10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2020

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

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 electronically 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 Exchange Act).  Yes ☐  No ☒

The number of shares of common stock outstanding at April 29, 2020, was 37,903,353.

CORESITE REALTY CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED March 31, 2020

TABLE OF CONTENTS

six
	PAGE
	NO.
PART I. FINANCIAL INFORMATION	3
ITEM 1. Financial Statements	3
Condensed Consolidated Balance Sheets as of March 31, 2020, and December 31, 2019 (unaudited)	3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2020, and 2019 (unaudited)	4
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020, and 2019 (unaudited)	5
Condensed Consolidated Statements of Equity for the three months ended March 31, 2020, and 2019 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020, and 2019 (unaudited)	7
Notes to Condensed Consolidated Financial Statements (unaudited)	8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	42
ITEM 4. Controls and Procedures	42
PART II. OTHER INFORMATION	43
ITEM 1. Legal Proceedings	43
ITEM 1A. Risk Factors	43
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	44
ITEM 3. Defaults Upon Senior Securities	44
ITEM 4. Mine Safety Disclosures	44
ITEM 5. Other Information	44
ITEM 6. Exhibits	45
Signatures	46
Exhibit 10.1 Exhibit 10.2 Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CORESITE REALTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands except share and per share data)

	March 31,		December 31,
	2020		2019
ASSETS
Investments in real estate:
Land	$	94,593	$	94,593
Buildings and improvements		2,015,530		1,989,731
		2,110,123		2,084,324
Less: Accumulated depreciation and amortization		(756,025)		(720,498)
Net investment in operating properties		1,354,098		1,363,826
Construction in progress		437,794		394,474
Net investments in real estate		1,791,892		1,758,300
Operating lease right-of-use assets, net		175,999		172,976
Cash and cash equivalents		3,307		3,048
Accounts and other receivables, net of allowance for doubtful accounts of $904 and $371 as of March 31, 2020, and December 31, 2019, respectively		24,260		21,008
Lease intangibles, net of accumulated amortization of $4,231 and $4,022 as of March 31, 2020, and December 31, 2019, respectively		3,600		3,939
Goodwill		40,646		40,646
Other assets, net		104,555		101,082
Total assets	$	2,144,259	$	2,100,999
LIABILITIES AND EQUITY
Liabilities:
Debt, net of unamortized deferred financing costs of $8,493 and $9,098 as of March 31, 2020, and December 31, 2019, respectively	$	1,572,007	$	1,478,402
Operating lease liabilities		190,759		187,443
Accounts payable and accrued expenses		102,148		123,304
Accrued dividends and distributions		61,637		62,332
Acquired below-market lease contracts, net of accumulated amortization of $1,535 and $1,511 as of March 31, 2020, and December 31, 2019, respectively		2,462		2,511
Unearned revenue, prepaid rent and other liabilities		50,798		33,119
Total liabilities		1,979,811		1,887,111
Stockholders' equity:
Common Stock, par value $0.01, 100,000,000 shares authorized and 37,905,933 and 37,701,042 shares issued and outstanding at March 31, 2020, and December 31, 2019, respectively		374		373
Additional paid-in capital		516,133		512,324
Accumulated other comprehensive loss		(19,158)		(6,026)
Distributions in excess of net income		(376,835)		(348,509)
Total stockholders' equity		120,514		158,162
Noncontrolling interests		43,934		55,726
Total equity		164,448		213,888
Total liabilities and equity	$	2,144,259	$	2,100,999

See accompanying notes to condensed consolidated financial statements.

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CORESITE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands except share and per share data)

	Three Months Ended March 31,
	2020		2019
Operating revenues:
Data center revenue:
Rental, power, and related revenue	$	124,505	$	117,853
Interconnection revenue		20,085		18,416
Office, light-industrial and other revenue		2,772		2,626
Total operating revenues		147,362		138,895
Operating expenses:
Property operating and maintenance		40,183		38,110
Real estate taxes and insurance		6,190		6,196
Depreciation and amortization		40,991		35,646
Sales and marketing		6,144		5,652
General and administrative		11,267		10,170
Rent		8,399		7,688
Total operating expenses		113,174		103,462
Operating income		34,188		35,433
Interest expense		(11,183)		(9,498)
Income before income taxes		23,005		25,935
Income tax expense		(17)		(30)
Net income	$	22,988	$	25,905
Net income attributable to noncontrolling interests		5,140		6,244
Net income attributable to common shares	$	17,848	$	19,661
Net income per share attributable to common shares:
Basic	$	0.48	$	0.54
Diluted	$	0.48	$	0.54
Weighted average common shares outstanding
Basic		37,335,892		36,347,781
Diluted		37,504,349		36,547,065

See accompanying notes to condensed consolidated financial statements.

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CORESITE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited and in thousands)

	Three Months Ended March 31,
	2020		2019
Net income	$	22,988	$	25,905
Other comprehensive (loss) income:
Unrealized (loss) gain on derivative contracts		(17,028)		(4,466)
Reclassification of other comprehensive income (loss) to interest expense		114		(198)
Comprehensive income		6,074		21,241
Comprehensive income attributable to noncontrolling interests		1,358		5,120
Comprehensive income attributable to CoreSite Realty Corporation	$	4,716	$	16,121

See accompanying notes to condensed consolidated financial statements.

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CORESITE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited and in thousands except share data)

						Accumulated
				Additional		Other		Distributions		Total
	Common Shares			Paid-in		Comprehensive		in Excess of		Stockholders'		Noncontrolling		Total
	Number	Amount		Capital		Income (Loss)		Net Income		Equity		Interests		Equity
Balance at January 1, 2020	37,701,042	$	373	$	512,324	$	(6,026)	$	(348,509)	$	158,162	$	55,726	$	213,888
Redemption of noncontrolling interests	2,140		—		11		—		—		11		(11)		—
Issuance of stock awards, net of forfeitures	199,541		—		—		—		—		—		—		—
Exercise of stock options	3,210		—		73		—		—		73		—		73
Share-based compensation	—		1		3,725		—		—		3,726		—		3,726
Dividends and distributions	—		—		—		—		(46,174)		(46,174)		(13,139)		(59,313)
Net income	—		—		—		—		17,848		17,848		5,140		22,988
Other comprehensive loss	—		—		—		(13,132)		—		(13,132)		(3,782)		(16,914)
Balance at March 31, 2020	37,905,933	$	374	$	516,133	$	(19,158)	$	(376,835)	$	120,514	$	43,934	$	164,448

						Accumulated
				Additional		Other		Distributions		Total
	Common Shares			Paid-in		Comprehensive		in Excess of		Stockholders'		Noncontrolling		Total
	Number	Amount		Capital		Income (Loss)		Net Income		Equity		Interests		Equity
Balance at January 1, 2019	36,708,691	$	363	$	491,314	$	(2,193)	$	(246,929)	$	242,555	$	92,078	$	334,633
Issuance of stock awards, net of forfeitures	192,009		—		—		—		—		—		—		—
Exercise of stock options	1,129		—		17		—		—		17		—		17
Share-based compensation	—		1		3,592		—		—		3,593		—		3,593
Dividends and distributions	—		—		—		—		(40,581)		(40,581)		(12,733)		(53,314)
Net income	—		—		—		—		19,661		19,661		6,244		25,905
Other comprehensive loss	—		—		—		(3,540)		—		(3,540)		(1,124)		(4,664)
Balance at March 31, 2019	36,901,829	$	364	$	494,923	$	(5,733)	$	(267,849)	$	221,705	$	84,465	$	306,170

See accompanying notes to condensed consolidated financial statements.

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CORESITE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

	Three Months Ended March 31,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	22,988	$	25,905
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		40,991		35,646
Amortization of above/below market leases		(34)		(86)
Amortization of deferred financing costs and hedge amortization		1,029		611
Share-based compensation		3,482		3,432
Bad debt expense (recovery)		700		(27)
Changes in operating assets and liabilities:
Accounts receivable		(3,952)		(7,658)
Deferred rent receivable		(496)		1,036
Initial direct costs		(6,189)		(2,694)
Other assets		(2,408)		(4,519)
Accounts payable and accrued expenses		(2,579)		2,757
Unearned revenue, prepaid rent and other liabilities		726		857
Operating leases		296		643
Net cash provided by operating activities		54,554		55,903
CASH FLOWS FROM INVESTING ACTIVITIES
Tenant improvements		(1,329)		(1,046)
Real estate improvements		(85,840)		(80,795)
Net cash used in investing activities		(87,169)		(81,841)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options		73		17
Proceeds from revolving credit facility		107,500		88,000
Payments on revolving credit facility		(14,500)		(8,500)
Payments of loan fees and costs		(191)		—
Dividends and distributions		(60,008)		(53,884)
Net cash provided by financing activities		32,874		25,633
Net change in cash and cash equivalents		259		(305)
Cash and cash equivalents, beginning of period		3,048		2,599
Cash and cash equivalents, end of period	$	3,307	$	2,294
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of capitalized amounts	$	14,670	$	6,350
Cash paid for operating lease liabilities	$	6,626	$	6,071
NON-CASH INVESTING AND FINANCING ACTIVITY
Construction costs payable capitalized to real estate	$	46,739	$	66,123
Accrual of dividends and distributions	$	61,637	$	55,109
NON-CASH OPERATING ACTIVITY
Lease liabilities arising from obtaining right-of-use assets	$	7,646	$	—

See accompanying notes to condensed consolidated financial statements.

7

CORESITE REALTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

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 March 31, 2020, the Company owned a 77.6% common interest in our Operating Partnership, and affiliates of The Carlyle Group and others owned a 22.4% interest in our Operating Partnership. See additional discussion in Note 10, Noncontrolling Interests – Operating Partnership.

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by our management in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in compliance with the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the expected results for the year ending December 31, 2020. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

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.

Recently Adopted Accounting Pronouncements

Fair Value Measurement

In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance codified in Accounting Standards Update (“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 became effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We adopted the standard effective January 1, 2020, and the provisions of ASU 2018-13 did not have a material impact on our condensed 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. We adopted the standard effective January 1, 2020, on a prospective basis, and the provisions of ASU 2018-15 did not have a material impact on our condensed consolidated financial statements.

8

Financial Instruments – Credit Losses

In June 2016, the FASB issued guidance codified in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduced the “current expected credit losses” model, which requires companies to estimate credit losses immediately upon exposure. The guidance applies to financial assets measured at amortized cost, including financing receivables and trade receivables. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which clarified that operating leases are outside the scope of Topic 326, and instead should be accounted for under ASC 842. The standard became effective, for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We adopted the standard effective January 1, 2020, on a prospective basis, and the provisions of ASC 2016-13 and ASU 2018-19 did not have a material impact on our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued guidance codified in ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective for all entities as of March 12, 2020 through December 31, 2022. An entity can elect to apply the amendments as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to that date that the financial statements are available to be issued. We are currently evaluating the optional expedients and exceptions provided by ASU 2020-04 to determine the impact on our condensed consolidated financial statements.

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

Use of Estimates

The preparation of these unaudited condensed 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 unaudited condensed 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 $3.5 million and $2.6 million for the three months ended March 31, 2020, and 2019, respectively.

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

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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 $36.9 million and $32.2 million for the three months ended March 31, 2020, and 2019, 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 are 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 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 three months ended March 31, 2020, or 2019.

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 March 31, 2020, and December 31, 2019, 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 three months ended March 31, 2020, or 2019.

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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 $3.3 million and $3.4 million for the three months ended March 31, 2020, and 2019, respectively. Initial direct costs are included within other assets in the condensed consolidated balance sheets and consisted of the following, net of amortization, as of March 31, 2020, and December 31, 2019 (in thousands):

	March 31,		December 31,
	2020		2019
Internal sales commissions	$	15,335	$	15,064
Third party commissions		12,820		10,845
Other		436		462
Total	$	28,591	$	26,371

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 condensed consolidated balance sheets.

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 three months ended March 31, 2020, and 2019, no impairment of long-lived assets was recognized in the condensed consolidated financial statements.

Derivative Instruments and Hedging Activities

We reflect all derivative instruments at fair value as either assets or liabilities on the condensed 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 8, 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

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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. No impairment of internal-use software was recognized in the condensed consolidated financial statements for the three months ended March 31, 2020, and 2019.

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 condensed 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 condensed 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.

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 condensed 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 the collectability of 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 not be probable. At March 31, 2020, and December 31, 2019, the allowance for doubtful accounts totaled $0.9 million and $0.4 million, respectively, on the condensed consolidated balance sheets.

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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 condensed 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 March 31, 2020, and December 31, 2019, the amount included in unearned revenue, prepaid rent and other liabilities on the condensed consolidated balance sheets was approximately $1.7 million at each date.

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 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 condensed 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.

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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 March 31, 2020, and December 31, 2019, 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.

Risks and Uncertainties

The full extent of the operational and financial impact of the novel coronavirus (“COVID-19”) outbreak on our business has yet to be determined. The impact of the outbreak of COVID-19 is dependent on future developments, including, among other factors, the duration and spread of the outbreak, along with related government-mandated business shutdowns, travel advisories and restrictions on movement, the recovery time of general employment levels, disrupted supply chains, potentially material staffing shortages, construction and development delays, and uncertainty with respect to accessibility of additional funding sources. In addition, some of our customers and prospective customers are dependent on areas of the economy that have been significantly impacted by the outbreak of COVID-19, which may impact their ability to comply with their rent obligations or their demand for additional space and power from us. As of March 31, 2020, we have not recognized a material loss, impairment, or contingency within our condensed consolidated financial statements as a result of the COVID-19 pandemic.

3. Investment in Real Estate

The following is a summary of the properties owned or leased by market at March 31, 2020 (in thousands):

			Buildings and		Construction in
Market	Land		Improvements		Progress		Total Cost
Boston	$	5,154	$	119,803	$	3,005	$	127,962
Chicago		5,493		115,909		110,768		232,170
Denver		—		34,938		386		35,324
Los Angeles		18,672		377,134		81,178		476,984
Miami		728		14,641		—		15,369
New York		2,729		173,080		54,719		230,528
Northern Virginia		21,856		401,645		101,718		525,219
San Francisco Bay		39,961		778,380		86,020		904,361
Total	$	94,593	$	2,015,530	$	437,794	$	2,547,917

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

Market	Land		Buildings and Improvements		Construction in Progress		Total Cost
Boston	$	5,154	$	119,227	$	931	$	125,312
Chicago		5,493		115,699		100,118		221,310
Denver		—		32,659		2,461		35,120
Los Angeles		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		39,961		776,642		72,763		889,366
Total	$	94,593	$	1,989,731	$	394,474	$	2,478,798

4. Other Assets

Other assets consisted of the following, net of amortization and depreciation, if applicable for each line item, as of March 31, 2020, and December 31, 2019 (in thousands):

	March 31,		December 31,
	2020		2019
Deferred rent receivable	$	38,831	$	38,335
Initial direct costs		28,591		26,371
Internal-use software		16,699		16,747
Prepaid expenses		12,178		7,675
Corporate furniture, fixtures and equipment		4,507		4,848
Deferred financing costs - revolving credit facility		3,076		3,148
Other		673		3,958
Total	$	104,555	$	101,082

5. 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 15 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 at March 31, 2020, and December 31, 2019. The weighted-average discount rate was 4.9% at each date.

During the three months ended March 31, 2020, we extended the term of approximately 25,000 NRSF at our existing DC2 data center from July 2028 to July 2035. As a result of this extension, we remeasured the lease liability and adjusted the ROU asset by approximately $7.0 million.

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

	Three Months Ended March 31,
	2020		2019
Lease expense:
Operating lease expense	$	6,862	$	6,396
Variable lease expense		1,537		1,292
Rent expense	$	8,399	$	7,688

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6. Lease Revenue

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

	Three Months Ended March 31,
	2020		2019
Lease revenue:
Minimum lease revenue	$	106,441	$	99,410
Variable lease revenue		20,836		21,069
Total lease revenue	$	127,277	$	120,479

7. Debt

A summary of outstanding indebtedness as of March 31, 2020, and December 31, 2019, is as follows (in thousands):

		Maturity	March 31,		December 31,
	Interest Rate	Date	2020		2019
Revolving credit facility(1)	2.45% and 3.01% at March 31, 2020, and December 31, 2019, respectively	November 8, 2023	$	155,500	$	62,500
2022 Senior unsecured term loan(1)	1.76% and 2.96% at March 31, 2020, and December 31, 2019, respectively	April 19, 2022		200,000		200,000
2023 Senior unsecured notes	4.19% at March 31, 2020, and December 31, 2019, respectively	June 15, 2023		150,000		150,000
2024 Senior unsecured term loan(1)	2.86% and 3.44% at March 31, 2020, and December 31, 2019, respectively	April 19, 2024		150,000		150,000
2024 Senior unsecured notes	3.91% at March 31, 2020, and December 31, 2019, respectively	April 20, 2024		175,000		175,000
2025 Senior unsecured term loan(1)	2.32% and 2.81% at March 31, 2020, and December 31, 2019, respectively	April 1, 2025		350,000		350,000
2026 Senior unsecured notes(1)	4.52% at March 31, 2020, and December 31, 2019, respectively	April 17, 2026		200,000		200,000
2029 Senior unsecured notes	4.31% at March 31, 2020, and December 31, 2019, respectively	April 17, 2029		200,000		200,000
Total principal outstanding		`		1,580,500		1,487,500
Unamortized deferred financing costs				(8,493)		(9,098)
Total debt			$	1,572,007	$	1,478,402

(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 March 31, 2020, and 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. We entered into three new interest rate swaps during the quarter ended March 31, 2020. See Note 8 – 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

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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 securing capital from new or existing lenders.

Borrowings under the revolving credit facility were 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 March 31, 2020, our Operating Partnership’s leverage ratio was 31.2% 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 March 31, 2020, the borrowing capacity was $450.0 million. As of March 31, 2020, $155.5 million was borrowed and outstanding, $6.1 million was outstanding under letters of credit, and therefore $288.4 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 March 31, 2020, was 31.2%

● a maximum secured debt ratio (defined as total consolidated secured debt to total gross asset value) of 40%, which, as of March 31, 2020, was 0.0%

● 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 March 31, 2020, was 5.8 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 March 31, 2020, 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 “2022 Term Loan”). 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 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 March 31, 2020, 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 March 31, 2020, our Operating Partnership’s leverage ratio was 31.2% and the interest rate was LIBOR plus 120 basis points.

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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 March 31, 2020, we were in compliance with all of the financial covenants under the 2024 Term Loan.

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 March 31, 2020, our Operating Partnership’s leverage ratio was 31.2% 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 March 31, 2020, 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 March 31, 2020, our Operating Partnership’s leverage ratio was 31.2% 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

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Agreement. As of March 31, 2020, 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.

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 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 would 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 March 31, 2020, 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 so prepaid 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,

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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 March 31, 2020, 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 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 August and February 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 March 31, 2020, 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		305,500
2024		325,000
Thereafter		750,000
Total principal outstanding		1,580,500
Unamortized deferred financing costs		(8,493)
Total debt, net	$	1,572,007

Subsequent Debt Financing

On April 15, 2020, we agreed with lenders on the pricing of 7-year $150 million unsecured private placement notes with $100 million funding on May 6, 2020, and the remaining $50 million on July 14, 2020. However, the closing is subject to standard diligence procedures.

