and/or cooling or move the customer to another location within our data center portfolio with sufficient power and cooling to meet such demand, we could lose the customer as well as be exposed to liability under our leases. Any such material loss of customers or material liability could adversely affect our results of operations.

In addition, our data centers are susceptible to power shortages and planned or unplanned power outages caused by these shortages. While we attempt to limit exposure to power shortages by using backup generators and batteries, power outages may last beyond our backup and alternative power arrangements, which would harm our customers and our business. In the past, a limited number of our customers have experienced temporary losses of power and/or cooling. Pursuant to the terms of some of our customer leases, continuous or chronic power or cooling outages may give certain of our customers the right to terminate their leases or cause us to incur financial obligations in connection with a power or cooling loss. In addition, any loss of services or equipment damage could reduce the confidence of our customers in our services, thereby impairing our ability to attract and retain customers, which would adversely affect both our ability to generate revenues and our operating results, and harm our reputation.

Furthermore, we may be subject to risks and unanticipated costs associated with obtaining power from various utility companies. Municipal utilities may experience unexpected costs relating to the production or transmission of power, including environmental and other variability associated with downed utility lines. Municipal utilities in areas experiencing financial distress may increase rates to compensate for financial shortfalls unrelated to either the cost of production or the demand for electricity. Other utilities that serve our data centers may be dependent on, and sensitive to price increases for a particular type of fuel, such as coal, oil or natural gas. In addition, the price of these fuels and the electricity generated from them could increase as a result of proposed legislative measures related to climate change, including efforts to regulate carbon emissions and increase supply from more expensive renewable energy sources. In any of these cases, increases in the cost of power at any of our data centers would put those locations at a competitive disadvantage relative to data centers served by utilities that can provide less expensive power.

We have begun to procure electricity from renewable energy sources. The costs of procuring such electricity may exceed the costs of procuring electricity from existing sources, such as existing utilities or electric service provided

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through conventional grids. Efforts to support and enhance renewable electricity generation may increase our costs of electricity above those that would be incurred through procurement of conventional electricity from existing sources.

Because we depend on the development and growth of a balanced customer base, including key customers, failure to attract, grow and retain this base of customers could harm our business and operating results.

Our ability to maximize operating revenues depends on our ability to develop and grow a balanced customer base, consisting of a variety of companies, including enterprises, cloud and IT service providers and network providers. We consider certain of these customers to be key in that they attract and assist in retaining other customers. The more balanced the customer base within each data center, the better we will be able to generate significant interconnection revenues, which in turn increases our overall operating revenues. Our ability to attract customers to our data centers will depend on a variety of factors, including the presence of multiple network carriers and cloud operators, the mix of products and services offered by us, the overall mix of customers, the presence of key customers attracting business through vertical market ecosystems, the data center’s operating reliability and security and our ability to effectively market and sell our services. However, some of our customers may face competitive pressures and may ultimately not be successful or may be consolidated through merger or acquisition. If these customers do not continue to use our data centers it may be disruptive to our business. Finally, an uncertain economic climate may harm our ability to attract and retain customers if customers slow spending, or delay decision-making, on our products and services, or if customers begin to have difficulty paying us and we experience increased churn in our customer base. Any of these factors may hinder the development, growth and retention of a balanced customer base and adversely affect our business, financial condition and results of operations.

Declining real estate valuations and impairment charges could adversely affect our earnings and financial condition.

We periodically review each of our properties for indicators that its carrying amount may not be recoverable. Examples of such indicators may include a significant decrease in the market prices of similar properties, a significant adverse change in the extent or manner in which the property is being used or expected to be used based on the underwriting at the time of acquisition, or a change in its physical condition, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development, or a history of operating or cash flow losses. When such impairment indictors exist, we review an estimate of the future cash flows (excluding interest charges) expected to result from the real estate investment’s use and eventual disposition and compare the estimated future cash flows to the carrying value of the property. We consider factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If our undiscounted net cash flow evaluation indicates that we are unable to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. Recording an impairment loss would result in an immediate negative adjustment to net income. The evaluation of estimated future cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. A decline in real estate prices where we operate may cause us to reevaluate the assumptions used in our impairment analysis. Impairment charges could adversely affect our financial condition, results of operations and the market price of our stock.

Potential losses to our properties may not be covered by insurance or may exceed our policy coverage limits.

We do not carry insurance for generally uninsured losses, such as acts of war. Our properties in our portfolio are subject to risks from earthquakes, tropical storms, hurricanes, floods and other natural disasters. While we do carry earthquake, hurricane and flood insurance on our properties, the amount of our insurance coverage may not be sufficient to fully cover such losses. In addition, we may discontinue earthquake, hurricane or flood insurance on some or all of our properties in the future if the cost of premiums for any of these policies exceeds, in our judgment, the value of the coverage relative to the risk of loss.

If we experience a loss which is uninsured or which exceeds our policy coverage limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties.

In addition, even if damage to our properties is covered by insurance, a disruption of our business caused by a casualty event may result in the loss of business or customers. We carry business interruption insurance, but such insurance may not fully compensate us for the loss of business or customers due to an interruption caused by a casualty event.

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While we monitor the solvency of our insurance carriers, it can be difficult to evaluate the stability and net assets or capitalization of insurance companies, and any insurer’s ability to meet its claim payment obligations. A failure of an insurance company to make payments to us upon an event of loss covered by an insurance policy could have a material adverse effect on our business and financial condition.

Our growth depends on the successful development of our properties and any delays or unexpected costs associated with such projects may harm our growth prospects, future operating results and financial condition.

As of December 31, 2019, we had the ability to expand our operating data center square footage by approximately 1,644,000 NRSF, or 63%, as set forth in our development table in Item 1. Our growth depends upon the successful completion of the development of this space and similar projects in the future. Current and future development projects and expansion into new markets will involve substantial planning, allocation of significant company resources and certain risks, including risks related to the acquisition of real property, financing, zoning, regulatory approvals, construction costs and delays. These projects will also require us to carefully select and rely on the experience of one or more general contractors and associated subcontractors during the construction process. Should a general contractor or significant subcontractor experience financial or other problems during the construction process, we could experience significant delays, increased costs to complete the project and other negative impacts to our expected financial returns. Site selection in current and expansion markets is also a critical factor in our expansion plans, and there may not be suitable properties available in our markets at a location that is attractive to our customers and has the necessary combination of access to multiple network providers, a significant supply of electrical power, high ceilings and the ability to sustain heavy floor loading. Furthermore, while we may prefer to locate new data centers adjacent to or in close proximity to our existing data centers, we may be limited by the size and location of suitable properties.

In addition, we will be subject to risks and, potentially, unanticipated costs associated with obtaining access to a sufficient amount of power from local utilities, including the need, in some cases, to develop utility substations on our properties in order to accommodate our power needs, constraints on the amount of electricity that a particular locality’s power grid is capable of providing at any given time, and risks associated with the negotiation of long-term power contracts with utility providers. There can be no assurance that we will be able to successfully negotiate such contracts on acceptable terms or at all. Any inability to negotiate utility contracts on a timely basis or on acceptable financial terms or in volumes sufficient to supply the requisite power for our development properties would have a material negative impact on our growth and future results of operations and financial condition.

These and other risks could result in delays or increased costs or prevent the completion of our development projects, any of which could have a material adverse effect on our financial condition, results of operations, cash flows, the trading price of our common stock and our ability to satisfy our debt service obligations or pay dividends.

Global economic conditions could adversely affect our liquidity and financial condition.

General economic conditions and the cost and availability of capital may be adversely affected in some or all of the markets in which we own properties and conduct our operations. Instability in the U.S., Asian, European and other international financial markets and economies, including the adoption and expansion of trade restrictions or the occurrence or escalation of trade wars, may adversely affect our ability, and the ability of our customers, to replace or renew maturing liabilities on a timely basis, access the capital markets to meet liquidity and capital expenditure requirements and may result in adverse effects on our, and our customers’ financial condition and results of operations.

In addition, our access to funds under our revolving credit facility and other lines of credit we may enter into depend on the ability of the lenders that are parties to such facilities to meet their funding commitments to us. There can be no assurance that long-term disruptions in the global economy and the return of tighter credit conditions, and potential failures or nationalizations of, third party financial institutions as a result of such disruptions will not have an adverse effect on our lenders. If our lenders are not able to meet their funding commitments to us, our business, results of operations, cash flows and financial condition could be adversely affected.

If we do not have sufficient cash flow to continue operating our business and are unable to borrow additional funds, access our existing lines of credit or raise equity or debt capital, we may need to find alternative ways to increase our liquidity. Such alternatives may include, without limitation, curtailing development activity, disposing of one or more of our properties possibly on disadvantageous terms or entering into or renewing leases on less favorable terms than we otherwise would.

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To fund our growth strategy and refinance our indebtedness, we depend on external sources of capital, which may not be available to us on commercially reasonable terms or at all.

In order to maintain our qualification as a REIT, we are required under the Internal Revenue Code (the “Code”) to distribute at least 90% of our net taxable income annually, determined without regard to the dividends paid deduction and excluding any net capital gains. We will also be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income, including any net capital gains. These distribution requirements may limit our ability to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we intend to rely on third-party sources for debt or equity financing to fund our growth strategy. In addition, we may need external sources of capital to refinance our indebtedness at maturity. We may not be able to obtain such financing or refinancing on favorable terms or at all. Our access to third-party sources of capital depends, in part, on:

● general economic and financial market conditions;

● a limited subset of lenders that have historically committed debt capital to REITs that own technology based real estate;

● the market’s perception of our growth potential;

● our then current debt levels;

● our historical and expected future earnings, cash flows and cash distributions; and

● the market price per share of our capital stock.

In addition, our ability to access additional capital may be limited by the terms of our existing indebtedness, which restricts our incurrence of additional indebtedness. If we cannot obtain capital when needed, we may not be able to acquire or develop properties when strategic opportunities arise or refinance our debt at maturity, which could have a material adverse effect on our business.

Our level of indebtedness and debt service obligations could have adverse effects on our business.

As of December 31, 2019, we had total principal indebtedness of approximately $1.5 billion and the ability to borrow up to an additional $382.6 million under our revolving credit facility, subject to satisfying certain financial and covenant tests. While there are limits in our revolving credit facility, senior unsecured term loans, and senior unsecured notes on the amount of debt that we may incur, and additional limits on our indebtedness which may be imposed by future agreements or by a policy adopted by our board of directors, we have the ability to increase our indebtedness over current levels. A substantial increase in our indebtedness may have adverse consequences for our business, results of operations and financial condition because it could, among other things:

● require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing our cash flow available to fund working capital, capital expenditures and other general corporate purposes, including to pay dividends on our common stock as currently contemplated or necessary to maintain our qualification as a REIT;

● make it more difficult for us to satisfy our financial obligations, including borrowings under our revolving credit facility;

● increase our vulnerability to general adverse economic and industry conditions;

● expose us to increases in interest rates for our variable rate debt;

● limit our ability to borrow additional funds on favorable terms or at all to expand our business or ease liquidity constraints;

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● limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms or at all;

● limit our flexibility in planning for, or reacting to, changes in our business and our industry;

● place us at a competitive disadvantage relative to competitors that have less indebtedness; and

● require us to dispose of one or more of our properties at disadvantageous prices or raise equity that may dilute the value of our common stock in order to service our indebtedness or to raise funds to pay such indebtedness at maturity.

The agreements governing our indebtedness place restrictions on us and our subsidiaries, reducing operational flexibility and creating default risks.

The agreements governing our indebtedness contain covenants that place restrictions on us and our subsidiaries. These covenants may restrict, among other things, our and our subsidiaries’ ability to:

● merge, consolidate or transfer all or substantially all of our or our subsidiaries’ assets;

● incur additional debt, including use of our existing capacity under our revolving credit facility;

● make certain investments or acquisitions;

● create liens on our or our subsidiaries’ assets;

● sell assets;

● make capital expenditures;

● pay dividends on or repurchase our capital stock;

● enter into transactions with affiliates;

● issue or sell stock of our subsidiaries; and

● change the nature of our business.

These covenants could impair our ability to grow our business, take advantage of attractive business opportunities or successfully compete. In addition, our revolving credit facility requires us to maintain specified financial ratios and satisfy financial condition tests. Our ability to comply with these ratios or tests may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants or covenants under any other agreements governing our indebtedness could result in an event of default. Cross-default provisions in our debt agreements could cause an event of default under one debt agreement to trigger an event of default under our other debt agreements. Upon the occurrence of an event of default under any of our debt agreements, the lenders could elect to declare all outstanding debt under such agreements to be immediately due and payable. If we were unable to repay or refinance the accelerated debt, the lenders could proceed against any assets pledged to secure that debt, including foreclosing on or requiring the sale of our data centers, and our assets may not be sufficient to repay such debt in full.

Fluctuations in interest rates could materially affect our financial results.

Because a significant portion of our debt bears interest at variable rates, increases in interest rates could materially increase our interest expense. Based on our debt outstanding as of December 31, 2019, if interest rates were to increase by 100 basis points, the corresponding increase in interest expense on our variable rate debt would decrease future earnings and cash flows by approximately $4.4 million per year. If the United States Federal Reserve increases short-term interest rates, this would have a significant upward impact on shorter-term interest rates, including the interest

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rates that our variable rate debt is based upon. Potential future increases in interest rates and credit spreads may increase our interest expense and therefore negatively affect our financial condition and results of operations, and reduce our access to the debt or equity capital markets.

In July 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have material contracts, including agreements governing certain of our indebtedness that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks. In September 2019, the FASB proposed guidance that would help facilitate the market transition from existing reference rates to alternative rates. However, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the trading market for LIBOR-based securities, including our material contract that are indexed to USD-LIBOR. Furthermore, we may need to renegotiate any credit agreements extending beyond 2021 that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, potential effect of any such event on our business, financial condition and results of operations cannot yet be determined.

Any interest rate hedging transactions involve costs and may limit our gains or result in material losses.

Hedging agreements enable us to convert floating rate liabilities to fixed rate liabilities or fixed rate liabilities to floating rate liabilities. We may use derivatives to hedge our liabilities from time to time. As of December 31, 2019, we are a party to a five-year interest rate swap agreement that effectively fixes the interest rate on $75 million of outstanding debt at approximately 2.63% per annum through May 5, 2020, a five-year interest rate swap agreement that effectively fixes the interest rate on $75 million of outstanding debt at approximately 3.92% per annum through April 5, 2023, an approximately six-year interest rate swap agreement that effectively fixes the interest rate on $100 million of outstanding debt at approximately 2.79% per annum through April 1, 2025, and an approximately six-year interest rate swap agreement that effectively fixes the interest rate on $75 million of outstanding debt at approximately 2.79% per annum through April 1, 2025.

These and any other hedging transactions into which we enter could expose us to certain risks, including:

● losses on a hedge position reducing the cash available for distribution to stockholders and such losses exceeding the amount invested in such instruments;

● counterparties to a hedging arrangement defaulting on their obligations;

● paying certain fees, such as transaction or brokerage fees; and

● incurring costs if we elect to terminate a hedging agreement early.

We may be unable to identify and complete acquisitions and successfully operate acquired properties.

We continually evaluate the market for available properties and may acquire data centers or properties suited for data center development when opportunities exist. Our ability to acquire attractive properties on favorable terms and successfully develop and operate them involves significant risks including, but not limited to:

● our inability to acquire a desired property because of competition from other data center companies or real estate investors with more capital;

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● competition from other potential acquirers that may significantly increase the purchase price of a desired property that we are ultimately able to acquire;

● our inability to realize the intended benefits from acquisitions or achieve anticipated operating or financial results;

● our inability to finance the acquisition on favorable terms or at all;

● underestimates of the costs to make necessary improvements to acquired properties;

● our inability to quickly and efficiently integrate new acquisitions into our existing operations resulting in disruptions to our operations or diversion of our management’s attention from our core business activities;

● acquired properties that may be subject to tax reassessments, which may result in higher than expected real estate tax payments;

● our inability to access sufficient utility power on favorable terms or at all; and

● market conditions that may result in higher than expected vacancy rates and lower than expected rental rates.

In the past we have acquired properties that did not perform to our expectations and there can be no assurance that this will not happen again. If we are unable to successfully acquire, develop and operate data center properties, our ability to grow our business, compete and meet market expectations will be significantly impaired, which would have a material adverse effect on the price of our common stock.

We may be subject to unknown or contingent liabilities related to properties or businesses that we acquire for which we may have limited or no recourse against the sellers.

Assets and entities that we have acquired or may acquire in the future, including the properties contributed by the Funds or their affiliates, may be subject to unknown or contingent liabilities for which we may have limited or no recourse against the sellers. Unknown or contingent liabilities might include liabilities for clean-up or remediation of environmental conditions, claims of customers, vendors or other persons dealing with the acquired entities, tax liabilities and other liabilities whether incurred in the ordinary course of business or otherwise. In the future we may enter into transactions with limited representations and warranties or with representations and warranties that do not survive the closing of the transactions, in which event we would have no or limited recourse against the sellers of such properties. While we usually require the sellers to indemnify us with respect to breaches of representations and warranties that survive, such indemnification (including the indemnification by the Funds or their affiliates) is often limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses.

As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that we may incur with respect to liabilities associated with acquired properties and entities may exceed our expectations, which may adversely affect our operating results and financial condition. Finally, indemnification agreements between us and the sellers typically provide that the sellers will retain certain specified liabilities relating to the assets and entities acquired by us. While the sellers are generally contractually obligated to pay all losses and other expenses relating to such retained liabilities, there can be no guarantee that such arrangements will not require us to incur losses or other expenses as well.

Under the contribution agreement pursuant to which the Funds or their affiliates contributed the properties that comprise our portfolio to the Operating Partnership, each of the Funds or their affiliates made certain representations and warranties as to certain material matters related to the property being contributed by such fund or affiliate such as title to any owned property, compliance with laws (including environmental laws) and the enforceability of certain material customer contracts and leases. These representations and warranties made by the Funds or their affiliates have since expired without our becoming aware of any breach. Therefore, we have no further recourse against the Funds or their affiliates under the contribution agreement.

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Our data center properties are not suitable for use other than as data centers, which could make it difficult to sell or reposition them if we are not able to lease available space and could materially adversely affect our business, results of operations and financial condition.

Because our real estate investments are relatively illiquid, our ability to respond to adverse changes in the performance of our properties may be limited, which may adversely affect our business, results of operating and financial condition. The risks associated with the illiquidity of our data centers are even greater. Our data centers are designed solely to house and run computer servers and related information technology equipment and, therefore, contain extensive electrical and mechanical systems and infrastructure. As a result, they are not suited for use by customers as anything other than as data centers and major renovations and expenditures would be required in order for us to re-lease vacant space for more traditional uses, or for us to sell a property to a buyer for use other than as a data center.

We continue to make significant investments in our back office information technology systems. Any difficulties or disruptions to these efforts may interrupt our normal operations, resulting in an adverse effect to our business, results of operations, financial condition or cash flows.

Over the past several years, we have made significant investments to overhaul our back office information technology systems and expect such investments to continue for the foreseeable future for ongoing improvements to the customer experience. Difficulties with our systems may adversely affect our business, results of operations, financial condition or cash flows. We may need to expend significant attention, time and resources to correct problems or find alternative sources for performing various functions. Such significant investments in our back office systems may take longer to complete and cost more than originally planned. In addition, we may not realize the full benefits we hoped to achieve and we may recognize additional impairment charges if we decide that portions of these information technology system projects will not ultimately benefit the Company or are de-scoped. During the years ended December 31, 2019, 2018, and 2017, we did not recognize any impairment charges on internal-use software.

We are continuing to invest in our expansion efforts, but we may not have sufficient customer demand in the future to realize expected returns on these investments.

As part of our growth strategy, we intend to continue to commit substantial operational and financial resources to develop new data centers and expand existing ones. However, we typically do not require pre-leasing commitments from customers before we develop or expand a data center, and we may not have sufficient customer demand to lease the new data center space when completed. Once development of a data center is complete, we incur a certain amount of operating expenses even if there are no customers occupying the space. A lack of customer demand for data center space or excess capacity in the data center market could impair our ability to achieve our expected rate of return on our investment, which could have a material adverse effect on our financial condition, operating results and the market price of our common stock.

We face significant competition and may be unable to lease vacant space, renew existing leases or release space as leases expire, which may have a material adverse effect on our business and results of operations.

We compete with numerous developers, owners and operators of technology-related real estate and data centers, many of which own properties similar to ours in the same markets. In addition, we may face competition from new entrants into the data center market. Some of our competitors have significant advantages over us, including greater name recognition, longer operating histories, lower operating costs, lower levels of leverage, pre-existing relationships with current or potential customers, greater financial, marketing and other resources, access to better networks and access to less expensive power. These advantages could allow our competitors to respond more quickly or effectively to strategic opportunities or changes in our industries or markets. If our competitors offer data center space that our existing or potential customers perceive to be superior to ours based on numerous factors, including cost and availability of power, security considerations, location or network connectivity, or if they offer rental rates below our current market rates, we may lose existing or potential customers, incur costs to improve our properties or be forced to reduce our rental rates. This risk is compounded by the fact that a significant percentage of our customer leases expire every year. For example, as of December 31, 2019, data center leases representing 30.2%, 17.7% and 17.0% of our total portfolio annualized rent will expire during 2020, 2021, and 2022, respectively. If the rental rates for our properties decrease, our existing customers do not renew their leases or we are unable to lease vacant data center space or re-lease data center space for which leases are scheduled to expire at or above current lease rates, our business and results of operations could be materially adversely affected.

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In addition, certain of our leases contain early termination provisions that allow our customers to reduce the term of their leases subject, in some cases, to payment of an early termination charge that is often a specified portion of the remaining rent payable under such leases. The exercise by customers of early termination options could have an adverse effect on our business, financial condition and results of operations.

Future consolidation in the technology industry could have a material adverse effect on our financial performance and operating results.

Mergers or consolidations of technology companies in the future could reduce the number of our customers and potential customers. In addition, our competitors may consolidate to improve their portfolios and products offered. Any of these developments could cause our customers to discontinue or reduce the use of our data centers in the future and could have a material adverse effect on our results of operations and cash flows.

We have government customers, which subjects us to risks including early termination, audits, investigations, sanctions and penalties.

We derive some revenues from contracts with the U.S. government, state and local governments and their respective agencies. Some of these customers may terminate all or part of their contracts at any time, without cause.

There is increased pressure for governments and their agencies to reduce spending. Some of our federal government contracts are subject to the approval of appropriations being made by the U.S. Congress to fund the expenditures under these contracts. Similarly, some of our contracts at the state and local levels are subject to government funding authorizations.

Additionally, government contracts are generally subject to audits and investigations which could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.

A small number of customers account for a significant portion of our operating revenues, and the loss of any of these customers could significantly harm our business, financial condition and results of operations.

