CyrusOne Inc

Good morning and welcome to the CIRES I fourth quarter 2018 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypads. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Michael Schaefer. Sir, please go ahead.

Thank you, Jamie. Good morning, everyone, and welcome to Cyrus One's fourth quarter 2018 earnings call. Today, I am joined by Gary Wojtaszek, President and CEO, and Diane Moorfield, CFO. Before we begin, I would like to remind you that our fourth quarter earnings release, along with the fourth quarter financial tables, are available on the investor relations section of our website at CyrusOne.com. I would also like to remind you the comments made on today's call and some of the responses to your questions deal with forward-looking statements related to Cyrus 1 and are subject to risks and uncertainties. Factors that may cause our actual results to differ from expectations are detailed in the company's filings with the SEC, which you may access on the SEC's website or on Cyrus1.com. We undertake no obligation to revise these statements following the date of this conference call, except as required by law. In addition, some of the company's remarks this morning contain non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in the earnings release, which is posted on the investor section of the company's website. I would now like to turn the call over to our president and CEO, Gary Wojtaszek.

Thanks, Schaefer. Howdy, everyone, and welcome to Cyrus One's fourth quarter earnings call. 2018 was a tremendous year for the company with continued strong financial and operational performance. We have taken a number of steps to position the business to serve our enterprise customers globally, creating a significant growth opportunity over the coming years. Slide 4 provides a summary of the highlights for the fourth quarter and full year. We had a record leasing year, signing 103 megalots, representing $153 million in annualized gap revenue, up nearly 50% from last year. and our backlog as of the end of 2018 totaled $54 million. To put this in perspective, this amount of leasing is equivalent to the size of Cyrus One when we IPO'd the company a few years ago. We continue to acquire land in key markets in both the US and Europe, and we completed construction on 115 megawatts in 2018 to support the strong leasing as well as deals we are tracking in our late stage sales funnel, including the acquisition of Zinium, we increased the size of the portfolio by 30% in 2018. Our balance sheet remains very strong with $1.6 billion in liquidity to fund our growth. Moving to slide five, the $20 million in annualized revenue signed during the fourth quarter was nearly 15% higher than our bookings in the fourth quarter of 2017. The average price of almost $250 per KW was more than double the prior four-quarter average and the fourth quarter was our second highest pricing quarter since going public. This was driven by the significant contribution from higher-priced enterprise deals, which totaled a company record $16 million in annualized revenue signed for the quarter, representing approximately 80% of our bookings. The leasing mix in the fourth quarter was impacted by timing related to some larger cloud deals. While the contribution from the cloud vertical was lower than in prior quarters, It continues to be the biggest driver of our growth, accounting for nearly 70% of bookings in 2018. We added 23 new logos during the quarter, including three Fortune 1000 logos, and consistent with prior quarters, the leasing was broad-based with deals signed across nine verticals and 11 markets. Turning to slide six, our interconnection business continues to do very well. We have another very strong bookings quarter, signing $2.7 million in annualized interconnection revenue, and for the full year our bookings totaled more than $10 million, up 14% from 2017. Interconnection revenue was up 17% in the fourth quarter and 6% sequentially, which I believe remains the fastest growing interconnection business in the United States. We added nearly 1,000 cross-connects in the quarter and more than 4,000 for the year, and we are up to more than 19,000 across the portfolio. The average number of cross-connects per customer is nearly twice the average from three years ago and six times the average at the time of our IPO. I also wanted to provide a quick update on the communication tower at our facility in Aurora, just outside of Chicago. As you will recall, we built a 350-foot telecommunications tower, providing the first on-campus wireless access for our financial ecosystem customers. We have completed the first phase and had very strong demand from customers leasing more than 20 antenna positions. While the tower represents a relatively small revenue contribution to our overall business, we expect to generate very high returns from this investment and are looking for other opportunities to replicate across our portfolio. The lower right corner of the slide provides an update for several of the important key operating metrics that we track. 72% of revenue is generated from customers with investment-grade ratings. And with more than 210 Fortune 1000 companies as customers, the credit profile of our customer base is very strong. Nearly three-quarters of the rent is from customers in multiple data centers. Moving to slide seven, we want to again highlight the yields we are able to generate and explain why the investments we are making are so compelling. The chart at the top of the slide shows the yield progression on our Carrollton data center, which is in Dallas area. As a reminder, this is near a 700,000 square foot data center with seven data halls, generally ranging from 60 to 70,000 square feet of raised floor. When the first data hall was brought online in late 2012, the development yield was negative, as you might expect given the expenses incurred with little revenue during the initial lease-up phase. Two years later, as we had leased up that data hall and built and leased up additional data halls to meet the strong demand in the Dallas market, the yield had increased to 13%. As of the end of 2018, we have invested nearly $350 million in that facility and are generating a development yield of 18%. There is still capacity available, which upon lease up will further increase that yield. The bottom half of the slide provides more color on why these investments are so attractive. The facility is currently generating approximately $63 million in annualized NOI. Based on leverage in the five times range, the investment is supported by nearly 100% debt financing. We have also created significant value at this location. Based on a cap rate assumption of five to 6%, the value of this asset would range between one to $1.3 billion which is 3.5 times greater than the investment that we made. Additionally, equity returns for our data center investments based on modest five times debt to EBITDA leverage and assuming low to mid teens yield, which is consistent with what we're earning on hyperscale facilities, would generate roughly 30% equity returns at five times leverage. This is very attractive