CyrusOne Reports First Quarter 2019 Earnings

1Q’19 Year-over-Year Revenue Growth of 14%
Signed $27
Million in Annualized GAAP Revenue and 16 Megawatts

DALLAS–(BUSINESS WIRE)–CyrusOne Inc. (NASDAQ: CONE), a premier global data center REIT, today
announced first quarter 2019 earnings.

Highlights

           
% Change vs. 1Q’18

Category

1Q’19

1Q’18

     

1Q’18 Adjusted
for ASC 8421

Revenue $225.0 million 14% 14%
Net income / (loss) $89.4 million n/m n/m
Adjusted EBITDA $119.2 million 9% 13%
Normalized FFO $89.3 million 9% 12%
Net income / (loss) per diluted share $0.82 82% 86%
Normalized FFO per diluted share $0.82 (4)% (1)%
 

Leased 16 megawatts (“MW”) and 93,000 colocation square feet (“CSF”)
in the first quarter, totaling $27 million in annualized GAAP revenue
 

 

— Backlog of $39 million in annualized GAAP revenue as of the end
of the first quarter

 

As previously announced, acquired 22 acres of land in San Antonio
and 8 acres of land in Santa Clara to support growth in those markets
 
— Estimated 120 MW of power capacity in San Antonio and nearly 200
MW of power capacity in Santa Clara (inclusive of previously
acquired land)
 

Strategically hedged EUR exposure, synthetically converting $270
million outstanding on the Company’s revolving credit facility into
more attractively priced EUR-denominated debt (equivalent to €238
million), resulting in a nearly 300 basis point decrease in the
interest rate
 

Raised approximately $252 million in net proceeds through the sale
of approximately 4.9 million shares of common stock under
at-the-market (“ATM”) equity program
 

As previously announced, subsequent to the end of the first quarter
raised approximately $200 million through the sale of approximately
5.7 million American depository shares (“ADSs”) of GDS Holdings
Limited (“GDS”)
 

Increasing 2019 Normalized FFO per diluted share guidance2
by $0.20 at the midpoint of the range, from $3.10 – 3.20 to $3.30
– 3.40

 

“We are off to a great start to the year, with strong operational and
financial performance, and leasing contributions across the portfolio as
our international expansion creates an increasingly balanced and
diversified business with a presence in the most important markets in
the world,” said Gary Wojtaszek, president and chief executive officer
of CyrusOne. “We continue to maintain a very strong balance sheet to
support our growth, and recent initiatives have allowed us to
significantly increase our Normalized FFO per share guidance while
meeting our equity funding requirements for the year based on our
current outlook.”

First Quarter 2019 Financial Results

Revenue was $225.0 million for the first quarter, compared to $196.6
million for the same period in 2018, an increase of 14%. The increase in
revenue was driven primarily by a 22% increase in occupied CSF from
organic growth and the Zenium acquisition, as well as additional
interconnection services.

Net income was $89.4 million for the first quarter, compared to net
income of $43.5 million in the same period in 2018. Net income for the
first quarter included a $101.2 million unrealized gain on the Company’s
equity investment in 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 share3 was $0.82 in the first quarter of 2019,
compared to net income per diluted common share of $0.45 in the same
period in 2018.

Net operating income (“NOI”)4 was $141.7 million for the
first quarter, compared to $128.8 million in the same period in 2018, an
increase of 10%. Adjusted EBITDA5 was $119.2 million for the
first quarter, compared to $109.5 million in the same period in 2018, an
increase of 9%.

Normalized Funds From Operations (“Normalized FFO”)6 was
$89.3 million for the first quarter, compared to $82.2 million in the
same period in 2018, an increase of 9%. Normalized FFO per diluted
common share was $0.82 in the first quarter of 2019.