We currently depend, and expect to continue to depend, upon a relatively small number of customers for a significant percentage of our operating revenue. Our top ten customers accounted for an aggregate of approximately 42.8% of our total portfolio annualized rent as of December 31, 2019. Some of our customers may experience a downturn in their businesses or other factors that may weaken their financial condition and result in them failing to make timely rental payments, defaulting on their leases, reducing the level of interconnection services they obtain or the amount of space they lease from us or terminating their relationship with us. The loss of one or more of our significant customers or a significant customer exerting significant pricing pressure on us could also have a material adverse effect on our results of operations.

In addition, our largest customers may choose to develop new data centers or expand existing data centers of their own. In the event that any of our key customers were to do so, it could result in a loss of business to us or increase pricing pressure on us. If we lose a customer, there is no guarantee that we would be able to replace that customer at a comparative rental rate or at all.

Some of our largest customers may also compete with one another in various aspects of their businesses. The competitive pressures on our customers may have a negative impact on our operations. For instance, one customer could determine that it is not in that customer’s interest to house mission-critical servers or other telecommunications or information technology equipment in a facility operated by the same company that relies on a key competitor for a significant part of its operating annual revenue. Our loss of a large customer for this or any other reason could have a material adverse effect on our results of operations.

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Our contracts with our customers could subject us to significant liability, which may adversely affect our business, results of operations and financial condition.

In the ordinary course of business, we enter into agreements with our customers pursuant to which our customers lease data center space and power from us as well as purchase connectivity products. These contracts typically contain indemnification and liability provisions, in addition to service level commitments, which could potentially impose a significant liability on us in the event of losses arising out of certain breaches of such agreements, services to be provided by us or our subcontractors or from third-party claims. Customers increasingly are looking to pass through their regulatory obligations and other liabilities to their outsourced data center providers and we may not be able to limit our liability or damages in an event of loss suffered by such customers whether as a result of our breach of agreement or otherwise. Further, liabilities and standards for damages and enforcement actions, including the regulatory framework applicable to different types of losses, vary by jurisdiction, and we may be subject to greater liability for certain losses in certain jurisdictions. Additionally, in connection with our acquisitions, we have assumed existing agreements with customers that may subject us to greater liability for such an event of loss. If such an event of loss occurred, we could be liable for material monetary damages and could incur significant legal fees in defending against such an action, which could adversely affect our financial condition and results of operations.

The bankruptcy or insolvency of a major customer may adversely affect the income produced by our properties.

If any customer becomes a debtor in a case under the federal Bankruptcy Code, we cannot evict the customer solely because of the bankruptcy. In addition, the bankruptcy court might authorize the customer to reject and terminate its lease with us. Our claim against the customer for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. In either case, our claim for unpaid rent would likely not be paid in full. As of December 31, 2019, we had no material customers in bankruptcy. Our operating revenues and cash available for distribution could be materially adversely affected if any of our significant customers were to become bankrupt or insolvent, or suffer a downturn in their business, or fail to renew their lease or renew on terms less favorable to us than their current terms.

If we are unable to recruit or retain qualified personnel, our business could be harmed.

We must continue to identify, hire, train, and retain IT professionals, technical engineers, operations employees, and sales, marketing, finance and senior management personnel who maintain relationships with our customers and who can provide the technical, strategic and marketing skills required for our Company to grow. There is a shortage of qualified personnel in these fields, and we compete with other companies for the limited pool of talent. The failure to recruit and retain personnel, including, but not limited to, members of our executive team, could harm our business and our ability to grow our Company.

We do not own all of the buildings in which our data centers are located. Instead, we lease certain of our data center space and the ability to renew these leases could be a significant risk to our ongoing operations.

We do not own the buildings for seven of our data centers and our business could be harmed if we are unable to renew the leases for these data centers at favorable terms or at all. The following table summarizes the remaining primary term and renewal rights associated with each of our leased properties:

		Current Lease
Property	NRSF	Term Expiration	Renewal Rights	Base Rent Increases at Renewal
NY1	48,404	Apr. 2023	2 × 5 years	FMR(1)
LA1	171,016	July 2029	3 × 5 years	103% of previous monthly base rent
LA1	6,723	Dec. 2021	1 × 5 years	Greater of 104% of previous monthly base rent or FMR(1)
LA4	21,850	July 2023	2 × 5 years	Greater of 100% of previous monthly base rent or FMR(1)
DC1	22,137	May 2021	2 × 5 years	Greater of 103% of previous monthly base rent or 95% of FMR(1)
DC2	24,563	July 2028	3 × 5 years	106% of previous monthly base rent for the renewal and 103% of previous monthly base rent thereafter
DE1	5,878	Oct. 2024	3 × 5 years	102.5% of previous monthly base rent
DE1	23,906	Dec. 2026	4 × 5 years	102.5% of previous monthly base rent
DE2	5,140	Dec. 2024	N/A

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(1) FMR represents “fair market rent” as determined by mutual agreement between landlord and tenant, or in the case of a disagreement, mutual agreement by third party appraisers.

When the primary terms of our leases expire, we generally have the right to extend the terms of our leases as indicated above. For three of these leases, the rent will be determined based on the fair market value of rental rates for the property and the then prevailing rental rates may be higher than rental rates under the applicable lease. To maintain the operating profitability associated with our present cost structure, we must increase operating revenues within existing data centers to offset any potential increase in lease payments at the end of the original and renewal terms. Failure to increase operating revenues to sufficiently offset these projected higher lease costs would adversely impact our operating income. Additionally, we may be unable to maintain good working relationships with the landlords of our leased properties, which would adversely affect our relationship with our customers and could result in the loss of current customers.

If we are not able to renew the lease at any of our data centers, the costs of relocating the equipment in such data centers and developing a new location into a high-quality data center could be prohibitive. In addition, we could lose customers due to the disruptions in their operations caused by the relocation. We could also lose those customers that choose our data centers based primarily on their locations.

Increases in our property taxes and other state and local taxes could adversely affect our ability to make distributions to our stockholders if they cannot be passed on to our customers.

We are subject to a variety of state and local taxes, including real and personal property taxes and sales and use taxes that may increase materially due to factors outside our control. In particular, real estate taxes on our properties may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. For example, if the vote to repeal Proposition 13, which will be included on the November 2020 ballot and currently limits annual real estate tax increases to 2% of assessed value per annum, in the State of California is successful, it would increase the assessed value and/or tax rates applicable to commercial property in California, including our data centers. We expect to be notified by local taxing authorities if the assessed values of certain of our properties have increased. We plan to appeal these increased assessments, but we may not be successful in our efforts. Our leases with our customers generally do not allow us to increase their rent as a result of an increase in real estate or other taxes. If real estate or other taxes increase and we cannot pass these increases on to our customers through increased rent for new leases or upon lease renewals, our result of operations, cash flows and ability to make distributions to our stockholders would be adversely affected.

We are exposed to potential risks from errors in our financial reporting systems and controls, including the potential for material misstatements in our consolidated financial statements.

        Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to evaluate their internal control over financial reporting. We performed our evaluation as of December 31, 2019, and concluded internal control over financial reporting is operating effectively. Although we believe our internal control over financial reporting is operating effectively, in the course of our internal audit program we have identified certain areas for ongoing improvement and we are in the process of evaluating and designing enhanced business processes and internal controls to address such areas, none of which we believe constitutes a material change. However, we cannot be certain that our efforts will be effective or sufficient for us, or our independent registered public accounting firm, to issue unqualified audit reports in the future, especially as our business continues to grow and evolve and if we acquire other businesses.

        Our ability to manage our operations and growth will require us to improve our operational, financial and management controls, as well as our internal reporting systems and controls. We may not be able to implement improvements to our internal reporting systems and controls in an efficient and timely manner and have in the past, and may in the future, discover deficiencies in existing systems and controls. In addition, internal reporting systems and controls are subject to human error. Any such deficiencies could result in material misstatements in our consolidated financial statements, which might involve restating previously issued financial statements. As we expand, we will need to implement new systems to support our financial reporting business processes and controls. We may not be able to implement these systems such that errors would be identified in a timely manner, which could result in material misstatements in our consolidated financial statements.

Additionally, our financial forecasts are dependent on estimates and assumptions including budgeting and planning data, market growth, our ability to remain qualified as a REIT, and our ability to generate sufficient cash flow

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to reinvest in the business to fund internal growth, make acquisitions, pay dividends and meet our debt obligations. Our financial projections are based on historical experience and on various other assumptions that our management believes to be reasonable under the circumstances and at the time they are made. However, if our external and internal information is inadequate, our actual results may differ materially from our forecasts and cause us to make inappropriate financial decisions. Any material variation between our financial forecasts and our actual results may also adversely affect our future profitability, stock price and stockholder confidence.

The market price of our stock may continue to be highly volatile, and the value of an investment in our common stock may decline.

During the year ended December 31, 2019, the closing sale price of our common stock on the New York Stock Exchange (“NYSE”) has ranged from $84.51 to $122.38 per share. The market price of the shares of our common stock has been and may continue to be highly volatile. General economic and market conditions, and market conditions for telecommunications and real estate stocks in general, may affect the market price of our common stock.

Announcements by us or others, or speculations about our future plans, may also have a significant impact on the market price of our common stock. These may relate to:

● our operating results or forecasts;

● new issuances of equity, debt or convertible debt by us;

● changes to our capital allocation or business strategies;

● developments in our relationships with our customers;

● announcements by our customers or competitors;

● changes in regulatory policy or interpretation (including changes in federal, state, and local tax policies);

● governmental investigations;

● litigation;

● changes in the ratings of our debt or stock by rating agencies or securities analysts;

● changes in market interest rates or other general market and economic conditions, including inflationary concerns;

● changes in our distribution rate as a percentage of stock price relative to market interest rates;

● our purchase or development of real estate and/or additional data centers;

● overall market demand for data center space and services;

● changes in prices for utilities, connectivity and other services we provide;

● personnel changes;

● changes in customers’ budgets for information technology services;

● our acquisitions of complementary businesses or dispositions of properties; or

● the operational performance of our data centers.

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The stock market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging telecommunications and real estate companies, and which have often been unrelated to their operating performance. These broad market fluctuations may adversely affect the market price of our common stock.

Our expenses may not decrease if our revenue decreases.

Most of the expenses associated with our business, such as debt service payments, real estate, personal property and ad valorem taxes, insurance, utilities, employee wages and benefits and corporate expenses are relatively inflexible and do not necessarily decrease in tandem with a reduction in operating revenue from our business. Our expenses also will be affected by inflationary increases and certain of our costs may exceed the rate of inflation in any given period. As a result, we may not be able to fully offset our expenses through higher customer lease rates, which could have a material adverse effect on our results of operations and financial performance.

Environmental problems are possible and can be costly.

Environmental liabilities could arise and have a material adverse effect on our financial condition and performance. Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real estate to investigate and remediate hazardous or toxic substances or petroleum product releases at or from the property. In addition, we could incur costs to comply with such laws and regulations, the violation of which could lead to substantial fines and penalties.

We may have to pay governmental entities or third parties for property damage and for investigation and remediation costs that they incurred in connection with any contamination at our current and former properties without regard to whether we knew of or caused the presence of the contaminants. Even if more than one person may have been responsible for the contamination, each person covered by these environmental laws may be held responsible for all of the clean-up costs incurred.

Some of our properties contain or may contain asbestos-containing building materials. Environmental laws may impose fines and penalties on building owners or operators who fail to properly manage and maintain these materials, notify and train persons who may come into contact with asbestos and undertake special precautions, and third parties could potentially seek recovery from owners or operators for any personal injury associated with exposure to asbestos-containing building materials.

Some of our properties may also contain or develop harmful mold or suffer from other air quality issues. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our customers, employees of our customers and others if property damage or health concerns arise.

We may be adversely affected by climate change and regulations related to climate change.

Extreme, and oftentimes unpredictable, weather events such as droughts, heat waves, fires, hurricanes, tornadoes, rising sea levels and flooding pose a threat to our business through physical damage to, a decrease in demand for, and/or a decrease in rent from and value of, our data centers located in the areas affected by these events. For example, changes in average daily temperatures as a result of climate change could increase the cost of cooling our data centers, which would have an adverse effect on our business. These weather events may also lead to power supply disruption to our data centers, which could also negatively impact our business operations.

We maintain disaster recovery and business continuity plans that we have utilized in the past and that would be utilized if severe weather events interrupt our business. While these plans are designed to help us recover from natural disasters or other events that could interrupt our business, such as extreme weather events related to climate change, we cannot assure you that our plans will adequately or completely protect us or our customers from all such disasters or events. Furthermore, an increase in the frequency, duration and severity of such extreme weather events and/or our failure to prevent or mitigate the impact of such events on our customers could have a material adverse effect on our business.

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In addition, climate change regulation is a rapidly developing area. New laws relating to climate change, including potential cap-and-trade systems, carbon taxes and other requirements relating to reduction of carbon footprints and/or greenhouse gas emissions all could negatively affect our business operations, results of operations and cash flow. Other countries have enacted climate change laws and regulations and the United States has been involved in discussions regarding international climate change treaties. The U.S. Environmental Protection Agency, or EPA, and some of the states and localities in which we operate, have also enacted certain climate change laws and regulations and/or have begun regulating carbon footprints and greenhouse gas emissions. In addition, the EPA and the states and localities in which we operate may adopt new regulations related to the use of fossil fuels or requiring the use of alternative fuel or renewable energy sources to power energy resources that serve our data centers. Furthermore, our customers, investors and/or other stakeholders may require us to take steps to demonstrate that we are taking actions towards improving the operation of our business in a measurably sustainable manner and reducing our carbon footprint. However, our customers, investors and/or other stakeholders might not be satisfied with our sustainability efforts or the speed of their adoption. If we do not meet such expectations, our business may be harmed and/or our share price may decline. Given the nature of our business, our data centers require and consume significant amounts of power, including electricity generated by the burning of fossil fuels. These laws, regulations and stakeholder requests could limit our ability to develop new facilities or result in substantial compliance costs, maintenance costs, repair costs, retrofit costs and construction costs, including capital expenditures for environmental control facilities and other new equipment. For example, in the normal course of business, we enter into agreements with providers of electric power for our data centers, and the costs of electric power comprise a significant component of our operating expenses. Changes in regulations that affect electric power providers such as regulations related to the control of greenhouse gas emissions or other climate change related matters could adversely affect the costs of electric power and increase our operating costs, which could adversely affect our business, financial condition and results of operations or those of our customers. Failure to comply with applicable laws and regulations or other requirements imposed on us could also lead to fines and/or lost revenue. We could also face a negative impact on our reputation with the public and our customers if we violate climate change laws or regulations.

We may incur significant costs complying with the Americans with Disabilities Act, or ADA, and similar laws, which could materially adversely affect our financial condition and operating results.

Under the ADA, all places of public accommodation must meet federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws may also require modifications to our properties. We have not conducted an audit or investigation of all of our properties to determine our compliance with the ADA. If one of our properties is not in compliance with the ADA, we would be required to incur additional costs to bring the property into compliance. Additional federal, state and local laws may require modifications to our properties, or restrict our ability to renovate our properties. We cannot predict the ultimate amount of the cost of compliance with the ADA or other legislation. If we incur substantial costs to comply with the ADA and any other similar legislation, our financial condition and results of operations could be materially adversely affected.

We may incur significant costs complying with other regulations.

Our properties are subject to various federal, state and local regulations, such as state and local fire and life safety regulations. If one of our properties is not in compliance with these various regulations, we may be required to pay fines or private damage awards. We do not know whether existing regulations will change or whether future regulations will require us to make significant unanticipated expenditures that will materially adversely impact our financial condition, results of operations, cash flows and ability to make distributions to our stockholders.

We may be subject to securities class action and other periodic litigation, which could result in unexpected expense of time and resources, and may harm our business and operating results.

We may be subject to securities class action or other periodic litigation from time to time. Companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and/or damages, and divert management’s attention from other business concerns, which could seriously harm our business, results of operations, financial condition or cash flows.

From time to time, we may also be called on to defend ourselves against lawsuits relating to our business operations. Some of these claims may seek significant damage amounts due to the nature of our business. Due to the

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inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such current or future proceedings. A future unfavorable outcome in a legal proceeding or any future legal proceedings could have an adverse impact on our business, financial condition and results of operations. In addition, any significant current and future litigation, regardless of its merits, could result in substantial legal fees, settlement or judgment costs and a diversion of management’s attention and resources that are needed to successfully run our business.

Risks Related to Our Organizational Structure

Our Board of Directors may change our major corporate, investment and financing policies without stockholder approval and those changes may adversely affect our business.

Our Board of Directors will determine our major corporate policies, including our acquisition, investment, financing, growth, operations and level of indebtedness and distribution policies and whether to maintain our status as a REIT. Our Board of Directors may alter or eliminate our current corporate policies, including our policy on borrowing at any time without stockholder approval. Accordingly, while our stockholders have the power to elect or remove directors, our stockholders will have limited direct control over changes in our policies and those changes could adversely affect our business, financial condition, results of operations, the market price of our common stock and our ability to make distributions to our stockholders.

The Funds and their affiliates own approximately 22.4% of our Operating Partnership as of December 31, 2019, and have the right to nominate one director for so long as they hold at least 10% of our outstanding common stock or common stock equivalents. Their interests may differ from or conflict with the interests of our stockholders.

As of December 31, 2019, the Funds or their affiliates had an aggregate beneficial common ownership interest in our Operating Partnership of approximately 22.4% which, if exchanged for our common stock, would represent approximately 22.2% of our outstanding common stock. In addition, the operating agreement for our Operating Partnership grants the Funds and their affiliates the right to nominate one of the eight directors to our Board of Directors for so long as the Funds hold at least 10% of our outstanding common stock or common stock equivalents. As a result, the Funds and their affiliates have the ability to exercise substantial influence over our Company, including with respect to decisions relating to our capital structure, issuing additional shares of our common stock or other equity securities, paying dividends, incurring additional debt, making acquisitions, selling properties or other assets, merging with other companies and undertaking other extraordinary or material transactions. In any of these matters, the interests of the Funds and their affiliates may differ from or conflict with the interests of our other stockholders. In addition, the Funds and their affiliates are in the business of making investments in companies and may, from time to time, acquire interests in businesses that directly or indirectly compete with our business, as well as businesses that are significant existing or potential customers. The Funds and their affiliates may acquire or seek to acquire assets that we seek to acquire and, as a result, those acquisition opportunities may not be available to us or may be more expensive for us to pursue.

Our charter and bylaws contain provisions that may delay, defer or prevent an acquisition of our common stock or a change in control, which may not be in the best interests of our stockholders.

Our charter and bylaws contain a number of provisions, the exercise or existence of which could delay, defer or prevent a transaction or a change in control that might involve a premium price for our stockholders or otherwise be in their best interests, including the following:

● Our Charter Contains Restrictions on the Ownership and Transfer of Our Stock. In order to assist us in complying with the limitations on the concentration of ownership of REIT stock imposed by the Code on REITs, our charter generally prohibits any person or entity (other than a person who or entity that has been granted an exception as described below) from actually or constructively owning more than 9.8% (by value or by number of shares, whichever is more restrictive) of our common stock, or more than 9.8% (by value) of our capital stock. The value and number of the outstanding shares of common stock, and the value of the outstanding shares of capital stock shall be determined by the Board of Directors in good faith, which shall be conclusive for all purposes. We refer to these restrictions as the ownership limits. Our charter permits our Board of Directors to make, and our Board of Directors has made, certain exceptions to these ownership limits, where our Board of Directors has determined that such exceptions would not cause us to fail to qualify as a REIT. Any attempt to own or transfer shares of our capital stock in excess of the ownership limits without the consent of our Board of Directors will result in the automatic transfer of the

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shares (and all dividends thereon) to a charitable trust. These ownership limitations may prevent a third party from acquiring control of us if our Board of Directors does not grant an exemption from the ownership limitations, even if our stockholders believe the change in control is in their best interests.

● Our Charter Grants Our Board of Directors the Right to Classify or Reclassify Any Unissued Shares of Capital Stock, Increase or Decrease the Authorized Number of Shares and Establish the Preference and Rights of Any Preferred Stock without Stockholder Approval. Our charter provides that the total number of shares of stock of all classes that we currently have authority to issue is 120,000,000, initially consisting of 100,000,000 shares of common stock and 20,000,000 shares of preferred stock. Our Board of Directors has the authority, without a stockholders’ vote, to classify or reclassify any unissued shares of stock, including common stock, into preferred stock or vice versa, 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 or series of shares to be issued. Because our Board of Directors has the power to establish the preferences and rights of additional classes or series of stock without a stockholders’ vote, our Board of Directors may give the holders of any class or series of stock preferences, powers and rights, including voting rights, senior to the rights of holders of existing stock.

Certain provisions of Maryland law may limit the ability of a third party to acquire control of us.

Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

● “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding shares of voting stock or an affiliate or associate of the corporation who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation) or an affiliate of any interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder and thereafter imposes two super-majority stockholder voting requirements on these combinations; and

● “control share” provisions that provide that “control shares” of our Company (defined as voting shares of stock which, when aggregated with all other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.

We have opted out of these provisions of the MGCL, in the case of the business combination provisions of the MGCL, by resolution of our Board of Directors and, in the case of the control share provisions of the MGCL, by a provision in our bylaws. However, our Board of Directors may elect to opt into these provisions, if approved by our stockholders by the affirmative vote of a majority of votes cast and with the consent of the Funds or their affiliates, provided that the consent of the Funds will not be required unless, in the case of the control share provisions, such provisions would apply to the Funds and their affiliates or in either case at such time they own less than 10% of our outstanding common stock (assuming all common Operating Partnership units are exchanged into common stock).

Additionally, the MGCL permits our Board of Directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of which we do not yet have.

The Company’s rights and the rights of its stockholders to take action against its directors and officers are limited.

According to Maryland law, our Board of Directors have no liability in their capacities as directors if they perform their duties in good faith, in a manner they reasonably believe to be in the Company’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. As permitted by the

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MGCL, the Company’s charter limits the liability of its directors and officers to the Company and its stockholders for money damages, except for liability resulting from:

● actual receipt of an improper benefit or profit in money, property or services; or

● a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.

Additionally, the charter authorizes the Company to obligate itself, and the bylaws require it, to indemnify the Company’s directors and officers for actions taken by them in those capacities and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding to the maximum extent permitted by Maryland law and we have entered into indemnification agreements with the Company’s officers and directors. As a result, the Company and its stockholders may have more limited rights against its directors and officers than might otherwise exist under common law. Accordingly, in the event that actions taken in good faith by any of the Company’s directors or officers impede the performance of the Company, a stockholders’ ability to recover damages from that director or officer will be limited.

The number of shares available for future sale could adversely affect the market price of our common stock.

