[May 07, 2015]

CyrusOne Reports First Quarter 2015 Earnings

Global data center service provider CyrusOne Inc. (NASDAQ:CONE), which specializes in providing highly reliable enterprise-class, carrier-neutral data center properties to the Fortune 1000, today announced first quarter 2015 earnings.

Highlights

• First quarter Normalized FFO of $31.9 million and AFFO of $35.0 million increased 17% and 27%, respectively, over the first quarter of 2014
• First quarter revenue of $85.7 million increased 11% over the first quarter of 2014
• First quarter Adjusted EBITDA of $45.1 million increased 8% over the first quarter of 2014
• Leased 60,000 colocation square feet totaling $18 million in annualized GAAP revenue, with utilization remaining high at 89%
• Subsequent to end of quarter, announced acquisition of Cervalis, significantly enhancing Company's geographic and customer diversification and strengthening product portfolio, with accretion to Normalized FFO per diluted share and unit

"CyrusOne had another great quarter, continuing its trend of solid financial results for more than two years as a public company, and the strong bookings performance reflects the attractiveness of our value proposition," said Gary Wojtaszek, president and chief executive officer of CyrusOne. "The recently announced transaction with Cervalis will enhance our presence on the East Coast and accelerate our growth trajectory as we add a proven operator with a successful track record of attracting financial services customers."

First Quarter 2015 Financial Results

Revenue was $85.7 million for the first quarter, compared to $77.5 million for the same period in 2014, an increase of 11%. Operating income of $1.6 million decreased $10.2 million from the first quarter of 2014, driven by an $8.6 million impairment charge related to the forthcoming termination of our Austin 1 facility lease as well as increases in property operating expenses of $4.6 million, depreciation and amortization of $3.5 million, and general and administrative expenses of $1.8 million, partially offset by an $8.2 million increase in revenue. Net loss was $7.2 million for the first quarter, compared to net income of $0.7 million for the same period in 2014. The $7.9 million decrease was driven by the decrease in operating income, partially offset by a $2.3 million reduction in interest expense.

Net operating income (NOI)¹ was $53.4 million for the first quarter, compared to $49.8 million in the same period in 2014, an increase of 7%. The increase in NOI was driven by the increase in revenue, partially offset by additional property operating costs from new facilities and expansions at existing facilities as well as $0.8 million in costs associated with the forthcoming termination of our Austin 1 facility lease. Adjusted EBITDA² was $45.1 million for the first quarter, compared to $41.7 million in the same period in 2014, an increase of 8%. The Adjusted EBITDA margin of 52.6% in the first quarter declined from 53.8% in the same period in 2014, driven primarily by increased electricity usage.

Normalized Funds From Operations (Normalized FFO)³ was $31.9 million for the first quarter, compared to $27.2 million in the same period in 2014, an increase of 17%. The increase in Normalized FFO was driven by the growth in Adjusted EBITDA and the decrease in interest expense, partially offset by a $0.8 million increase in stock-based compensation. Normalized FFO per diluted common share or common share equivalent⁴ was $0.49 in the first quarter of 2015. Adjusted Funds From Operations (AFFO)⁵ was $35.0 million for the first quarter, compared to $27.5 million in the same period in 2014, an increase of 27%.

Leasing Activity

CyrusOne leased approximately 60,000 colocation square feet (CSF), or 9.8 MW of power, in the first quarter, one of the Company's strongest bookings quarters in its history. Leases signed in the first quarter represent approximately $1.5 million in monthly recurring rent inclusive of the monthly impact of installation charges, or approximately $18 million in annualized contracted GAAP revenue⁶ excluding estimates for pass-through power. The Company added two new Fortune 1000⁷ customers in the first quarter, bringing the total to 146 customers in the Fortune 1000 and 679 customers in total as of March 31, 2015. The weighted average lease term of the new leases based on square footage is 83 months, and approximately 91% of the CSF was leased to metered customers with the remainder leased on a full service basis. Recurring rent churn⁸ for the first quarter of 2015 was 3.1%, compared to 1.3% for the first quarter of 2014.

