2020 Annual Report
www.cyrusone.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the fiscal year ended December 31, 2020
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ___________ to ____________
Commission File Number: 001-35789
CyrusOne Inc.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
46-0691837
(I.R.S. Employer
Identification No.)
2850 N. Harwood Street, Suite 2200, Dallas, TX 75201
(Address of Principal Executive Offices) (Zip Code)
(972) 350-0060
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $.01 par value
1.450% Senior Notes due 2027
Trading Symbol
CONE
CONE27
Name of Each Exchange on Which Registered
The NASDAQ Global Select Market
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12 (g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files).
Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”,
“smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-accelerated filer
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☐
Accelerated filer
Smaller reporting company
Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ý
The aggregate market value of the Common Stock owned by non-affiliates on June 30, 2020, was $8.5 billion, computed
by reference to the closing sale price of the Common Stock on the NASDAQ Global Select Market on such date.
There were 120,460,690 shares of Common Stock outstanding as of February 12, 2021.
Portions of the definitive proxy statement relating to the Company’s 2021 Annual Meeting of Shareholders are
incorporated by reference into Part III of this report to the extent described herein.
EXPLANATORY NOTE
Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “our
Company” or “the Company” refer to CyrusOne Inc., a Maryland corporation, together with its consolidated subsidiaries,
including CyrusOne LP, a Maryland limited partnership. Unless otherwise indicated or unless the context requires otherwise, all
references to “our operating partnership” or “the operating partnership” refer to CyrusOne LP together with its consolidated
subsidiaries.
CyrusOne Inc. is a real estate investment trust, or REIT, whose only material asset is its ownership of operating partnership
units of CyrusOne LP. CyrusOne Inc. does not conduct business itself, other than acting as the sole beneficial owner and trustee
of CyrusOne GP, a Maryland statutory trust, issuing public equity from time to time and guaranteeing certain debt of CyrusOne
LP and certain of its subsidiaries. CyrusOne Inc., directly or indirectly, owns all the operating partnership units of CyrusOne LP
as of December 31, 2020 and has the full, exclusive and complete responsibility for the operating partnership's day-to-day
management and control. Effective February 1, 2021, the Company reorganized CyrusOne LP to classify the partnership as a
regarded entity under the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). See Part I, Item 1A "Risk
Factors-Risks Related to Our Organization Structure" of this Annual Report on Form 10-K ("Form 10-K") for more
information. CyrusOne Inc. itself does not issue any indebtedness but guarantees the debt of CyrusOne LP and certain of its
subsidiaries, as disclosed in this report. CyrusOne LP and its subsidiaries hold substantially all the assets of the Company.
CyrusOne LP conducts the operations of the business, along with its subsidiaries, and is structured as a partnership with no
publicly traded equity. Except for net proceeds from public equity issuances by CyrusOne Inc., which are generally contributed
to CyrusOne LP in exchange for operating partnership units, CyrusOne LP generates the capital required for the Company's
business through CyrusOne LP's operations and incurrence of indebtedness.
As of December 31, 2020, the total number of outstanding shares of our common stock was approximately 120.4 million.
On November 19, 2020, the Securities and Exchange Commission (“SEC”) adopted amendments to Regulation S-K Items 301,
302 and 303, which became effective on February 10, 2021. Although mandatory compliance is not required until our fiscal
year ending December 31, 2021, early adoption is permitted, and we have elected to early adopt amended Regulation S-K Items
301, 302 and 303 in this Form 10-K.
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TABLE OF CONTENTS
PART I
ITEM 1.
BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
PROPERTIES
ITEM 3.
LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6.
SELECTED FINANCIAL DATA
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
SIGNATURES
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K, 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. Likewise, all of our statements regarding anticipated growth in our funds from
operations and anticipated market conditions, demographics and results of operations are forward-looking statements. You can
identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,”
“should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” 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.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future
events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and we may not
be able to realize them. 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:
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the potential widespread and highly uncertain impact of public health outbreaks, epidemics and pandemics, such as the
COVID-19 pandemic;
loss of key customers;
indemnification and liability provisions as well as service level commitments in our contracts with customers imposing
significant costs on us in the event of losses;
economic downturn, natural disaster or oversupply of data centers in the limited geographic areas that we serve;
risks related to the development of our properties including, without limitation, obtaining applicable permits, power
and connectivity, and our ability to successfully lease those properties;
weakening in the fundamentals for data center real estate, including but not limited to increased competition, falling
market rents, decreases in or slowed growth of global data, e-commerce and demand for outsourcing of data storage
and cloud-based applications;
loss of access to key third-party service providers and suppliers;
risks of loss of power or cooling which may interrupt our services to our customers;
inability to identify and complete acquisitions and operate acquired properties;
our failure to obtain necessary outside financing on favorable terms, or at all;
restrictions in the instruments governing our indebtedness;
risks related to environmental, social and governance matters;
unknown or contingent liabilities related to our acquisitions;
significant competition in our industry;
recent turnover, or the further loss of, any of our key personnel;
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risks associated with real estate assets and the industry;
failure to maintain our status as a REIT or to comply with the highly technical and complex REIT provisions of the
Code;
REIT distribution requirements could adversely affect our ability to execute our business plan;
insufficient cash available for distribution to stockholders;
future offerings of debt may adversely affect the market price of our common stock;
increases in market interest rates will increase our borrowing costs and may drive potential investors to seek higher
dividend yields and reduce demand for our common stock;
market price and volume of stock could be volatile;
risks related to regulatory changes impacting our customers and demand for colocation space in particular geographies;
our international activities, including those conducted as a result of land acquisitions and with respect to leased land
and buildings, are subject to special risks different from those faced by us in the United States;
the continuing uncertainty about the future relationship between the United Kingdom and the European Union
following the United Kingdom’s withdrawal from the European Union;
expanded and widened price increases in certain selective materials for data center development capital expenditures
due to international trade negotiations;
failure to comply with anti-corruption laws and regulations;
legislative or other actions relating to taxes;
any significant security breach or cyber-attack on us or our key partners or customers;
the ongoing trade conflict between the United States and the People's Republic of China ("PRC");
increased operating costs and capital expenditures at our facilities, including those resulting from higher utilization by
our customers, general market conditions and inflation, exceeding revenue growth; and
other factors affecting the real estate and technology industries generally.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. For a further
discussion of these and other factors that could impact our future results, performance or transactions, see Part I, Item 1A “Risk
Factors” of this Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results. We disclaim any obligation other than as required by law to publicly update or
revise any forward-looking statement to reflect changes in underlying assumptions or factors or for new information, data or
methods, future events or other changes.
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ITEM 1.
BUSINESS
The Company
PART I
We are a fully integrated, self-managed data center real estate investment trust ("REIT") that owns, operates and develops
enterprise-class, carrier-neutral, multi-tenant and single-tenant data center properties. Founded in 2001, CyrusOne Inc.
successfully completed an initial public offering and began trading on the NASDAQ Exchange on January 18, 2013. Our data
centers are generally purpose-built facilities with redundant power and cooling. They are not network specific and enable
customer connectivity to a range of telecommunication carriers. We design, build, and operate facilities across the United
States, Europe and Asia that give customers the flexibility and scale to match their specific growth needs. CyrusOne specializes
in highly reliable enterprise data center colocation, engineering facilities with the highest power redundancy (i.e., "distributed
redundant" architecture and in some cases "2N architecture") and power-density infrastructure required to deliver excellent
availability. For a discussion of the steps we have taken to mitigate the potential risks to us posed by COVID-19 as well as its
effects on our business, see Part II, Item 7 of this Form 10-K.
Our strategy is focused on hyperscale cloud based providers and enterprises, including existing customers we believe have
significant data center infrastructure needs that have not yet been outsourced or will require additional data center space and
power to support their growth and their increasing reliance on technology infrastructure in their operations. We believe our
capabilities and reputation for serving the needs of large hyperscale providers and enterprises will continue to enable 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.
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The following diagram depicts our ownership structure as of December 31, 2020:
Our Business
We provide mission-critical data center real estate assets that protect and ensure the continued operation of information
technology ("IT") infrastructure for our customers. We provide twenty-four hours-a-day, seven-days-a-week security guard
monitoring with customizable security features. Our goal is to be the preferred global data center provider to hyperscale cloud
companies and to the global Fortune 1000 enterprises. Currently, CyrusOne customers include 191 of the Fortune 1000
companies as well as nine of the Fortune 20 or private or foreign enterprises of equivalent size, together representing
approximately 79% of our annualized rent as of December 31, 2020. See Our Portfolio discussion for the definition of
annualized rent. CyrusOne's growth over the past 16 years has made it the third-largest data center provider in the U.S. based on
the National Association of Real Estate Investment Trusts ("NAREIT") REITWatch report as of November 30, 2020.
Data centers are highly specialized and secure real estate assets that serve as centralized deployments of server, storage and
network equipment. They are designed to provide the space, power, cooling and network connectivity necessary to efficiently
operate mission-critical IT equipment. Telecommunications carriers typically provide network access into a data center through
optical fiber. The demand for data center infrastructure is being driven by many factors, but most importantly by significant
growth in data and increased demand for data processing and storage infrastructure. The market for data center facilities
includes cloud-centric companies with sophisticated technology requirements, as well as established “traditional” enterprises
that are web-enabling their applications and business processes.
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We cultivate long-term strategic relationships with our customers and provide them with solutions for their data center facilities
and IT infrastructure challenges. The Company provides high-quality colocation with robust connectivity and the flexibility for
customers to scale for future growth. Our offerings provide flexibility, reliability and security delivered through a tailored,
customer service-focused platform that is designed to foster long-term relationships. We focus on technology and large cloud
computing customers that are expanding their data needs rapidly in the public and private cloud environments to provide them
with solutions that address their current and future needs. Our facilities and construction design allow us to offer flexibility in
density and power resiliency, and the opportunity for expansion as our customers' needs grow. The Company's network of 55
owned or leased data centers and investments with other colocation providers, enable us to provide our customers with
solutions in the United States, Europe and Asia. The platform enables high-performance, low-cost data transfer and accessibility
for customers.
As a full-service provider of data center solutions, our primary revenue sources consist of colocation rent and power
reimbursements from the lease of our data centers and services or products we provide to our customers including managed
services, equipment sales, installation and other services. Colocation leases may include all or portions of a data center, where
customers may also lease office space to support their colocation operations. Revenue is primarily based on power usage as
well as square footage. Managed services are provided in certain contracts pursuant to terms ranging from one to five years and
include monitoring computer equipment, managing backups and storage, utilization reporting and other related ancillary
information technology services using our equipment. Equipment sales, where title transfers to the customer, typically consist
of servers, switches, networking equipment, cable infrastructure, cabinets and other miscellaneous technology communication
equipment typically installed in our colocation facilities. Other services are generally one-time services and include installation
of customer equipment, including products we sell to our tenants, performing customer system reboots, server cabinet and cage
management, power monitoring, shipping and receiving, resolving technical issues, and other hands-on service requested by the
customer.
Our Competitive Strengths
Our ability to attract and retain the world’s largest customers is attributed to the following competitive strengths, which
distinguish us from other data center operators and enable us to continue to grow our operations.
High Quality Customer Base. The high quality of our assets, combined with our reputation for serving the needs of large
enterprises and cloud companies, has enabled us to focus on the Fortune 1000, or other companies of equivalent size, to build a
quality customer base. We currently have approximately 1,000 customers from a broad spectrum of industries. Our revenue is
generated by an enterprise customer base, as evidenced by the fact that as of December 31, 2020, 79% of our annualized rent
comes from 191 of the Fortune 1000 companies as well as nine of the Fortune 20 or private or foreign enterprises of equivalent
size. We serve a diversity of industries, including information technology, financial services, energy, oil and gas, mining,
medical, research and consulting services, and consumer goods and services.
Microsoft Corporation represented 19% of our total revenue for the year ended December 31, 2020 and 20% of our annualized
rent as of December 31, 2020.
Strategically Located Portfolio. Our portfolio is located in several domestic and international markets possessing attractive
characteristics for enterprise-focused data center operations. We have domestic properties in seven of the largest metropolitan
areas in the U.S. (Northern Virginia, New York, Chicago, Houston, Phoenix, San Antonio and Dallas) and five of the largest
metropolitan areas for Fortune 500 headquarters (New York, Houston, Dallas, Chicago and Santa Clara). We also have ten
properties in international markets including four in London, United Kingdom, three in Frankfurt, Germany, one in Singapore,
one in Amsterdam, The Netherlands and one in Dublin, the Republic of Ireland. We have data centers under construction in
Santa Clara, California, Dublin, the Republic of Ireland, Frankfurt, Germany, London, United Kingdom and Paris, France. We
believe cities with large populations or a large number of corporate headquarters are likely to produce incremental demand for
IT infrastructure. In addition, being located close to our current and potential customers provides chief information officers
("CIOs") with additional confidence when outsourcing their data center infrastructure to us.
Modern, High Quality, Flexible Facilities. Our portfolio includes highly efficient, reliable facilities with flexibility to customize
customer solutions and accessibility to hundreds of connectivity providers. To optimize the delivery of power, our properties
include modern engineering technologies designed to minimize unnecessary power usage and, in our newest facilities, we are
able to provide power utilization efficiency ratios that we believe to be among the best in the multi-tenant data center industry.
Fortune 1000 CIOs are frequently dividing their application stacks into various groups as some applications require 100%
availability, while others may require significant power to support complex computing, or robust connectivity. Our facility
design enables us to deliver different power densities and resiliencies to the same customer footprint, allowing customers to
tailor solutions to meet their application needs. In addition, the National IX Platform and other connectivity solutions, discussed
below, provide access to hundreds of telecommunication and Internet carriers.
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Massively Modular® Construction Methods. Our Massively Modular® data center design principles allow us to efficiently stage
construction on a large scale and deliver critical power and colocation square feet (CSF) in a timeframe that we believe is one
of the best in the industry. We acquire or build a large powered shell capable of scaling with our customers’ power and
colocation space needs. Once the building shell is ready, we can build individual data center halls in portions of the building
space to meet the needs of customers on a modular basis. This modular data center hall construction typically can be completed
in 12 to 16 weeks to meet our customers’ immediate needs. This short construction timeframe ensures a very high utilization of
the assets and minimizes the time between our capital investment and the recognition of customer revenue, favorably impacting
our return on investment while also translating into lower costs for our customers. Our design principles also allow us to add
incremental equipment to increase power densities as our customers’ power needs increase, which provides our customers with
a significant amount of flexibility to manage their IT demands. We believe this Massively Modular® approach allows us to
respond to rapidly evolving customer needs and to commit capital toward the highest return projects.
Significant Leasing Capability. Our focus on the customer, our ability to scale with their needs, and our operational excellence
provide us with embedded future growth from our customer base. During 2020, we signed new leases representing $156.8
million in annualized revenue, with previously existing customers accounting for approximately 94% of this amount. Since
December 31, 2019, we have increased our CSF by approximately 500,000 square feet or 12%, while maintaining a high
percentage of CSF utilized of 84% and 85% as of December 31, 2020 and 2019, respectively.
Significant, Attractive Expansion Opportunities. As of December 31, 2020, we had 2.3 million gross square feet (GSF) of
powered shell available for future development and approximately 534 acres of land that are available for future data center
facility development, consisting of 476 acres in U.S. markets and 58 acres in Europe. The powered shell available for future
development in locations that are part of our portfolio consist of approximately 768,000 GSF in the Northeast (Raleigh-
Durham, Northern Virginia and New York Metro), 830,000 GSF in the Southwest (Texas and Phoenix), 478,000 GSF in the
Midwest (Chicago, Cincinnati and Iowa) and 230,000 GSF in our international markets (London, Frankfurt, Amsterdam and
Singapore). Our current development properties and available acreage were selected based on extensive site selection criteria
and the collective industry knowledge and experience of our management team, with a focus on markets with a strong presence
of and high demand by Fortune 1000 companies and providers of cloud services. As a result, we believe that our development
portfolio contains properties that are located in markets with attractive supply and demand conditions and that possess suitable
physical characteristics to support data center infrastructure.
Differentiated Reputation for Service. We believe that the decision CIOs make to outsource their data center infrastructure has
material implications for their businesses and, as such, CIOs look to third-party data center providers that have a reputation for
serving similar organizations and that are able to deliver a customized solution. We take a consultative approach to
understanding the unique requirements of our customers, and our design principles allow us to deliver a customized data center
solution to match their needs. We believe that this approach has helped fuel our growth. Our current customers are also often
the source of new contracts, with referrals being an important source of new customers.
Experienced Management Team. Our management team is comprised of individuals drawing on diverse knowledge and skill
sets acquired through extensive experiences in the real estate, REITs, telecommunications, technology and mission-critical
infrastructure industries.
Balance Sheet Positioned to Fund Continued Growth. As of December 31, 2020, we had $1,712.4 million in available
liquidity, including $956.3 million in borrowing capacity under our Amended Credit Agreement. The Amended Credit
Agreement consists of a $1.4 billion revolving credit facility ("Revolving Credit Facility"), which includes a $750.0 million
multicurrency borrowing sublimit, a 3-year term loan with commitments totaling $400.0 million ("2023 Term Loan Facility")
and a $700.0 million 5-year term loan ("2025 Term Loan Facility") (collectively, the "Amended Credit Agreement"). The
Amended Credit Agreement also includes an accordion feature providing for an aggregate increase in the revolving and term
loan components to $4.0 billion, subject to certain conditions. We believe that we are appropriately capitalized with sufficient
financial flexibility and capacity to fund our anticipated growth. See Part II, Item 7 of this Form 10-K for a discussion of our
short-term liquidity.
Experienced Sales Force with Partner Channel. We have an experienced sales force with a particular expertise in selling to
large enterprises and providers of cloud services, which can require extensive consultation and drive long sales cycles as these
enterprises make the initial outsourcing decision. As of December 31, 2020, we had 61 sales-related employees. We believe the
depth, knowledge, and experience of our sales team differentiates us from other data center companies, and we are not as
dependent on brokers to identify and acquire customers as some other companies in the industry. To complement our direct
sales efforts, we have developed a robust network of partners, including value added resellers, systems integrators and hosting
providers.
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Business and Growth Strategies
Our objective is to grow our revenue and earnings, and maximize stockholder returns and cash flow, by continuing to expand
our data center infrastructure outsourcing business.
Increasing Revenue from Existing Customers and Properties. We have historically generated a significant portion of our
revenue growth from our existing customers, with previously existing customers accounting for approximately 94%, 75% and
86% of annualized revenue from new leases during 2020, 2019 and 2018, respectively. We will continue to target our existing
customers because we believe that many have significant data center infrastructure needs that have not yet been outsourced, and
many will require additional data center space and power to support their growth and their increasing reliance on technology
infrastructure in their operations. To address new demand, as of December 31, 2020, we have approximately 2.2 million GSF
currently available for lease. We also have approximately 0.8 million GSF under development, as well as 2.3 million GSF of
additional powered shell space under roof available for future development and approximately 534 acres of land that are
available for future data center facility development.
Attracting and Retaining New Customers. Increasingly, enterprises are beginning to recognize the complexities of managing
data center infrastructure in the midst of digitalization and rapid technological development and innovation. We believe that
these complexities, brought about by the rapidly increasing levels of Internet traffic and data, private and public cloud adoption,
obsolete existing corporate data center infrastructure, increased power and cooling requirements and increased regulatory
requirements, are all driving the need for companies to outsource their data center facility requirements. Consequently, this will
significantly increase the percentage of companies that use third-party data center colocation services over the next several
years. We believe that our high-quality assets and reputation for serving cloud providers and large enterprises have been, and
will be, key differentiators for us in attracting customers that are outsourcing their data center infrastructure needs.
We acquire customers through a variety of channels. We have historically managed our sales process through a direct-to-the-
customer model but also utilize third-party leasing agents and indirect leasing channels to expand our universe of potential new
customers. Over the past few years, we have developed a network of partners in our indirect leasing channels, including value
added resellers, systems integrators and hosting providers. These channels, in combination with our marketing strategies, have
enabled us to build both a strong brand and outreach program to new customers. Throughout the life cycle of a customer’s lease
with us, we maintain a disciplined approach to monitoring their experience, with the goal of providing the highest level of
customer service. This personal attention fosters a strong relationship and trust with our customers, which lead to future growth
and leasing renewals.
Expanding into New Markets. Our expansion strategy focuses on acquiring and developing new data centers, both domestically
and internationally, in markets where our customers are located and in markets with a strong presence of and high demand by
Fortune 1000 customers and providers of cloud services. We conduct extensive analysis to ensure an identified market displays
strong data center fundamentals, independent of the demand presented by any particular customer. In addition, we consider
markets where our existing customers want us to be located. We regularly communicate with our customers to understand their
business strategies and potential data center needs. We believe that this approach, combined with our Massively Modular®
construction design, reduces the risk associated with expansion into new markets because it provides strong visibility into our
leasing opportunities and helps to ensure targeted returns on new developments. When considering a new market, we take a
disciplined approach in evaluating potential business, property and site acquisitions, including a site’s geographic attributes,
availability of telecommunications and connectivity providers, access to power, and expected costs for development.
Growing Interconnection Business. Our National IX Platform and other connectivity solutions deliver interconnection across
states and between metro-enabled sites within the CyrusOne facility footprint and beyond. The National IX Platform enables
high-performance, low-cost data transfer and accessibility for our customers seeking to connect between CyrusOne facilities,
from CyrusOne to their own private data center facility, or with one another via private peering, cross connects and/or public
switching environments. Interconnection within a facility or on the National IX Platform and other connectivity solutions allow
our customers to share information and conduct commerce in a highly efficient manner not requiring a third-party intermediary,
and at a fraction of the cost normally required to establish such a connection between two enterprises. The demand for
interconnection creates additional rental and revenue growth opportunities for us, and we believe that customer interconnections
increase our likelihood of customer retention by providing an environment not easily replicated by competitors. We act as a
trusted neutral party that enterprises, carriers and content companies utilize to connect to each other.
