CyrusOne Reports Second Quarter 2018 Earnings
Aug. 01, 2018
DALLAS--(BUSINESS WIRE)--Aug 1, 2018--CyrusOne Inc. (NASDAQ: CONE), a premier global data center REIT, today announced second quarter 2018 earnings.
“We are thrilled with our record bookings this quarter, which followed very strong leasing in the first quarter,” said Gary Wojtaszek, president and chief executive officer of CyrusOne. “The 52 megawatts signed this quarter included leases totaling more than 10 megawatts signed with Chinese hyperscale customers, reflecting the growing needs of these companies as they continue to expand into and within the U.S. Further, the $106 million in annualized revenue signed year-to-date through June positions us very well for continued strong, profitable growth in 2019.”
Second Quarter 2018 Financial Results
Revenue was $196.9 million for the second quarter, compared to $166.9 million for the same period in 2017, an increase of 18%. The increase in revenue was driven primarily by a 28% increase in occupied CSF and additional interconnection services.
Net income was $105.9 million for the second quarter, compared to net loss of $0.8 million in the same period in 2017. Net income for the second quarter included a $102.7 million unrealized gain on the Company’s equity investment in GDS Holdings Limited (“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 share 1 was $1.06 in the second quarter of 2018, compared to net loss of $(0.01) per diluted common share in the same period in 2017.
Net operating income (NOI) 2 was $128.0 million for the second quarter, compared to $107.3 million in the same period in 2017, an increase of 19%. Adjusted EBITDA 3 was $110.6 million for the second quarter, compared to $90.8 million in the same period in 2017, an increase of 22%.
Normalized Funds From Operations (Normalized FFO) 4 was $80.7 million for the second quarter, compared to $67.9 million in the same period in 2017, an increase of 19%. Normalized FFO per diluted common share was $0.81 in the second quarter of 2018, an increase of 5% over second quarter 2017.
CyrusOne leased approximately 52 MW of power and 305,000 CSF in the second quarter, representing $5.5 million in monthly recurring rent, inclusive of the monthly impact of installation charges, or approximately $65.4 million in annualized GAAP revenue 5, excluding estimates for pass-through power. The weighted average lease term of the new leases, based on square footage, is 143 months (11.9 years), and the weighted average remaining lease term of CyrusOne’s portfolio is 59 months (taking into account the impact of the backlog), the longest in the Company’s history. Recurring rent churn 6 for the second quarter was 1.1%, compared to 0.8% for the same period in 2017.
Portfolio Development and CSF Leased
In the second quarter, the Company completed construction on 27,000 CSF and 18 MW of power capacity across three projects in San Antonio, Northern Virginia, and Phoenix. CSF leased 7 as of the end of the second quarter was 92% for stabilized properties 8 and 88% overall. In addition, the Company has development projects underway in Northern Virginia, Dallas, the New York Metro area, Phoenix, Chicago and San Antonio that are expected to add approximately 401,000 CSF and 86 MW of power capacity.
Balance Sheet and Liquidity
As of June 30, 2018, the Company had gross assets 9 totaling approximately $5.5 billion, an increase of approximately 23% over gross assets as of June 30, 2017. CyrusOne had $2.20 billion of long-term debt 10, cash and cash equivalents of $116.2 million, and $1.7 billion available under its unsecured revolving credit facility as of June 30, 2018. Net debt 10 was $2.10 billion as of June 30, 2018, representing approximately 27% of the Company's total enterprise value as of June 30, 2018 of $7.9 billion, or 4.7x Adjusted EBITDA for the last quarter annualized. Available liquidity 11 was $2.11 billion as of June 30, 2018.
On May 2, 2018, the Company announced a dividend of $0.46 per share of common stock for the second quarter of 2018. The dividend was paid on July 13, 2018, to stockholders of record at the close of business on June 29, 2018.
Additionally, today the Company is announcing a dividend of $0.46 per share of common stock for the third quarter of 2018. The dividend will be paid on October 12, 2018, to stockholders of record at the close of business on September 28, 2018.
CyrusOne is updating guidance for full year 2018, increasing and tightening the range for Total Revenue, decreasing and tightening the range for Adjusted EBITDA, increasing and tightening the range for Normalized FFO per diluted common share, and reaffirming the range 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 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 EventsCowen Communications Infrastructure Summit on August 6-7 in Boulder, CO Morgan Stanley Telecom & Media Corporate Access Day on August 9 in New York City Raymond James Park City Summit on August 14-15 in Park City, UT BMO Capital Markets Real Estate Conference on September 20-21 in Chicago, IL Bank of America Merrill Lynch Global Real Estate Conference on September 25-26 in New York City
Conference Call Details
CyrusOne will host a conference call on August 2, 2018, at 11:00 AM Eastern Time (10:00 AM Central Time) to discuss its results for the second 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 August 2, 2018, through August 16, 2018. 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 10121348.
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.
Adoption of New Accounting Standard and Use of Non-GAAP Financial Measurements
On January 1, 2018, we adopted the new accounting standard with respect to revenue recognition. See “Note 2. Summary of Significant Accounting Policies” 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.
1 Net 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 99.4 million for the second quarter of 2018. Basic net income per share was one cent higher than diluted net income per share.
2 We 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. Amortization of deferred leasing costs is presented in depreciation and amortization, which is excluded from NOI. Marketing and advertising costs are not property-specific, rather these expenses support our entire portfolio. As a result, we have excluded these marketing and advertising 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.
3 Adjusted EBITDA, which is a non-GAAP financial measure, is defined as net income (loss) as defined by GAAP plus interest expense, income tax expense, depreciation and amortization, asset impairments 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) on marketable equity investments 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.
4 We 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 gain or 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 on marketable equity investment, new accounting standards and regulatory compliance and the related system implementation costs, amortization of customer relationship intangibles, transaction, acquisition, integration and other related expenses, severance and management transition costs, legal claim costs and other special items as appropriate. Because the value of the customer relationship intangibles is inextricably connected to the real estate acquired, the Company believes the amortization of such intangibles 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 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.
5 Annualized 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.
6 Recurring 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.
7 CSF leased is calculated by dividing CSF under signed leases for available 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.
8 Stabilized properties include data halls that have been in service for at least 24 months or are at least 85% leased.
9 Gross asset value is defined as total assets plus accumulated depreciation.
10 Long-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.
11 Liquidity is calculated as cash, cash equivalents, and temporary cash investments on hand, plus the undrawn capacity on CyrusOne's revolving credit facility and the delayed draw term loan.
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 201 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 43 data centers worldwide. Additional information about CyrusOne can be found at www.CyrusOne.com.
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 201 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 43 data centers worldwide.
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