Portfolio Utilization and Development

As of March 31, 2015, CyrusOne had approximately 1,262,000 CSF across 27 facilities, an increase of approximately 131,000, or 12%, from the same period in 2014. CSF utilization⁹ for the first quarter was 89%, consistent with CSF utilization for the same period in 2014. In the first quarter of 2015, the Company completed construction on its new facility in Northern Virginia, adding approximately 135,000 NRSF, including 37,000 CSF. As of the end of the first quarter, CSF utilization at the Northern Virginia facility was 71%. The Company also has begun construction on 56,000 CSF at its Carrollton facility in Dallas and 36,000 CSF at its Phoenix 2 facility and expects to begin construction on 37,000 CSF at its Northern Virginia facility in the second quarter of 2015. CyrusOne also expects to begin construction on a new facility in Phoenix in the second quarter of 2015, adding a total of 150,000 NRSF. As of March 31, 2015, the Company had approximately 114,000 CSF in Phoenix, with CSF utilization at 98%.

CyrusOne recently purchased a 166,000 square foot facility in Austin and expects to begin construction on 62,000 CSF in the second quarter. The Company has given notice of its intent to terminate its Austin 1 facility lease and will move customers currently in this facility into the new facility after construction has been completed.

Balance Sheet and Liquidity

As of March 31, 2015, the Company had $679.8 million of long term debt, cash of $26.0 million, and $295.0 million available under its unsecured revolving credit facility. Net debt¹⁰ was $666.4 million as of March 31, 2015, approximately 25% of the Company's total enterprise value or 3.7x Adjusted EBITDA for the last quarter annualized. Available liquidity¹¹ was $321.0 million as of March 31, 2015.

Dividend and Distribution

On February 18, 2015, the Company announced a dividend and distribution of $0.315 per share of common stock and common stock equivalent for the first quarter of 2015. The dividend / distribution was paid on April 15, 2015, to stockholders of record at the close of business on March 27, 2015.

Additionally, today the Company is announcing a dividend and distribution of $0.315 per share of common stock and common stock equivalent for the second quarter of 2015. The dividend / distribution will be paid on July 15, 2015, to stockholders of record at the close of business on June 26, 2015.

Guidance

CyrusOne is reaffirming guidance for full year 2015. The guidance does not include any pro forma impacts related to the recently announced Cervalis acquisition, which CyrusOne expects to be accretive to Normalized FFO per diluted share and unit day one.

The annual guidance provided above 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.

Acquisition of Cervalis

Subsequent to the end of the quarter, CyrusOne announced the signing of a definitive agreement to acquire four Tier 3+ data center facilities and two work area recovery facilities (collectively, the "Facilities") serving the New York metropolitan area through the acquisition of Cervalis Holdings LLC ("Cervalis"), a privately-held owner and operator of data centers. The Cervalis Facilities currently comprise more than 500,000 gross square feet of space, including more than 125,000 colocation square feet and over 100,000 square feet of work area recovery space.

In 2014 Cervalis generated revenues of nearly $70 million, with approximately two-thirds being derived from colocation services, and the remainder from interconnection, managed services, and work area recovery products. Over the last five years Cervalis has grown revenue at a compound annual rate of approximately 14%. As of the end of 2014, 77% of the colocation square feet within the Cervalis Facilities was utilized. In addition to the currently available raised floor space, it currently has capacity under shell to deliver an incremental 55,000 colocation square feet.

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

• Enhanced Geographic Diversification: The combination will greatly enhance CyrusOne's geographic diversification, establishing a presence in the Northeast with the addition of a platform that includes 4 data centers in the New York metropolitan market.
• Access to a High Quality Enterprise Customer Base: Cervalis serves approximately 220 enterprise customers, with a particular niche servicing some of the world's largest financial institutions, including several Fortune 1000 companies. Approximately two-thirds of its fourth quarter 2014 revenue came from customers within the financial services industry.
• Strengthened Product Portfolio: The transaction provides a set of interconnected data centers in one of the world's largest internet hubs, further enhancing the attractiveness of CyrusOne's National IX platform. Access to a high-end managed services offering provides a platform that can be selectively leveraged across CyrusOne's existing customer base to accelerate growth.

Upcoming Conferences and Events

• Jefferies Global Technology, Media and Telecom Conference on May 12-14 in Miami, Florida
• J.P. Morgan Global Technology, Media and Telecom Conference on May 18-20 in Boston, Massachusetts
• NAREIT's REITWeek Investor Forum on June 9-11 in New York City

Conference Call Details

CyrusOne will host a conference call on May 7, 2015, at 11:30 AM Eastern Time (10:30 AM Central Time) to discuss its results for the first quarter of 2015. A live webcast of the conference call will be available under the "Investor Relations" tab in the "Events and Presentations" section of the Company's website at http://investor.cyrusone.com/events.cfm. The U.S. conference call dial-in number is 1-866-652-5200, and the international dial-in number is 1-412-317-6060. A replay will be available one hour after the conclusion of the earnings call on May 7, 2015, until 9:00 AM Eastern Time (8:00 AM Central Time) on May 15, 2015. 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 10063104.

