CyrusOne Offers Stock to Gain Stake in Op Partnership - Analyst Blog

In an effort to reap proceeds for acquiring stake in its operating partnership from a subsidiary of Cincinnati Bell Inc. CBB, the real estate investment trust - CyrusOne Inc. CONE - has come up with a public offering of 12.5 million shares of its common stock. The underwriters have been further provided with an opportunity to buy up to an additional 1,875,000 shares of common stock from CyrusOne.

With the proceeds, CyrusOne would acquire 12.5 million common units of limited partnership interests in CyrusOne LP (or 14.375 million common units if underwriters exercise their option in full).

Notably, in 2010, Cincinnati Bell acquired data center operator CyrusOne from ABRY Partners in a cash deal valued at around $525 million. In Jan 2013, Cincinnati Bell accomplished the initial public offering of CyrusOne Inc. Following this, Cincinnati Bell effectively owned about 68% of CyrusOne through the ownership of its common stock and partnership units of CyrusOne LP.

Following the current stake acquisition by CyrusOne, Cincinnati Bell's ownership stake would decrease to around 49.0% (or about 46.1% if the option to acquire additional shares of CyrusOne is exercised by the underwriters). The move is a strategic fit as it would enable CyrusOne to gain ownership in its operating partnership unit, despite the share dilution impact.

As a matter of fact, CyrusOne, which focuses on highly reliable enterprise-class, carrier-neutral data center properties and offers mission-critical data center facilities, reported solid results in the first quarter with adjusted funds from operations (FFO) per share of 42 cents, exceeding the Zacks Consensus Estimate by 10.53% and the year-ago quarter figure by 56%, backed by a strong increase of 29% in revenues.

It has expanded its customer base to 630, mirroring an uptick of 76 from the prior-year quarter level. Going forward, we believe that with a customer base comprising nine of the Fortune 20 and 135 of the Fortune 1000 or private or foreign enterprises of equivalent size and long-term growth of 19.94%, this can be a good choice for your portfolio addition.

Investors interested in the REIT industry may also consider stocks like Chatham Lodging Trust CLDT and Terreno Realty Corp. TRNO. Both these stocks carry a Zacks Rank #1 (Strong Buy).
 

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.