We cannot predict whether future issuances of shares of our common stock or the availability of shares of our common stock for resale in the open market will decrease the market price per share of our common stock. Sales of a substantial number of shares of our common stock in the public market, either by us or by holders of Operating Partnership units upon exchange of such Operating Partnership units for our common stock, or the perception that such sales might occur, could adversely affect the market price of the shares of our common stock. The Funds, as holders of the Operating Partnership units issued in the formation transactions, have the right to require us to register with the SEC the resale of the common stock issuable, if we so elect, upon redemption of these Operating Partnership units. In addition, we registered shares of common stock that we have reserved for issuance under our Long Term Incentive Plan, and they generally can be freely sold in the public market, assuming any applicable restrictions and vesting requirements are satisfied. If any or all of these holders, including the Funds, cause a large number of their shares to be sold in the public market, the sales could reduce the trading price of our common stock and could impede our ability to raise future capital. During the year ended December 31, 2019, 803,610 common Operating Partnership units held by third parties were redeemed for shares of our common stock. Refer to Item 8—Note 11 Noncontrolling Interests—Operating Partnership in “Financial Statements and Supplementary Data” included in this Annual Report.

Failure to qualify as a REIT would have material adverse consequences to us and the value of our stock.

We have elected to be taxed and to operate in a manner that will allow us to qualify as a REIT for federal income tax purposes under the Code. However, there can be no assurance that we will remain qualified as a REIT. If, in any taxable year, we lose our REIT status, we will face serious tax consequences that would substantially reduce our cash available for distribution to our stockholders for each of the years involved because:

● we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to federal income tax at regular corporate rates;

● we could be subject to increased state and local taxes; and

● unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

Our failure to qualify as a REIT could also impair our ability to expand our business and raise capital, and would materially adversely affect the value of our common stock.

Failure to qualify as a domestically controlled REIT could subject our non-U.S. stockholders to adverse federal income tax consequences.

We will remain a domestically controlled REIT if, at all times during a specified testing period, less than 50% in value of our shares is held directly or indirectly by non-U.S. stockholders. However, because our shares are publicly

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traded, we cannot guarantee that we will maintain the qualifications to be a domestically-controlled REIT. If we fail to qualify as a domestically-controlled REIT, our non-U.S. stockholders that otherwise would not be subject to federal income tax on the gain attributable to a sale of our shares of common stock would be subject to taxation upon such a sale if either (1) the shares of common stock were not considered to be regularly traded under applicable Treasury Regulations on an established securities market, such as the NYSE, or (2) the selling non-U.S. stockholder owned, actually or constructively, more than 5% in value of the outstanding shares of common stock being sold during specified testing periods. If gain on the sale or exchange of our shares of common stock was subject to taxation for these reasons, the non-U.S. stockholder would be subject to regular U.S. income tax with respect to any gain on a net basis in a manner similar to the taxation of a taxable U.S. stockholder, subject to any applicable alternative minimum tax and special alternative minimum tax in the case of nonresident alien individuals, and corporate non-U.S. stockholders may be subject to an additional branch profits tax.

Our cash available for distribution to stockholders may not be sufficient to pay distributions at expected levels or at all, and we may be required to borrow funds on a short-term basis during unfavorable market conditions.

In order to maintain our qualification as a REIT, we are required under the Code to distribute at least 90% of our net taxable income annually to our stockholders. In any period our net taxable income may be greater than our cash flow from operations, requiring us to fund such distributions from other sources, including borrowed funds, even if the market conditions are not favorable for these borrowings. In addition, we may become party to debt agreements that include cash management or similar provisions, pursuant to which revenues generated by properties subject to such indebtedness are immediately, or upon the occurrence of certain events, swept into an account for the benefit of the lenders under such debt agreements, which revenues would typically only become available to us after the funding of reserve accounts for, among other things, debt service, taxes, insurance and leasing commissions. In any event, if our properties do not generate sufficient distributable cash flow to satisfy our REIT distribution obligations, we may be required to fund distributions from working capital, borrowings under our revolving credit facility, the sale of assets or debt or equity financing, some or all of which may not be available or may not be available on favorable market conditions. As a result, any failure to generate cash greater than our REIT distribution obligation could have a material adverse effect on the price of our common stock.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

For taxable years beginning on or after January 1, 2018, the maximum tax rate applicable to “qualified dividends” paid to U.S. shareholders that are individuals, trusts and estates is 23.8% (taking into account the 3.8% Medicare tax applicable to net investment income). Dividends payable by REITs, however, generally are not eligible for the same reduced tax rate. Rather, as provided for in the Tax Cuts and Jobs Act signed into law December 22, 2017, REIT dividends are subject to tax at rates applicable to ordinary income reduced by 20%, resulting in rates as high as 33.4% (taking into account the 3.8% Medicare tax applicable to net investment income). The more favorable tax rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common shares.

Legislative or other actions affecting REITs could have a negative effect on us.

The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could materially and adversely affect our stockholders, Operating Partnership unit holders and/or us. We cannot predict how changes in the tax laws might affect our investors and/or us. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the federal income tax consequences of such qualification.

If tax rates were to change in a manner comparably favorable for regular corporate taxable income and dividends to that of REITs, investors could perceive investments in REITs to be relatively less attractive than investment in dividend paying non-REIT corporations, which could adversely affect the value of our common stock. Stockholders and potential investors should consult their tax advisors regarding their respective tax considerations and rates.

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Applicable REIT laws may restrict certain business activities.

As a REIT we are subject to various restrictions on our income, assets and activities. These include restrictions on our ability to pursue certain strategic acquisitions or business combinations and our ability to enter into other lines of business. Due to these restrictions, we anticipate that we will conduct certain business activities in one or more taxable REIT subsidiaries. Our taxable REIT subsidiaries are taxable as regular C corporations and are subject to federal, state, local and, if applicable, foreign taxation on their taxable income at applicable corporate income tax rates. However, we may still be limited in the business activities we can pursue.

Despite our REIT status, we remain subject to various taxes.

Notwithstanding our status as a REIT, we will be subject to certain federal, state and local taxes on our income and property. For example, we will pay tax on certain types of income that we do not distribute and we will incur a 100% excise tax on transactions with our taxable REIT subsidiary (“TRS”) entities that are not conducted on an arm’s length basis. Moreover, our TRS entities are taxable as regular C corporations and will pay federal, state and local income tax on their net taxable income at the applicable corporate rates.

We could become subject to the imposition of prohibited transactions tax.

In the event a determination were made that we executed a prohibited transaction, defined as a sale or disposition of property held for sale in the ordinary course of business other than foreclosed property, a federal tax would be imposed on 100% of the net income derived from such a transaction. Safe-harbor rules exist to avoid the prohibited transaction test. Otherwise, facts and circumstances would govern application of the tax to a particular transaction.

If the structural components of our properties were not treated as real property for purposes of the REIT qualification requirements, we would fail to qualify as a REIT.

A significant portion of the value of our properties is attributable to structural components related to the provision of electricity, heating, ventilation and air conditioning, humidification regulation, security and fire protection, and telecommunication services. We have received a private letter ruling from the Internal Revenue Service (the “IRS”), holding, among other things, that our buildings, including the structural components, constitute real property for purposes of the REIT qualification requirements. We are entitled to rely upon that private letter ruling only to the extent that we did not misstate or omit a material fact in the ruling request we submitted to the IRS and that we operate in the future in accordance with the material facts described in that request. Moreover, the IRS, in its sole discretion, may revoke the private letter ruling. If our structural components are subsequently determined not to constitute real property for purposes of the REIT qualification requirements, including as a result of our being unable to rely upon the private letter ruling or the IRS revoking that ruling, we would fail to qualify as a REIT, which could have a material adverse effect on the value of our common stock.

If interconnection services were not treated as qualifying income for purposes of the REIT qualification requirements, we may fail to qualify as a REIT.

Interconnection services are a fundamental and growing part of our business. Based on representations we have made to the IRS that this activity is ordinary, necessary, usual, and customary in connection with the operation of our data center properties and those properties with similar character to ours, we have received a private letter ruling, holding, among other things, that amounts received from our customers for interconnection services will not be treated as other than “rents from real property” under the Code. We are entitled to rely upon that private letter ruling only to the extent that we did not misstate or omit a material fact in the ruling request we submitted to the IRS and that we operate in the future in accordance with the material facts described in that request. Moreover, the IRS, in its sole discretion, may revoke the private letter ruling. If the revenue associated with our interconnection activity was determined to be non-qualifying REIT income, including as a result of our being unable to rely upon the private letter ruling or the IRS revoking that ruling, there would be significant risk to our ability to qualify as a REIT, which could have a material adverse effect on the value of our common stock.

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Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, our sources of income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our capital stock. If we fail to comply with one or more of the asset tests at the end of any calendar quarter, we must correct the failure within 30 days after the end of such calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. In order to meet these tests, we may be required to forego investments we might otherwise make or to liquidate otherwise attractive investments. Thus, compliance with the REIT requirements may hinder our financial performance and reduce amounts available for distribution to our stockholders.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The information set forth under the caption “Our Portfolio” in Item 1 of this Annual Report is incorporated by reference herein.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of our business, we are subject to claims and administrative proceedings. Except as described below, we are not presently party to any proceeding which we believe to be material or which we would expect to have, individually or in the aggregate, a material adverse effect on our business, financial condition, cash flows or results of operations. The outcome of litigation and administrative proceedings is inherently uncertain. Therefore, if one or more legal or administrative matters are resolved against us in a reporting period for amounts in excess of management’s expectation, our financial condition, cash flows or results of operations for that reporting period could be materially adversely affected.

On April 27, 2018, we filed suit against DGEB Management, LLC and its affiliates, the landlord of our DE1 facility (the “Landlord”), in the District Court, City and County of Denver, State of Colorado (the “District Court”), for certain claims relating to the building where our DE1 facility is located. The parties asserted various claims and counterclaims related to three primary areas: (1) a construction project within the DE1 building to house electrical transformers used to supply power, (2) our usage of images of the DE1 building on our website, and (3) the protocol for cross-connections within the DE1 building. The Landlord demanded approximately $21 million in damages, which included approximately $2.8 million related to the construction project, and further sought to hold us in default under the lease. On August 22, 2019, the jury found in our favor on all claims and counterclaims on which it was asked to decide, and awarded us nominal damages. Upon unopposed application, the District Court vacated deadlines for post-trial matters, including our application for reimbursement of legal fees under the lease, to provide time for the parties to discuss settlement of these post-trial matters. On December 20, 2019, the parties entered into a settlement agreement pursuant to which, among other matters, the parties agreed to file a joint motion to dismiss the litigation with prejudice and the Landlord agreed to pay us $3.1 million through delivery of a promissory note bearing interest at a floating rate of prime plus 2% per annum payable monthly. The promissory note is secured by our lease and other payment obligations, is fully pre-payable without penalty and is due December 20, 2024.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Holders

Our common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “COR”. As of February 5, 2020, we had four holders of record of our common stock. This figure does not reflect the beneficial ownership of shares held in nominee name.

Distributions and Dividends

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. During the year ended December 31, 2019, we declared quarterly dividends totaling $4.76 per share of common stock and Operating 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 our financial condition, operating results and REIT distribution requirements and may be adjusted at the discretion of our Board of Directors during the year.

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Performance Graph

The following line graph sets forth, for the period from December 31, 2014, through December 31, 2019, a comparison of the percentage change in the cumulative total stockholder return on our common stock compared to the cumulative total return of the S&P 500 Market Index and the MSCI US REIT Index. The graph assumes that $100 was invested on December 31, 2014, in shares of our common stock and each of the aforementioned indices and that all dividends were reinvested without the payment of any commissions. There can be no assurance that the performance of our shares will continue in line with the same or similar trends depicted in the graph below.

Pricing Date	COR		S&P 500		MSCI US REIT
December 31, 2014	$	100	$	100	$	100
December 31, 2015	$	150	$	101	$	103
December 31, 2016	$	217	$	114	$	111
December 31, 2017	$	322	$	138	$	117
December 31, 2018	$	257	$	132	$	112
December 31, 2019	$	345	$	174	$	140

Sales of Unregistered Equity Securities

None.

Repurchases of Equity Securities

None.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial and operating data on an historical basis for CoreSite Realty Corporation. The following selected financial data should be read in conjunction with our consolidated financial statements, including the notes thereto, included in Item 8. “Financial Statements and Supplementary Data” in this Annual Report and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.

	Year Ended December 31,
(in thousands except share and per share data)	2019		2018		2017		2016		2015
Statement of Operations Data
Operating revenues	$	572,727	$	544,392	$	481,821	$	400,352	$	333,292
Operating expenses		431,911		402,113		357,009		305,735		269,208
Operating income		140,816		142,279		124,812		94,617		64,084
Gain on land disposal		—		—		—		—		36
Interest expense		(41,712)		(35,526)		(24,147)		(12,577)		(7,098)
Net income		99,037		106,763		100,491		81,921		56,859
Net income attributable to noncontrolling interests		23,197		28,841		25,636		23,212		22,153
Net income attributable to CoreSite Realty Corporation		75,840		77,922		74,855		58,709		34,706
Preferred stock dividends		—		—		(7,924)		(8,338)		(8,338)
Original issuance costs associated with redeemed preferred stock		—		—		(4,326)		—		—
Net income attributable to common shares	$	75,840	$	77,922	$	62,605	$	50,371	$	26,368
Earnings Per Share
Net income per share attributable to common shares
Basic	$	2.06	$	2.23	$	1.85	$	1.56	$	1.05
Diluted		2.05		2.22		1.84		1.54		1.03
Dividends declared per common share	$	4.76	$	4.14	$	3.58	$	2.39	$	1.79
Balance Sheet Data
Gross investments in real estate	$	2,478,798	$	2,083,205	$	1,821,217	$	1,643,576	$	1,295,135
Total assets(1)		2,100,999		1,853,667		1,625,643		1,553,539		1,162,543
Debt, net		1,478,402		1,130,823		939,570		690,450		391,007
Funds from Operations ("FFO")
Net income	$	99,037	$	106,763	$	100,491	$	81,921	$	56,859
Real estate depreciation and amortization		147,042		136,458		123,848		103,136		87,287
Gain on land disposal		—		—		—		—		(36)
FFO		246,079		243,221		224,339		185,057		144,110
Preferred stock dividends		—		—		(7,924)		(8,338)		(8,338)
Original issuance costs associated with redeemed preferred stock		—		—		(4,326)		—		—
FFO attributable to common shares and units	$	246,079	$	243,221	$	212,089	$	176,719	$	135,772
Total weighted average shares and OP units outstanding - diluted		48,219,798		48,040,960		47,902,639		47,675,311		47,400,217
FFO per common share and OP unit - diluted	$	5.10	$	5.06	$	4.43	$	3.71	$	2.86

(1) Effective January 1, 2018, we elected to early adopt Accounting Standards Codification (“ASC”) Topic 842, Leases, using the modified retrospective transition approach as of our January 1, 2016, transition date. Total assets for the years ended December 31, 2017, and 2016, have been adjusted for the impact of ASC 842. Refer to Item 8. Financial Statements — Note 2 — Summary of Significant Accounting Policies for additional information.

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 the National 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. FFO attributable to common shares and units represents FFO less preferred stock dividends declared and original issuance costs associated with redeemed preferred stock during the period.

Our management uses 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.

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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 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.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our results of operations, financial condition and liquidity in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to our plans and strategies for our business, statements regarding the industry outlook, our expectations regarding the future performance of our business and the other non-historical statements contained herein are forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.” You should also review the “Risk Factors” in Item 1A. of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described herein or implied by such forward-looking statements.

Overview

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 the United States, including the San Francisco Bay area, Los Angeles, the Northern Virginia area (including Washington D.C.), the New York area, Boston, Chicago, Denver and Miami.

We deliver secure, reliable, high-performance data center and interconnection solutions to a growing customer ecosystem across eight key North American communication markets. More than 1,350 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 and (iv) leveraging existing customer relationships and attracting new customers.

Factors that May Influence our Results of Operations

Market and economic conditions. We are impacted by general business and economic conditions in the United States and globally. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets and broad trends in industry, such as the growth of technology and internet companies driven by increased internet traffic and performance requirements, and finance, all of which are beyond our control. Macro-economic conditions that affect the economy and the economic outlook of the United States, particularly in our data center industry and the rest of the world could adversely affect our customers and vendors, which could adversely affect our results of operations and financial condition.

Operating revenue. 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 of December 31, 2019, we had approximately 605,000 NRSF of unoccupied and under construction data center space of which approximately 77,000 NRSF is leased with a future commencement date. In addition, we exited 2019 with contiguous space available to lease in Chicago, Los Angeles, the New York area, the San Francisco Bay area, and the Northern Virginia area, historically our top 5 markets, closer to our historical norms as a result of placing 204,000 NRSF into service during 2019, and we expect to place an additional 145,000 NRSF into service during the first half of 2020. The loss, space consolidation, or exertion of significant pricing pressure of multiple significant customers could have a material adverse effect on our results of operations because our top ten customers in the aggregate accounted for 33.0% of our total operating NRSF and 42.8% of our total annualized rent as of December 31, 2019, with a weighted average remaining lease term of 51 months.

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The following table summarizes our leasing activity during the years ended December 31, 2019:

			GAAP		Total
		Number of	Annualized		Leased	GAAP Rental			GAAP Rent
	Year Ended	Leases(1)	Rent ($000)(2)		NRSF(3)	Rates(4)			Growth(5)
New/expansion leases commenced	December 31, 2019	519	$	48,347	253,664	$	195	(6)​
	December 31, 2018	517		32,940	174,834		182	(6)​
	December 31, 2017	495		32,775	136,902		239
New/expansion leases signed	December 31, 2019	507	$	54,979	278,713	$	197
	December 31, 2018	514		27,653	142,116		203	(6)​
	December 31, 2017	478		38,937	180,415		209	(6)​
Renewal leases signed	December 31, 2019	1,214	$	78,261	464,916	$	168		4.2	%
	December 31, 2018	1,134		76,512	470,022		163		7.5
	December 31, 2017	871		52,345	337,600		155		7.3

(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) GAAP annualized rent represents the monthly average contractual rent as 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.

(3) Total leased NRSF is determined based on contractually leased square feet, including required data center support space (such as the mechanical, telecommunications and utility rooms) and building common areas.

(4) GAAP rental rates represent GAAP annualized rent divided by leased NRSF.

(5) GAAP rent growth represents the increase in rental rates on renewed leases commencing during the period, as compared with the previous period’s rental rates for the same space.

(6) From time to time, we execute agreements whereas customers pay reservation fees that secure them the right of first option to expand into incremental data center space. The GAAP annualized rent includes the reservation payments when the option agreements are signed and commenced, and the GAAP rental rates and NRSF reflect the results as options are exercised and the space is committed.

Operating expenses. Our operating expenses primarily consist of utility costs, including power, property maintenance, real estate taxes and insurance, personnel salaries and benefits, including stock based compensation, depreciation, as well as rental expenses on our properties in which we hold a leasehold interest. A substantial majority of our operating expenses are fixed in nature and should not vary significantly from period to period, unless we expand our existing data centers or acquire new data centers, which would entail additional data center operations personnel, as well as utility, operating and maintenance expenses. Pre-stabilized projects produce lower initial investment returns than stabilized properties due to operating expenses being less dependent on occupancy levels than revenues. We expect property operating and maintenance expense to increase as we commence new and expansion leases and place new data center NRSF into service. In addition, real estate taxes and insurance may increase as tax rates and/or assessed property values change due to factors outside of our control. For example, if the vote to repeal Proposition 13, which will be included on the November 2020 ballot and currently limits annual real estate tax increases to 2% of assessed value per annum, in the State of California is successful, it could increase the assessed value and/or tax rates applicable to commercial property in California, including our data centers.

Our buildings require significant power to support data center operations. We expect the cost of power will generally increase in the future on a per-unit or fixed basis in addition to the variable increase related to the growth in consumption by our customers. In addition, the cost of power is generally higher in summer months as compared to other times of the year. Furthermore, to the extent we incur increased electricity costs as a result of either climate change policies or the physical effects of climate change, such increased costs could materially impact our financial condition, results of operations and cash flows.

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Substantially all of our data center NRSF is subject to the breakered-amp or sub-metered (branch circuit monitoring) power pricing models. We recover all or substantially all of our electricity costs for our leased data center space under either model. Under the sub-metered model, a customer pays us monthly for the power attributable to its equipment in the data center as well as for its ratable allocation of the power used to provide the cooling, lighting, security and other requirements supporting the data center, in each case, at a rate substantially equivalent to our then current utility cost. Under the breakered-amp model, a customer pays a fixed monthly fee per committed available ampere of connected power. The extent to which this fixed monthly fee correlates to the monthly amount we pay to our utility provider for electricity at each data center facility varies depending upon the amount of power each customer utilizes each month relative to the amount of committed power and related infrastructure purchased. As more of our customer licenses are structured under the sub-metered power model and as customers change from the breakered to the sub-metered model, we believe it may compress our operating income growth rate because the associated revenue, net of the recoverable electricity costs, may decrease.

Scheduled Lease Expirations. 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. While it fluctuates from year to year, not all customers with expiring leases will extend or renew their leases and some customers may negotiate rate reductions in order to renew or extend their leases. We have 1,300 and 629 data center leases representing approximately 19.8% and 11.3% of the NRSF in our operating data center portfolio and 30.2% and 17.7% of our total annualized rent that are scheduled to expire during the years ending December 31, 2020, and 2021, respectively. These leases represent current annualized rent of $96.1 million, and $56.3 million with annualized rental rates of $159 per NRSF and $167 per NRSF expiring during the years ending December 31, 2020, and 2021, respectively. Our past performance may not be indicative of future results, and there can be no assurance that leases will be renewed or that our properties will be re-leased at all or at rental rates equal to or above the current average rental rates. Further, re-leased/renewed rental rates in a particular market may not be consistent with rental rates across our portfolio as a whole and may fluctuate from one period to another due to a number of factors, including local real estate conditions, local supply and demand for datacenter space, competition from other datacenter developers or operators, the condition of a particular property and whether a property, or space within a property, has been developed.

Acquisitions, Development and Financing. Our ability to grow rental and operating revenues depends on our ability to acquire, develop and lease data center space at favorable rental rates. As of December 31, 2019, we had approximately 1,644,000 NRSF of space available for future data center development, pre-construction projects, and space currently under development, or approximately 36% of the total space in our portfolio. We may encounter increasing real estate acquisition prices, development delays, excess development costs, or delays in leasing developed space to customers. We generally fund the cost of data center development from additional capital, which, for future developments, we would expect to obtain through our revolving credit facility and other unsecured and secured borrowings, construction financings and the issuance of additional equity and debt securities if needed and when market conditions permit. We will require additional capital to finance future development activities, which may not be available or may not be available on terms favorable or acceptable to us.

