CyrusOne Reports Fourth Quarter and Full Year 2019 Earnings

CyrusOne Inc. (NASDAQ: CONE), a premier global data center REIT, today announced fourth quarter and full year 2019 earnings.

Highlights

“We had another very strong year with high growth rates across our financial metrics and significant leasing contributions from many industry verticals and product types across almost all of our locations, with our business becoming increasingly diversified,” said Gary Wojtaszek, president and chief executive officer of CyrusOne. “This was a transformative year for the company, as our European expansion positions us to better support our customers’ global requirements, while achieving investment grade status ensures access to capital at attractive rates to allow us to continue to grow with these customers in the coming years.”

Fourth Quarter 2019 Financial Results

Revenue was $253.9 million for the fourth quarter, compared to $221.3 million for the same period in 2018, an increase of 15%. The increase in revenue was driven primarily by a 6% increase in occupied CSF, lease termination fees totaling $4.7 million and additional interconnection services.

Net loss was $(52.1) million for the fourth quarter, compared to net loss of $(105.8) million in the same period in 2018. Net loss for the fourth quarter included a $71.8 million loss on extinguishment of debt related to the repurchase or early redemption of the 5.000% Senior Notes due 2024 and the 5.375% Senior Notes due 2027. The notes were replaced by new notes, decreasing the weighted average coupon by approximately 200 basis points. Additionally, the Company recognized a $13.0 million loss associated with a change in fair value on the undesignated portion of its cross-currency swaps. Net loss per diluted common share3 was $(0.46) in the fourth quarter of 2019, compared to net loss per diluted common share of $(1.00) in the same period in 2018.

Net operating income (“NOI”)4 was $160.1 million for the fourth quarter, compared to $143.3 million in the same period in 2018, an increase of 12%. Adjusted EBITDA5 was $137.9 million for the fourth quarter, compared to $121.2 million in the same period in 2018, an increase of 14%.

Normalized Funds From Operations (“Normalized FFO”)6 was $113.7 million for the fourth quarter, compared to $90.9 million in the same period in 2018, an increase of 25%. Normalized FFO per diluted common share was $0.99 in the fourth quarter of 2019, compared to $0.86 in the same period in 2018, an increase of 15%.

Leasing Activity

CyrusOne leased approximately 5 MW of power and 28,000 CSF in the fourth quarter, representing approximately $1.1 million in monthly recurring rent, inclusive of the monthly impact of installation charges. The leasing for the quarter represents approximately $12.8 million in annualized GAAP revenue7, excluding estimates for pass-through power. The weighted average lease term of the new leases, based on square footage, is 55 months (4.6 years), and the weighted average remaining lease term of CyrusOne’s portfolio is 53 months (taking into consideration the impact of the backlog). Recurring rent churn percentage8 for the fourth quarter was 0.7%, compared to 0.8% for the same period in 2018.

Portfolio Development and Percentage CSF Leased

In the fourth quarter, the Company completed construction on 18,000 CSF and 10 MW of power capacity across three projects in the New York Metro area, Dallas and Northern Virginia. Percentage CSF leased9 as of the end of the fourth quarter was 88% for stabilized properties10 and 85% overall. In addition, the Company has development projects underway in Frankfurt, Dublin, Amsterdam, London, San Antonio, Northern Virginia, Council Bluffs (IA), and Raleigh-Durham that are expected to add approximately 380,000 CSF and 92 MW of power capacity.

