CyrusOne Reports Third Quarter 2016 Earnings

DALLAS--(BUSINESS WIRE)--Global data center service provider CyrusOne Inc. (NASDAQ:CONE), which specializes in providing highly reliable enterprise-class, carrier-neutral data center properties to the Fortune 1000, today announced third quarter 2016 earnings.

Highlights

• Third quarter net income of $4.4 million increased $9.7 million over third quarter 2015
• Third quarter Adjusted EBITDA of $73.1 million increased 24% over third quarter 2015
• Third quarter Normalized FFO per share of $0.67, including $0.04 from non-recurring income, increased 18% over third quarter 2015
• Third quarter revenue of $143.8 million increased $32.6 million or 29% over third quarter 2015
• Leased 105,000 colocation square feet and 17 megawatts (MW) in the third quarter totaling $27 million in annualized GAAP revenue, our fourth highest leasing quarter ever and more than double the annualized GAAP revenue signed in third quarter 2015
  • Subsequent to the end of the quarter, leased up second expansion phase at Chicago - Aurora I facility
• Backlog of $68 million in annualized GAAP revenue as of the end of the third quarter, representing nearly $550 million in total contract value
• Added three Fortune 1000 companies as new customers in the third quarter, increasing the total number of Fortune 1000 customers to 180 as of the end of the quarter
  • Added one of the ten largest cloud companies, increasing our total to seven of the ten largest cloud companies

“2016 continues to be a record-setting year for CyrusOne as we are generating strong financial and operational results driven by robust customer demand across our portfolio,” said Gary Wojtaszek, president and chief executive officer of CyrusOne. “With a backlog of nearly $70 million and more than 75% of the capital in our development pipeline associated with pre-leased projects, we have excellent visibility into future growth and have significantly de-risked the business while continuing to deliver very attractive returns.”

Third Quarter 2016 Financial Results

Net income was $4.4 million for the third quarter, compared to a net loss of $5.3 million in the same period in 2015. Normalized Funds From Operations (Normalized FFO)¹ was $54.8 million for the third quarter, compared to $41.2 million in the same period in 2015, an increase of 33%. Net income per diluted common share² was $0.05 in the third quarter of 2016, compared to a net loss of $0.08 per diluted common share or common share equivalent in the same period in 2015. Normalized FFO per diluted common share² was $0.67 in the third quarter of 2016, an increase of 18%.

Revenue was $143.8 million for the third quarter, compared to $111.2 million for the same period in 2015, an increase of 29%. The increase in revenue was driven by a 31% increase in leased colocation square feet, additional interconnection services and equipment sales. Net operating income (NOI)³ was $89.2 million for the third quarter, compared to $69.0 million in the same period in 2015, an increase of 29%. Adjusted EBITDA⁴ was $73.1 million for the third quarter, compared to $59.0 million in the same period in 2015, an increase of 24%.

Leasing Activity

CyrusOne leased approximately 105,000 colocation square feet (CSF) and 17 MW of power in the third quarter, representing $2.3 million in monthly recurring rent inclusive of the monthly impact of installation charges, or approximately $27 million in annualized contracted GAAP revenue⁵ excluding estimates for pass-through power. The Company added three new Fortune 1000⁶ customers in the third quarter, bringing the total to 180 customers in the Fortune 1000 and 952 customers in total as of September 30, 2016. The weighted average lease term of the new leases based on square footage is 63 months (5.3 years), and the weighted average remaining lease term of CyrusOne’s portfolio is 53 months (taking into account the impact of the backlog), nearly double the weighted average remaining lease term of the portfolio at the time of the Company’s initial public offering. Recurring rent churn⁷ for the third quarter was 3.8%, including 1.4% initiated by CyrusOne, compared to 0.7% for the same period in 2015.

Portfolio Utilization and Development

In the third quarter, the Company completed construction on approximately 49,000 CSF and 11 MW of power capacity in Phoenix and Chicago, increasing total CSF across 35 data centers to approximately 2,055,000 CSF. This represents an increase of 543,000 CSF, or 36%, from September 30, 2015. CSF utilization⁸ as of the end of the third quarter was 93% for stabilized properties⁹ and 85% overall. The Company’s Massively Modular® design approach has enabled it to consistently deliver development yields¹⁰ ranging from 16% to 19% across the portfolio. The Company has development projects underway in Phoenix, Northern Virginia, San Antonio and Chicago that will add approximately 350,000 CSF and 69 MW of power capacity. During the quarter, CyrusOne acquired 29 acres of land in Phoenix and 23 acres of land in Chicago to support growth in those markets as well as land and shell for development of a fully pre-leased data center in Northern Virginia. The Company has 811,000 square feet of powered shell available for development as well as 269 acres of land across its markets.

Balance Sheet and Liquidity

As of September 30, 2016, the Company had $1,082.4 million of long term debt¹¹, cash and cash equivalents of $11.0 million, and $587.9 million available under its unsecured revolving credit facility. Net debt¹¹ was $1,083.3 million as of September 30, 2016, approximately 21% of the Company's total enterprise value or 3.7x Adjusted EBITDA for the last quarter annualized. Available liquidity¹² was $598.9 million as of September 30, 2016.

During the quarter, CyrusOne raised $165 million in net equity proceeds through a public offering in August and an additional $26 million through its at-the-market equity program. Additionally, as part of its August offering, the Company entered into a forward sale agreement for 4.42 million shares which can be cash or net share settled at any time through August 1, 2017, subject to certain adjustments. CyrusOne expects to physically settle the forward sale agreements in full, receiving approximately $214 million in gross proceeds, subject to certain adjustments. Adjusted for the impact of this settlement, net debt as of September 30, 2016 was 3.0x Adjusted EBITDA for the last quarter annualized, and available liquidity was more than $810 million.