Conditions in Significant Markets. Positive or negative changes in market conditions including supply and demand, rental rates, utility costs, and general economic conditions in any of our markets could impact our overall performance. The following table provides a geographic overview of our property portfolio as a percentage of total data center annualized rent as of December 31, 2019:

	Percentage  of Total Data
Metropolitan Market	Center Annualized Rent
San Francisco Bay	35.8	%
Los Angeles	26.8
Northern Virginia	17.8
New York	7.3
Chicago	5.3
Boston	5.0
Denver	1.5
Miami	0.5
Total	100.0	%

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Results of Operations

A discussion of the changes in our financial condition and results of operations for the years ended December 31, 2018, and 2017 has been omitted from this Annual Report, but may be found in Item 7. Management’s Discussion and Analysis and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 8, 2019, which is available free of charge on the SEC’s website www.sec.gov and our corporate website (www.coresite.com).

Year Ended December 31, 2019, Compared to Year Ended December 31, 2018

The discussion below relates to our financial condition and results of operations for the years ended December 31, 2019, and 2018. A summary of our operating results for the years ended December 31, 2019, and 2018, is as follows (in thousands).

	Year Ended December 31,
	2019		2018		$ Change		% Change
Operating revenue	$	572,727	$	544,392	$	28,335	5.2	%
Operating expense		431,911		402,113		29,798	7.4
Operating income		140,816		142,279		(1,463)	(1.0)
Interest expense		41,712		35,526		6,186	17.4
Net income		99,037		106,763		(7,726)	(7.2)

Operating Revenues

Operating revenues during the years ended December 31, 2019, and 2018, were as follows (in thousands):

	Year Ended December 31,
	2019		2018		$ Change		% Change
Data center revenue:
Rental, power, and related revenue	$	485,131	$	463,086	$	22,045	4.8	%
Interconnection revenue		75,751		69,709		6,042	8.7
Total data center revenue		560,882		532,795		28,087	5.3
Office, light-industrial and other revenue		11,845		11,597		248	2.1
Total operating revenues	$	572,727	$	544,392	$	28,335	5.2	%

A majority of the increase in operating revenues was due to a $22.0 million increase in data center rental, power, and related revenue during the year ended December 31, 2019, compared to the 2018 period. Data center rental, power, and related revenue increased due to the organic growth of our customer 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 our LA2, SV7, and SV8 properties, where we have placed into service large contiguous data center NRSF within the last two years, has increased $9.4 million, $3.7 million, and $4.0 million respectively, compared to the year ended December 31, 2018. This increase is primarily due to the commencement of large scale leases throughout the years ended December 31, 2019, and 2018, which experience variable revenue growth as customers deploy their IT equipment and increase their power consumption. The remaining increase in data center rental, power, and related revenue during the year ended December 31, 2019, was due to the renewals and commencements of new and expansion leases at our remaining properties, partially offset by the move-out of customer leases. In addition, churn was elevated during 2019, as a result of a few customers going through bankruptcy or out of business, and, to a lesser extent, transitioning to the cloud.

In addition, interconnection revenue increased $6.0 million, or 8.7%, during the year ended December 31, 2019, compared to the 2018 period. The increase is primarily a result of a net increase in the volume of cross connects from new and existing customers during the year ended December 31, 2019, and revenue increases resulting from customers disconnecting old cross connects and migrating to our higher priced fiber and logical cross connect products.

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Operating Expenses

Operating expenses during the years ended December 31, 2019, and 2018, were as follows (in thousands):

	Year Ended December 31,
	2019		2018		$ Change		% Change
Property operating and maintenance	$	157,293	$	152,357	$	4,936	3.2	%
Real estate taxes and insurance		22,866		19,239		3,627	18.9
Depreciation and amortization		152,925		141,633		11,292	8.0
Sales and marketing		22,439		21,023		1,416	6.7
General and administrative		43,764		40,090		3,674	9.2
Rent		32,624		27,696		4,928	17.8
Transaction costs		—		75		(75)	(100.0)
Total operating expenses	$	431,911	$	402,113	$	29,798	7.4	%

Property operating and maintenance expense increased $4.9 million, or 3.2%, primarily as a result of an increase in power expense due to increased customer utilization related to the commencement of new and expansion leases during the year ended December 31, 2019, partially offset by reduced power utilization from customer move-outs and decreased maintenance expenses.

Real estate taxes and insurance increased $3.6 million, or 18.9%, during the year ended December 31, 2019, primarily as a result of increased real estate tax assessments across our markets. In addition, upon completion of projects under development, we cease capitalization of project costs, and we incur additional real estate taxes and insurance expense.

Depreciation and amortization expense increased $11.3 million, or 8.0%, during the year ended December 31, 2019, primarily as a result of an increase in depreciation expense from approximately 224,000 NRSF of new data center expansion projects placed into service, with a cost basis of approximately $240.2 million, during the year ended December 31, 2019.

Sales and marketing expense increased by $1.4 million, or 6.7%, during the year ended December 31, 2019, primarily due to an increase in headcount, resulting in higher salaries and non-cash compensation, and additional marketing expenses related to advertising and events.

General and administrative expense increased by $3.7 million, or 9.2%, during the year ended December 31, 2019, primarily as a result of increased litigation expenses associated with the dispute with our DE1 landlord.

Rent expense increased $4.9 million, or 17.8%, during the year ended December 31, 2019, compared to the 2018 period. This increase was primarily due to additional rent expense recognized during the year ended December 31, 2019, as a result of extending our LA1 lease term on June 30, 2018, and recognizing higher straight-line rent expense due to the annual rent escalations of the extended term. In addition, we incurred additional rent expense from our leasehold interest properties during the year ended December 31, 2019, related to placing one computer room at LA1 into service during the three months ended June 30, 2019, and one computer room at DC2 during the three months ended December 31, 2018.

Interest Expense

Interest expense for the years ended December 31, 2019, and 2018, was as follows (in thousands):

	Year Ended December 31,
	2019			2018			$ Change		% Change
Interest expense and fees	$	52,022		$	38,751		$	13,271	34.2	%
Amortization of deferred financing costs and hedge amortization		3,338			2,370			968	40.8
Capitalized interest		(13,648)			(5,595)			(8,053)	143.9
Total interest expense	$	41,712		$	35,526		$	6,186	17.4	%
Percent capitalized		24.7	%		13.6	%

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Interest expense increased $6.2 million, or 17.4%, during the year ended December 31, 2019, primarily as a result of the increase in overall debt outstanding, increased amortization of deferred financing cost as a result of the credit facility amendment, and higher interest rates, partially offset by increased capitalized interest due to development space under construction at BO1, CH2, LA3, NY2, SV8, and VA3. The weighted average principal debt outstanding was $1.3 billion and $1.0 billion during the years ended December 31, 2019, and 2018, respectively. Our daily weighted average interest rate increased from 3.58% during the year ended December 31, 2018, to 3.83% during the year ended December 31, 2019.

Liquidity and Capital Resources

Discussion of Cash Flows

Year Ended December 31, 2019, Compared to Year Ended December 31, 2018

Operating Activities

Net cash provided by operating activities was $251.6 million for the year ended December 31, 2019, compared to $258.8 million for the year ended December 31, 2018. This decrease of $7.2 million, or 2.8%, was primarily due to increased accounts receivable of $2.8 million during the year ended December 31, 2019, compared to a decrease of $10.9 million during the year ended December 31, 2018. In addition, other liabilities decreased by $7.8 million, primarily due to the settlement of an interest rate swap. The decrease was partially offset by organic growth of our customer revenue base through expansions into new and existing space and as our existing customers increased their power consumption within their deployments.

Investing Activities

Net cash used in investing activities increased by $116.6 million, or 45.6%, to $372.3 million for the year ended December 31, 2019, compared to $255.6 million for the year ended December 31, 2018. This increase was due primarily to higher construction spend on our BO1, CH2, LA3, NY2, SV8, and VA3 development properties and the acquisition of SV9 during the year ended December 31, 2019, compared to construction spending on fewer active development projects during the year ended December 31, 2018.

Financing Activities

Net provided by financing activities was $121.1 million during the year ended December 31, 2019, compared to net cash used in financing activities of $5.8 million during the year ended December 31, 2018.

During the year ended December 31, 2019, we received cash proceeds from issuance of the 2026 Notes, the 2029 Notes, and the 2025 Term Loan (each as defined below), for an aggregate of $500 million, and we made net cash payments on the revolving credit facility of $149.0 million.

During the year ended December 31, 2018, we received cash proceeds from the issuance of 2023 Term Loan, (as defined below), of $150.0 million, and we received cash proceeds, net of payments, from the revolving credit facility of $42.0 million.

We paid $223.9 million in dividends and distributions on our common stock and Operating Partnership units during the year ended December 31, 2019, compared to $193.0 million during the year ended December 31, 2018, as a result of an increase in the annual dividend from $4.02 per share and unit paid during the year ended December 31, 2018, to an annual dividend of $4.64 per share and unit paid during the year ended December 31, 2019.

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.

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Our short-term liquidity requirements primarily consist of funds needed for interest expense, operating costs including utilities, property 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 and future distributions to common stockholders and holders of our common Operating Partnership units during the next twelve months.

As of December 31, 2019, we had $3.0 million of cash and cash equivalents. Subject to our ability to obtain capital upon favorable terms, we estimate our anticipated development activity over the next twelve months will require approximately $225 million to $275 million of capital investment to expand our operating data center portfolio.

Our anticipated capital investment over the next twelve months includes the remaining estimated capital required to fund our current expansion projects under construction as of December 31, 2019, shown in the table below:

				Costs (in thousands)
	Metropolitan	Estimated		Incurred to-		Estimated		Percent		Power
Projects/Facilities	Market	Completion	NRSF	Date		Total		Leased		(MW)
TKD expansion(1)
NY2	New York	Q1 / Q2 2020	34,589	$	20,991	$	51,000	3.8	%	4.0
SV8 Phase 3	San Francisco Bay	Q2 2020	54,056		2,602		42,000	—		6.0
Total TKD expansion			88,645	$	23,593	$	93,000	1.5	%	10.0
New development(2)
Ground-up construction
CH2 Phase 1	Chicago	Q2 2020	56,000	$	95,552	$	120,000	—	%	6.0
LA3 Phase 1	Los Angeles	Q3 / Q4 2020	51,000		48,790		134,000	74.3		6.0
Total new development			107,000	$	144,342	$	254,000	35.4	%	12.0
Total development(3)			195,645	$	167,935	$	347,000	20.0	%	22.0

(1) Turn-Key Data Center (“TKD”) estimated development costs include two components: (1) general construction to ready the NRSF as data center space and (2) power, cooling and other infrastructure to provide the designed amount of power capacity for the project.

(2) Includes a portion of the cost of infrastructure to support later phases of the development.

(3) Following development completion, incremental capital, referred to as Deferred Expansion Capital, may be invested to support existing or anticipated future customer utilization of NRSF within our operating data centers. We have an estimated $26.7 million in Deferred Expansion Capital under construction at multiple properties as of December 31, 2019, of which $6.4 million has been incurred to-date. We estimate approximately $35 million of additional Deferred Expansion Capital may be required in the future to support existing or anticipated future customer utilization.

We expect to meet our short-term liquidity requirements, including our anticipated development activity over the next twelve months, through net cash on hand, cash provided by operations, and we expect to add incremental debt financing in 2020 to increase liquidity and continue to pay off a portion of the principal of the debt drawn on our revolving credit facility. Timing, pricing, and the type of debt is dependent on market conditions and we have targeted a total debt issuance in 2020 of approximately $100 million to $200 million. In addition, as circumstances warrant, we may issue equity securities on an opportunistic basis, dependent upon market conditions and available pricing.

On November 8, 2019, our Operating Partnership and certain subsidiary co-borrowers amended and restated our previous credit agreement (as amended and restated, the “Amended and Restated Credit Agreement”), in order to provide additional liquidity of $100 million, which was used to pay down a portion of the then-current revolving credit facility balance and for general corporate purposes. The Amended and Restated Credit Agreement, among other things, (i) extended the maturity on the revolving credit facility from April 19, 2022, to November 8, 2023, with a one year extension option, (ii) extended the maturity date of the $150 million senior unsecured term loan from April 19, 2023, to April 19, 2024 (as amended, the “2024 Term Loan”), and (iii) established a new $350 million senior unsecured term loan maturing on April 1, 2025 (the “2025 Term Loan”), effectively combining and extending the maturities on the $150 million senior unsecured term loan (the “2020 Term Loan”) and the $100 million senior unsecured term loan (the “2021 Term Loan”), which increased our total commitment under the Amended and Restated Credit Agreement from $850 million to $950 million. The accordion feature under the Amended and Restated Credit Agreement was also increased to

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allow the Operating Partnership to increase the total commitment to $1.5 billion, compared to $1.2 billion previously, under specified circumstances, including secured capital from new or existing lenders. Refer to Item 8. Financial Statements — Note 8 — Debt for additional information.

The total amount available for borrowing under our revolving credit facility is equal to the lessor of $450.0 million or the availability calculated on our unencumbered asset pool. As of December 31, 2019, there was $62.5 million of borrowings outstanding and $4.9 million outstanding under letters of credit. Therefore, $382.6 million remained available for us to borrow under our revolving credit facility.

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, including SV9, additional phases of our current CH2, LA3, and SV8 developments, Deferred Expansion Capital, future development of other space in our portfolio not currently scheduled, property acquisitions, future distributions to common stockholders and holders of our common Operating Partnership units, scheduled debt maturities, and other capital expenditures. We expect to meet our long-term liquidity requirements through net cash provided by operations, after payment of dividends, 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 through the issuance of additional equity or debt securities, subject to prevailing market conditions, and/or through the issuance of common Operating Partnership units. However, there is no assurance that we will be able to successfully raise additional capital on acceptable terms or at all.

In July 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. We have material contracts that are indexed to USD-LIBOR, including agreements governing certain of our indebtedness, and are monitoring this activity and evaluating the related risks. However, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. In September 2019, the FASB proposed guidance that would help facilitate the market transition from existing reference rates to alternative rates. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the trading market for LIBOR-based securities, including our material contracts that are indexed to USD-LIBOR. Furthermore, we may need to renegotiate any credit agreements extending beyond 2021 that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our business, financial condition and results of operations cannot yet be determined. See Item 1A. “Risk Factors – Fluctuations in interest rates could materially affect our financial results” of this Annual Report for more information.

Inflation

Substantially all of our leases contain annual rent increases and our leases have an average lease term of three to four years. As a result, we believe that we are largely insulated from the effects of inflation, except to the extent taxes, power costs, labor costs, insurance costs, and similar expenses, in aggregate increase more than our rental rates increase. However, any increases in the costs of development of our data center properties will generally result in increased cash requirements to develop our data center properties and increased depreciation expense in future periods, and, in some circumstances, we may not be able to directly pass along the increase in these development costs to our customers in the form of higher rents.

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Indebtedness

A summary of outstanding indebtedness as of December 31, 2019, and 2018, is as follows (in thousands):

		Maturity	December 31,		December 31,
	Interest Rate	Date	2019		2018
Revolving credit facility	3.01% and 3.95% at December 31, 2019, and December 31, 2018, respectively	November 8, 2023	$	62,500	$	211,500
2020 Senior unsecured term loan	3.37% at December 31, 2018	—		—		150,000
2021 Senior unsecured term loan	3.90% at December 31, 2018	—		—		100,000
2022 Senior unsecured term loan	2.96% and 3.65% at December 31, 2019, and December 31, 2018, respectively	April 19, 2022		200,000		200,000
2023 Senior unsecured notes	4.19% at December 31, 2019, and December 31, 2018, respectively	June 15, 2023		150,000		150,000
2024 Senior unsecured term loan	3.44% and 4.01% at December 31, 2019, and December 31, 2018, respectively	April 19, 2024		150,000		150,000
2024 Senior unsecured notes	3.91% at December 31, 2019, and December 31, 2018, respectively	April 20, 2024		175,000		175,000
2025 Senior unsecured term loan	2.81% at December 31, 2019	April 1, 2025		350,000		—
2026 Senior unsecured notes	4.52% at December 31, 2019	April 17, 2026		200,000		—
2029 Senior unsecured notes	4.31% at December 31, 2019	April 17, 2029		200,000		—
Total principal outstanding				1,487,500		1,136,500
Unamortized deferred financing costs				(9,098)		(5,677)
Total debt			$	1,478,402	$	1,130,823

As of December 31, 2019, 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 of December 31, 2019, and 2018, as well as the available borrowing capacity under our revolving credit facility, debt covenant requirements, and future debt maturities, refer to Item 8—Note 8—Debt in “Financial Statements and Supplementary Data” included in this Annual Report.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2019, including the maturities and scheduled principal repayments of indebtedness (in thousands):

Obligation	2020		2021		2022		2023		2024		Thereafter		Total
Operating leases	$	26,842	$	26,590	$	26,197	$	24,350	$	23,382	$	106,361	$	233,722
Revolving credit facility(1)		1,883		1,883		1,883		64,110		—		—		69,759
Senior unsecured term loans (2)		20,903		20,903		216,767		14,978		161,362		352,481		787,393
Senior unsecured notes (3)		30,788		30,788		30,788		177,380		194,746		447,251		911,740
Construction contracts (4)		189,424		—		—		—		—		—		189,424
Other (5)		6,537		4,630		4,636		4,610		4,559		49,304		74,276
Total	$	276,377	$	84,794	$	280,272	$	285,427	$	384,049	$	955,397	$	2,266,315

(1) Includes $62.5 million outstanding and estimated annual interest payments assuming no draws or payments on the revolving credit facility through the maturity date of November 8, 2023. The revolving credit facility is subject to variable rates. We estimated interest payments on the revolving credit facility based on the interest rate as of December 31, 2019.

(2) Includes $200 million, $150 million, and $350 million outstanding and estimated annual interest payments through the respective maturity dates for the 2022, 2024, and 2025 senior unsecured term loans, respectively. We estimated interest payments based on our in place interest rate swap agreements and the variable interest rates as of December 31, 2019.

(3) Includes $150.0 million outstanding and estimated annual interest payments, fixed at 4.19%, through the maturity date of June 15, 2023, $175 million outstanding and estimated annual interest payments, fixed at 3.91%, through the

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maturity date of April 20, 2024, $200 million outstanding and estimated annual interest payments, fixed at 4.52%, through the maturity date of April 17, 2026, and $200 million outstanding and estimated annual interest payments, fixed at 4.31%, through the maturity date of April 17, 2029.

(4) Consists of obligations for construction contracts for properties under construction, tenant related capital expenditures, and other capital improvements.

(5) Consists of obligations for power contracts and telecommunications leases.

Off-Balance Sheet Arrangements

As of December 31, 2019, the Company did not have any off-balance sheet arrangements.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Our actual results may differ from these estimates. We have provided a summary of our significant accounting policies in Note 2 “Summary of Significant Accounting Policies” in Item 8 “Financial Statements and Supplementary Data” of this Annual Report. We describe below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and results of operations. Our management evaluates these estimates on an ongoing basis, based upon information currently available and on various assumptions management believes are reasonable as of the date hereof.

Acquisition of Investment in Real Estate. When accounting for business combinations and asset acquisitions, we are required to make subjective assessments to allocate the purchase price paid to the acquired tangible assets, consisting primarily of land, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-place leases and the value of customer relationships. These allocation assessments involve significant judgment and complex calculations and have a direct impact on our results of operations.

Capitalization of Costs. Capitalized lease commissions consist of commissions paid to third party leasing agents and internal sales commissions paid to employees for the successful execution of lease agreements. For the year ended December 31, 2017, we also capitalized a portion of internal sales employees’ compensation and payroll-related fringe benefits that directly relate to time spent executing successful lease agreements. Effective January 1, 2018, we adopted Accounting Standards Codification Topic 842, Leases, which provides a narrower definition of initial direct costs that can be capitalized. As a result, only the incremental costs of signing a lease are capitalized as lease commissions and costs related to internal sales employees’ compensation, payroll-related fringe benefits and certain external legal fees are accounted for as a sales and marketing expense in the consolidated statements of operations. During the years ended December 31, 2019, 2018, and 2017, we capitalized $16.1 million, $7.0 million, and $9.7 million, respectively, of internal initial direct costs.

Direct and indirect costs that are clearly associated with the development of properties are capitalized as incurred. During the land development and construction periods, we capitalize construction costs, legal fees, financing costs (including interest), real estate taxes and insurance and internal costs of personnel performing development, if such costs are incremental and identifiable to a specific development project. We cease cost capitalization on development space once the space is ready for its intended use and held available for occupancy. Indirect costs that do not clearly

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relate to the projects under development are not capitalized and are charged to expense as incurred. Indirect costs capitalized for the years ended December 31, 2019, 2018, and 2017, are as follows (in thousands):

	Year Ended December 31,
	2019		2018		2017
Interest	$	13,648	$	5,595	$	3,282
Real estate taxes and insurance		1,934		1,155		708
Employee salaries and benefits		6,015		4,617		3,618
Capitalized indirect development costs	$	21,597	$	11,367	$	7,608

Recoverability of Long-Lived Assets. We review the carrying value of our properties for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, which includes the determination of property operating cash flows and forecasted rental rates. Impairment is recognized when estimated expected future cash flows (undiscounted and without interest charges) from an asset are less than the carrying amount of the asset. The estimation of expected future net cash flows is inherently uncertain and relies to a considerable extent on assumptions regarding current and future economic and market conditions and the availability of capital. If, in future periods, there are changes in the estimates or assumptions incorporated into an impairment review analysis, these changes could result in an adjustment to the carrying amount of our long-lived assets. To the extent that impairment has occurred, the excess of the carrying amount of the property over its estimated fair value would be charged against net income. No such impairment losses have been recognized to date.

Revenue Recognition. We derive our revenues from leases with customers which include rental revenue lease components and nonlease revenue components, such as power and tenant reimbursements. Effective January 1, 2018, we adopted ASC 606, Revenue Recognition – Revenue from Contracts with Customers (“ASC 606”), using the cumulative effect method and we concurrently adopted ASC 842, Leases (“ASC 842”), using the modified retrospective transition approach. ASC 606 establishes a five-step model framework which recognizes revenue as an entity transfers goods or services to the customer and requires enhanced disclosures. ASC 842 establishes our recognition of rental revenue, which remains mainly consistent with previous guidance, and requires additional enhanced disclosures.

The implementation of the new guidance included an assessment of customer contracts, which contain lease components and nonlease components, aimed at identifying contractual provisions that could result in a change in the timing or the amount of revenue recognition in comparison with prior guidance, as well as assessing the enhanced disclosure requirements of the new guidance. The analysis of contracts required subjective assessment over the implications of contractual provisions on the timing and amount of revenue recognized.