Our Portfolio
We operate 55 data centers, including two recovery centers, totaling 8.0 million GSF, of which 84% of the CSF is leased and
has 874 megawatts ("MW") of power capacity. This includes 13 buildings where we lease such facilities. We are lessee of
approximately 11% of our total GSF as of December 31, 2020. Also included in our total GSF, CSF and MW are pre-stabilized
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assets (which include data halls that have been in service for less than 24 months and are less than 85% leased) that have
approximately 404,187 GSF and 39% of the CSF is leased with capacity of 41 MW of power.
In addition, we have properties under development comprising approximately 0.8 million GSF and 73 MW of power capacity.
The estimated remaining total costs to develop these properties is projected to be between $321.0 million and $396.0 million.
The final costs to develop are likely to change depending on several factors including the customer capital improvements
required based on the future lease contracts executed on such properties. We also have 534 acres of land available for future
data center development. The following tables provide an overview of our operating and development properties as of
December 31, 2020.
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CyrusOne Inc.
Data Center Portfolio
As of December 31, 2020
(unaudited)
Gross Square Feet (GSF)(a)
Annualized
Rent(c)
($000)
Colocation
Space
(CSF)(d)
(000)
CSF
Occupied(e)
CSF
Leased(f)
Office &
Other(g)
(000)
Office &
Other
Occupied(h)
Supporting
Infrastructure(i)
(000)
Total(j)
(000)
$ 95,690
428
77 % 79 %
83
45 %
133
644
68,889
383
99 % 99 %
11
100 %
145
539
Powered
Shell
Available
for Future
Development
(GSF)(k)
(000)
Available
Critical
Load
Capacity
(MW)(l)
—
231
—
10
28
—
—
27
3
—
279
46
—
—
62
67
11
31
—
—
235
—
11
—
—
—
—
—
13
4
9
—
—
—
—
—
209
272
1
—
—
87
—
204
29
60
69
57
35
23
30
24
52
32
21
24
17
12
18
12
11
12
12
12
12
14
12
12
15
7
15
12
7
12
21
12
12
12
9
11
9
6
16
6
1
5
3
4
6
2
272
90
153
159
132
113
112
114
148
197
51
53
65
62
80
74
78
74
94
68
44
79
37
81
64
44
72
64
30
73
60
53
63
47
53
77
20
10
20
13
34
79
14
100 % 100 %
100 % 100 %
86 % 86 %
100 % 100 %
100 % 100 %
98 % 98 %
76 % 76 %
75 % 75 %
100 % 100 %
52 % 52 %
87 % 87 %
97 % 97 %
99 % 99 %
68 % 68 %
71 % 71 %
99 % 99 %
100 % 100 %
100 % 100 %
35
9
27
9
9
34
11
11
6
6
22
8
45
15
4
35
6
6
88 % 94 %
16
100 % 100 %
99 % 99 %
100 % 100 %
62 % 62 %
100 % 100 %
100 % 100 %
88 % 88 %
100 % 100 %
100 % 100 %
100 % 100 %
100 % 100 %
100 % 100 %
99 % 99 %
39 % 39 %
65 % 65 %
45 % 48 %
53 % 53 %
100 % 100 %
2
6
7
20
7
11
2
1
10
12
3
12
47
23
1
10
45
2
91 % 91 % —
23 % 23 % —
99 % 99 %
100 % 100 %
4
26
16 % 16 % —
62 % 62 %
4
13
— %
100 %
99 %
100 %
100 %
100 %
100 %
59 %
100 %
61 %
86 %
91 %
79 %
81 %
97 %
12 %
69 %
53 %
95 %
— %
83 %
100 %
86 %
100 %
100 %
100 %
95 %
100 %
56 %
100 %
100 %
87 %
24 %
100 %
13 %
1 %
100 %
— %
— %
67 %
98 %
— %
45 %
—
307
72
171
149
329
55
223
43
184
223
371
37
161
54
180
32
187
175
378
59
133
57
118
53
163
21
98
55
139
39
147
49
132
26
105
82
192
30
101
46
96
34
120
15
72
34
122
41
22
117
68
16
89
93
166
58
100
27
103
27
99
40
140
25
112
35
83
32
95
14
45
1
8
136
67
11
28
41
58
17
78
58
137
12
30
57,786
40,140
Stabilized Properties(b)
Dallas - Carrollton
Northern Virginia - Sterling V
Northern Virginia - Sterling VI
Frankfurt II
Somerset I
Metro
Area
Dallas
Northern
Virginia
Northern
Virginia
Frankfurt
New York Metro
34,594
Northern Virginia - Sterling II
San Antonio III
Chicago - Aurora I
Houston - Houston West I
Dallas - Lewisville*
Phoenix - Chandler VI
Northern
Virginia
San Antonio
Chicago
Houston
Dallas
Phoenix
Cincinnati - 7th Street***
Cincinnati
34,575
32,727
32,686
28,789
28,272
27,460
26,252
Totowa - Madison*
New York Metro
26,023
Frankfurt I
Frankfurt
Cincinnati - North Cincinnati
Cincinnati
Austin
Houston
Phoenix
Northern
Virginia
Phoenix
Austin III
Houston - Houston West II
Phoenix - Chandler I
Northern Virginia - Sterling I
Phoenix - Chandler II
Raleigh-Durham I
Phoenix - Chandler III
San Antonio I
Northern Virginia - Sterling III
Raleigh-Durham
19,907
Phoenix
San Antonio
Northern
Virginia
19,684
19,498
19,234
25,390
22,914
22,889
21,461
20,918
20,533
20,389
Wappingers Falls I*
New York Metro
18,591
Northern Virginia - Sterling IV
San Antonio II
Austin II
Phoenix - Chandler V
London II*
London I*
Phoenix - Chandler IV
San Antonio IV
Florence
Houston - Galleria
Cincinnati - Hamilton*
Houston - Houston West III
Chicago - Aurora II (DH #1)
London III*
Northern
Virginia
San Antonio
Austin
Phoenix
London
London
Phoenix
San Antonio
Cincinnati
Houston
Cincinnati
Houston
Chicago
London
London - Great Bridgewater** London
Stamford - Riverbend*
Norwalk I*
Cincinnati - Mason
Dallas - Allen (DH #1)
Chicago - Lombard
New York Metro
New York Metro
Cincinnati
Dallas
Chicago
17,743
15,917
15,719
15,629
13,658
13,615
12,245
12,014
10,822
9,835
9,082
7,271
6,678
6,522
5,917
5,514
5,157
4,932
3,294
2,538
CyrusOne Inc.
Data Center Portfolio
As of December 31, 2020
(Unaudited)
Metro
Area
Annualized
Rent(c)
($000)
Colocation
Space
(CSF)(d)
(000)
CSF
Occupied(e)
CSF
Leased(f)
Office &
Other(g)
(000)
Office &
Other
Occupied(h)
Supporting
Infrastructure(i)
(000)
Total(j)
(000)
Gross Square Feet (GSF)(a)
Stabilized Properties(b)
Amsterdam I
Frankfurt III
San Antonio V
Amsterdam
$
Frankfurt
San Antonio
Totowa - Commerce*
New York Metro
Cincinnati - Blue Ash*
Cincinnati
Singapore - Inter Business
Park**
Singapore
Stamford - Omega*
New York Metro
Somerset I (DH #14)
New York Metro
Stabilized Properties - Total
Pre-Stabilized Properties(b)
Northern Virginia - Sterling
VIII
Northern
Virginia
Phoenix - Chandler V (DH #2) Phoenix
Northern Virginia - Sterling IX
Council Bluffs I
London II* (DH #3)
London I* (DH #1)
All Properties - Total
Northern
Virginia
Iowa
London
London
2,338
1,606
892
728
557
388
321
39
85
134
—
6
3
—
100 % 100 %
100 % 100 %
40 % 89 %
— % — %
36 % 36 %
15
13
7
20
7
20 % 20 % —
— % — %
19
$ 986,224
4,398
85 % 87 %
745
100 %
100 %
100 %
44 %
100 %
— %
23 %
63 %
8,587
2,344
1,634
1,049
263
—
—
61
71
16
53
42
17
8
37 % 37 %
35 % 56 %
4
1
— %
100 %
82 % 82 % —
— %
27 % 40 %
9 % 15 %
1
14
— % — % —
— % — % —
— %
— %
— %
— %
61 %
$ 1,000,101 4,665
82 % 84 %
766
Powered
Shell
Available
for Future
Development
(GSF)(k)
(000)
Available
Critical
Load
Capacity
(MW)(l)
207
—
1
4
31
15
—
—
—
—
1
1
—
—
40
94
72
170
38
179
6
2
26
15
—
3
4
22
2,491
7,634
2,077
833
25
90
8
81
—
16
66
120
18
73
—
17
—
8
—
—
—
187
42
—
—
6
12
2
6
5
7
3
2,607
8,038
2,305
874
*
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 is
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 Cincinnati - 7th Street property includes data for two facilities, one of which we lease and one of which we own.
(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) Stabilized properties include data halls that have been in service for at least 24 months or are at least 85% leased. Pre-stabilized properties include data
halls that have been in service for less than 24 months and are less than 85% leased.
(c) Represents monthly contractual rent (defined as cash rent including customer reimbursements for metered power) under existing customer leases as of
December 31, 2020 multiplied by 12. For the month of December 2020, customer reimbursements were $173.6 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 January 1, 2019
through December 31, 2020, customer reimbursements under leases with separately metered power constituted between 13.5% and 19.4% of annualized
rent. After giving effect to abatements, free rent and other straight-line adjustments, our annualized effective rent as of December 31, 2020 was $1,000.7
million. Our annualized effective rent was lower than our annualized rent as of December 31, 2020 because our negative straight-line and other
adjustments and amortization of deferred revenue exceeded our positive straight-line adjustments due to factors such as the timing of contractual rent
escalations and customer payments for services.
(d) CSF represents the GSF at an operating facility that is currently leased or readily available for lease as colocation space, where customers locate their
(e)
servers and other IT equipment.
Percent occupied is determined based on CSF billed to customers under signed leases as of December 31, 2020 divided by total CSF. Leases signed but
that have not commenced billing as of December 31, 2020 are not included.
(f)
Percent leased is calculated by dividing CSF under signed leases for colocation space (whether or not the lease has commenced billing) by total CSF.
(g) Represents the GSF 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.
(h) Percent occupied is determined based on Office & Other space being billed to customers under signed leases as of December 31, 2020 divided by total
Office & Other space. Leases signed but not commenced as of December 31, 2020 are not included.
(i) Represents infrastructure support space, including mechanical, telecommunications and utility rooms, as well as building common areas.
(j) Represents the GSF at an operating facility that is currently leased or readily available for lease. This excludes existing vacant space held for
development.
(k) Represents space that is under roof that could be developed in the future for GSF, rounded to the nearest 1,000.
(l) Critical power capacity represents the gross aggregate of UPS power installed and available to provide multiple redundancy levels for lease and
exclusive use by customers. Capacity is stated in megawatts as represented by UPS manufacturer nameplate ratings and does not include ancillary UPS
capacity not configured for the direct support of leased customer critical IT load (e.g. dedicated office power, office disaster recovery UPS, or UPS
utilized by CyrusOne for infrastructure control circuits). The available critical load capacity was restated for certain properties as compared to our
September 30, 2020 disclosure based on a reconciliation performed for each property. Does not sum to total due to rounding.
14
CyrusOne Inc.
GSF Under Development
As of December 31, 2020
(Dollars in millions)
(unaudited)
Facilities
Metro Area
San Antonio V
San Antonio
Somerset I (DH #15 and
#16)
New York
Cincinnati - North
Cincinnati
Dublin I
London III
Northern Virginia -
Sterling VIII
Frankfurt III (DH #2 and
#3)
Paris I(g)
Frankfurt III (DH #4)
Frankfurt IV
Total
Cincinnati
Dublin
London
Northern
Virginia
Frankfurt
Paris
Frankfurt
Frankfurt
GSF Under Development(a)
Under Development Costs(b)
Estimated
Completion
Date
Colocation
Space
(CSF)
(000)
Office &
Other
(000)
Supporting
Infrastructure
(000)
Powered
Shell(c)
(000)
Total
(000)
Critical
Load MW
Capacity(d)
Actual
to
Date(e)
Estimated
Costs to
Completion(f)
Total
1Q'21
1Q'21
2Q'21
2Q'21
2Q'21
2Q'21
2Q'21
2Q'21
3Q'21
4Q'22
—
54
3
76
19
—
23
26
15
73
289
8
—
—
19
—
—
3
4
3
11
47
—
9
—
32
—
—
29
15
15
39
—
—
—
8
63
3
78
204
—
19
6.0
$0
$25-27
$25-27
5.0
11
25-30
36-41
2.0
—
12.0
6.0
64
12
9-12
47-64
19-24
9-12
111-128
31-36
—
—
6.0
—
20-23
20-23
—
55
201
246
—
33
—
122
9.0
6.0
4.0
14
21
5
9-13
34-47
8-11
23-27
55-68
13-16
17.0
—
125-145
125-145
137
279
753
73.0
$127
$321-396 $448-523
(a) Represents GSF at a facility for which, as of December 31, 2020, activities have commenced or are expected to commence in the next 2 quarters to
prepare the space for its intended use. Estimates and timing are subject to change. May not sum to total due to rounding.
(b) London development costs are GBP-denominated and shown as USD-equivalent based on an exchange rate of 1.37 as of December 31, 2020. Dublin,
Frankfurt and Paris development costs are EUR-denominated and shown as USD-equivalent based on an exchange rate of 1.23 as of December 31,
2020.
(c) Represents GSF under construction that, upon completion, will be powered shell available for future development into GSF.
(d) Critical power capacity represents the gross aggregate of UPS power installed and available to provide multiple redundancy levels for lease and
exclusive use by customers. Capacity is stated in megawatts as represented by UPS manufacturer nameplate ratings and does not include ancillary UPS
capacity not configured for the direct support of leased customer critical IT load.
(e) Actual to date is the cash investment as of December 31, 2020. There may be accruals above this amount for work completed, for which cash has not
yet been paid.
(f) Represents management’s estimate of the total costs required to complete the current GSF under development. There may be an increase in costs if
customers require greater power density.
(g) Paris I is 100% pre-leased, with development planned in phases through mid-2026 to align with customer commitments.
15
Customer Diversification
Our portfolio is currently leased to approximately 1,000 customers, many of which are leading global companies. The following
table sets forth information regarding the 20 largest customers, including their affiliates, in our portfolio based on annualized
rent as of December 31, 2020:
CyrusOne Inc.
Customer Sector Diversification(a)
As of December 31, 2020
(unaudited)
Principal Customer Industry
Number of
Locations
Annualized
Rent(b) (000)
Percentage of
Portfolio
Annualized
Rent(c)
Weighted
Average
Remaining
Lease Term in
Months(d)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Financial Services
Information Technology
Healthcare
Research and Consulting Services
Financial Services
Telecommunication Services
Telecommunication Services
Information Technology
Consumer Staples
Telecommunication Services
Industrials
Information Technology
Telecommunication Services
11 $
195,581
19.6 %
11
5
5
6
9
7
1
3
2
3
4
2
2
1
3
1
5
1
8
70,461
56,062
46,222
41,633
25,394
19,781
19,462
17,092
15,852
13,258
11,019
10,191
9,991
9,734
9,235
8,330
8,033
7,657
7,589
7.0 %
5.6 %
4.6 %
4.2 %
2.5 %
2.0 %
1.9 %
1.7 %
1.6 %
1.3 %
1.1 %
1.0 %
1.0 %
1.0 %
0.9 %
0.8 %
0.8 %
0.8 %
0.8 %
$
602,578
60.3 %
90.1
22.3
43.3
30.5
41.4
41.1
27.0
123.0
35.9
84.0
22.0
87.2
10.5
39.4
38.6
2.5
82.4
26.2
7.2
25.0
56.4
(a) Customers and their affiliates are consolidated.
(b) Represents monthly contractual rent (defined as cash rent including customer reimbursements for metered power) under existing customer leases as of
December 31, 2020, multiplied by 12. For the month of December 2020, customer reimbursements were $173.6 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 January 1, 2019
through December 31, 2020, customer reimbursements under leases with separately metered power constituted between 13.5% and 19.4% of annualized
rent. After giving effect to abatements, free rent and other straight-line adjustments, our annualized effective rent as of December 31, 2020 was $1,000.7
million. Our annualized effective rent was lower than our annualized rent as of December 31, 2020 because our negative straight-line and other
adjustments and amortization of deferred revenue exceeded our positive straight-line adjustments due to factors such as the timing of contractual rent
escalations and customer payments for services.
(c) Represents the customer’s total annualized rent divided by the total annualized rent in the portfolio as of December 31, 2020, which was approximately
$1,000.1 million.
(d) Weighted average based on customer’s percentage of total annualized rent expiring and is as of December 31, 2020, 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.
16
Lease Distribution
The following table sets forth information relating to the distribution of customer leases in the properties in our portfolio, based
on GSF under lease as of December 31, 2020:
CyrusOne Inc.
Lease Distribution
As of December 31, 2020
(unaudited)
GSF Under Lease(a)
0-999
1000-2499
2500-4999
5000-9999
10000+
Total
Number of
Customers(b)
Percentage of
All Customers
Total Leased
GSF(c) (000)
Percentage of
Portfolio
Leased GSF
Annualized
Rent(d) (000)
Percentage of
Annualized Rent
632
115
67
43
87
944
67 %
12 %
7 %
5 %
9 %
100 %
127
179
236
302
5,012
5,856
2 % $
3 %
4 %
5 %
96,007
46,517
47,217
49,128
86 %
761,232
100 % $
1,000,101
10 %
4 %
5 %
5 %
76 %
100 %
(a) Represents all leases in our portfolio, including colocation, office and other leases.
(b) Represents the number of customers occupying data center, office and other space as of December 31, 2020. This may vary from total customer count
as some customers may be under contract but have yet to occupy 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 GSF is estimated based on such customer’s direct CSF or office and light-industrial space plus management’s estimate
of infrastructure support space, including mechanical, telecommunications and utility rooms, as well as building common areas.
(d) Represents monthly contractual rent (defined as cash rent including customer reimbursements for metered power) under existing customer leases as of
December 31, 2020, multiplied by 12. For the month of December 2020, customer reimbursements were $173.6 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 January 1, 2019
through December 31, 2020, customer reimbursements under leases with separately metered power constituted between 13.5% and 19.4% of annualized
rent. After giving effect to abatements, free rent and other straight-line adjustments, our annualized effective rent as of December 31, 2020 was $1,000.7
million. Our annualized effective rent was lower than our annualized rent as of December 31, 2020 because our negative straight-line and other
adjustments and amortization of deferred revenue exceeded our positive straight-line adjustments due to factors such as the timing of contractual rent
escalations and customer payments for services.
17
Lease Expiration
The following table sets forth a summary schedule of the customer lease expirations for leases in place as of December 31,
2020, plus available space, for each of the 10 full calendar years beginning January 1, 2021, at the properties in our portfolio.
CyrusOne Inc.
Lease Expirations
As of December 31, 2020
(unaudited)
Year(a)
Available
Month-to-Month
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031 - Thereafter
Total
Number of
Leases
Expiring(b)
Total GSF
Expiring (000)
Percentage of
Total GSF
Annualized
Rent(c) (000)
Percentage of
Annualized Rent
Annualized
Rent
at Expiration
(d) (000)
Percentage of
Annualized
Rent at
Expiration
1,484
3,225
2,062
1,497
351
170
64
42
18
8
8
23
2,178
27 %
208
728
830
3 % $
39,394
4 % $
42,355
9 %
175,710
18 %
182,041
10 %
148,330
15 %
155,371
1,023
13 %
163,263
16 %
176,342
501
284
670
552
278
83
160
542
6 %
4 %
8 %
7 %
3 %
1 %
2 %
7 %
111,226
43,477
104,585
93,866
35,779
6,863
7,432
70,173
11 %
123,231
4 %
55,275
10 %
111,564
9 %
108,449
4 %
1 %
1 %
7 %
40,340
8,832
20,003
83,180
4 %
16 %
14 %
16 %
11 %
5 %
10 %
10 %
4 %
1 %
2 %
7 %
8,952
8,038
100 % $
1,000,101
100 % $ 1,106,982
100 %
(a) Leases that were auto-renewed prior to December 31, 2020 are shown in the calendar year in which their current auto-renewed term expires. Unless
otherwise stated in the footnotes, the information set forth in the table assumes 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.
(b) Number of leases represents each agreement with a customer. A lease agreement could include multiple spaces and a customer could have multiple
leases.
(c) Represents monthly contractual rent (defined as cash rent including customer reimbursements for metered power) under existing customer leases as of
December 31, 2020, multiplied by 12. For the month of December 2020, customer reimbursements were $173.6 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 January 1, 2019
through December 31, 2020, customer reimbursements under leases with separately metered power constituted between 13.5% and 19.4% of annualized
rent. After giving effect to abatements, free rent and other straight-line adjustments, our annualized effective rent as of December 31, 2020 was $1,000.7
million. Our annualized effective rent was lower than our annualized rent as of December 31, 2020 because our negative straight-line and other
adjustments and amortization of deferred revenue exceeded our positive straight-line adjustments due to factors such as the timing of contractual rent
escalations and customer payments for services.
(d) Represents the final monthly contractual rent under existing customer leases that had commenced as of December 31, 2020, multiplied by 12.
18
Regulation
General
Properties in our markets are subject to various laws, ordinances and regulations, including regulations relating to common
areas. In addition to the regulations described below, we are subject to various federal, state and local regulations, such as state
and local fire and life safety and environmental regulations. We believe that each of our properties has, or is expected to have
when required, the necessary permits and approvals for us to operate our business.
Americans With Disabilities Act
Our properties must comply with Title III of the Americans with Disabilities Act of 1990, or the ADA, to the extent that such
properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access
by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that
our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital
expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of
fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one,
and we will continue to assess our properties and to make alterations as appropriate in this respect.
