CyrusOne Inc. (NASDAQ: CONE), a premier global data center REIT, today
announced second quarter 2018 earnings.
Highlights
Category
2Q’18
% Changevs. 2Q’17
•
— Leasing results also included company records for number of
leases signed (506), weighted average lease term (11.9 years on a
CSF-weighted basis), and total interconnection revenue signed
($2.8 million annualized)
— Includes leases totaling more than 10 MW signed with two
hyperscale customers based in China
•
•
•
— Transactions support the company’s continued growth in two of
the strongest data center markets in the U.S.
“We are thrilled with our record bookings this quarter, which followed
very strong leasing in the first quarter,” said Gary Wojtaszek,
president and chief executive officer of CyrusOne. “The 52 megawatts
signed this quarter included leases totaling more than 10 megawatts
signed with Chinese hyperscale customers, reflecting the growing needs
of these companies as they continue to expand into and within the U.S.
Further, the $106 million in annualized revenue signed year-to-date
through June positions us very well for continued strong, profitable
growth in 2019.”
Second Quarter 2018 Financial Results
Revenue was $196.9 million for the second quarter, compared to $166.9
million for the same period in 2017, an increase of 18%. The increase in
revenue was driven primarily by a 28% increase in occupied CSF and
additional interconnection services.
Net income was $105.9 million for the second quarter, compared to net
loss of $0.8 million in the same period in 2017. Net income for the
second quarter included a $102.7 million unrealized gain on the
Company’s equity investment in GDS Holdings Limited (“GDS”), a leading
data center provider in China, due to an increase in GDS’s share price
during the quarter. Net income per diluted common share1 was
$1.06 in the second quarter of 2018, compared to net loss of $(0.01) per
diluted common share in the same period in 2017.
Net operating income (NOI)2 was $128.0 million for the second
quarter, compared to $107.3 million in the same period in 2017, an
increase of 19%. Adjusted EBITDA3 was $110.6 million for the
second quarter, compared to $90.8 million in the same period in 2017, an
increase of 22%.
Normalized Funds From Operations (Normalized FFO)4 was $80.7
million for the second quarter, compared to $67.9 million in the same
period in 2017, an increase of 19%. Normalized FFO per diluted common
share was $0.81 in the second quarter of 2018, an increase of 5% over
second quarter 2017.
Leasing Activity
CyrusOne leased approximately 52 MW of power and 305,000 CSF in the
second quarter, representing $5.5 million in monthly recurring rent,
inclusive of the monthly impact of installation charges, or
approximately $65.4 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 143 months (11.9
years), and the weighted average remaining lease term of CyrusOne’s
portfolio is 59 months (taking into account the impact of the backlog),
the longest in the Company’s history. Recurring rent churn6
for the second quarter was 1.1%, compared to 0.8% for the same period in
2017.
Portfolio Development and CSF Leased
In the second quarter, the Company completed construction on 27,000 CSF
and 18 MW of power capacity across three projects in San Antonio,
Northern Virginia, and Phoenix. CSF leased7 as of the end of
the second quarter was 92% for stabilized properties8 and 88%
overall. In addition, the Company has development projects underway in
Northern Virginia, Dallas, the New York Metro area, Phoenix, Chicago and
San Antonio that are expected to add approximately 401,000 CSF and 86 MW
of power capacity.
Balance Sheet and Liquidity
As of June 30, 2018, the Company had gross assets9 totaling
approximately $5.5 billion, an increase of approximately 23% over gross
assets as of June 30, 2017. CyrusOne had $2.20 billion of long-term debt10,
cash and cash equivalents of $116.2 million, and $1.7 billion available
under its unsecured revolving credit facility as of June 30, 2018. Net
debt10 was $2.10 billion as of June 30, 2018, representing
approximately 27% of the Company’s total enterprise value as of June 30,
2018 of $7.9 billion, or 4.7x Adjusted EBITDA for the last quarter
annualized. Available liquidity11 was $2.11 billion as of
June 30, 2018.
