CyrusOne Reports Fourth Quarter and Full Year 2018 Earnings

4Q’18 Year-over-Year Revenue Growth of 23%

Record Leasing Year with $153 Million in Annualized GAAP Revenue
Signed, up 45% vs. 2017

DALLAS–(BUSINESS WIRE)–CyrusOne Inc. (NASDAQ: CONE), a premier global data center REIT, today
announced fourth quarter and full year 2018 earnings.

Highlights

Category

   

4Q’18

   

% Change
vs. 4Q’17

   

FY’18

   

% Change
vs. FY’17

Revenue $221.3 million 23% $821.4 million 22%
Net income / (loss) $(105.8) million n/m $1.2 million n/m
Adjusted EBITDA $121.2 million 16% $452.1 million 22%
Normalized FFO $90.9 million 16% $332.3 million 19%
 
Net income / (loss) per diluted share $(1.00) n/m $- n/m
Normalized FFO per diluted share $0.86 2% $3.31 6%
 

  Leased 7 megawatts (“MW”) and 41,000 colocation square feet (“CSF”)
in the fourth quarter, totaling $20 million in annualized GAAP
revenue

 

— For full year 2018, signed more than 1,900 leases totaling 103
MW and 686,000 CSF, representing $153 million in annualized GAAP
revenue, all of which were full year company records

 

Backlog of $54 million in annualized GAAP revenue as of the end of
the fourth quarter, representing nearly $550 million in total
contract value
 

Added three Fortune 1000 companies as new customers, increasing the
total number of Fortune 1000 customers to 211 as of the end of the
quarter
 

Acquired approximately 16 acres of land for development of a campus
at PolanenPark location near the Amsterdam metropolitan area with up
to 72 MW of power capacity

 

— Subsequent to the end of the quarter, acquired 22 acres of land
in San Antonio with up to 120 MW of power capacity and 8 acres of
land in Santa Clara with up to 48 MW of power capacity to support
growth in those markets

 

Announced a $12 million investment in exchange for a 10% equity
interest in ODATA Brasil S.A. and ODATA Colombia S.A.S.
(collectively “ODATA”), a leading data center provider in Brazil,
the largest and fastest-growing data center market in Latin America
 

Completed settlement of forward sale agreement, issuing 2.5
million shares of common stock in exchange for net proceeds of
approximately $148 million“

 

“2018 was a tremendous year with continued strong growth, record leasing
that was up nearly 50% over 2017, expansion of our portfolio to the West
Coast and into Europe, and the development of a solution for our
customers in Brazil,” said Gary Wojtaszek, president and chief executive
officer of CyrusOne. “We are working hard to position the company to
better serve our customers around the world, capitalizing on the
significant value creation opportunity ahead of us and delivering strong
growth in the coming years in what is still a very early stage for the
industry.”

Fourth Quarter 2018 Financial Results

Revenue was $221.3 million for the fourth quarter, compared to $180.5
million for the same period in 2017, an increase of 23%. The increase in
revenue was driven primarily by a 24% increase in occupied CSF from
organic growth and the Zenium acquisition, as well as additional
interconnection services.

Net loss was $(105.8) million for the fourth quarter, compared to net
income of $2.8 million in the same period in 2017. Net loss for the
fourth quarter included a $(96.7) million unrealized loss on the
Company’s equity investment in GDS Holdings Limited (“GDS”), a leading
data center provider in China, due to a decrease in GDS’s share price
during the quarter. Net loss per diluted common share1 was
$(1.00) in the fourth quarter of 2018, compared to net income of $0.03
per diluted common share in the same period in 2017.

Net operating income (NOI)2 was $143.3 million for the fourth
quarter, compared to $120.3 million in the same period in 2017, an
increase of 19%. Adjusted EBITDA3 was $121.2 million for the
fourth quarter, compared to $104.2 million in the same period in 2017,
an increase of 16%.

Normalized Funds From Operations (Normalized FFO)4 was $90.9
million for the fourth quarter, compared to $78.4 million in the same
period in 2017, an increase of 16%. Normalized FFO per diluted common
share was $0.86 in the fourth quarter of 2018, an increase of 2% over
fourth quarter 2017.

Leasing Activity

CyrusOne leased approximately 7 MW of power and 41,000 CSF in the fourth
quarter, representing $1.7 million in monthly recurring rent, inclusive
of the monthly impact of installation charges, or approximately $20.1
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 73 months (6.1 years), and the weighted
average remaining lease term of CyrusOne’s portfolio is 57 months
(taking into account the impact of the backlog). Recurring rent churn6
for the fourth quarter was 0.8%, compared to 1.1% for the same period in
2017.