Leasing Activity

CyrusOne leased approximately 16 MW of power and 93,000 CSF in the first
quarter, representing $2.3 million in monthly recurring rent, inclusive
of the monthly impact of installation charges, or approximately $27.2
million in annualized GAAP revenue7, excluding estimates for
pass-through power. The weighted average lease term of the new leases,
based on square footage, is 56 months (4.7 years), and the weighted
average remaining lease term of CyrusOne’s portfolio is 56 months
(taking into account the impact of the backlog). Recurring rent churn8
for the first quarter was 2.1%, compared to 0.5% for the same period in
2018.

Portfolio Development and CSF Leased

In the first quarter, the Company completed construction on 249,000 CSF
and 48 MW of power capacity across five projects in Northern Virginia,
the New York Metro area, and Raleigh-Durham. CSF leased9 as
of the end of the first quarter was 90% for stabilized properties10
and 86% overall. In addition, the Company has development projects
underway in Northern Virginia, Dallas, the New York Metro area,
Raleigh-Durham, Phoenix, Austin, Frankfurt, London, and Amsterdam that
are expected to add approximately 190,000 CSF and 82 MW of power
capacity.

Sale of GDS Shares

As previously announced, subsequent to the end of the first quarter the
Company raised approximately $200 million through the sale of
approximately 5.7 million ADSs of GDS. CyrusOne continues to hold
approximately 2.3 million ADSs, valued at approximately $90 million
based on the GDS closing price on April 30, 2019, with the remaining
ADSs being subject to a six-month lock up period. The commercial
agreement between CyrusOne and GDS remains in place, and Gary Wojtaszek
remains a member of the GDS Board of Directors.

Balance Sheet and Liquidity

As of March 31, 2019, the Company had gross asset value11
totaling approximately $7.1 billion, an increase of approximately 32%
over gross asset value as of March 31, 2018. CyrusOne had $2.92 billion
of long-term debt12, $126.0 million of cash and cash
equivalents, and $1.28 billion available under its unsecured revolving
credit facility as of March 31, 2019. Net debt12 was $2.82
billion as of March 31, 2019, representing approximately 33% of the
Company’s total enterprise value as of March 31, 2019 of $8.6 billion.

In the first quarter, CyrusOne sold approximately 4.9 million shares of
its common stock through its ATM equity program, raising approximately
$252 million in net proceeds. The settlement of a portion of the shares
and receipt of the associated proceeds occurred in April 2019. As of
March 31, 2019, there was approximately $495 million in remaining
availability under the current ATM program. Also in the first quarter,
CyrusOne strategically hedged its EUR exposure, synthetically converting
$270 million outstanding on the Company’s revolving credit facility into
more attractively priced EUR-denominated debt (equivalent to €238
million), resulting in a nearly 300 basis point decrease in the interest
rate.

Subsequent to the end of the first quarter, CyrusOne paid down $200
million of its $1.0 billion term loan maturing in March 2023, decreasing
the remaining balance to $800 million.

Net debt to Adjusted EBITDA for the last quarter annualized was 5.2x,
after adjusting net debt to include the impact of proceeds from the
April 2019 settlement of shares of common stock sold through the ATM
equity program in March 2019, proceeds from the sale of GDS ADSs in
April 2019, and the repayment of $200 million of the $1.0 billion term
loan in April 2019. 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 prior
periods, net debt to Adjusted EBITDA for the last quarter annualized was
5.0x13. Available liquidity14 was $1.55 billion as
of March 31, 2019.

Dividend

On February 20, 2019, the Company announced a dividend of $0.46 per
share of common stock for the first quarter of 2019. The dividend was
paid on April 12, 2019, to stockholders of record at the close of
business on March 29, 2019.

Additionally, today the Company is announcing a dividend of $0.46 per
share of common stock for the second quarter of 2019. The dividend will
be paid on July 12, 2019, to stockholders of record at the close of
business on June 28, 2019.