Dividend
On May 2, 2018, the Company announced a dividend of $0.46 per share of
common stock for the second quarter of 2018. The dividend was paid on
July 13, 2018, to stockholders of record at the close of business on
June 29, 2018.
Additionally, today the Company is announcing a dividend of $0.46 per
share of common stock for the third quarter of 2018. The dividend will
be paid on October 12, 2018, to stockholders of record at the close of
business on September 28, 2018.
Guidance
CyrusOne is updating guidance for full year 2018, increasing and
tightening the range for Total Revenue, decreasing and tightening the
range for Adjusted EBITDA, increasing and tightening the range for
Normalized FFO per diluted common share, and reaffirming the range for
Capital Expenditures. 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.
CyrusOne does not provide forward-looking guidance for GAAP financial
measures (other than 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, asset impairments and loss on disposals and
other charges in its reconciliation of historic numbers, the amount of
which, based on historical experience, could be significant.
Category
Previous 2018Guidance(1)
Revised 2018Guidance(1)
(1) Full year 2018 guidance includes the impact of the
Zenium acquisition, which is assumed to close October 1,
2018. Previous guidance assumed a May 2018 closing. Development
capital expenditures include the acquisition of
Upcoming Conferences and Events
Conference Call Details
CyrusOne will host a conference call on August 2, 2018, at 11:00 AM
Eastern Time (10:00 AM Central Time) to discuss its results for the
second quarter of 2018. A live webcast of the conference call and the
presentation to be made during the call will be available in the
“Investors / Events & Presentations” section of the Company’s website at http://investor.cyrusone.com/events.cfm.
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 August
2, 2018, through August 16, 2018. 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 10121348.
Safe Harbor
This release and the documents incorporated by reference herein contain
forward-looking statements regarding future events and our future
results that are subject to the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. 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
businesses, 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, those
discussed in this release and those discussed in other documents we file
with the Securities and Exchange Commission (SEC). More information on
potential risks and uncertainties is available in our recent filings
with the SEC, including CyrusOne’s Form 10-K report, Form 10-Q reports,
and Form 8-K reports. Actual results may differ materially and adversely
from those expressed in any forward-looking statements. We undertake no
obligation to revise or update any forward-looking statements for any
reason.
Adoption of New Accounting Standard and Use of Non-GAAP Financial
Measurements
On January 1, 2018, we adopted the new accounting standard with respect
to revenue recognition. See “Note 2. Summary of Significant Accounting
Policies” in our financial statements included in our Form 10-Q for the
quarter ended March 31, 2018 and in our subsequent filings for
additional information. We have adopted the new standard using the
modified retrospective transition method, where financial statement
presentations prior to the date of adoption are not adjusted.
Accordingly, all information related to periods prior to 2018 have not
been adjusted, including non-GAAP measurements.
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, Adjusted EBITDA, Net Operating Income, and Net Debt should
not be construed as being more important than 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, Adjusted EBITDA, and NOI as
supplemental performance measures because they provide performance
measures that, when compared year over year, 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) and other companies, these measures will be
used by investors as a basis to compare its operating performance with
that of other companies. Other companies 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 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 the Company’s cash needs, including the ability
to pay dividends. These measures also should not be used as substitutes
for cash flow from operating activities computed in accordance with U.S.
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 99.4 million for the
second quarter of 2018. Basic net income per share was one cent higher
than diluted net income per share.
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 revenue less property operating expenses, each of
which are presented in the accompanying consolidated statements of
operations. Amortization of deferred leasing costs is presented in
depreciation and amortization, which is excluded from NOI. Marketing and
advertising costs are not property-specific, rather these expenses
support our entire portfolio. As a result, we have excluded these
marketing and advertising expenses from our NOI calculation, consistent
with the treatment of general and administrative expenses, which also
support our entire portfolio. Because the calculation of NOI excludes
various expenses, the utility of NOI as a measure of our performance is
limited. Other REITs may not calculate NOI in the same manner.