Balance Sheet and Liquidity

As of December 31, 2019, the Company had gross asset value11 totaling approximately $7.5 billion, an increase of approximately 13% over gross asset value as of December 31, 2018. CyrusOne had $2.92 billion of long-term debt12, $76.4 million of cash and cash equivalents, and $1.08 billion available under its unsecured revolving credit facility as of December 31, 2019. Net debt12 was $2.87 billion as of December 31, 2019, representing approximately 28% of the Company's total enterprise value as of December 31, 2019 of $10.4 billion, or 5.0x Adjusted EBITDA for the last quarter annualized (after further adjusting net debt to reflect the pro forma impact of settlement of the forward sale agreement). After further adjusting Adjusted EBITDA to exclude the impact of the adoption of ASC 842 as of January 1, 2019, in order to present the leverage metric on a basis comparable to that of periods prior to 2019, net debt to Adjusted EBITDA for the last quarter annualized was 4.9x13. Available liquidity14 was $1.25 billion as of December 31, 2019.

The Company issued $600 million of 2.90% Senior Notes due 2024 and $600 million of 3.45% Senior Notes due 2029, replacing the Company’s previously outstanding senior notes and decreasing the weighted average coupon by approximately 200 basis points. Additionally, subsequent to the end of the quarter, the Company issued €500 million of 1.45% Senior Notes due 2027, with the proceeds used to repay floating rate Euro denominated obligations and fund continued development in Europe. As adjusted for the Euro notes offering, the Company’s weighted average remaining debt term as of December 31, 2019 was approximately 5.8 years, and it had $1.56 billion available under its unsecured revolving credit facility.

The Company raised approximately $104 million in net proceeds through the sale of approximately 1.6 million shares of common stock under its ATM equity program. Additionally, through the ATM equity program, the Company entered into a forward sale agreement with respect to an additional 1.6 million shares, which will result in estimated net proceeds of approximately $99 million upon settlement by November 2020 (no portion of this forward sale agreement has been settled as of February 19, 2020). As of December 31, 2019, there was approximately $290 million in remaining availability under the current ATM equity program.

Dividend

On October 30, 2019, the Company announced a dividend of $0.50 per share of common stock for the fourth quarter of 2019. The dividend was paid on January 10, 2020, to stockholders of record at the close of business on January 2, 2020.

Additionally, today the Company is announcing a dividend of $0.50 per share of common stock for the first quarter of 2020. The dividend will be paid on April 10, 2020, to stockholders of record at the close of business on March 27, 2020.

Guidance

CyrusOne is issuing guidance for full year 2020. 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 Total 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 Events

• Raymond James Institutional Investors Conference on March 1-4 in Orlando, FL
• SunTrust Robinson Humphrey Technology, Internet & Services Conference on March 10-11 in New York City
• Jefferies Technology & Telecom Real Estate Summit on March 31 in New York City

Conference Call Details

CyrusOne will host a conference call on February 20, 2020, at 11:00 AM Eastern Time (10:00 AM Central Time) to discuss its results for the fourth quarter and full year 2019. A live webcast of the conference call will be available in the “Investors / Events & Presentations” section of the Company's website at http://investor.cyrusone.com/events.cfm. The presentation to be made during the call is now available in this location. 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 20, 2020, through March 5, 2020. 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 10138213.

Safe Harbor

This release and the documents incorporated by reference herein contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. 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. We disclaim any obligation other than as required by law to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors or for new information, data or methods, future events or other changes.

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

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02 (codified in ASC 842, Leases (“ASC 842”)) 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 ASU requires that a liability be recorded on the balance sheet for all leases where the reporting entity is a lessee, based on the present value of future lease obligations. A corresponding right-of-use asset will also be recorded. Amortization of the lease obligation and the right-of-use asset for leases classified as operating leases are on a straight-line basis. Leases classified as financing leases are required to be accounted for as financing arrangements similar to the accounting treatment for capital leases under ASC 840, Leases (the former accounting standard for all leases).

We adopted ASU 2016-02 on January 1, 2019, applied the package of practical expedients included therein and utilized the modified retrospective transition method with the cumulative effect of transition recognized on the effective date. By applying the modified retrospective transition method, the presentation of financial information for periods prior to January 1, 2019 was not restated.