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8. Derivatives and Hedging Activities

The following table summarizes our derivative positions as of March 31, 2020, and December 31, 2019 (in thousands):

Notional Amount										Fair Value (Level 2) (1)
March 31,		December 31,		Type of				Effective	Expiration	March 31,		December 31,
2020		2019		Derivative	Index	Strike Rate		Date	Date	2020		2019
$	75,000	$	75,000	Interest Rate Swap	1 mo. LIBOR	1.43	%	5/5/2015	5/5/2020	$	(30)	$	67
	75,000		75,000	Interest Rate Swap	1 mo. LIBOR	2.72		5/5/2018	4/5/2023		(5,469)		(2,819)
	100,000		100,000	Interest Rate Swap	1 mo. LIBOR	1.59		11/8/2019	4/1/2025		(5,918)		55
	75,000		75,000	Interest Rate Swap	1 mo. LIBOR	1.59		11/8/2019	4/1/2025		(4,439)		41
	200,000		—	Interest Rate Swap	1 mo. LIBOR	0.56		3/5/2020	4/19/2022		(1,104)		—
	75,000		—	Interest Rate Swap	1 mo. LIBOR	0.61		3/5/2020	10/5/2023		(738)		—
	175,000		—	Interest Rate Swap	1 mo. LIBOR	0.64		3/5/2020	10/1/2024		(2,075)		—
$	775,000	$	325,000							$	(19,773)	$	(2,656)

(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.

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 condensed consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

Amounts reported in accumulated other comprehensive income 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 April 1, 2020, we estimate that $6.0 million will be reclassified as an increase to interest expense.

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9. Stockholders’ Equity

We announced the following dividends per share on our common stock during the three months ended March 31, 2020:

Declaration Date	Record Date	Payment Date	Common Stock
March 5, 2020	March 31, 2020	April 15, 2020	$	1.22

10. 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 interests in our Operating Partnership as of March 31, 2020, and December 31, 2019:

	March 31, 2020			December 31, 2019
	Number of Units	Percentage of Total		Number of Units	Percentage of Total
CoreSite Realty Corporation	37,394,352	77.6	%	37,244,987	77.6	%
Noncontrolling interests	10,769,518	22.4		10,771,658	22.4
Total	48,163,870	100.0	%	48,016,645	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 three months ended March 31, 2020, we issued 149,365 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 received aggregate distributions of $1.22 per unit during the three months ended March 31, 2020, payable in correlation with declared dividends on shares of our common stock.

The redemption value of the noncontrolling interests at March 31, 2020, was $1.2 billion based on the closing price of the Company’s common stock of $115.90 per share on the last trading day prior to that date.

11. 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, restricted stock units, 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 March 31, 2020, 2,474,370 shares of our common stock were available for issuance pursuant to the 2010 Plan.

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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. As of March 31, 2020, all stock option awards are fully vested. The following table sets forth stock option activity under the 2010 Plan for the three months ended March 31, 2020:

	Number of
	Shares	Weighted-
	Subject to	Average
	Option	Exercise Price
Options outstanding, December 31, 2019	31,746	$	19.57
Granted	—		—
Exercised	(3,210)		18.87
Forfeited	—		—
Expired	—		—
Options outstanding, March 31, 2020	28,536	$	19.65

Restricted Stock Awards and Units

Restricted stock awards and restricted stock units (“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	Weighted-
	Stock	Average Fair
	Awards and	Value at Grant
	Units	Date
Unvested balance, December 31, 2019	292,373	$	96.44
Granted	146,582		110.73
Forfeited	(4,913)		99.04
Vested	(112,245)		90.76
Unvested balance, March 31, 2020	321,797	$	104.90

As of March 31, 2020, total unearned compensation on restricted stock awards and RSUs was approximately $32.0 million, and the weighted-average vesting period was 2.9 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 2018, 2019, and 2020. 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, 2019	34,624	171,351	102,989	$	107.84
Granted	10,210	71,488	40,852		125.02
Performance adjustment (1)	38,047	(7,904)	15,073		—
Forfeited	(1,049)	(4,878)	(2,964)		107.63
Vested	(32,524)	(32,524)	(32,524)		105.55
Unvested balance, March 31, 2020	49,308	197,533	123,426	$	113.96

(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 March 31, 2020, total unearned compensation on PSAs was approximately $9.6 million, and the weighted-average vesting period was 2.4 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 three months ended March 31, 2020, and 2019:

	Three Months Ended March 31,
	2020		2019
Expected term (in years)	2.82		2.82
Expected volatility	24.00	%	24.09	%
Expected annual dividend(1)	—		—
Risk-free rate	0.56	%	2.48	%

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

12. 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):

	Three Months Ended March 31,
	2020		2019
Net income attributable to common shares	$	17,848	$	19,661
Weighted-average common shares outstanding - basic		37,335,892		36,347,781
Effect of potentially dilutive common shares:
Stock options		25,298		38,921
Unvested awards		143,159		160,363
Weighted-average common shares outstanding - diluted		37,504,349		36,547,065
Net income per share attributable to common shares
Basic	$	0.48	$	0.54
Diluted	$	0.48	$	0.54

In the calculations above, we have excluded weighted-average potentially dilutive securities of 2,054 and 39,754 for the three months ended March 31, 2020, and 2019, respectively, as their effect would have been antidilutive.

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13. 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 March 31, 2020, 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 $1.6 billion and $1.5 billion as of March 31, 2020, and December 31, 2019, 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 lease 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.

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14. 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 of our properties. At March 31, 2020, we had open commitments related to construction contracts of approximately $145.7 million.

Additionally, we have commitments related to telecommunications capacity used to connect data centers located within the same market or geographical area, power usage, and company-wide improvements that are ancillary to revenue generation. At March 31, 2020, we had open commitments related to these contracts of approximately $75.2 million, of which $5.7 million is scheduled to be met during the remainder of the year ending December 31, 2020.

In the ordinary course of business, we are subject to claims and administrative proceedings. 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Quarterly Report”), together with other statements and information publicly disseminated by our company, contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), namely Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the PSLRA and include this statement for purposes of complying with these safe harbor provisions.

In particular, statements pertaining to our capital resources, portfolio performance, business strategies and results of operations contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma” or “anticipates” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: (i) the geographic concentration of our data centers in certain markets and any adverse developments in local economic conditions or the amount of supply of or demand for data center space in these markets; (ii) fluctuations in interest rates and increased operating costs; (iii) difficulties in identifying properties to acquire and completing acquisitions; (iv) the significant competition in our industry, including indirect competition from cloud service providers, and an inability to lease vacant space, renew existing leases or release space as leases expire; (v) lack of sufficient customer demand to realize expected returns on our investments to expand our property portfolio; (vi) decreased revenue from costs and disruptions associated with any failure of our physical infrastructure or services; (vii) our ability to develop and lease available space to existing or new customers; (viii) our failure to obtain necessary outside financing; (ix) our ability to service existing debt; (x) our failure to qualify or maintain our status as a real estate investment trust (“REIT”); (xi) financial market fluctuations; (xii) changes in real estate and zoning laws and increases in real estate taxes; (xiii) the effects on our business operations, demand for our services and general economic conditions resulting from the spread of the novel coronavirus (“COVID-19”) in our markets, as well as orders, directives and legislative action by local, state and federal governments in response to the spread of COVID-19; (xiv) delays or disruptions in third-party network connectivity; (xv) service failures or price increases by third party power suppliers; (xvi) inability to renew net leases on the data center properties we lease; and (xvii) other factors affecting the real estate or technology industries generally.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes, except as required by applicable law. The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this Quarterly Report, including in Item 1A. “Risk Factors” of this Quarterly Report. Additional information concerning these and other risks and uncertainties is contained in our other periodic filings with the United States Securities and Exchange Commission (“SEC”) pursuant to the Exchange Act. We discussed a number of material risks in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019. Those risks continue to be relevant to our performance and financial condition. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Overview

Unless the context requires otherwise, references in this Quarterly Report to “we,” “our,” “us” and “our company” refer 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 in this Quarterly Report as our “Operating Partnership.”

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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, cloud access 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, (iv) expanding existing customer relationships, and (v) attracting new customers.

Our Portfolio

As of March 31, 2020, 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 net rentable square feet (“NRSF”), of which over 2.6 million NRSF is existing data center space. The approximately 1.6 million NRSF of development projects includes space available for development and construction of new data center facilities. We expect that this development potential plus any incremental investment into existing or new markets will enable us to accommodate existing and future customer demand and position us to continue to increase our operating cash flows.

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The following table provides an overview of our property portfolio as of March 31, 2020:

	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	$	6,034	88,251	76.2	%	—	—	%	88,251	76.2	%	—	88,251
SV2		3,919	76,676	48.2		—	—		76,676	48.2		—	76,676
Santa Clara campus (SV3-SV9)		94,989	723,181	96.6		—	—		723,181	96.6		254,056	977,237
San Francisco Bay Total		104,942	888,108	90.4		—	—		888,108	90.4		254,056	1,142,164
Los Angeles
One Wilshire campus
LA1*		31,683	145,776	94.0		17,238	31.6		163,014	87.4		10,352	173,366
LA2		52,428	424,890	86.4		—	—		424,890	86.4		—	424,890
LA3		—	—	—		—	—		—	—		160,000	160,000
LA4*		1,188	21,850	92.6		—	—		21,850	92.6		—	21,850
Los Angeles Total		85,299	592,516	88.5		17,238	31.6		609,754	86.9		170,352	780,106
Northern Virginia
VA1		25,938	201,719	80.8		—	—		201,719	80.8		—	201,719
VA2		22,738	188,446	99.6		—	—		188,446	99.6		—	188,446
VA3		4,877	79,171	89.2		51,233	16.3		130,404	60.6		—	130,404
DC1*		3,042	22,137	74.9		—	—		22,137	74.9		—	22,137
DC2*		2,308	9,810	100.0		14,753	7.8		24,563	44.6		—	24,563
Reston Campus Expansion(6)		—	—	—		—	—		—	—		809,742	809,742
Northern Virginia Total		58,903	501,283	89.3		65,986	14.4		567,269	80.6		809,742	1,377,011
New York
NY1*		6,059	48,404	91.0		—	—		48,404	91.0		—	48,404
NY2		17,596	101,742	93.0		52,710	23.6		154,452	69.3		81,799	236,251
New York Total		23,655	150,146	92.4		52,710	23.6		202,856	74.5		81,799	284,655
Boston
BO1		15,560	122,730	75.1		19,961	—		142,691	64.6		110,985	253,676
Chicago
CH1		14,951	178,407	80.2		—	—		178,407	80.2		—	178,407
CH2		—	—	—		—	—		—	—		169,000	169,000
Chicago Total		14,951	178,407	80.2		—	—		178,407	80.2		169,000	347,407
Denver
DE1*		4,417	14,154	89.4		15,630	40.2		29,784	63.6		—	29,784
DE2*		476	5,140	74.0		—	—		5,140	74.0		—	5,140
Denver Total		4,893	19,294	85.3		15,630	40.2		34,924	65.1		—	34,924
Miami
MI1		1,579	30,176	62.0		—	—		30,176	62.0		13,154	43,330
Total Data Center Facilities	$	309,782	2,482,660	88.0	%	171,525	19.6	%	2,654,185	83.5	%	1,609,088	4,263,273
Office and Light-Industrial(7)		8,483	364,941	76.6		—	—		364,941	76.7		—	364,941
Reston Office and Light-Industrial(6)		1,029	69,470	100.0		—	—		69,470	100.0		(69,470)	—
Total Portfolio	$	319,294	2,917,071	86.8	%	171,525	19.6	%	3,088,596	83.1	%	1,539,618	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 33).

(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.

(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. 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 March 31, 2020, 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 $324.8 million as of March 31, 2020, which includes $5.5 million in operating expense reimbursements under modified gross and triple-net leases. Our management uses

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annualized base rent as a supplemental performance measure because, when compared quarter over quarter or year over year, it captures profitability of our assets. We offer this measure because we recognize that annualized base rent will be used by investors to compare our profitability with that of other REITs.

(5) Includes customer leases that have commenced and are occupied as of March 31, 2020. The percent occupied is determined based on occupied square feet as a proportion of total operating NRSF as of March 31, 2020. The percent occupied for stabilized data center space would have been 89.4%, rather than 88.0%, if all leases signed in the current and prior periods had commenced. The percent occupied for our total portfolio, including stabilized data center space, pre-stabilized space and office and light-industrial space, would have been 84.6%, rather than 83.1%, if all leases signed in current and prior periods had commenced. Our management uses percent occupied as a supplemental performance measure because, when compared year-over-year, it captures trends in market demand for our assets. We offer this measure because we recognize that percent occupied will be used by investors as a basis to compare our operating performance with that of other REITs.

(6) Included within our Reston Campus Expansion held for development space is 69,470 NRSF that is currently operating as office and light-industrial space.

(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.

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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, 2018, excluding space for which development was completed and became available to be leased after December 31, 2018. We track same-store space leased or available to be leased at the computer room level within each data center facility. Our management uses same-store statistics as a supplemental performance measure because they provide a performance comparison for the computer rooms that have been operating for two years or longer. Same-Store statistics will be used by investors as a basis to compare operating performance of our established computer rooms, excluding the impact of new computer rooms placed into service within the past two years, to that of other REITs. The following table shows the March 31, 2020, same-store operating statistics. For comparison purposes, the operating activity totals as of December 31, 2019, and 2018, 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	$	11,839	88,251	76.2	%	231,919	81.2	%	320,170	79.8	%
SV2		3,919	76,676	48.2		—	—		76,676	48.2
Santa Clara campus (SV3 - SV7)		75,009	615,500	96.0		1,176	87.8		616,676	96.0
San Francisco Bay Total		90,767	780,427	89.0		233,095	81.2		1,013,522	87.2
Los Angeles
One Wilshire campus
LA1*		30,483	145,776	94.0		4,373	64.7		150,149	93.2
LA2		47,656	396,699	85.5		7,417	80.1		404,116	85.4
LA4		1,237	21,850	92.6		525	100.0		22,375	94.6
Los Angeles Total		79,376	564,325	88.0		12,315	75.5		576,640	87.8
Northern Virginia
VA1		27,185	201,719	80.8		61,050	85.1		262,769	81.8
VA2		22,782	188,446	99.6		4,308	26.5		192,754	98.0
VA3		3,772	79,170	89.2		6,854	29.5		79,170	84.4
DC1*		3,042	22,137	74.9		—	—		22,137	74.9
DC2*		2,307	24,563	44.6		—	—		24,563	44.6
Reston Campus Expansion		1,029	—	—		69,470	100.0		76,324	91.4
Northern Virginia Total		60,117	516,035	87.0		141,682	88.0		657,717	87.2
New York
NY1*		6,073	48,404	91.0		209	100.0		48,613	91.0
NY2		18,170	119,863	89.3		20,735	59.1		140,598	84.9
New York Total		24,243	168,267	89.8		20,944	59.6		189,211	86.5
Boston
BO1		15,796	122,730	75.1		19,495	55.2		142,225	72.3
Chicago
CH1		14,979	178,407	80.2		4,946	31.3		183,353	78.8
Denver
DE1*		4,417	29,784	63.6		—	—		29,784	63.6
DE2*		476	5,140	74.0		—	—		5,140	74.0
Denver Total		4,893	34,924	65.1		—	—		34,924	65.1
Miami
MI1		1,599	30,176	62.0		1,934	56.2		32,110	61.6
Total Facilities at March 31, 2020(3)	$	291,770	2,395,291	86.3	%	434,411	80.4	%	2,829,702	85.4	%
Total Facilities at December 31, 2019	$	289,804		86.1	%		78.2	%		85.0	%
Total Facilities at December 31, 2018	$	291,665		87.8	%		79.6	%		86.6	%

* 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 would have been 88.8%, 81.2% and 87.6%, respectively, if all leases signed in the current and prior periods had commenced.

Same-store annualized rent increased to $291.8 million at March 31, 2020, compared to $289.8 million at December 31, 2019. The increase of $2.0 million is primarily due to the commencement of new and expansion leases at DC2 and NY2, partially offset by the move-out of customers with leases at lower rental rates.

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Development space is unoccupied space or land that requires significant capital investment in order to develop data center facilities that are ready for use. The following table summarizes the NRSF under construction and NRSF held for development throughout our portfolio, each as of March 31, 2020:

	Development Opportunities (in NRSF)
	Under	Held for
Facilities	Construction(1)	Development(2)	Total
San Francisco Bay
SV8	54,056	—	54,056
SV9(3)	—	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(3)	—	809,742	809,742
New York
NY2	—	81,799	81,799
Boston
BO1	—	110,985	110,985
Chicago
CH2(3)	56,000	113,000	169,000
Miami
MI1	—	13,154	13,154
Total Facilities(4)	161,056	1,448,032	1,609,088

(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) 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.

(4) 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.

Capital Expenditures

The following table sets forth information regarding capital expenditures during the three months ended March 31, 2020 (in thousands):

	Three Months Ended
	March 31, 2020
Data center expansion	$	66,578
Non-recurring investments		909
Tenant improvements		966
Recurring capital expenditures		1,418
Total capital expenditures	$	69,871

During the three months ended March 31, 2020, we incurred approximately $69.9 million of capital expenditures, of which approximately $66.6 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

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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 three months ended March 31, 2020, we completed development of one computer room at NY2, which was bifurcated into two projects, including the computer room itself, completed during January 2020, and a power infrastructure project, which, ultimately will add incremental power capacity to the computer room placed into service during January 2020, and is expected to be completed in the third quarter of 2020. As of March 31, 2020, we have ongoing development projects at CH2, LA3, NY2, and SV8 scheduled to complete at various times during the years ending December 31, 2020. The following table sets forth capital expenditures spent on data center expansion NRSF placed into service during the three months ended March 31, 2020, and under construction as of March 31, 2020:

			NRSF
	Data Center		Placed into	Under
Property	Expansion		Service	Construction(1)
LA3	$	20,725	—	51,000
NY2		15,522	34,589	—
SV8		13,745	—	54,056
CH2		10,769	—	56,000
BO1(2)		2,466	—	—
VA3		1,828	—	—
Other		1,523	—	—
Total	$	66,578	34,589	161,056

(1) Represents NRSF under construction for which substantial activities are ongoing to prepare the property for its intended use following development.

(2) At BO1 we are currently under development on a deferred infrastructure project, which has $9.5 million left to be spent. Our construction is temporarily suspended due to COVID-19 government restrictions put forth by the City of Somerville. The current order is effective until further notice.

During the three months ended March 31, 2020, we incurred approximately $0.9 million in non-recurring investments, of which $0.6 million was a result of internal information technology software development and the remaining $0.3 million was a result of other non-recurring investments, such as remodel or upgrade projects.

During the three months ended March 31, 2020, we incurred approximately $1.0 million in tenant improvements, which related to tenant-specific power installations at various properties.

During the three months ended March 31, 2020, we incurred approximately $1.4 million of recurring capital expenditures within our portfolio, which includes required equipment upgrades at our various facilities that have a future economic benefit.

Factors that May Influence our Results of Operations

A complete discussion of factors that may influence our results of operations can be found in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 7, 2020, which is accessible on the SEC’s website at www.sec.gov.

