CyrusOne Reports Third Quarter 2020 Earnings

Quarter-End Backlog of $82 Million in Annualized GAAP Revenue

Positions Company Well for Continued Growth

DALLAS--(BUSINESS WIRE)--CyrusOne Inc. (NASDAQ: CONE), a premier global data center REIT, today announced third quarter 2020 earnings.


Highlights

Category

3Q’20

vs. 3Q’19

Revenue

262.8 million

 

5%

Net income / (loss)

$(37.3) million

 

n/m

Adjusted EBITDA

$132.2 million

 

3%

Normalized FFO

$114.4 million

 

10%

Net income / (loss) per diluted common share

$(0.32)

 

n/m

Normalized FFO per diluted common share

$0.96

 

5%

  • Leased 4 megawatts (“MW”) and 15,000 colocation square feet (“CSF”) in the third quarter, totaling $11 million in annualized GAAP revenue
  • Backlog of $82 million in annualized GAAP revenue as of the end of the third quarter representing approximately $595 million in total contract value
  • Acquired 33 acres of land in London, with approximately 100 MW of power capacity to support continued growth in one of the leading data center markets in Europe
  • Entered into forward sale agreements through the at-the-market (“ATM”) equity program with respect to approximately 3.0 million shares of common stock, which will result in estimated net proceeds of approximately $219 million upon settlement by September 2021
    – Combined with forward sale agreements entered into in the second quarter of 2020, which will result in estimated net proceeds of approximately $194 million upon settlement by May 2021, the Company has approximately $413 million in available forward equity
    – Settled forward sale agreements entered into in the first and second quarters of 2020, resulting in net proceeds of approximately $219 million, which were used to pay down a portion of amounts outstanding under the Company’s unsecured revolving credit facility
  • As previously announced, issued $400 million of 2.150% senior notes due 2030, with the net proceeds used to repay $300 million of outstanding indebtedness under the unsecured term loan maturing in March 2023 and for general corporate purposes, including the repayment of a portion of amounts outstanding under the Company's unsecured revolving credit facility
    – The transaction smooths and extends the Company’s debt maturity schedule and increases its percentage of fixed-rate debt
  • Announced pledge to operate carbon-free by 2040, and subsequent to the end of the quarter published initial sustainability report
  • Subsequent to the end of the quarter, announced Katherine Motlagh will join the Company as CFO effective October 30, 2020

“This admittedly was a disappointing leasing quarter for us, but we have consistently stated that leasing in our business can be lumpy, particularly related to timing on the execution of hyperscale deals. Given the positive demand outlook and our productive discussions with customers, we are confident that we will produce much better results in the fourth quarter,” said Bruce W. Duncan, president and chief executive officer of CyrusOne. “Year-to-date bookings have been strong, with the $82 million revenue backlog positioning us well for 2021 and beyond, and we have capacity across our markets and $1.7 billion in available liquidity to support our growth.”

Third Quarter 2020 Financial Results

Revenue was $262.8 million for the third quarter, compared to $250.9 million for the same period in 2019, an increase of 5%. The increase in revenue was driven primarily by a 7% increase in occupied CSF and additional interconnection services, partially offset by the impact of rent churn.

Net loss was $(37.3) million for the third quarter, compared to net income of $12.6 million in the same period in 2019. Net loss for the third quarter included a $(22.9) million loss associated with a change in fair value on the undesignated portion of the Company’s net investment hedge compared to a $5.5 million gain in the third quarter of 2019, an $(8.8) million impairment loss as a result of damage to equipment held for use in inventory at our U.S. data centers, and a ($3.1) million loss on early extinguishment of debt related to the repayment of $300 million of outstanding indebtedness under the unsecured term loan maturing in March 2023. Additionally, General and administrative expenses for the third quarter of 2020 included $9.0 million in cash severance and management transition costs and severance-related stock compensation costs. The Company also recognized a $4.7 million gain during the third quarter of 2020 on its marketable equity investment in GDS Holdings Limited (“GDS”), a leading data center provider in China, compared to a $12.4 million gain in the third quarter of 2019. Net loss per diluted common share1 was $(0.32) in the third quarter of 2020, compared to net income per diluted common share of $0.11 in the same period in 2019.

Net operating income (“NOI”)2 was $153.1 million for the third quarter, compared to $147.9 million in the same period in 2019, an increase of 4%. Adjusted EBITDA3 was $132.2 million for the third quarter, compared to $127.8 million in the same period in 2019, an increase of 3%.

Normalized Funds From Operations (“Normalized FFO”)4 was $114.4 million for the third quarter, compared to $103.9 million in the same period in 2019, an increase of 10%. Normalized FFO per diluted common share was $0.96 in the third quarter of 2020, compared to $0.91 in the same period in 2019, an increase of 5%.

