Market Overview

CyrusOne Reports Fourth Quarter and Full Year 2017 Earnings

Share:

4Q'17 Year-over-Year Revenue Growth of 31% and Adjusted EBITDA Growth
of 43%

Announcing a 10% Increase in 1Q'18 Dividend per Share
to $0.46

CyrusOne Inc. (NASDAQ:CONE), a premier global data center REIT, today
announced fourth quarter and full year 2017 earnings.

Highlights

Category

   

4Q'17

 

% Change
vs. 4Q'16

 

FY'17

 

% Change
vs. FY'16

Revenue $180.5 million 31% $672.0 million 27%
Net income $2.8 million n/m $(83.5) million n/m
Adjusted EBITDA $104.2 million 43% $371.6 million 33%
Normalized FFO $78.4 million 39% $278.9 million 33%
Net income per share $0.03 n/m $(0.95) n/m
Normalized FFO per share $0.84 24% $3.12 17%
 
  • Leased 9 megawatts ("MW") and 86,000 colocation square feet ("CSF") in
    the fourth quarter, totaling $18 million in annualized GAAP revenue
  • For full year 2017, signed more than 1,700 leases totaling 58 MW and
    521,000 CSF, representing $105 million in annualized GAAP revenue
  • Announcing a 10% increase in the quarterly dividend for the first
    quarter of 2018 to $0.46 per share, up from $0.42 per share in 2017
  • Announced agreement to acquire Zenium Data Centers ("Zenium"),
    extending our global footprint into Europe's two largest markets,
    London and Frankfurt, and establishing a platform for further
    expansion in Europe
  • Signed commercial agreement with, and made $100 million investment in,
    GDS Holdings Limited ("GDS") (NASDAQ:GDS), a leading data center
    provider in China, creating cross-selling opportunities and expanding
    our global presence
  • Value of investment has increased more than 75% as of 12/31/17
  • Acquired 44 acres of land in the Atlanta suburb of Douglasville,
    Georgia, expanding the Company's presence in the Southeast
  • Enhanced liquidity and strengthened balance sheet through $400 million
    offering of senior notes and sale of 4.8 million shares of common
    stock ($296 million in net proceeds) under at-the-market equity program

"The revenue and Adjusted EBITDA growth rates for the quarter were among
our highest since going public," said Gary Wojtaszek, president and
chief executive officer of CyrusOne. "We had another very strong year
signing $105 million in annualized revenue, increasing the size of our
footprint by more than 50%, extending our presence to the Southeastern
U.S. and Europe, developing a solution for our customers in China, and
raising nearly $2.5 billion in the capital markets. We are very excited
about this next phase of growth for the company as we expand
internationally to help our customers with their increasingly global
requirements."

Fourth Quarter 2017 Financial Results

Revenue was $180.5 million for the fourth quarter, compared to $137.4
million for the same period in 2016, an increase of 31%. The increase in
revenue was driven primarily by a 49% increase in leased CSF and
additional interconnection services.

Net income was $2.8 million for the fourth quarter, compared to net
income of $0.8 million in the same period in 2016. Net income per basic
and diluted common share1 was $0.03 in the fourth quarter of
2017, compared to net income of $0.01 per basic and diluted common share
in the same period in 2016.

Net operating income (NOI)2 was $120.3 million for the fourth
quarter, compared to $89.6 million in the same period in 2016, an
increase of 34%. Adjusted EBITDA3 was $104.2 million for the
fourth quarter, compared to $73.0 million in the same period in 2016, an
increase of 43%.

Normalized Funds From Operations (Normalized FFO)4 was $78.4
million for the fourth quarter, compared to $56.4 million in the same
period in 2016, an increase of 39%. Normalized FFO per basic and diluted
common share was $0.84 in the fourth quarter of 2017, an increase of 24%
over fourth quarter 2016.