Safe Harbor

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, including statements about the potential financial and other benefits of our proposed acquisition of Cervalis and the expected timing of completion of the transaction. 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, risks related to our acquisition of Cervalis, which include, but are not limited to, the risk that a condition to closing of the acquisition may not be satisfied or that the expected increased revenues, funds from operations, net income and cost savings and other synergies from the transaction may not be fully realized or may take longer to realize than expected, 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.

Use of Non-GAAP Financial Measures

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, Adjusted 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, NOI, Adjusted NOI, and AFFO 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, Adjusted NOI, AFFO and Adjusted EBITDA should be considered only as supplements to net income as measures of our performance. FFO, Normalized FFO, NOI, Adjusted NOI, AFFO 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 substitutes for cash flow from operating activities computed in accordance with U.S. GAAP.

¹Net Operating Income (NOI) is defined as revenue less property operating expenses. Amortization of deferred leasing costs is presented in depreciation and amortization, which is excluded from NOI. CyrusOne has not historically incurred any tenant improvement costs. Our sales and marketing costs consist of salaries and benefits for our internal sales staff, travel and entertainment, office supplies, marketing and advertising costs. General and administrative costs include salaries and benefits of our senior management and support functions, legal and consulting costs, and other administrative costs. Marketing and advertising costs are not property-specific, rather these costs support our entire portfolio. As a result, we have excluded these marketing and advertising costs from our NOI calculation, consistent with the treatment of general and administrative costs, which also support our entire portfolio. From time to time, there may be non-recurring costs in property operating expenses, and as a result the Company may present Adjusted Net Operating Income (Adjusted NOI) to exclude the impacts of those costs.

²Adjusted EBITDA is defined as net income (loss) as defined by U.S. GAAP before noncontrolling interests plus interest expense, income tax (benefit) expense, depreciation and amortization, non-cash compensation, transaction costs and transaction-related compensation, including acquisition pursuit costs, restructuring costs, loss on extinguishment of debt, asset impairments, (gain) loss on sale of real estate improvements, and other special items. 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.

³Normalized Funds From Operations (Normalized FFO) is defined as Funds From Operations (FFO) plus transaction costs, including acquisition pursuit costs, transaction-related compensation, (gain) loss on extinguishment of debt, restructuring costs and other special items. FFO is net (loss) income computed in accordance with U.S. GAAP before noncontrolling interests, (gain) loss from sales of real estate improvements, real estate-related depreciation and amortization, amortization of customer relationship intangibles, and real estate and customer relationship intangible impairments. Because the value of the customer relationship intangibles is inextricably connected to the real estate acquired, CyrusOne believes the amortization 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. CyrusOne's customer relationship intangibles are primarily associated with the acquisition of Cyrus Networks in 2010 and, at the time of acquisition, represented 22% of the value of the assets acquired. The Company believes its Normalized FFO calculation provides a comparable measure to that used by others in the industry.

⁴Normalized FFO per diluted common share or common share equivalent is defined as Normalized FFO divided by the average diluted common shares and common share equivalents outstanding for the quarter, which were 65,558,714 for the first quarter of 2015.

⁵Adjusted Funds From Operations (AFFO) is defined as Normalized FFO plus amortization of deferred financing costs, non-cash compensation, and non-real estate depreciation and amortization, less deferred revenue and straight line rent adjustments, leasing commissions, recurring capital expenditures, and non-cash corporate income tax benefit and expense.

⁶Annualized 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.

⁷Fortune 1000 customers include subsidiaries whose ultimate parent is a Fortune 1000 company or a foreign or private company of equivalent size.

⁸Recurring 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.

⁹Utilization is calculated by dividing CSF under signed leases for available space (whether or not the contract has commenced billing) by total CSF. Utilization rate differs from percent leased presented in the Data Center Portfolio table because utilization rate excludes office space and supporting infrastructure net rentable square footage and includes CSF for signed leases that have not commenced billing. Management uses utilization rate as a measure of CSF leased.

¹⁰Net debt 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, cash equivalents, and temporary cash investments.

¹¹Liquidity is calculated as cash, cash equivalents, and temporary cash investments on hand, plus the undrawn capacity on CyrusOne's revolving credit facility.

About CyrusOne

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 more than 675 customers, including nine of the Fortune 20 and 146 of the 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 27 data centers worldwide.