Dividend

On August 1, 2016, the Company announced a dividend of $0.38 per share of common stock for the third quarter of 2016. The dividend was paid on October 14, 2016, to stockholders of record at the close of business on September 30, 2016.

Additionally, today the Company is announcing a dividend of $0.38 per share of common stock for the fourth quarter of 2016. The dividend will be paid on January 13, 2017, to stockholders of record at the close of business on December 30, 2016.

Guidance

CyrusOne is increasing its guidance range for full year 2016 Normalized FFO per diluted common share, increasing the lower end of its guidance range for full year 2016 Revenue, and tightening its guidance range for Adjusted EBITDA. The Company is reaffirming its guidance 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 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 and acquisition integration costs, legal claim costs, lease exit 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

• CyrusOne Data Center Campus Tour on November 14 in Phoenix, Arizona
• NAREIT’s REITWorld conference on November 15-17 in Phoenix, Arizona

Conference Call Details

CyrusOne will host a conference call on October 31, 2016, at 11:00 AM Eastern Time (10:00 AM Central Time) to discuss its results for the third quarter of 2016. A live webcast of the conference call will be available under the “Investor Relations” tab in the “Events and 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 October 31, 2016, through November 14, 2016. 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 10093535.

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.

Use of Non-GAAP Financial Measures

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, Adjusted 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, NOI, and Adjusted 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, Adjusted NOI, and Adjusted EBITDA should be considered only as supplements to net income as measures of our performance. FFO, Normalized FFO, NOI, Adjusted 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.

¹Normalized Funds From Operations (Normalized FFO) is defined as Funds From Operations (FFO) plus amortization of customer relationship intangibles, transaction and acquisition integration costs, legal claim costs and lease exit costs, and other special items including loss on extinguishment of debt and severance and management transition costs, as appropriate. FFO is net (loss) income computed in accordance with U.S. GAAP before real estate depreciation and amortization and Asset impairments and loss on disposal. Because the value of the customer relationship intangibles is inextricably connected to the real estate acquired, CyrusOne believes the amortization 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 to that used by others in the industry. However, other REITs may not calculate Normalized FFO in the same manner. Accordingly, the Company’s Normalized FFO may not be comparable to others.

²Net income / (loss) per diluted common share and Normalized FFO per diluted common share are defined as net income / (loss) and Normalized FFO, respectively, divided by the average common shares outstanding for the quarter, which were 81,263,332 for the third quarter of 2016.

³Net Operating Income (NOI) is defined as revenue less property operating expenses. Amortization of deferred leasing costs is presented in depreciation and amortization, which is excluded from NOI. CyrusOne has not historically incurred any tenant improvement costs. Our sales and marketing costs consist of salaries and benefits for our internal sales staff, travel and entertainment, office supplies, marketing and advertising costs. General and administrative costs include salaries and benefits of our senior management and support functions, legal and consulting costs, and other administrative costs. Marketing and advertising costs are not property-specific, rather these costs support our entire portfolio. As a result, we have excluded these marketing and advertising costs from our NOI calculation, consistent with the treatment of general and administrative costs, which also support our entire portfolio. From time to time, there may be non-recurring costs in property operating expenses, and as a result the Company may present Adjusted Net Operating Income (Adjusted NOI) to exclude the impacts of those costs.

⁴Adjusted EBITDA is defined as net income (loss) as defined by U.S. GAAP plus interest expense, income tax (benefit) expense, depreciation and amortization, stock-based compensation, transaction and integration costs, severance and management transition costs, asset impairments and (gain) loss on disposals, lease exit costs, legal claim costs and other special items. 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.

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.

⁶Fortune 1000 customers include subsidiaries whose ultimate parent is a Fortune 1000 company or a foreign or private company of equivalent size.

⁷Recurring 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.

⁸Utilization is calculated by dividing CSF under signed leases for available space (whether or not the contract has commenced billing) by total CSF. Utilization rate differs from percent leased presented in the Data Center Portfolio table because utilization rate excludes office space and supporting infrastructure net rentable square footage and includes CSF for signed leases that have not commenced billing. Management uses utilization rate as a measure of CSF leased.

⁹Stabilized properties include data halls that have been in service for at least 24 months or are at least 85% utilized.

¹⁰Development yield is calculated by dividing annualized Net Operating Income for the most recent quarter by total investment in real estate (before accumulated depreciation), less construction in progress.

¹¹Long term debt and net debt exclude adjustments for deferred financing costs. Net debt 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, cash equivalents, and temporary cash investments.

¹²Liquidity is calculated as cash, cash equivalents, and temporary cash investments on hand, plus the undrawn capacity on CyrusOne's revolving credit facility.

About CyrusOne

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 more than 950 customers, including nine of the Fortune 20 and 180 of the 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 35 data centers worldwide.

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 more than 950 customers, including nine of the Fortune 20 and 180 of the 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 35 data centers worldwide.

• Best-in-Class Sales Force
• Flexible Solutions that Scale as Customers Grow
• Massively Modular® Engineering with Data Hall Builds in 12-16 Weeks
• Focus on Operational Excellence and Superior Customer Service
• Proven Leading-Edge Technology Delivering Power Densities up to 900 Watts per Square Foot
• National IX Replicates Enterprise Data Center Architecture

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 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 and acquisition integration costs, legal claim costs, lease exit 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.