Leasing Activity

CyrusOne leased approximately 4 MW of power and 15,000 CSF in the third quarter, representing approximately $0.9 million in monthly recurring rent, inclusive of the monthly impact of installation charges. The leasing for the quarter represents approximately $10.7 million in annualized GAAP revenue5, excluding estimates for pass-through power. The weighted average lease term of the new leases, based on square footage, is 54 months (4.5 years), and the weighted average remaining lease term of CyrusOne’s portfolio is 50 months (taking into consideration the impact of the backlog). Recurring rent churn percentage6 for the third quarter was 0.6%, compared to 1.0% for the same period in 2019.

Portfolio Development and Percentage CSF Leased

In the third quarter, the Company completed construction on 45,000 CSF and 6 MW of power capacity in the New York Metro area. Percentage CSF leased7 as of the end of the third quarter was 87% for stabilized properties8 and 84% overall. In addition, the Company has development projects underway in Frankfurt, Dublin, London, San Antonio, the New York Metro area, Council Bluffs (IA), Phoenix, and Northern Virginia that are expected to add approximately 345,000 CSF and 78 MW of power capacity plus 321,000 square feet of powered shell.

Balance Sheet and Liquidity

As of September 30, 2020, the Company had gross asset value9 totaling approximately $8.4 billion, an increase of approximately 17% over gross asset value as of September 30, 2019. CyrusOne had $3.24 billion of long-term debt10, $157 million of cash and cash equivalents, and $1.14 billion available under its unsecured revolving credit facility as of September 30, 2020. Net debt10 was $3.11 billion as of September 30, 2020, representing approximately 27% of the Company's total enterprise value as of September 30, 2020 of $11.5 billion, or 5.1x Adjusted EBITDA for the last quarter annualized (after further adjusting net debt to reflect the pro forma impact of settlement of the forward sale agreements). After further adjusting Adjusted EBITDA to exclude the impact of the adoption of ASC 842 as of January 1, 2019, in order to present the leverage metric on a basis comparable to that of periods prior to 2019, net debt to Adjusted EBITDA for the last quarter annualized was 5.0x11. Available liquidity12 was $1.71 billion as of September 30, 2020.

The Company issued $400 million of 2.150% senior notes due 2030, with the net proceeds used to repay $300 million of outstanding indebtedness under the unsecured term loan maturing in March 2023 and for general corporate purposes, including the repayment of a portion of amounts outstanding under the Company's unsecured revolving credit facility. The transaction smooths and extends the Company’s debt maturity schedule and increases its percentage of fixed-rate debt.

Additionally, the Company entered into forward sale agreements through the ATM equity program with respect to approximately 3.0 million shares of common stock, which will result in estimated net proceeds of approximately $219 million upon settlement by September 2021. Combined with forward sale agreements entered into in the second quarter of 2020, which will result in estimated net proceeds of approximately $194 million upon settlement by May 2021, the Company has $413 million in available forward equity (no portion of these forward sale agreements has been settled as of October 28, 2020). As of September 30, 2020, there was approximately $228 million in remaining availability under the ATM equity program.

The Company also settled forward sale agreements entered into in the first and second quarters of 2020, resulting in net proceeds of approximately $219 million, which were used to pay down a portion of amounts outstanding under the Company’s unsecured revolving credit facility.

Additionally, the Company raised approximately $13.3 million through the sale of approximately 160,000 American depository shares (“ADSs”) of GDS. The settlement of a portion of the ADSs and receipt of the associated proceeds occurred in October 2020. After taking into account the impact of the sale of ADSs, CyrusOne owned approximately 1.9 million ADSs with a total value of approximately $155 million based on GDS’s share price as of September 30, 2020. Also, as previously disclosed in the second quarter of 2020, the settlement of a portion of the ADSs sold in June 2020 and receipt of the associated proceeds occurred in July 2020 (not included in the $13.3 million referenced above).

Dividend

On July 29, 2020, the Company announced a dividend of $0.51 per share of common stock for the third quarter of 2020, a 2% increase in the quarterly dividend compared to the second quarter of 2020. The dividend was paid on October 9, 2020, to stockholders of record at the close of business on September 25, 2020.

Additionally, today the Company is announcing a dividend of $0.51 per share of common stock for the fourth quarter of 2020. The dividend will be paid on January 8, 2021, to stockholders of record at the close of business on January 4, 2021.