Accordingly, our NOI may not be comparable to others. Therefore, NOI
should be considered only as a supplement to revenue and to net income
(loss) presented in accordance with GAAP as a measure of our
performance. NOI should not be used as a measure of our liquidity or as
indicative of funds available to fund our cash needs, including our
ability to make distributions. NOI also should not be used as a
supplement to or substitute for cash flow from operating activities
computed in accordance with GAAP.
3Adjusted EBITDA, which is a non-GAAP financial measure, is
defined as net income (loss) as defined by GAAP plus interest expense,
income tax expense, depreciation and amortization, asset impairments and
loss on disposals, transaction, acquisition, integration and other
related expenses, legal claim costs, stock-based compensation expense,
severance and management transition costs, loss on early extinguishment
of debt, new accounting standards and regulatory compliance and the
related system implementation costs, unrealized (gain) on marketable
equity investments and other special items as appropriate. Other
companies may not calculate Adjusted EBITDA in the same manner.
Accordingly, the Company’s Adjusted EBITDA as presented may not be
comparable to others.
4We use funds from operations (“FFO”) and normalized funds
from operations (“Normalized FFO”), which are non-GAAP financial
measures commonly used in the REIT industry, as supplemental performance
measures. We use FFO and Normalized FFO as supplemental performance
measures because, when compared period over period, they capture trends
in occupancy rates, rental rates and operating costs. We also believe
that, as widely recognized measures of the performance of REITs, FFO and
Normalized FFO are used by investors as a basis to evaluate REITs.
We calculate FFO as net income (loss) computed in accordance with GAAP
before real estate depreciation and amortization and asset impairments
and gain or loss on disposal. While it is consistent with the definition
of FFO promulgated by the National Association of Real Estate Investment
Trusts (“NAREIT”), our computation of FFO may differ from the
methodology for calculating FFO used by other REITs. Accordingly, our
FFO may not be comparable to others.
We calculate Normalized FFO as FFO plus loss on early extinguishment of
debt, unrealized gain on marketable equity investment, new accounting
standards and regulatory compliance and the related system
implementation costs, amortization of customer relationship intangibles,
transaction, acquisition, integration and other related expenses,
severance and management transition costs, legal claim costs and other
special items as appropriate. Because the value of the customer
relationship intangibles is inextricably connected to the real estate
acquired, the Company believes the amortization of such intangibles and
impairments of such intangibles is analogous to real estate depreciation
and impairments; therefore, the Company adds the customer relationship
intangible amortization and impairments back for similar treatment with
real estate depreciation and impairments. The Company believes its
Normalized FFO calculation provides a comparable measure between
different periods. Other REITs may not calculate Normalized FFO in the
same manner. Accordingly, our Normalized FFO may not be comparable to
others.
In addition, because FFO and Normalized FFO exclude real estate
depreciation and amortization and real estate impairments, and capture
neither the changes in the value of our properties that result from use
or from market conditions, nor the level of capital expenditures and
leasing commissions necessary to maintain the operating performance of
our properties, all of which have real economic effect and could
materially impact our results from operations, the utility of FFO and
Normalized FFO as measures of our performance is limited. Therefore, FFO
and Normalized FFO should be considered only as supplements to net
income (loss) presented in accordance with GAAP as measures of our
performance. FFO and Normalized FFO should not be used as measures of
our liquidity or as indicative of funds available to fund our cash
needs, including our ability to make distributions. FFO and Normalized
FFO also should not be used as supplements to or substitutes for cash
flow from operating activities computed in accordance with GAAP.
5Annualized GAAP revenue is equal to monthly recurring rent,
defined as average monthly contractual rent during the term of the lease
plus the monthly impact of installation charges, multiplied by 12. It
can be shown both inclusive and exclusive of the Company’s estimate of
customer reimbursements for metered power.
6Recurring rent churn is calculated as any reduction in
recurring rent due to customer terminations, service reductions or net
pricing decreases as a percentage of rent at the beginning of the
period, excluding any impact from metered power reimbursements or other
usage-based billing.
7CSF leased is calculated by dividing CSF under signed leases
for available space (whether or not the contract has commenced billing)
by total CSF. CSF leased differs from CSF Occupied presented in the Data
Center Portfolio table because the leased rate includes CSF for signed
leases that have not commenced billing.