Portfolio Development and CSF Leased

In the fourth quarter, the Company completed construction on 144,000 CSF
and 52 MW of power capacity across six projects in Northern Virginia,
Dallas, the New York Metro area, Frankfurt, and London. CSF leased7
as of the end of the fourth 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,
Raleigh-Durham, Phoenix, Austin, Frankfurt, London, and Amsterdam that
are expected to add approximately 439,000 CSF and 126 MW of power
capacity.

Balance Sheet and Liquidity

As of December 31, 2018, the Company had gross asset value9
totaling approximately $6.6 billion, an increase of approximately 30%
over gross asset value as of December 31, 2017. CyrusOne had $2.64
billion of long-term debt10, $64.4 million of cash and cash
equivalents, and $1.55 billion available under its unsecured revolving
credit facility as of December 31, 2018. Net debt10 was $2.61
billion as of December 31, 2018, representing approximately 31% of the
Company’s total enterprise value as of December 31, 2018 of $8.3
billion, or 5.4x Adjusted EBITDA for the last quarter annualized.
Available liquidity11 was $1.61 billion as of December 31,
2018.

Dividend

On October 30, 2018, the Company announced a dividend of $0.46 per share
of common stock for the fourth quarter of 2018. The dividend was paid on
January 11, 2019, to stockholders of record at the close of business on
January 2, 2019.

Additionally, today the Company is announcing a dividend of $0.46 per
share of common stock for the first quarter of 2019. The dividend will
be paid on April 12, 2019, to stockholders of record at the close of
business on March 29, 2019.

Guidance

CyrusOne is issuing guidance for full year 2019. 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

2018 Results

2018 Results Adjusted
for ASC
842
(1)

2019 Guidance

Total Revenue $821 million $821 million $960 – 1,000 million
Lease and Other Revenues from Customers $717 million $717 million $835 – 865 million
Metered Power Reimbursements $104 million $104 million $125 – 135 million
Adjusted EBITDA $452 million $435 million $500 – 525 million
Normalized FFO per diluted common share $3.31 $3.22 $3.10 – 3.20
Capital Expenditures $866 million $866 million $950 – 1,100 million
Development(2) $855 million $855 million $940 – 1,085 million
Recurring $11 million $11 million $10 – 15 million
 
(1)

ASC 842 refers to Accounting Standards Codification Topic 842 –
Leases, issued by the Financial Accounting Standards Board 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 Company is adopting ASC 842 effective January 1, 2019. The
adjusted 2018 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. Adjusted EBITDA for 2018
decreased by $17 million due to higher operating lease expense.
Normalized FFO per diluted common share decreased by $0.09 due to
higher operating lease expense, partially offset by lower interest
expense. The adjusted 2018 results are being shown solely for
comparative and investor usefulness purposes with respect to the
Company’s 2019 guidance.

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

Upcoming Conferences and Events

  • Morgan Stanley Technology, Media & Telecom Conference on February
    25-28 in San Francisco, CA
  • Raymond James Institutional Investors Conference on March 4-6 in
    Orlando, FL
  • Deutsche Bank Media, Internet and Telecom Conference on March 11-13 in
    Palm Beach, FL

Conference Call Details

CyrusOne will host a conference call on February 21, 2019, at 11:00 AM
Eastern Time (10:00 AM Central Time) to discuss its results for the
fourth 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 February
21, 2019, through March 7, 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 10127497.

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 other than as required by law.

Adoption of New Accounting Standard and Use of Non-GAAP Financial
Measures and Other Metrics

On January 1, 2018, we adopted the new accounting standard with respect
to revenue recognition. See “Note 2. Summary of Significant Accounting
Policies” and “Note 3, Revenue Recognition” 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 105.5 million for the
fourth quarter of 2018.

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 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, impairment losses, interest
expense, unrealized (gain) loss on marketable equity securities, loss on
early extinguishment of debt, 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.

3Adjusted EBITDA, which is a non-GAAP financial measure, is
defined as net income (loss) as defined by GAAP adjusted for interest
expense, income tax 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 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 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) loss on marketable equity investment; new
accounting standards and regulatory compliance and the related system
implementation costs; amortization of trade names, transaction,
acquisition and other integration expenses; severance and management
transition costs; legal claim 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 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 colocation 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.

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 211 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 48 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 211 Fortune 1000 companies.

Contacts

Investor Relations:
Michael Schafer
Vice President,
Capital Markets & Investor Relations
972-350-0060
[email protected]

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