Guidance

CyrusOne is updating guidance for full year 2020, tightening the guidance ranges for Total Revenue and Adjusted EBITDA, increasing the lower end of the guidance range for Normalized FFO per diluted common share, and increasing the upper and lower ends of the guidance range for Capital Expenditures and Capital Expenditures - Development. The annual guidance provided below represents forward-looking statements, which are based on current economic conditions, internal assumptions about the Company's existing customer base, and the supply and demand dynamics of the markets in which CyrusOne operates. The COVID-19 pandemic continues to evolve rapidly and the potential impact on our business remains uncertain and unpredictable.

CyrusOne does not provide forward-looking guidance for GAAP financial measures (other than Total Revenue and Capital Expenditures) or reconciliations for the non-GAAP financial measures included in the annual guidance provided below due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including Net income (loss) and adjustments that could be made for Transaction, acquisition, integration and other related expenses, Legal claim costs, Impairment losses and loss on disposal of assets and other charges in its reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

Category

Previous 2020
Guidance

Current 2020
Guidance

Total Revenue

$1,010 - 1,045 million

 

$1,020 - 1,035 million

Lease and Other Revenues from Customers

$865 - 890 million

 

$865 - 875 million

Metered Power Reimbursements

$145 - 155 million

 

$155 - 160 million

Adjusted EBITDA

$525 - 550 million

 

$535 - 540 million

Normalized FFO per diluted common share

$3.75 - 3.90

 

$3.80 - 3.90

Capital Expenditures

$850 - 950 million

 

$900 - 1,000 million

Development(1)

$835 - 930 million

 

$885 - 980 million

Recurring

$15 - 20 million

 

$15 - 20 million

(1)Development capital expenditures include the acquisition of land for future development.

Upcoming Conferences and Events

  • Berenberg Virtual U.S. CEO Conference 2020 on November 12-13
  • NAREIT’s Virtual REITworld on November 17-19
  • Morgan Stanley Virtual European Technology, Media & Telecoms Conference on November 18-20
  • BofA Securities Virtual Global Data Center Conference on November 24-25
  • Wells Fargo Virtual TMT Summit 2020 on December 1-2
  • NASDAQ Virtual Investor Conference on December 1-4
  • UBS Global TMT Virtual Conference on December 7-9
  • Mizuho Virtual Data Center Series on December 14-15

Conference Call Details

CyrusOne will host a conference call on October 29, 2020, at 11:00 AM Eastern Time (10:00 AM Central Time) to discuss its results for the third quarter 2020. A live webcast of the conference call will be available in the “Investors / Events & Presentations” section of the Company's website at http://investor.cyrusone.com/events.cfm. The presentation to be made during the call is now available in this location. The U.S. conference call dial-in number is 1-844-492-3731, and the international dial-in number is 1-412-542-4121. A replay will be available one hour after the conclusion of the earnings call on October 29, 2020, through November 12, 2020. The U.S. toll-free replay dial-in number is 1-877-344-7529 and the international replay dial-in number is 1-412-317-0088. The replay access code is 10148433.

Safe Harbor

This release and the documents incorporated by reference herein contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward- looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. All statements, other than statements of historical facts, are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as "expects," "anticipates," "predicts," "projects," "intends," "plans," "believes," "seeks," "estimates," "continues," "endeavors," "strives," "may," variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our and our customers’ respective businesses and industries, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned these forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially and adversely from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, (i) the potential widespread and highly uncertain impact of public health outbreaks, epidemics and pandemics, such as the COVID-19 pandemic; (ii) loss of key customers; (iii) economic downturn, natural disaster or oversupply of data centers in the limited geographic areas that we serve; (iv) risks related to the development of our properties including, without limitation, obtaining applicable permits, power and connectivity and our ability to successfully lease those properties; (v) weakening in the fundamentals for data center real estate, including but not limited to, decreases in or slowed growth of global data, e-commerce and demand for outsourcing of data storage and cloud-based applications; (vi) loss of access to key third-party service providers and suppliers; (vii) risks of loss of power or cooling which may interrupt our services to our customers; (viii) inability to identify and complete acquisitions and operate acquired properties; (ix) our failure to obtain necessary outside financing on favorable terms, or at all; (x) restrictions in the instruments governing our indebtedness; (xi) risks related to environmental matters; (xii) unknown or contingent liabilities related to our acquisitions; (xiii) significant competition in our industry; (xiv) loss of key personnel; (xv) risks associated with real estate assets and the industry; (xvi) failure to maintain our status as a REIT (as defined below) or to comply with the highly technical and complex REIT provisions of the Internal Revenue Code of 1986, as amended; (xvii) REIT distribution requirements could adversely affect our ability to execute our business plan; (xviii) insufficient cash available for distribution to stockholders; (xix) future offerings of debt may adversely affect the market price of our common stock; (xx) increases in market interest rates will increase our borrowings costs and may drive potential investors to seek higher dividend yields and reduce demand for our common stock; (xxi) market price and volume of stock could be volatile; (xxii) risks related to regulatory changes impacting our customers and demand for colocation space in particular geographies; (xxiii) our international activities, including those conducted as a result of land acquisitions and with respect to leased land and buildings, are subject to special risks different from those faced by us in the United States; (xxiv) the significant uncertainty that remains about the future relationship between the United Kingdom and the European Union as a result of the United Kingdom’s withdrawal from the European Union; (xxv) expanded and widened price increases in certain selective materials for data center development capital expenditures due to international trade negotiations; (xxvi) a failure to comply with anti-corruption laws and regulations; (xxvii) legislative or other actions relating to taxes; (xxviii) the ongoing trade conflict and political tensions between the United States and the People's Republic of China; and (xxix) other factors affecting the real estate and technology industries generally. More information on potential risks and uncertainties is available in our recent filings with the Securities and Exchange Commission (SEC), including CyrusOne’s Form 10-K report, Form 10-Q reports, and Form 8-K reports. We disclaim any obligation other than as required by law to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors or for new information, data or methods, future events or other changes.