Environmental Matters
We are subject to laws and regulations relating to the protection of the environment, the storage, management and disposal of
hazardous materials, emissions to air and discharges to water, the cleanup of contaminated sites, noise ordinances and health
and safety matters. These include various regulations promulgated by the Environmental Protection Agency and other federal,
state, and local regulatory agencies and legislative bodies relating to our operations, including those involving power
generators, batteries, and fuel storage to support co-location infrastructure. While we believe that our operations are in
substantial compliance with environmental, health, and human safety laws and regulations, as an owner or operator of property
and in connection with the current and historical use of hazardous materials and other operations at its sites, we could incur
significant costs, including fines, penalties and other sanctions, cleanup costs and third-party claims for property damages or
personal injuries, as a result of violations of or liabilities under environmental laws and regulations. Fuel storage tanks are
present at many of our properties, and if releases were to occur, we may be liable for the costs of cleaning up resulting
contamination. Some of our sites also have a history of previous commercial operations, including past underground storage
tanks.
Some of the properties may contain asbestos-containing building materials. Environmental laws require that asbestos-
containing building materials be properly managed and maintained and may impose fines and penalties on building owners or
operators for failure to comply with these requirements.
Environmental consultants have conducted Phase I or similar non-intrusive environmental site assessments on recently acquired
properties and, if appropriate, additional environmental inquiries and assessments. Nonetheless, we may acquire or develop
sites in the future with unknown environmental conditions from historical operations. Although we are not aware of any sites at
which we currently have material remedial obligations, the imposition of remedial obligations as a result of spill or the
discovery of contaminants in the future could result in significant additional costs to us.
Our operations also require us to obtain permits and/or other governmental approvals and to develop response plans in
connection with the use of our generators or other operations. These requirements could restrict our operations or delay the
development of data centers in the future. In addition, from time to time, federal, state or local government regulators enact new
or revise existing legislation or regulations that could affect us, either beneficially or adversely. As a result, we could incur
significant costs in complying with environmental laws or regulations that are promulgated in the future.
Insurance
We carry comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all of the
properties in our portfolio under a blanket policy. In the opinion of our management, our policy specifications, limits and
insurance carriers are appropriate given the relative risk of loss, the cost of coverage and industry practice. We cannot provide
any assurance that the business interruption or property insurance we have will cover all losses that we may experience, that the
insurance carrier will be solvent, that rates will remain commercially reasonable, that insurance carriers will not cancel our
policies, or that the insurance carriers will pay all claims made by us. Certain circumstances, such as acts of war, are generally
uninsurable under our policies. See also “Risk Factors-Risks Related to Our Business and Operations." Any losses to our
properties that are not covered by insurance, or that exceed our policy coverage limits, could adversely affect our business,
financial condition and results of operations.
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Competition
We compete with numerous public and private companies, developers, owners and operators of technology-related real estate
and data centers, many of which own properties similar to ours in the same markets in which our properties are located, as well
as various other public and privately held companies that may provide data center colocation as part of a more expansive
managed services offering. If our competitors offer space at rental rates below current market rates or below the rental rates we
currently charge our customers or otherwise adopt aggressive pricing policies, or if our competitors offer space that tenants
perceive to be superior to ours (based on numerous factors including power, security considerations, location or network
connectivity), we may lose existing or potential customers and we may be pressured to reduce our rental rates below those we
currently charge in order to retain customers when our customers’ leases expire or incur costs to improve our properties. In
addition, our customers have the option of building their own data center space which can also place pressure on our rental
rates.
As a developer of data center space and provider of interconnection services, we also compete for the services of key third-party
providers of services, including engineers and contractors with expertise in the development of data centers. There is
competition for the services of specialized contractors and other third-party providers required for the development of data
centers, increasing the cost of engaging such providers and the risk of delays in completing our development projects.
In addition, we face competition from real estate developers in our sector and in other industries for the acquisition of additional
properties suitable for the development of data centers. Such competition may reduce the number of properties available for
acquisition, increase the price of these properties and reduce the demand for data center space in the markets we seek to serve.
Human Capital
As of December 31, 2020, we have 441 team members employed by the Company, including 88 employees located in European
countries. This includes approximately 209 in data center operations, 61 in sales and marketing, 29 in construction and
engineering and 142 in corporate operations. None of our employees have chosen to be represented by a labor union.
Our employees focus on taking care of our customers which we believe drives value creation for our shareholders. We offer
competitive benefits and training programs to develop employees’ expertise and performance and have corporate policies to
strive to provide a safe, harassment-free work environment guided by principles of fair and equal treatment and prioritize
effective communication and employee engagement. The Company maintains an Ethics and Compliance Hotline designed for
employees or other stakeholders to report any violation of our policies, including our Code of Business Conduct and Ethics, or
other concerns you may have regarding unethical or illegal business conduct. See Part III, Item 10 "Directors, Executive
Officers and Corporate Governance” of this Annual Report on Form 10-K ("Form 10-K") for more information.
We track key human capital metrics including demographics, talent pipeline, diversity, and employee engagement. We have a
stable workforce with an average tenure of 4.5 years and voluntary employee turnover of approximately 7% during the year
ended December 31, 2020. To attract diversity in our applicant pools, we post our openings to a wide variety of job boards and
deploy appropriate language in our postings. As of December 31, 2020, our U.S. workforce is approximately 67% non-
minority, 31% minority and 2% have chosen not to identify. As of December 31, 2020, our employee base self-identified as
78% male and 22% female, and our senior leadership team consists of 17% executives identifying as female. As of February
19, 2021, our board of directors consists of 25% directors identifying as female or minority.
Financial Information
For financial information related to our operations, please refer to the financial statements including the notes thereto, included
in this Form 10-K.
How to Obtain Our SEC Filings
We file annual, quarterly and current reports, proxy statements and other information with the SEC. All reports we file with the
SEC will be available free of charge via EDGAR through the SEC website at http://www.sec.gov. We make available our
reports on Forms 10-K, 10-Q, and 8-K (as well as all amendments to these reports), and other information, free of charge, at the
"Investors" section of our website at http://www.cyrusone.com. The information found on, or otherwise accessible through, our
website is not incorporated by reference into, nor does it form a part of, this report or any other document that we file with the
SEC.
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ITEM 1A.
RISK FACTORS
You should carefully consider all the risks described below, as well as the other information contained in this document when
evaluating your investment in our securities. Any of the following risks could materially and adversely affect our business,
financial condition, results of operations, cash flows and ability to pay dividends as well as the market price of our common
stock. The risks and uncertainties described below are those that we currently believe may materially affect our Company.
Additional risks and uncertainties of which we are unaware or that we currently deem immaterial also may become important
factors that affect our Company. The occurrence of any of the following risks might cause you to lose all or a part of your
investment. Some statements in this Form 10-K, including statements in the following risk factors, constitute forward-looking
statements. Please refer to the section entitled “Special Note Regarding Forward-Looking Statements.”
Summary Risk Factors
The following is a summary of some of the risks and uncertainties that could materially adversely affect our business, financial
condition, results of operations, cash flows and ability to pay dividends as well as the market price of our common stock. You
should read this summary together with the more detailed description of each risk factor contained below.
Risks Related to Our Business and Operations
• A small number of customers account for a significant portion of our revenue.
• A significant percentage of our customer leases expire each year or are on a month-to-month basis, and many of our
leases contain early termination provisions.
• Our contracts with our customers typically contain indemnification and liability provisions, in addition to service level
commitments, which could potentially impose a significant cost on us in the event of losses.
• Our customers may choose to develop or relocate into new data centers or expand their own existing data centers,
which could result in the loss of one or more key customers or reduce demand for our data centers.
• A decrease in the demand for data center space, or an increase in supply driving down market prices, could adversely
affect our business, financial condition, results of operations, cash flows and ability to pay dividends as well as the
market price of our common stock.
• We face significant competition and may be unable to lease vacant space, renew existing leases or re-lease space as
leases expire.
• We do not own all of the land or buildings in which our data centers are located but lease or sublease certain of our
data center spaces.
• Our real estate development strategies may not be successful, and our growth depends on our data center development
activities and our ability to successfully lease our developed properties.
• Any failure of our physical infrastructure or services could lead to significant costs and disruptions that could reduce
our revenues and harm our brand and reputation.
• Our data center infrastructure may become obsolete, and we may not be able to operate or upgrade our power and
cooling systems cost-effectively, or at all.
• We have been and may continue to be vulnerable to security breaches or cyber-attacks which have disrupted and could
disrupt our operations and harm our brand and reputation.
• We may be subject to unknown or contingent liabilities related to properties or businesses that we acquire for which
we may have limited or no recourse against the sellers.
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•
Recent turnover, or the further loss, of any of our key personnel, including our executive officers or key sales
associates.
• Any failure of our connectivity solutions could lead to significant costs and disruptions that could reduce our revenue
and harm our business reputation and financial results.
Risks Related to the Real Estate Industry
• Our performance and value are subject to risks associated with real estate assets and with the real estate industry.
•
Illiquidity of real estate investments, particularly our data centers, could significantly impede our ability to respond to
adverse changes in the performance of our properties, which could harm our financial condition.
Risks Related to Our Debt and Capital Structure
•
To fund our growth strategy and refinance our indebtedness, we depend on external sources of capital, which may not
be available to us on commercially reasonable terms or at all.
• We have significant outstanding indebtedness that involves significant debt service obligations, limits our operational
and financial flexibility, exposes us to interest rate fluctuations and exposes us to the risk of default under our debt
obligations.
•
Failure to hedge effectively against interest rate changes and our increased exposure to foreign currency fluctuations as
a result of our foreign currency hedging activities may adversely affect our results of operations.
Risks Related to Our General Business
•
The recent novel coronavirus (COVID-19) pandemic and measures to prevent its spread could materially adversely
impact our business, financial condition, results of operations, cash flows and ability to pay dividends as well as the
market price of our common stock.
• Our international activities are subject to special risks different from those faced by us in the United States, including
compliance with anti-corruption laws and regulations, and we may not be able to effectively manage our international
business.
•
The continuing uncertainty following the United Kingdom’s withdrawal from the European Union may have a
negative effect on global economic conditions, financial markets and our business, which could adversely affect our
business, financial condition and results of operations.
Risks Related to Our Organizational Structure
• Our rights and the rights of our stockholders to take action against our directors and officers are limited.
• Our charter and bylaws, the partnership agreement of our operating partnership and certain provisions of Maryland law
contain provisions that may delay, defer or prevent an acquisition of our common stock or a change in control.
Risks Related to Status as a REIT
•
If we fail to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and
could face a substantial tax liability and even if we remain qualified as a REIT, we may face other tax liabilities that
reduce our cash flow.
• Qualifying as a REIT involves highly technical and complex Code provisions. Our continued qualification as a REIT
will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other
requirements on a continuing basis.
•
REIT distribution requirements could adversely affect our ability to execute our business plan.
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•
REIT requirements may limit opportunities.
Risks Related to Our Common Stock
• Our cash available for distribution to stockholders may not be sufficient to make distributions at expected levels, and
we may need to borrow in order to make such distributions; consequently, we may not be able to make such
distributions in full.
Risks Related to Our Business and Operations
A small number of customers account for a significant portion of our revenue. The loss or significant reduction in
business from one or more of our large customers could significantly harm our business, financial condition, results of
operations, cash flows and ability to pay dividends as well as the market price of our common stock.
We currently depend, and expect to continue to depend, upon a relatively small number of customers for a significant
percentage of our revenue. Our top 10 customers collectively accounted for approximately 51% of our total annualized rent as
of December 31, 2020. We have one customer which represented 19% of our total revenue as of December 31, 2020 and 20%
of our annualized rent as of December 31, 2020. As a result of this customer concentration, our business, financial condition,
results of operations, cash flows and ability to pay dividends as well as the market price of our common stock could be
adversely affected if we lose one or more of our larger customers, if one or more of such customers significantly reduce their
business with us or if we choose not to enforce, or to enforce less vigorously, any rights that we may have now or in the future
against these significant customers because of our desire to maintain our relationship with them.
A significant percentage of our customer base is also concentrated in two industry sectors: information technology and financial
services. Enterprises in the information technology and financial services sectors comprised approximately 61% and 14%
respectively, of our annualized rent as of December 31, 2020. A downturn in one of these industries could negatively impact the
financial condition of one or more of our information technology or financial services customers, including several of our larger
customers. In addition, instability in financial markets and economies generally may adversely affect our customers’ ability to
replace or renew maturing liabilities on a timely basis, access the capital markets to meet liquidity and capital expenditure
requirements and may result in adverse effects on our customers’ financial condition and results of operations. As a result of
these factors, customers could default on their obligations to us, delay the purchase of new services from us or decline to renew
expiring leases, any of which could have an adverse effect on our business, financial condition, results of operations, cash flows
and ability to pay dividends as well as the market price of our common stock.
Additionally, if any customer becomes a debtor in a case under the U.S. Bankruptcy Code, applicable bankruptcy laws may
limit our ability to terminate our contract with such customer solely because of the bankruptcy or recover any amounts owed to
us under our agreements with such customer. In addition, applicable bankruptcy laws could allow the customer to reject and
terminate its agreement with us, with limited ability for us to collect the full amount of our damages. Our business, including
our revenue and cash available for distribution to our stockholders, could be adversely affected if any of our significant
customers were to become bankrupt or insolvent.
A significant percentage of our customer leases expire each year or are on a month-to-month basis, and many of our
leases contain early termination provisions. If leases with our customers are not renewed on the same or more favorable
terms or are terminated early by our customers, our business, financial condition, results of operations, cash flows and
ability to pay dividends as well as the market price of our common stock could be substantially harmed.
Our customers may not renew their leases upon expiration. This risk is increased by the significant percentage of our customer
leases that expire every year. As of December 31, 2020, leases representing 18%, 15% and 16% of the annualized rent for our
portfolio will expire during 2021, 2022 and 2023, respectively, and an additional 4% of the 2020 annualized rent for our
portfolio was from month-to-month leases. While historically we have retained a significant number of our customers,
including those leasing from us on a month-to-month basis, upon expiration our customers may elect not to renew their leases
or renew their leases at lower rates, for less space, for fewer services or for shorter terms. If we are unable to successfully renew
or continue our customer leases on the same or more favorable terms or subsequently re-lease available data center space when
such leases expire, our business, financial condition, results of operations, cash flows and ability to pay dividends as well as the
market price of our common stock could be adversely affected.
In addition, many of our leases contain early termination provisions that allow our customers to reduce the term of their leases
subject to payment of an early termination charge that is often a specified portion of the remaining rent payable on such leases.
The exercise by customers of early termination options could have an adverse effect on our business, financial condition, results
of operations, cash flows and ability to pay dividends as well as the market price of our common stock.
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Our contracts with our customers may adversely affect our business, financial condition, results of operations, cash
flows and ability to pay dividends as well as the market price of our common stock.
In the ordinary course of business, we enter into agreements with our customers pursuant to which our customers lease or
otherwise contract for the use of data center space from us. These contracts typically contain indemnification and liability
provisions, in addition to service level commitments, which could potentially impose a significant cost on us in the event of
losses arising out of certain breaches of such agreements, services to be provided by us or our subcontractors or from third-
party claims. Customers increasingly are looking to pass through their regulatory obligations and other liabilities to their
outsourced data center providers and we may not be able to limit our liability or damages in an event of loss suffered by such
customers, whether as a result of our breach of agreement or otherwise. Further, liabilities and standards for damages and
enforcement actions, including the regulatory framework applicable to different types of losses, vary by jurisdiction, and we
may be subject to greater liability for certain losses in certain jurisdictions. Additionally, in connection with our acquisitions,
we have assumed and expect to assume existing agreements with customers that may subject us to greater liability for such an
event of loss. If such an event of loss occurred, we could be liable for material monetary damages and could incur significant
legal fees in defending against such an action, which could adversely affect our business, financial condition, results of
operations, cash flows and ability to pay dividends as well as the market price of our common stock.
Our customers may choose to develop or relocate into new data centers or expand their own existing data centers, which
could result in the loss of one or more key customers or reduce demand for our data centers.
In the future, our customers may choose to develop or relocate to new data centers or expand or consolidate into their existing
data centers that we do not own. In the event that any of our key customers were to do so, it could result in a loss of business to
us or put pressure on our pricing. If we lose a customer, we cannot provide assurance that we would be able to replace that
customer at a competitive rate or at all, which could adversely affect our business, financial condition, results of operations,
cash flows and ability to pay dividends as well as the market price of our common stock.
A decrease in the demand for data center space, or an increase in supply driving down market prices, could adversely
affect our business, financial condition, results of operations, cash flows and ability to pay dividends as well as the
market price of our common stock.
Substantially all of our properties consist of data center space. The adverse effect on our business, financial condition, results of
operations, cash flows and ability to pay dividends as well as the market price of our common stock from a decreased demand
for data center space would likely be greater than if we owned a portfolio with a more diversified customer base or less
specialized use. Adverse developments in the outsourced data center space industry could lead to reduced corporate IT spending
or reduced demand for outsourced data center space. Changes in industry practice or in technology, such as server virtualization
technology, more efficient or miniaturization of computing or networking devices, or devices that require higher power
densities than today’s devices, could also reduce demand for the physical data center space we provide or make the customer
improvements in our facilities obsolete or in need of significant upgrades to remain viable.
We face significant competition and may be unable to lease vacant space, renew existing leases or re-lease space as leases
expire, which may adversely affect our business, financial condition, results of operations, cash flows and ability to pay
dividends as well as the market price of our common stock.
We compete with numerous public and private companies, developers, owners and operators of technology-related real estate
and data centers, many of which own properties similar to ours in the same markets in which our properties are located, as well
as various other public and privately held companies that may provide data center colocation as part of a more expansive
managed services offering. In addition, we may face competition from new entrants into the data center market. Some of our
competitors may have significant advantages over us, including greater name recognition, longer operating histories, lower
operating costs, pre-existing relationships with current or potential customers, greater financial, marketing and other resources
and flexibility, access to less expensive power and access to attractive land for development. These advantages could allow our
competitors to respond more quickly to strategic opportunities or changes in our industries or markets. If our competitors offer
data center space that our existing or potential customers perceive to be superior to ours based on numerous factors, including
power, security considerations, location or network connectivity, access to renewable resources for energy, water conservation,
or if they offer rental rates below our or current market rates or otherwise adopt aggressive pricing policies, we may lose
existing or potential customers, incur costs to improve our properties or be forced to reduce our rental rates or provide more
favorable lease terms.
As a result, we may suffer from pricing pressure that would adversely affect our ability to generate revenues. Some of these
competitors may also provide our target customers with additional benefits, including bundled communication services or cloud
services, and may do so in a manner that is more attractive to our potential customers than obtaining space in our data centers.
Competitors could also operate more successfully or form alliances to acquire significant market share.
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Finally, as our customers evolve their IT strategies, we must remain flexible and evolve to remain competitive within the
industry and as the market shifts. Ineffective planning and execution in our cloud strategy and product development lifecycle
and carbon neutral commitment may cause difficulty in sustaining competitive advantage in our products and services.
We do not own all of the land or buildings in which our data centers are located. Instead, we lease or sublease certain of
our data center spaces and the ability to retain these leases or subleases could be a significant risk to our ongoing
operations.
We do not own all of the land on, and buildings in, which we operate our data centers. Our portfolio includes 13 buildings that
are leased from third parties and account for approximately 921,221 GSF, or approximately 11% of our total GSF. These leases
(including ground leases, leased land and leased buildings) accounted for 13% of our total annualized rent as of December 31,
2020. In addition, future properties that we acquire, particularly outside of the U. S., may be on leased land or facilities that we
do not own.
Additionally, in several of our smaller facilities we sublease our space, and our rights under these subleases are dependent on
our sublandlord retaining its rights under the prime lease. When the primary terms of our existing leases and subleases expire,
we generally have the right to extend the terms of our leases and subleases for one or more renewal periods, subject to, in the
case of several of our subleases, our sublandlord renewing its term under the prime lease. For four of these leases and subleases,
the renewal rent will be determined based on the fair market value of rental rates for the property, and the then prevailing rental
rates may be higher than the current rental rates under the applicable lease. The rent for the remaining leases and subleases will
be based on a fixed percentage increase over the base rent during the year immediately prior to expiration. Several of our data
centers are leased or subleased from other data center companies, which may increase our risk of non-renewal or renewal on
less than favorable terms. If renewal rates are less favorable than those we currently have, we may be required to increase
revenues within existing data centers to offset such increase in lease payments. Failure to increase revenues to sufficiently offset
these projected higher costs would adversely impact our operating income. Upon the end of our renewal options, we would
have to renegotiate our lease terms with the applicable landlords.
Potential customers may choose not lease space in our leased or subleased data centers due to the risks associated with our
ability to control the terms of the underlying land or land and building lease. Additionally, if we are unable to renew the lease or
sublease at any of our data centers, we could lose customers due to the disruptions in their operations caused by the relocation.
We could also lose those customers that choose our data centers based on their locations. In addition, it is not typical for us to
relocate data center infrastructure equipment, such as generators, power distribution units and cooling units, from their initial
installation. The costs of relocating such equipment to different data centers could be prohibitive and, as such, we could lose the
value of this equipment. For these reasons, any lease or sublease that cannot be renewed could adversely affect our business,
financial condition, results of operations, cash flows and ability to pay dividends as well as the market price of our common
stock.
Our real estate development strategies may not be successful, and our growth depends on our data center development
activities and our ability to successfully lease our developed properties, and any delays or unexpected costs associated
with such activities or the ability to lease such properties may harm our growth prospects, future business, financial
condition, results of operations, cash flows and ability to pay dividends as well as the market price of our common stock.
We are involved in the development, construction, and renovation of data centers and we intend to continue to pursue
development activities as opportunities arise. As a result, we are and will continue to be subject to risks associated with our data
center development activities that could adversely affect our business, financial condition, results of operations, cash flows and
ability to pay dividends as well as the market price of our common stock. For example, current and future development
activities have involved and will involve substantial planning, allocation of significant company resources prior to such projects
generating revenue. Such activities have entailed and will entail certain risks, including risks related to zoning, regulatory
approvals, construction costs and delays, as well as our ability to raise capital, including both debt and equity, to finance such
projects. These development activities also have required and will require us to carefully select and rely on the experience of
one or more general contractors and associated subcontractors during the construction process. Should a general contractor or
significant subcontractor experience financial or other problems during the construction process, we could experience
significant delays, increased costs to complete the project and other negative impacts to our expected returns on the project, as
well as reputational risk. Site selection is also a critical factor in our expansion plans, and there may not be suitable properties
available in our markets at a location that is attractive to our customers and has the necessary combination of access to multiple
network providers, a significant supply of electrical power, high ceilings and the ability to sustain heavy floor loading.