The recent outbreak of the COVID-19 has caused severe disruption in the U.S. and global economies, and we, our customers and vendors have been impacted to varying degrees, some of which is known and some unknown. The total impact of COVID-19 will largely depend on the severity and extent of the virus, success of actions taken to contain the threat of COVID-19, including related travel advisories and other restrictions on movement, the extent, duration and recovery time of related suppression of economic activity, the recovery time of disrupted supply chains, potentially material staffing shortages, construction and development delays, and reactions by consumers, companies, governmental entities, and capital markets. As of the date of this Quarterly Report, we have not seen a significantly adverse overall impact on the demand for data center space or on our ability to operate our business.

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While we have not experienced material delays on our data center expansion projects as a result of the COVID-19 pandemic, we are experiencing a temporary suspension of construction at our BO1 facility related to government restrictions. The COVID-19 outbreak is fluid and state and local governments may further restrict construction, including restrictions that may impact our development projects. In addition, local governments may experience delays in permitting and inspecting construction project, including delays that may impact our construction timelines.

Companies have responded to the COVID-19 pandemic in various ways, including encouraging employees to work remotely from home to comply with state and local government restrictions on movement. This shift may increase the demand for cloud computing and cloud-based information-technology architectures, which could result in increased demand for data center space in the short term and potentially in the longer-term.

Some of our customers and prospective customers are dependent on areas of the economy that have been significantly negatively impacted by the outbreak of COVID-19. As a result, these customers may become cash flow constrained and may not be able to comply with their rent obligations or may reduce their capital expenditure budgets for information technology infrastructure. Some customers have requested, and more may request, rent concessions, abatements or other lease modifications. While the impacts to date are immaterial, we continue to monitor and respond as needed to individual requests from customers. Should the number of rent concessions, abatements or instances of non-payment increase, our cash flows could be materially impacted. Furthermore, restrictions on our ability to evict tenants, whether due to government legislation or bankruptcy determinations, could adversely affect our cash flows. In addition, pay and the cost of safety accommodations for employees required to be on-site during a time of perceived higher health risk may modestly increase operating costs.

The rapid development and fluidity of the situation precludes any prediction as to the ultimate impact of COVID-19 on our business. The full extent of the impact and effects of COVID-19 on our future financial performance are uncertain at this time. See Item 1A. “Risk Factors—Pandemics or disease outbreaks, such as the novel coronavirus (“COVID-19”)”, may disrupt our business, as a result of, among other things, increased customer defaults, increased customer bankruptcies or insolvencies, delays in the development and lease-up of our properties, and severe disruption in the U.S. and global economies, which may further disrupt financial markets and could materially adversely impact our financial condition, operations, and liquidity.

Our ability to re-lease expiring space at rental rates equal to or in excess of current rental rates will impact our results of operations. We have 984 and 843 data center leases representing approximately 16.1% and 13.4% of the NRSF in our operating property portfolio which are scheduled to expire during the remainder of 2020 and the year ending December 31, 2021, respectively. These leases represent current annualized rent of $77.0 million, or 24.1%, and $65.5 million, or 20.5%, with annualized rental rates of $156 per NRSF and $163 per NRSF at expiration during the remainder of 2020 and the year ending December 31, 2021, respectively.

Results of operations may be affected by the amount of pre-stabilized properties in our portfolio. As we place new development projects into service, the initial investment returns may be lower compared to stabilized properties due to operating expenses being less dependent on occupancy levels than revenues. We expect property operating expenses to increase as we place new data center NRSF into service. As projects become stabilized, we expect the investment returns to increase as operating expenses become more dependent on occupancy levels.

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 March 31, 2020, we had approximately 598,000 NRSF of unoccupied or under construction data center space of which approximately 79,000 NRSF is leased with a future commencement date.

The loss of multiple significant customers could have a material adverse effect on our results of operations because our top ten customers in the aggregate account for 32.7% of our total operating NRSF and 42.4% of our total annualized rent

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as of March 31, 2020. The following table summarizes our leasing activity during the three months ended March 31, 2020:

			GAAP		Total
		Number of	Annualized		Leased	GAAP Rental		GAAP Rent
	Three Months Ended	Leases(1)	Rent ($000)(2)		NRSF(3)	Rates(4)		Growth(5)
New / expansion leases commenced	March 31, 2020	112	$	9,678	45,322	$	214
New / expansion leases signed	March 31, 2020	117	$	12,006	59,354	$	202
Renewal leases signed	March 31, 2020	280	$	17,334	120,943	$	143	7.2	%

(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. Our management uses GAAP annualized rent and GAAP rental rates as supplemental performance measures because, when compared quarter over quarter or year over year, they provide a performance measure that captures sales volume and pricing trends. We offer these measures because we recognize they will be used by investors to compare our sales volume and pricing trends to those of other REITs.

(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.

Results of Operations

Three Months Ended March 31, 2020, Compared to the Three Months Ended March 31, 2019

The discussion below relates to our financial condition and results of operations for the three months ended March 31, 2020, and 2019. A summary of our operating results for the three months ended March 31, 2020, and 2019, is as follows (in thousands):

	Three Months Ended March 31,
	2020		2019		$ Change		% Change
Operating revenue	$	147,362	$	138,895	$	8,467	6.1	%
Operating expense		113,174		103,462		9,712	9.4
Operating income		34,188		35,433		(1,245)	(3.5)
Interest expense		11,183		9,498		1,685	17.7
Net income		22,988		25,905		(2,917)	(11.3)

Operating Revenue

Operating revenue during the three months ended March 31, 2020, and 2019, was as follows (in thousands):

	Three Months Ended March 31,
	2020		2019		$ Change		% Change
Data center revenue:
Rental, power, and related revenue	$	124,505	$	117,853	$	6,652	5.6	%
Interconnection revenue		20,085		18,416		1,669	9.1
Total data center revenue		144,590		136,269		8,321	6.1
Office, light-industrial and other revenue		2,772		2,626		146	5.6
Total operating revenues	$	147,362	$	138,895	$	8,467	6.1	%

The increase in operating revenues was primarily due to a $6.7 million, or 5.6%, increase in data center rental, power, and related revenue during the three months ended March 31, 2020, compared to the 2019 period. Data center rental,

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power, and related revenue increased due to the organic growth of our customer revenue base through favorable renewals, new customer leases and lease expansions into new and existing space, and increased power consumption by our customers within their deployments. Most notably, data center rental, power, and related revenue at SV8, NY2 and LA2, where we have placed into service large contiguous data center NRSF within the last two years, has increased $5.4 million, $1.6 million, and $1.6 million, respectively, compared to the three months ended March 31, 2019. These increases were primarily due to the commencement of large scale leases throughout the twelve months between the two periods, which generate 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 three months ended March 31, 2020, was due to the renewals and commencements of new and expansion leases at our remaining properties, partially offset by a customer move-out of 28,456 NRSF at SV2 as well as other customer move-outs across various properties.

In addition, interconnection revenue increased $1.7 million, or 9.1%, during the three months ended March 31, 2020, compared to the 2019 period. The increase is primarily a result of a net increase in the volume of cross connects from new and existing customers during the twelve months ended March 31, 2020, and revenue increases resulting from customers migrating to our higher priced fiber and logical cross connect products.

Operating Expenses

Operating expenses during the three months ended March 31, 2020, and 2019, were as follows (in thousands):

	Three Months Ended March 31,
	2020		2019		$ Change		% Change
Property operating and maintenance	$	40,183	$	38,110	$	2,073	5.4	%
Real estate taxes and insurance		6,190		6,196		(6)	(0.1)
Depreciation and amortization		40,991		35,646		5,345	15.0
Sales and marketing		6,144		5,652		492	8.7
General and administrative		11,267		10,170		1,097	10.8
Rent		8,399		7,688		711	9.2
Total operating expenses	$	113,174	$	103,462	$	9,712	9.4	%

Property operating and maintenance expense increased $2.1 million, or 5.4%, during the three months ended March 31, 2020, compared to the 2019 period, primarily as a result of an increase in salary and benefits expenses related to new operations at SV8 and an increase in power expense due to increased customer power utilization related to the commencement of new and expansion leases, net of customer move-outs, and decreased contract and repair expenses across multiple sites.

Depreciation and amortization expense increased $5.3 million, or 15.0%, during the three months ended March 31, 2020, compared to the 2019 period, 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.

Sales and marketing expense increased $0.5 million, or 8.7%, during the three months ended March 31, 2020, compared to the 2019 period, primarily due to an increased headcount, resulting in higher salaries and non-cash compensation.

General and administrative expense increased $1.1 million, or 10.8%, primarily as a result of an increased bad debt expense of $0.7 million related to customers in bankruptcy proceedings and increased customer financial distress related to the COVID-19 outbreak, $0.2 million related to increased charitable contributions to aid communities impacted by the coronavirus pandemic, and payroll increases, partially offset by decreased legal fees.

Rent expense increased by $0.7 million, or 9.2%, during the three months ended March 31, 2020, compared to the 2019 period. The increase was primarily due to additional rent expense incurred from our leasehold interest properties during the three months ended March 31, 2020, related to, subsequent to our development completion, placing one additional computer room at LA1 into service during the three months ended June 30, 2019.

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Interest Expense

Interest expense for the three months ended March 31, 2020, and 2019, was as follows (in thousands):

	Three Months Ended March 31,
	2020			2019			$ Change		% Change
Interest expense and fees	$	13,620		$	11,516		$	2,104	18.3	%
Amortization of deferred financing costs and hedge amortization		1,029			611			418	68.4
Capitalized interest		(3,466)			(2,629)			(837)	31.8
Total interest expense	$	11,183		$	9,498		$	1,685	17.7	%
Percent capitalized		23.7	%		21.7	%

Interest expense increased $1.7 million, or 17.7%, during the three months ended March 31, 2020, compared to the 2019 period, primarily as a result of the increase in overall debt outstanding. The weighted average principal debt outstanding was $1.6 billion and $1.2 billion during the three months ended March 31, 2020, and 2019, respectively. The increase was partially offset by a decrease in our daily weighted average interest rate from 3.88% during the three months ended March 31, 2019, to 3.41% during the three months ended March 31, 2020, and an increase in capitalized interest as a result of higher construction spend on our development projects during the three months ended March 31, 2020.

Liquidity and Capital Resources

Discussion of Cash Flows

Three Months Ended March 31, 2020, Compared to the Three Months Ended March 31, 2019

Operating Activities

Net cash provided by operating activities was $54.6 million for the three months ended March 31, 2020, compared to $55.9 million for the three months ended March 31, 2019. The decrease of $1.3 million, or 2.4%, was primarily due to higher cash paid for interest of $8.3 million as a result of the timing of interest payments related to debt issued during the 2019 period, and higher initial direct costs of $3.5 million related to higher leasing commissions resulting from a higher sales volume during the quarter ended March 31, 2020. 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 $5.3 million, or 6.5%, to $87.2 million for the three months ended March 31, 2020, compared to $81.8 million for the three months ended March 31, 2019. This increase was due primarily to higher construction spend on our CH2, LA3, NY2, and SV8 development projects during the three months ended March 31, 2020, compared to construction spending on active development projects during the three months ended March 31, 2019.

Financing Activities

Net cash provided by financing activities was $32.9 million during the three months ended March 31, 2020, compared to $25.6 million during the three months ended March 31, 2019.

During the three months ended March 31, 2020, we received cash proceeds, net of payments, from the revolving credit facility of $93.0 million.

During the three months ended March 31, 2019, we received cash proceeds, net of payments, from the revolving credit facility of $79.5 million.

We paid $60.0 million in dividends and distributions on our common stock and Operating Partnership units during the three months ended March 31, 2020, compared to $53.9 million during the three months ended March 31, 2019, as a

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result of an increase in our quarterly dividend from $1.10 per share or unit paid during the three months ended March 31, 2019, to $1.22 per share or unit paid during the three months ended March 31, 2020.

Analysis of Liquidity and Capital Resources

We have an effective shelf registration statement that allows us to offer for sale various unspecified classes of equity and debt securities. As circumstances warrant, we may issue debt and/or equity securities from time to time on an opportunistic basis, dependent upon market conditions and available pricing. We make no assurance that we can issue and sell such securities on acceptable terms or at all, especially in light of the market volatility and uncertainty as a result of the COVID-19 outbreak.

Our short-term liquidity requirements primarily consist of funds needed for interest expense, operating costs, including utilities, site maintenance costs, real estate and personal property taxes, insurance, rental expenses, sales and marketing and general and administrative expenses, certain capital expenditures, including for the development of data center space, discussed below, and future distributions to common stockholders and holders of our common Operating Partnership units during the next twelve months.

We expect to meet our short-term liquidity requirements through net cash on hand, cash provided by operations, and the $288.4 million available for us to borrow under our revolving credit facility. On April 15, 2020, we agreed with lenders on the pricing of 7-year $150 million unsecured private placement notes with $100 million funding on May 6, 2020, and the remaining $50 million on July 14, 2020. However, the closing is subject to standard diligence procedures.

We estimate our anticipated development activity over the next twelve months will require approximately $175 million to $225 million of capital investment to expand our operating data center portfolio.

Our anticipated capital investment over the next twelve months includes a portion of the remaining estimated capital required to fund our current expansion projects under construction as of March 31, 2020, 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 - Power Infrastructure	New York	Q3 2020	—	$	19,396	$	38,824	—	%	4.0
SV8 Phase 3	San Francisco Bay	Q2 2020	54,056		15,751		42,000	11.0		6.0
Total TKD expansion			54,056	$	35,147	$	80,824	11.0	%	10.0
New development(2)
Ground-up construction
CH2 Phase 1	Chicago	Q2 2020	56,000	$	106,319	$	120,000	—	%	6.0
LA3 Phase 1	Los Angeles	Q3 / Q4 2020	51,000		68,935		134,000	74.3		6.0
Total new development			107,000	$	175,254	$	254,000	35.4	%	12.0
Total development			161,056	$	210,401	$	334,824	27.2	%	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. 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.

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

Our long-term liquidity requirements primarily consist of the costs to fund the Reston Campus Expansion, the ground up construction of new data center buildings, Deferred Expansion Capital, additional phases of our current projects under construction, 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, and by incurring long-term indebtedness, such as drawing on our revolving credit facility, exercising our senior unsecured term loan accordion features or entering into new debt agreements with our bank group or existing and new accredited investors. We also may raise capital in the future through the issuance of additional equity or debt

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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 we are monitoring this activity and evaluating the related risks. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affecting 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 established. In March 2020, the FASB issued guidance in ASU 2020-04, which provides optional expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. We are currently evaluating the optional expedients and exceptions provided by ASU 2020-04 to determine the impact on our condensed consolidated financial statements.

Indebtedness

A summary of outstanding indebtedness as of March 31, 2020, and December 31, 2019, is as follows (in thousands):

		Maturity	March 31,		December 31,
	Interest Rate	Date	2020		2019
Revolving credit facility	2.45% and 3.01% at March 31, 2020, and December 31, 2019, respectively	November 8, 2023	$	155,500	$	62,500
2022 Senior unsecured term loan	1.76% and 2.96% at March 31, 2020, and December 31, 2019, respectively	April 19, 2022		200,000		200,000
2023 Senior unsecured notes	4.19% at March 31, 2020, and December 31, 2019, respectively	June 15, 2023		150,000		150,000
2024 Senior unsecured term loan	2.86% and 3.44% at March 31, 2020, and December 31, 2019, respectively	April 19, 2024		150,000		150,000
2024 Senior unsecured notes	3.91% at March 31, 2020, and December 31, 2019, respectively	April 20, 2024		175,000		175,000
2025 Senior unsecured term loan	2.32% and 2.81% at March 31, 2020, and December 31, 2019, respectively	April 1, 2025		350,000		350,000
2026 Senior unsecured notes	4.52% at March 31, 2020, and December 31, 2019, respectively	April 17, 2026		200,000		200,000
2029 Senior unsecured notes	4.31% at March 31, 2020, and December 31, 2019, respectively	April 17, 2029		200,000		200,000
Total principal outstanding				1,580,500		1,487,500
Unamortized deferred financing costs				(8,493)		(9,098)
Total debt			$	1,572,007	$	1,478,402

As of March 31, 2020, 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 March 31, 2020, and December 31, 2019, as well as the available borrowing capacity under our existing revolving credit facility, debt covenant requirements, and future debt maturities, refer to Item 1. Financial Statements — Note 7 — Debt.

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Funds From Operations

We consider funds from operations (“FFO”), a non-generally accepted accounting principles (“GAAP”) measure, to be a supplemental measure of our performance which should be considered along with, but not as an alternative to, net income and cash provided by operating activities as a measure of operating performance. We calculate FFO in accordance with the standards established by 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.

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.

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. The following table provides a reconciliation of our net income to FFO:

	Three Months Ended March 31,
(in thousands)	2020		2019
Net income	$	22,988	$	25,905
Real estate depreciation and amortization		39,415		34,187
FFO attributable to common shares and units	$	62,403	$	60,092
Total weighted average shares and OP units outstanding - diluted		48,300		48,147
FFO per common share and OP unit - diluted	$	1.29	$	1.25

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Distribution Policy

In order to comply with the REIT requirements of the Code, we generally are required to make annual distributions to our stockholders of at least 90% of our net taxable income. Our common stock distribution policy is to distribute as dividends, at a minimum, a percentage of our cash flow that ensures that we will meet the distribution requirements of the Code and any subsequent increases and/or anticipated increases are correlated to increases in our growth of cash flow.

We have made distributions every quarter since the completion of our initial public offering in 2010. During the three months ended March 31, 2020, we declared quarterly dividends totaling $1.22 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, among other things, restriction in agreements governing out indebtedness, our financial condition, operating results and REIT distribution requirements and may be adjusted at the discretion of our Board of Directors during the year.

The following table summarizes the taxability of our common stock dividends per share for the years ended December 31, 2019, and 2018:

	Year Ended December 31,
Record Date	2019		2018
Common Stock:
Ordinary income	$	3.07	$	3.09
Qualified dividend		—		—
Capital gains		—		—
Return of capital		1.57		0.93
Total dividend	$	4.64	$	4.02

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ITEM 3. 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 March 31, 2020, we had $855.5 million of consolidated principal debt outstanding that bore variable interest based on one-month LIBOR. As of March 31, 2020, we have seven interest rate swap agreements in place to fix the interest rate on $775.0 million of our one-month LIBOR variable rate debt. Our interest rate risk not covered by an interest rate swap agreement is $80.5 million of variable rate debt outstanding as of March 31, 2020. See additional discussion in Item 1. Financial Statements – Note 8 – Derivatives and Hedging Activities.

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 $80.5 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 unhedged variable rate debt would increase or decrease, as applicable, future earnings and cash flows by approximately $0.8 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.

ITEM 4. 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 March 31, 2020, 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 March 31, 2020.

Changes in Internal Control over Financial Reporting

There were no changes 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 March 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of our business, we are subject to claims and administrative proceedings. 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.

ITEM 1A. RISK FACTORS

Except as described below, there have been no material changes to the risk factors included in the section entitled “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 7, 2020, which is accessible on the SEC’s website at www.sec.gov.

Pandemics or disease outbreaks, such as the novel coronavirus (“COVID-19”), may disrupt our business, as a result of, among other things, increased customer lease defaults, increased customer bankruptcies or insolvencies, delays in the development and lease-up of our properties, and severe disruption in the U.S. and global economies, which may further disrupt financial markets, and could materially adversely impact our financial condition, operations, and liquidity.