8Stabilized properties include data halls that have been in
service for at least 24 months or are at least 85% leased.
9Gross asset value is defined as total assets plus
accumulated depreciation.
10Long-term debt and net debt exclude adjustments for
deferred financing costs and bond premiums. Net debt, which is a
non-GAAP financial measure, provides a useful measure of liquidity and
financial health. The Company defines net debt as long-term debt and
capital lease obligations, offset by cash and cash equivalents.
11Liquidity is calculated as cash, cash equivalents, and
temporary cash investments on hand, plus the undrawn capacity on
CyrusOne’s revolving credit facility and the delayed draw term loan.
About CyrusOne
CyrusOne (NASDAQ: CONE) is a high-growth real estate investment trust
(REIT) specializing in highly reliable enterprise-class, carrier-neutral
data center properties. The Company provides mission-critical data
center facilities that protect and ensure the continued operation of IT
infrastructure for approximately 1,000 customers, including 201 Fortune
1000 companies.
With a track record of meeting and surpassing the aggressive
speed-to-market demands of hyperscale cloud providers, as well as the
expanding IT infrastructure requirements of the enterprise, CyrusOne
provides the flexibility, reliability, security, and connectivity that
foster business growth. CyrusOne offers a tailored, customer
service-focused platform and is committed to full transparency in
communication, management, and service delivery throughout its 43 data
centers worldwide. Additional information about CyrusOne can be found at www.CyrusOne.com.
Company Profile
CyrusOne (NASDAQ: CONE) specializes in highly reliable enterprise-class,
carrier-neutral data center properties. The Company provides
mission-critical data center facilities that protect and ensure the
continued operation of IT infrastructure for approximately 1,000
customers, including 201 Fortune 1000 companies. CyrusOne’s data center
offerings provide the flexibility, reliability, and security that
enterprise customers require and are delivered through a tailored,
customer service-focused platform designed to foster long-term
relationships. CyrusOne is committed to full transparency in
communication, management, and service delivery throughout its 43 data
centers worldwide.
Corporate Headquarters
Senior Management
Website: www.cyrusone.com
Analyst Coverage
Firm
Analyst
Phone Number
CyrusOne Inc.
Summary of Financial Data
(Dollars in millions, except per share amounts)
Three Months
As of
7,883.0
7,053.6
6,918.9
14
(1) pt
(1) pt
CyrusOne Inc.
Condensed Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
(Unaudited)
CyrusOne Inc.
Condensed Consolidated Balance Sheets
(Dollars in millions)
(Unaudited)
CyrusOne Inc.
Condensed Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
(Unaudited)
CyrusOne Inc.
Condensed Consolidated Balance Sheets
(Dollars in millions)
(Unaudited)
CyrusOne Inc.
Condensed Consolidated Statements of Cash Flow
(Dollars in millions)
(Unaudited)
Six MonthsEnded June 30,2018
Six MonthsEnded June 30,2017
Three MonthsEnded June 30,2018
Three MonthsEnded June 30,2017
CyrusOne Inc.
Net Operating Income and Reconciliation of Net Income (Loss) to
Adjusted EBITDA
(Dollars in millions)
(Unaudited)
CyrusOne Inc.
Reconciliation of Net Income (Loss) to Net Operating Income
(Dollars in millions)
(Unaudited)
CyrusOne Inc.
Reconciliation of Net Income (Loss) to FFO and Normalized FFO
(Dollars in millions)
(Unaudited)
n/m
Straight line rent adjustments:
Deferred revenue, primarily installation revenue:
CyrusOne Inc.
Market Capitalization Summary, Reconciliation of Net Debt, and
Debt Schedule
(Unaudited)
Market Capitalization
Shares orEquivalentsOutstanding
Market Priceas ofJune 30, 2018
Market ValueEquivalents(in millions)
Reconciliation of Net Debt
(a) Excludes adjustment for deferred financing costs.
Debt Schedule (as of
June 30, 2018)
March 2023(a)
(a) Assuming exercise of one-year extension option.