Furthermore, while we may prefer to locate new data centers adjacent to our existing data centers, we may be limited by land
held for future development as well as the inventory and location of suitable properties.
In addition, in developing new properties and expanding existing properties, we have been and will be required to secure an
adequate supply of power from local utilities, which has included and may in the future include unanticipated costs. For
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example, we have incurred and could incur in the future increased costs to develop utility substations on our properties in order
to accommodate our power needs. Any inability to secure an appropriate power supply on a timely basis or on acceptable
financial terms could adversely affect our ability to develop the property on an economically feasible basis, or at all.
We regularly monitor commodity and labor pricing trends related to our data center development capital expenditures, where a
large proportion of our current development project costs are under firm price commitments. Should the proportion of such
project costs that are firm price commitments decline and prices for certain selective materials increase, including due to
changes in trade policy, including recent international trade negotiations as well as the imposition of tariffs, our overall
development costs could increase significantly.
These and other risks could result in delays or increased costs or prevent the completion of our development activities and
related projects and growth of our business, which could adversely affect our business, financial condition, results of
operations, cash flows and ability to pay dividends as well as the market price of our common stock.
In addition, we have in the past undertaken development projects prior to obtaining commitments from customers to lease the
related data center space. We will likely choose to undertake future development projects prior to obtaining customer
commitments. Such development involves the risk that we will make significant investments and be unable to attract customers
to the relevant properties on a timely basis or at all. If we are unable to attract customers and our properties remain vacant or
underutilized for a significant amount of time, our business, financial condition, results of operations, cash flows and ability to
pay dividends as well as the market price of our common stock could be adversely affected.
Any failure of our physical infrastructure or services could lead to significant costs and disruptions that could reduce
our revenues and harm our brand and reputation.
Our business depends on providing customers with a highly reliable data center environment. We may fail to provide such
service as a result of numerous factors, including:
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pandemics, epidemics, and other health crises such as COVID-19;
human error;
failure to timely deploy adequate infrastructure to meet customer requirements, whether for new or existing customers;
unexpected equipment failure;
power loss or telecommunications failures;
improper building maintenance by us, our vendors, or by our landlords in the buildings that we lease;
physical or electronic security breaches;
fire, tropical storm, hurricane, tornado, flood, earthquake and other natural disasters;
water damage;
war, terrorism and any related conflicts or similar events worldwide; and
sabotage and vandalism.
Problems at one or more of our data centers, whether or not within our control, could result in service interruptions or
equipment damage. Substantially all of our leases with our customers include terms requiring us to meet certain service level
commitments primarily in terms of timely delivery of data center space, electrical output to, and maintenance of environmental
conditions in, the data center raised floor space leased by such customers. Any failure to meet these commitments or any
equipment damage in our data centers, including as a result of mechanical failure, power outage, human error on our part or
other reasons, could subject us to liability under our lease terms, including service level credits against customer rent payments,
or, in certain cases of repeated failures, the right by the customer to terminate the lease. For example, although our data center
facilities are engineered to reliably power and cool our customers’ computing equipment, it is possible that an outage could
adversely affect a facility’s power and cooling capabilities, and, in the past, certain of our facilities have experienced minor
outages. Depending on the frequency and duration of these outages, the affected customers may have the right to terminate their
lease, which could have a negative impact on our business, financial condition, results of operations, cash flows and ability to
pay dividends as well as the market price of our common stock. As discussed, we may also be required to expend significant
financial resources to upgrade or add to existing infrastructure to meet customer requirements for power and cooling, and we
may not be financially or operationally able to do so in a timely manner.
Our data center infrastructure may become obsolete, and we may not be able to operate or upgrade our power and
cooling systems cost-effectively, or at all.
The markets for the data centers we own and operate, as well as the industries in which our customers operate, are characterized
by rapidly changing technology, evolving industry and regulatory standards, frequent new service introductions, shifting
distribution channels and changing customer demands. Our data center infrastructure may become obsolete due to the
development of new systems to deliver power to or eliminate heat from the servers that we house and evolving environment
26
sustainability objectives. Additionally, our data center infrastructure could become obsolete as a result of data center topology
changes or the development of new server technology that does not require the levels of critical load and heat removal that our
facilities are designed to provide and could be run less expensively on a different platform. In addition, our power and cooling
systems are difficult and expensive to upgrade or reposition. Accordingly, we may not be able to efficiently upgrade or change
these systems to meet new demands, including noise mitigation and emission upgrades, without incurring significant costs that
we may not be able to pass on to our customers. The obsolescence of our power and cooling systems could have a material
negative impact on our business, financial condition and results of operations. Furthermore, potential future regulations that
apply to industries we serve may require customers in those industries to seek specific requirements from their data centers that
we are unable to provide. These may include physical security requirements applicable to the defense industry and government
contractors and privacy and security regulations applicable to social media, SAS cloud companies, financial services and health
care industries. If such regulations were adopted, we could lose some customers or be unable to attract new customers in certain
industries, which would have a material adverse effect on our business, financial condition, results of operations, cash flows and
ability to pay dividends as well as the market price of our common stock.
We have been and may continue to be vulnerable to security breaches, cyber-attacks or terrorism which have disrupted
and could disrupt our operations, harm our brand and reputation and have a material adverse effect on our business,
financial condition and results of operations.
Security breaches, cyber-attacks, or disruption, of our or our partners' or customers' physical or information technology
infrastructure, networks and related management systems could result in, among other things, unauthorized access to our
facilities, a breach of our and our customers’ networks and information technology infrastructure, the misappropriation of our
or our customers’ or their customers’ proprietary or confidential information, interruptions or malfunctions in our or our
customers’ operations, delays or interruptions to our ability to meet customer needs, breach of our legal, regulatory or
contractual obligations, inability to access or rely upon critical business records or other disruptions in our operations.
Numerous sources can cause these types of incidents, including but not limited to: physical or electronic security breaches; acts
of terrorism at or upon our facilities; viruses, ransomware, backdoor trojans and other malware or software vulnerabilities;
hardware vulnerabilities such as Meltdown and Spectre; accident or human error by our own personnel or third parties; criminal
activity or malfeasance (including by our own personnel); fraud or impersonation scams perpetrated against us or our partners
or customers; or security events impacting our third-party service providers or our partners or customers. Our exposure to
cybersecurity threats and negative consequences of cybersecurity breaches will likely increase as we store increasing amounts
of customer data. Additionally, as we increasingly market the security features in our data centers, our data centers may be
targeted by computer hackers seeking to compromise data security. For instance, in December 2019, we discovered a
ransomware program encrypting certain devices, which resulted in availability issues affecting certain managed service
customers. Upon discovery of the incident, we initiated our response and continuity protocols to determine what occurred,
restore systems and notify the appropriate legal authorities. We continue to investigate and work closely with third-party
experts on this matter. In addition, while one of our SolarWinds platforms was affected in the recent supply chain hack, the
impact was immediately mitigated and there has been no evidence of compromised or suspicious activities.
We recognize the increasing volume of cyber-attacks and employ commercially practical efforts to provide reasonable
assurance such attacks are appropriately mitigated. Each year, we evaluate the threat profile of our industry to stay abreast of
trends and to provide reasonable assurance our existing countermeasures will address any new threats identified. We may be
required to expend significant financial resources to protect against or respond to such breaches. Cyber criminals are
increasingly using powerful tactics including evasive applications, proxies, tunneling, encryption techniques, vulnerability
exploits, buffer overflows, distributed denial-of-service or DDoS attacks, botnets, supply chain attacks and port scans.
Techniques used to breach security change frequently, and are generally not recognized until launched against a target, so we
may not be able to promptly detect that a security breach or unauthorized access has occurred. We also may not be able to
implement security measures in a timely manner or, if and when implemented, we may not be able to determine the extent to
which these measures could be circumvented. As we provide assurances to our customers that we provide a high level of
security, if an actual or perceived security breach occurs, the market’s perception of our security measures could be harmed and
we could lose sales and current and potential customers, and such a breach could be particularly harmful to our brand and
reputation. Any breaches that may occur could also expose us to increased risk of lawsuits, material monetary damages,
potential violations of applicable privacy and other laws, penalties and fines, loss of existing or potential customers, harm to our
reputation and increases in our security and insurance costs, which could have a material adverse effect on our business,
financial condition, results of operations, cash flows and ability to pay dividends as well as the market price of our common
stock. In the event of a breach resulting in loss of data, such as personally identifiable information or other such data protected
by data privacy or other laws, we may be liable for damages, fines and penalties for such losses under applicable regulatory
frameworks (as discussed in “The regulatory framework around data custody, data privacy and breaches varies by jurisdiction
and involves complex and rigorous regulatory standards enacted to protect business and personal data in the U.S. and
elsewhere.” below) despite not handling the data. Furthermore, if a high profile security breach or cyber-attack occurs with
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respect to another provider of mission-critical data center facilities, our customers and potential customers may lose trust in the
security of these business models generally, which could harm our ability to retain existing customers or attract new ones. We
cannot guarantee that any backup systems, regular data backups, security protocols, network protection mechanisms and other
procedures currently in place, or that may be in place in the future, will be adequate to prevent network and service interruption,
system failure, damage to one or more of our systems or data loss in the event of a security breach or attack on our facilities.
We may be subject to unknown or contingent liabilities related to properties or businesses that we acquire for which we
may have limited or no recourse against the sellers.
Assets and entities that we have acquired or may acquire in the future may be subject to unknown or contingent liabilities for
which we may have limited or no recourse against the sellers. Unknown or contingent liabilities might include liabilities for
clean-up or remediation of environmental conditions, claims of customers, vendors or other persons dealing with the acquired
entities, tax liabilities and other liabilities whether incurred in the ordinary course of business or otherwise. In the future, we
may enter into transactions with limited representations and warranties or with representations and warranties that do not
survive the closing of the transactions, in which event we would have no or limited recourse against the sellers of such
properties. While we usually require the sellers to indemnify us and they obtain representation and warranty insurance, with
respect to breaches of representations and warranties that survive the closing, such indemnification, if obtained, is often limited
and subject to various materiality thresholds, a significant deductible, an aggregate cap on losses or a survival period.
As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their
representations and warranties. In addition, the total amount of costs and expenses that we may incur with respect to liabilities
associated with acquired properties and entities may exceed our expectations, which may adversely affect our business,
financial condition and results of operations. Finally, indemnification agreements between us and the sellers typically provide
that the sellers will retain certain specified liabilities relating to the assets and entities acquired by us. While the sellers are
generally contractually obligated to pay all losses and other expenses relating to such retained liabilities, there can be no
guarantee that such arrangements will not require us to incur losses or other expenses as well.
Recent turnover, or the further loss, of any of our key personnel, including our executive officers or key sales associates,
could adversely affect our business, financial condition, results of operations, cash flows and ability to pay dividends as
well as the market price of our common stock.
As previously disclosed, we experienced significant turnover in our executive officers in 2020, including the departure or
retirement of our CEO, President of Europe, CFO and Chief Technology Officer and the appointment of a new Chief Operating
Officer. Our success will depend to a significant extent on our executive officers, including those appointed in 2020, and key
sales associates. Each of our executive officers has a national or regional industry reputation that attracts business and
investment opportunities and assists us in negotiations with existing and potential customers, investors, lenders and industry
personnel. The loss of key sales associates could also hinder our ability to continue to benefit from existing and potential
customers. We cannot provide any assurance that we will be able to retain our current executive officers or key sales associates.
The loss of any of these individuals or the recent turnover of executive officers could adversely affect our business, financial
condition, results of operations, cash flows and ability to pay dividends as well as the market price of our common stock.
Any failure of our connectivity solutions could lead to significant costs and disruptions that could reduce our revenue
and harm our business reputation and financial results.
As described in Part I, Item 1 "Business", we have deployed connectivity solutions including the National IX Platform
throughout several of our properties, and expect that we will further deploy these solutions throughout our portfolio to meet
customer demand. The National IX Platform and other connectivity solutions allow our customers to connect to third-party
carriers and other customers. We may be required to incur substantial additional costs to operate and expand the National IX
Platform. The National IX Platform is subject to failure resulting from numerous factors, including but not limited to:
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human error;
equipment failure;
physical, electronic, and cyber-security breaches;
fire, earthquake, hurricane, flood, tornado and other natural disasters in our facilities;
failure to properly connect to third-party carriers or other customers;
fiber cuts;
power loss;
terrorist acts;
sabotage and vandalism; and
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•
failure of business partners who provide components of the National IX Platform or third-party connectivity from the
National IX Platform.
Problems with the National IX Platform or other connectivity solutions, whether or not within our control, could result in
service interruptions or significant equipment damage. We have service level commitment obligations to certain of our
customers, including our significant customers. As a result, service interruptions in the National IX Platform or in other
connectivity solutions could result in difficulty maintaining service level commitments to these customers and in potential
claims related to such failures. In addition, any loss of service, equipment damage or inability to meet our service level
commitment obligations could reduce the confidence of our customers and could consequently impair our ability to obtain and
retain customers, which would adversely affect both our ability to generate revenues and our operating results.
Even if we have additional space available for lease at any one of our data centers, our ability to meet existing customer
requirements or lease this space to existing or new customers could be constrained by our ability to provide sufficient
electrical power and cooling capacity.
Customers are increasing their deployment of high-density IT equipment in our data centers, which has increased the demand
for power and cooling capacity. As current and future customers increase their power footprint in our facilities over time, we
may be required to upgrade our existing infrastructure or add additional infrastructure to meet customer requirements. Power
and cooling systems are difficult and expensive to upgrade or install, and such changes may be required at a time or on a
timeline during which we lack the financial or operational ability to make such changes. Further, our ability to add additional
power could be limited by third party factors such as utility providers, as well as obtaining required permits or approvals. Our
failure to timely upgrade or add additional infrastructure could result in a failure to meet the requirements of our existing
customers, or limit our ability to increase occupancy rates or density within our existing facilities, whether for new or existing
customers. Similarly, even when successful in implementing such changes, we may not be able to pass on any additional costs
to our customers.
Any losses to our properties that are not covered by insurance, or that exceed our coverage limits, could adversely affect
our business, financial condition, results of operations, cash flows and ability to pay dividends as well as the market
price of our common stock.
The properties in our portfolio are subject to risks, including from causes related to riots, war, terrorism or acts of God. For
example, our properties located in Texas are generally subject to risks related to tropical storms, tornadoes, hurricanes, floods
and other severe weather or natural events and our properties located in the Midwest are generally subject to risks related to
earthquakes, tornadoes and other severe weather. Our property in Santa Clara, California is subject to risks related to
earthquakes and severe weather or natural events. All our properties could have unknown title defects or encumbrances. While
we carry commercial property insurance including business interruption, flood and earth movement covering all of the
properties in our portfolio, and title insurance on a substantial number of our properties, the amount of insurance coverage may
not be sufficient to fully cover losses we may incur.
If we experience a loss that is uninsured or exceeds our policy coverage limits, we could lose the capital invested in the
damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties
were subject to recourse indebtedness, we could continue to be liable for the indebtedness even if these properties were
irreparably damaged or subject of a loss.
In addition, even if a title defect or damage to our properties is covered by insurance, a disruption of our business caused by a
casualty event may result in the loss of business or customers. The business interruption insurance we carry may not fully
compensate us for the loss of business or customers due to an interruption caused by a title defect or casualty event.
A failure of an insurance company to make payments to us upon an event of loss covered by an insurance policy could
adversely affect our business, financial condition, results of operations, cash flows and ability to pay dividends as well as the
market price of our common stock. We monitor our insurance carrier's financial strength rating and financial size category by
only placing insurance with carriers who have an A.M. Best Rating of A- XII or better. However, it can be difficult to evaluate
the stability and net assets or capitalization of insurance companies, and any insurance company's ability to meet its claim
payment obligations.
We generate a substantial portion of our revenue from a small number of metropolitan markets, which makes us more
susceptible to regional economic downturns.
Our properties are located in 17 distinct metropolitan markets (11 in the U.S.; European markets including Amsterdam, The
Netherlands, Dublin, The Republic of Ireland, Frankfurt, Germany, London, U.K. and Paris, France; and Asian markets
including Singapore). Seven of these U.S. markets - Cincinnati, Dallas, Houston, New York Metro, Northern Virginia, Phoenix
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and San Antonio - accounted for approximately 79% of our annualized rent as of December 31, 2020. As such, we are
potentially susceptible to local economic conditions and the supply of, and demand for, data center space in these markets. If
there is a downturn in the economy, a natural disaster or an oversupply of, or decrease in demand for, data centers in these
markets, our business could be adversely affected to a greater extent than if we owned a real estate portfolio that was more
diversified in terms of both geography and industry focus.
We are dependent upon third-party suppliers for power and certain other services, and we are vulnerable to service
failures of our third-party suppliers and to price increases by such suppliers.
We generally rely on third-party local utilities to provide power to our data centers. We are therefore subject to an inherent risk
that such local utilities may fail to deliver such power in adequate quantities or on a consistent basis, and our recourse against
the local utility and ability to control such failures may be limited. If power delivered from the local utility is insufficient or
interrupted, we would be required to provide power through the operation of our on-site generators, generally at a significantly
higher operating cost than we would pay for an equivalent amount of power from the local utility. We may not be able to pass
on the higher cost to our customers. In addition, if the generator power were to fail, we would generally be subject to paying
service level credits to our customers, who may in certain instances of repeated failures also have the right to terminate their
leases. Furthermore, any sustained loss of power could reduce the confidence of our customers in our services thereby
impairing our ability to attract and retain customers, which would adversely affect both our ability to generate revenues and our
results of operations.
In addition, even when power supplies are adequate, we may be subject to pricing risks and unanticipated costs associated with
obtaining power from various utility companies. While we actively seek to lock-in utility rates, many factors beyond our control
may increase the rate charged by the local utility. For instance, municipal utilities in areas experiencing financial distress may
increase rates to compensate for financial shortfalls unrelated to either the cost of production or the demand for electricity.
Utilities are and may be subject to increasing regulation that could increase the costs of electricity, including wildfire mitigation
plans. Utilities may be dependent on, and be sensitive to price increases for, a particular type of fuel, such as coal, oil or natural
gas. In addition, the price of these fuels and the electricity generated from them could increase as a result of proposed legislative
measures related to climate change or efforts to regulate carbon emissions. In any of these cases, increases in the cost of power
at any of our data centers could put those locations at a competitive disadvantage relative to data centers served by utilities that
can provide less expensive power. These pricing risks are particularly acute with respect to our customer leases that are
structured on a full-service gross basis, where the customer pays a fixed amount for both colocation rental and power. Our
business, financial condition, results of operations, cash flows and ability to pay dividends as well as the market price of our
common stock could be adversely affected in the event of an increase in utility rates under these leases, which, as of
December 31, 2020, accounted for approximately 22% of our leased GSF, because we may be limited in our ability to pass on
such costs to these customers.
We depend on third parties to provide network connectivity to the customers in our data centers, and any delays or
disruptions in connectivity may adversely affect our business, financial condition, results of operations, cash flows and
ability to pay dividends as well as the market price of our common stock.
Our customers require internet connectivity and connectivity to the fiber networks of multiple third-party telecommunications
carriers. In order for us to attract and retain customers, our data centers need to provide sufficient access for customers to
connect to those carriers. While we provide space and facilities in our data centers for carriers to locate their equipment and
connect customers to their networks, any carrier may elect not to offer its services within our data centers or may elect to
discontinue its service. Furthermore, carriers may periodically experience business difficulties which could affect their ability to
provide telecommunications services, or the service provided by a carrier may be inadequate or of poor quality. If carriers were
to terminate connectivity within our data centers or if connectivity were to be degraded or interrupted, it could put that data
center at a competitive disadvantage versus a competitor’s data center that does provide adequate connectivity. A material loss
of adequate third-party connectivity could have an adverse effect on the businesses of our customers and, in turn, our business,
financial condition, results of operations, cash flows and ability to pay dividends as well as the market price of our common
stock.
Furthermore, each new data center that we develop requires significant amounts of capital to be expended by third-party
telecommunications carriers for the construction and operation of a sophisticated redundant fiber network. The construction
required to connect multiple carrier facilities to our data centers is complex and involves factors outside of our control,
including
third-party
telecommunications carriers and the sufficiency of such carriers’ financial resources to fund the construction. Additionally,
hardware or fiber failures could cause significant loss of connectivity. If we are unable to establish highly diverse network
connectivity to our data centers, or if such network connectivity is materially delayed, is discontinued or is subject to failure,
our ability to attract new customers or retain existing customers may be negatively affected and, as a result, our business,
resources and willing and able
the availability of construction
requirements,
regulatory
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financial condition, results of operations, cash flows and ability to pay dividends, as well as the market price of our common
stock, may be adversely affected.
The loss of access to key third-party technical service providers and suppliers could adversely affect our current and
any future development projects.
Our success depends, to a significant degree, on having timely access to certain key third-party technical providers who are in
limited supply and great demand, such as engineering firms and construction contractors capable of developing our properties,
and to key suppliers of electrical and mechanical equipment that complement the design of our data center facilities. For any
future development projects, we will continue to rely on these providers and suppliers to develop and equip our data centers.
Competition for such technical expertise is intense, and there are a limited number of electrical and mechanical equipment
suppliers that design and produce the equipment that we require. We may not always have or retain access to such key service
providers and equipment suppliers, which could adversely affect our current and any future development projects.
The long sales cycle for data center services may adversely affect our business, financial condition, results of operations,
cash flows and ability to pay dividends as well as the market price of our common stock.
A customer’s decision to lease space in one of our data centers and to purchase additional services from us typically involves a
significant commitment of resources, significant contract negotiations, and significant due diligence on the part of the customer
regarding the adequacy of our facilities, including the adequacy of carrier connections. As a result, the sale of data center space
has a long sales cycle. Furthermore, we may expend significant time and resources, and incur significant costs, in pursuing a
particular sale or customer that may not result in revenue. Our inability to adequately manage the risks associated with the data
center sales cycle may adversely affect our business, financial condition, results of operations, cash flows and ability to pay
dividends as well as the market price of our common stock.