Our business could be materially and adversely affected by the outbreak of pandemics or disease outbreaks, such as COVID-19, or fear of such event, particularly in regions where we derive a significant amount of revenue or where our suppliers and customers are located, including North America. The COVID-19 outbreak is ongoing, and its dynamic nature, including uncertainties relating to the ultimate spread of the virus, severity of the disease, the duration of the outbreak, the total impact, financial and otherwise, that it will have on our suppliers and customers, and actions that may be taken by governmental authorities to contain the outbreak or treat its impact, makes it difficult to forecast the extent of the effects of the COVID-19 outbreak on our results of operations. The outbreak of COVID-19 continues to adversely impact global economic activity and has contributed to significant volatility and negative pressure in financial markets, which may cause a material adverse impact on our financial condition, operations and liquidity.

The effects of COVID-19 could affect our ability to successfully operate, in many ways, including, but not limited to, the following factors:

● the continued service and availability of our employees, including executive officers and other key personnel, and the ability to recruit, attract, and retain skilled personnel – to the extent management or personnel are impacted in significant numbers by the outbreak of the pandemic or epidemic disease and are not available or allowed to conduct work or business;

● difficulty accessing debt and equity on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our or our customers’ ability to access capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets;

● ability to operate in affected areas, or delays in the supply of products or services from our vendors that are needed to operate efficiently or continue development activities;

● ability to complete ongoing construction projects, or to commence new projects, due to governmental restrictions on construction activities or “shelter in place” orders or the ability of our general contractors and other vendors to maintain employee availability;

● continued weakness in national, regional, local and global economies that negatively impacts the demand for data center space in our markets;

● customers’ ability to pay rent on their leases and in the event of a significant number of lease defaults and/or customer bankruptcies, it may be difficult, costly, and time consuming to attract new customers and lease the space on terms as favorable as the previous leases or at all;

● vendors’ ability to perform scheduled maintenance on time or other delays that may be encountered due to travel restrictions, “shelter in place” orders and resource constraints;

● our ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during a disruption;

● the ability of our employees who do not work at our data centers to work effectively from remote locations in compliance with “shelter in place” orders; and

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● our ability to operate, which may cause our business and operating results to decline or impact our ability to comply with regulatory obligations leading to reputational harm and regulatory issues or fines.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate impact of COVID-19. The full extent of the impact and effects of COVID-19 on our future financial condition and performance are uncertain at this time. The impact will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related restrictions on movement and commercial activities, the recovery time of disrupted supply chains, consequential staffing shortages, development delays, and the uncertainty with respect to the accessibility of additional liquidity or to the capital markets. 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

SALES OF UNREGISTERED EQUITY SECURITIES

None.

REPURCHASES OF EQUITY SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

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.(2)
4.1	Specimen certificate representing the Common Stock of CoreSite Realty Corporation.(3)
10.1†	Amended and Restated Non-Employee Director Compensation Policy.*
10.2†	2020 Executive Short-Term Incentive Plan.*
10.3†	Ninth Amendment to the Lease, dated March 18, 2020, between GI TC One Wilshire, LLC and CoreSite One Wilshire, L.L.C. (formerly known as CRG West One Wilshire, L.L.C.) #
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 embedded 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 Labels Linkbase Document.
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)

(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 Exhibit 3.1 to our Current Report on Form 8-K filed on March 9, 2017.

(3) 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.

* Represents management contract or compensatory plan or agreement.

# Certain portions of the exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.

† Filed herewith.

+ Furnished herewith.

45

SIGNATURES

Pursuant to the requirements 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.

	CORESITE REALTY CORPORATION
Date: May 1, 2020	By:	/s/ Jeffrey S. Finnin
		Jeffrey S. Finnin
		Chief Financial Officer
		(Principal Financial Officer)
	By:	/s/ Mark R. Jones
		Mark R. Jones
		Chief Accounting Officer
		(Principal Accounting Officer)

46

EX-10.1

Exhibit 10.1

Amended and Restated Non-Employee Director Compensation Policy

1.General.  The Non-Employee Director Compensation Policy (the "Policy"), as set forth herein, was initially adopted by the Board of Directors (the "Board") of CoreSite Realty Corporation (the "Company") to become effective as of the completion of the Company's initial public offering of its common stock, was amended effective January 1, 2014, was further amended effective January 1, 2016, and is further amended with such amendments taking effect on January 1, 2019 (the "Effective Date"). Capitalized but undefined terms used herein shall have the meanings provided for in the CoreSite Realty Corporation and CoreSite, L.P. 2010 Equity Incentive Plan, as amended (the "Plan").

2.Annual Cash Compensation.  Each member of the Board who is not employed by the Company, CoreSite, L.P. (the "Partnership") or one of their affiliates or TC Group, L.L.C. or one of its affiliates (a "Non-Employee Director") shall be entitled to an annual retainer fee payable in cash with the amount determined as follows (such amount, the "Annual Retainer"):

(i)The annual retainer fee for service on the Board shall be $75,000;

(ii)The annual retainer fee for service on a Board committee (other than in the role of a committee Chair) shall be an additional $12,500 per committee;

(iii)The annual retainer fee for service as Chair of a Board committee shall be an additional $25,000; and

(iv) The annual retainer fee for service as Lead Independent Director shall be an additional $25,000.

A Non-Employee Director who is appointed to the Board or who otherwise becomes eligible for compensation between quarters shall receive the payments set forth in (i) through (iv) above, as applicable, prorated based on the number of days of such Non-Employee Director’s service during the quarter.

3.Timing of Payment of Annual Retainers.  Annual Retainers payable hereunder shall be paid in quarterly installments on or about January 1, April l, July 1 and October 1 of each year and shall be subject to the Non-Employee Director's continued service on the Board on each applicable payment date.

4.Annual Restricted Stock Unit Grants. Each person who is a Non-Employee Director immediately following an annual meeting of stockholders shall be granted, automatically and without necessity of any action by the Board or any committee thereof, on the date of such annual meeting a number of Restricted Stock Units having a value equal to $175,000 ("Annual Director RSUs"), determined by dividing $175,000 by the Fair Market Value of one share of Stock on the date of such annual meeting.  A Non-Employee Director who is appointed to the Board or who otherwise becomes eligible for compensation on a date that falls between annual meetings shall receive a prorated grant based on the number of days such Non-Employee Director is scheduled to serve from and including such Non-Employee Directors first day of service until the date immediately preceding the next scheduled annual meeting. In addition, each Non-Employee Director shall receive one Dividend Equivalent with respect to each Annual Director RSU that is granted. The Annual Director RSUs and related Dividend Equivalents shall become vested on the earlier to occur of the one year anniversary of the date of grant or the date immediately preceding the next annual meeting, subject to the Non-Employee Director's continued service to the Company on such date, and shall be subject to the terms and conditions set forth in the Plan and a Restricted Stock Unit Agreement in such form as the Board may approve for such awards from time to time.  Members of the Board who are employees of the Company and who subsequently terminate employment with the Company and remain on the Board, to the extent that they are otherwise eligible, shall receive, after termination of employment with the Company, Annual Director RSUs and Dividend Equivalents pursuant to this Section 4. The Annual Director RSUs and related Dividend Equivalents shall vest in full upon the occurrence of a Change in Control.  The Company will settle the Annual Director RSUs through the issuance of shares of Stock at the time of vesting unless a deferral election is made by a Non-Employee Director pursuant to the following sentence.  The Company may allow a Non-Employee Director to elect to defer settlement of the shares of Stock issuable with respect to the Annual Director RSUs by submitting a deferral election form in a form adopted by the Company from time to time, subject to the requirements of Section

409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder ("Section 409A").  All such deferral elections shall be made in accordance with the rules and procedures for such elections established by the Company and in accordance with Section 409A.

5.Written Grant Agreement.  The grant of any Award under this Policy shall be made solely by and subject to the terms set forth in a written agreement in a form to be approved by the Board and duly executed by an executive officer of the Company.

6.Effect of Other Plan Provisions. All of the provisions of the Plan shall apply to the Awards granted automatically pursuant to this Policy, except to the extent such provisions are inconsistent with this Policy.

7.Policy Subject to Amendment. Modification and Termination.  This Policy may be amended, modified or terminated by the Board in the future at its sole discretion.  Without limiting the generality of the foregoing, the Board hereby expressly reserves the authority to terminate this Policy during any year up and until the election of directors at a given annual meeting of stockholders.

Effectiveness.  This amended policy shall become effective as of the Effective Date.

*  *  *  *  *

EX-10.2

Exhibit 10.2

CORESITE REALTY CORPORATION

2020 EXECUTIVE SHORT-TERM INCENTIVE PLAN

The 2020 Executive Short-Term Incentive Plan (the “Plan”) is a cash bonus plan in which executives of CoreSite Realty Corporation (the “Company”)  or any affiliate are eligible to participate.  The Plan provides incentive cash bonuses based on the achievement of goals relating to the financial performance of the Company, as well as individual performance, which will be determined in the discretion of the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”).  The performance period for the Plan is January 1, 2020 to December 31, 2020 (the “Performance Period”).

The Compensation Committee administers the Plan.  The Compensation Committee, in its sole discretion, selects the individuals who will participate in the Plan and the actual bonus (if any) payable to each participant.  The target bonus for each participant is determined as a percentage of such participant’s base salary, ranging from 33% to 125%, as determined by the Compensation Committee in its sole discretion (the “Target Bonus”).  Participants under the Plan may receive between 50% and 150% of their Target Bonus, subject to achievement of threshold performance.

Payout under the Plan will be based on the achievement of the following performance measures during the Performance Period:

Performance Measure	Weighting	Targets & Potential Payouts
Revenue (excluding metered power)	33.3%	See Appendix
EBITDAre*	33.3%	See Appendix
Funds from Operations (“FFO”)**	33.3%	See Appendix

*  EBITDAre is defined as earnings before interest, taxes, depreciation and amortization, gains or losses from the sale of depreciated property, and impairment of depreciated property.

** FFO represents net income, excluding gains (or losses) from sales of property and impairment write-downs of depreciable real estate, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures.

The Compensation Committee may, in its sole discretion, make adjustments to the payouts under the Plan as a result of extraordinary events and/or conditions that either positively or negatively impact the Company’s performance.  In addition, the Company’s Board of Directors or Compensation Committee may further adjust the bonus payments in its discretion based on each participant’s achievement of departmental and individual goals, and overall job performance.

Unless otherwise specifically provided in a written agreement between the Company and a participant, a participant must be continuously employed by the Company or an affiliate from January 1, 2020 through the date the bonus payment is made to be eligible for payment under this Plan.  A participant hired after January 1, 2020 and employed through December 31, 2020 may receive a pro-rated bonus payment.  Payment of each bonus will be made as soon as practicable after the end of the Performance Period, but in any event will be made by March 15, 2020.  Bonuses will be paid in cash in a single lump sum, subject to payroll taxes and tax withholding.

Each bonus that may become payable under the Plan will be paid solely from the general assets of the Company.  Nothing in the Plan should be construed to create a trust or to establish or evidence any participant’s claim of any right to payment of a bonus other than as an unsecured general creditor with respect to any payment to which a participant may be entitled.

No participant will have any claim to a bonus under the Plan, and the Compensation Committee will have no obligation for uniformity of treatment of participants under the Plan.  Furthermore, nothing in the Plan will be

deemed to limit in any way the Compensation Committee’s full discretion to determine whether to grant any bonuses hereunder.

The Compensation Committee reserves the right to unilaterally amend, modify or terminate the Plan at any time, including amending the Plan as it deems necessary or desirable to avoid adverse tax consequences under Section 409A of the Internal Revenue Code of 1986, as amended.

To the extent required by applicable law or any applicable securities exchange listing standards, amounts paid or payable under the Plan shall be subject to clawback as determined by the Compensation Committee, which clawback may include forfeiture and/or recoupment of amounts paid or payable under the Plan.

EX-10.3

Exhibit 10.3

CERTAIN INFORMATION MARKED BY [***] HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

NINTH AMENDMENT TO LEASE

THIS NINTH AMENDMENT TO LEASE (this “Amendment”) is dated for reference purposes only as of ________________, 2020 (the “Ninth Amendment Date”), by and between GI TC ONE WILSHIRE, LLC, a Delaware limited liability company (“Landlord”), and CORESITE ONE WILSHIRE, L.L.C., a Delaware limited liability company (formerly known as CRG West One Wilshire, L.L.C.) (“Tenant”).

RECITALS:

A.        Hines REIT One Wilshire L.P., a Delaware limited partnership (“Hines”) and Tenant entered into that certain Lease dated as of August 1, 2007 (the “Original Lease”), as amended by that certain: (i) First Amendment to Lease dated as of May 1, 2008, between Hines and Tenant (the “First Amendment”); (ii) Second Amendment to Lease dated as of November 5, 2009, between Hines and Tenant (the “Second Amendment”); (iii) Third Amendment to Lease dated as of June 15, 2011, between Hines and Tenant (the “Third Amendment”); (iv) Fourth Amendment to Lease dated as of January 9, 2013, between Hines and Tenant (the “Fourth Amendment”); (v) Fifth Amendment to Lease dated as of May 29, 2015, between Landlord (as successor-in-interest to Hines) and Tenant (the “Fifth Amendment”); (vi) Sixth Amendment to Lease dated as of April 29, 2016, between Landlord and Tenant (the “Sixth Amendment”); (vii) Seventh Amendment to Lease dated as of June 30, 2018, between Landlord and Tenant (the “Seventh Amendment”); and (viii) Eighth Amendment to Lease dated as of July 10, 2019, between Landlord and Tenant (the “Eighth Amendment”).

B.         The Original Lease, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh Amendment and the Eighth Amendment are collectively referred to herein as the “Existing Lease.”  Unless specifically indicated to the contrary, references in this Amendment to a definition in or section of the Original Lease shall mean such definition in or such section of the Original Lease as may have been amended in the First Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth Amendment, Seventh Amendment or Eighth Amendment.

C.         Pursuant to the Existing Lease, (i) Tenant leases from Landlord certain premises consisting of approximately 176,685 rentable square feet inclusive of 2,301 rentable square feet in the Storage Space (the “Existing Premises”) within that certain office building located at 624 S. Grand Avenue, Los Angeles, California (the “Building”); (ii) Tenant has the right to use certain Conduits (as defined in Section 6.9.3 of the Original Lease) that existed in the Building as of the date of the Original Lease; and (iii) Tenant is licensing space in the Building to install and use the First Amendment Additional Conduits, the Second Amendment CS Additional Conduits, the Second Amendment TWC Additional Conduits, the Third Amendment CS Conduit, the Fourth

Amendment Conduits, the Fifth Amendment Conduits, the Sixth Amendment Conduits, the Seventh Amendment Conduits and the Eighth Amendment Structural Conduits (collectively the “Existing Amendment Conduits”).

D.        From and after the Ninth Amendment Date, references to “this Lease” or “the Lease” in the Existing Lease, shall all mean and refer to the Existing Lease, as amended by this Amendment.

E.         Landlord and Tenant now desire to amend the Existing Lease as hereinafter provided.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.         Recitals Incorporated.  The Recitals set forth above are incorporated herein by this reference and shall be deemed terms and provisions hereof with the same force and effect as if fully set forth in this Section.

2.         First Amendment Additional Conduits.  Effective as of January 1, 2020:

2.1       The First Amendment is amended as follows:

2.1.1    Section 3(c) is amended and restated in its entirety as follows:

“(c)      The First Amendment Additional Conduits Rent payable for the 19/27 Additional Conduits shall be [***] per month commencing on January 1, 2020, which monthly rent shall be (i) payable in advance on or before the first (1st) day of each month thereafter during the First Amendment Additional Conduits Term, as may be extended; and (ii) increased on each subsequent January 1st at the rate of [***] per annum on a cumulative, compounded basis.”

2.1.2    Section 3(d) is amended and restated in its entirety as follows:

“(d)      If Tenant exercises its option(s) to extend the Lease Term pursuant to Section 2.2 of the Lease, Tenant shall also have the right to extend any or all of the First Amendment Additional Conduits Term(s) for the applicable First Amendment Additional Conduit(s), in which event (a) the TCCs of Section 2.2 of the Lease shall apply with respect to such First Amendment Additional Conduit(s) for which such option has been exercised, and (b) the First Amendment Additional Conduits Rent payable by Tenant for such First Amendment Additional Conduit(s) during the applicable Option Term shall be (i) increased on the commencement date of such Option Term and on each annual anniversary of such commencement date at a rate of three percent (3%) per annum on a

2

cumulative, compounded basis.  No other amounts shall be payable for the First Amendment Additional Conduits during the applicable Option Term(s).  If Tenant does not exercise its option to extend hereunder for a particular First Amendment Additional Conduit(s), then for the applicable Option Term(s) for which the extension option hereunder has not been exercised, Tenant shall have no right to use such First Amendment Additional Conduit(s) (for which the extension option hereunder has not been exercised) and no obligation to pay any rent or other amounts for such First Amendment Additional Conduit(s).  Notwithstanding anything to the contrary in the Lease, the parties acknowledge and agree that, although Tenant has extension options with respect to the First Amendment Additional Conduits hereunder, if the Lease Term for the Premises (or applicable Identified Portion, as defined in the Lease) is extended for an Option Term(s), Tenant’s rights with respect to all other Supplemental Space and Supplemental Equipment (and all other rights of Tenant under the Lease, as amended) shall be automatically extended for such Option Term(s).”

2.2       Section 10.2.2 of the Fourth Amendment is amended and restated in its entirety as follows:

“10.2.2    During the Extended Term, the monthly rent payable for the Extended Conduits other than the 19/27 Additional Conduits shall be equal to the monthly rent payable by Tenant for the applicable conduits for the month of July, 2017, which monthly rent shall be increased annually at the rate of [***] per annum on a cumulative, compounded basis upon the Extended Term Commencement Date and upon each annual anniversary of the Extended Term Commencement Date. Commencing on January 1, 2020, the monthly rent payable for the 19/27 Additional Conduits shall be [***] in accordance with Section 3(c) of the First Amendment to Lease dated as of May 1, 2008, as amended, which monthly rent shall be increased annually at the rate of 3% per annum on a cumulative, compounded basis on each January 1st thereafter.”

2.3       Section 10.4.2 of the Fourth Amendment, as amended and restated by Section 14.6 of the Seventh Amendment, is amended and restated in its entirety as follows:

“If Tenant exercises a 2.2 Option, Tenant shall also have the right to extend through the expiration of the Lease Term (as extended by such 2.2 Option) any or all of the Amendment Conduit Terms with respect to any of the Amendment Conduits then leased by Tenant, in which event Section 2.2 of the Original Lease shall apply with respect to such applicable Amendment Conduits, except that (i) the monthly rent payable for each Amendment Conduit shall be equal to the monthly rent payable by Tenant for such Amendment Conduit for the month immediately preceding the commencement date of the applicable Option Term, as increased annually at a rate of 3% per annum on a cumulative, compounded basis upon the commencement date of the applicable Option Term and each annual anniversary thereof; and (ii) if Tenant exercises a 2.2 Option for less than all of the Premises, then Tenant shall

3

not have the right to extend the Amendment Conduit Terms for the Amendment Conduits which serve, originate at or end at any portion of the Premises with respect to which the subject 2.2 Option was not exercised.  No other monthly fees shall be payable for the Amendment Conduits leased by Tenant during the Option Term(s).  “Amendment Conduit Terms” means (a) the Additional Conduit Terms, (b) the Fourth Amendment Conduit Terms, (c) the 4/823 and 4/1010 Conduit Term, (d) the 4/27 Conduit Term, (e) the 4/805 Conduit Term, (f) the 4/105 Conduit Term, (g) the 4/1140 Conduit Term, (h) the 3036/3037 Conduit Term, (i) 3038/3039 Conduit Term, (j) the 3040/3041 Conduit Term, and (k) the Eighth Floor Conduit Term.”