Adoption of New Accounting Standard and Use of Non-GAAP Financial Measures and Other Metrics

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02 (codified in ASC 842, Leases (“ASC 842”)) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. The ASU requires that a liability be recorded on the balance sheet for all leases where the reporting entity is a lessee, based on the present value of future lease obligations. A corresponding right-of-use asset will also be recorded. Amortization of the lease obligation and the right-of-use asset for leases classified as operating leases are on a straight-line basis. Leases classified as financing leases are required to be accounted for as financing arrangements similar to the accounting treatment for capital leases under ASC 840, Leases (the former accounting standard for all leases).

We adopted ASU 2016-02 on January 1, 2019, applied the package of practical expedients included therein and utilized the modified retrospective transition method with the cumulative effect of transition recognized on the effective date. By applying the modified retrospective transition method, the presentation of financial information for periods prior to January 1, 2019 was not restated.

This press release contains certain non-GAAP financial measures that management believes are helpful in understanding the Company’s business, as further discussed within this press release. These financial measures, which include Funds From Operations, Normalized Funds From Operations, Normalized Funds From Operations per Diluted Common Share, Adjusted EBITDA, Net Operating Income, and Net Debt should not be construed as being more important than, or a substitute for, comparable GAAP measures. Detailed reconciliations of these non-GAAP financial measures to comparable GAAP financial measures have been included in the tables that accompany this release and are available in the Investor Relations section of www.cyrusone.com.

Management uses FFO, Normalized FFO, Normalized FFO per Diluted Common Share, Adjusted EBITDA, and NOI, which are non-GAAP financial measures commonly used in the REIT industry, as supplemental performance measures. Management uses these measures as supplemental performance measures because, when compared period over period, they capture trends in occupancy rates, rental rates and operating costs. The Company also believes that, as widely recognized measures of the performance of real estate investment trusts (REITs), these measures are used by investors as a basis to evaluate REITs. Other REITs may not calculate these measures in the same manner, and, as presented, they may not be comparable to others. Therefore, FFO, Normalized FFO, NOI, and Adjusted EBITDA should be considered only as supplements to net income presented in accordance with GAAP as measures of our performance. FFO, Normalized FFO, NOI, and Adjusted EBITDA should not be used as measures of liquidity or as indicative of funds available to fund our cash needs, including our ability to make distributions. These measures also should not be used as supplements to or substitutes for cash flow from operating activities computed in accordance with GAAP. The Company believes that Net Debt provides a useful measure of liquidity and financial health.

1Net income (loss) per diluted common share is defined as Net income (loss) divided by the weighted average diluted common shares outstanding for the period, which were 118.7 million for the third quarter of 2020 and 113.5 million for the third quarter of 2019.

2We use Net Operating Income ("NOI"), which is a non-GAAP financial measure commonly used in the REIT industry, as a supplemental performance measure. We use NOI as a supplemental performance measure because, when compared period over period, it captures trends in occupancy rates, rental rates and operating expenses. We also believe that, as a widely recognized measure of the performance of REITs, NOI is used by investors as a basis to evaluate REITs.

We calculate NOI as Net (loss) income, adjusted for Sales and marketing expenses, General and administrative expenses, Depreciation and amortization expenses, Transaction, acquisition, integration and other related expenses, Interest expense, net, Gain on marketable equity investment, Loss on early extinguishment of debt, Impairment losses, Foreign currency and derivative losses (gains), net, Other expense, Income tax benefit and other items as appropriate.


Contacts

Investor Relations
Michael Schafer
Vice President, Capital Markets & Investor Relations
972-350-0060
investorrelations@cyrusone.com


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