We may be unable to identify and complete acquisitions and successfully operate acquired properties.
We continually evaluate the market for available properties and may acquire data centers or properties suited for data center
development when opportunities exist. Our ability to complete acquisitions on favorable terms and to successfully develop and
operate acquired properties involves significant risks, including:
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we may be unable to acquire a desired property because of competition from other data center companies or real estate
investors;
even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase
the purchase price of such property;
we may be unable to realize the intended benefits from acquisitions or achieve anticipated operating or financial
results;
we may be unable to finance the acquisition on favorable terms or at all;
we may underestimate the costs to make necessary improvements to acquired properties;
we may be unable to quickly and efficiently integrate new acquisitions into our existing operations resulting in
disruptions to our operations or the diversion of our management’s attention;
acquired properties may be subject to reassessment, which may result in higher than expected tax payments;
we may not be able to access sufficient power on favorable terms or at all;
market conditions may result in higher than expected vacancy rates and lower than expected rental rates;
we may incur impairment losses or other charges related to acquired assets or properties;
we may face challenges in retaining the customers of acquired properties; and
we may incur significant costs associated with unrealized transactions.
Many of these risks will be outside of our control and any one of them could result in increased costs, decreases in the amount
of expected revenue, and diversion of our management's time and energy, which could adversely affect our business, financial
condition and results of operations. In addition, even if we successfully operate acquired properties, we may not realize the full
benefits of the acquisition, including the synergies, operating efficiencies, or sales or growth opportunities that are expected. If
we are unable to successfully acquire, develop and operate data center properties, our ability to grow our business and compete
will be significantly impaired, which could adversely affect our business, financial condition, results of operations, cash flows
and ability to pay dividends as well as the market price of our common stock.
We face risks with our international acquisitions associated with investing in unfamiliar metropolitan areas.
We have acquired and may continue to acquire properties on a strategic and selective basis in international metropolitan areas
that are new to us. For example, since 2018 we have entered new European markets, including Amsterdam, Dublin, Frankfurt
and Paris. When we acquire properties located in new markets, we may face risks associated with a lack of market knowledge
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or understanding of the local economy and culture, forging new business relationships in the area and unfamiliarity with local
government and permitting procedures. In addition, due diligence, transaction and structuring costs may be higher than those
we may face in the United States. We work to mitigate such risks through extensive diligence and research and associations
with experienced partners; however, we cannot assure you that such risks can be reduced or eliminated.
We have been and may become subject to or involved in litigation, threatened litigation, or investigations which may
divert management time and attention, require us to pay damages, penalties and expenses or may restrict the operation
of our business or interfere with existing agreements or permits.
We have been and may become subject to disputes with commercial and other parties with whom we maintain relationships or
other parties with whom we do business, including as a result of any breach in our security systems or downtime in our critical
electrical and cooling systems. Any such dispute could result in litigation between us and the other parties. Whether or not any
dispute actually proceeds to litigation, we may be required to devote significant management time and attention to its resolution
(through litigation, settlement or otherwise), which would detract from our management’s ability to focus on our business. Any
such resolution could involve the payment of damages or expenses by us, which may be significant, and could involve our
agreement with terms that restrict the operation of our business. In addition, internal and external investigations could require
significant management time and attention and result in fines and penalties, which may be significant, as well as reputational
harm.
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-
venturers’ financial condition and disputes between us and our co-venturers.
We have and may in the future co-invest with third parties through partnerships, joint ventures or other entities, acquiring non-
controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity.
In these events, we are not or would not be in a position to exercise sole decision-making authority regarding the property,
partnership, joint venture or other entity. Investments in partnerships, joint ventures, or other entities may, under certain
circumstances, involve risks not present when a third party is not involved, including the possibility that partners or co-
venturers might become bankrupt or fail to fund their share of required capital contributions. Partners or co-venturers may have
economic, tax or other business interests or goals which are inconsistent with our business interests or goals, and may be in a
position to take actions contrary to our policies or objectives. Our current and future joint venture partners may take actions that
are not within our control, which could require us to dispose of the joint venture asset or transfer it to a taxable REIT subsidiary
in order for CyrusOne Inc. to maintain its status as a REIT. Such investments may also lead to impasses, for example, as to
whether to sell a property, because neither we nor the partner or co-venturer would have full control over the partnership or
joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our
expenses and prevent our officers and/or directors from focusing their time and effort on our day-to-day business.
Consequently, actions by or disputes with partners or co-venturers may subject properties owned by the partnership or joint
venture to additional risk. In addition, we may in certain circumstances be liable for the actions of third-party partners or co-
venturers. Each of these factors may result in returns on these investments being less than we expect or in losses and our
financial and operating results may be adversely affected.
Our properties are not suitable for use other than as data centers, which could make it difficult to sell or reposition them
if we are not able to lease available space.
Our data centers are designed solely to house and support computer servers and related information technology equipment and,
therefore, contain extensive electrical and mechanical systems and infrastructure. As a result, they are not suited for use by
customers as anything other than as data centers and major renovations and expenditures would be required in order for us to
re-lease vacant space for more traditional commercial or industrial uses, or for us to sell a property to a buyer for use other than
as a data center, which could materially adversely affect our business, financial condition and results of operations, cash flows,
our ability to pay dividends, and/or the market price of our common stock.
Declining real estate valuations and impairment charges could adversely affect our earnings and financial condition.
We review the carrying value of each of our properties when events or circumstances indicate that the carrying value of the
property may not be recoverable. Examples of such indicators may include a significant decrease in market price, a significant
adverse change in the extent to or manner in which the property is being used or in its physical condition, an accumulation of
costs significantly in excess of the amount originally expected for the acquisition or development, or a history of operating or
cash flow losses. When such impairment indicators exist, we review an estimate of the undiscounted future cash flows expected
to result from the use of the real estate investment and proceeds from its eventual disposition and compare such amount to the
carrying value of the property. We consider factors such as future operating income, trends and prospects, as well as the effects
of leasing demand, rental rates, competition and other factors. If our undiscounted cash flows indicate that we are unable to
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recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value
exceeds the estimated fair value of the property. For the year ended December 31, 2020, we recorded an impairment charge of
$11.2 million, which includes an $8.8 million impairment loss based on our estimate of the decrease in the fair value of the
equipment held for use in inventory at our U.S. data centers and a $2.4 million impairment loss based on the estimated fair
value for our investment in land held in Atlanta for future development as the Company sold this land to a third-party in
February 2021. For the year ended December 31, 2019, we recorded an impairment charge of $0.7 million related primarily to
an impairment on our South Bend - Monroe facility, which was being actively marketed for sale. These losses had a direct
impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The
evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental
rates and capital requirements that could differ materially from actual results in future periods. A worsening real estate market
may cause us to re-evaluate the assumptions used in our impairment analysis. Impairment charges could adversely affect our
business, financial condition, results of operations, cash flows and ability to pay dividends as well as the market price of our
common stock.
Risks Related to the Real Estate Industry
Our performance and value are subject to risks associated with real estate assets and with the real estate industry.
Our ability to make expected distributions to our stockholders depends on our ability to generate revenues in excess of
expenses, scheduled principal payments on debt and capital expenditure requirements. Events and conditions generally
applicable to owners and operators of real property that are beyond our control, such as adverse effects of the COVID-19
pandemic, may decrease cash available for distribution to our stockholders and the value of our properties. These events and
conditions include:
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local oversupply, increased competition or reduction in demand for technology-related space;
inability to collect rent from customers;
vacancies or our inability to lease space on favorable terms;
inability to finance property development and acquisitions on favorable terms;
increased operating costs to the extent not paid for by our customers;
costs of complying with changes in governmental regulations;
the relative illiquidity of real estate investments, especially the specialized real estate properties that we hold and seek
to acquire and develop; and
changing market demographics.
Illiquidity of real estate investments, particularly our data centers, could significantly impede our ability to respond to
adverse changes in the performance of our properties, which could harm our financial condition.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in our portfolio in
response to adverse changes in the real estate market or in the performance of such properties may be limited, thus harming our
financial condition. The real estate market is affected by many factors that are beyond our control, including:
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adverse changes in national and local economic and market conditions, including as a result of the COVID-19
pandemic;
changes in interest rates and in the availability, cost and terms of debt financing;
changes in governmental laws and regulations, fiscal policies and zoning ordinances and costs of compliance
therewith;
the ongoing cost of capital improvements that are not passed on to our customers, particularly in older structures;
changes in operating expenses; and
civil unrest, acts of war, terrorism and natural disasters, including fires, earthquakes, tropical storms, hurricanes, and
floods, which may result in uninsured and underinsured losses.
In addition, as described above in “Our properties are not suitable for use other than as data centers, which could make it
difficult to sell or reposition them if we are not able to lease available space”, the risks associated with the illiquidity of real
estate investments are even greater for our data center properties. Further, we operate a managed services platform-based
business that would not easily be separated on an asset by asset basis.
We could incur significant costs related to environmental matters.
We are subject to laws and regulations relating to the protection of the environment, including those governing, as it permits,
the management and disposal of hazardous materials, the cleanup of contaminated sites and health and safety matters. We could
incur significant costs, including fines, penalties and other sanctions, cleanup costs and third-party claims for property damages
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or personal injuries, as a result of violations of or liabilities under environmental laws and regulations. Some environmental
laws impose liability on current owners or operators of property regardless of fault or the lawfulness of past disposal activities.
For example, many of our sites contain above ground fuel storage tanks and, in some cases, currently contain or formerly
contained underground fuel storage tanks, for back-up generator use. Some of our sites also have a history of previous
commercial operations. We also may acquire or develop sites in the future with unknown environmental conditions from
historical operations. Although we are not aware of any sites at which we currently have material remedial obligations, the
imposition of remedial obligations as a result of spills or the discovery of contaminants in the future could result in significant
additional costs. We also could incur significant costs complying with current environmental laws or regulations or those that
are promulgated in the future.
Risks Related to Our Debt and Capital Structure
To fund our growth strategy and refinance our indebtedness, we depend on external sources of capital, which may not
be available to us on commercially reasonable terms or at all.
In order to maintain our qualification as a REIT, we are required under the Code, among other things, to distribute at least 90%
of our REIT taxable income annually, determined without regard to the dividends paid deduction and excluding any net capital
gains. Even if we maintain our qualification as a REIT, we will be subject to U.S. federal income tax at regular corporate rates
to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid
deduction and including any net capital gains, as well as U.S. federal income tax at regular corporate rates for income
recognized by our taxable REIT subsidiaries (each, a TRS). Because of these distribution requirements, we will likely not be
able to fund future capital needs, including any necessary acquisition financing, from net cash provided by operating activities.
Consequently, we intend to rely on third-party capital markets sources for debt or equity financing to fund our growth strategy.
In addition, we may need third-party capital markets sources to refinance our indebtedness at or before maturity. Increased
turbulence in the U.S., European and other international financial markets and economies, loss of our investment grade credit
rating, tighter credit conditions and increasing interest rates may adversely affect our ability to replace or renew maturing
liabilities on a timely basis, access the capital markets to meet liquidity and capital expenditure requirements and may result in
adverse effects on our business, financial condition, results of operations, cash flows and ability to pay dividends as well as the
market price of our common stock. As such, we may not be able to obtain the debt or equity financing on favorable terms or at
all. Our access to third-party sources of capital also depends, in part, on:
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our investment grade credit rating;
the market’s perception of our growth potential;
our then-current debt levels;
market demand for REIT assets;
our historical and expected future earnings, cash flow and cash distributions;
the market price per share of our common stock; and
our lenders' ability to meet their financing commitments.
In addition, our ability to access additional capital may be limited by the terms of our then-existing indebtedness which may
restrict our incurrence of additional debt. If we cannot obtain capital when needed, we may not be able to acquire or develop
properties when strategic opportunities arise or refinance our debt at or before maturity, and we may need to increase our
liquidity by disposing of properties possibly on disadvantageous terms or renewing leases on less favorable terms than we
otherwise would, which could adversely affect our business, financial condition, results of operations, cash flows and ability to
pay dividends as well as the market price of our common stock.
We have significant outstanding indebtedness that involves significant debt service obligations, limits our operational
and financial flexibility, exposes us to interest rate fluctuations and exposes us to the risk of default under our debt
obligations.
As of December 31, 2020, we had a total combined indebtedness, including finance lease liabilities and operating lease
liabilities, of approximately $3.7 billion. As of December 31, 2020, we have the ability to borrow up to an additional
approximately $1.0 billion under our Amended Credit Agreement, net of outstanding letters of credit of approximately $10.8
million, subject to satisfying certain financial tests. Our Amended Credit Agreement also contains an accordion feature that, as
of December 31, 2020, allows the operating partnership to request an increase in the total commitment by up to $1.5 billion.
There are no limits on the amount of indebtedness we may incur other than limits contained in the indentures governing our
2024 Notes, 2029 Notes, 2027 Notes and 2030 Notes (each as defined in Note 11, Debt), our Amended Credit Agreement or
future agreements that we may enter into or as may be set forth in any policy limiting the amount of indebtedness we may incur
adopted by CyrusOne’s board of directors. A substantial level of indebtedness could have adverse consequences for our
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business, financial condition, results of operations, cash flows and ability to pay dividends as well as the market price of our
common stock because it could, among other things:
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require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments
on our indebtedness, thereby reducing our cash flow available to fund working capital, capital expenditures,
acquisitions, investments and other general corporate purposes, including to make distributions on our common stock
as currently contemplated or as necessary to maintain our qualification as a REIT;
require us to maintain certain debt coverage and other financial metrics at specified levels, thereby reducing our
financial flexibility and, in the event of a failure to comply with such requirements, creating the risk of a material
adverse effect on our ability to fulfill our obligations under our debt and on our business and prospects generally;
make it more difficult for us to satisfy our financial obligations, including borrowings under the Amended Credit
Agreement;
increase our vulnerability to general adverse economic and industry conditions;
expose us to increases in interest rates for our variable rate debt;
limit our ability to borrow additional funds on favorable terms or at all to expand our business or ease liquidity
constraints;
limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable
terms or at all;
limit our flexibility in planning for, or reacting to, changes in our business and our industry;
place us at a competitive disadvantage relative to competitors that have less indebtedness;
increase our risk of property losses as the result of foreclosure actions initiated by lenders in the event we should incur
mortgage or other secured debt obligations; and
require us to dispose of one or more of our properties at disadvantageous prices or raise equity that may dilute the
value of our common stock in order to service our indebtedness or to raise additional funds to pay such indebtedness at
or before maturity.
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Failure to hedge effectively against interest rate changes and our increased exposure to foreign currency fluctuations as
a result of our foreign currency hedging activities may adversely affect our results of operations.
We seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as floating-fixed
interest rate swaps. These arrangements involve risks, such as the risk that counterparties may fail to honor their obligations
under these arrangements and that these arrangements may not be effective in reducing our exposure to interest rate changes.
Approximately 27% of our total indebtedness as of December 31, 2020 was subject to variable interest rates but not subject to
interest rate swaps. Failure to hedge effectively against interest rate changes may materially adversely affect our results of
operations.
We also currently have and may decide in the future to further undertake foreign exchange hedging transactions. As a result of
investments denominated in foreign currencies, including Euros and British pounds sterling from our increased presence in
Europe and the United Kingdom, as well as our €500.0 million aggregate principal amount of 1.450% Senior Notes due 2027,
our exposure to foreign currency has increased. We could mitigate future investment and operational foreign currency exposure
by borrowing under our Amended Credit Agreement in the particular foreign currency, subject to availability and applicable
borrowing conditions. However, we would expect to incur foreign currency transaction gains and losses, which would impact
our consolidated net income, and translation of financial statements from the foreign functional currency to U.S. dollars, which
would be included in other comprehensive income or loss and stockholders’ equity. In addition, we have entered into cross-
currency swaps to synthetically convert certain USD outstanding debt amounts to the EUR equivalent, which has further
increased our exposure to foreign currency exchange rates. We have exposure to other foreign currencies, such as British pound
sterling, but we have not hedged against those currencies. As a result, any changes in the strength of the U.S. dollar relative to
the Euro or the other currencies of the foreign countries in which we operate may have an impact on our consolidated results of
operations, including but not limited to the fact that the fair value of our cross-currency swap liabilities may increase and we
may incur losses that would be immediately recognized in earnings since those hedges are not designated. See "Quantitative
and Qualitative Disclosures About Market Risk" for a further discussion of our interest rate and foreign currency risks.
Discontinuation, reform or replacement of the London Interbank Offered Rate (“LIBOR”) and other benchmark rates,
or uncertainty related to the potential for any of the foregoing, may adversely affect our business.
Certain of our variable rate debt, including our Amended Credit Agreement, uses LIBOR as a benchmark for establishing the
interest rate. See Note 11, Debt, to our audited consolidated financial statements. While the U.K. Financial Conduct Authority
(the "FCA") announced in 2017 that it intended to phase out LIBOR by the end of 2021, the administrator of LIBOR announced
in November 2020 its intention to consult on ceasing publication of one-week and two-month USD LIBOR settings at the end
of 2021 and ceasing publication of the remaining overnight and one-, three-, six- and 12-month USD LIBOR settings at the end
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of June 2023. While the proposal is not yet final, the FCA and other similar entities have supported this announcement and
issued additional guidance. U.S. federal banking agencies also issued a joint statement in November 2020 encouraging banks to
stop using LIBOR for new contracts as soon as possible but in any event by the end of the year. In addition, other regulators
have suggested reforming or replacing other benchmark rates. Discontinuation, reform or replacement of LIBOR or any other
benchmark rates may have an unpredictable impact on contractual mechanics in the credit markets or cause disruption to the
broader financial markets. Uncertainty as to the nature of such potential discontinuation, reform or replacement may negatively
impact the cost of our variable rate debt.
Our credit facility was amended in March 2020 to provide that, among other things, upon the occurrence of a Benchmark
Transition Event (as defined in the Amended Credit Agreement and which includes that the Eurodollar rate with respect to any
applicable currency has ceased or will cease to be provided or is no longer representative) or an Early Opt-in Election (as
defined in the Amended Credit Agreement and which includes a determination by the administrative agent or a notification by
the required lenders to the administrative agent that the required lenders have determined that syndicated credit facilities in such
currency being executed at such time, or that include language similar to the benchmark transition provisions in the Amended
Credit Agreement are being executed or amended to incorporate or adopt a new benchmark interest rate to replace the
Eurodollar rate loans denominated in for such currency), as applicable, with respect to any currency, the administrative agent
and the Company may amend the Amended Credit Agreement to replace the Eurodollar rate for loans denominated in such
currency (which, for loans denominated in USD (our term loans and United States dollar revolver) and British pounds sterling
(Great Britain pound revolver) is LIBOR) with a benchmark replacement (with respect to any currency, the sum of: (a) the
alternate benchmark rate (which, with respect to USD, may be a rate based on the secured overnight financing rate (“SOFR”))
selected by the administrative agent and the Company giving due consideration to (i) any selection or recommendation of a
replacement rate or the mechanism for determining such a rate by the relevant governmental body and/or (ii) any evolving or
then-prevailing market convention for determining a rate of interest as a replacement to the Eurodollar rate for syndicated credit
facilities in such currency and (b) the benchmark replacement adjustment for such currency). Any such amendment with respect
to a Benchmark Transition Event becomes effective at the specified time in such agreement so long as the administrative agent
has not received, by such time, written notice of objection to such proposed amendment from lenders comprising the required
lenders; provided that, with respect to any proposed amendment containing any SOFR-based rate, the lenders are only entitled
to object to the benchmark replacement adjustment contained therein. Any such amendment with respect to an Early Opt-in
Election becomes effective on the date that lenders comprising the required lenders have delivered to the administrative agent
written notice that such required lenders accept such amendment. Although no Benchmark Transition Event or Early Opt-in
Election has occurred as of February 19, 2021, we may not be able to reach agreement with our lenders on any such
amendments once it has. As a result, additional financing to replace our LIBOR-based debt may be unavailable, more expensive
or restricted by the terms of our outstanding indebtedness. In addition, any benchmark replacement may not be the economic
equivalent of LIBOR or not achieve market acceptance similar to LIBOR, which could negatively impact the cost of our
variable rate debt. In particular, if the benchmark replacement is a SOFR-based rate, risks related to SOFR include, but are not
limited to, that SOFR differs fundamentally from, and may not be a comparable substitute for, USD LIBOR; SOFR may be
discontinued or fundamentally altered in a manner that is materially adverse to us; and any failure of SOFR to gain market
acceptance could adversely affect us.
The agreements governing our indebtedness place significant operational and financial restrictions on us, reducing our
operational flexibility and creating default risks.
The agreements governing our indebtedness contain covenants, and the terms of any future agreements may contain covenants,
that place restrictions on us and our subsidiaries. These covenants restrict, among other things, our and our subsidiaries’ ability
to:
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incur or guarantee additional indebtedness;
create liens on our or our subsidiaries’ assets;
pay dividends and make other distributions on our stock;
enter into transactions with affiliates;
issue or sell stock of our subsidiaries; and
change the nature of our business.
These covenants could impair our ability to grow our business, take advantage of attractive business opportunities or
successfully compete. These covenants could also impair our ability to plan for or react to market conditions or meet capital
needs, or our ability to finance our operations, strategic acquisitions, investments or alliances or other capital needs or to engage
in other business activities that would be in our interest. In addition, the indentures governing our 2024 Notes, 2029 Notes,
2027 Notes, 2030 Notes and our Amended Credit Agreement require us to maintain specified financial ratios and satisfy
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financial condition tests. The indentures governing our 2024 Notes, 2029 Notes, 2027 Notes and 2030 Notes also require our
operating partnership and its subsidiaries to maintain total unencumbered assets of at least 150% of the aggregate principal
amount of their outstanding unsecured indebtedness on a consolidated basis. Our ability to comply with these metrics or tests
may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of
any of these covenants or covenants under any other agreements governing our indebtedness could result in an event of default.