3.         Second Amendment TWC Additional Conduits.  Effective as of the Seventh Amendment Date, Section 13.1 of the Seventh Amendment is amended and restated in its entirety as follows:

“13.1  Term.  The Second Amendment TWC Additional Conduits Term is further extended for the period (the “Second Amendment TWC Additional Conduits Second Extended Term”) commencing retroactively on August 1, 2017, and expiring on the Second Extended Term Expiration Date.  The first sentence of the second paragraph of Section 6.9.10 of the Original Lease shall not apply with respect to the Second Amendment TWC Additional Conduits.  During the Second Amendment TWC Additional Conduits Second Extended Term, the Second Amendment TWC Additional Conduits Rent shall be payable, regardless of whether any such Second Amendment TWC Additional Conduits are actually used by Tenant, in the amount of [***] per month, which monthly rent shall be (i) increased on September 1, 2018, September 1, 2019, August 1, 2020, and on each subsequent August 1st at the rate of 3% per annum on a cumulative, compounded basis, and (ii) payable in advance on or before the first (1st) day of each month during the Second Amendment TWC Additional Conduits Second Extended Term.”

4.         Condenser Water System Expenses and Supplemental Generators Expenses for Suite 1500.  With respect to the following, reference is made to Section 12 of the Seventh Amendment.

4.1       Tenant shall have no obligations with respect to any period prior to January 1, 2019, for payment of (a) Tenant’s Suite 1500 Share of Condenser Water System Expenses, or (b) Tenant’s Suite 1500 Share of Supplemental Generators Expenses.  Additionally, to the extent any such expenses are allocable to any period after the expiration of the Suite 1500 Term, as may be extended, Tenant shall have no obligations for payment of (i) Tenant’s Suite 1500 Share of Condenser Water System Expenses with respect to such allocated amounts, or (ii) Tenant’s Suite 1500 Share of Supplemental Generators Expenses with respect to such allocated amounts.

4.2       For the period from and including January 1, 2019, through and including June 12, 2019, Tenant’s obligations with respect to Tenant’s Suite 1500 Share of Condenser Water System Expenses and Tenant’s Suite 1500 Share of Supplemental Generators Expenses shall be limited to 50% of Tenant’s Suite 1500 Share of Condenser Water System Expenses and 50% of Tenant’s Suite 1500 Share of Supplemental Generators Expenses.

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4.3       The Suite 1500 Commencement Date occurred on June 13, 2019.

5.         3093 Conduit.

5.1       During the period (the “3093 Conduit Term”) commencing on the Ninth Amendment Date and expiring on the Second Extended Term Expiration Date, Tenant shall have the right to install, and after installation, the exclusive right to use, one (1) four inch (4”) conduit running from Suite 250 to Suite 400 for the purposes of installing and maintaining therein telecommunications cabling and/or wiring (the “3093 Conduit”).  The first sentence of the second paragraph of Section 6.9.10 of the Original Lease shall not apply with respect to the 3093 Conduit.  During the 3093 Conduit Term, Tenant shall pay to Landlord rent for the right to use the 3093 Conduit (regardless of whether such conduit is actually used by Tenant) in the amount of [***] per month per floor penetration, which monthly rent shall be (i) increased on each anniversary of the Ninth Amendment Date at the rate of 3% per annum on a cumulative compounded basis, and (ii) payable in advance on or before the first day of each calendar month.

5.2       The 3093 Conduit and any wiring or cabling installed therein, shall be installed by Tenant at Tenant’s sole cost and expense in accordance with Section 6.9 and Article 8 of the Original Lease.  The 3093 Conduit shall be deemed to be part of the Supplemental Equipment and the area of the Building in which the 3093 Conduit is located shall be deemed to be part of the Supplemental Areas.  Except as otherwise provided in this Section 6, all of the terms of the Lease related to the Supplemental Equipment and Supplemental Areas shall apply with respect to the 3093 Conduit (including, without limitation, the applicable provisions of the Special Use Conditions set forth in Section 2.1 of the Summary of the Original Lease, and Section 6.9 of the Original Lease).  In addition, (i) the 3093 Conduit shall be deemed an Amendment Conduit for all purposes under Section 10.4 of the Fourth Amendment, and (ii) the 3093 Conduit Term shall be deemed one of the Additional Conduit Terms (as defined in Section 10.4.2 of the Fourth Amendment, as amended).

6.         Conduit Schedule.  Schedule 2 to the Seventh Amendment is replaced in its entirety with Exhibit A to this Amendment.

7.         No Further Modification.  Except as set forth in this Amendment, all of the terms and provisions of the Existing Lease shall remain unmodified and in full force and effect.

8.         Counterparts and Electronic Signatures.  This Amendment may be executed in multiple counterparts, each of which is to be deemed original for all purposes, but all of which together shall constitute one and the same instrument.  Signatures to this Amendment transmitted by facsimile or via electronic mail (by pdf or similar file types) shall be valid and effective to bind the party so signing.

9.         Interpretation; Construction.  Landlord and Tenant have jointly prepared this Amendment, each with access to counsel, and (i) none of the provisions hereof shall be construed against one party on the ground that such party is the author of this Amendment or any part hereof; and (ii) the usual rule of contract construction that resolves ambiguities against the drafter shall not apply.  All defined terms have the meanings given them for all purposes, and such meanings are equally applicable to both the singular and plural forms of the terms defined.  Any agreement,

5

instrument or law defined or referred to herein (a) means such agreement or instrument or law as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of law) by succession of comparable successor laws; and (b) includes (in the case of agreements or instruments) all attachments thereto and instruments incorporated therein. The words “including” and “includes” and terms of similar import shall be deemed to mean “including, without limitation”.  The terms “hereby,” “hereof,” “hereto,” “herein,” “hereunder,” and any similar terms, refer to this Amendment.  Article, Section, exhibit, schedule and addendum headings in and any table of contents and index of defined terms are solely for convenience and do not constitute a part, and shall not affect the meaning, construction or effect, of this Amendment.  Capitalized words used as defined terms are used solely for convenience and such words do not affect the definitions assigned to them.  Except to the extent specified to the contrary in this Amendment, references to Articles, Sections, Exhibits, schedules and addenda are to the Articles, Sections, Exhibits, Schedules and Addenda of this Amendment and all such Exhibits, Schedules and Addenda attached to this Amendment are incorporated herein and made a part hereof.  If there is any conflict between such attached Exhibits, Schedules or Addenda and the terms of this Amendment, the terms of this Amendment shall control.

SIGNATURES ON NEXT PAGE

6

IN WITNESS WHEREOF, this Amendment has been executed by each of the parties as of the day and year written immediately below their respective signatures to be effective as of the Ninth Amendment Date.

LANDLORD

GI TC ONE WILSHIRE, LLC,

a Delaware limited liability company

By:

Print Name:

Its:

Date:

TENANT

CORESITE ONE WILSHIRE, L.L.C.,

a Delaware limited liability company

By:

Print Name:

Its:

Date:

EXHIBIT A

AMENDMENT CONDUIT SCHEDULE

Conduit Name	Quantity	Conduit No.	Run	Rent and Escalation
First Amendment Additional Conduits
4/7 Additional Conduits	2	3000, 3001	4th to 7th	Section 2.2 of the Ninth Amendment
2/4 Additional Conduits	4	3002, 3003, 3004, 3005	2nd to 4th	Section 2.2 of the Ninth Amendment
19/27 Additional Conduits	2	3008, 3009	19th to 27th	Section 2.2 of the Ninth Amendment
Second Amendment CS Additional Conduits
Conduit 2838	1	2838	P-1 to 1st	Section 2.2 of the Ninth Amendment
Conduit 2900	1	2900	4th to 27th	Section 2.2 of the Ninth Amendment
Second Amendment TWC Additional Conduits
Conduit 2840	1	2840	P-1 to 27th	Section 3 of the Ninth Amendment
Conduit 2841	1	2841	P-1 to 27th	Section 3 of the Ninth Amendment
Third Amendment CS Conduit	1	3076	ground floor loading dock to 4th floor MMR	Section 2.2 of the Ninth Amendment
Fourth Amendment Conduits
3014 Conduit	1	3014	4th to 7th	Section 10.3.2 of the Fourth Amendment
3015 Conduit	1	3015	4th to 18th	Section 10.3.2 of the Fourth Amendment
3016 Conduit	1	3016	4th to 28th	Section 10.3.2 of the Fourth Amendment
Fifth Amendment Conduits
4/823 and 4/1010 Conduits	1	3023	4th to Suite 823	Section 4.2.1 of the Fifth Amendment.
	1	one inch innerduct	4th to Suite 1010
4/27 Additional Conduits	2	3021, 3022	4th to 27th	Section 4.2.2 of the Fifth Amendment.
4/805 Conduits	1	3024	4th to Suite 805	Section 4.2.3 of the Fifth Amendment.

Conduit Name	Quantity	Conduit No.	Run	Rent and Escalation
Sixth Amendment Conduits
4/105 Conduits	2	3030, 3031	4th to Suite 105	Section 3.1 of the Sixth Amendment
4/1140 Conduits	4	3032 to 3035 inclusive	4th to Suite 1140	Section 3.2 of the Sixth Amendment
Seventh Amendment Conduits
3036/3037 Conduits	2	3036, 3037	Suite 400 to Suite 2700	Section 14.1 of the Seventh Amendment
3038/3039 Conduits	2	3038, 3039	Suite 1900 to Suite 2900	Section 14.2 of the Seventh Amendment
3040/3041 Conduits	2	3040, 3041	Suite 105 to Suite 400	Section 14.3 of the Seventh Amendment
Eighth Floor Conduits	23	3055 to 3078, exclusive of 3076	see Exhibit F to the Seventh Amendment	Section 14.4 of the Seventh Amendment
Eighth Amendment Structural Conduits
Conduits 3079 to 3086	8	3079 to 3086 inclusive	see Section 2.1 and Exhibit A to the Eighth Amendment	Section 2.3 of the Eighth Amendment
Ninth Amendment Conduit
3093 Conduit	1	3093	Suite 250 to Suite 400	Section 5 of the Ninth Amendment

2

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Paul E. Szurek, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CoreSite Realty Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May  1, 2020

By:	/s/ Paul E. Szurek
	Paul E. Szurek
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey S. Finnin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CoreSite Realty Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May  1, 2020

By:	/s/ Jeffrey S. Finnin
	Jeffrey S. Finnin
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 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

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of CoreSite Realty Corporation (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i) The accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

Dated: May  1, 2020

/s/ Paul E. Szurek

Paul E. Szurek

Chief Executive Officer

EX-32.2

Exhibit 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

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of CoreSite Realty Corporation (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i) The accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

Dated: May  1, 2020

/s/ Jeffrey S. Finnin

Jeffrey S. Finnin

Chief Financial Officer

XML

Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Earnings Per Share
Net income attributable to common shares	$ 17,848	$ 19,661
Weighted-average common shares outstanding - basic	37,335,892	36,347,781
Effect of potentially dilutive common shares:
Weighted-average common shares outstanding - diluted	37,504,349	36,547,065
Net income per share attributable to common shares
Basic	$ 0.48	$ 0.54
Diluted	$ 0.48	$ 0.54
Weighted-average potentially dilutive securities excluded in calculation of basic and diluted income (loss) per share	2,054	39,754
Stock Options
Effect of potentially dilutive common shares:
Potentially dilutive common shares	25,298	38,921
Restricted awards
Effect of potentially dilutive common shares:
Potentially dilutive common shares	143,159	160,363

XML

Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2020

Earnings Per Share

Summary of basic and diluted income per share

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

	Three Months Ended March 31,
	2020		2019
Net income attributable to common shares	$	17,848	$	19,661
Weighted-average common shares outstanding - basic		37,335,892		36,347,781
Effect of potentially dilutive common shares:
Stock options		25,298		38,921
Unvested awards		143,159		160,363
Weighted-average common shares outstanding - diluted		37,504,349		36,547,065
Net income per share attributable to common shares
Basic	$	0.48	$	0.54
Diluted	$	0.48	$	0.54

XML

Summary of Significant Accounting Policies - Internal Use Software, RR & IT (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Internal-Use Software
Recognized impairment of internal use software	$ 0	$ 0
Operating revenues:
Allowance for doubtful accounts (in dollars)	904		$ 371
Asset Retirement and Environmental Remediation Obligations
Asset retirement and environmental remediation obligations	$ 1,700		$ 1,700
Income taxes
Minimum percentage of distribution of taxable income to qualify as REIT	90.00%
Percentage of distribution of taxable income as per company policy	100.00%
Provision for federal income taxes	$ 0
Liabilities for uncertain positions	$ 0

XML

Debt

3 Months Ended

Mar. 31, 2020

Debt

Debt

7. Debt

A summary of outstanding indebtedness as of March 31, 2020, and December 31, 2019, is as follows (in thousands):

		Maturity	March 31,		December 31,
	Interest Rate	Date	2020		2019
Revolving credit facility(1)	2.45% and 3.01% at March 31, 2020, and December 31, 2019, respectively	November 8, 2023	$	155,500	$	62,500
2022 Senior unsecured term loan(1)	1.76% and 2.96% at March 31, 2020, and December 31, 2019, respectively	April 19, 2022		200,000		200,000
2023 Senior unsecured notes	4.19% at March 31, 2020, and December 31, 2019, respectively	June 15, 2023		150,000		150,000
2024 Senior unsecured term loan(1)	2.86% and 3.44% at March 31, 2020, and December 31, 2019, respectively	April 19, 2024		150,000		150,000
2024 Senior unsecured notes	3.91% at March 31, 2020, and December 31, 2019, respectively	April 20, 2024		175,000		175,000
2025 Senior unsecured term loan(1)	2.32% and 2.81% at March 31, 2020, and December 31, 2019, respectively	April 1, 2025		350,000		350,000
2026 Senior unsecured notes(1)	4.52% at March 31, 2020, and December 31, 2019, respectively	April 17, 2026		200,000		200,000
2029 Senior unsecured notes	4.31% at March 31, 2020, and December 31, 2019, respectively	April 17, 2029		200,000		200,000
Total principal outstanding		`		1,580,500		1,487,500
Unamortized deferred financing costs				(8,493)		(9,098)
Total debt			$	1,572,007	$	1,478,402

(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 March 31, 2020, and 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. We entered into three new interest rate swaps during the quarter ended March 31, 2020. See Note 8 – 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 securing capital from new or existing lenders.

Borrowings under the revolving credit facility were 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 March 31, 2020, our Operating Partnership’s leverage ratio was 31.2% 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 March 31, 2020, the borrowing capacity was $450.0 million. As of March 31, 2020, $155.5 million was borrowed and outstanding, $6.1 million was outstanding under letters of credit, and therefore $288.4 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 March 31, 2020, was 31.2%

● a maximum secured debt ratio (defined as total consolidated secured debt to total gross asset value) of 40%, which, as of March 31, 2020, was 0.0%

● 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 March 31, 2020, was 5.8 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 March 31, 2020, 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 “2022 Term Loan”). 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 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 March 31, 2020, 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 March 31, 2020, our Operating Partnership’s leverage ratio was 31.2% 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 March 31, 2020, we were in compliance with all of the financial covenants under the 2024 Term Loan.

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 March 31, 2020, our Operating Partnership’s leverage ratio was 31.2% 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 March 31, 2020, 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 March 31, 2020, our Operating Partnership’s leverage ratio was 31.2% 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 March 31, 2020, 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.

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 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 would 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 March 31, 2020, 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 so prepaid 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 March 31, 2020, 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 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 August and February 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 March 31, 2020, 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		305,500
2024		325,000
Thereafter		750,000
Total principal outstanding		1,580,500
Unamortized deferred financing costs		(8,493)
Total debt, net	$	1,572,007

Subsequent Debt Financing

On April 15, 2020, we agreed with lenders on the pricing of 7-year $150 million unsecured private placement notes with $100 million funding on May 6, 2020, and the remaining $50 million on July 14, 2020. However, the closing is subject to standard diligence procedures.

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Investment in Real Estate

3 Months Ended

Mar. 31, 2020

Investment in Real Estate

Investment in Real Estate

3. Investment in Real Estate

The following is a summary of the properties owned or leased by market at March 31, 2020 (in thousands):

			Buildings and		Construction in
Market	Land		Improvements		Progress		Total Cost
Boston	$	5,154	$	119,803	$	3,005	$	127,962
Chicago		5,493		115,909		110,768		232,170
Denver		—		34,938		386		35,324
Los Angeles		18,672		377,134		81,178		476,984
Miami		728		14,641		—		15,369
New York		2,729		173,080		54,719		230,528
Northern Virginia		21,856		401,645		101,718		525,219
San Francisco Bay		39,961		778,380		86,020		904,361
Total	$	94,593	$	2,015,530	$	437,794	$	2,547,917

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

Market	Land		Buildings and Improvements		Construction in Progress		Total Cost
Boston	$	5,154	$	119,227	$	931	$	125,312
Chicago		5,493		115,699		100,118		221,310
Denver		—		32,659		2,461		35,120
Los Angeles		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		39,961		776,642		72,763		889,366
Total	$	94,593	$	1,989,731	$	394,474	$	2,478,798

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Equity Incentive Plan

3 Months Ended

Mar. 31, 2020

Equity Incentive Award Plan

Equity Incentive Plan

11. 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, restricted stock units, 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 March 31, 2020, 2,474,370 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. As of March 31, 2020, all stock option awards are fully vested. The following table sets forth stock option activity under the 2010 Plan for the three months ended March 31, 2020:

	Number of
	Shares	Weighted-
	Subject to	Average
	Option	Exercise Price
Options outstanding, December 31, 2019	31,746	$	19.57
Granted	—		—
Exercised	(3,210)		18.87
Forfeited	—		—
Expired	—		—
Options outstanding, March 31, 2020	28,536	$	19.65

Restricted Stock Awards and Units

Restricted stock awards and restricted stock units (“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	Weighted-
	Stock	Average Fair
	Awards and	Value at Grant
	Units	Date
Unvested balance, December 31, 2019	292,373	$	96.44
Granted	146,582		110.73
Forfeited	(4,913)		99.04
Vested	(112,245)		90.76
Unvested balance, March 31, 2020	321,797	$	104.90

As of March 31, 2020, total unearned compensation on restricted stock awards and RSUs was approximately $32.0 million, and the weighted-average vesting period was 2.9 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 2018, 2019, and 2020. 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.