As a result of the assessment, we determined that the adoption does not change the recognition pattern of our operating revenues. In accordance with ASC 842 we have elected to combine all of our nonlease revenue components that have the same pattern of transfer as the related operating lease component into a single combined lease component recognized under ASC 842. Additional disclosures have also been provided around the nature, timing, and uncertainty of revenue, certain costs, and cash flows arising from contracts with customers. See additional discussion in Note 2, Summary of Significant Accounting Policies and Note 7, Lease Revenue.

Lessee Accounting. As mentioned previously, we adopted ASC 842 effective January 1, 2018, which also impacts our lessee accounting. The standard increases transparency and comparability by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for those leases classified as operating leases, as well as enhanced disclosures.

Implementation of the new standard included an analysis of contracts, including real estate leases, to determine the initial recognition of ROU assets and lease liabilities, which required subjective assessment over discount rates. The new standard also provided various practical expedients, which were assessed to determine the ultimate impact of the new standard upon adoption. We elected the package of practical expedients, which permitted us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date.  

Subsequent measurement and treatment of contract modifications were also assessed as it pertains to our existing contracts. Measuring new and modified leases requires subjective assessment particularly over discount rates and contract options, such as termination or extension rights, which impact lease terms and minimum lease payments.

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As a result of the analysis, adoption of the lease standard had a material impact on our consolidated balance sheets. As a lessee, we adjusted certain previously reported financial statements to include the recognition of ROU assets and liabilities for operating leases.  Additional disclosures were also provided to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. See additional discussion in Note 2, Summary of Significant Accounting Policies and Note 6, Leases.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The primary market risk to which we believe we are exposed is interest rate risk. Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk.

As of December 31, 2019, we had $762.5 million of consolidated principal debt outstanding that bore variable interest based on one month LIBOR. As of December 31, 2019, we have four effective interest rate swap agreements in place to fix the interest rate on $325.0 million of our one-month LIBOR variable rate debt. Our interest rate risk not covered by an interest rate swap agreement is $437.5 million of variable rate debt outstanding as of December 31, 2019.

We monitor our market interest rate risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market interest rate risk sensitive instruments assuming a hypothetical 100 basis points change in interest rates on our $437.5 million of unhedged variable rate debt. If interest rates were to increase or decrease by 100 basis points, the corresponding increase or decrease, as applicable, in interest expense on our variable rate debt would increase or decrease, as applicable, future earnings and cash flows by approximately $4.4 million per year.

These analyses do not consider the effect of any change in overall economic activity that could impact interest rates. Further, in the event of an increase in interest rates of significant magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements of CoreSite Realty Corporation

	Page No.
Report of Independent Registered Public Accounting Firm	57
Consolidated Balance Sheets as of December 31, 2019, and 2018	59
Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017	60
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018, and 2017	61
Consolidated Statements of Equity for the years ended December 31, 2019, 2018, and 2017	62
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017	63
Notes to Consolidated Financial Statements	64
Supplemental Schedule—Schedule III—Real Estate and Accumulated Depreciation	86

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
CoreSite Realty Corporation:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of CoreSite Realty Corporation and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement Schedule III – Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

57

company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of indicators an operating property may not be recoverable

As described in Notes 2 and 4, the Company had $1,758.3 million of net investments in real estate as of December 31, 2019. The Company reviews properties for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When an indicator of possible impairment exists, the Company evaluates the property for impairment by comparing the carrying amount to an estimate of undiscounted cash flows from the future use of the property and eventual disposal.

We identified the evaluation of indicators an operating property may not be recoverable to be a critical audit matter. There is a high degree of subjective auditor judgment in evaluating the events or changes in circumstances that may indicate the carrying value of the operating property may not be fully recoverable. In particular, evaluating the Company’s assumptions regarding the property’s operating cash flows and forecasted rental rates involve a high level of subjective and complex auditor judgment.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s process for identifying indicators that a long-lived asset may not be recoverable, including controls related to property operating cash flows and forecasted rental rates. We compared the Company’s historical estimated property’s cash flows to actual results to assess the Company’s ability to accurately forecast. We evaluated the Company’s assumptions regarding forecasted rental rates by comparing them to third-party market data.

/s/ KPMG LLP

We have served as the Company’s auditor since 2009.

Denver, Colorado
February 7, 2020

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CORESITE REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share data)

	December 31,		December 31,
	2019		2018
ASSETS
Investments in real estate:
Land	$	94,593	$	86,955
Buildings and improvements		1,989,731		1,730,329
		2,084,324		1,817,284
Less: Accumulated depreciation and amortization		(720,498)		(590,784)
Net investment in operating properties		1,363,826		1,226,500
Construction in progress		394,474		265,921
Net investments in real estate		1,758,300		1,492,421
Operating lease right-of-use assets, net		172,976		190,304
Cash and cash equivalents		3,048		2,599
Accounts and other receivables, net of allowance for doubtful accounts of $371 and $417 as of December 31, 2019, and December 31, 2018, respectively		21,008		18,464
Lease intangibles, net of accumulated amortization of $4,022 and $7,756 as of December 31, 2019, and December 31, 2018, respectively		3,939		6,943
Goodwill		40,646		40,646
Other assets, net		101,082		102,290
Total assets	$	2,100,999	$	1,853,667
LIABILITIES AND EQUITY
Liabilities:
Debt, net of unamortized deferred financing costs of $9,098 and $5,677 as of December 31, 2019, and December 31, 2018, respectively	$	1,478,402	$	1,130,823
Operating lease liabilities		187,443		202,699
Accounts payable and accrued expenses		123,304		89,315
Accrued dividends and distributions		62,332		55,679
Acquired below-market lease contracts, net of accumulated amortization of $1,511 and $3,840 as of December 31, 2019, and December 31, 2018, respectively		2,511		2,846
Unearned revenue, prepaid rent and other liabilities		33,119		37,672
Total liabilities		1,887,111		1,519,034
Stockholders' equity:
Common Stock, par value $0.01, 100,000,000 shares authorized and 37,701,042 and 36,708,691 shares issued and outstanding at December 31, 2019, and December 31, 2018, respectively		373		363
Additional paid-in capital		512,324		491,314
Accumulated other comprehensive loss		(6,026)		(2,193)
Distributions in excess of net income		(348,509)		(246,929)
Total stockholders' equity		158,162		242,555
Noncontrolling interests		55,726		92,078
Total equity		213,888		334,633
Total liabilities and equity	$	2,100,999	$	1,853,667

See accompanying notes to consolidated financial statements.

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CORESITE REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except share and per share data)

	Year Ended December 31,
	2019		2018		2017
Operating revenues:
Data center revenue:
Rental, power, and related revenue	$	485,131	$	463,086	$	407,680
Interconnection revenue		75,751		69,709		62,293
Office, light-industrial and other revenue		11,845		11,597		11,848
Total operating revenues		572,727		544,392		481,821
Operating expenses:
Property operating and maintenance		157,293		152,357		132,820
Real estate taxes and insurance		22,866		19,239		14,913
Depreciation and amortization		152,925		141,633		129,251
Sales and marketing		22,439		21,023		18,176
General and administrative		43,764		40,090		37,548
Rent		32,624		27,696		24,125
Transaction costs		—		75		176
Total operating expenses		431,911		402,113		357,009
Operating income		140,816		142,279		124,812
Interest expense		(41,712)		(35,526)		(24,147)
Income before income taxes		99,104		106,753		100,665
Income tax (expense) benefit		(67)		10		(174)
Net income	$	99,037	$	106,763	$	100,491
Net income attributable to noncontrolling interests		23,197		28,841		25,636
Net income attributable to CoreSite Realty Corporation	$	75,840	$	77,922	$	74,855
Preferred stock dividends		—		—		(7,924)
Original issuance costs associated with redeemed preferred stock		—		—		(4,326)
Net income attributable to common shares	$	75,840	$	77,922	$	62,605
Net income per share attributable to common shares:
Basic	$	2.06	$	2.23	$	1.85
Diluted	$	2.05	$	2.22	$	1.84
Weighted average common shares outstanding
Basic		36,766,310		34,957,244		33,792,759
Diluted		36,943,873		35,137,495		34,058,949

See accompanying notes to consolidated financial statements.

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CORESITE REALTY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Year Ended December 31,
	2019		2018		2017
Net income	$	99,037	$	106,763	$	100,491
Other comprehensive (loss) income:
Unrealized (loss) gain on derivative contracts		(5,038)		(3,676)		580
Reclassification of other comprehensive income (loss) to interest expense		212		(326)		623
Comprehensive income		94,211		102,761		101,694
Comprehensive income attributable to noncontrolling interests		22,030		27,912		25,985
Comprehensive income attributable to CoreSite Realty Corporation	$	72,181	$	74,849	$	75,709

See accompanying notes to consolidated financial statements.

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CORESITE REALTY CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands except share data)

								Accumulated
						Additional		Other		Distributions		Total
	Preferred		Common Shares			Paid-in		Comprehensive		in Excess of		Stockholders'		Noncontrolling		Total
	Stock		Number	Amount		Capital		Income (Loss)		Net Income		Equity		Interests		Equity
Balance at January 1, 2017	$	115,000	33,896,771	$	334	$	438,531	$	(101)	$	(118,038)	$	435,726	$	161,360	$	597,086
Redemption of noncontrolling interests		—	15,011		—		167		—		—		167		(167)		—
Redemption of preferred stock		(115,000)	—		—		4,326		—		(4,326)		(115,000)		—		(115,000)
Issuance of stock awards, net of forfeitures		—	131,272		—		—		—		—		—		—		—
Exercise of stock options		—	197,761		2		4,818		—		—		4,820		—		4,820
Share-based compensation		—	—		2		9,653		—		—		9,655		—		9,655
Dividends declared on preferred stock		—	—		—		—		—		(7,924)		(7,924)		—		(7,924)
Dividends and distributions		—	—		—		—		—		(122,133)		(122,133)		(49,554)		(171,687)
Net income		—	—		—		—		—		74,855		74,855		25,636		100,491
Other comprehensive income		—	—		—		—		854		—		854		349		1,203
Balance at December 31, 2017	$	—	34,240,815	$	338	$	457,495	$	753	$	(177,566)	$	281,020	$	137,624	$	418,644
Redemption of noncontrolling interests		—	2,261,068		23		20,852		127		—		21,002		(21,002)		—
Issuance of stock awards, net of forfeitures		—	188,152		—		—		—		—		—		—		—
Exercise of stock options		—	18,656		—		310		—		—		310		—		310
Share-based compensation		—	—		2		12,657		—		—		12,659		—		12,659
Dividends and distributions		—	—		—		—		—		(147,285)		(147,285)		(52,456)		(199,741)
Net income		—	—		—		—		—		77,922		77,922		28,841		106,763
Other comprehensive income		—	—		—		—		(3,073)		—		(3,073)		(929)		(4,002)
Balance at December 31, 2018	$	—	36,708,691	$	363	$	491,314	$	(2,193)	$	(246,929)	$	242,555	$	92,078	$	334,633
Redemption of noncontrolling interests		—	803,610		8		5,414		(174)		—		5,248		(5,248)		—
Issuance of stock awards, net of forfeitures		—	171,354		—		—		—		—		—		—		—
Exercise of stock options		—	17,387		—		364		—		—		364		—		364
Share-based compensation		—	—		2		15,232		—		—		15,234		—		15,234
Dividends and distributions		—	—		—		—		—		(177,420)		(177,420)		(53,134)		(230,554)
Net income		—	—		—		—		—		75,840		75,840		23,197		99,037
Other comprehensive loss		—	—		—		—		(3,659)		—		(3,659)		(1,167)		(4,826)
Balance at December 31, 2019	$	—	37,701,042	$	373	$	512,324	$	(6,026)	$	(348,509)	$	158,162	$	55,726	$	213,888

See accompanying notes to consolidated financial statements.

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CORESITE REALTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2019		2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	99,037	$	106,763	$	100,491
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		152,925		141,633		129,251
Amortization of above/below market leases		(254)		(580)		(598)
Amortization of deferred financing costs and hedge amortization		3,338		2,370		1,676
Share-based compensation		14,384		12,038		8,946
Bad debt expense (recovery)		291		(229)		1,338
Changes in operating assets and liabilities:
Accounts receivable		(2,836)		10,923		(5,087)
Deferred rent receivable		4,827		(3,124)		(3,645)
Initial direct costs		(13,422)		(11,672)		(13,315)
Other assets		(8,132)		(4,079)		(10,924)
Accounts payable and accrued expenses		8,208		3,502		1,224
Unearned revenue, prepaid rent and other liabilities		(9,097)		(1,275)		(2,235)
Operating leases		2,316		2,491		2,234
Net cash provided by operating activities		251,585		258,761		209,356
CASH FLOWS FROM INVESTING ACTIVITIES
Tenant improvements		(4,014)		(5,247)		(7,850)
Real estate improvements		(342,187)		(239,715)		(153,956)
Business combinations and asset acquisitions		(26,060)		(10,681)		(12,158)
Net cash used in investing activities		(372,261)		(255,643)		(173,964)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options		364		310		4,820
Proceeds from revolving credit facility		397,298		253,036		274,000
Payments on revolving credit facility		(546,299)		(211,036)		(298,500)
Proceeds from unsecured debt		500,000		150,000		275,000
Payments of loan fees and costs		(6,337)		(5,038)		(2,410)
Redemption of preferred stock		—		—		(115,000)
Dividends and distributions		(223,901)		(193,038)		(172,484)
Net cash provided by (used in) financing activities		121,125		(5,766)		(34,574)
Net change in cash and cash equivalents		449		(2,648)		818
Cash and cash equivalents, beginning of period		2,599		5,247		4,429
Cash and cash equivalents, end of period	$	3,048	$	2,599	$	5,247
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of capitalized amounts	$	31,123	$	32,579	$	22,252
Cash paid for operating lease liabilities	$	25,206	$	21,994	$	20,764
NON-CASH INVESTING AND FINANCING ACTIVITY
Construction costs payable capitalized to real estate	$	64,776	$	41,328	$	32,228
Accrual of dividends and distributions	$	62,332	$	55,679	$	48,976
NON-CASH OPERATING ACTIVITY
Lease liabilities arising from obtaining right-of-use assets	$	1,040	$	114,989	$	8,330

See accompanying notes to consolidated financial statements.

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CORESITE REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

CoreSite Realty Corporation (the “Company,” “we,” “us,” or “our”) was organized in the State of Maryland on February 17, 2010 and is a fully integrated, self-administered, and self-managed real estate investment trust (“REIT”). Through our controlling interest in CoreSite, L.P. (our “Operating Partnership”), we are engaged in the business of owning, acquiring, constructing and operating data centers. As of December 31, 2019, the Company owns a 77.6% common interest in our Operating Partnership, and affiliates of The Carlyle Group and others own a 22.4% interest in our Operating Partnership. See additional discussion in Note 11, Noncontrolling Interests – Operating Partnership.

Information with respect to square footage and acres of land is unaudited.

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements have been prepared by our management in accordance with U.S. generally accepted accounting principles (“GAAP”) and in compliance with the rules and regulations of the U.S. Securities and Exchange Commission. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

Our Operating Partnership meets the definition and criteria of a variable interest entity (“VIE”) and we are the primary beneficiary of the VIE. Our sole significant asset is the investment in our Operating Partnership, and consequently, substantially all of our assets and liabilities represent those assets and liabilities of our Operating Partnership. Our debt is an obligation of our Operating Partnership where the creditors also have recourse against the credit of the Company. Intercompany balances and transactions have been eliminated upon consolidation.

Recent Accounting Pronouncements

Fair Value Measurement

In August 2018, the FASB issued guidance codified in ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 improves the overall usefulness of disclosures to financial statement users and reduces unnecessary costs in preparing fair value measurement disclosures. The standard will be effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We will adopt this standard effective January 1, 2020, and we do not expect the provisions of ASU 2018-13 to have a material impact on our consolidated financial statements.

Intangibles – Goodwill and Other – Internal-Use Software

In August 2018, the FASB issued guidance codified in ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 clarifies that implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in software licensing arrangements under the internal-use software guidance. Additionally, ASU 2018-15 clarifies that all capitalized costs must be presented in the same financial statement line item as the cloud computing arrangement. The standard will be effective, on either a prospective or retrospective basis, for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We will adopt this standard effective January 1, 2020, and we do not expect the provisions of ASU 2018-15 to have a material impact on our consolidated financial statements.

We determined that all other recently issued accounting pronouncements will not have a material impact on our consolidated financial statements or do not apply to our operations.

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Use of Estimates

The preparation of these consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates, including those related to assessing our standalone selling prices, performance-based equity compensation plans and the carrying values of our real estate properties, goodwill and accrued liabilities. We base our estimates on historical experience, current market conditions, and various other assumptions that we believe to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could vary under different assumptions or conditions.

Investments in Real Estate

Real estate investments are carried at cost less accumulated depreciation and amortization. The cost of real estate includes the purchase price of property and leasehold improvements. Expenditures for maintenance and repairs are expensed as incurred. Significant renovations and betterments that extend the economic useful lives of assets are capitalized. During land development and construction periods, we capitalize construction costs, legal fees, financing costs, real estate taxes and insurance, rent expense and internal costs of personnel performing development, if such costs are incremental and identifiable to a specific development project. Capitalization of costs begins upon commencement of development efforts and ceases when the project is ready for its intended use and held available for occupancy. Interest is capitalized during the period of development based upon applying the weighted-average borrowing rate to the actual development costs expended. Capitalized interest costs were $13.6 million, $5.6 million and $3.3 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Depreciation and amortization are calculated using the straight-line method over the following useful lives of the assets:

Depreciation and amortization are calculated using the straight-line method over the following useful lives of the assets:Depreciation and amortization are calculated using the straight-line method over the following useful lives of the assets:
Buildings	27 to 40 years
Building improvements	1 to 10 years
Leasehold improvements	The shorter of the lease term or useful life of the asset

Depreciation expense was $136.0 million, $122.9 million and $108.1 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Acquisition of Investment in Real Estate

When accounting for business combinations and asset acquisitions, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting primarily of land, building and building improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-place leases and the value of customer relationships. The primary difference between business combinations and asset acquisitions is that asset acquisitions require cost accumulation and allocation at a relative fair value. Acquisition costs are capitalized for asset acquisitions and expensed for business combinations.

The fair value of the land and building of an acquired property is determined by valuing the property as if it were vacant, and the “as-if-vacant” fair value is then allocated to land and building based on management’s determination of the fair values of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.

The fair value of intangibles related to in-place leases includes the value of lease intangibles for above-market and below-market leases, lease origination costs, and customer relationships, determined on a lease-by-lease basis. Above-market and below-market leases are valued based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management's estimate of market lease rates for the corresponding in-place leases, measured over a period equal to the remaining noncancelable term of the lease and, for below-market leases, over a time period equal to the initial term plus any below-market fixed rate renewal periods. Lease origination costs include estimates of costs

65

avoided associated with leasing the property, including tenant allowances and improvements and leasing commissions. Customer relationship intangibles relate to the additional revenue opportunities expected to be generated through rental services, interconnection services, and utility services to be provided to the in-place lease tenants.

The capitalized values for above and below-market lease intangibles, lease origination costs, and customer relationships are amortized over the term of the underlying leases or the expected customer relationship. Amortization related to above-market and below-market leases where the Company is the lessor is recorded as either a reduction of or an increase to rental revenue, amortization related to above-market and below-market leases where the Company is the lessee is recorded as either a reduction of or an increase to rent expense. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are written off.

The carrying value of intangible assets is reviewed for impairment in connection with its respective asset group whenever events or changes in circumstances indicate that the asset group may not be recoverable. An impairment loss is recognized if the carrying amount of the asset group is not recoverable and its carrying amount exceeds its estimated fair value. No impairment loss related to these intangible assets was recognized for the years ended December 31, 2019, 2018, or 2017.

The excess of the cost of an acquired business over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. As of December 31, 2019, and 2018, we had $40.6 million of goodwill at each date. The Company’s goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. No impairment loss was recognized for the years ended December 31, 2019, 2018, or 2017.

Cash and Cash Equivalents

Cash and cash equivalents include all non-restricted cash held in financial institutions and other non-restricted highly liquid short-term investments with original maturities at acquisition of three months or less.

Initial Direct Costs

Initial direct costs include commissions paid to third parties, including brokers, leasing and referral agents, and internal sales commissions paid to employees for successful execution of lease agreements. Initial direct costs are incremental costs that would not have been incurred if the lease agreement had not been executed. These initial direct costs are capitalized and generally amortized over the term of the related leases using the straight-line method. If a customer lease terminates prior to the expiration of its initial term, any unamortized initial direct costs related to the lease are written off to amortization expense. Amortization of initial direct costs was $14.2 million, $15.6 million, and $16.3 million for the years ended December 31, 2019, 2018, and 2017, respectively. Initial direct costs are included within other assets in the consolidated balance sheets and consisted of the following, net of amortization, as of December 31, 2019, and 2018 (in thousands):

	December 31,		December 31,
	2019		2018
Internal sales commissions	$	15,064	$	14,199
Third party commissions		10,845		9,855
Other		462		597
Total	$	26,371	$	24,651

Deferred Financing Costs

Deferred financing costs include costs incurred in connection with obtaining debt and extending existing debt. These financing costs are capitalized and amortized on a straight-line basis, which approximates the effective-interest method, over the term of the indebtedness and the amortization is included as a component of interest expense. Depending on the type of debt instrument, deferred financing costs are reported either in other assets or as a direct deduction from the carrying amount of the related debt liabilities in our consolidated balance sheets.

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Recoverability of Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized when estimated expected future cash flows (undiscounted and without interest charges) are less than the carrying amount of the assets. The estimation of expected future net cash flows is inherently uncertain and relies, to a considerable extent, on assumptions regarding current and future economics and market conditions and the availability of capital. If, in future periods, there are changes in the estimates or assumptions incorporated into the impairment review analysis, the changes could result in an adjustment to the carrying amount of the long-lived assets. To the extent that impairment has occurred, the excess of the carrying amount of long-lived assets over its estimated fair value would be recognized as an impairment loss charged to net income. For the years ended December 31, 2019, 2018, and 2017, no impairment of long-lived assets was recognized in the consolidated financial statements.

Derivative Instruments and Hedging Activities

We reflect all derivative instruments at fair value as either assets or liabilities on the consolidated balance sheets. For those derivative instruments that are designated and qualify as hedging instruments, we record the gain or loss on the hedging instruments as a component of accumulated other comprehensive income or loss. For derivatives that do not meet the criteria for hedge accounting, changes in fair value are immediately recognized within net income. See additional discussion in Note 9 Derivatives and Hedging Activities.