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, Normalized Funds From Operations per Diluted Common Share, Adjusted EBITDA, Net Operating Income, and Net Debt should not be construed as being more important than, or a substitute for, 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, Normalized FFO per Diluted Common Share, Adjusted EBITDA, and NOI, which are non-GAAP financial measures commonly used in the REIT industry, as supplemental performance measures. Management uses these measures as supplemental performance measures because, when compared period over period, they 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), these measures are used by investors as a basis to evaluate REITs. 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 make distributions. These measures also should not be used as supplements to or substitutes for cash flow from operating activities computed in accordance with GAAP. The Company believes that Net Debt provides a useful measure of liquidity and financial health.

1 The Company adopted ASC 842 effective January 1, 2019. The adjusted 4Q’18 and FY‘18 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. The percentage changes versus adjusted 4Q’18 and FY’18 results are being shown solely for comparative and investor usefulness purposes with respect to the Company’s 4Q’19 and FY’19 results, respectively. There is no impact on 4Q’18 Revenue or FY’18 Revenue. The estimated impacts on 4Q’18 Net income (loss), Adjusted EBITDA, Normalized FFO, Net income / (loss) per diluted share, and Normalized FFO per diluted share are $1.5 million, $4.5 million, $2.6 million, $0.01, and $0.02, respectively. The estimated impacts on FY’18 Net income (loss), Adjusted EBITDA, Normalized FFO, Net income / (loss) per diluted share, and Normalized FFO per diluted share are $5.4 million, $17.2 million, $9.4 million, $0.05, and $0.09, respectively.

2Inclusive of 4.5 MW and approximately $5.5 million in annualized GAAP revenue associated with a paid reservation signed in 3Q’19 expected to be exercised in the next nine months.

3Net 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 114.4 million for the fourth quarter of 2019 and 105.5 million for the fourth quarter of 2018.

4We 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 net income (loss), adjusted for sales and marketing expenses, general and administrative expenses, depreciation and amortization expenses, transaction, acquisition, integration and other related expenses, interest expense, net, (gain) loss on marketable equity investment, loss on early extinguishment of debt, impairment losses, gain on asset disposals, foreign currency and derivative losses, net, other expense and income tax (benefit) expense. 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 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.

5Adjusted EBITDA, which is a non-GAAP financial measure, is defined as net income (loss) as defined by GAAP adjusted for interest expense, net; income tax (benefit) expense; depreciation and amortization; impairment losses; 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; (gain) loss on marketable equity investment; (gain) loss on asset disposals; foreign currency and derivative losses (gains), net; and other expense. 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.

6We 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 impairment losses and loss on disposal of assets. 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; (gain) loss on marketable equity investment; foreign currency and derivative losses (gains), net; new accounting standards and regulatory compliance and the related system implementation costs; amortization of tradenames; transaction, acquisition, integration and other related expenses; severance and management transition costs; and legal claim costs. We believe our 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 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.

7Annualized 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.

8Recurring rent churn percentage 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.

9Percentage CSF leased is calculated by dividing CSF under signed leases for colocation space (whether or not the lease has commenced billing) by total CSF. Percentage 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.

10Stabilized properties include data halls that have been in service for at least 24 months or are at least 85% leased.

11Gross asset value is defined as total assets plus accumulated depreciation.

12Long-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 finance lease liabilities, offset by cash and cash equivalents.

13The estimated impact of the adoption of ASC 842 on Adjusted EBITDA for the last quarter annualized is $16.2 million.

14Liquidity is calculated as cash, cash equivalents, and temporary cash investments on hand, plus the undrawn capacity on CyrusOne’s revolving credit facility, plus the pro forma impact of settlement of the forward sale agreement.

About CyrusOne

CyrusOne (NASDAQ: CONE) is a 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 more than 200 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 nearly 50 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 more than 200 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 nearly 50 data centers worldwide.

• Best-in-Class Sales Force
• Flexible Solutions that Scale as Customers Grow
• Massively Modular® Engineering with Data Hall Builds in 10-14 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

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