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, 2019	34,624	171,351	102,989	$	107.84
Granted	10,210	71,488	40,852		125.02
Performance adjustment (1)	38,047	(7,904)	15,073		—
Forfeited	(1,049)	(4,878)	(2,964)		107.63
Vested	(32,524)	(32,524)	(32,524)		105.55
Unvested balance, March 31, 2020	49,308	197,533	123,426	$	113.96

(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 March 31, 2020, total unearned compensation on PSAs was approximately $9.6 million, and the weighted-average vesting period was 2.4 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 three months ended March 31, 2020, and 2019:

	Three Months Ended March 31,
	2020		2019
Expected term (in years)	2.82		2.82
Expected volatility	24.00	%	24.09	%
Expected annual dividend(1)	—		—
Risk-free rate	0.56	%	2.48	%

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

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Leases (Tables)

3 Months Ended

Mar. 31, 2020

Leases

Schedule of components of lease expense

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

	Three Months Ended March 31,
	2020		2019
Lease expense:
Operating lease expense	$	6,862	$	6,396
Variable lease expense		1,537		1,292
Rent expense	$	8,399	$	7,688

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by our management in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in compliance with the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the expected results for the year ending December 31, 2020. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

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

Recently Adopted Accounting Pronouncements

Fair Value Measurement

In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance codified in Accounting Standards Update (“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 became effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We adopted the standard effective January 1, 2020, and the provisions of ASU 2018-13 did not have a material impact on our condensed 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. We adopted the standard effective January 1, 2020, on a prospective basis, and the provisions of ASU 2018-15 did not have a material impact on our condensed consolidated financial statements.

Financial Instruments – Credit Losses

In June 2016, the FASB issued guidance codified in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduced the “current expected credit losses” model, which requires companies to estimate credit losses immediately upon exposure. The guidance applies to financial assets measured at amortized cost, including financing receivables and trade receivables. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which clarified that operating leases are outside the scope of Topic 326, and instead should be accounted for under ASC 842. The standard became effective, for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We adopted the standard effective January 1, 2020, on a prospective basis, and the provisions of ASC 2016-13 and ASU 2018-19 did not have a material impact on our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued guidance codified in ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective for all entities as of March 12, 2020 through December 31, 2022. An entity can elect to apply the amendments as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to that date that the financial statements are available to be issued. We are currently evaluating the optional expedients and exceptions provided by ASU 2020-04 to determine the impact on our condensed consolidated financial statements.

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

Use of Estimates

Use of Estimates

The preparation of these unaudited condensed 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 unaudited condensed 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

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 $3.5 million and $2.6 million for the three months ended March 31, 2020, and 2019, respectively.

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 $36.9 million and $32.2 million for the three months ended March 31, 2020, and 2019, respectively.

Acquisition of Investment in Real Estate

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 are 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 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 three months ended March 31, 2020, or 2019.

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 March 31, 2020, and December 31, 2019, 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 three months ended March 31, 2020, or 2019.

Cash and Cash Equivalents

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

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 $3.3 million and $3.4 million for the three months ended March 31, 2020, and 2019, respectively. Initial direct costs are included within other assets in the condensed consolidated balance sheets and consisted of the following, net of amortization, as of March 31, 2020, and December 31, 2019 (in thousands):

	March 31,		December 31,
	2020		2019
Internal sales commissions	$	15,335	$	15,064
Third party commissions		12,820		10,845
Other		436		462
Total	$	28,591	$	26,371

Deferred Financing Costs

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 condensed consolidated balance sheets.

Recoverability of Long-Lived Assets

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 three months ended March 31, 2020, and 2019, no impairment of long-lived assets was recognized in the condensed consolidated financial statements.

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

We reflect all derivative instruments at fair value as either assets or liabilities on the condensed 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 8, Derivatives and Hedging Activities.

Internal-Use Software

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. No impairment of internal-use software was recognized in the condensed consolidated financial statements for the three months ended March 31, 2020, and 2019.

Revenue Recognition

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 condensed 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 condensed 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.

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 condensed 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 the collectability of 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 not be probable. At March 31, 2020, and December 31, 2019, the allowance for doubtful accounts totaled $0.9 million and $0.4 million, respectively, on the condensed consolidated balance sheets.

Lessee Accounting

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 condensed 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

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

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 March 31, 2020, and December 31, 2019, the amount included in unearned revenue, prepaid rent and other liabilities on the condensed consolidated balance sheets was approximately $1.7 million at each date.

Income Taxes

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 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 condensed 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 March 31, 2020, and December 31, 2019, 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

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

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.

Risks and Uncertainties

Risks and Uncertainties

The full extent of the operational and financial impact of the novel coronavirus (“COVID-19”) outbreak on our business has yet to be determined. The impact of the outbreak of COVID-19 is dependent on future developments, including, among other factors, the duration and spread of the outbreak, along with related government-mandated business shutdowns, travel advisories and restrictions on movement, the recovery time of general employment levels, disrupted supply chains, potentially material staffing shortages, construction and development delays, and uncertainty with respect to accessibility of additional funding sources. In addition, some of our customers and prospective customers are dependent on areas of the economy that have been significantly impacted by the outbreak of COVID-19, which may impact their ability to comply with their rent obligations or their demand for additional space and power from us. As of March 31, 2020, we have not recognized a material loss, impairment, or contingency within our condensed consolidated financial statements as a result of the COVID-19 pandemic.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 22,988	$ 25,905
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	40,991	35,646
Amortization of above/below market leases	(34)	(86)
Amortization of deferred financing costs and hedge amortization	1,029	611
Share-based compensation	3,482	3,432
Bad debt expense (recovery)	700	(27)
Changes in operating assets and liabilities:
Accounts receivable	(3,952)	(7,658)
Deferred rent receivable	(496)	1,036
Deferred leasing costs	(6,189)	(2,694)
Other assets	(2,408)	(4,519)
Accounts payable and accrued expenses	(2,579)	2,757
Unearned revenue, prepaid rent and other liabilities	726	857
Operating leases	296	643
Net cash provided by operating activities	54,554	55,903
CASH FLOWS FROM INVESTING ACTIVITIES
Tenant improvements	(1,329)	(1,046)
Real estate improvements	(85,840)	(80,795)
Net cash used in investing activities	(87,169)	(81,841)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options	73	17
Proceeds from revolving credit facility	107,500	88,000
Payments on revolving credit facility	(14,500)	(8,500)
Payments of loan fees and costs	(191)
Dividends and distributions	(60,008)	(53,884)
Net cash provided by (used in) financing activities	32,874	25,633
Net change in cash and cash equivalents	259	(305)
Cash and cash equivalents, beginning of period	3,048	2,599
Cash and cash equivalents, end of period	3,307	2,294
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of capitalized amounts	14,670	6,350
Cash paid for operating lease liabilities	6,626	6,071
NON-CASH INVESTING AND FINANCING ACTIVITY
Construction costs payable capitalized to real estate	46,739	66,123
Accrual of dividends and distributions	61,637	$ 55,109
NON-CASH OPERATING ACTIVITY
Lease liabilities arising from obtaining right-of-use assets	$ 7,646

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Debt - Summary of Debt (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Nov. 08, 2019	Apr. 17, 2019
Debt
Total principal outstanding	$ 1,580,500	$ 1,487,500
Unamortized deferred financing costs	(8,493)	(9,098)
Total debt	$ 1,572,007	$ 1,478,402
Revolving Credit Facility
Debt
Interest rate as of reporting date (as a percent)	2.45%	3.01%
Total principal outstanding	$ 155,500	$ 62,500
2022 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Interest rate as of reporting date (as a percent)	1.76%	2.96%
Total principal outstanding	$ 200,000	$ 200,000
Senior Unsecured Term Loan 2023 | Senior Unsecured Term Loan
Debt
Total principal outstanding	$ 150,000	$ 150,000
2023 Senior unsecured notes | Senior Unsecured Term Loan
Debt
Interest rate as of reporting date (as a percent)	2.86%	3.44%
2023 Senior unsecured notes | Senior Unsecured Notes
Debt
Interest rate as of reporting date (as a percent)	4.19%	4.19%
Total principal outstanding	$ 150,000	$ 150,000
2024 Senior unsecured notes
Debt
Interest rate as of reporting date (as a percent)	3.91%	3.91%
2024 Senior unsecured notes | Senior Unsecured Notes
Debt
Total principal outstanding	$ 175,000	$ 175,000
2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Interest rate as of reporting date (as a percent)	2.32%	2.81%
Total principal outstanding	$ 350,000	$ 350,000
2026 Senior unsecured notes
Debt
Interest rate as of reporting date (as a percent)				4.52%
2026 Senior unsecured notes | Senior Unsecured Notes
Debt
Interest rate as of reporting date (as a percent)	4.52%
Total principal outstanding	$ 200,000	200,000
2029 Senior unsecured notes | Senior Unsecured Notes
Debt
Interest rate as of reporting date (as a percent)	4.31%
Total principal outstanding	$ 200,000	$ 200,000
Operating partnership | 2020 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding			$ 150,000
Operating partnership | 2021 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding			100,000
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding			150,000
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding			$ 350,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance for doubtful accounts (in dollars)	$ 904	$ 371
Accumulated amortization, lease intangibles (in dollars)	4,231	4,022
Deferred financing costs - revolving credit facility	8,493	9,098
Accumulated amortization of below-market lease	$ 1,535	$ 1,511
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common Stock, shares issued	37,905,933	37,701,042
Common Stock, shares outstanding	37,905,933	37,701,042

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Debt - Subsequent Debt Financing (Details) - Subsequent Event - USD ($) $ in Millions	Apr. 15, 2020	Jul. 14, 2020	May 06, 2020
Debt Instrument [Line Items]
Debt Term	7 years
Aggregate principal amount	$ 150	$ 50	$ 100

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Lease Revenue (Tables)

3 Months Ended

Mar. 31, 2020

Lease Revenue

Components of data center, office, light-industrial, and other lease revenue

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

	Three Months Ended March 31,
	2020		2019
Lease revenue:
Minimum lease revenue	$	106,441	$	99,410
Variable lease revenue		20,836		21,069
Total lease revenue	$	127,277	$	120,479

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2020

Summary of Significant Accounting Policies

Schedule of useful lives of real estate investment 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

Schedule of deferred leasing costs, net of amortization

	March 31,		December 31,
	2020		2019
Internal sales commissions	$	15,335	$	15,064
Third party commissions		12,820		10,845
Other		436		462
Total	$	28,591	$	26,371

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY - USD ($) $ in Thousands	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Distributions in Excess of Net Income	Total Stockholders' Equity	Noncontrolling Interests	Total
Balance at Dec. 31, 2018	$ 363	$ 491,314	$ (2,193)	$ (246,929)	$ 242,555	$ 92,078	$ 334,633
Balance (in shares) at Dec. 31, 2018	36,708,691
Increase (Decrease) in Stockholders' Equity
Issuance of stock awards, net of forfeitures (in shares)	192,009
Exercise of stock options		17			17		17
Exercise of stock options (in shares)	1,129
Share-based compensation	$ 1	3,592			3,593		3,593
Dividends and distributions				(40,581)	(40,581)	(12,733)	(53,314)
Net income				19,661	19,661	6,244	25,905
Other comprehensive income (loss)			(3,540)		(3,540)	(1,124)	(4,664)
Balance at Mar. 31, 2019	$ 364	494,923	(5,733)	(267,849)	221,705	84,465	306,170
Balance (in shares) at Mar. 31, 2019	36,901,829
Balance at Dec. 31, 2019	$ 373	512,324	(6,026)	(348,509)	158,162	55,726	213,888
Balance (in shares) at Dec. 31, 2019	37,701,042
Increase (Decrease) in Stockholders' Equity
Redemption of noncontrolling interests		11			11	(11)
Redemption of noncontrolling interests (in shares)	2,140
Issuance of stock awards, net of forfeitures (in shares)	199,541
Exercise of stock options		73			73		73
Exercise of stock options (in shares)	3,210
Share-based compensation	$ 1	3,725			3,726		3,726
Dividends and distributions				(46,174)	(46,174)	(13,139)	(59,313)
Net income				17,848	17,848	5,140	22,988
Other comprehensive income (loss)			(13,132)		(13,132)	(3,782)	(16,914)
Balance at Mar. 31, 2020	$ 374	$ 516,133	$ (19,158)	$ (376,835)	$ 120,514	$ 43,934	$ 164,448
Balance (in shares) at Mar. 31, 2020	37,905,933

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Lease Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Components of lease revenue
Minimum lease revenue	$ 106,441	$ 99,410
Variable lease revenue	20,836	21,069
Total lease revenue	$ 127,277	$ 120,479

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Investments in real estate:
Land	$ 94,593	$ 94,593
Buildings and improvements	2,015,530	1,989,731
Total investments in real estate	2,110,123	2,084,324
Less: Accumulated depreciation and amortization	(756,025)	(720,498)
Net investment in operating properties	1,354,098	1,363,826
Construction in progress	437,794	394,474
Net investments in real estate	1,791,892	1,758,300
Operating lease right-of-use assets, net	175,999	172,976
Cash and cash equivalents	3,307	3,048
Accounts and other receivables, net of allowance for doubtful accounts of $904 and $371 as of March 31, 2020, and December 31, 2019, respectively	24,260	21,008
Lease intangibles, net of accumulated amortization of $4,231 and $4,022 as of March 31, 2020, and December 31, 2019, respectively	3,600	3,939
Goodwill	40,646	40,646
Other assets, net	104,555	101,082
Total assets	2,144,259	2,100,999
Liabilities:
Debt, net of unamortized deferred financing costs of $8,493 and $9,098 as of March 31, 20120 and December 31, 2019, respectively	1,572,007	1,478,402
Operating lease liabilities	190,759	187,443
Accounts payable and accrued expenses	102,148	123,304
Accrued dividends and distributions	61,637	62,332
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	2,462	2,511
Unearned revenue, prepaid rent and other liabilities	50,798	33,119
Total liabilities	1,979,811	1,887,111
Stockholders' equity:
Common Stock, par value $0.01, 100,000,000 shares authorized and 37,905,933 and 36,708,691 shares issued and outstanding at March 31, 2020, and December 31, 2019, respectively	374	373
Additional paid-in capital	516,133	512,324
Accumulated other comprehensive loss	(19,158)	(6,026)
Distributions in excess of net income	(376,835)	(348,509)
Total stockholders' equity	120,514	158,162
Noncontrolling interests	43,934	55,726
Total equity	164,448	213,888
Total liabilities and equity	$ 2,144,259	$ 2,100,999

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Debt - Maturities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Debt maturities
2022	$ 200,000
2023	305,500
2024	325,000
Thereafter	750,000
Total principal outstanding	1,580,500	$ 1,487,500
Unamortized deferred financing costs	(8,493)	(9,098)
Total debt	$ 1,572,007	$ 1,478,402

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Estimated Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Estimated Fair Value of Financial Instruments
Total principal outstanding	$ 1,580,500	$ 1,487,500
Fair value of debt	$ 1,600,000	$ 1,500,000

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Equity Incentive Award Plan (Tables)

3 Months Ended

Mar. 31, 2020

Equity Incentive Award Plan

Schedule of stock option activity

	Number of
	Shares	Weighted-
	Subject to	Average
	Option	Exercise Price
Options outstanding, December 31, 2019	31,746	$	19.57
Granted	—		—
Exercised	(3,210)		18.87
Forfeited	—		—
Expired	—		—
Options outstanding, March 31, 2020	28,536	$	19.65

Schedule of restricted awards and RSUs

	Restricted	Weighted-
	Stock	Average Fair
	Awards and	Value at Grant
	Units	Date
Unvested balance, December 31, 2019	292,373	$	96.44
Granted	146,582		110.73
Forfeited	(4,913)		99.04
Vested	(112,245)		90.76
Unvested balance, March 31, 2020	321,797	$	104.90

Schedule of unvested PSAs and their weighted-average fair value at the date of grant

				Weighted-
				Average Fair
	Performance-Based Restricted Stock Awards			Value at Grant
	Minimum	Maximum	Target	Date
Unvested balance, December 31, 2019	34,624	171,351	102,989	$	107.84
Granted	10,210	71,488	40,852		125.02
Performance adjustment (1)	38,047	(7,904)	15,073		—
Forfeited	(1,049)	(4,878)	(2,964)		107.63
Vested	(32,524)	(32,524)	(32,524)		105.55
Unvested balance, March 31, 2020	49,308	197,533	123,426	$	113.96

(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.

Summary of assumptions used to value stock option awards

	Three Months Ended March 31,
	2020		2019
Expected term (in years)	2.82		2.82
Expected volatility	24.00	%	24.09	%
Expected annual dividend(1)	—		—
Risk-free rate	0.56	%	2.48	%

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

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Summary of Significant Accounting Policies - Deferred Costs & Impairment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Summary of Significant Accounting Policies
Impairment loss related to intangible assets	$ 0	$ 0
Goodwill	40,646		$ 40,646
Impairment loss related to goodwill	0	0
Deferred Costs
Amortization of initial direct costs	3,300	3,400
Internal sales commissions	15,335		15,064
Third party commissions	12,820		10,845
Other	436		462
Total	28,591		$ 26,371
Recoverability of Long-Lived Assets
Impairment of long-lived assets	$ 0	$ 0

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Earnings Per Share

3 Months Ended

Mar. 31, 2020

Earnings Per Share

Earnings Per Share

12. 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):

	Three Months Ended March 31,
	2020		2019
Net income attributable to common shares	$	17,848	$	19,661
Weighted-average common shares outstanding - basic		37,335,892		36,347,781
Effect of potentially dilutive common shares:
Stock options		25,298		38,921
Unvested awards		143,159		160,363
Weighted-average common shares outstanding - diluted		37,504,349		36,547,065
Net income per share attributable to common shares
Basic	$	0.48	$	0.54
Diluted	$	0.48	$	0.54

In the calculations above, we have excluded weighted-average potentially dilutive securities of 2,054 and 39,754 for the three months ended March 31, 2020, and 2019, respectively, as their effect would have been antidilutive.

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Derivatives and Hedging Activities

3 Months Ended

Mar. 31, 2020

Derivatives and Hedging Activities

Derivatives and Hedging Activities

8. Derivatives and Hedging Activities

The following table summarizes our derivative positions as of March 31, 2020, and December 31, 2019 (in thousands):

Notional Amount										Fair Value (Level 2) (1)
March 31,		December 31,		Type of				Effective	Expiration	March 31,		December 31,
2020		2019		Derivative	Index	Strike Rate		Date	Date	2020		2019
$	75,000	$	75,000	Interest Rate Swap	1 mo. LIBOR	1.43	%	5/5/2015	5/5/2020	$	(30)	$	67
	75,000		75,000	Interest Rate Swap	1 mo. LIBOR	2.72		5/5/2018	4/5/2023		(5,469)		(2,819)
	100,000		100,000	Interest Rate Swap	1 mo. LIBOR	1.59		11/8/2019	4/1/2025		(5,918)		55
	75,000		75,000	Interest Rate Swap	1 mo. LIBOR	1.59		11/8/2019	4/1/2025		(4,439)		41
	200,000		—	Interest Rate Swap	1 mo. LIBOR	0.56		3/5/2020	4/19/2022		(1,104)		—
	75,000		—	Interest Rate Swap	1 mo. LIBOR	0.61		3/5/2020	10/5/2023		(738)		—
	175,000		—	Interest Rate Swap	1 mo. LIBOR	0.64		3/5/2020	10/1/2024		(2,075)		—
$	775,000	$	325,000							$	(19,773)	$	(2,656)

(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.

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 condensed consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

Amounts reported in accumulated other comprehensive income 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 April 1, 2020, we estimate that $6.0 million will be reclassified as an increase to interest expense.

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Other Assets

3 Months Ended

Mar. 31, 2020

Other Assets.

Other Assets

4. Other Assets

Other assets consisted of the following, net of amortization and depreciation, if applicable for each line item, as of March 31, 2020, and December 31, 2019 (in thousands):

	March 31,		December 31,
	2020		2019
Deferred rent receivable	$	38,831	$	38,335
Initial direct costs		28,591		26,371
Internal-use software		16,699		16,747
Prepaid expenses		12,178		7,675
Corporate furniture, fixtures and equipment		4,507		4,848
Deferred financing costs - revolving credit facility		3,076		3,148
Other		673		3,958
Total	$	104,555	$	101,082

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Other Assets (Tables)

3 Months Ended

Mar. 31, 2020

Other Assets.

