29 Apr CyrusOne Reports First Quarter 2020 Earnings
1Q’20 Year-over-Year Revenue Growth of 9%
Signed $60 Million in Annualized GAAP Revenue and 44 Megawatts
DALLAS–(BUSINESS WIRE)–CyrusOne Inc. (NASDAQ: CONE), a premier global data center REIT, today announced first quarter 2020 earnings.
Net income / (loss)
Net income / (loss) per diluted share
Normalized FFO per diluted share
Leased 44 megawatts (“MW”) and 289,000 colocation square feet (“CSF”) in the first quarter, totaling $60 million in annualized GAAP revenue, the second-highest quarterly total in the company’s history
– Leased 31.5 MW totaling $38 million in annualized GAAP revenue across European locations, with 9 MW totaling $12.5 million in annualized GAAP revenue expected to commence this year, reflecting continued strong demand growth in these markets from U.S. hyperscale companies
Backlog of $88 million in annualized GAAP revenue as of the end of the first quarter, the highest quarter-end backlog in the company’s history, representing approximately $610 million in total contract value1
As previously announced, amended our senior unsecured credit agreement, extending the maturity dates and decreasing the interest rate margins applicable on the revolving credit facility and term loans
As previously announced, issued €500 million of 1.45% Senior Notes due 2027, with the proceeds used to repay floating rate Euro denominated obligations and fund continued development in Europe
As previously announced, entered into a forward sale agreement through the at-the-market (“ATM”) equity program with respect to approximately 2.0 million shares of common stock, which will result in estimated net proceeds of approximately $123 million upon settlement by March 2021
– Combined with the forward sale agreement entered into in the fourth quarter of 2019, which will result in estimated net proceeds of approximately $99 million upon settlement by November 2020, the Company has $222 million in available forward equity
“First and foremost, our thoughts and well wishes go out to the people most directly impacted by COVID-19, particularly those who have lost loved ones, and we want to thank our first responders and healthcare professionals that are on the front line,” said Tesh Durvasula, interim president and chief executive officer of CyrusOne. “We had very strong financial and operational performance in the quarter, with high growth across key metrics and the second highest leasing total in the company’s history, including a significant contribution from Europe as demand for larger deployments there continues to accelerate. The nearly $90 million revenue backlog enhances our growth profile, and the company is very well positioned with a strong balance sheet, substantial liquidity including available forward equity, and capacity throughout our markets.”
First Quarter 2020 Financial Results
Revenue was $245.9 million for the first quarter, compared to $225.0 million for the same period in 2019, an increase of 9%. The increase in revenue was driven primarily by a 5% increase in occupied CSF and additional interconnection services.
Net income was $14.7 million for the first quarter, compared to net income of $89.4 million in the same period in 2019. Net income for the first quarter included a $14.7 million gain on the Company’s equity investment in GDS, a leading data center provider in China, compared to a $101.2 million gain in the first quarter of 2019. Additionally in the first quarter, the Company recognized a $4.5 million gain associated with a change in fair value on the undesignated portion of its cross-currency swaps, partially offset by a $3.4 million loss on the early extinguishment of debt associated with the amendment of our senior unsecured credit agreement. Net income per diluted common share2 was $0.13 in the first quarter of 2020, compared to net income per diluted common share of $0.82 in the same period in 2019.
Net operating income (“NOI”)3 was $153.3 million for the first quarter, compared to $141.7 million in the same period in 2019, an increase of 8%. Adjusted EBITDA4 was $132.2 million for the first quarter, compared to $119.2 million in the same period in 2019, an increase of 11%.
Normalized Funds From Operations (“Normalized FFO”)5 was $111.8 million for the first quarter, compared to $89.3 million in the same period in 2019, an increase of 25%. Normalized FFO per diluted common share was $0.97 in the first quarter of 2020, compared to $0.82 in the same period in 2019, an increase of 18%.
CyrusOne leased approximately 44 MW of power and 289,000 CSF in the first quarter, representing approximately $5.0 million in monthly recurring rent, inclusive of the monthly impact of installation charges. The leasing for the quarter represents approximately $59.9 million in annualized GAAP revenue6, excluding estimates for pass-through power. The weighted average lease term of the new leases, based on square footage, is 98 months (8.2 years), and the weighted average remaining lease term of CyrusOne’s portfolio is 53 months (taking into consideration the impact of the backlog). Recurring rent churn percentage7 for the first quarter was 1.0%, compared to 2.1% for the same period in 2019.
Portfolio Development and Percentage CSF Leased
In the first quarter, the Company completed construction on 50,000 CSF and 6 MW of power capacity in Amsterdam and Raleigh-Durham. Percentage CSF leased8 as of the end of the first quarter was 88% for stabilized properties9 and 86% overall. In addition, the Company has development projects underway in Frankfurt, Dublin, London, Northern Virginia, San Antonio, Phoenix, the New York Metro area, and Council Bluffs (IA) that are expected to add approximately 438,000 CSF and 88 MW of power capacity.
