CyrusOne Inc

Good day and welcome to the CIRES I Second Quarter 2021 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please visit your 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, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Michael Schaefer, VP of Capital Markets and Investor Relations. Please go ahead.

Michael Schaefer Thank you, Grant. Good morning, everyone, and welcome to Cyrus One's second quarter 2021 earnings call. Today, I am joined by Dave Ferdman, President and CEO, Catherine Motlock, CFO, and John Hatem, COO. Before we begin, I would like to remind you that our second quarter earnings release along with the second quarter financial tables, are available on the investor relations section of our website at Cyrus1.com. I would also like to remind you that comments made on today's call and some of the responses to your questions deal with forward-looking statements related to Cyrus1 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 cirrus1.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, Dave Ferdman.

Thank you, Michael, and welcome to Cyrus One's second quarter earnings call. As announced yesterday afternoon, the board has separated with Bruce Duncan as president and CEO. This was not related to any matter regarding the company's operations, financial conditions or results, or the business more broadly, including the strategy. The board recognizes Bruce's many contributions during the past year, And on their behalf, I would like to thank him for his service and leadership. I will be serving as President and CEO on an interim basis while the Board undertakes a search to identify the company's next President and CEO. As some of you may know, I was co-founder of Cyrus One more than 20 years ago. I served as the President and CEO from 2000 until June of 2010 when the company was sold to Cincinnati Bell and then I served as the chief strategy officer until the IPO when I transitioned to the Cyrus One board. I am a member of the board's executive committee and have previously served on the transaction committee. I look forward to leveraging my knowledge of the industry, my continued relationships with customers and employees, and working with the team to continue to drive profitable growth. We have a great platform, great customer base, and the demand outlook remains strong and the business is well-positioned. Moving to the quarter. Beginning with slide four, you can see our key second quarter financial metrics, which Catherine will discuss shortly. We had strong leasing results, which included contributions from both hyperscale and enterprise customers across our European and U.S. markets. We signed approximately 21 megawatts, totaling $41.8 million in annualized GAAP revenue. Our revenue backlog increased to a record $129 million as of the end of June, with a total contract value of nearly $1.1 billion, equating to a weighted average lease term of more than eight years. Turning to slide five, we continue to take steps to support our growth. We completed construction on 146,000 co-location square feet, totaling 45 megawatts across our U.S. and European markets, including Dublin, London, Northern Virginia, and San Antonio. Our development pipeline consists of 280,000 co-location square feet totaling 64 megawatts, slightly weighted towards Europe, including two new projects in London. We are excited to announce our expansion into Madrid. Madrid is one of the fastest growing data center markets in Europe with the purchase of approximately five acres of land that will provide an estimated 21 megawatts of power capacity. I look forward to talk more about this in a few minutes. We further strengthened our balance sheet through the execution of our inaugural green senior notes offering issuing 500 million Euro with a tenor of seven years priced to yield just over 1.3%. We also raised $232 million in forward equity through our ATM program during the quarter. And as of the end of June, we had nearly $520 million in available forward equity to fund our development and manage our leverage. Moving to slide six, Forty-one million dollars in annualized gap revenue signed was up 27 percent compared to the four-quarter average, prior four-quarter average. As we've discussed before, the weighted average MRR per kilowatt signed for any quarter is largely a function of the leasing mix. In contrast to the first quarter, in which leasing was more heavily weighted towards hyperscale customers, and primarily in our U.S. markets, In the second quarter, we had more significant contributions from enterprise customers and our European markets. Approximately one-third of our bookings was from enterprise customers, and approximately 60 percent of the leasing was in Europe. Consistent with the trend over the last several years, the revenue contribution from our hyperscale customers continues to increase, representing approximately 53 percent of our portfolio rent at the end of the quarter. Slide seven provides an update on our interconnection results as well as some of our key portfolio metrics. As the right-hand side of the slide shows, we continue to make good progress on ESG initiatives. In addition to executing the Green Notes offering, we have achieved 100% renewable energy in Europe, well ahead of the 2030 target set forth in the EU Climate Neutral Data Center PAC. Turning to slide eight, We provide an update on Europe. I mentioned our entry into Madrid, and we think there's great opportunity in this market. It is the fastest-growing data center market in Europe outside of the core flap D markets with an estimated 66 megawatts of take-up in 2020. Our hyperscale customers have been expanding here, and as we've talked about, it's important for us to be able to offer solutions to these customers in as many markets as possible. The more valuable we can be to them with broad geographical product offering, particularly in Europe where it can be challenging to secure capacity, the more opportunities we have to win their business going forward. We are now in six markets in Europe, up from two when we entered in late 2018. Upon completion of the projects in our development pipeline, we have more than 200 megawatts of power capacity in Europe, representing approximately 20 percent of our total portfolio. We signed approximately 25 million in annualized revenues in these markets during the quarter. The leasing was broad-based geographically with Dublin, Frankfurt, and London each accounting for more than two megawatts signed. We continue to see good demand in Europe, and it's up to us to ensure we have the capacity across our markets and to convert opportunities into signed leases. Moving to slide nine, we are well-positioned heading into the second half of the year. As of the end of June, our development pipeline was 86 percent pre-leased on a co-location score footage basis, which is a near all-time high. As a result, we have meaningfully decreased the risk of our investments. And upon completion of these projects and commencement of the leases, we will be generating attractive returns. Additionally, we have significant embedded contractual revenues as a result of our quarter-end backlog. The backlog is equivalent to approximately 14 percent of our trailing 12-month base revenue. As Catherine will discuss, not all this backlog will contribute to next year's financial results. However, the impact of the backlog, combined with the full-year 2022 impact of leases that commenced earlier this year, plus the impact of future leasing, sets up us well for continued growth next year. We have shell and land inventory across our markets in the U.S. and Europe to support our growth. with more than 1,250 megawatts of potential built-out power capacity. This inventory is primarily in digital gateway markets, which are the higher-growth GDP centers in which demand is concentrated, giving us significant runway for future growth. And with nearly $2.3 billion in available liquidity, as of the end of the quarter, we have funding capacity to support near-term opportunities while maintaining significant financial flexibility and a strong balance sheet. In closing, we remain very bullish on the industry and our business, and we're seeing continued strong demand in both Europe and the U.S. We are well positioned to capitalize on opportunities, and the team is focused on consistent execution and providing outstanding service to our customers. With that, Catherine will now provide more color on our financial performance for the quarter and an update on our guidance for the year. Catherine.