(b) Interest rate as of June 30, 2018: 3.50%.
(c) Interest rate as of June 30, 2018: 3.80%.
(d) Excludes adjustment for deferred financing costs.
Interest Summary
CyrusOne Inc.
Colocation Square Footage (CSF) and CSF Leased
(Unaudited)
Market
Colocation Space (CSF)(a)(000)
Colocation Space (CSF)(a)(000)
Colocation Space (CSF)(a)(000)
CyrusOne Inc.
2018 Guidance
Category
Previous 2018
Guidance(1)
Revised 2018
Guidance(1)
Full year 2018 guidance includes the impact of the Zenium
acquisition, which is assumed to close October 1, 2018. Previous
guidance assumed a May 2018 closing. Development capital
expenditures include the acquisition of land for future
development.
The annual guidance provided above 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.
CyrusOne does not provide forward-looking guidance for GAAP financial
measures (other than Revenue and Capital Expenditures) or
reconciliations for the non-GAAP financial measures included in the
annual guidance provided above 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, asset impairments and loss on disposals and
other charges in its reconciliation of historic numbers, the amount of
which, based on historical experience, could be significant.
CyrusOne Inc.
Data Center Portfolio
As of June 30, 2018
(Unaudited)
Powered Shell Available for
Future Development (NRSF)(k)
(000)
Available
Critical
Load
Capacity (MW)(l)
Stabilized Properties(b)
Annualized
Rent(c)
($000)
Colocation
Space
(CSF)(d)
(000)
CSF
Occupied(e)
Office &
Other(g)
(000)
Office &
Other
Occupied(h)
Supporting Infrastructure(i)(000)
Total(j)(000)
7
Powered Shell Available for
Future Development (NRSF)(k)
(000)
Available
Critical
Load
Capacity (MW)(l)
Annualized
Rent(c)
($000)
Colocation
Space
(CSF)(d)
(000)
CSF
Occupied(e)
CSF Leased(f)
Office &
Other(g)
(000)
Office &
Other
Occupied(h)
Supporting Infrastructure(i)
(000)
Total(j) (000)
Pre-Stabilized Properties(b)
CyrusOne Inc.
NRSF Under Development
As of June 30, 2018
(Dollars in millions)
(Unaudited)
Area
Estimated
Completion
Date
Colocation
Space
(CSF)
(000)
Office &
Other
(000)
Supporting
Infrastructure
(000)
Powered
Shell(b)
(000)
Critical
Load MW
Capacity(c)
Actual
to
Date(d)
Estimated
Costs to
Completion(e)
CyrusOne Inc.
Land Available for Future Development (Acres)
As of June 30, 2018
(Unaudited)
(a) Adjusted to reflect impact of Phoenix – Chandler VII shell
construction, which commenced in July 2018.
CyrusOne Inc.
Leasing Statistics – Lease Signings
As of June 30, 2018
(Unaudited)
Number
of Leases(a)
Total CSF
Signed(b)
Total kW
Signed(c)
Total MRR
Signed (000)(d)
Weighted
Average
Lease Term(e)
CyrusOne Inc.
New MRR Signed – Existing vs. New Customers
As of June 30, 2018
(Dollars in thousands)
(Unaudited)
Monthly recurring rent is defined as the average monthly
contractual rent during the term of the lease. It includes the
monthly impact of installation charges of approximately $0.3
million in 2Q’18, $0.2 million in 2Q’17-1Q’18 and $0.1 million in
each of the other quarters.
CyrusOne Inc.
Customer Sector Diversification(a)
As of June 30, 2018
(Unaudited)
CyrusOne Inc.
Lease Distribution
As of June 30, 2018
(Unaudited)
Customers(b)
All Customers
Leased
NRSF(c) (000)
Portfolio
Leased NRSF
Rent(d) (000)
Annualized Rent
CyrusOne Inc.
Lease Expirations
As of June 30, 2018
(Unaudited)
Total OperatingNRSF Expiring
(000)
Annualized Rent at Expiration(d)
(000)
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