Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CONE > SEC Filings for CONE > Form 10-Q on 12-Nov-2013All Recent SEC Filings

Show all filings for CYRUSONE INC.

Form 10-Q for CYRUSONE INC.


12-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report on Form 10-Q (this "Quarterly Report"), together with other statements and information publicly disseminated by our company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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.
In particular, statements pertaining to our capital resources, portfolio performance, financial condition and results of operations contain certain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "intends," "plans" or "anticipates" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: (i) the geographic concentration of our data centers in certain markets and any adverse developments in local economic conditions or the demand for data center space in these markets; (ii) increased operating costs; (iii) difficulties in identifying properties to acquire and completing acquisitions; (iv) the significant competition in our industry and an inability to lease vacant space, renew existing leases or release space as leases expire;
(v) lack of sufficient customer demand to realize expected returns on our investments to expand our property portfolio; (vi) decreased revenue from costs and disruptions associated with any failure of our physical infrastructure or services; (vii) our ability to lease available space to existing or new customers; (viii) our failure to obtain necessary outside financing; (ix) our failure to qualify as a REIT; (x) financial market fluctuations; (xi) changes in real estate and zoning laws and increases in real property tax rates;
(xii) delays or disruptions in third-party network connectivity; (xiii) service failures or price increases by third party power suppliers; (xiv) inability to renew net leases on the data center properties we lease; and (xv) other factors affecting the real estate industry generally. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this Quarterly Report. Additional information concerning these and other risks and uncertainties is contained in our other periodic filings with the United States Securities and Exchange Commission, or SEC, pursuant to the Exchange Act. We discussed a number of material risks in Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2012. Those risks continue to be relevant to our performance and financial condition. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Presentation
References in this Quarterly Report to "Successor" refers to the Company on or after January 24, 2013 and "Predecessor" are the results prior to January 24, 2013. The Predecessor results have been prepared on a "carve-out" basis from CBI's
consolidated financial statements using the historical results of operations, cash flows, assets and liabilities attributable to the data center business and include allocations of income, expenses, assets and liabilities from CBI. These allocations reflect significant assumptions, and the combined financial statements do not fully reflect what the financial position, results of operations and cash flows would have been had CyrusOne been a stand-alone company during the periods presented. As a result, historical financial information is not necessarily indicative of CyrusOne's future results of operations, financial position and cash flows. The related financial statement tables will be presented showing the statements that relate to the Predecessor as well as the Successor. The results of both the Predecessor and Successor are presented separately but will be discussed on a combined basis for comparability purposes.


Table of Contents

Overview
Our Company-We are an owner, operator and developer of enterprise-class, carrier-neutral data center properties. The data center properties are purpose-built facilities with redundant power, cooling and telecommunications systems. They are not network-specific and enable customer interconnectivity to a range of telecommunications carriers.
We provide mission-critical data center facilities that protect and ensure the continued operation of IT infrastructure for over 575 customers. Our goal is to be the preferred global data center provider to the Fortune 1000. As of September 30, 2013, our customers included nine of the Fortune 20 and 128 of the Fortune 1000 or private or foreign enterprises of equivalent size. These customers provided 75% of our annualized rent as of September 30, 2013. We cultivate long-term strategic relationships with our customers and provide them with solutions for their data center facilities and IT infrastructure challenges. Our offerings provide flexibility, reliability and security and are delivered through a tailored, customer service-focused platform that is designed to foster long-term relationships. We focus on attracting customers that have not historically outsourced their data center needs. We believe our capabilities and reputation for serving the needs of large enterprises will allow us to capitalize on the growing demand for outsourced data center facilities in our markets and in new markets where our customers are located or plan to be located in the future.
Our Portfolio-As of September 30, 2013, our property portfolio included 25 operating data centers in ten distinct markets (8 cities in the U.S., London and Singapore) collectively providing 1,898,000 Net Rentable Square Feet ("NRSF"), and powered by approximately 143 MW of utility power. We own 14 of the buildings in which our data center facilities are located. We lease the remaining 11 buildings, which account for approximately 375,000 NRSF, or approximately 20% of our total operating NRSF. These leased buildings accounted for 27% of our total annualized rent as of September 30, 2013. We also currently have 96,000 NRSF under development at two data centers in (Houston and Dallas), 787,000 NRSF of additional powered shell space under roof and available for development, and approximately 194 acres of land that are available for future data center facility development. Along with our primary product offering, leasing of colocation space, our customers are increasingly interested in ancillary office and other space. We believe our existing operating portfolio and development pipeline will allow us to meet the evolving needs of our existing customers and continue to attract new customers. The following tables provide an overview of our operating and development properties as of September 30, 2013.


