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  1. #1
    WHT-BR Top Member
    Data de Ingresso
    Dec 2010

    [EN] CyrusOne – Trick or Treat?

    AWS and Azure: 50% of a $19 billion market

    Bill Stoller
    November 1, 2016

    Halloween got off to a spooky start for data center REIT CyrusOne shareholders after the company reported Q3 earnings on Monday, before the bell. However, CyrusOne’s solid earnings, raised guidance, strong leasing, and massive pipeline of new deals appeared to be overshadowed by uncertainty surrounding the revelation of an unexpected CFO change.

    CyrusOne shares were crushed in early trading prior to the start of the conference call held at 11:00 ET on Monday. In what can only be described as a bipolar trading day, CONE shares initially plunged to a low of $40.82, or a drop of ~8 percent. This loss was halved during the conference call. By the end of the trading day shares had bounced back to within half a percent of Friday’s close of $44.83 per share.

    Here’s what appeared to be driving this white-knuckle rollercoaster ride for investors.

    The Trick

    In addition to the scheduled earnings release, CyrusOne’s simultaneous announcement of a CFO change caught analysts and investors flat-footed.

    CEO Gary Wojtaszek summed it up succinctly, “These things are never good…” answering a question on the earnings call regarding the sudden CFO transition. However, he immediately clarified his comment, pointing out that “Greg [Andrews] has done a masterful job here…” Notably, there will be a charge taken in Q4 for CFO Andrew’s severance, another indication of an amicable parting of the ways.

    The sting of this announcement was also mitigated by having already hired Diane M. Morefield to assume the CFO role. She is coming aboard in mid-November, which should provide time for an orderly transition. Morefield has an impressive resume, including extensive experience successfully managing the balance sheet of large, growth-oriented REITs.

    The Treats

    CyrusOne reported another strong leasing quarter, having signed an aggregate of 105,000 square feet of colocation space, totaling 17MW of power. This included adding three new Fortune 1000 logos during the quarter, consisting of another top 10 cloud provider and two new enterprise customers.

    Wojtaszek pointed out that CyrusOne now counts seven of the Top 10 cloud service providers as customers — up from having none as tenants just 24 months ago.

    Wojtaszek said on the call that CyrusOne’s late-stage deal funnel has almost doubled in size since reporting results for the quarter ended June 30, 2016.

    Here are some of the highlights from the Q3 earnings report:

    • Q3 2016 normalized FFO per share of $0.67 vs $0.57 per share year-over-year, (including a $0.04 non-recurring component).
    • FY 2016 FFO Guidance raised to $2.59-$2.62, from $2.50-$2.58 per share.
    • Booked-not-billed backlog of $68 million in annualized GAAP revenue as of the end of the third quarter, representing nearly $550 million in total contract value
    • Monthly Recurring Revenue (MRR) signed during Q3’16 was more than double the MRR signed the same period during 2015.
    • Portfolio utilization remains high at 93% occupancy for stabilized data centers, and 85% overall.

    Subsequent to the end of the quarter, CyrusOne leased up 100 percent of the second expansion phase at the Chicago – Aurora I facility.

    Wojtaszek confirmed the CME Aurora II expansion was already underway on 15 acres acquired as part of the $130 million deal earlier this year. This massive data center expansion is expected to be up and running by Q2 2017, according to Wojtaszek.

    One challenge facing the publicly traded data center REIT during the second half of 2016 will be tough comparisons going forward, due to record leasing reported over the past year. Investors and analysts are trying to understand if the success of the past few quarters is the “new normal,” or if the enormous wave of cloud service provider deployments will begin to taper.

    Wholesale Pricing

    One concern voiced by a few industry insiders after CyrusOne announced record leasing for Q2 2016, was the question of “giving away the business,” in order to sign this barrage of large cloud deals.

    Wojtaszek addressed this “innuendo” head-on in the presentation slide deck. He made it clear during the earnings call that the recently completed 30 MW Sterling II build-to-suit was developed at a 16 percent ROIC.

    This is consistent with CyrusOne’s stated targeted range of 16-19 percent, and significantly higher than the 10-13 percent range reported by some publicly traded peers for wholesale deals.

    Market Expansions

    CyrusOne currently has 350,000 CSF under development, totaling 69MW of power capacity, including: Northern Virginia – 21MW, San Antonia 24MW, Phoenix 18MW and Chicago 6MW. More than 75 percent of capital being deployed in development pipeline is associated with pre-leased projects.