Leasing Activity

CyrusOne leased approximately 9 MW of power and 86,000 CSF in the fourth
quarter, representing $1.5 million in monthly recurring rent, inclusive
of the monthly impact of installation charges, or approximately $17.6
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 61 months (5.1 years), and the weighted
average remaining lease term of CyrusOne's portfolio is 53 months
(taking into account the impact of the backlog). Recurring rent churn6
for the fourth quarter was 1.1%, compared to 2.2% for the same period in
2016.

Portfolio Utilization and Development

In the fourth quarter, the Company completed construction on 164,000 CSF
and 20 MW of power capacity across three projects in Northern Virginia,
Phoenix and Raleigh-Durham, increasing total CSF across 45 data centers
to approximately 3.3 million CSF. CSF utilization7 as of the
end of the fourth quarter was 93% for stabilized properties8
and 83% overall. In addition, the Company has development projects
underway in Dallas, Northern Virginia, Phoenix, Austin and the New York
Metro area that are expected to add approximately 163,000 CSF and 39 MW
of power capacity.

Balance Sheet and Liquidity

As of December 31, 2017, the Company had gross assets9
totaling approximately $5.1 billion, an increase of approximately 48%
over gross assets as of December 31, 2016. CyrusOne had $2.10 billion of
long-term debt10, cash and cash equivalents of $151.9
million, and $1.1 billion available under its unsecured revolving credit
facility as of December 31, 2017. Net debt10 was $1.96
billion as of December 31, 2017, representing approximately 25% of the
Company's total enterprise value of $7.7 billion, or 4.7x Adjusted
EBITDA for the last quarter annualized. Available liquidity11
was $1.24 billion as of December 31, 2017.

As previously announced, CyrusOne completed a $400 million offering of
senior notes in early November, using the proceeds to repay borrowings
outstanding under its revolving credit facility. Also in the fourth
quarter, CyrusOne sold approximately 4.8 million shares of its common
stock through its at-the-market equity program at an average price of
$62.09, raising approximately $296 million in net equity proceeds. As of
December 31, 2017, there was $200 million in remaining capacity under
the current ATM program.

Dividend

On October 30, 2017, the Company announced a dividend of $0.42 per share
of common stock for the fourth quarter of 2017. The dividend was paid on
January 12, 2018, to stockholders of record at the close of business on
December 29, 2017.

Additionally, today the Company is announcing a dividend of $0.46 per
share of common stock for the first quarter of 2018, a 10% increase in
the quarterly dividend compared to 2017. The dividend will be paid on
April 13, 2018, to stockholders of record at the close of business on
March 29, 2018.

Guidance

CyrusOne is issuing guidance for full year 2018. 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.

           

Category

2017
Results

2018
Guidance(1)

Total Revenue $672 million $810 - 825 million
Base Revenue $602 million $735 - 745 million
Metered Power Reimbursements $70 million $75 - 80 million
Adjusted EBITDA $372 million $460 - 470 million
Normalized FFO per diluted common share $3.12 $3.18 - 3.28
Capital Expenditures $915 million $850 - 900 million
Development $911 million $845 - 890 million
Recurring $4 million $5 - 10 million
 

(1)Full year 2018 guidance assumes the Zenium
acquisition closes on April 30, 2018. Development capital

expenditures include the acquisition of land for future development.
 

Zenium Acquisition

During the fourth quarter, CyrusOne announced the execution of a
definitive agreement with Quantum Strategic Partners Ltd. ("Quantum"), a
private investment fund managed by Soros Fund Management LLC and certain
other sellers named therein, to purchase Zenium, a leading hyperscale
data center provider in Europe with four properties in London and
Frankfurt, the continent's two largest data center markets.

The transaction is expected to provide several key benefits to CyrusOne,
including the following:

  • Critical First Step in International Expansion Strategy: The
    acquisition of Zenium is the first step in executing CyrusOne's
    previously announced European expansion strategy, adding four
    properties in London and Frankfurt, the continent's two largest data
    center markets. The European data center market is growing rapidly,
    with reported take-up over the last eighteen months well over double
    the p
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