Cross-default provisions in our debt agreements could cause an event of default under one debt agreement to trigger an event of
default under our other debt agreements. Upon the occurrence of an event of default under any of our debt agreements, the
lenders or holders thereof could elect to declare all outstanding debt under such agreements to be immediately due and payable.
If we were unable to repay or refinance the accelerated debt, the lenders or holders, as applicable, could proceed against any
assets pledged to secure that debt, including foreclosing on or requiring the sale of our data centers, and our assets may not be
sufficient to repay such debt in full.
Risks Related to Our General Business
The recent novel coronavirus (COVID-19) pandemic and measures to prevent its spread could materially adversely
impact our business, financial condition, results of operations, cash flows and ability to pay dividends as well as the
market price of our common stock.
The novel strain of the coronavirus identified in China in late 2019 has spread globally and resulted in authorities implementing
numerous measures to attempt to contain the virus, including travel bans, shelter in place regulations and other restrictions and
shutdowns. There has been and continues to be considerable uncertainty about the effects of these measures and how long they
will remain in effect, which could adversely impact our employees, customers, vendors and suppliers resulting in a material
adverse effect on our business, financial condition, results of operations, cash flows and ability to pay dividends as well as the
market price of our common stock.
As a result of the COVID-19 pandemic, while our data centers have remained operational, we have modified our business
practices by temporarily closing our corporate headquarters and regional locations, transitioned non-essential employees to
working remotely from their homes, implemented restrictions on the physical participation in meetings and significantly limited
business travel, all of which have disrupted how we operate our business and may remain in place for an indeterminate amount
of time. We cannot assure you, however, that our workforce will be able to continue to work effectively as a result of such
practices, or that our technological systems or infrastructure will continue to be equipped to facilitate effective remote working
arrangements for our employees. To date, our technology systems and infrastructure have effectively supported our remote
working activities.
The effect of the pandemic and measures implemented by authorities could disrupt our supply chain, including the provision of
services to us by our vendors and could result in restrictions on construction activities. Such disruptions could impact the
operations of our data centers, our ability to meet delivery timelines, including contracted delivery schedules with our
customers, and could lead to the closing of facilities, delays in the commencement of leases, penalties for delay, potential lease
terminations and legal proceedings being brought against us. To date our costs of operation have not significantly increased,
however, we may incur additional operating costs as a result of the pandemic, the timing of which is uncertain and
unpredictable, which could materially increase our costs of operations.
The conditions caused by the COVID-19 pandemic, including recent increases in cases in certain markets in the U.S. in which
we do business, also affect our customers and has both lengthened payment terms and increased rent abatements, which has not
had a significant impact to date but may increasingly impact the timing and amount of rent we collect in the future. In addition,
these conditions may negatively impact the demand for colocation and our services, delay the decision making of our
customers, result in defaults or otherwise impair our customers' ability to timely pay us, as well as potentially impairing our
ability to attract new customers, all of which could adversely affect our future sales, operating results, cash flows and overall
financial performance. More generally, in response to the pandemic, government economic support to businesses and
individuals impacted by the pandemic may not continue or be effective at alleviating the abrupt economic deterioration
experienced to date and both the short-term and long-term impact of these actions on economic growth is uncertain.
The effects of the pandemic have affected (and may continue to adversely affect) the economies of countries where we do
business, including the United States and countries in Europe, and have also caused (and may continue to cause) severe
disruption and volatility in the global capital markets, foreign exchange and interest rates. The resulting economic downturn
could adversely affect our and our customers’ and suppliers’ businesses, financial conditions, results of operations and growth
prospects, and may adversely impact our ability to issue equity, borrow or refinance debt and otherwise access the capital
markets to fund our business. If we cannot obtain capital when needed on acceptable terms or at all, we may not be able to
develop or acquire properties when strategic opportunities arise or refinance our debt at or before maturity, and we may need to
increase our liquidity by disposing of properties possibly on disadvantageous terms or renewing leases on less favorable terms
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than we otherwise would, which could adversely affect our business, financial condition, results of operations, cash flows and
ability to pay dividends as well as the market price of our common stock. Moreover, our continued access to external sources of
liquidity also depends on our maintaining strong credit ratings. If rating agencies lower our credit ratings, it could adversely
affect our ability to access the debt markets, our cost of funds and other terms for new debt.
The duration and extent of the impact from the COVID-19 pandemic continues to depend on future developments that cannot
be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of
containment actions, the distribution and effectiveness of vaccines and the impact of these and other factors on our employees,
customers, suppliers and vendors. If we are not able to respond to and manage the impact of such events effectively, our
business will be harmed. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described
above or otherwise, they may also have the effect of heightening many of the other risks set forth in this Part I, Item 1A.
Our international activities are subject to special risks different from those faced by us in the United States, and we may
not be able to effectively manage our international business.
While our activities are primarily based in the United States, since 2018 we have increased our presence in Europe, including in
Amsterdam, Dublin, Frankfurt, London and Paris. Expanding our international activities involves risks not generally associated
with activities or investments in the United States, including:
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compliance with evolving and varied regulations related to the COVID-19 pandemic;
our limited knowledge of and relationships with sellers, customers, contractors, suppliers or other parties in these
markets;
complexity and costs associated with staffing and managing international development and operations;
difficulty in hiring qualified management, sales and construction personnel and service providers in a timely fashion;
problems securing and maintaining the necessary physical and telecommunications infrastructure;
multiple, conflicting and changing legal, regulatory, entitlement and permitting, and tax and treaty environments with
which we have limited familiarity;
exposure to increased taxation, confiscation or expropriation;
fluctuations in foreign currency exchange rates, currency transfer restrictions and limitations on our ability to distribute
cash earned in foreign jurisdictions to the United States;
longer payment cycles and problems collecting accounts receivable;
laws and regulations on content distributed over the Internet that are more restrictive than those in the United States;
evolving and uncertain local laws, policies, regulations and licenses, including the implementation and enforcement
thereof;
difficulty in enforcing agreements in non-U.S. jurisdictions, including those entered into in connection with our
acquisitions, or in the event of a default by one or more of our customers, suppliers or contractors;
political and economic instability, including sovereign credit risk, in certain geographic regions;
the continuing uncertainty about the future relationship between the United Kingdom and the European Union
following the United Kingdom's withdrawal from the European Union (commonly known as "Brexit") as discussed in
“The continuing uncertainty following the United Kingdom’s withdrawal from the European Union may have a
negative effect on global economic conditions, financial markets and our business, which could adversely affect our
business, financial condition and results of operations” below;
exposure to restrictive foreign labor law practices;
import and export restrictions and other trade barriers, including imposition of tariffs; and
increased trade tensions between countries or political and economic unions.
Our inability to overcome these risks could adversely affect our foreign operations, partnerships and growth prospects and
could harm our business, financial condition, results of operations, cash flows and ability to pay dividends as well as the market
price of our common stock.
Any failure to comply with anti-corruption laws and regulations could have adverse effects on our business, financial
condition, results of operations, cash flows and ability to pay dividends as well as the market price of our common stock.
We are subject to laws and regulations concerning our business operations, sales and marketing activities in the U.S. and
foreign countries where we conduct business. For example, we are subject to the U.S. Foreign Corrupt Practices Act, or the
FCPA, which generally prohibits companies and any individuals or entities acting on their behalf from offering or making
improper payments or providing benefits to foreign officials for the purpose of obtaining or keeping business. We are also
subject to various other anti-bribery, anti-corruption and international trade laws in the U.S. and certain foreign countries, such
as the U.K. Bribery Act. There is a risk that our employees, business partners and other third parties could violate these laws,
and we could be sanctioned or held liable for actions taken by our employees, business partners and other third parties with
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respect to our business. We could incur significant expenses in investigating any potential violation and could incur severe
criminal or civil sanctions and/or fines as a result of violations or settlements regarding such laws. In addition, any allegations,
settlements or violations could materially and adversely impact our reputation and our relationships with current and future
customers, suppliers, employees and business partners. Any such expenses, sanctions, fines, allegations, settlements or
violations could adversely affect our business, financial condition, results of operations, cash flows and ability to pay dividends
as well as the market price of our common stock.
The continuing uncertainty following the United Kingdom’s withdrawal from the European Union may have a negative
effect on global economic conditions, financial markets and our business, which could adversely affect our business,
financial condition and results of operations.
We are developing and operate data centers in Europe, including in Amsterdam, Dublin, Frankfurt, and Paris as well as in the
United Kingdom. In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a
national referendum. After years of negotiations to establish the framework for the future relationship between the United
Kingdom and the European Union, the United Kingdom formally left the European Union on January 31, 2020. A transition
period began on February 1, 2020, which lasted until December 31, 2020.
On January 1, 2021, the United Kingdom left the European Union Single Market and Customs Union, as well as all European
Union policies and international agreements. As a result, the free movement of persons, goods, services and capital between the
United Kingdom and the European Union ended, and the European Union and the United Kingdom formed two separate
markets and two distinct regulatory and legal spaces. Prior to the United Kingdom’s departure, a trade and cooperation
agreement (the “Trade Agreement”) was reached between the United Kingdom and the European Union on December 24, 2020,
avoiding a no-deal separation. The Trade Agreement was approved by the European Union’s member states and the United
Kingdom Parliament, and is expected to be formally ratified by the European Parliament. The Trade Agreement offers United
Kingdom and European Union companies preferential access to each other’s markets, ensuring imported goods will be free of
tariffs and quotas; however, economic relations between the United Kingdom and the European Union will now be on more
restricted terms than existed previously. While the Trade Agreement provides clarity for the future relationship between the
United Kingdom and the European Union, uncertainties remain and further negotiations are expected. For instance, the Trade
Agreement does not incorporate the full scope of the services sector, and businesses such as banking and finance face a more
uncertain future. The United Kingdom and European Union plan to put in place a regulatory dialogue on financial services
based on a separate memorandum of understanding by March 2021. At this time, we cannot predict the impact that the Trade
Agreement and any future agreements on services will have on our business and our customers, and it is possible that new terms
may adversely affect our business, financial condition and results of operations.
The original referendum has also given rise to calls for the governments of other European Union member states to consider
withdrawal. If other European Union member states pursue withdrawal, barrier-free access between other European Union
member states or among the European economic area overall could be diminished or eliminated. Withdrawal from the European
Union, or the perception that additional withdrawals could occur, have had and may continue to have a material adverse effect
on global economic conditions and the stability of global financial markets, and could significantly reduce global market
liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency
exchange rates (primarily the British pound sterling and Euro) and credit ratings may be especially subject to increased market
volatility. Lack of clarity about United Kingdom laws and regulations as the United Kingdom continues to determine which
European Union laws to replace or replicate could depress economic activity and restrict our access to capital in the United
Kingdom. For example, this lack of clarity could result in canceled contracts, changes in exchange rates or less favorable
payment terms.
In particular, changes resulting from Brexit, including those related to additional trade agreements, tariffs and customs
regulations and currency fluctuations, may cause us to lose customers, suppliers and employees and any of these factors may
adversely affect our business, financial condition and results of operations, especially with respect to our European operations.
In addition, the value of the Euro and British pound sterling as compared to the U.S. dollar; potential price increases or
unavailability of supplies purchased from companies located in the European Union or elsewhere; potential disruptions in the
markets we serve; and changes in tax laws in the jurisdictions in which we operate could have adverse effects on our business,
financial condition and results of operations.
The ongoing trade conflict between the United States and the PRC may negatively impact certain of our customers,
which in turn could materially and adversely affect our financial condition and results of operations.
The United States has recently advocated for and taken steps toward restricting trade in certain goods, particularly from the
PRC. The PRC and certain other countries have retaliated and may further retaliate in response to new trade policies, treaties
and tariffs implemented by the United States. Any further actions to increase existing tariffs or impose additional tariffs could
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result in an escalation of the trade conflict and may have a material negative impact on the economies of not just the United
States and the PRC, but the global economy as a whole. While the U.S. had recently announced prohibitions on certain
“transactions”, including without limitation “any acquisition, importation, transfer, installation, dealing in, or use of any
information and communications technology or service”, by any person, or with respect to any property, subject to the
jurisdiction of the United States with a certain mobile application that involves, among other things, (a) any provision of
services to distribute or maintain such mobile application within the United States and (b) any provision of internet hosting
services, content delivery network services or directly contracted or arranged internet transit or peering services, in each case
that enable the functioning or optimization of such mobile application within the United States, such prohibitions have been
enjoined and will not take effect, pending legal developments. The President has also issued an executive order with respect to
another mobile application, although similar rules proposed by the U.S. Department of Commerce that identified the
transactions prohibited by such order were subsequently withdrawn. In early January 2021, the President signed another
executive order prohibiting transactions using certain PRC payment applications. While we are currently unable to predict
whether these restrictions will take effect, whether the U.S. or other governments will impose any further restrictions or extend
these restrictions to other industries, or the eventual impact of any such restrictions, the aforementioned prohibitions create
uncertainty around our customers that are controlled by PRC entities and our customers’ ability to do business with PRC
entities. If these measures, tariffs and prohibitions affect any of our customers and their business results and prospects, their
demand for, or ability to pay for, our data center services may decrease, which may materially and adversely affect our financial
condition and results of operations.
The regulatory framework around data custody, data privacy and breaches varies by jurisdiction and involves complex
and rigorous regulatory standards enacted to protect business and personal data in the U.S. and elsewhere.
Data custody and privacy laws and regulations are complex and vary by jurisdiction. We may not be able to limit our liability or
damages in the event of a loss of business or personal data. For example, the European Union's General Data Protection
Regulation (the "GDPR") became effective in 2018. The GDPR imposes additional obligations on companies regarding the
handling of personal data and provides certain individual privacy rights to persons whose data is stored. Data protection
legislation is also becoming common in the United States at both the federal and state level and may require us to further
modify our data processing practices and policies. For example, the state of California, where we expect to open a data center in
2022 and have other property for future development, adopted the California Consumer Privacy Act of 2018, which took effect
on January 1, 2020, and California voters approved the California Privacy Rights Act in November 2020, which will be
effective January 1, 2023. These laws provide California residents with increased privacy rights and protections with respect to
their personal information. Compliance with existing, proposed and recently enacted data privacy laws and regulations can be
costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of, or
failure to secure, personal information could also result in violation of data privacy laws and regulations, proceedings against
the Company by governmental entities or others, fines and penalties, damage to our reputation and credibility and could have a
negative impact on our business, financial condition and results of operations.
We may incur significant costs complying with the Americans with Disabilities Act, or ADA, and similar laws, which
could materially adversely affect our financial condition and operating results.
Under the ADA, all places of public accommodation must meet federal requirements related to access and use by disabled
persons. We have not conducted an audit or investigation of all of our U.S. properties to determine our compliance with the
ADA. If one of our U.S. properties is not in compliance with the ADA, we would be required to incur additional costs to bring
the property into compliance. Additional federal, state and local laws may require modifications to our properties, or restrict our
ability to renovate our properties. We cannot predict the ultimate amount of the cost of compliance with the ADA or other
legislation. If we incur substantial costs to comply with the ADA and any other similar legislation, our financial condition,
results of operations, cash flows and ability to pay dividends as well as the market price of our common stock could be
materially adversely affected.
We may be adversely affected by regulations or standards related to climate change.
If we, or other companies with which we do business, become subject to existing or future laws and regulations or standards
related to climate change, our business could be impacted adversely. For example, in the normal course of business, we enter
into agreements with providers of electric power for our data centers, and the costs of electric power comprise a significant
component of our operating expenses. In addition, we may be required to incur additional costs to acquire or upgrade our back-
up generators to obtain or continue to qualify for applicable permits. Changes in regulations that affect electric power providers,
such as regulations related to the control of greenhouse gas emissions, wildfire mitigation plans or other climate change related
matters, could adversely affect the costs of electric power and increase our operating costs and may adversely affect our or our
customers' business, financial condition, results of operations and cash flows as well as our ability to pay dividends and the
market price of our common stock.
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We may incur significant costs complying with other regulations.
Our properties are subject to various federal, state and local regulations, such as state and local fire and life safety regulations,
as well as similar foreign regulations. For instance, as discussed in “We have been and may continue to be vulnerable to
security breaches or cyber-attacks which have disrupted and could disrupt our operations, harm our brand and reputation
and have a material adverse effect on our business, financial condition and results of operations” above, regulations such as
the GDPR and CCPA may have significant impact on our operations. If we fail to comply with these various regulations, we
may be required to pay fines or private damage awards. We do not know whether existing regulations will change or whether
future regulations will require us to make significant unanticipated expenditures that may adversely affect our business,
financial condition and results of operations. With respect to foreign regulations, we also face the risks described above in “We
face risks with our international acquisitions associated with investing in unfamiliar metropolitan areas”.
The failure to successfully implement changes to our information technology system could adversely affect our business.
From time to time, we make changes to our information technology system to meet our business and financial reporting needs.
Transitioning to new or upgraded systems can create difficulties, including potential disruption to our financial reporting data,
security vulnerabilities and decreases in productivity until personnel become familiar with new systems. In addition, our
management information systems will require modification and refinement as we grow and as our business needs change,
which could prolong difficulties we experience with systems transitions, and we may not always employ the most effective
systems for our purposes. If we experience difficulties in implementing new or upgraded information systems or experience
significant system failures, or if we are unable to successfully modify our management information systems and respond to
changes in our business needs, our operating results could be harmed or we may fail to meet our reporting obligations.
Violations of our prohibition on harassment, sexual or otherwise, could result in liabilities and/or litigation.
We prohibit harassment or discrimination in the workplace, whether sexual harassment or any other form. This policy applies to
all aspects of employment. Notwithstanding our conducting training and taking disciplinary action against alleged violations,
we may encounter additional costs from claims made and/or legal proceedings brought against us. Any such claims or
allegations, or even just stories or rumors about such misconduct at the Company, could also harm our reputation and therefore
our business, including our ability to recruit future employees or secure contracts with new and existing customers, even if such
allegations do not result in any legal liability or direct financial losses.
The expansion of social media platforms presents new risks and challenges.
The inappropriate use of certain social media vehicles could cause brand damage or information leakage or could lead to legal
implications from the improper collection and/or dissemination of personally identifiable information or the improper
dissemination of material non-public information. In addition, negative posts or comments about us on any social networking
web site could seriously damage our reputation. Further, the disclosure of non-public company sensitive information through
external media channels could lead to information loss as there might not be structured processes in place to secure and protect
information. If our non-public sensitive information is disclosed or if our reputation is seriously damaged through social media,
it could have a material adverse effect on our business, financial condition, results of operations, cash flows, and/or ordinary
share price.
Risks Related to Our Organizational Structure
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Maryland law provides that a director has no liability in the capacity as a director if he or she performs his or her duties in good
faith, in a manner he or she reasonably believes to be in the company’s best interests and with the care that an ordinarily
prudent person in a like position would use under similar circumstances. As permitted by the Maryland General Corporation
Law (MGCL), our charter limits the liability of our directors and officers to the company and our stockholders for money
damages, except for liability resulting from:
•
•
actual receipt of an improper benefit or profit in money, property or services; or
a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to
the cause of action adjudicated.
In addition, our charter authorizes us to obligate the company, and our bylaws require us, to indemnify our directors and
officers for actions taken by them in those capacities and to pay or reimburse their reasonable expenses in advance of final
disposition of a proceeding to the maximum extent permitted by Maryland law, and we have entered into indemnification
agreements with our directors and executive officers. As a result, we and our stockholders may have more limited rights against
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our directors and officers than might otherwise exist under common law. Accordingly, in the event that any of our directors or
officers are exculpated from, or indemnified against, liability but whose actions impede our performance, our stockholders’
ability to recover damages from that director or officer will be limited.
Our charter and bylaws and the partnership agreement of our operating partnership contain provisions that may delay,
defer or prevent an acquisition of our common stock or a change in control.
Our charter and bylaws and the partnership agreement contain a number of provisions, the exercise or existence of which could
delay, defer or prevent a transaction or a change in control that might involve a premium price for our stockholders or otherwise
be in their best interests, including the following:
•
•
Our Charter Contains Restrictions on the Ownership and Transfer of Our Stock. In order for us to qualify as a
REIT, no more than 50% of the value of outstanding shares of our stock may be owned, beneficially or constructively,
by five or fewer individuals at any time during the last half of each taxable year other than the first year for which we
elect to be taxed as a REIT. Subject to certain exceptions, our charter prohibits any stockholder from owning
beneficially or constructively more than 9.8% in value or in number of shares, whichever is more restrictive, of the
outstanding shares of our common stock, or 9.8% in value of the aggregate of the outstanding shares of all classes or
series of our stock. We refer to these restrictions collectively as the “ownership limits.” The constructive ownership
rules under the Code are complex and may cause the outstanding stock owned by a group of related individuals or
entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than
9.8% of our outstanding common stock or the outstanding shares of all classes or series of our stock by an individual
or entity could cause that individual or entity or another individual or entity to own constructively in excess of the
relevant ownership limits. Our charter also prohibits any person from owning shares of our stock that would result in
our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT. Any
attempt to own or transfer shares of our common stock or of any of our other capital stock in violation of these
restrictions may result in the shares being automatically transferred to a charitable trust or may be void. These
ownership limits may prevent a third-party from acquiring control of us if our board of directors does not grant an
exemption from the ownership limits, even if our stockholders believe the change in control is in their best interests.
Although it is under no continuing obligation to do so, our board of directors has granted some limited exemptions
from the ownership limits applicable to certain holders of our common stock, subject to certain initial and ongoing
conditions designed to protect our status as a REIT, including, if deemed advisable, the receipt of an Internal Revenue
Service (IRS) private letter ruling or an opinion of counsel.
Our Board of Directors Has the Power to Cause Us to Issue Additional Shares of Our Stock Without Stockholder
Approval. Our charter authorizes us to issue additional authorized but unissued shares of common or preferred stock.
In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate
number of our shares of common stock or the number of shares of stock of any class or series that we have authority to
issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and
other terms of the classified or reclassified shares. As a result, our board of directors may establish a series of shares of
common or preferred stock that could delay or prevent a transaction or a change in control that might involve a
premium price for our shares of common stock or otherwise be in the best interests of our stockholders.
Conflicts of interest exist or could arise in the future with our operating partnership or its partners.