Guidance

CyrusOne is updating guidance for full year 2019, increasing the
guidance range for Normalized FFO per diluted common share, decreasing
and tightening the guidance ranges for Capital Expenditures and Capital
Expenditures – Development, and reaffirming the ranges for all other
metrics. 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
2019 Guidance

     

Revised
2019 Guidance

Total Revenue $960 – 1,000 million $960 – 1,000 million
Lease and Other Revenues from Customers $835 – 865 million $835 – 865 million
Metered Power Reimbursements $125 – 135 million $125 – 135 million
Adjusted EBITDA $500 – 525 million $500 – 525 million
Normalized FFO per diluted common share $3.10 – 3.20 $3.30 – 3.40
Capital Expenditures $950 – 1,100 million $900 – 1,000 million
Development(1) $940 – 1,085 million $890 – 985 million
Recurring $10 – 15 million $10 – 15 million
 

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

Upcoming Conferences and Events

  • MoffettNathanson Media & Communications Summit on May 14-15 in New
    York City
  • J.P. Morgan Global Technology, Media and Communications Conference on
    May 13-16 in Boston, Massachusetts
  • RBC C-Level 2019 Global Datacenter and Connectivity Conference on May
    29 in the San Francisco Bay Area
  • Cowen Technology, Media & Telecom Conference on May 29-30 in New York
    City
  • Credit Suisse Communications Conference on June 4-5 in New York City
  • NAREIT’s REITweek Conference on June 4-6 in New York City
  • William Blair Growth Stock Conference on June 5-6 in Chicago
  • NASDAQ Investor Conference on June 13 in London

Conference Call Details

CyrusOne will host a conference call on May 2, 2019, at 11:00 AM Eastern
Time (10:00 AM Central Time) to discuss its results for the first
quarter of 2019. 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 May 2,
2019, through May 16, 2019. 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 10129894.

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. We undertake no obligation to revise or update any
forward-looking statements for any reason other than as required by law.

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, including initial recognition of lease assets and
liabilities for existing operating leases, recognized as of the
effective date, included in ASU 2018-11. By applying ASU 2018-11 at the
adoption date, the presentation of financial information for periods
prior to January 1, 2019 will remain unchanged.

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 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 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 make distributions. 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.

1 The Company adopted ASC 842 effective January 1, 2019. The
adjusted 1Q’18 results have not been prepared in accordance with GAAP
and represent the Company’s estimates as if the standard had been
adopted as of January 1, 2018. The percentage changes versus adjusted
1Q’18 results are being shown solely for comparative and investor
usefulness purposes with respect to the Company’s 1Q’19 results. There
is no impact on 1Q’18 Revenue. The estimated impacts on 1Q’18 Net
income, Adjusted EBITDA, Normalized FFO, Net income per share, and
Normalized FFO per share are $1.2 million, $4.1 million, $2.2 million,
$0.01, and $0.02, respectively.

2CyrusOne is not providing forward-looking GAAP guidance for
GAAP net income (loss) per share or reconciliations of its non-GAAP
guidance, see “Guidance” for more information.

3Net 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 108.8 million for the first
quarter of 2019.

4We 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 and/or net income (loss), which is presented in the
accompanying consolidated statements of operations, adjusted for sales
and marketing expenses, general and administrative expenses,
depreciation and amortization expenses, transaction, acquisition,
integration and other related expenses, interest expense, unrealized
(gain) loss on marketable equity investment, loss on early
extinguishment of debt, other expense, income tax expense and other
special items as appropriate. Amortization of deferred leasing costs is
presented in depreciation and amortization expenses, which is excluded
from NOI. Sales and marketing expenses are not property-specific, rather
these expenses support our entire portfolio. As a result, we have
excluded these sales and marketing 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.

5Adjusted EBITDA, which is a non-GAAP financial measure, is
defined as net income (loss) as defined by GAAP adjusted for interest
expense, income tax benefit (expense), depreciation and amortization,
impairment losses 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) loss on marketable equity investment, other expenses 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.

6We 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 impairment losses.
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) loss on marketable equity investment; new
accounting standards and regulatory compliance and the related system
implementation costs; amortization of tradenames; transaction,
acquisition, integration and other related expenses; severance and
management transition costs; legal claim costs; lease exit costs; and
other special items as appropriate. 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 impairment losses, 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.

Contacts

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

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