Table of Contents

                                 CyrusOne Inc.
                             Data Center Portfolio
                            As of September 30, 2013
                                  (Unaudited)

                                                                                 Operating Net Rentable Square Feet (NRSF)(a)
                                                                                                                                                      Powered
                                                                                                                                                      Shell
                                                                                                                                                     Available
                                                                  Colocation                                                                        for Future
                              Metropolitan     Annualized            Space          Office &        Supporting                         Percent      Development     Available UPS
Facilities                        Area           Rent(b)           (CSF)(c)         Other(d)     Infrastructure(e)      Total(f)      Leased(g)      (NRSF)(h)    Capacity  (MW)(i)
Southwest Fwy. (Galleria)     Houston        $  45,273,693         63,469            17,259                23,203        103,931          90 %               -                  14
Westway Park Blvd. (Houston
West 1)                       Houston           41,053,448        112,133            12,735                37,636        162,504          96 %           3,000                  28
S. State Hwy 121 Business
(Lewisville)*                 Dallas            36,208,463        108,687            11,399                59,346        179,432          91 %               -                  18
West Seventh Street (7th
St.)***                       Cincinnati        34,743,159        211,672             5,744               171,561        388,977          88 %          37,000                  13
Fujitec Drive (Lebanon)       Cincinnati        19,386,260         65,303            36,261                49,159        150,723          76 %          72,000                  14
Industrial Road (Florence)    Cincinnati        14,942,902         52,698            46,848                40,374        139,920          94 %               -                   9
Knightsbridge Drive
(Hamilton)*                   Cincinnati        12,231,822         46,565             1,077                35,336         82,978          90 %               -                  10
W. Frankford Road
(Carrollton)                  Dallas             7,256,565         47,438            19,706                35,592        102,736          57 %         441,000                   3
Westover Hills Blvd. (San
Antonio 1)                    San Antonio        6,162,321         43,487             2,351                35,955         81,793          97 %          23,000                  12
Parkway Dr. (Mason)           Cincinnati         5,877,943         34,072            26,458                17,193         77,723          99 %               -                   4
E. Ben White Blvd. (Austin
1)*                           Austin             5,682,784         16,223            21,376                 7,516         45,115          95 %               -                   2
Midway Rd.**                  Dallas             5,397,262          8,390                 -                     -          8,390         100 %               -                   1
Metropolis Drive (Austin 2)   Austin             5,375,381         37,780             4,128                18,444         60,352          38 %               -                   5
Kestral Way (London)**        London             4,492,884         10,000                 -                     -         10,000          99 %               -                   1
Springer Street (Lombard)     Chicago            2,283,510         13,516             4,115                12,230         29,861          59 %          29,000                   3
Marsh Ln.**                   Dallas             2,073,446          4,245                 -                     -          4,245         100 %               -                   -
Westway Park Blvd. (Houston
West 2)                       Houston            1,776,560         42,116             3,065                31,344         76,525          26 %          77,000                   6
Goldcoast Drive (Goldcoast)   Cincinnati         1,517,714          2,728             5,280                16,481         24,489         100 %          14,000                   1
E. Monroe Street (Monroe St.) South Bend         1,161,531          6,350                 -                 6,478         12,828          65 %           4,000                   -
North Fwy. (Greenspoint)**    Houston            1,034,598         13,000             1,449                     -         14,449         100 %               -                   -
Bryan St.**                   Dallas             1,029,418          3,020                 -                     -          3,020          58 %               -                   -
South Ellis Street (Phoenix)  Phoenix              816,715         36,366            36,135                38,411        110,912          28 %          76,000                   3
Crescent Circle (Blackthorn)* South Bend           734,883          3,432                 -                 5,125          8,557          49 %          11,000                   -
McAuley Place (Blue Ash)*     Cincinnati           551,268          6,193             6,950                 2,166         15,309          71 %               -                   -
Jurong East (Singapore)**     Singapore            325,240          3,200                 -                     -          3,200          12 %               -                   2
Total                                        $ 257,389,770        992,083           262,336               643,550      1,897,969          80 %         787,000                 143

* Indicates properties in which we hold a leasehold interest in the building shell and land. All data center infrastructure has been constructed by us and owned by us.

** Indicates properties in which we hold a leasehold interest in the building shell, land, and all data center infrastructure.

