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

“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.

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
[email protected]

Read full story here This article published with permission from Business Wire