Conflicts of interest exist or could arise in the future as a result of the relationships between us and our affiliates, on the one
hand, and our operating partnership or any partner thereof, on the other. Our directors and officers have duties to our company
under applicable Maryland law in connection with their direction of the management of our company. At the same time, we, as
trustee, have duties to CyrusOne GP, which, in turn, as general partner of our operating partnership, has duties to our operating
partnership and to the limited partners under Maryland law in connection with the management of our operating partnership.
Under Maryland law, the general partner of a Maryland limited partnership has fiduciary duties of care and loyalty, and an
obligation of good faith, to the partnership and its partners. While these duties and obligations cannot be eliminated entirely in
the limited partnership agreement, Maryland law permits the parties to a limited partnership agreement to specify certain types
or categories of activities that do not violate the general partner’s duty of loyalty and to modify the duty of care and obligation
of good faith, so long as such modifications are not unreasonable. These duties as general partner of our operating partnership
to the partnership and its partners may come into conflict with the interests of our company. Under the partnership agreement of
our operating partnership, the limited partners of our operating partnership expressly agree that the general partner of our
operating partnership is acting for the benefit of the operating partnership, the limited partners of our operating partnership and
our stockholders, collectively. The general partner is under no obligation to give priority to the separate interests of the limited
partners in deciding whether to cause our operating partnership to take or decline to take any actions. If there is a conflict
between the interests of us or our stockholders, on the one hand, and the interests of the limited partners of our operating
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partnership, on the other, the partnership agreement of our operating partnership provides that any action or failure to act by the
general partner that gives priority to the separate interests of us or our stockholders that does not result in a violation of the
contractual rights of the limited partners of our operating partnership under the partnership agreement will not violate the duties
that the general partner owes to our operating partnership and its partners.
Additionally, the partnership agreement of our operating partnership expressly limits our liability by providing that we and our
directors, officers, agents and employees will not be liable or accountable to our operating partnership or its partners for money
damages. In addition, our operating partnership is required to indemnify us, our directors, officers and employees, the general
partner and its trustees, officers and employees, employees of our operating partnership and any other persons whom the
general partner may designate from and against any and all claims arising from operations of our operating partnership in which
any indemnitee may be involved, or is threatened to be involved, as a party or otherwise unless it is established by a final
judgment that the act or omission of the indemnitee constituted fraud, intentional harm or gross negligence on the part of the
indemnitee, the claim is brought by the indemnitee (other than to enforce the indemnitee’s rights to indemnification or advance
of expenses) or the indemnitee is found to be liable to our operating partnership, and then only with respect to each such claim.
No reported decision of a Maryland appellate court has interpreted provisions that are similar to the provisions of the
partnership agreement of our operating partnership that modify the fiduciary duties of the general partner of our operating
partnership, and we have not obtained an opinion of counsel regarding the enforceability of the provisions of the partnership
agreement that purport to waive or modify the fiduciary duties and obligations of the general partner of our operating
partnership.
In addition, the limited partnership agreement of our operating partnership provides for the issuance of partnership units
designated as LTIP Units. While all of the issued and outstanding operating partnership units were owned, directly or indirectly,
by the Company as of December 31, 2020, as a result of the restructuring of our operating partnership, which was effective
February 1, 2021, 0.2% of the operating partnership units are now held by a wholly-owned subsidiary of the Company and the
Compensation Committee of the Company may now grant awards to participants in our Restated 2012 Long Term Incentive
Plan (“LTIP”) that allows recipients to elect to receive their award in the form of LTIP Units or restricted stock of the
Company. LTIP Units will dilute the Company’s interest (and therefore the interest of our stockholders) in the assets of our
operating partnership. LTIP Units will have the right to vote on certain amendments to the limited partnership agreement of our
operating partnership, as well as on certain other matters. Persons holding such voting rights may exercise them in a manner
that conflicts with the interests of our stockholders. Furthermore, circumstances may arise in the future when the interest of
limited partners in our operating partnership may conflict with the interest of our stockholders. For example, the timing and
terms of dispositions of properties held by our operating partnership may result in tax consequences to certain limited partners
and not to our stockholders.
Certain provisions of Maryland law may limit the ability of a third-party to acquire control of us.
Certain provisions of the MGCL may have the effect of inhibiting a third-party from acquiring us or of impeding a change of
control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium
over the then-prevailing market price of such shares, including:
•
•
“business combination” provisions that, subject to limitations, prohibit certain business combinations between an
“interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of
our outstanding shares of voting stock or an affiliate or associate of the corporation who, at any time within the two-
year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of
the then outstanding stock of the corporation) or an affiliate of any interested stockholder and us for five years after the
most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-
majority stockholder voting requirements on these combinations; and
“control share” provisions that provide that holders of “control shares” of our company (defined as voting shares of
stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to
exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share
acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting
rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all of the votes
entitled to be cast on the matter, excluding all interested shares.
Pursuant to the Maryland Business Combination Act, our board of directors has by resolution exempted from the provisions of
the Maryland Business Combination Act business combinations between any other person and us, provided that such business
combination is first approved by our board of directors (including a majority of our directors who are not affiliates or associates
of such person). Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all
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acquisitions by any person of shares of our stock. There can be no assurance that these exemptions or resolutions will not be
amended or eliminated at any time in the future.
Additionally, Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of
what is currently provided in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of
which we do not have.
Our bylaws designate the Circuit Court for Baltimore City, Maryland, as the sole and exclusive forum for certain types
of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to
bring a claim in a judicial forum that the stockholders believe is a more favorable judicial forum for disputes with us or
our directors, officers or other employees.
Our bylaws provide that, subject to limited exceptions, the Circuit Court for Baltimore City, Maryland, is the sole and exclusive
forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of any duty
owed by any of our directors, officers or other employees to us or our stockholders, (c) any action asserting a claim against us
or any of our directors, officers or other employees arising pursuant to any provision of the MGCL, our charter or our bylaws or
(d) any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal
affairs doctrine. This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it believes is more
favorable for disputes against us or our directors, officers or employees, which may discourage such lawsuits against us and our
directors, officers and other employees.
Risks Related to Status as a REIT
If we fail to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could
face a substantial tax liability, which would reduce the amount of cash available for distribution to our stockholders.
CyrusOne Inc. has elected to be taxed as a REIT under the Code commencing with our initial taxable year ending December 31,
2013. We intend to continue to operate in a manner that will allow us to remain qualified as a REIT. Our qualification as a
REIT depends on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other
requirements on a continuing basis. Our ability to satisfy the asset tests depends upon our analysis of the characterization and
fair market values of our assets, some of which are not susceptible to a precise determination, and for which we do not obtain
independent appraisals.
We have received a private letter ruling from the IRS with respect to certain issues relevant to our qualification as a REIT. In
general, the ruling provides, subject to the terms and conditions contained therein, that certain structural components of our
properties (e.g., relating to the provision of electricity, heating, ventilation and air conditioning, regulation of humidity, security
and fire protection, and telecommunications services) and intangible assets, and certain services that we may provide, directly
or through subsidiaries, to our tenants, will not adversely affect our qualification as a REIT. Although we may generally rely
upon the ruling, no assurance can be given that the IRS will not challenge our qualification as a REIT on the basis of other
issues or facts outside the scope of the ruling.
If we were to fail to qualify as a REIT in any taxable year, we would be subject to U.S. federal income tax, and could be subject
to U.S. Federal income tax for any open taxable years on our taxable income at regular corporate rates, and dividends paid to
our stockholders would not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be
substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an
adverse impact on the value of our common stock. Unless we were entitled to relief under certain Code provisions, we would
also be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to
qualify as a REIT.
Qualifying as a REIT involves highly technical and complex provisions of the Code.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited
judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification.
Our continued qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution,
stockholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy the requirements to
qualify as a REIT may depend in part on the actions of third parties over which we have no control or only limited influence,
including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax
purposes.
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REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends
paid deduction and excluding any net capital gains, in order for us to qualify as a REIT (assuming that certain other
requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the
extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT
taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be
subject to U.S. federal corporate income tax on our undistributed net taxable income and on income recognized by our TRSs. In
addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our stockholders in a
calendar year is less than a minimum amount specified under U.S. federal tax laws. We intend to make distributions to our
stockholders to comply with the REIT requirements of the Code.
From time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the
recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of
reserves or required debt or amortization payments. If we do not have other funds available in these situations, we could be
required to borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise
be invested in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy
the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These
alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability
to grow, which could adversely affect the value of our common stock.
Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends, but certain
stockholders may be entitled to deduct up to 20% of dividends payable by REITs.
"Qualified dividend income" payable to U.S. stockholders that are individuals, trusts or estates is generally subject to tax at
preferential rates, but dividends payable by REITs generally do not constitute “qualified dividend income”. For taxable years
beginning after December 31, 2017 and before January 1, 2026, however, U.S. stockholders that are individuals, trusts or
estates generally will be entitled to deduct up to 20% of “qualified REIT dividends”. A “qualified REIT dividend” is any
dividend from a REIT received during the taxable year that is not designated by the REIT as a “capital gain dividend” or as
“qualified dividend income”.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may be subject to certain U.S. federal, state, local, and non-U.S. taxes
on our income and assets, including taxes on any undistributed net taxable income and state, local, or non-U.S. income,
property and transfer taxes. For example, in order to meet the REIT qualification requirements, we may hold some of our assets
or conduct certain of our activities through one or more TRS or other subsidiary corporations that will be subject to federal,
state, and local corporate-level income taxes as regular C corporations. In addition, we may incur a 100% excise tax on
transactions with a TRS if they are not conducted on an arm’s length basis. Moreover, we are subject to income, withholding
and other taxes in numerous non-U.S. jurisdictions with respect to our income and operations related to those jurisdictions. Our
after-tax profitability could be affected by numerous factors, including the availability of tax credits, exemptions and other
benefits to reduce our tax liabilities, changes in the relative amount of our earnings subject to tax in the various jurisdictions in
which we operate, the potential expansion of our business into or otherwise becoming subject to tax in additional jurisdictions,
changes to our existing businesses and operations, the extent of our intercompany transactions and the extent to which taxing
authorities in the relevant jurisdictions respect those intercompany transactions. Any of these taxes would decrease cash
available for distribution to our stockholders.
Changes in U.S. or foreign tax laws and regulations, including changes to tax rates, legislation and other actions may
adversely affect our results of operations.
We are headquartered in the United States with subsidiaries and operations in Europe and Asia which are subject to income
taxes in these jurisdictions. Significant judgment is required in determining our provision for income taxes and there is no
assurance that additional taxes will not be due upon audit of our tax returns or as a result of changes to applicable tax laws. The
governments of many of the countries in which we operate may enact changes to the tax laws of such countries, including
changes to the corporate recognition and taxation of worldwide income. The nature and timing of any changes to each
jurisdiction’s tax laws and the impact on our future tax liabilities cannot be predicted and, as a result, our business, financial
condition, results of operations, cash flows and ability to pay dividends, as well as the market price of our common stock, may
be adversely affected.
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Certain property transfers may generate prohibited transaction income, resulting in a penalty tax on gain attributable
to the transaction.
From time to time, we may transfer or otherwise dispose of some of our properties, including the contribution of properties to
our joint venture funds. Even if we remain qualified for taxation as a REIT, any gain resulting from transfers of properties that
we hold as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a
prohibited transaction subject to a 100% penalty tax, unless a safe harbor exception applies. Since we acquire properties for
investment purposes, we do not believe that our occasional transfers or disposals of property or our contributions of properties
into our joint ventures, are properly treated as prohibited transactions. However, whether property is held for investment
purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The IRS
may contend that certain transfers or disposals of properties by us or contributions of properties into our joint ventures are
prohibited transactions if they do not meet the safe harbor requirements. While we believe that the IRS would not prevail in any
such dispute, if the IRS were to argue successfully that a transfer or disposition or contribution of property constituted a
prohibited transaction, we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited
transaction. In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for
qualification as a real estate investment trust for federal income tax purposes.
Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.
To qualify as a REIT, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of
cash, cash items, government securities and “real estate assets” (as defined in the Code), including certain mortgage loans and
securities. The remainder of our investments (other than government securities, qualified real estate assets and securities issued
by a TRS) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of
the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total
assets (other than government securities, qualified real estate assets and securities issued by a TRS) can consist of the securities
of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more TRS. If
we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after
the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and
suffering adverse tax consequences. As a result, we may be required to liquidate or forgo otherwise attractive investments.
These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
In addition to the asset tests set forth above, to continue to qualify as a REIT we must continually satisfy tests concerning,
among other things, the sources of our income, the amounts we distribute to our stockholders and the ownership of our stock.
We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income or
asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our
ability to make certain attractive investments.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Any income from a hedging
transaction that we enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire
or carry real estate assets does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to
REITs, provided that certain identification requirements are met. To the extent that we enter into other types of hedging
transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated as non-qualifying income
for purposes of both of the gross income tests. As a result of these rules, we may be required to limit our use of advantageous
hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because
our TRS may be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would
otherwise want to bear. In addition, losses in our TRS will generally not provide any tax benefit, except that such losses may be
carried forward to offset future taxable income of the TRS.
Changes to U.S. federal income tax laws could materially and adversely affect us and our stockholders.
The present U.S. federal income tax treatment of REITs and their shareholders may be modified, possibly with retroactive
effect, by legislative, judicial or administrative action at any time, which could affect the U.S. federal income tax treatment of
an investment in our shares. The U.S. federal income tax rules, including those dealing with REITs, are constantly under review
by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as
well as frequent revisions to regulations and interpretations.
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Risks Related to Our Common Stock
Our cash available for distribution to stockholders may not be sufficient to make distributions at expected levels, and we
may need to borrow in order to make such distributions; consequently, we may not be able to make such distributions in
full.
If cash available for distribution generated by our assets is less than our estimate or if such cash available for distribution
decreases in future periods from expected levels, our inability to make the expected distributions could result in a decrease in
the market price of our common stock. Distributions made by us will be authorized and determined by our board of directors in
its sole discretion out of funds legally available therefor and will be dependent upon a number of factors, including restrictions
under applicable law and our capital requirements. We may not be able to make or sustain distributions in the future. To the
extent that we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions
would generally be considered a return of capital for U.S. federal income tax purposes to the extent of the holder’s adjusted tax
basis in its shares. A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its
investment. To the extent that distributions exceed the adjusted tax basis of a holder’s shares, they will be treated as gain from
the sale or exchange of such stock. If we borrow to fund distributions, our future interest costs would increase, thereby reducing
our earnings and cash available for distribution from what they otherwise would have been.
Future offerings of debt, which would be senior to our common stock upon liquidation, and/or preferred equity
securities, which may be senior to our common stock for purposes of distributions or upon liquidation, may adversely
affect the market price of our common stock.
In the future, we may attempt to increase our capital resources by making additional offerings of debt or preferred equity
securities, including medium-term notes, trust preferred securities, senior or subordinated notes and preferred stock. Upon
liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive
distributions of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the
holdings of our existing stockholders or reduce the market price of our common stock, or both. Holders of our common stock
are not entitled to preemptive rights or other protections against dilution. Our preferred stock, if issued, could have a preference
on liquidating distributions or a preference on distribution payments that could limit our ability to make a distribution to the
holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions
and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus,
our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock
holdings in us.
Increases in market interest rates may cause potential investors to seek higher dividend yields and therefore reduce
demand for our common stock and result in a decline in our stock price.
One of the factors that may influence the price of our common stock is the dividend yield on our common stock (the amount of
dividends as a percentage of the price of our common stock) relative to market interest rates. An increase in market interest
rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our common stock to
expect a higher dividend yield, which we may be unable or choose not to provide. Higher interest rates would likely increase
our borrowing costs and potentially decrease the cash available for distribution. Thus, higher market interest rates could cause
the market price of our common stock to decline.
The number of shares available for future sale could adversely affect the market price of our common stock.
We cannot predict whether future issuances of shares of our common stock or the availability of shares of our common stock
for resale in the open market will decrease the market price per share of our common stock. Sales of a substantial number of
shares of our common stock in the public market, or the perception that such sales might occur, could adversely affect the
market price of the shares of our common stock. Physical settlement of these forward sale agreements or other forward sale
agreements in the future have resulted or will result in dilution to our earnings per share. In 2020, we entered into forward
equity sale agreements with financial institutions acting as forward purchasers under the New 2018 ATM Stock Offering
Program and the 2020 ATM Stock Offering Program (each as defined in Item 7 under "Liquidity and Capital Resources"), as
applicable, with respect to approximately 10.2 million shares of our common stock; and in 2019, we sold approximately 6.5
million shares of our common stock under the New 2018 ATM Stock Offering Program. In addition, we have registered shares
of common stock that were reserved for issuance under our Restated 2012 Long Term Incentive Plan and under our 2014
Employee Stock Purchase Plan, and these shares can generally be freely sold in the public market, assuming any applicable
restrictions and vesting requirements are satisfied. If any or all of these holders cause a large number of their shares to be sold
in the public market, the sales could reduce the trading price of our common stock and could impede our ability to raise future
capital on terms acceptable to us or at all.
47
The market price and trading volume of our common stock may be volatile.
The market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and
cause significant price variations to occur. If the market price of our common stock declines significantly, a holder may be
unable to resell shares at a profit or at all. We cannot provide any assurance that the market price of our common stock will not
fluctuate or decline significantly in the future.
Some of the factors that could negatively affect the market price of our common stock or result in fluctuations in the price or
trading volume of our common stock include:
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated variations in our quarterly results of operations or distributions;
changes in our funds from operations or earnings estimates;
publication of research reports about us or the real estate, technology or data center industries;
increases in market interest rates that may cause purchasers of our shares to demand a higher yield;
changes in market valuations of similar companies;
adverse market reaction to any additional debt we may incur in the future;
additions or departures of key personnel;
actions by institutional stockholders;
speculation in the press or investment community about our company or industry or the economy in general;
the occurrence of any of the other risk factors presented in this Form 10-K; and
general market and economic conditions, including economic conditions as a result of the COVID-19 pandemic.
Our earnings and cash distributions will affect the market price of shares of our common stock.
To the extent that the market value of a REIT’s equity securities is based primarily upon market perception of the REIT’s
growth potential and its current and potential future cash distributions, whether from operations, sales, acquisitions,
development or refinancing and is secondarily based upon the value of the underlying assets, shares of our common stock may
trade at prices that are higher or lower than the net asset value per share. To the extent we retain operating cash flow for
investment purposes, working capital reserves or other purposes rather than distributing the cash flow to stockholders, these
retained funds, while increasing the value of our underlying assets, may negatively impact the market price of our common
stock. Our failure to meet market expectations with regard to future earnings and cash distributions would likely adversely
affect the market price of our common stock.
48
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
The information set forth under the caption “Our Portfolio” in Item 1 of this Annual Report on Form 10-K is incorporated by
reference herein.
ITEM 3.
LEGAL PROCEEDINGS
In the ordinary course of our business, from time to time, we are subject to claims and administrative proceedings. We do not
believe any currently outstanding matters would have, individually or in the aggregate, a material effect on our business,
financial condition and results of operations or liquidity and cash flows.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
49
ITEM 5.
AND ISSUER PURCHASE OF EQUITY SECURITIES.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
PART II
A)
Market Information
Our common stock is listed on the NASDAQ Global Select Market under the symbol “CONE”.
B)
Holders
As of February 12, 2021, CyrusOne Inc. had 121 shareholders of record and 120,460,690 outstanding shares.
C)
Distribution Policy
We have made distributions in the form of dividends each quarter since the completion of our initial public offering ("IPO"). In
order to comply with the REIT requirements of the Code, we are required to make quarterly distributions to our shareholders of
at least 90% of our taxable income. Distributions made by the Company are determined by our board of directors in its sole
discretion. If we have underestimated our cash available for distribution, we may need to increase our borrowings in order to
fund our intended distributions. Notwithstanding the foregoing, our Amended Credit Agreement and indentures restrict
CyrusOne LP from making distributions to holders of its operating partnership units, or redeeming or otherwise repurchasing
shares of its operating partnership units, after the occurrence and during the continuance of an event of default, except in limited
circumstances including as necessary to enable CyrusOne Inc. to maintain its qualification as a REIT and to minimize the
payment of income taxes.
D)
Issuer Purchases of Unregistered Securities
Period
January 1, 2020 - January 31, 2020
February 1, 2020 - February 29, 2020
April 1, 2020 - April 30, 2020
May 1, 2020 - May 31, 2020
June 1, 2020 - June 30, 2020
July 1, 2020 - July 31, 2020
August 1, 2020 - August 31, 2020
September 1, 2020 - September 30, 2020
November 1, 2020 - November 30, 2020
December 1, 2020 - December 31, 2020
(a) Total Number of
Shares of Common
Stock Purchased(1)
(b) Average Price
Paid per Common
Share
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
(c) Maximum
Number (or
Approximate Dollar
Value) of Shares that
May Yet be
Purchased
2,531 $
94,842
1,255
1,049
67
1,268
21,365
3,647
873
338
127,235 $
66.99
63.70
74.25
71.47
73.82
83.25
83.32
81.29
73.01
70.30
68.01
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(1) - Represents the common stock surrendered by employees to CyrusOne to satisfy such employee's tax withholding obligations in connection with the
vesting of restricted stock.
50
E)
Stock Performance
The following graph compares the cumulative total stockholder return on CyrusOne Inc.’s common stock for the year ended
December 31, 2020, with the cumulative total return on the S&P 500 Market Index and the MSCI US REIT Index (RMZ). The
comparison assumes that $100 was invested on December 31, 2015 in CyrusOne Inc.’s common stock and in each of these
indices and assumes reinvestment of dividends, if any.
Stock Performance Chart
e
u
l
a
V
x
e
d
n
I
300
280
260
240
220
200
180
160
140
120
100
D ece m ber 31, 2015
D ece m ber 31, 2016
D ece m ber 31, 2017
D ece m ber 31, 2018
D ece m ber 31, 2019
D ece m ber 31, 2020
CONE
S&P 500
MSCI US REIT
Pricing Date
CONE
S&P 500
MSCI US REIT
December 31, 2015
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
F)
Recent Sales of Unregistered Securities
None.