    During the quarter, CyrusOne acquired 29 acres of land in Phoenix and 23 acres of land outside of Chicago to support growth in those markets. CyrusOne also has an option to acquire 46 acres in the Pacific Northwest; plus land and shell for development of a fully pre-leased data center in Northern Virginia.

    In the US, CyrusOne is looking at West Coast markets, and is actively trying to acquire a Santa Clara site in order to target technology firms. Nevada was also raised as an expansion possibility. Additionally, CyrusOne is looking to plant the flag in Southeast, with Atlanta and Florida mentioned as markets of interest.

    Wojtaszek also acknowledged that CyrusOne will have to expand internationally in order to better serve its core Fortune 1000 customer base. In fact, CyrusOne wrote off expenses in Q3 related to M&A talks that did not bear fruit. It was unclear if those aborted acquisition attempts were domestic or global.

    Investor Takeaway

    CyrusOne continues to voice one of the strongest cases for the continued growth of data center outsourcing and enterprise cloud migration.

    CEO Wojtaszek explained that the hyperscale cloud providers which are disrupting the IT world have much better uses for their capital than owning expensive data center assets. He emphasized that CyrusOne has now proven to its existing enterprise and cloud customers that it can build data centers faster and cheaper.

    It appears another strong quarter of leasing and operating results, a boost in full year guidance, and a growing pipeline of prospects, were the proverbial “treats” which turned around a scary Halloween morning for shareholders.
    Última edição por 5ms; 01-11-2016 às 17:06.

  2. #2

  3. #3
    WHT-BR Top Member
    Data de Ingresso
    Dec 2010

    Q & a

    Gary Wojtaszek

    With regard to global activity. So what we have always said is that we believe the data center business is as a global business right data by its nature is global, it goes everywhere, it gets access and shift all around the world as a matter of course, and of all the customers that we go after are the large fortune 1000 multinational. So we believe that to effectively compete, to offer those customers compelling product, you need to have global capabilities. We, we are focused though in the short term period and building out our platform in the U.S.


    So ultimately, we're going to be building out a global platform, but the focus on priority for the next 12 months or so is going to be domestic


    What I can tell you thought is that the demand and the conversations that we are seeing is as unprecedented. What I mentioned I think in the last quarter or one before customers are talking about needing gigawatts of a capacity. They've never talked about anything that started with G before.


    We're seeing like a huge amount of demand. As in all these things, I mean getting them over the finish line and trying to tie when you're going to be able to close the deals, is always the difficult part, but from a broad demand, its unprecedented.


    And what I can say also is that, look at the end of the day, there's no strategic reason why any company should ever build and manage their own data center. We are proving this with our traditional enterprise companies for the last half decade or so, and all the CIOs in the enterprise companies have basically come to that realization.


    I believe that same trend is going to manifest itself and all the cloud providers as well, because the reality is, if we can do something more expensively and faster, ultimately people are going to outsource that part of their requirements to us, because at the end of the day owning these digital factories isn't the key strategic and priority for any of these cloud companies.


    These cloud companies get paid handsomely by figuring out how to disrupt the world and ultimately as capital ghost words most wanted they're going to come to the realization that they are going to be spending more and more of their capital to things that really drive value and I think the best thing you can point to any industry is the recent change in Google in terms of going to Alphabet.

    I'm not that familiar with all the inner workings that go out of that company, but ultimately I believe that is the result of a focus on capital returns and trying to put a spotlight on the various business there. So investors can get a really good sense of what's driving value there. Ultimately I think once you start doing your critical cost-benefit analysis and you figure out should I tie up $300 million $400 million in expensive data center, or should I tie up $300 million $400 million in a robust programming that can disrupt some other part of the world. I think ultimately long terms are going to choose the latter.


    Dallas, we continue to have the same type of sales that we've had all year, although down for what we were seeing last year. Northern Virginia is on fire. Phoenix is on fire. San Antonio is on fire. Houston actually this quarter has had seen one of the highest number of bookings that we had in the quarter, I think it was a second or third largest market, right.


    Look at the end of the day, while we’ve done a great job in attacking that Fortune 1000 base, we still only have 20% share, I said are still 800 other Fortune 1000 companies that we still got to go and get.


    A number of my peers last week put out really strong bookings quarter, some of their record or closer record-breaking quarters, what you saw that and our results was more of the same our fourth strongest bookings quarter ever. And the only other one of my competitors who didn't put up a booking a strong booking number was basically because they were completely sold out so the takeaway from all that is that the underlying secular demand trends in this industry are fully intact.


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