relative to other investment opportunities and better than you can find across almost every other real estate asset class. Given this investment profile, we will continue to make these investments as we build a global business to support our customers' growth. As an aside, these returns also explain why there is such strong interest for many types of private investors, including infrastructure funds, pension and sovereign wealth funds, private equity, and insurance companies. Turning to slide eight, we continue to acquire sites to support our growth, both domestically and internationally. We recently purchased another site in Santa Clara, adjacent to our existing location, and combined with our third quarter acquisition, this gives us up to nearly 150 megawatts in a supply constrained market, which we will start bringing online in 2020. We also acquired more than 20 acres in San Antonio, which will allow us to develop 120 megawatts. We also expanded our presence in Amsterdam, purchasing a site on the Palana Park Campus just west of the city, giving us more than 70 megawatts of power capacity in one of the top European data center markets. As we announced late last year, Tesh has assumed the role of President of Europe, and I am excited to have his experience and leadership in overseeing our expansion efforts to capitalize on this significant growth opportunity as demand accelerates across the continent. He will be focusing his efforts on recreating a sales machine in Europe just like he has done in the US, and I'm sure he's gonna be unbelievably successful. 2018 was a very busy development year for us to keep pace with the strong demand. As I mentioned earlier, we completed construction on 115 megawatts, and combined with the impact of the Zennium acquisition, increased the size of our footprint by 30%. The amount of capacity that we added in 2018 was more than the entire size of our business five years ago. This was a tremendous effort by our construction team to keep pace with the record leasing. We also have substantial capacity for future growth with 2.5 million square feet of powered shell and nearly 500 acres of land that can provide over one gigawatt of power capacity, which would triple the size of our current footprint. Slide 9 provides an update on our investments in GDS and OData. GDS continues to put up staggering numbers in their business as China is exploding. Their third quarter revenue growth was 80%, while EBITDA was up 125% compared to the prior year. Their backlog represents another 60% EBITDA growth on their existing run rate. The value of our $100 million investment made in GDS in October 2017 has since increased to approximately $230 million. This is worth more than $2 per share which means that the FFO multiple on our business excluding this investment is more than half a turn lower than what many of you are probably calculating. William and his team have built a great business and the relationship we have developed with them has been outstanding, even surpassing my expectations. The nearly 20 megawatts of leasing we did with the Chinese hyperscale customers last year wouldn't have been possible without their partnership. We are also really pleased with the success that OData has had recently as they continue to grow their business in Latin America. They have begun construction on their second data center in Brazil, which is the largest data center market in the region, and will have up to 40 megawatts of power capacity, creating the largest data center campus in the market. They also have very strong leasing momentum, with fourth quarter bookings totaling $12 million in annualized revenue with a long average lease term. The total contract value of the fourth quarter leasing is significant compared to the value of the investment in the business that we made, which was $12 million. Lastly, they have begun construction on the largest carrier-neutral data center in Colombia, a market with demand from both hyperscale companies as well as enterprises. Ricardo and his team are doing an outstanding job growing their business, and we are excited to participate win their success and be able to offer a solution to our hyperscale customers as they expand into Latin America. As I have explained, there are a number of specific factors that I mentioned which are impacting our funding needs in 2019, which make this a critical investment year for our business. First, the scale of our leasing is significantly larger than our peers in terms of relative performance to our base of revenues. Said another way, for 2018, we signed new leases representing 21% of our trailing 12-month base revenues. Our public company peers are growing at a significantly slower pace, generally reporting high single to low double digit leasing as a percentage of their revenue basis. Second, we are in the midst of a significant footprint expansion, adding capacity in four new markets in Europe and one new market in the U.S., all while still continuing to add investment in our existing markets. This compares to prior years where we were largely focused only on incremental capacity within our footprint. As we have shown in the Carrollton example, we expect all of these investments will be highly accretive. Finally, we continue to make strategic investments to ensure that we are attracting revenue opportunities from buyers in every major market on the planet with investments like the one we made in GDS, so we can serve our customers wherever those businesses drive them, something we achieved with our LATAM JV with ODATA. In closing, we are in a great position as we begin 2019. I've set the company up for continued strong, profitable growth in 2020 and beyond. We have a strong track record of operational execution and an expanding international footprint, and we are also maintaining a strong balance sheet with substantial liquidity. The secular demand drivers we are seeing have not changed from the long-term trends, and we remain focused on maximizing the opportunity for value creation in the coming years. Diane will provide more color on our 2018 performance and 2019 guidance, but note that we are focused on building a global data center platform, and in order to get the scale we desire to take full advantage of the secular trends benefiting our industry, we are investing a significant amount of capital that will negatively impact our 2019 FFO per share results. I recognize that the 2019 guidance in this area is less than expected. However, I believe these investments will pay off meaningfully over the coming years. I would point out that 75% of my long-term incentive plan, as well as the rest of the senior management team of the company, is directly tied to exceeding the performance of the RMZ. So my incentives are very much aligned with those of our investors in terms of benefiting from strong stock price performance for the company. I remain very bullish on our long-term prospects, and I am positioning the company appropriately. I will now turn the call over to Dai, who will provide more color on our financial performance for the quarter and discuss our guidance for 2019. Thank you.