Internal-Use Software

We recognize internal-use software development costs based on the development stage of the project and nature of the cost. Internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred to develop internal-use software during the application development stage are capitalized. Internal and external training costs and maintenance costs during the post-implementation-operation stage are expensed as incurred. Completed projects are placed into service and amortized over the estimated useful life of the software. For the years ended December 31, 2019, 2018, and 2017, no impairment of internal-use software was recognized in the consolidated financial statements.

Revenue Recognition

Rental, Power, and Related Revenue

We derive our revenues from leases with customers for data center and office and light-industrial space. Our leases include rental revenue lease components and nonlease revenue components, such as power and tenant reimbursements. We have elected to combine all of our nonlease revenue components that have the same pattern of transfer as the related operating lease component into a single combined lease component.

Our leases with customers are classified as operating leases and rental revenue is recognized on a straight-line basis over the customer lease term. Occasionally, our customer leases include options to extend or terminate the lease agreements. We do not include any of these extension or termination options in a customer’s lease term for lease classification purposes or for recognizing rental revenue unless we are reasonably certain the customer will exercise these extension or termination options. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is recorded as deferred rent receivable within other assets on our consolidated balance sheets.

In general, we provide two power products for our data center leased space, consisting of a fixed (breakered-amperage) and a variable (sub-metered) model. Customer power arrangements are coterminous with the customer’s underlying lease and have the same pattern of transfer over the lease term and are therefore combined with lease revenue within our consolidated statements of operations. For fixed power arrangements, a customer pays us a fixed monthly fee for a committed available amount of power. We recognize the fixed power revenue each month over the term of the lease. For variable power arrangements, a customer pays us variable monthly fees for the specific amount of power utilized at the current utility rates. We recognize variable power revenue each month as the uncertainty related to the consideration is resolved, as power is provided to our customers, and as our customers utilize the power.

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Some of our leases contain provisions under which our customers reimburse us for common area maintenance and other executory costs. These customer reimbursements are variable and are recognized in the period that the expenses are recognized. These services have the same pattern of transfer over the lease term and are also combined with lease revenue within our consolidated statements of operations.

Interconnection Revenue

We also derive revenue from interconnection services, which are generally contracted on a month-to-month basis cancellable by us or the customer at any time. Interconnection services are accounted for as separate contracts and are not combined with lease and power arrangements. We recognize interconnection revenue each month as these services are delivered to, and utilized by, our customers.

Allowance for Doubtful Accounts

A provision for uncollectible accounts is recorded if a receivable balance relating to contractual rent, rental revenue recorded on a straight-line basis, tenant reimbursements or other billed amounts is considered by management to be uncollectible. At December 31, 2019, and 2018, the allowance for doubtful accounts totaled $0.4 million on the consolidated balance sheets at each date.

Lessee Accounting

We determine if an arrangement is a lease at inception. Our operating lease agreements are primarily for real estate space and are included within operating lease right-of-use (“ROU”) assets and operating lease liabilities on the consolidated balance sheets. We elected the practical expedient to combine our lease and related nonlease components for our lessee building leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Our variable lease payments consist of nonlease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets also include any lease payments made and exclude lease incentives. Many of our lessee agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

Share-Based Compensation

We account for share-based compensation using the fair value method of accounting. The estimated fair value of the stock options granted by us is calculated based on the Black-Scholes option-pricing model. The fair value of restricted share-based and Operating Partnership unit compensation is based on the fair value of our common stock on the date of the grant. The fair value of performance share awards, which have a market condition, is based on a Monte Carlo simulation. The fair value for all share-based compensation is amortized on a straight-line basis over the vesting period. We have elected to account for forfeitures as they occur.

Asset Retirement and Environmental Remediation Obligations

We record accruals for estimated asset retirement and environmental remediation obligations. The obligations relate primarily to the removal of asbestos during development of properties as well as the estimated equipment removal costs upon termination of a certain lease where we are the lessee. At December 31, 2019, and 2018, the amount included in unearned revenue, prepaid rent and other liabilities on the consolidated balance sheets was approximately $1.7 million and $1.6 million, respectively.

Income Taxes

We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2010. To qualify as a REIT, we are required to distribute at least

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90% of our taxable income to our stockholders and meet various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided we qualify for taxation as a REIT, we generally are not subject to corporate level federal income tax on the earnings distributed currently to our stockholders. If we fail to qualify as a REIT in any taxable year, and are unable to avail ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to federal income tax at regular corporate rates.

To maintain REIT status, we must distribute a minimum of 90% of our taxable income. However, it is our policy and intent, subject to change, to distribute 100% of our taxable income and therefore, no provision is required in the accompanying consolidated financial statements for federal income taxes with regard to our activities and our subsidiary pass-through entities. The allocable share of taxable income is included in the income tax returns of its stockholders. We are subject to the statutory requirements of the locations in which we conduct business. State and local income taxes are accrued as deemed required in the best judgment of management based on analysis and interpretation of respective tax laws.

We have elected to treat certain subsidiaries as taxable REIT subsidiaries (“TRS”). Certain activities that we undertake must be conducted by a TRS, such as services for our tenants that could be considered otherwise impermissible for us to perform and holding assets that we cannot hold directly. A TRS is subject to corporate level federal and state income taxes.

Deferred income taxes are recognized in certain taxable entities. Deferred income tax generally is a function of the period’s temporary differences (items that are treated differently for tax purposes than for financial reporting purposes), the utilization of tax net operating losses generated in prior years that previously had been recognized as deferred income tax assets and the reversal of any previously recorded deferred income tax liabilities. A valuation allowance for deferred income tax assets is provided if we believe all or some portion of the deferred income tax asset may more likely than not be realized. Any increase or decrease in the valuation allowance resulting from a change in circumstances that causes a change in the estimated realizability of the related deferred income tax asset is included in deferred tax expense. As of December 31, 2019, and 2018, the gross deferred income taxes were not material.

We currently have no liabilities for uncertain income tax positions. The earliest tax year for which we are subject to examination is 2016.

Concentration of Credit Risks

Our cash and cash equivalents are maintained in various financial institutions, which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts, and management believes that the Company is not exposed to any significant credit risk in this area. We have no off-balance sheet concentrations of credit risk, such as foreign exchange contracts, option contracts, or foreign currency hedging arrangements.

Segment Information

We manage our business as one reportable segment consisting of investments in data centers located in the United States. Although we provide services in several markets, these operations have been aggregated into one reportable segment based on the similar economic characteristics amongst all markets, including the nature of the services provided and the type of customers purchasing these services.

3. Acquisitions

On August 29, 2017, we acquired a two-acre land parcel adjacent to our existing Santa Clara campus, with a total real estate cost of $12.2 million. We are currently constructing a 162,000 NRSF data center building on the acquired land parcel, which we refer to as SV8, of which we have placed 108,000 NRSF into service during the year ended December 31, 2019.

On January 29, 2018, we acquired a two-acre land parcel located in downtown Chicago, Illinois, for a purchase price of $4.5 million. We are currently constructing a 169,000 NRSF turn-key data center building on the acquired land parcel, which we refer to as CH2.

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On April 20, 2018, we acquired U.S. Colo, a carrier-neutral, network-dense colocation provider, located in Los Angeles, California, for a purchase price of $6.3 million, net of previously accrued legal expense. In connection with the U.S. Colo acquisition, we assumed a leasehold interest of 6,723 square feet at our existing LA1 facility. We also assumed a leasehold interest of 21,850 square feet at a nearby colocation data center facility, which we refer to as LA4.

On April 12, 2019, we acquired a 3.8-acre land parcel with a single-story office building located adjacent to our Santa Clara campus, for a purchase price of $26 million. We expect to develop an approximately 200,000 NRSF turn-key data center building on the acquired land parcel, which we refer to as SV9, as the existing office tenants vacate upon expiration of their leases and upon the receipt of necessary entitlements.

4. Investment in Real Estate

The following is a summary of the properties owned or leased by market at December 31, 2019 (in thousands):

			Buildings and		Construction in
Market	Land		Improvements		Progress		Total Cost
Boston	$	5,154	$	119,227	$	931	$	125,312
Chicago(1)		5,493		115,699		100,118		221,310
Denver		—		32,659		2,461		35,120
Los Angeles(1)		18,672		376,525		60,178		455,375
Miami		728		14,491		133		15,352
New York		2,729		155,746		56,271		214,746
Northern Virginia		21,856		398,742		101,619		522,217
San Francisco Bay(1)		39,961		776,642		72,763		889,366
Total	$	94,593	$	1,989,731	$	394,474	$	2,478,798

(1) Refer to Note 3, Acquisitions, for further detail on CH2, U.S. Colo, SV8, and SV9 acquisitions.

The following is a summary of the properties owned or leased by market at December 31, 2018 (in thousands):

Market	Land		Buildings and Improvements		Construction in Progress		Total Cost
Boston	$	5,154	$	107,596	$	1,644	$	114,394
Chicago		5,493		113,875		14,478		133,846
Denver		—		30,740		476		31,216
Los Angeles		18,672		338,011		51,688		408,371
Miami		728		14,014		69		14,811
New York		2,729		152,956		33,796		189,481
Northern Virginia		22,793		346,209		94,623		463,625
San Francisco Bay		31,386		626,928		69,147		727,461
Total	$	86,955	$	1,730,329	$	265,921	$	2,083,205

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5. Other Assets

Our other assets consisted of the following, net of amortization and depreciation, if applicable for each line item, as of December 31, 2019, and 2018 (in thousands):

	December 31,		December 31,
	2019		2018
Deferred rent receivable	$	38,335	$	43,162
Initial direct costs		26,371		24,651
Internal-use software		16,747		17,708
Prepaid expenses		7,675		7,090
Corporate furniture, fixtures and equipment		4,848		5,006
Deferred financing costs - revolving credit facility		3,148		2,880
Other		3,958		1,793
Total	$	101,082	$	102,290

Initial direct costs are amortized as amortization expense on a straight-line basis over the remaining lease terms of the underlying leases. The estimated amortization of initial direct costs for each of the five succeeding fiscal years is as follows (in thousands):

Year Ending December 31,
2020	$	10,926
2021		6,722
2022		3,337
2023		1,506
2024		1,247
Thereafter		2,633
Total	$	26,371

6. Leases

As the lessee, we currently lease real estate space under noncancelable operating lease agreements for our turn-key data centers at NY1, LA1, LA4, DC1, DC2, DE1, and DE2, and our corporate headquarters located in Denver, Colorado. Our leases have remaining lease terms ranging from 1 year to 10 years, some of the leases include options to extend the leases for up to an additional 20 years. We do not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these renewal options at this time. The weighted-average remaining non-cancelable lease term for our operating leases was nine years and ten years at December 31, 2019, and December 31, 2018, respectively. The weighted-average discount rate was 4.9% at each date.

During the year ended December 31, 2019, we extended the term of approximately 5,300 NRSF at our existing DE1 data center from October 2019 to October 2024. As a result of this extension, we remeasured the lease liability and adjusted the ROU asset by approximately $1.0 million.

The components of lease expense were as follows (in thousands):

	Year Ended December 31,
	2019		2018		2017
Lease expense:
Operating lease expense	$	26,566	$	22,927	$	20,345
Variable lease expense		6,058		4,769		3,780
Rent expense	$	32,624	$	27,696	$	24,125

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The future minimum lease payments to be paid under noncancelable operating leases in effect at December 31, 2019, are as follows (in thousands):

	Operating
Year Ending December 31,	Leases
2020	$	26,842
2021		26,590
2022		26,197
2023		24,350
2024		23,382
Thereafter		106,361
Total lease payments	$	233,722
Less imputed interest		(46,279)
Total	$	187,443

7. Lease Revenue

The components of data center, office, light-industrial, and other lease revenue were as follows (in thousands):

	Year Ended December 31,
	2019		2018		2017
Lease revenue:
Minimum lease revenue	$	409,622	$	390,691	$	350,497
Variable lease revenue		87,354		83,992		69,031
Total lease revenue	$	496,976	$	474,683	$	419,528

The future minimum lease payments to be received under noncancelable data center, office, light-industrial, and other operating leases in effect at December 31, 2019, are as follows (in thousands):

	Minimum
Year Ending December 31,	Lease Payments
2020	$	354,857
2021		254,291
2022		170,979
2023		111,055
2024		82,759
Thereafter		212,821
Total	$	1,186,762

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8. Debt

A summary of outstanding indebtedness as of December 31, 2019, and 2018, is as follows (in thousands):

		Maturity	December 31,		December 31,
	Interest Rate	Date	2019		2018
Revolving credit facility	3.01% and 3.95% at December 31, 2019, and December 31, 2018, respectively	November 8, 2023	$	62,500	$	211,500
2020 Senior unsecured term loan	3.37% at December 31, 2018	—		—		150,000
2021 Senior unsecured term loan	3.90% at December 31, 2018	—		—		100,000
2022 Senior unsecured term loan	2.96% and 3.65% at December 31, 2019, and December 31, 2018, respectively	April 19, 2022		200,000		200,000
2023 Senior unsecured notes	4.19% at December 31, 2019, and December 31, 2018, respectively	June 15, 2023		150,000		150,000
2024 Senior unsecured term loan(1)	3.44% and 4.01% at December 31, 2019, and December 31, 2018, respectively	April 19, 2024		150,000		150,000
2024 Senior unsecured notes	3.91% at December 31, 2019, and December 31, 2018, respectively	April 20, 2024		175,000		175,000
2025 Senior unsecured term loan(1)	2.81% at December 31, 2019	April 1, 2025		350,000		—
2026 Senior unsecured notes(1)	4.52% at December 31, 2019	April 17, 2026		200,000		—
2029 Senior unsecured notes	4.31% at December 31, 2019	April 17, 2029		200,000		—
Total principal outstanding		`		1,487,500		1,136,500
Unamortized deferred financing costs				(9,098)		(5,677)
Total debt			$	1,478,402	$	1,130,823

(1) Our Operating Partnership has in place swap agreements with respect to the term loans noted above. The interest rates presented represent the effective interest rates as of December 31, 2019, including the impact of the interest rate swaps, which effectively fix the interest rate on a portion of our variable rate debt. See Note 9 – Derivatives and Hedging Activities.

Revolving Credit Facility

On November 8, 2019, our Operating Partnership and certain subsidiary co-borrowers entered into the Fifth Amended and Restated Credit Agreement (as amended and restated, the “Amended and Restated Credit Agreement”), which amended and restated our previous credit agreement, to provide additional liquidity of $100 million, which was used to pay down a portion of the then-existing revolving credit facility and for general corporate purposes. The Amended and Restated Credit Agreement, among other things, decreased the interest rates on borrowings under the revolving credit facility and certain term loans, and extended the maturity date from April 19, 2022, to November 8, 2023, with a one-time extension option, which, if exercised, would extend the maturity date to November 8, 2024. The exercise of the extension option is subject to payment of an extension fee equal to 10 basis points of total commitments under the Amended and Restated Credit Agreement at initial maturity and certain other customary conditions. The Amended and Restated Credit Agreement increased our total commitment from $850 million to $950 million, consisting of a $450 million revolving credit facility, a $150 million senior unsecured term loan scheduled to mature on April 19, 2024, and a $350 million senior unsecured term loan scheduled to mature on April 1, 2025. See “2024 Senior Unsecured Term Loan” and “2025 Senior Unsecured Term Loan” below for a discussion of the $150 million and $350 million senior unsecured term loans, respectively. The Amended and Restated Credit Agreement also increased our accordion feature by $200 million to $550 million, which allows our Operating Partnership to increase our total commitments from $950 million to $1.5 billion, under specified circumstances, including secured capital from new or existing lenders.

Borrowings under the revolving credit facility have been amended to bear interest at a variable rate per annum equal to either (i) LIBOR plus 125 basis points to 185 basis points, or (ii) a base rate plus 25 basis points to 85 basis points, each depending on our Operating Partnership’s leverage ratio. At December 31, 2019, our Operating Partnership’s leverage ratio was 29.0% and the interest rate was LIBOR plus 125 basis points.

The total amount available for borrowing under the revolving credit facility, is equal to the lesser of $450.0 million or the availability calculated based on our unencumbered asset pool. As of December 31, 2019, the borrowing capacity was $450.0 million. As of December 31, 2019, $62.5 million was borrowed and outstanding, $4.9 million was

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outstanding under letters of credit, and therefore $382.6 million remained available for us to borrow under the revolving credit facility.

Our ability to borrow under the Amended and Restated Credit Agreement is subject to ongoing compliance with a number of financial covenants and other customary restrictive covenants, including, among others:

● a maximum leverage ratio (defined as total consolidated indebtedness to total gross asset value) of 60%, which, as of December 31, 2019, was 29.0%;

● a maximum secured debt ratio (defined as total consolidated secured debt to total gross asset value) of 40%, which, as of December 31, 2019, was 0%; and,

● a minimum fixed charge coverage ratio (defined as adjusted consolidated earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 1.5 to 1.0, which, as of December 31, 2019 5.9 to 1.0.

The Amended and Restated Credit Agreement ranks pari passu with the 2022 Term Loan, the 2024 Term Loan, the 2025 Term Loan, the 2023 Notes, the 2024 Notes, the 2026 Notes, and the 2029 Notes (each as defined herein) and contains the same financial covenants and other customary restrictive covenants as those debt instruments. In connection with the Amended and Restated Credit Agreement, the revolving credit facility and senior unsecured term loans were amended to remove or change certain financial covenants and other customary restrictive covenants, including removal of covenants limiting distributions (except upon an event of default), incurrence of unhedged variable rate debt, and increases or decreases, as applicable to a number of ratios and other figures in the Amended and Restated Credit Agreement resulting in increased flexibility for our Operating Partnership. As of December 31, 2019, we were in compliance with all of the financial covenants under the Amended and Restated Credit Agreement.

2022 Senior Unsecured Term Loan

On April 19, 2017, our Operating Partnership and certain subsidiaries entered into an Amended and Restated Term Loan Agreement (as amended and restated, the “Term Loan Agreement”), which amended and restated the $100 million senior unsecured term loan, originally entered into on January 31, 2014. The Term Loan Agreement was amended and restated to, among other things, (i) exercise the accordion feature to increase the total commitments to $200 million, (ii) extend the maturity of the term loan from January 31, 2019, to April 19, 2022, (iii) amend the accordion feature to allow an increase in total commitments from $200 million to $300 million, under specified circumstances, including securing capital from new or existing lenders, and (iv) explicitly permit the issuance of the 2024 Notes (the “2024 Notes”).

The 2022 Term Loan ranks pari passu with the 2024 Term Loan, the 2025 Term Loan, the 2023 Notes, the 2024 Notes, the 2026 Notes, the 2029 Notes, and the Amended and Restated Credit Agreement and contains the same financial covenants and other customary restrictive covenants as those debt instruments. As of December 31, 2019, we were in compliance with all of the financial covenants under the 2022 Term Loan.

Borrowings under the 2022 Term Loan bear interest at a variable rate per annum equal to either (i) LIBOR plus 120 basis points to 180 basis points, or (ii) a base rate plus 20 basis points to 80 basis points, each depending on our Operating Partnership's leverage ratio. At December 31, 2019, our Operating Partnership’s leverage ratio was 29.0% and the interest rate was LIBOR plus 120 basis points.

2024 Senior Unsecured Term Loan

On November 8, 2019, pursuant to the terms of the Amended and Restated Credit Agreement, our Operating Partnership and certain subsidiaries extended the term of the $150 million senior unsecured term loan (as amended, the “2024 Term Loan”) from April 19, 2023, to April 19, 2024. The 2024 Term Loan ranks pari passu with the 2022 Term Loan, the 2025 Term Loan, the 2023 Notes, the 2024 Notes, the 2026 Notes, the 2029 Notes, and the Amended and Restated Credit Agreement and contains the same financial covenants and other customary restrictive covenants as those debt instruments. As of December 31, 2019, we were in compliance with all of the financial covenants under the 2024 Term Loan.

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Borrowings under the 2024 Term Loan bear interest at a variable rate per annum equal to either (i) LIBOR plus 120 basis points to 180 basis points, or (ii) a base rate plus 20 basis points to 80 basis points, each depending on our Operating Partnership’s leverage ratio. At December 31, 2019, our Operating Partnership’s leverage ratio was 29.0% and the interest rate was LIBOR plus 120 basis points.

2025 Senior Unsecured Term Loan

On November 8, 2019, pursuant to the terms of the Amended and Restated Credit Agreement, our Operating Partnership and certain subsidiaries entered into a new $350 million senior unsecured term loan (the “2025 Term Loan”) maturing on April 1, 2025. The proceeds from the 2025 Term Loan were used to pay down the previous $150 million 2020 Term Loan and the $100 million 2021 Term Loan, pay down a portion of the then-existing revolving credit facility, and for general corporate purposes. The 2025 Term Loan ranks pari passu with the 2022 Term Loan, the 2024 Term Loan, the 2023 Notes, the 2024 Notes, the 2026 Notes, the 2029 Notes, and the Amended and Restated Credit Agreement and contains the same financial covenants and other customary restrictive covenants as those debt instruments. As of December 31, 2019, we were in compliance with all of the financial covenants under the 2025 Term Loan.

Borrowings under the 2025 Term Loan bear interest at a variable rate per annum equal to either (i) LIBOR plus 120 basis points to 180 basis points, or (ii) a base rate plus 20 basis points to 80 basis points, each depending on our Operating Partnership’s leverage ratio. At December 31, 2019, our Operating Partnership’s leverage ratio was 29.0% and the interest rate was LIBOR plus 120 basis points.

2023 Senior Unsecured Notes

On June 15, 2016, our Operating Partnership issued an aggregate principal amount of $150 million, 4.19% senior unsecured notes due June 15, 2023 (the “2023 Notes”), in a private placement to certain accredited investors. The terms of the 2023 Notes are governed by a note purchase agreement, dated June 15, 2016 (the “2023 Note Purchase Agreement”), by and among our Operating Partnership, the Company and the purchasers of the 2023 Notes.

Interest is payable semiannually, on the 15^th day of June and December of each year, commencing on December 15, 2016. The 2023 Notes are senior unsecured obligations of our Operating Partnership and are jointly and severally guaranteed by the Company and each of our Operating Partnership’s subsidiaries that guarantees indebtedness under our Amended and Restated Credit Agreement (the “Subsidiary Guarantors”).

Our Operating Partnership may prepay all or a portion of the 2023 Notes upon notice to the holders for 100% of the principal amount so prepaid plus a make-whole premium as set forth in the 2023 Note Purchase Agreement. Upon the occurrence of certain change of control events, holders of the 2023 Notes have the right to require our Operating Partnership to purchase 100% of such holder’s 2023 Notes in cash at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase.