Balance Sheet and Liquidity
As of March 31, 2020, the Company had gross asset value10 totaling approximately $7.7 billion, an increase of approximately 10% over gross asset value as of March 31, 2019. CyrusOne had $3.08 billion of long-term debt11, $57 million of cash and cash equivalents, and $1.16 billion available under its unsecured revolving credit facility as of March 31, 2020. Net debt11 was $3.06 billion as of March 31, 2020, representing approximately 30% of the Company’s total enterprise value as of March 31, 2020 of $10.2 billion, or 5.4x 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 5.2×12. Available liquidity13 was $1.43 billion as of March 31, 2020.
As previously announced, the Company amended its senior unsecured credit agreement, extending the maturity dates and decreasing the interest rate margins applicable on the revolving credit facility and term loans. The amended agreement consists of a $1.4 billion revolving credit facility, which includes a $750 million multicurrency borrowing sublimit, and term loan commitments totaling $1.1 billion. The revolving credit facility has been decreased by $300 million, resulting in savings on the annual facility fee and reflecting the Company’s enhanced access to capital as an investment-grade issuer. The revolving credit facility matures in March 2024 and includes a 12-month extension option which, if exercised by the Company, would extend the final maturity to March 2025. The term loan commitments consist of a $400 million term loan maturing in March 2023 and a $700 million term loan maturing in March 2025. The term loan maturing in March 2023 includes two 12-month extension options which, if fully exercised by the Company, would extend the final maturity to March 2025. The credit agreement also contains an accordion that allows the Company to obtain up to $1.5 billion in additional revolving or term loan commitments.
The all-in drawn margin applicable to the revolving credit facility based on the Company’s current leverage level has decreased by 25 basis points compared to the margin on the previous revolving credit facility. The current margin is 100 basis points over the applicable index for floating rate advances, and the annual facility fee is 20 basis points. The margin on the term loan maturing in March 2023 based on the Company’s current leverage level is LIBOR plus 120 basis points, a decrease of 15 basis points compared to the margin on the previously outstanding term loan maturing in March 2023. The margin on the term loan maturing in March 2025 based on the Company’s current leverage level is also LIBOR plus 120 basis points, a decrease of 45 basis points compared to the margin on the previously outstanding term loan maturing in March 2025.
As previously announced, the Company issued €500 million of 1.45% Senior Notes due 2027, with the proceeds used to repay floating rate Euro denominated obligations and fund continued development in Europe.
As previously announced, the Company entered into a forward sale agreement through the ATM equity program with respect to approximately 2.0 million shares, which will result in estimated net proceeds of approximately $123 million upon settlement by March 2021. Combined with the forward sale agreement entered into in the fourth quarter of 2019, which will result in estimated net proceeds of approximately $99 million upon settlement by November 2020, the Company has $222 million in available forward equity (no portion of these forward sale agreements has been settled as of April 29, 2020). As of March 31, 2020, there was approximately $165 million in remaining availability under the current ATM equity program.
On February 20, 2020, the Company announced a dividend of $0.50 per share of common stock for the first quarter of 2020. The dividend was paid on April 9, 2020, to stockholders of record at the close of business on March 27, 2020.
Additionally, today the Company is announcing a dividend of $0.50 per share of common stock for the second quarter of 2020. The dividend will be paid on July 10, 2020, to stockholders of record at the close of business on June 26, 2020.
CyrusOne is updating guidance for full year 2020, tightening the guidance range and decreasing the midpoint for Total Revenue and Lease and Other Revenues from Customers, and widening the guidance range and decreasing the midpoint for Adjusted EBITDA. 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 is evolving rapidly and the potential impact on our business is 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.
Previous 2020 Guidance
Revised 2020 Guidance
$1,015 – 1,055 million
$1,010 – 1,045 million
Lease and Other Revenues from Customers
$870 – 900 million
$865 – 890 million
Metered Power Reimbursements
$145 – 155 million
$145 – 155 million
$535 – 555 million
$525 – 550 million
Normalized FFO per diluted common share
$3.75 – 3.90
$3.75 – 3.90
$750 – 850 million
$750 – 850 million
$735 – 830 million
$735 – 830 million
$15 – 20 million
$15 – 20 million
(1)Development capital expenditures include the acquisition of land for future development.
Upcoming Conferences and Events (All Virtual)
MoffettNathanson Media & Communications Summit on May 11-12
J.P. Morgan Global Technology, Media and Communications Conference on May 12-14
RBC Capital Markets Global Data Center / Connectivity Conference on May 27
Cowen and Company Technology, Media & Telecom Conference on May 26-29
NAREIT’s REITweek Investor Conference on June 2-4
Conference Call Details
CyrusOne will host a conference call on April 30, 2020, at 11:00 AM Eastern Time (10:00 AM Central Time) to discuss its results for the first 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 April 30, 2020, through May 14, 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 10141841.
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, including those acquired in the acquisition of Zenium Topco Ltd. and certain other affiliated entities (“Zenium”); (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 now conducted as a result of the Zenium acquisition and land acquisitions, 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; and (xxviii) 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.
1Inclusive of 4.5 MW and approximately $5.5 million in annualized GAAP revenue associated with a paid reservation signed in 3Q’19 expected to be exercised in the next six months.
2Net 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 115.1 million for the first quarter of 2020 and 108.8 million for the first quarter of 2019.
3We 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 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, Foreign currency and derivative gains, net, Other expense, and other items as appropriate.Contacts
Vice President, Capital Markets & Investor Relations
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