Schedule of other assets

Other assets consisted of the following, net of amortization and depreciation, if applicable for each line item, as of March 31, 2020, and December 31, 2019 (in thousands):

	March 31,		December 31,
	2020		2019
Deferred rent receivable	$	38,831	$	38,335
Initial direct costs		28,591		26,371
Internal-use software		16,699		16,747
Prepaid expenses		12,178		7,675
Corporate furniture, fixtures and equipment		4,507		4,848
Deferred financing costs - revolving credit facility		3,076		3,148
Other		673		3,958
Total	$	104,555	$	101,082

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies.

Commitments and Contingencies

14. 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 of our properties. At March 31, 2020, we had open commitments related to construction contracts of approximately $145.7 million.

Additionally, we have commitments related to telecommunications capacity used to connect data centers located within the same market or geographical area, power usage, and company-wide improvements that are ancillary to revenue generation. At March 31, 2020, we had open commitments related to these contracts of approximately $75.2 million, of which $5.7 million is scheduled to be met during the remainder of the year ending December 31, 2020.

In the ordinary course of business, we are subject to claims and administrative proceedings. 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.

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Derivatives and Hedging Activities (Tables)

3 Months Ended

Mar. 31, 2020

Derivatives and Hedging Activities

Schedule of derivative instruments

The following table summarizes our derivative positions as of March 31, 2020, and December 31, 2019 (in thousands):

Notional Amount										Fair Value (Level 2) (1)
March 31,		December 31,		Type of				Effective	Expiration	March 31,		December 31,
2020		2019		Derivative	Index	Strike Rate		Date	Date	2020		2019
$	75,000	$	75,000	Interest Rate Swap	1 mo. LIBOR	1.43	%	5/5/2015	5/5/2020	$	(30)	$	67
	75,000		75,000	Interest Rate Swap	1 mo. LIBOR	2.72		5/5/2018	4/5/2023		(5,469)		(2,819)
	100,000		100,000	Interest Rate Swap	1 mo. LIBOR	1.59		11/8/2019	4/1/2025		(5,918)		55
	75,000		75,000	Interest Rate Swap	1 mo. LIBOR	1.59		11/8/2019	4/1/2025		(4,439)		41
	200,000		—	Interest Rate Swap	1 mo. LIBOR	0.56		3/5/2020	4/19/2022		(1,104)		—
	75,000		—	Interest Rate Swap	1 mo. LIBOR	0.61		3/5/2020	10/5/2023		(738)		—
	175,000		—	Interest Rate Swap	1 mo. LIBOR	0.64		3/5/2020	10/1/2024		(2,075)		—
$	775,000	$	325,000							$	(19,773)	$	(2,656)

(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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Organization and Description of Business

3 Months Ended

Mar. 31, 2020

Organization and Description of Business

Organization and Description of Business

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 March 31, 2020, the Company owned a 77.6% common interest in our Operating Partnership, and affiliates of The Carlyle Group and others owned a 22.4% interest in our Operating Partnership. See additional discussion in Note 10, Noncontrolling Interests – Operating Partnership.

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Derivatives and Hedging Activities (Details) - USD ($) $ in Thousands		3 Months Ended		12 Months Ended
	Apr. 15, 2020	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2021	Jul. 14, 2020	May 06, 2020	Dec. 31, 2019
Derivative instruments and hedging activities disclosures
Unrealized (loss) gain recorded in other comprehensive income		$ (17,028)	$ (4,466)
Interest expense		11,183	$ 9,498
Subsequent Event
Derivative instruments and hedging activities disclosures
Debt face amount	$ 150,000				$ 50,000	$ 100,000
Debt Term	7 years
Interest Rate Swap | Designated as Hedging Instrument
Derivative instruments and hedging activities disclosures
Notional Amount		775,000					$ 325,000
Interest Rate Swap | Designated as Hedging Instrument | Cash Flow Hedging | Forecast
Derivative instruments and hedging activities disclosures
Amount estimated to be reclassified as an increase to interest expense				$ 6,000
Interest Rate Swap | Designated as Hedging Instrument | Level 2
Derivative instruments and hedging activities disclosures
Fair Value		(19,773)					(2,656)
Interest rate swap expiring 5/20/2020 | Designated as Hedging Instrument
Derivative instruments and hedging activities disclosures
Notional Amount		$ 75,000					75,000
Strike Rate		1.43%
Interest rate swap expiring 5/20/2020 | Designated as Hedging Instrument | Level 2
Derivative instruments and hedging activities disclosures
Fair Value		$ (30)					67
Interest rate swap expiring 4/5/2023 | Designated as Hedging Instrument
Derivative instruments and hedging activities disclosures
Notional Amount		$ 75,000					75,000
Strike Rate		2.72%
Interest rate swap expiring 4/5/2023 | Designated as Hedging Instrument | Level 2
Derivative instruments and hedging activities disclosures
Fair Value		$ (5,469)					(2,819)
Interest rate swap expiring 4/1/2025 | Designated as Hedging Instrument
Derivative instruments and hedging activities disclosures
Notional Amount		$ 100,000					100,000
Strike Rate		1.59%
Interest rate swap expiring 4/1/2025 | Designated as Hedging Instrument | Level 2
Derivative instruments and hedging activities disclosures
Fair Value		$ (5,918)					55
Second interest rate swap expiring 4/1/2025 | Designated as Hedging Instrument
Derivative instruments and hedging activities disclosures
Notional Amount		$ 75,000					75,000
Strike Rate		1.59%
Second interest rate swap expiring 4/1/2025 | Designated as Hedging Instrument | Level 2
Derivative instruments and hedging activities disclosures
Fair Value		$ (4,439)					$ 41
Interest rate swap expiring 4/19/2022 | Designated as Hedging Instrument
Derivative instruments and hedging activities disclosures
Notional Amount		$ 200,000
Strike Rate		0.56%
Interest rate swap expiring 4/19/2022 | Designated as Hedging Instrument | Level 2
Derivative instruments and hedging activities disclosures
Fair Value		$ (1,104)
Interest rate swap expiring 10/5/2023 | Designated as Hedging Instrument
Derivative instruments and hedging activities disclosures
Notional Amount		$ 75,000
Strike Rate		0.61%
Interest rate swap expiring 10/5/2023 | Designated as Hedging Instrument | Level 2
Derivative instruments and hedging activities disclosures
Fair Value		$ (738)
Interest rate swap expiring 10/12024 | Designated as Hedging Instrument
Derivative instruments and hedging activities disclosures
Notional Amount		$ 175,000
Strike Rate		0.64%
Interest rate swap expiring 10/12024 | Designated as Hedging Instrument | Level 2
Derivative instruments and hedging activities disclosures
Fair Value		$ (2,075)

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Other Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Other Assets.
Deferred rent receivable	$ 38,831	$ 38,335
Initial direct costs	28,591	26,371
Internal-use software	16,699	16,747
Prepaid expense	12,178	7,675
Corporate furniture, fixtures and equipment	4,507	4,848
Deferred financing costs - revolving credit facility	3,076	3,148
Other	673	3,958
Total	$ 104,555	$ 101,082

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Data center revenue:
Interconnection revenue	$ 20,085	$ 18,416
Total operating revenues	147,362	138,895
Operating expenses:
Property operating and maintenance	40,183	38,110
Real estate taxes and insurance	6,190	6,196
Depreciation and amortization	40,991	35,646
Sales and marketing	6,144	5,652
General and administrative	11,267	10,170
Rent	8,399	7,688
Total operating expenses	113,174	103,462
Operating income	34,188	35,433
Interest expense	(11,183)	(9,498)
Income before income taxes	23,005	25,935
Income tax (expense) benefit	(17)	(30)
Net income	22,988	25,905
Net income attributable to noncontrolling interests	5,140	6,244
Net income attributable to common shares	$ 17,848	$ 19,661
Net income per share attributable to common shares:
Basic	$ 0.48	$ 0.54
Diluted	$ 0.48	$ 0.54
Weighted average common shares outstanding
Basic	37,335,892	36,347,781
Diluted	37,504,349	36,547,065
Rental, power, and related revenue
Data center revenue:
Rental revenue	$ 124,505	$ 117,853
Office, light-industrial and other revenue
Data center revenue:
Rental revenue	$ 2,772	$ 2,626

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Debt - Revolving Credit Facility (Details) $ in Thousands			3 Months Ended
	Apr. 15, 2020	Nov. 08, 2019 USD ($) item	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Nov. 07, 2019 USD ($)	Apr. 19, 2017 USD ($)
Debt
Total principal outstanding			$ 1,580,500	$ 1,487,500
Subsequent Event
Debt
Term of loan facility	7 years
Revolving Credit Facility
Debt
Total principal outstanding			$ 155,500	62,500
Credit Agreement
Debt
Leverage ratio (as a percent)			31.20%
Secured debt ratio, Covenant (as a percent)			0.00%
Fixed charge coverage ratio			5.8
Credit Agreement | Minimum
Debt
Fixed charge coverage ratio			1.5
Credit Agreement | Maximum
Debt
Leverage ratio (as a percent)			0.60%
Secured debt ratio (as a percent)			0.40%
2022 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding			$ 200,000	200,000
2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Unsecured term loan		$ 150,000
2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding			350,000	$ 350,000
Operating partnership | Revolving Credit Facility
Debt
Maximum borrowing capacity		$ 450,000
Operating partnership | Credit Agreement
Debt
Number of options available for extensions | item		1
Extension fee (as a percent)		10.00%
Additional liquidity		$ 100,000
Maximum borrowing capacity		950,000			$ 850,000
Increase in accordion feature borrowing capacity		550,000			200,000
Maximum borrowing capacity including accordion feature		1,500,000			$ 950,000
Borrowing capacity at end of period			450,000
Letters of credit outstanding			6,100
Amount available for borrowing under the facility			$ 288,400
Operating partnership | Credit Agreement | Revolving Credit Facility
Debt
Leverage ratio (as a percent)			31.20%
Operating partnership | Credit Agreement | Revolving Credit Facility | LIBOR
Debt
Interest rate margin (as a percent)			1.25%
Operating partnership | Credit Agreement | Revolving Credit Facility | LIBOR | Minimum
Debt
Interest rate margin (as a percent)			1.25%
Operating partnership | Credit Agreement | Revolving Credit Facility | LIBOR | Maximum
Debt
Interest rate margin (as a percent)			1.85%
Operating partnership | Credit Agreement | Revolving Credit Facility | Base Rate | Minimum
Debt
Interest rate margin (as a percent)			0.25%
Operating partnership | Credit Agreement | Revolving Credit Facility | Base Rate | Maximum
Debt
Interest rate margin (as a percent)			0.85%
Operating partnership | 2020 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding		150,000
Operating partnership | 2021 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding		100,000
Operating partnership | 2022 Senior Unsecured Term Loan | LIBOR
Debt
Interest rate margin (as a percent)			1.20%
Operating partnership | 2022 Senior Unsecured Term Loan | LIBOR | Minimum
Debt
Interest rate margin (as a percent)			1.20%
Operating partnership | 2022 Senior Unsecured Term Loan | LIBOR | Maximum
Debt
Interest rate margin (as a percent)			1.80%
Operating partnership | 2022 Senior Unsecured Term Loan | Base Rate | Minimum
Debt
Interest rate margin (as a percent)			0.20%
Operating partnership | 2022 Senior Unsecured Term Loan | Base Rate | Maximum
Debt
Interest rate margin (as a percent)			0.80%
Operating partnership | 2022 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Unsecured term loan						$ 100,000
Increase in accordion feature borrowing capacity						$ 300,000
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding		$ 150,000
Leverage ratio (as a percent)			31.20%
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR
Debt
Interest rate margin (as a percent)			1.20%
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR | Minimum
Debt
Interest rate margin (as a percent)		1.20%
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR | Maximum
Debt
Interest rate margin (as a percent)		1.80%
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan | Base Rate | Minimum
Debt
Interest rate margin (as a percent)		20.00%
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan | Base Rate | Maximum
Debt
Interest rate margin (as a percent)		0.80%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding		$ 350,000
Unsecured term loan		$ 350,000
Leverage ratio (as a percent)			31.20%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR
Debt
Interest rate margin (as a percent)			1.20%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR | Minimum
Debt
Interest rate margin (as a percent)		1.20%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR | Maximum
Debt
Interest rate margin (as a percent)		1.80%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan | Base Rate | Minimum
Debt
Interest rate margin (as a percent)		0.20%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan | Base Rate | Maximum
Debt
Interest rate margin (as a percent)		0.80%

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Equity Incentive Plan (Details) - 2010 Plan - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Equity Incentive Plan
Shares of common stock reserved for issuance	6,000,000
Shares of common stock that were available for issuance	2,474,370
Stock Options
Number of Shares Subject to Option
Options outstanding at the beginning of the period (in shares)	31,746
Exercised (in shares)	(3,210)
Options outstanding at the end of the period (in shares)	28,536
Weighted Average Exercise Price
Options outstanding at the beginning of the period (in dollars per share)	$ 19.57
Exercised (in dollars per share)	18.87
Options outstanding at the end of the period (in dollars per share)	$ 19.65
Restricted Awards
Compensation cost not yet recognized
Unearned compensation	$ 32.0
Restricted Awards | Weighted Average
Compensation cost not yet recognized
Vesting period	2 years 10 months 24 days
Restricted awards
Restricted Awards and PSA's
Unvested balance at the beginning of the period (in shares)	292,373
Granted (in shares)	146,582
Forfeited (in shares)	(4,913)
Vested (in shares)	(112,245)
Unvested balance at the end of the period (in shares)	321,797
Weighted Average Fair Value at Grant
Unvested balance at the beginning of the period (in dollars per share)	$ 96.44
Granted (in dollars per share)	110.73
Forfeited (in dollars per share)	99.04
Vested (in dollars per share)	90.76
Unvested balance at the end of the period (in dollars per share)	$ 104.90
PSAs
Compensation cost not yet recognized
Unearned compensation	$ 9.6
Assumptions used to value the stock options granted
Expected term	2 years 9 months 25 days	2 years 9 months 25 days
Expected volatility (as a percent)	24.00%	24.09%
Risk-free rate (as a percent)	0.56%	2.48%
Performance period	3 years
PSAs | Weighted Average
Weighted Average Fair Value at Grant
Unvested balance at the beginning of the period (in dollars per share)	$ 107.84
Granted (in dollars per share)	125.02
Forfeited (in dollars per share)	107.63
Vested (in dollars per share)	105.55
Unvested balance at the end of the period (in dollars per share)	$ 113.96
Compensation cost not yet recognized
Vesting period	2 years 4 months 24 days
PSAs | Minimum
Restricted Awards and PSA's
Unvested balance at the beginning of the period (in shares)	34,624
Granted (in shares)	10,210
Performance adjustment	38,047
Forfeited (in shares)	(1,049)
Vested (in shares)	(32,524)
Unvested balance at the end of the period (in shares)	49,308
Compensation cost not yet recognized
Percentage of target number of shares for PSAs granted in years 2015, 2016 and 2017	25.00%
Assumptions used to value the stock options granted
Performance period	1 year
PSAs | Maximum
Restricted Awards and PSA's
Unvested balance at the beginning of the period (in shares)	171,351
Granted (in shares)	71,488
Performance adjustment	(7,904)
Forfeited (in shares)	(4,878)
Vested (in shares)	(32,524)
Unvested balance at the end of the period (in shares)	197,533
Compensation cost not yet recognized
Percentage of target number of shares for PSAs granted in years 2015, 2016 and 2017	175.00%
Assumptions used to value the stock options granted
Performance period	3 years
PSAs | Target
Restricted Awards and PSA's
Unvested balance at the beginning of the period (in shares)	102,989
Granted (in shares)	40,852
Performance adjustment	15,073
Forfeited (in shares)	(2,964)
Vested (in shares)	(32,524)
Unvested balance at the end of the period (in shares)	123,426

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Noncontrolling Interests - Operating Partnership

3 Months Ended

Mar. 31, 2020

Noncontrolling Interests - Operating Partnership

Noncontrolling Interests - Operating Partnership

10. 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 interests in our Operating Partnership as of March 31, 2020, and December 31, 2019:

	March 31, 2020			December 31, 2019
	Number of Units	Percentage of Total		Number of Units	Percentage of Total
CoreSite Realty Corporation	37,394,352	77.6	%	37,244,987	77.6	%
Noncontrolling interests	10,769,518	22.4		10,771,658	22.4
Total	48,163,870	100.0	%	48,016,645	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 three months ended March 31, 2020, we issued 149,365 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 received aggregate distributions of $1.22 per unit during the three months ended March 31, 2020, payable in correlation with declared dividends on shares of our common stock.

The redemption value of the noncontrolling interests at March 31, 2020, was $1.2 billion based on the closing price of the Company’s common stock of $115.90 per share on the last trading day prior to that date.

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Lease Revenue

3 Months Ended

Mar. 31, 2020

Lease Revenue

Lease Revenue

6. Lease Revenue

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

	Three Months Ended March 31,
	2020		2019
Lease revenue:
Minimum lease revenue	$	106,441	$	99,410
Variable lease revenue		20,836		21,069
Total lease revenue	$	127,277	$	120,479

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Summary of Significant Accounting Policies - Segment Information (Details)	3 Months Ended
	Mar. 31, 2020 segment
Segment information
Number of reportable segments	1

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2020

Stockholders' Equity

Schedule of dividends paid per share on Series A Cumulative Preferred Stock and common shares

We announced the following dividends per share on our common stock during the three months ended March 31, 2020:

Declaration Date	Record Date	Payment Date	Common Stock
March 5, 2020	March 31, 2020	April 15, 2020	$	1.22

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Organization and Description of Business (Details) - Operating partnership	Mar. 31, 2020	Dec. 31, 2019
Coresite Realty Corporation
Organization
Percentage of ownership interests held by the entity	77.60%	77.60%
Noncontrolling interests
Organization
Percentage of ownership interests held by others	22.40%	22.40%
Carlyle Group
Organization
Percentage of ownership interests held by others	22.40%

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Commitments and Contingencies (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2020	Mar. 31, 2020
Telecommunications Capacity
Commitments and Contingencies
Open commitments		$ 75.2
Telecommunications Capacity | Forecast
Commitments and Contingencies
Open commitments met	$ 5.7
Construction Contracts
Commitments and Contingencies
Open commitments		$ 145.7

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Noncontrolling Interests - Operating Partnership (Details) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($) $ / shares shares	Dec. 31, 2019 shares
Noncontrolling Interests - Operating Partnership
Redemption value of the noncontrolling interest | $	$ 1,200,000
Closing price of the Company's stock (in dollars per share) | $ / shares	$ 115.90
Noncontrolling Interests
Noncontrolling Interests - Operating Partnership
Reduction to noncontrolling interests in the Operating Partnership and an increase to common stock and additional paid in capital | $	$ 11
Operating partnership
Noncontrolling Interests - Operating Partnership
Conversion ratio for common operating partnership units	1
Number of Operating Partnership Units (in shares)	48,163,870	48,016,645
Percentage of Total	100.00%	100.00%
Shares of common stock issued related to employee compensation arrangements	149,365
Quarterly distributions will receive by holders of operating partnership units (in dollars per unit) | $ / shares	$ 1.22
Operating partnership | Coresite Realty Corporation
Noncontrolling Interests - Operating Partnership
Number of Operating Partnership Units (in shares)	37,394,352	37,244,987
Percentage of Total	77.60%	77.60%
Operating partnership | Noncontrolling interests
Noncontrolling Interests - Operating Partnership
Number of Operating Partnership Units (in shares)	10,769,518	10,771,658
Percentage of Total	22.40%	22.40%

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Stockholders' Equity

3 Months Ended

Mar. 31, 2020

Stockholders' Equity

Stockholders' Equity

9. Stockholders’ Equity

We announced the following dividends per share on our common stock during the three months ended March 31, 2020:

Declaration Date	Record Date	Payment Date	Common Stock
March 5, 2020	March 31, 2020	April 15, 2020	$	1.22

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Leases

3 Months Ended

Mar. 31, 2020

Leases

Leases

5. 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 15 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 at March 31, 2020, and December 31, 2019. The weighted-average discount rate was 4.9% at each date.