The 2023 Notes rank pari passu with the 2022 Term Loan, the 2024 Term Loan, the 2025 Term Loan, the 2024 Notes, the 2026 Notes, the 2029 Notes, and the Amended and Restated Credit Agreement. On June 12, 2018, the 2023 Note Purchase Agreement was amended to, among other things, conform to the same financial covenants as the Amended and Restated Credit Agreement, as described above. In addition, certain additional financial covenants in the Amended and Restated Credit Agreement were automatically incorporated into the 2023 Note Purchase Agreement, and, subject to certain conditions, these additional financial covenants will be deleted, removed, amended or otherwise modified to be more or less restrictive if the analogous covenant in the Credit Agreement is so deleted, removed, amended or otherwise modified. These covenants are subject to a number of exceptions and qualifications set forth in the 2023 Note Purchase Agreement. As of December 31, 2019, we were in compliance with all of the financial covenants under the 2023 Note Purchase Agreement.

2024 Senior Unsecured Notes

On April 20, 2017, our Operating Partnership issued an aggregate principal amount of $175 million, 3.91% senior unsecured notes due April 20, 2024 (the “2024 Notes”), in a private placement to certain accredited investors. The terms of the 2024 Notes are governed by a note purchase agreement, dated April 20, 2017 (the “2024 Note Purchase Agreement”), by and among our Operating Partnership, the Company and the purchasers of the 2024 Notes.

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Interest is payable semiannually, on the 15^th day of June and December of each year, commencing on December 15, 2017. The 2024 Notes are senior unsecured obligations of our Operating Partnership and are jointly and severally guaranteed by the Company and each of the Subsidiary Guarantors.

Our Operating Partnership may prepay all or a portion of the 2024 Notes upon notice to the holders for 100% of the principal amount so prepaid plus a make-whole premium as set forth in the 2024 Note Purchase Agreement. Upon the occurrence of certain change of control events, holders of the 2024 Notes will have the right to require our Operating Partnership to purchase 100% of such holders’ 2024 Notes in cash at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase.

The 2024 Notes rank pari passu with the 2022 Term Loan, the 2024 Term Loan, the 2025 Term Loan, the 2023 Notes, the 2026 Notes, the 2029 Notes, and the Amended and Restated Credit Agreement. On June 12, 2018, the 2024 Note Purchase Agreement was amended to, among other things, conform to the same financial covenants as the Amended and Restated Credit Agreement, as described above. In addition, certain additional financial covenants in the Amended and Restated Credit Agreement were automatically incorporated into the 2024 Note Purchase Agreement, and, subject to certain conditions, these additional financial covenants will be deleted, removed, amended or otherwise modified to be more or less restrictive if the analogous covenant in the Amended and Restated Credit Agreement is so deleted, removed, amended or otherwise modified. These covenants are subject to a number of exceptions and qualifications set forth in the 2024 Note Purchase Agreement. As of December 31, 2019, we were in compliance with all of the financial covenants under the 2024 Note Purchase Agreement.

2026 Senior Unsecured Notes

On April 17, 2019, our Operating Partnership issued an aggregate principal amount of $200 million, 4.11% Series A senior unsecured notes due April 17, 2026 (the “2026 Notes”), in a private placement to certain accredited investors. After giving effect to cancellation costs incurred in connection with the termination of an interest rate swap agreement entered into in anticipation of the issuance of the Notes, the 2026 Notes bear an effective interest rate of 4.52% per annum. The terms of the 2026 Notes are governed by a note purchase agreement, dated April 17, 2019 (the “2026 Note Purchase Agreement”), by and among our Operating Partnership, the Company and the purchasers of the 2026 Notes.

Interest is payable semiannually, on the 15^th day of February and August of each year, commencing on February 15, 2020. The 2026 Notes are senior unsecured obligations of our Operating Partnership and are jointly and severally guaranteed by the Company and each of the Subsidiary Guarantors.

Our Operating Partnership may prepay all or a portion of the 2026 Notes upon notice to the holders for 100% of the principal amount plus a make-whole premium as set forth in the 2026 Note Purchase Agreement. Upon the occurrence of certain change of control events, holders of the 2026 Notes would have the right to require our Operating Partnership to purchase 100% of such holders’ 2026 Notes in cash at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase.

The 2026 Notes rank pari passu with the 2022 Term Loan, the 2024 Term Loan, the 2025 Term Loan, the 2023 Notes, the 2024 Notes, the 2029 Notes and the Amended and Restated Credit Agreement. The 2026 Note Purchase Agreement conforms to the same financial covenants as the Amended and Restated Credit Agreement, as described above. In addition, on the date of the 2026 Note Purchase Agreement and from time to time, certain additional financial covenants in the Amended and Restated Credit Agreement will be automatically incorporated into the 2026 Note Purchase Agreement and, subject to certain conditions, will be deleted, removed, amended or otherwise modified to be more or less restrictive if the analogous covenant in the Amended and Restated Credit Agreement is so deleted, removed, amended or otherwise modified. These covenants are subject to a number of exceptions and qualifications set forth in the 2026 Note Purchase Agreement. As of December 31, 2019, we were in compliance with all of the financial covenants under the 2026 Note Purchase Agreement.

2029 Senior Unsecured Notes

As mentioned above, on April 17, 2019, our Operating Partnership entered into the 2026 Note Purchase Agreement to issue the 2026 Notes and an additional aggregate principal amount of $200 million, 4.31% Series B senior

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unsecured notes due April 17, 2029 (the “2029 Notes”), in a private placement to certain accredited investors. An aggregate principal amount of $125 million of the 2029 Notes was issued on April 17, 2019. The remaining $75 million of the 2029 Notes was issued on July 17, 2019. The terms of the 2029 Notes are governed by the 2026 Note Purchase Agreement, by and among our Operating Partnership, the Company and the purchasers of the 2029 Notes.

Interest is payable semiannually, on the 15^th day of February and August of each year, commencing on February 15, 2020. The 2029 Notes are senior unsecured obligations of our Operating Partnership and are jointly and severally guaranteed by the Company and each of the Subsidiary Guarantors.

Our Operating Partnership may prepay all or a portion of the 2029 Notes upon notice to the holders for 100% of the principal amount plus a make-whole premium as set forth in the 2026 Note Purchase Agreement. Upon the occurrence of certain change of control events, holders of the 2029 Notes would have the right to require our Operating Partnership to purchase 100% of such holders’ 2029 Notes in cash at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase.

The 2029 Notes rank pari passu with the 2022 Term Loan, the 2024 Term Loan, the 2025 Term Loan, the 2023 Notes, the 2024 Notes, the 2026 Notes, and the Amended and Restated Credit Agreement. As of December 31, 2019, we were in compliance with all of the financial covenants under the 2026 Note Purchase Agreement.

Debt Maturities

The following table summarizes when our debt currently becomes due (in thousands):

Year Ending December 31,
2020	$	—
2021		—
2022		200,000
2023		212,500
2024		325,000
Thereafter		750,000
Total principal outstanding		1,487,500
Unamortized deferred financing costs		(9,098)
Total debt, net	$	1,478,402

9. Derivatives and Hedging Activities

The following table summarizes our derivative positions as of the years ended December 31, 2019, and 2018 (in thousands):

Notional Amount									Fair Value (Level 2) (1)
December 31,		December 31,		Type of	Strike Rate		Effective	Expiration	December 31,		December 31,
2019		2018		Derivative	as of 12/31/19		Date	Date	2019		2018
$	—	$	50,000	Interest Rate Swap	—	%	2/28/2014	1/31/2019	$	—	$	43
	75,000		75,000	Interest Rate Swap	2.63		5/5/2015	5/5/2020		67		1,099
	75,000		75,000	Interest Rate Swap	3.92		5/5/2018	4/5/2023		(2,819)		(897)
	—		175,000	Interest Rate Swap	—		6/3/2019	4/3/2019		—		(3,183)
	100,000		—	Interest Rate Swap	2.79		11/8/2019	4/1/2025		55		—
	75,000		—	Interest Rate Swap	2.79		11/8/2019	4/1/2025		41		—
$	325,000	$	375,000						$	(2,656)	$	(2,938)

(1) Derivative assets are recorded at fair value in our condensed consolidated balance sheets in other assets and derivative liabilities are recorded at fair value in our condensed consolidated balance sheets in unearned revenue, prepaid rent and other liabilities. We do not net our derivative position by counterparty for purposes of balance sheet presentation and disclosure.

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Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our investments and borrowings.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to reduce variability in interest expense and to manage our exposure to adverse interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The changes in the fair value of derivatives designated and that qualify as effective cash flow hedges is recorded in accumulated other comprehensive income or loss on the consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

The following table shows the effect of the derivatives on our consolidated financial statements (in thousands):

	Year Ended December 31,
	2019		2018		2017
Cash Flow Hedges
Unrealized gain (loss) recognized in other comprehensive income	$	(5,038)	$	(3,676)	$	580
Gain (loss) reclassified from other comprehensive income to interest expense		212		(326)		623
Interest expense		41,712		35,526		24,147

Amounts reported in accumulated other comprehensive income or loss related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the subsequent twelve months, beginning January 1, 2020, we estimate that $1.6 million will be reclassified as an increase to interest expense.

10. Stockholders’ Equity

At December 31, 2019, 120 million shares were authorized to be issued by the Company, 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, 2019, we had 37.7 million shares of common stock issued and outstanding. Since our IPO, we have issued common stock under our 2010 Plan (as defined in Note 12, Equity Incentive Award Plan), in which certain of our employees and outside directors participate to provide compensation in the form of common stock. Under the 2010 Plan, we received proceeds from the exercise of stock options of $0.4 million, $0.3 million, and $4.8 million for the years ended December 31, 2019, 2018, and 2017, respectively. Also, we issued shares of common stock as restricted stock award and performance stock award grants, net of forfeitures, and option exercises, net of settlements, in the amount of 188,741, 206,808 and 329,033 during the years ended December 31, 2019, 2018, and 2017, respectively. See Note 12, Equity Incentive Award Plan, for additional information on our 2010 Plan.

During the years ended December 31, 2019, 2018, and 2017, 800,000, 2,250,000 and 3,000,000 common Operating Partnership units held by the Carlyle Group were redeemed on a one-for-one basis for shares of our common

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stock in connection with the sale by The Carlyle Group of our common stock. During the years ended December 31, 2019, 2018, and 2017, 3,610, 11,068 and 15,011 common Operating Partnership units held by other third parties were redeemed on a one-for-one basis for shares of our common stock, respectively. See Note 11, Noncontrolling Interests – Operating Partnership, for additional information.

Preferred Stock

On December 12, 2017, the Company redeemed an aggregate of 4,600,000 shares of its 7.25% Series A Cumulative Redeemable Preferred Stock, or the Series A Preferred Stock, for $25.00 per share, plus all accrued and unpaid dividends in an amount equal to $0.292014 per share, for a total payment of $25.292014 per share, or $116.3 million in aggregate. The excess of the redemption price over the carrying value of the Series A Preferred Stock of approximately $4.3 million relates to the original issuance costs and was recorded as a reduction to net income attributable to common shares. The Series A Preferred Stock were originally issued on December 12, 2012, for net proceeds of $110.6 million. Dividends were cumulative on the Series A Preferred Stock from the date of original issuance in the amount of $1.8125 per share each year, which was equivalent to 7.25% of the $25.00 liquidation preference per share. Dividends on the Series A Preferred Stock were payable quarterly in arrears.

Dividends

In 2019, 2018, and 2017, we paid all our dividends in cash. The following summarizes the taxability of our common and preferred stock dividends per share for the years then ended:

	Year Ended December 31,
Record Date	2019		2018		2017
Common Stock:
Ordinary income(1)	$	3.07	$	3.09	$	2.13
Qualified dividend		—		—		—
Capital gains		—		—		—
Return of capital		1.57		0.93		0.91
Total dividend (2)	$	4.64	$	4.02	$	3.04
Preferred Stock:
Ordinary income	$	—	$	—	$	1.36
Qualified dividend		—		—		—
Capital gains		—		—		—
Total dividend (3)	$	—	$	—	$	1.36

(1) All 2018 and 2019 ordinary dividends are eligible for the 20% deduction generally allowable to non-corporate shareholders under Internal Revenue Code Section 199A. Shareholders are encouraged to consult with their tax advisors regarding their specific treatment of CoreSite distributions.

(2) A $1.22 per share or unit distribution was paid in January, all of which will apply to tax year 2020. A $1.10 per share or unit distribution was paid in January 2019, all of which will apply to tax year 2019. A $0.98 per share or unit distribution was paid in January 2018, all of which applied to tax year 2018. Of the $2.36 taxable dividend in 2016, $0.80 was paid in January 2017, of which $0.44 applied to tax year 2017.

(3) All outstanding shares and dividends of the 7.25% Series A Cumulative Redeemable Preferred Stock were redeemed at $25.292014 per share at December 12, 2017. Of the $1.81 taxable dividend in 2016, $0.45 was paid in January 2017.

In order to comply with the REIT requirements of the 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 taxable income (after tax), if any, from foreclosure property, minus (ii) certain excess non-cash income. Our common stock dividend policy is to distribute, at a minimum, a percentage of our cash flow to ensure we will meet the distribution requirements of the Code, while allowing us to retain cash to meet other needs, such as capital

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improvements and other investment activities. Any subsequent increases and/or anticipated increases are generally correlated to increases in our growth of cash flow.

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. Following passage of the Tax Cuts and Jobs Act in late 2017, beginning with tax year 2018 REIT, ordinary dividends are eligible for a 20% deduction generally allowable to non-corporate shareholders.

Pursuant to the terms of our preferred stock, we were 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 had been paid and sufficient funds had been set aside for dividends that had been declared for the relevant dividend period with respect to the preferred stock. On December 12, 2017, we redeemed our preferred stock in its entirety.

Our federal tax return for the year ended December 31, 2019 has not been filed. The taxability information presented for our dividends paid in 2019 is based upon management’s estimates.

11. Noncontrolling Interests — Operating Partnership

Noncontrolling interests represent the limited partnership interests in our Operating Partnership held by individuals and entities other than CoreSite Realty Corporation. The current holders of common Operating Partnership units are eligible to have the common Operating Partnership units redeemed for cash or common stock on a one-for-one basis, at our option.

The following table shows the common ownership interest in our Operating Partnership as of December 31, 2019, and December 31, 2018:

	December 31, 2019			December 31, 2018
	Number of Units	Percentage of Total		Number of Units	Percentage of Total
CoreSite Realty Corporation	37,244,987	77.6	%	36,256,032	75.8	%
Noncontrolling interests	10,771,658	22.4		11,575,268	24.2
Total	48,016,645	100.0	%	47,831,300	100.0	%

For each share of common stock issued by us, our Operating Partnership issues to us an equivalent common Operating Partnership unit. During the year ended December 31, 2019, we issued 185,345 shares of common stock related to employee compensation arrangements and therefore an equivalent number of common Operating Partnership units were issued to us by our Operating Partnership.

Holders of common Operating Partnership units of record as of March 29, 2019, June 28, 2019, September 30, 2019, and December 31, 2019, received quarterly distributions of $1.10 per unit, $1.22 per unit, $1.22 per unit, and $1.22 per unit, respectively, payable in correlation with declared dividends on shares of our common stock.

During the years ended December 31, 2019, 2018, and 2017, 803,610, 2,261,068, and 15,011, common Operating Partnership units held by The Carlyle Group and other third parties were redeemed on a one-for-one basis for shares of our common stock in connection with the sale by The Carlyle Group and other third parties of shares of our common stock, respectively. These redemptions were recorded as $5.2 million, $21.0 million, and $0.2 million reductions to noncontrolling interests in our Operating Partnership and a corresponding increase to total stockholder’s equity in the consolidated balance sheets for the years ended December 31, 2019, 2018, and 2017, respectively.

The redemption value of the noncontrolling interests at December 31, 2019, was $1.2 billion based on the closing price of the Company’s common stock of $112.12 on the last trading day prior to that date.

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12. Equity Incentive Plan

Our Board of Directors adopted and, with the approval of our stockholders, amended the 2010 Equity Incentive Plan (as amended, the “2010 Plan”) in 2013. The 2010 Plan is administered by the Compensation Committee of our Board of Directors. Awards issuable under the 2010 Plan include common stock, stock options, restricted stock, stock appreciation rights, dividend equivalents, Operating Partnership units and other incentive awards. We have reserved a total of 6,000,000 shares of our common stock for issuance pursuant to the 2010 Plan, which may be adjusted for changes in our capitalization and certain corporate transactions. To the extent that an award expires, terminates or lapses, or an award is settled in cash without the delivery of shares of common stock to the participant, then any unvested shares subject to the award will be available for future grant or sale under the 2010 Plan. Shares of restricted stock that are forfeited or repurchased by us pursuant to the 2010 Plan may again be awarded under the 2010 Plan. The payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2010 Plan.

As of December 31, 2019, 2,674,745 shares of our common stock were available for issuance pursuant to the 2010 Plan.

Stock Options

Stock option awards are granted with an exercise price equal to the closing market price of the Company’s common stock on the date of grant. The fair value of each option granted under the 2010 Plan is estimated on the date of grant using the Black-Scholes option-pricing model. The fair values are amortized on a straight-line basis over the vesting periods. Stock options have not been granted since the year ended December 31, 2013. The following table sets forth stock option activity under the 2010 Plan for the years ended December 31, 2019, 2018, and 2017

	Number of Shares Subject to Option	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding, December 31, 2016	265,550	$	22.96	5.0 years	$ 15.0 million
Granted	—		—
Exercised	(197,761)		24.37		$ 13.3 million
Forfeited	—		—
Expired	—		—
Options outstanding, December 31, 2017	67,789	$	19.12	3.4 years	$ 6.4 million
Granted	—		—
Exercised	(18,656)		16.63		$ 1.6 million
Forfeited	—		—
Expired	—		—
Options outstanding, December 31, 2018	49,133	$	20.06	2.6 years	$ 3.3 million
Granted	—		—
Exercised	(17,387)		20.94		$ 1.7 million
Forfeited	—		—
Expired	—		—
Options outstanding, December 31, 2019	31,746	$	19.57	1.4 years	$ 2.9 million

As of December 31, 2017, all stock option awards were fully vested and exercisable.

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Restricted Stock Awards and Units

Restricted stock awards and restricted stock units, or RSUs, are granted with a fair value equal to the closing market price of the Company's common stock on the date of grant. The principal difference between restricted stock awards and RSUs is that RSUs are not shares of our common stock and do not have any of the rights or privileges thereof, including voting rights. On the applicable vesting date, the holder of an RSU becomes entitled to a share of common stock. The restricted stock awards and RSUs are amortized on a straight-line basis to expense over the vesting period.

The following table sets forth the number of unvested restricted stock awards and RSUs and the weighted-average fair value of these awards at the date of grant:

	Restricted Stock Awards and Units	Weighted Average Fair Value at Grant Date
Unvested balance, December 31, 2016	323,641	$	53.84
Granted	139,788		85.79
Forfeited	(34,020)		64.00
Vested	(139,566)		44.31
Unvested balance, December 31, 2017	289,843	$	70.71
Granted	155,697		96.47
Forfeited	(36,546)		84.10
Vested	(124,115)		64.03
Unvested balance, December 31, 2018	284,879	$	85.98
Granted	160,361		99.91
Forfeited	(21,910)		94.03
Vested	(130,957)		78.32
Unvested balance, December 31, 2019	292,373	$	96.44

As of December 31, 2019, total unearned compensation on restricted stock awards and RSUs was approximately $19.1 million, and the weighted-average vesting period was 2.4 years.

Performance Stock Awards

We grant long-term incentives to members of management in the form of performance-based restricted stock awards (“PSAs”) under the 2010 Plan. The number of PSAs earned is based on our achievement of relative total shareholder return (“TSR”) measured versus the MSCI US REIT Index over a three-year performance period and ranges between 25% and 175% of the target number of shares for PSAs granted in 2017, 2018, and 2019. The PSAs are granted at the maximum percentage of target and are retired annually to the extent we do not meet the maximum relative TSR performance threshold versus the MSCI US REIT Index. The PSAs are earned upon TSR achievement measured both annually and over the full three-year performance period. The PSAs have a service condition and will be released at the end of the three-year performance period, to the extent earned, provided that the holder continues to be employed or otherwise in service of the Company at the end of the three-year performance period. The PSAs are amortized on a straight-line basis to expense over the vesting period. Holders of the PSAs are entitled to dividends on the PSAs, which are accrued and paid in cash at the end of the three-year performance period.

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The following table sets forth the number of unvested PSAs and the weighted-average fair value of these awards at the date of grant:

				Weighted-
				Average Fair
	Performance-Based Restricted Stock Awards			Value at Grant
	Minimum	Maximum	Target	Date
Unvested balance, December 31, 2018	50,823	173,944	112,385	$	96.58
Granted	10,926	76,480	43,703		114.55
Performance adjustment (1)	18,063	(29,819)	(5,878)		—
Forfeited	(1,538)	(5,604)	(3,571)		103.26
Vested	(43,650)	(43,650)	(43,650)		84.78
Unvested balance, December 31, 2019	34,624	171,351	102,989	$	107.84

(1) Includes the annual adjustment for the number of PSAs earned based on our achievement of relative TSR measured versus the MSCI US REIT Index for the applicable performance periods.

As of December 31, 2019, total unearned compensation on PSAs was approximately $5.6 million, and the weighted-average vesting period was 1.9 years. The fair value of each PSA award is estimated on the date of grant using a Monte Carlo simulation. The simulation requires assumptions for expected volatility, risk-free rate of return, and dividend yield. The following table summarizes the assumptions used to value the PSAs granted during the years ended December 31, 2019, 2018, and 2017:

	2019		2018			2017
Expected term (in years)	2.82			2.82		2.81
Expected volatility	24.09	%		24.15	%	23.33	%
Expected annual dividend(1)	—			—		—
Risk-free rate	2.48	%		2.24	%	1.60	%

(1) The fair value of the PSAs assumes reinvestment of dividends.

13. Earnings Per Share

Basic net income per share is calculated by dividing the net income attributable to common shares by the weighted-average number of common shares outstanding during the period. Diluted net income per share adjusts basic net income per share for the effects of potentially dilutive common shares, if the effect is not antidilutive. Potentially dilutive common stock consists of shares issuable under the 2010 Plan.

The following is a summary of basic and diluted net income per share (in thousands, except share and per share amounts):

	Year Ended December 31,
	2019		2018		2017
Net income attributable to common shares	$	75,840	$	77,922	$	62,605
Weighted-average common shares outstanding - basic		36,766,310		34,957,244		33,792,759
Effect of potentially dilutive common shares:
Stock options		36,685		47,338		88,399
Unvested awards		140,878		132,913		177,791
Weighted-average common shares outstanding - diluted		36,943,873		35,137,495		34,058,949
Net income per share attributable to common shares
Basic	$	2.06	$	2.23	$	1.85
Diluted	$	2.05	$	2.22	$	1.84

In the calculations above, we have excluded weighted-average potentially dilutive securities of 2,546, 132,749, and 24,961 for the years ended December 31, 2019, 2018, and 2017, respectively, as their effect would have been antidilutive.