*** The information provided for the West Seventh Street (7th St.) property includes data for two facilities, one of which we lease and one of which we own.


Table of Contents

(a) Represents the total square feet of a building under lease or available for lease based on engineers' drawings and estimates but does not include space held for development or space used by CyrusOne.

(b) Represents monthly contractual rent (defined as cash rent including customer reimbursements for metered power) under existing customer leases as of September 30, 2013, multiplied by 12. For the month of September 2013, customer reimbursements were $22.9 million annualized and consisted of reimbursements by customers across all facilities with separately metered power. Customer reimbursements under leases with separately metered power vary from month-to-month based on factors such as our customers' utilization of power and the suppliers' pricing of power. From October 1, 2011 through September 30, 2013, customer reimbursements under leases with separately metered power constituted between 7.2% and 9.7% of annualized rent. After giving effect to abatements, free rent and other straight-line adjustments, our annualized effective rent as of September 30, 2013 was $274,859,776. Our annualized effective rent was greater than our annualized rent as of September 30, 2013 because our positive straight-line and other adjustments and amortization of deferred revenue exceeded our negative straight-line adjustments due to factors such as the timing of contractual rent escalations and customer prepayments for services.

(c) CSF represents the NRSF at an operating facility that is currently leased or readily available for lease as colocation space, where customers locate their servers and other IT equipment.

(d) Represents the NRSF at an operating facility that is currently leased or readily available for lease as space other than CSF, which is typically office and other space.

(e) Represents infrastructure support space, including mechanical, telecommunications and utility rooms, as well as building common areas.

(f) Represents the NRSF at an operating facility that is currently leased or readily available for lease. This excludes existing vacant space held for development.

(g) Percent leased is determined based on NRSF being billed to customers under signed leases as of September 30, 2013 divided by total NRSF. Leases signed but not commenced as of September 30, 2013 are not included. Supporting infrastructure has been allocated to leased NRSF on a proportionate basis for purposes of this calculation.

(h) Represents space that is under roof that could be developed in the future for operating NRSF, rounded to the nearest 1,000.

(i) UPS Capacity (also referred to as critical load) represents the aggregate power available for lease to and exclusive use by customers from the facility's installed universal power supplies (UPS) expressed in terms of megawatts. The capacity presented is for non-redundant megawatts, as we can develop flexible solutions to our customers at multiple resiliency levels. May not foot due to rounding.

                                 CyrusOne Inc.
                             NRSF Under Development
                            As of September 30, 2013
                             (Dollars in millions)
                                  (Unaudited)

                                                                                                             NRSF Under Development(a)
                                                                                       Under Development                                                   Under Development Costs(b)
                                     Metropolitan   Colocation Space                          Supporting                                         Actual to       Estimated Costs to
Facilities                               Area            (CSF)           Office & Other     Infrastructure     Powered  Shell(c)     Total          Date             Completion           Total
Westway Park Blvd (Houston West 2)   Houston                      -              8,000                  -                     -      8,000     $          -     $                 1     $     1
W Frankford Road (Carrollton)        Dallas                  60,000                  -             28,000                     -     88,000               12                       7          19
Total                                                        60,000              8,000             28,000                     -     96,000     $         12     $                 8     $    20

(a) Represents NRSF at a facility for which substantial activities have commenced to prepare the space for its intended use.

(b) Represents management's estimate of the total costs required to complete the current NRSF under development. There may be an increase in costs if customers require greater power density.

(c) Represents NRSF under construction that, upon completion, will be powered shell available for future development into operating NRSF.


Table of Contents

Our portfolio is currently leased to over 575 companies, many of which are leading global companies. The following table sets forth information regarding the 20 largest customers, including affiliates, in our portfolio based on annualized rent as of September 30, 2013:

                                 CyrusOne Inc.
                          Customer Diversification(a)
                            As of September 30, 2013
                                  (Unaudited)