During the three months ended March 31, 2020, we extended the term of approximately 25,000 NRSF at our existing DC2 data center from July 2028 to July 2035. As a result of this extension, we remeasured the lease liability and adjusted the ROU asset by approximately $7.0 million.

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

	Three Months Ended March 31,
	2020		2019
Lease expense:
Operating lease expense	$	6,862	$	6,396
Variable lease expense		1,537		1,292
Rent expense	$	8,399	$	7,688

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Noncontrolling Interests - Operating Partnership (Tables)

3 Months Ended

Mar. 31, 2020

Noncontrolling Interests - Operating Partnership

Schedule of ownership interests in our Operating Partnership

	March 31, 2020			December 31, 2019
	Number of Units	Percentage of Total		Number of Units	Percentage of Total
CoreSite Realty Corporation	37,394,352	77.6	%	37,244,987	77.6	%
Noncontrolling interests	10,769,518	22.4		10,771,658	22.4
Total	48,163,870	100.0	%	48,016,645	100.0	%

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Summary of Significant Accounting Policies - Real Estate (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Investments in Real Estate
Capitalized interest costs	$ 3.5	$ 2.6
Depreciation expense	$ 36.9	$ 32.2
Building | Minimum
Investments in Real Estate
Useful lives	27 years
Building | Maximum
Investments in Real Estate
Useful lives	40 years
Building Improvements | Minimum
Investments in Real Estate
Useful lives	1 year
Building Improvements | Maximum
Investments in Real Estate
Useful lives	10 years

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Investment in Real Estate (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Investment in Real Estate
Land	$ 94,593	$ 94,593
Buildings and Improvements	2,015,530	1,989,731
Construction in Progress	437,794	394,474
Total investments in real estate	2,547,917	2,478,798
Boston
Investment in Real Estate
Land	5,154	5,154
Buildings and Improvements	119,803	119,227
Construction in Progress	3,005	931
Total investments in real estate	127,962	125,312
Chicago
Investment in Real Estate
Land	5,493	5,493
Buildings and Improvements	115,909	115,699
Construction in Progress	110,768	100,118
Total investments in real estate	232,170	221,310
Denver
Investment in Real Estate
Buildings and Improvements	34,938	32,659
Construction in Progress	386	2,461
Total investments in real estate	35,324	35,120
Los Angeles
Investment in Real Estate
Land	18,672	18,672
Buildings and Improvements	377,134	376,525
Construction in Progress	81,178	60,178
Total investments in real estate	476,984	455,375
Miami
Investment in Real Estate
Land	728	728
Buildings and Improvements	14,641	14,491
Construction in Progress		133
Total investments in real estate	15,369	15,352
New York
Investment in Real Estate
Land	2,729	2,729
Buildings and Improvements	173,080	155,746
Construction in Progress	54,719	56,271
Total investments in real estate	230,528	214,746
Northern Virginia
Investment in Real Estate
Land	21,856	21,856
Buildings and Improvements	401,645	398,742
Construction in Progress	101,718	101,619
Total investments in real estate	525,219	522,217
San Francisco Bay
Investment in Real Estate
Land	39,961	39,961
Buildings and Improvements	778,380	776,642
Construction in Progress	86,020	72,763
Total investments in real estate	$ 904,361	$ 889,366

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Debt (Tables)

3 Months Ended

Mar. 31, 2020

Debt

Summary of outstanding indebtedness

A summary of outstanding indebtedness as of March 31, 2020, and December 31, 2019, is as follows (in thousands):

		Maturity	March 31,		December 31,
	Interest Rate	Date	2020		2019
Revolving credit facility(1)	2.45% and 3.01% at March 31, 2020, and December 31, 2019, respectively	November 8, 2023	$	155,500	$	62,500
2022 Senior unsecured term loan(1)	1.76% and 2.96% at March 31, 2020, and December 31, 2019, respectively	April 19, 2022		200,000		200,000
2023 Senior unsecured notes	4.19% at March 31, 2020, and December 31, 2019, respectively	June 15, 2023		150,000		150,000
2024 Senior unsecured term loan(1)	2.86% and 3.44% at March 31, 2020, and December 31, 2019, respectively	April 19, 2024		150,000		150,000
2024 Senior unsecured notes	3.91% at March 31, 2020, and December 31, 2019, respectively	April 20, 2024		175,000		175,000
2025 Senior unsecured term loan(1)	2.32% and 2.81% at March 31, 2020, and December 31, 2019, respectively	April 1, 2025		350,000		350,000
2026 Senior unsecured notes(1)	4.52% at March 31, 2020, and December 31, 2019, respectively	April 17, 2026		200,000		200,000
2029 Senior unsecured notes	4.31% at March 31, 2020, and December 31, 2019, respectively	April 17, 2029		200,000		200,000
Total principal outstanding		`		1,580,500		1,487,500
Unamortized deferred financing costs				(8,493)		(9,098)
Total debt			$	1,572,007	$	1,478,402

(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 March 31, 2020, and 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. We entered into three new interest rate swaps during the quarter ended March 31, 2020. See Note 8 – Derivatives and Hedging Activities.

Summary of amount of the entity's outstanding debt when such debt currently become due

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

Year Ending December 31,
2020	$	—
2021		—
2022		200,000
2023		305,500
2024		325,000
Thereafter		750,000
Total principal outstanding		1,580,500
Unamortized deferred financing costs		(8,493)
Total debt, net	$	1,572,007

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Investment in Real Estate (Tables)

3 Months Ended

Mar. 31, 2020

Investment in Real Estate

Summary of properties owned or leased

The following is a summary of the properties owned or leased by market at March 31, 2020 (in thousands):

			Buildings and		Construction in
Market	Land		Improvements		Progress		Total Cost
Boston	$	5,154	$	119,803	$	3,005	$	127,962
Chicago		5,493		115,909		110,768		232,170
Denver		—		34,938		386		35,324
Los Angeles		18,672		377,134		81,178		476,984
Miami		728		14,641		—		15,369
New York		2,729		173,080		54,719		230,528
Northern Virginia		21,856		401,645		101,718		525,219
San Francisco Bay		39,961		778,380		86,020		904,361
Total	$	94,593	$	2,015,530	$	437,794	$	2,547,917

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

Market	Land		Buildings and Improvements		Construction in Progress		Total Cost
Boston	$	5,154	$	119,227	$	931	$	125,312
Chicago		5,493		115,699		100,118		221,310
Denver		—		32,659		2,461		35,120
Los Angeles		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		39,961		776,642		72,763		889,366
Total	$	94,593	$	1,989,731	$	394,474	$	2,478,798

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Estimated Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2020

Estimated Fair Value of Financial Instruments

Estimated Fair Value of Financial Instruments

13. 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 March 31, 2020, 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 $1.6 billion and $1.5 billion as of March 31, 2020, and December 31, 2019, 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 lease 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.

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Leases - (Detail) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($) ft²	Mar. 31, 2019 USD ($)	Dec. 31, 2019
Lease terms
Option to extend	20 years
Weighted-average remaining lease term	9 years		9 years
Weighted average discount rate - Operating leases	4.90%		4.90%
Increase in Right-of-Use Asset	$ 7,646
Increase in operating lease liability	1,000
Lease expense
Operating lease expense	6,862	$ 6,396
Variable lease expense	1,537	1,292
Rent expense	$ 8,399	$ 7,688
Minimum
Lease terms
Remaining lease terms	1 year
Maximum
Lease terms
Remaining lease terms	15 years
DC2 Washington DC
Lease terms
Net Leased Space | ft²	25,000
Increase in Right-of-Use Asset	$ 7,000

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 22,988	$ 25,905
Other comprehensive (loss) income:
Unrealized (loss) gain on derivative contracts	(17,028)	(4,466)
Reclassification of other comprehensive income (loss) to interest expense	114	(198)
Comprehensive income	6,074	21,241
Comprehensive income attributable to noncontrolling interests	1,358	5,120
Comprehensive income attributable to CoreSite Realty Corporation	$ 4,716	$ 16,121

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Debt - Unsecured Debt (Details) - USD ($) $ in Thousands			3 Months Ended
	Apr. 15, 2020	Nov. 08, 2019	Mar. 31, 2020	Jul. 14, 2020	May 06, 2020	Dec. 31, 2019	Jul. 17, 2019	Apr. 17, 2019	Apr. 20, 2017	Apr. 19, 2017	Jun. 15, 2016
Debt
Total principal outstanding			$ 1,580,500			$ 1,487,500
Subsequent Event
Debt
Term of loan facility	7 years
Aggregate principal amount	$ 150,000			$ 50,000	$ 100,000
2022 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding			$ 200,000			$ 200,000
Effective interest rate			1.76%			2.96%
2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Unsecured term loan		$ 150,000
2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding			$ 350,000			$ 350,000
Effective interest rate			2.32%			2.81%
2023 Senior unsecured notes | Senior Unsecured Term Loan
Debt
Effective interest rate			2.86%			3.44%
2023 Senior unsecured notes | Senior Unsecured Notes
Debt
Total principal outstanding			$ 150,000			$ 150,000
Effective interest rate			4.19%			4.19%
2024 Senior unsecured notes
Debt
Effective interest rate			3.91%			3.91%
2024 Senior unsecured notes | Senior Unsecured Notes
Debt
Total principal outstanding			$ 175,000			$ 175,000
2026 Senior unsecured notes
Debt
Effective interest rate								4.52%
2026 Senior unsecured notes | Senior Unsecured Term Loan
Debt
Unsecured term loan								$ 200,000
2026 Senior unsecured notes | Senior Unsecured Notes
Debt
Total principal outstanding			$ 200,000			200,000
Effective interest rate			4.52%
2029 Senior unsecured notes | Senior Unsecured Term Loan
Debt
Unsecured term loan							$ 75,000
2029 Senior unsecured notes | Senior Unsecured Notes
Debt
Total principal outstanding			$ 200,000			$ 200,000
Effective interest rate			4.31%
Operating partnership | 2020 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding		150,000
Operating partnership | 2021 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding		100,000
Operating partnership | 2022 Senior Unsecured Term Loan | LIBOR
Debt
Interest rate margin (as a percent)			1.20%
Operating partnership | 2022 Senior Unsecured Term Loan | LIBOR | Minimum
Debt
Interest rate margin (as a percent)			1.20%
Operating partnership | 2022 Senior Unsecured Term Loan | LIBOR | Maximum
Debt
Interest rate margin (as a percent)			1.80%
Operating partnership | 2022 Senior Unsecured Term Loan | Base Rate | Minimum
Debt
Interest rate margin (as a percent)			0.20%
Operating partnership | 2022 Senior Unsecured Term Loan | Base Rate | Maximum
Debt
Interest rate margin (as a percent)			0.80%
Operating partnership | 2022 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Unsecured term loan										$ 100,000
Increase in accordion feature borrowing capacity										300,000
Aggregate principal amount										$ 200,000
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding		$ 150,000
Leverage ratio (as a percent)			31.20%
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR
Debt
Interest rate margin (as a percent)			1.20%
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR | Minimum
Debt
Interest rate margin (as a percent)		1.20%
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR | Maximum
Debt
Interest rate margin (as a percent)		1.80%
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan | Base Rate | Minimum
Debt
Interest rate margin (as a percent)		20.00%
Operating partnership | 2024 Senior Unsecured Term Loan | Senior Unsecured Term Loan | Base Rate | Maximum
Debt
Interest rate margin (as a percent)		0.80%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan
Debt
Total principal outstanding		$ 350,000
Unsecured term loan		$ 350,000
Leverage ratio (as a percent)			31.20%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR
Debt
Interest rate margin (as a percent)			1.20%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR | Minimum
Debt
Interest rate margin (as a percent)		1.20%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan | LIBOR | Maximum
Debt
Interest rate margin (as a percent)		1.80%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan | Base Rate | Minimum
Debt
Interest rate margin (as a percent)		0.20%
Operating partnership | 2025 Senior Unsecured Term Loan | Senior Unsecured Term Loan | Base Rate | Maximum
Debt
Interest rate margin (as a percent)		0.80%
Operating partnership | 2023 Senior unsecured notes | Senior Unsecured Notes | Private Placement
Debt
Aggregate principal amount											$ 150,000
Stated interest rate											4.19%
Percentage of term notes that may be prepaid											100.00%
Percentage of term notes that holders have right to purchase in cash											100.00%
Percentage of term notes that holders may redeem for cash											100.00%
Operating partnership | 2024 Senior unsecured notes | Senior Unsecured Term Loan
Debt
Unsecured term loan									$ 175,000
Stated interest rate									3.91%
Percentage of term notes that may be prepaid									100.00%
Percentage of term notes that holders have right to purchase in cash									100.00%
Percentage of term notes that holders may redeem for cash									100.00%
Operating partnership | 2026 Senior unsecured notes | Senior Unsecured Term Loan
Debt
Stated interest rate								4.11%
Operating partnership | 2026 Senior unsecured notes | Senior Unsecured Notes
Debt
Percentage of term notes that may be prepaid								100.00%
Percentage of term notes that holders have right to purchase in cash								100.00%
Percentage of term notes that holders may redeem for cash								100.00%
Operating partnership | 2029 Senior unsecured notes | Senior Unsecured Term Loan
Debt
Aggregate principal amount								$ 125,000
Operating partnership | 2029 Senior unsecured notes | Senior Unsecured Term Loan | Private Placement
Debt
Unsecured term loan								$ 200,000
Stated interest rate								4.31%
Operating partnership | 2029 Senior unsecured notes | Senior Unsecured Notes
Debt
Percentage of term notes that may be prepaid								100.00%
Percentage of term notes that holders have right to purchase in cash								100.00%
Percentage of term notes that holders may redeem for cash								100.00%

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Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	Apr. 29, 2020
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Mar. 31, 2020
Entity File Number	001-34877
Entity Registrant Name	CoreSite Realty Corp
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	27-1925611
Entity Address, Address Line One	1001 17th Street, Suite 500
Entity Address, City or Town	Denver
Entity Address, State or Province	CO
Entity Address, Postal Zip Code	80202
City Area Code	866
Local Phone Number	777-2673
Title of 12(b) Security	Common Stock, $0.01 par value per share
Trading Symbol	COR
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		37,903,353
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Entity Central Index Key	0001490892
Amendment Flag	false

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2020

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by our management in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in compliance with the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the expected results for the year ending December 31, 2020. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

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.

Recently Adopted Accounting Pronouncements

Fair Value Measurement

In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance codified in Accounting Standards Update (“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 became effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We adopted the standard effective January 1, 2020, and the provisions of ASU 2018-13 did not have a material impact on our condensed 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. We adopted the standard effective January 1, 2020, on a prospective basis, and the provisions of ASU 2018-15 did not have a material impact on our condensed consolidated financial statements.

Financial Instruments – Credit Losses

In June 2016, the FASB issued guidance codified in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduced the “current expected credit losses” model, which requires companies to estimate credit losses immediately upon exposure. The guidance applies to financial assets measured at amortized cost, including financing receivables and trade receivables. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which clarified that operating leases are outside the scope of Topic 326, and instead should be accounted for under ASC 842. The standard became effective, for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We adopted the standard effective January 1, 2020, on a prospective basis, and the provisions of ASC 2016-13 and ASU 2018-19 did not have a material impact on our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued guidance codified in ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective for all entities as of March 12, 2020 through December 31, 2022. An entity can elect to apply the amendments as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to that date that the financial statements are available to be issued. We are currently evaluating the optional expedients and exceptions provided by ASU 2020-04 to determine the impact on our condensed consolidated financial statements.

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

Use of Estimates

The preparation of these unaudited condensed 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 unaudited condensed 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 $3.5 million and $2.6 million for the three months ended March 31, 2020, and 2019, respectively.

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 $36.9 million and $32.2 million for the three months ended March 31, 2020, and 2019, 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 are 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 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 three months ended March 31, 2020, or 2019.

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 March 31, 2020, and December 31, 2019, 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 three months ended March 31, 2020, or 2019.

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 $3.3 million and $3.4 million for the three months ended March 31, 2020, and 2019, respectively. Initial direct costs are included within other assets in the condensed consolidated balance sheets and consisted of the following, net of amortization, as of March 31, 2020, and December 31, 2019 (in thousands):

	March 31,		December 31,
	2020		2019
Internal sales commissions	$	15,335	$	15,064
Third party commissions		12,820		10,845
Other		436		462
Total	$	28,591	$	26,371

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 condensed consolidated balance sheets.

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 three months ended March 31, 2020, and 2019, no impairment of long-lived assets was recognized in the condensed consolidated financial statements.

Derivative Instruments and Hedging Activities

We reflect all derivative instruments at fair value as either assets or liabilities on the condensed 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 8, 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. No impairment of internal-use software was recognized in the condensed consolidated financial statements for the three months ended March 31, 2020, and 2019.

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 condensed 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 condensed 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.

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 condensed 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 the collectability of 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 not be probable. At March 31, 2020, and December 31, 2019, the allowance for doubtful accounts totaled $0.9 million and $0.4 million, respectively, on the condensed consolidated balance sheets.

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 condensed 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 March 31, 2020, and December 31, 2019, the amount included in unearned revenue, prepaid rent and other liabilities on the condensed consolidated balance sheets was approximately $1.7 million at each date.

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 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 condensed 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 March 31, 2020, and December 31, 2019, 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.

Risks and Uncertainties

The full extent of the operational and financial impact of the novel coronavirus (“COVID-19”) outbreak on our business has yet to be determined. The impact of the outbreak of COVID-19 is dependent on future developments, including, among other factors, the duration and spread of the outbreak, along with related government-mandated business shutdowns, travel advisories and restrictions on movement, the recovery time of general employment levels, disrupted supply chains, potentially material staffing shortages, construction and development delays, and uncertainty with respect to accessibility of additional funding sources. In addition, some of our customers and prospective customers are dependent on areas of the economy that have been significantly impacted by the outbreak of COVID-19, which may impact their ability to comply with their rent obligations or their demand for additional space and power from us. As of March 31, 2020, we have not recognized a material loss, impairment, or contingency within our condensed consolidated financial statements as a result of the COVID-19 pandemic.

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Stockholders' Equity (Details) - Common Stock	Mar. 05, 2020 $ / shares
Stockholders' Equity
Dividends Payable, Date of Record	Mar. 31, 2020
Common Stock dividend declared (per share)	$ 1.22