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14. Employee Benefit Plan

We have a tax qualified retirement 401(k) plan that provides employees with an opportunity to save for retirement on a tax advantaged basis. Employees are eligible to participate on the first of the month following the date of hire. Additionally, on the first of the month following six months of employment, we provide a safe harbor contribution equal to 3% of the participant’s annual salary for the year ended December 31, 2018. The safe harbor contribution was increased to 4% of the participant’s annual salary, effective January 1, 2019. The employee and employer contributions are limited to the maximum amount allowed by the Internal Revenue Service. Both employee and employer contributions vest immediately. For the years ended December 31, 2019, 2018, and 2017, our contributions were $1.7 million, $1.21 million, and $1.1 million, respectively.

15. Estimated Fair Value of Financial Instruments

Authoritative guidance issued by FASB establishes a hierarchy of valuation techniques based on the observability of inputs utilized in measuring assets and liabilities at fair values. This hierarchy establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy under the authoritative guidance are as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the assessment date.

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 — Unobservable inputs for the asset or liability.

Our financial instruments consist of cash and cash equivalents, accounts and other receivables, interest rate swaps, the revolving credit facility, the senior unsecured term loans, senior unsecured notes, interest payable and accounts payable. The carrying values of cash and cash equivalents, accounts and other receivables, interest payable and accounts payable approximate fair values due to the short-term nature of these financial instruments. The interest rate swaps are recorded at fair value.

The valuation of our derivatives is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative, which reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. We have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy; however, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by our Operating Partnership and its counterparties. As of December 31, 2019, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustment is not significant to the overall valuation of our derivative portfolio. As a result, we classify our derivative valuation in Level 2 of the fair value hierarchy.

The total principal balance of our revolving credit facility, senior unsecured term loans, and senior unsecured notes was $1.5 billion and $1.1 billion as of December 31, 2019 and 2018, respectively, which approximates the fair value based on Level 3 inputs from the fair value hierarchy. Under the discounted cash flow method, the fair values of the revolving credit facility, the senior unsecured term loans, and the senior unsecured notes are based on our assumptions of market interest rates and terms available incorporating our credit risk for similar loan maturities.

Our lease liabilities are determined based on the estimated present value of our minimum lease payments under our lease agreements at least commencement. The discount rate used to determine the lease liabilities is based on our estimated incremental borrowing rate at lease commencement, based on Level 3 inputs from the fair value hierarchy.

16. Commitments and Contingencies

Our properties require periodic investments of capital for general capital improvements and for tenant related capital expenditures. We enter into various construction and equipment contracts with third parties for the development

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of our properties. At December 31, 2019, we had open commitments related to construction contracts of approximately $189.4 million.

Additionally, we have commitments related to telecommunications capacity used to connect data centers located within the same market or geographical area and power usage, and company-wide improvements that are ancillary to revenue generation. At December 31, 2019, we had open commitments related to these contracts of approximately $74.3 million of which $6.5 million is scheduled to be met during the year ended December 31, 2020.

On April 27, 2018, we filed suit against DGEB Management, LLC and its affiliates, the landlord of our DE1 facility (the “Landlord”), in the District Court, City and County of Denver, State of Colorado (the “District Court”), for certain claims relating to the building where our DE1 facility is located. The parties asserted various claims and counterclaims related to three primary areas: (1) a construction project within the DE1 building to house electrical transformers used to supply power, (2) our usage of images of the DE1 building on our website, and (3) the protocol for cross-connections within the DE1 building. The Landlord demanded approximately $21 million in damages, which included approximately $2.8 million related to the construction project, and further sought to hold us in default under the lease. On August 22, 2019, the jury found in our favor on all claims and counterclaims on which it was asked to decide, and awarded us nominal damages. Upon unopposed application, the District Court vacated deadlines for post-trial matters, including our application for reimbursement of legal fees under the lease, to provide time for the parties to discuss settlement of these post-trial matters. On December 20, 2019, the parties entered into a settlement agreement pursuant to which, among other matters, the parties agreed to file a joint motion to dismiss the litigation with prejudice and the Landlord agreed to pay us $3.1 million through delivery of a promissory note bearing interest at a floating rate of prime plus 2% per annum payable monthly. The promissory note is secured by our lease and other payment obligations, is fully pre-payable without penalty and is due December 20, 2024.

In the ordinary course of business, we are subject to claims and administrative proceedings. Except as described above, we are not presently party to any proceeding, which we believe to be material or which we would expect to have, individually or in the aggregate, a material adverse effect on our business, financial condition, cash flows or results of operations. The outcome of litigation and administrative proceedings is inherently uncertain. Therefore, if one or more legal or administrative matters are resolved against us in a reporting period for amounts in excess of management’s expectations, our financial condition, cash flows or results of operations for that reporting period could be materially adversely affected.

17. Quarterly Financial Information (unaudited)

The table below reflects the selected quarterly information for the years ended December 31, 2019, and 2018 (in thousands except share data):

	Three Months Ended
	December 31,		September 30,		June 30,		March 31,
	2019		2019		2019		2019
Revenue	$	146,035	$	144,891	$	142,906	$	138,895
Operating income		35,684		33,643		36,056		35,433
Net income		24,745		22,644		25,743		25,905
Net income attributable to common shares		19,194		17,450		19,535		19,661
Net income per share attributable to common shares - basic	$	0.51	$	0.47	$	0.54	$	0.54
Net income per share attributable to common shares - diluted	$	0.51	$	0.47	$	0.53	$	0.54

	Three Months Ended
	December 31,		September 30,		June 30,		March 31,
	2018		2018		2018		2018
Revenue	$	139,146	$	139,180	$	136,447	$	129,619
Operating income		35,366		34,473		36,103		36,337
Net income		25,898		25,020		27,279		28,566
Net income attributable to common shares		19,631		18,600		19,389		20,302
Net income per share attributable to common shares - basic	$	0.54	$	0.52	$	0.57	$	0.60
Net income per share attributable to common shares - diluted	$	0.54	$	0.52	$	0.57	$	0.59

85

CoreSite Realty Corporation

Schedule III

Real Estate and Accumulated Depreciation

December 31, 2019

(in thousands)

								Gross Amount Carried at
		Initial Cost				Costs Capitalized		December 31, 2019						Accumulated		Year
				Building and		Subsequent to				Building and				Depreciation at		Acquired
Property Name	Location	Land		Improvements		Acquisition		Land		Improvements		Total		December 31, 2019		or Leased
BO1	Somerville, MA	$	6,100	$	26,748	$	92,464	$	5,154	$	120,158	$	125,312	$	66,223	2007
CH1	Chicago, IL		5,493		49,522		66,321		5,493		115,843		121,336		52,821	2010
CH2	Chicago, IL		4,383		—		95,591		—		99,974		99,974		—	2018
DC1	Washington, DC		—		4,797		5,311		—		10,108		10,108		7,404	2010
DC2	Washington, DC		—		—		22,560		—		22,560		22,560		2,336	2017
DE1	Denver, CO		—		37		32,647		—		32,684		32,684		9,238	2012
DE2	Denver, CO		—		4		2,432		—		2,436		2,436		1,081	2012
LA1	Los Angeles, CA		—		41,657		61,776		—		103,433		103,433		57,848	2010
LA2	Los Angeles, CA		18,672		94,114		177,460		18,672		271,574		290,246		94,256	2010
LA3	Los Angeles, CA		9,795		—		48,986		—		58,781		58,781		—	2010
LA4	Los Angeles, CA		—		2,533		382		—		2,915		2,915		890	2018
MI1	Miami, FL		728		9,325		5,299		728		14,624		15,352		4,938	2010
NY1	New York, NY		—		—		43,340		—		43,340		43,340		29,633	2007
NY2	Secaucus, NJ		4,952		18,408		148,046		2,729		168,677		171,406		37,441	2013
SV1	San Jose, CA		6,863		91,719		44,091		6,863		135,810		142,673		49,727	2010
SV2	Milpitas, CA		5,086		5,046		28,342		5,086		33,388		38,474		23,578	2006
SV3	Santa Clara, CA		4,162		3,482		50,985		3,972		54,657		58,629		44,812	2007
SV4	Santa Clara, CA		4,632		3,716		99,272		4,501		103,119		107,620		53,801	2007
SV5	Santa Clara, CA		2,572		—		23,577		2,544		23,605		26,149		3,844	2007
SV6	Santa Clara, CA		4,741		—		36,758		4,825		36,674		41,499		3,377	2007
SV7	Santa Clara, CA		3,793		—		246,559		3,595		246,757		250,352		44,557	2007
SV8	Santa Clara, CA		12,158		—		184,198		8,575		187,781		196,356		1,989	2017
SV9	Santa Clara, CA		25,767		407		1,440		—		27,614		27,614		321	2019
VA1	Reston, VA		6,903		32,939		95,345		6,779		128,408		135,187		81,567	2007
VA2	Reston, VA		5,197		—		135,290		5,539		134,948		140,487		41,563	2007
VA3	Reston, VA		8,529		26,411		155,722		3,866		186,796		190,662		5,773	2016
Reston Campus Expansion	Reston, VA		5,671		17,538		4		5,672		17,541		23,213		1,479	2016
	Total	$	146,197	$	428,403	$	1,904,198	$	94,593	$	2,384,205	$	2,478,798	$	720,498

None of our properties are encumbered.

The aggregate cost of the total properties for federal income tax purposes was approximately $2,133.9 million (unaudited) at December 31, 2019.

See accompanying report of independent registered public accounting firm.

86

CoreSite Realty Corporation

Schedule III

Real Estate and Accumulated Depreciation (Continued)

December 31, 2019

(in thousands)

The following table reconciles the historical cost and accumulated depreciation of our properties for the years ended December 31, 2019, 2018, and 2017:

	Year Ended December 31,
	2019		2018		2017
Property
Balance, beginning of year	$	2,083,205	$	1,821,217	$	1,643,576
Additions - property acquisitions		26,174		7,474		12,158
Additions - improvements		369,419		254,514		165,483
Balance, end of year	$	2,478,798	$	2,083,205	$	1,821,217
Accumulated Depreciation
Balance, beginning of year	$	590,784	$	473,141	$	369,303
Additions, net of disposals		129,714		117,643		103,838
Balance, end of year	$	720,498	$	590,784	$	473,141

See accompanying report of independent registered public accounting firm.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and regulations and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of December 31, 2019, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2019.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the three months ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act). The internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements.

Based on its inherent limitations, internal control over financial reporting may not prevent or detect misstatement. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures might deteriorate.

As of December 31, 2019, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, regarding the effectiveness of our internal control over financial reporting. Based on the criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, our Chief Executive Officer and our Chief Financial Officer concluded, as of December 31, 2019, that our internal control over financial reporting was effective in providing reasonable assurance of the fair preparation and presentation of published financial statements.

KPMG LLP, our independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2019, as stated in their report which begins on page 57 of this Annual Report.

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ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Item 10 will be included in our definitive proxy statement relating to our 2020 Annual Meeting of Stockholders, to be filed no later than 120 days after December 31, 2019, and is incorporated herein by reference.

Because our common stock is listed on the NYSE, our Chief Executive Officer is required to make, and will make, an annual certification to the NYSE stating that he was not aware of any violation by us of the corporate governance listing standards of the NYSE. Our Chief Executive Officer will make his annual certification to that effect to the NYSE within the 30-day period following our 2020 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 will be included in our definitive proxy statement relating to our 2020 Annual Meeting of Stockholders, to be filed no later than 120 days after December 31, 2019, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 will be included in our definitive proxy statement relating to our 2020 Annual Meeting of Stockholders, to be filed no later than 120 days after December 31, 2019, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 will be included in our definitive proxy statement relating to our 2020 Annual Meeting of Stockholders, to be filed no later than 120 days after December 31, 2019, and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by Item 14 will be included in our definitive proxy statement relating to our 2020 Annual Meeting of Stockholders, to be filed no later than 120 days after December 31, 2019, and is incorporated herein by reference.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this Annual Report or incorporated by reference:

(1) Our consolidated financial statements are provided under Item 8 of this Annual Report.

(2) Schedule III—Real Estate and Accumulated Depreciation is included herein at page 86. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

(b) The following exhibits are filed with this Annual Report or incorporated by reference, as indicated:

Exhibit Number	Description
3.1	Articles of Amendment and Restatement of CoreSite Realty Corporation.(1)
3.2	Amended and Restated Bylaws of CoreSite Realty Corporation.(19)
4.1	Specimen certificate representing the Common Stock of CoreSite Realty Corporation.(2)
4.3†	Description of Securities.
10.1	Amended and Restated Agreement of Limited Partnership of CoreSite, L.P., dated as of December 12, 2012.(7)
10.2	2010 Equity Incentive Award Plan (As Amended and Restated).(11)*
10.3	Form of 2010 Equity Incentive Award Plan Restricted Stock Unit Award Agreement.(1)*
10.4	Form of 2010 Equity Incentive Award Plan Stock Option Agreement.(1)*
10.5	Form of 2010 Equity Incentive Award Plan Restricted Stock Award Agreement.(1)*
10.6	Form of 2010 Equity Incentive Award Plan Restricted Stock Unit Agreement for Non-Employee Directors.(1)*
10.7	Form of Indemnification Agreement for directors and officers of CoreSite Realty Corporation. (26)*
10.8	Registration Rights Agreement among CoreSite Realty Corporation and the holders listed therein, dated as of September 28, 2010.(3)
10.9	Lease between Hines REIT One Wilshire Services, Inc. and CRG West One Wilshire, L.L.C., dated as of August 1, 2007.(1)
10.10	First Amendment to Sublease between Hines REIT One Wilshire Services, Inc. and CoreSite One Wilshire, L.L.C. (formerly known as CRG West One Wilshire, L.L.C.), dated as of January 9, 2013.(9)
10.11	Second Amendment to Sublease between GI TC One Wilshire Services, LLC and CoreSite One Wilshire, L.L.C. (formerly known as CRG West One Wilshire, L.L.C.), dated as of July 30, 2018.(22)
10.12	Lease between Hines REIT One Wilshire, LP and CRG West One Wilshire, L.L.C., dated as of August 1, 2007.(1)
10.13	First Amendment to Lease between Hines REIT One Wilshire, LP and CRG West One Wilshire, L.L.C., dated as of May 1, 2008.(1)
10.14	Second Amendment to Lease between Hines REIT One Wilshire LP and CoreSite One Wilshire, L.L.C. (formerly known as CRG West One Wilshire, L.L.C.), dated as of November 5, 2009.(8)
10.15	Third Amendment to Lease between Hines REIT One Wilshire LP and CoreSite One Wilshire L.L.C. (formerly known as CRG West One Wilshire, L.L.C.), dated as of June 15, 2011(8).
10.16	Fourth Amendment to Lease between Hines REIT One Wilshire LP and CoreSite One Wilshire, L.L.C. (formerly known as CRG West One Wilshire, L.L.C.), dated as of January 9, 2013.(9)
10.17	Fifth Amendment to Lease between GI TC One Wilshire, LLC (formerly known as Hines REIT One Wilshire LP) and CoreSite One Wilshire, L.L.C. (formerly known as CRG West One Wilshire, L.L.C.), dated as of May 29, 2015.(12)
10.18	Sixth Amendment to Lease between GI TC One Wilshire, LLC and CoreSite One Wilshire, L.L.C., effective as of May 31, 2016 (formerly known as CRG West One Wilshire, L.L.C.).(15)
10.19	Seventh Amendment to Lease, dated as of June 30, 2018, between GI TC One Wilshire, LLC and CoreSite One Wilshire, LLC (formerly known as CRG West One Wilshire, L.L.C.).(21)

90

10.20	Eighth Amendment to Lease, date July 10, 2019, between GI TC One Wilshire, LLC and CoreSite One Wilshire L.L.C (formerly known as CRG West One Wilshire, L.L.C.) (24)
10.21	Form of Restricted Stock Agreement.(3)*
10.22	Form of Restricted Unit Agreement.(1)*
10.23	Form of Management Rights Agreement.(1)*
10.24	CoreSite Realty Corporation and CoreSite, L.P. Senior Management Severance and Change in Control Program.(1)*
10.25	Employment Agreement between CoreSite L.L.C. and Jeffrey S. Finnin, dated as of January 4, 2011.(4)*
10.26	Employment Agreement between CoreSite L.L.C. and Derek McCandless, dated as of February 7, 2011.(5)*
10.27	Employment Agreement between CoreSite L.L.C. and Steve Smith, dated April 20, 2015.(10)*
10.28	Employment Offer Letter between CoreSite L.L.C. and Brian Warren, dated as of September 25, 2011.(14)*
10.29	Employment Agreement between CoreSite L.L.C. and Paul E. Szurek, dated as of July 27, 2016.(17)*
10.30	Fifth Amended and Restated Credit Agreement, among CoreSite, L.P., the subsidiary borrowers party thereto, KeyBank National Association, as administrative agent and a lender, the other lenders party thereto, KeyBanc Capital Markets, RBC Capital Markets, Regions Capital Markets, TD Securities (USA) LLC and Wells Fargo Securities, as revolving credit and term loan III joint lead arrangers and revolving credit and term loan III co-syndication agents, KeyBanc Capital Markets, RBC Capital Markets, SunTrust Robinson Humphrey, Inc., TD Securities (USA) LLC and Wells Fargo Securities, as term loan IV joint lead arrangers and term loan IV co-syndication agents, dated as of November 8, 2019. (23)
10.31	Amended and Restated Term Loan Agreement among CoreSite, L.P., as borrower, Royal Bank of Colorado, as administrative agent, on behalf of itself and certain other lenders, and other lenders party thereto, dated as of April 19, 2017.(20)
10.32	First Amendment to Amended and Restated Term Loan Agreements among CoreSite, L.P., as borrower, Royal Bank of Canada, as administrative agent, on behalf of itself and certain other lenders, the other lenders party thereto and the guarantors party thereto, dated as of April 19, 2018.(6)
10.33	Second Amendment to Amended and Restated Term Loan Agreement, among CoreSite, L.P., as borrower, Royal Bank of Canada, as administrative agent, on behalf of itself and certain other lenders, the other lenders party thereto and the guarantors party thereto, dated as of November 9, 2019. (23)
10.34	Note Purchase Agreement among CoreSite, L.P., CoreSite Realty Corporation, and the purchasers listed on the Purchaser Schedule thereto, dated as of June 15, 2016.(16)
10.35	First Amendment to Note Purchase Agreement dated June 15, 2016 among CoreSite, L.P., CoreSite Realty Corporation and the noteholders party thereto, dated as of June 12, 2018.(13)
10.36	Note Purchase Agreement among CoreSite, L.P., CoreSite Realty Corporation and the purchasers listed on the Purchasers Schedule thereto, dated as of April 20, 2017.(20)
10.37	First Amendment to Note Purchase Agreement dated April 20, 2017 among CoreSite, L.P., CoreSite Realty Corporation and the noteholders party thereto, dated as of June 12, 2018.(13)
10.38	Amended and Restated Non-Employee Director Compensation Policy.(18)*
10.39	2019 Executive Short-Term Incentive Plan. (18)*
10.40	Note Purchase Agreement, dated as of April 17, 2019, by and among CoreSite Realty Corporation, CoreSite, L.P. and the purchasers listed on the Purchaser Schedule thereto. (25)
21.1†	Subsidiaries of CoreSite Realty Corporation.
23.1†	Consent of KPMG LLP.
31.1†	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2†	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS†	XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are imbedded within the Inline XBRL document.
101.SCH†	XBRL Taxonomy Extension Schema Document.
101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB†	XBRL Taxonomy Extension Label Linkbase Document.

91

101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF† 104	XBRL Taxonomy Extension Definition Linkbase Document. Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Represents management contract or compensatory plan or agreement.

† Filed herewith.

+ Furnished herewith.

(1)Incorporated by reference to our Registration Statement (Amendment No. 7) on Form S-11 (Registration No. 333-166810) filed on September 22, 2010.

(2)Incorporated by reference to our Post-Effective Amendment to our Registration Statement on Form S-11 (Registration No. 333-166810) filed on September 22, 2010.

(3) Incorporated by reference to our Current Report on Form 8-K filed on October 1, 2010.

(4) Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K filed on January 6, 2011.

(5) Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K filed on February 11, 2011.

(6) Incorporated by reference to our Current Report on Form 8-K filed on April 20, 2018.

(7) Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on December 18, 2012.

(8) Incorporated by reference to our Quarterly Report on Form 10-Q filed on November 2, 2012.

(9) Incorporated by reference to our Current Report on Form 8-K filed on January 14, 2013.

(10) Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on April 24, 2015.

(11) Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 24, 2013.

(12) Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 4, 2015.

(13) Incorporated by reference to our Current Report on Form 8-K filed on June 13, 2018.

(14) Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed on April 29, 2016.

(15) Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 2, 2016.

(16) Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 16, 2016.

(17) Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed July 28, 2016.

(18) Incorporated by reference to Exhibit 10.32 to our Quarterly Report on Form 10-Q filed on April 26, 2019.

(19) Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on March 9, 2017.

(20) Incorporated by reference to our Current Report on Form 8-K filed on April 20, 2017.

(21) Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on July 2, 2018.

(22)Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on October 26, 2018.

(23)Incorporated by reference to our Current Report on Form 8-K filed on November 8, 2019.

92

(24)Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on November 1, 2019.

(25)Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 17, 2019.

(26)Incorporated by reference to Exhibit 10.7 to our Annual Report on Form 10-K filed on February 8, 2019.

ITEM 16. FORM 10-K SUMMARY

Not applicable.

93

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: February 7, 2020	CORESITE REALTY CORPORATION
	By:	/s/ Paul E. Szurek
		Paul E. Szurek
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Paul E. Szurek	President and Chief Executive Officer	February 7, 2020
Paul E. Szurek	(Principal Executive Officer) and Director
/s/ Jeffrey S. Finnin	Chief Financial Officer (Principal Financial Officer)	February 7, 2020
Jeffrey S. Finnin
/s/ Mark R. Jones Mark R. Jones	Chief Accounting Officer (Principal Accounting Officer)	February 7, 2020
/s/ Robert G. Stuckey	Chairman of the Board of Directors	February 7, 2020
Robert G. Stuckey
/s/ James A. Attwood, Jr.	Director	February 7, 2020
James A. Attwood, Jr.
/s/ Jean A. Bua	Director	February 7, 2020
Jean A. Bua
/s/ Kelly C. Chambliss	Director	February 7, 2020
Kelly C. Chambliss
/s/ Michael R. Koehler	Director	February 7, 2020
Michael R. Koehler
/s/ J. David Thompson	Director	February 7, 2020
J. David Thompson
/s/ David A. Wilson	Director	February 7, 2020
David A. Wilson

94