                                                                                                 Weighted
                                                                             Percentage of        Average
                                                                               Portfolio         Remaining
                                              Number of     Annualized        Annualized       Lease Term in
          Principal Customer Industry         Locations       Rent(b)           Rent(c)          Months(d)
1   Telecommunications (CBI)(e)                   7       $  23,710,914             9.2 %              31.0
2   Energy                                        2          19,032,482             7.4 %               2.8
3   Energy                                        4          14,942,972             5.8 %               4.4
4   Research and Consulting Services              3          13,208,719             5.1 %               0.3
5   Telecommunication Services                    1          10,056,455             3.9 %              50.0
6   Information Technology                        3           7,440,740             2.9 %              43.1
7   Financials                                    1           6,000,225             2.3 %              80.0
8   Telecommunication Services                    1           5,013,892             1.9 %              67.0
9   Information Technology                        1           4,845,316             1.9 %              27.0
10  Consumer Staples                              1           4,743,436             1.8 %             102.9
11  Energy                                        2           4,731,000             1.8 %              34.0
12  Information Technology                        3           4,625,641             1.8 %              55.7
13  Energy                                        1           4,101,396             1.6 %              13.7
14  Information Technology                        1           4,006,477             1.6 %              89.0
15  Energy                                        3           3,870,111             1.5 %               7.1
16  Information Technology                        2           3,831,921             1.5 %              89.0
17  Energy                                        1           3,612,639             1.4 %              32.3
18  Consumer Discretionary                        1           3,303,607             1.3 %               3.2
19  Information Technology                        2           3,283,480             1.3 %              36.1
20  Energy                                        1           3,236,416             1.3 %              13.6
                                                          $ 147,597,839            57.3 %              31.2

(a) Includes affiliates.

(b) Represents monthly contractual rent (defined as cash rent including customer reimbursements for metered power) under existing customer leases as of September 30, 2013, multiplied by 12. For the month of September 2013, our total annualized rent was $257.4 million, and customer reimbursements were $22.9 million annualized, consisting of of reimbursements by customers across all facilities with separately metered power. Customer reimbursements under leases with separately metered power vary from month-to-month based on factors such as our customers' utilization of power and the suppliers' pricing of power. From October 1, 2011 through September 30, 2013, customer reimbursements under leases with separately metered power constituted between 7.2% and 9.7% of annualized rent. After giving effect to abatements, free rent and other straight-line adjustments, our annualized effective rent as of September 30, 2013 was $274,859,776. Our annualized effective rent was greater than our annualized rent as of September 30, 2013 because our positive straight-line and other adjustments and amortization of deferred revenue exceeded our negative straight-line adjustments due to factors such as the timing of contractual rent escalations and customer prepayments for services.

(c) Represents the customer's total annualized rent divided by the total annualized rent in the portfolio as of September 30, 2013, which was approximately $257.4 million.

(d) Weighted average based on customer's percentage of total annualized rent expiring and is as of September 30, 2013, assuming that customers exercise no renewal options and exercise all early termination rights that require payment of less than 50% of the remaining rents. Early termination rights that require payment of 50% or more of the remaining lease payments are not assumed to be exercised because such payments approximate the profitability margin of leasing that space to the customer, such that we do not consider early termination to be economically detrimental to us.

(e) Includes information for both Cincinnati Bell Technology Solutions (CBTS) and Cincinnati Bell Telephone and two customers that have contracts with CBTS. We expect the contracts for these two customers to be assigned to us, but the consents for such assignments have not yet been obtained. Excluding these customers, Cincinnati Bell Inc. and subsidiaries represented 3.6% of our annualized rent as of September 30, 2013.


Table of Contents

Lease Distribution
The following table sets forth information relating to the distribution of customer leases in the properties in our portfolio, based on NRSF under lease as of September 30, 2013:

                                 CyrusOne Inc.
                               Lease Distribution
                            As of September 30, 2013
                                  (Unaudited)


                                                                                   Percentage of
                               Number of       Percentage of     Total  Leased       Portfolio        Annualized        Percentage of
NRSF Under Lease(a)           Customers(b)     All Customers        NRSF(c)         Leased NRSF         Rent(d)        Annualized Rent
0-999                                 447             79 %             81,819              5 %      $  33,655,624               13 %
1000-2499                              39              7 %             66,987              4 %         15,444,873                6 %
2500-4999                              27              5 %            102,141              7 %         20,661,725                8 %
5000-9999                              23              4 %            162,750             11 %         51,439,853               20 %
10000+                                 31              5 %          1,099,879             73 %        136,187,695               53 %
Total                                 567            100 %          1,513,576            100 %      $ 257,389,770              100 %

(a) Represents all leases in our portfolio, including colocation, office and other leases.

(b) Represents the number of customers in our portfolio utilizing data center, office and other space.

(c) Represents the total square feet at a facility under lease and that has commenced billing, excluding space held for development or space used by CyrusOne. A customer's leased NRSF is estimated based on such customer's direct CSF or office and light-industrial space plus management's estimate . . .

  Add CONE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CONE - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.