100.00
123.40
169.22
155.35
198.24
228.30
100.00
111.96
136.40
130.42
171.49
203.04
100.00
108.60
114.11
108.89
137.03
126.65
51
ITEM 6.
SELECTED FINANCIAL DATA
We early adopted the new amendment to Regulation S-K Item 301, which eliminates Selected Financial Data.
52
ITEM 7.
OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
You should read the following discussion and analysis of our results of operations, financial condition and liquidity in
conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form
10-K ("Form 10-K"). Some of the information contained in this discussion and analysis or set forth elsewhere in this report,
including information with respect to our plans and strategies for our business, statements regarding the industry outlook, our
expectations regarding the future performance of our business and the other non-historical statements contained herein are
forward-looking statements. See “Special Note Regarding Forward-Looking Statements.” You should also review the “Risk
Factors” section of this report for a discussion of important factors that could cause actual results to differ materially from the
results described herein or implied by such forward-looking statements.
The consolidated financial statements included in this Form 10-K reflect the historical financial position, results of operations
and cash flows of CyrusOne Inc. (the "Company") for all periods presented.
Overview
Our Company. We are a fully integrated, self-managed data center real estate investment trust ("REIT") that owns, operates and
develops enterprise-class, carrier-neutral, multi-tenant and single-tenant data center properties. Our data centers are generally
purpose-built facilities with redundant power and cooling. They are not network specific and enable customer connectivity to a
range of telecommunication carriers. We provide mission-critical data center real estate assets that protect and ensure the
continued operation of information technology ("IT") infrastructure for approximately 1,000 customers in 55 data centers,
including two recovery centers, in 16 markets (11 cities in the U.S.; London, U.K.; Singapore; Frankfurt, Germany;
Amsterdam, The Netherlands and Dublin, The Republic of Ireland).
We continue to monitor the global outbreak of the novel coronavirus (COVID-19) and to take steps to mitigate the potential
risks to us posed by the pandemic. We provide a critical service to our customers and are considered an essential business by
most governments, and our employees are continuing to operate our data centers. To date, our data center portfolio remains
fully operational and we have experienced minimal disruptions in our business, including construction projects. Currently, our
supply chain remains fully functional, with redundancy of supply for key operational and construction-related products. We
have not been notified by customers of any significant delays in expected implementation timelines. We have taken precautions
with regard to employees and facility hygiene, imposed travel restrictions on employees and transitioned employees to work
from home when that is possible. We have also implemented additional protocols such as social distancing and limiting the
number of people at our facilities to protect those required to work on-site at our facilities including employees, customers and
vendors and suppliers. Also we have not experienced any significant delays in the collection of revenue and customers
requesting relief or other rent concessions have not been significant in number or amount as of this filing. However, the recent
increases in COVID-19 cases in the U.S. demonstrate that the effects of the pandemic continue to evolve rapidly. While the
impact on our business has not been significant to date and vaccines have begun to be distributed, the length and severity of the
effects of the pandemic remain uncertain and unpredictable and could be materially adverse to our business, financial condition,
results of operations, cash flows and ability to pay dividends as well as the market price of our common stock as discussed in
the risk factors set forth in Part I, Item 1A of this Form 10-K. We will continue to monitor developments that impact our
business and respond as we believe is warranted.
Our Portfolio
Our 55 data centers, including two recovery centers, total 8.0 million Gross Square Feet ("GSF"), of which 84% of the
Colocation Square Feet ("CSF") is leased and has 874 megawatts ("MW") of power capacity. This includes 13 buildings where
we lease such facilities comprising approximately 11% of our total GSF as of December 31, 2020. Also included in our total
GSF, CSF and MW are pre-stabilized assets (which include data halls that have been in service for less than 24 months and are
less than 85% leased) with approximately 404,187 GSF and 39% of the CSF is leased with capacity of 41 MW of power.
In addition, we have properties under development comprising approximately 752,952 GSF and 73 MW of power capacity. The
estimated remaining total costs to develop these properties is projected to be between $321.0 million and $396.0 million. The
final costs to develop are likely to change depending on several factors including the customer capital improvements required
based on the future lease contracts executed on such properties. We also have 534 acres of land available for future data center
development.
53
Operational Overview
The following discussion provides an overview of our capital and financing activity, operations and transactions for the year
ended December 31, 2020 and should be read in conjunction with the full discussion of our operating results, liquidity and
capital resources included in this Form 10-K, as well as the risk factors set forth in Part I, Item 1A.
Outlook
We seek to maximize long-term earnings growth and shareholder value primarily through increasing cash flow at existing
properties and developing high-quality data center assets and campuses at attractive cash yields with long-term, stable operating
income. In addition, the Company will, from time to time, acquire existing properties which meet our strategic criteria, offer in-
place cash flow and have strong growth prospects.
Fundamental secular trends for data center real estate have remained strong, including the exponential growth in global data, the
growth of e-commerce and demand for outsourcing of data storage and cloud-based applications. Large cloud-based demand, in
particular, is strong in the U.S. and Europe. The favorable trends have attracted new capital funding for multiple data center
platforms, including both public and private companies, leading to significant increases in supply in most major markets in
which we operate. While demand remains robust, the supply outlook has led to pricing pressure in some markets, particularly
with large hyperscale customers which are driving an increase in demand which we expect to continue in 2021. The COVID-19
pandemic continues to create uncertainty surrounding general economic growth in the U.S. and Europe in 2021. More
generally, in response to the pandemic, government economic support to businesses and individuals impacted by the pandemic
may not continue or be effective at alleviating the abrupt economic deterioration experienced to date, and both the short-term
and long-term impact of these actions on economic growth remains uncertain. As a result, the impact of the current state of the
economies where we do business on our company is unknown.
In terms of capital investment, we will continue to pursue selective development of new data centers in markets where we
project demand and market rental rates will provide attractive financial returns.
We may, from time to time, selectively dispose of non-strategic assets to recycle capital and enhance long-term growth in
earnings and cash flows, as well as to improve the overall quality of our portfolio.
While the debt capital markets continue to provide liquidity, many lenders are tightening their credit standards and cautiously
allocating capital; however with our access to the investment grade debt capital markets, we completed several senior debt
issuances and amended our credit facility in 2020 at favorable terms to extend our near-term maturities and reduce our overall
borrowing rates. We are committed to maintaining our investment grade ratings and have a strong balance sheet. We anticipate
having sufficient liquidity to fund our capital and operating expenses, including costs to maintain our properties and
distributions, though we may finance investments, including acquisitions and developments, with the issuance of new shares of
our common stock, proceeds from asset sales or through additional borrowings. Please see “Liquidity and Capital Resources”
for additional discussion.
Inflation
The U.S. and European economies where we operate have experienced low inflation over the last several years, as a result,
inflation has not had a significant impact on our business. Our customer leases generally do not provide for annual increases in
rent based on inflation. As a result, we bear the risk of increases in the costs of operating and maintaining our data center
facilities. Most of our leases have rent escalators, typically ranging from 1-3% per annum, in addition most of our leases are
structured to pass-through the cost of sub-metered utilities. In the future, we expect more of our leases to be structured to pass-
through utility costs. In addition, approximately 75% of our leases, based on annualized rent, expire within six years which
enables us to replace existing leases with new leases at then existing market rates.
Summary of Significant Transactions and Activities for the Year Ended December 31, 2020
Real Estate Acquisitions, Development and Other Activities
During the year ended December 31, 2020, the Company purchased land for future development in Frankfurt, Germany and
London, United Kingdom totaling 35 acres for $58.0 million. In March 2020, the Company entered into a 25-year lease
comprising a 45,000 square feet building and commenced development of a 27 MW data center in Paris, France which was
preleased to a customer.
54
During the year ended December 31, 2020, cash capital expenditures were $910.5 million, of which $896.7 million related to
the development and construction of data centers. We continue to make a significant investment to build and develop data
centers which will require additional capital investment. The expansion and development of additional power capacity and
building square feet contributed to our year-over-year revenue increase in 2020.
Capital and Financing Activity
Financing Activity
As of December 31, 2020, we had $1,232.9 million outstanding under the Amended Credit Agreement (as defined below) and
$2.2 billion of senior notes. For more information, see Note 11, Debt.
On March 31, 2020, CyrusOne LP, a Maryland limited partnership (the “Operating Partnership”), and subsidiary of the
Company, entered into an amendment to its credit agreement, dated as of March 29, 2018 (as so amended, the “Amended Credit
Agreement”), among the Operating Partnership, as borrower, the lenders party thereto (the “Lenders”) and JPMorgan Chase
Bank, N.A., as administrative agent for the Lenders. Proceeds from the Amended Credit Agreement were used, among other
things, to refinance and replace the credit facilities under the Company's prior credit agreement.
The Amended Credit Agreement provides for (i) a $1.4 billion senior unsecured multi-currency revolving credit facility (the
“Revolving Credit Facility”), (ii) senior unsecured term loans due 2023 in a dollar equivalent principal amount of $400.0
million (the “2023 Term Loan Facility”), and (iii) senior unsecured term loans due 2025 in a principal amount of $700.0 million
(the “2025 Term Loan Facility”). The Amended Credit Agreement also includes an accordion feature pursuant to which the
Operating Partnership is permitted to obtain additional revolving or term loan commitments so long as the aggregate principal
amount of commitments and/or term loans under the Amended Credit Agreement does not exceed $4.0 billion. The Revolving
Credit Facility provides for borrowings in U.S. Dollars, Euros, Pounds Sterling, Canadian Dollars, Australian Dollars, Japanese
Yen, Hong Kong Dollars, Singapore Dollars and Swiss Francs (subject to a sublimit of $750.0 million on borrowings in
currencies other than U.S. Dollars). The Revolving Credit Facility matures on March 29, 2024 with one 12-month extension
option. The 2023 Term Loan Facility matures on March 29, 2023 with two 1-year extension options, and the 2025 Term Loan
Facility matures on March 28, 2025.
On January 22, 2020, CyrusOne LP and CyrusOne Finance Corp. closed their offering of €500.0 million aggregate principal
amount of 1.450% senior notes due January 2027 (the “2027 Notes”).
On September 21, 2020, CyrusOne LP and CyrusOne Finance Corp. closed their offering of $400.0 million aggregate principal
amount of 2.150% senior notes due November 2030 (the “2030 Notes”).
Capital Activity
During the fourth quarter of 2018, the Company entered into sales agreements pursuant to which we may issue and sell from
time to time shares of our common stock having an aggregate sales price of up to $750.0 million (the "New 2018 ATM Stock
Offering Program"). During the second quarter of 2020, the Company entered into sales agreements pursuant to which the
Company may issue and sell from time to time shares of its common stock having an aggregate sales price of up to $750.0
million (the "2020 ATM Stock Offering Program"). The 2020 ATM Stock Offering Program replaced the New 2018 ATM
Stock Offering Program.
In November 2019, CyrusOne Inc. entered into a forward equity sale agreement with a financial institution acting as forward
purchaser under the New 2018 ATM Stock Offering Program with respect to 1.6 million shares of its common stock at an initial
forward price of $61.67 per share. The Company fully physically settled this forward equity sale agreement in June 2020. Upon
settlement, the Company issued all such shares to such financial institution in its capacity as forward purchaser, in exchange for
proceeds of approximately $96.5 million, in accordance with the provisions of the forward equity sale agreement.
During the year ended December 31, 2020, CyrusOne Inc. entered into forward equity sale agreements with financial
institutions acting as forward purchasers under the New 2018 ATM Stock Offering Program and the 2020 ATM Stock Offering
Program, as applicable, with respect to approximately 10.2 million shares of its common stock at a weighted average price of
$68.98 per share, net of expenses. The Company received proceeds of $219.1 million from the sale of 3.4 million of its
common shares by the forward purchasers in respect of forward equity sale agreements entered during the year ended
December 31, 2020. The Company currently expects to fully physically settle the remaining forward equity sale agreements by
November 2021 and receive cash proceeds upon one or more settlement dates at the Company’s discretion, prior to the final
settlement dates under the forward equity sale agreements, in which case we expect to receive aggregate net cash proceeds at
55
settlement equal to the number of shares specified in such forward equity sale agreements multiplied by the relevant forward
price per share. The weighted average forward sale price that we expect to receive upon physical settlement of the agreements
will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward
purchasers’ stock borrowing costs and (iii) scheduled dividends during the terms of the agreements.
As of December 31, 2020, there was $150.8 million under the 2020 ATM Stock Offering Program available for future
offerings.
Concentration of Revenue
We define our annualized backlog as the twelve-month recurring revenue (calculated in accordance with generally accepted
accounting principles in the United States of America ("GAAP")) for executed lease contracts achieved upon full occupancy
which have not commenced as of the end of a period. Our backlog as of December 31, 2020 and 2019 was approximately
$101.0 million and $51.7 million, respectively. During 2020, one customer represented 19% of our revenue. We expect 56% of
our backlog lease contracts to commence in 2021 and 44% in 2022 and thereafter. Because GAAP revenue for any period is
generally a function of straight line revenue recognized from lease contracts in existence at the beginning of a period, as well as
lease contract renewals and new customer lease contracts commencing during the period, backlog as of any period is not
necessarily indicative of near-term performance. Our definition of backlog may differ from other companies in our industry.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of
accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and
circumstances relating to various transactions had been different or different assumptions were made, it is possible that different
accounting policies would have been applied, resulting in different financial results or a different presentation of our financial
statements. Estimates, judgments and assumptions are based on historical experiences that we believe to be reasonable under
the circumstances. From time to time we re-evaluate those estimates and assumptions. Our discussion and analysis of financial
condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with GAAP. Our management evaluates these estimates on an ongoing basis, based upon information currently
available and on various assumptions management believes are reasonable as of the date of the financial statements.
Our actual results may differ from these estimates. We have provided a summary of our significant accounting policies in Note
3, Summary of Significant Accounting Policies, to our audited consolidated financial statements included in this Form 10-K.
Revenue Recognition
Our revenue consists of lease revenue and revenue from contracts with customers. The revenues from colocation rent revenue,
metered power reimbursements and interconnection revenue are recognized under the lease accounting standard and revenues
from managed services, equipment sales, installations and other services (generally revenue from contracts with customers) are
recognized under the revenue accounting standard. An allowance for doubtful accounts is recognized when the collection of
rent receivables is deemed to be unlikely. We adopted Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”),
the new accounting standard for leases, effective January 1, 2019 using the modified retrospective approach and prior periods
were not restated. In addition, we adopted Revenue from Contracts with Customers (“ASC 606”), the new accounting standard
for revenue from contracts with customers, effective January 1, 2018 using the modified retrospective approach. See Note 4,
Recently Issued Accounting Standards, Note 5, Revenue Recognition and Note 6, Leases - As a Lessee, in our audited
consolidated financial statements included in this Form 10-K for additional information related to the adoption.
Lease Revenue:
Our leasing revenue primarily consists of colocation rent, metered power reimbursements and interconnection revenue and is
accounted for under ASC 842, Leases. We generally are not entitled to reimbursements for rental expenses including real estate
taxes, insurance or other common area operating expenses. The accounting for leases is highly dependent on the classification
of the lease as an operating or finance lease and requires judgment and estimates in evaluating the principles of the new
accounting standard for leases, including whether an arrangement is a lease, the fair value of the identified asset, expected lease
term and economic life of the asset.
56
a. Colocation Rent Revenue
Colocation rent revenues, including interconnection revenue, are fixed minimum lease payments generally billed monthly in
advance based on the contracted power or leased space. Some contracts may provide initial free rent periods and rents that
escalate over the term of the contract. If rents escalate without the lessee gaining access to or control over additional leased
power or space at the beginning of the lease term, the rental payments are recognized as revenue on a straight-line basis over the
term of the lease. If rents escalate because the lessee gains access to and control over additional power and or leased space,
revenue is recognized in proportion to the additional power or space in the periods that the lessee has control over the use of the
additional power or space. The excess of revenue recognized over amounts contractually due is recognized as a straight-line
receivable, which is included in Rent and other receivables in our Consolidated Balance Sheet. Some of our leases are
structured on a gross basis in which the customer pays a fixed amount for colocation space and power. The revenue for these
types of leases is recorded in colocation rent revenue.
b. Metered Power Reimbursements Revenue
Some of our leases provide that the customer is separately billed for power based upon actual or estimated metered usage at
rates then in effect. Metered power reimbursement revenue is variable lease payments generally billed one month in arrears, and
an estimate of this revenue is accrued in the month that the associated power is provided and recorded in metered power
reimbursements revenue.
Revenue from Contracts with Customers
Revenue from our managed services, equipment sales, installations and other services are recognized under ASC 606.
Equipment sold by us generally consists of servers, switches, networking equipment, cable infrastructure and cabinets. Revenue
is recognized at a point-in-time when control of the equipment transfers to the customer from the Company, which generally
occurs upon delivery to the customer.
Managed services include providing a full-service managed data center, monitoring customer computer equipment, managing
backups and storage, utilization reporting and other related ancillary information technology services. Management service
contracts generally range from one to five years.
Installation services include mounting, wiring, and testing of customer owned equipment. The installation period is typically
short term in duration, and accordingly, revenue from the installation of customer equipment is recognized at a point-in-time
once the installation is complete and the performance obligation is satisfied. Other services generally include installation of
customer equipment, performing customer system re-boots, server cabinet and cage management, power monitoring, shipping
and receiving, resolving technical issues, and other services requested by the customer. Other service revenue is measured
based on the consideration specified in the contract and recognized over time as we satisfy the performance obligation.
Capitalization of Costs
We capitalize costs directly related to the development, pre-development or improvement of our investment in real estate,
referred to as capital projects and other activities included within this paragraph. Costs associated with our capital projects are
capitalized as incurred. If the project is abandoned, these costs are expensed during the period in which the project is
abandoned. The accounting for capitalization of costs requires judgment and estimates to evaluate each project, including the
timing and activities necessary to prepare an asset for its intended use, evaluation of direct and indirect project costs, and the
allocation of costs to specific projects. Costs considered for capitalization include, but are not limited to, construction costs,
interest, real estate taxes, insurance and utilities, if appropriate. We capitalize indirect costs such as personnel, office and
administrative expenses that are directly related to our development projects based on an estimate of the time spent on the
construction and development activities. These costs are capitalized only during the period in which activities necessary to
ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the
asset ready for its intended use. We determine when the capitalization period begins and ends through communication with
project and other managers responsible for the tracking and oversight of individual projects. In the event that the activities to
ready the asset for its intended use are suspended, the capitalization period will cease until such activities are resumed. In
addition, we capitalize incremental initial direct costs incurred for successful origination of new leases which include internal
and external leasing commissions. Interest expense is capitalized based on actual qualifying capital expenditures from the
period when development commences until the asset is ready for its intended use, at the weighted average borrowing rate
during the period. These costs are included in investment in real estate and depreciated over the estimated useful life of the
related assets.
57
Costs incurred for maintaining and repairing our properties, which do not extend their useful lives, are expensed as incurred.
Impairment Losses
Management reviews the carrying value of long-lived assets, including intangible assets with finite lives, when events or
circumstances indicate that the carrying value of the assets may not be recoverable. When such impairment indicators exist, we
review an estimate of the undiscounted future cash flows expected to result from the use of an asset (or group of assets) and
proceeds from its eventual disposition and compare such amount to its carrying value. To determine the cash flows we consider
factors such as future operating income, trends and prospects, as well as the effects of leasing demand, rental rates, competition
and other factors. The estimate of expected future cash flows is inherently uncertain and relies to a considerable extent on
management estimates and assumptions, including current and future market conditions, projected growth in our CSF, projected
recurring rent churn (as described below), lease renewal rates and our ability to generate new leases on favorable terms. If our
undiscounted cash flows indicate that we are unable to recover the carrying value of the asset, an impairment loss is recognized.
An impairment loss is measured as the amount by which the asset’s carrying value exceeds its estimated fair value. The
evaluation whether assets may not be recoverable and the estimates and assumptions used to determine undiscounted cash flows
and fair value requires significant judgment by management.
For the year ended December 31, 2020, we recognized an impairment loss of $11.2 million, which includes an $8.8 million
impairment loss based on our estimate of the decrease in the fair value of the equipment held for use in inventory at our U.S.
data centers and a $2.4 million impairment loss based on the estimated fair value for our investment in land held in Atlanta for
future development as the Company sold this land to a third-party in February 2021. For the year ended December 31, 2019, we
recognized an impairment loss of $0.7 million, primarily due to an impairment loss on the South Bend-Monroe facility, which
was being actively marketed for sale. These fair values were based on unobservable inputs and the determination of fair value
of real estate assets to be held for use is derived using the discounted cash flow method and involves a number of management
assumptions relating to future economic events that could materially affect the determination of the ultimate fair value. Such
assumptions are Level 3 inputs and include, but are not limited to, projected vacancy rates, rental rates, property operating
expenses and required capital expenditures. These factors require management's judgment of factors such as market knowledge,
historical experience, lease terms, tenant financial strength, economy, demographics, environment, property location, age,
physical condition and expected return requirements, among other things. The aforementioned factors are taken as a whole by
management in the determination of fair value. See Fair Value Measurements below for further information on fair value. The
impairment losses are included in Impairment losses and (gain) loss on asset disposals in our Consolidated Statements of
Operations.
Key Operating Metrics
Annualized Rent. We calculate annualized rent as monthly contractual rent (defined as cash rent including customer
reimbursements for metered power) under existing customer leases as of December 31, 2020, multiplied by 12. Monthly
contractual rent is primarily for data center space, power and connectivity; however, it includes rent for office space and other
ancillary services. For the month of December 2020, customer reimbursements were $173.6 million annualized and consisted of
reimbursements by customers across all facilities with separately metered power. Other companies may not define annualized
rent in the same manner. Accordingly, our annualized rent may not be comparable to others. Management believes annualized
rent provides a useful measure of our in-place lease revenue.
Colocation Square Feet ("CSF"). We calculate leased total CSF as the GSF at an operating facility that is leased or readily
available for lease as colocation space, where customers locate their servers and other IT equipment.
Leased Rate. We calculate leased rate by dividing leased total CSF by total CSF. Percent occupied differs from Percent leased.
Percent occupied is determined based on occupied CSF billed to customers under signed leases divided by total CSF. Leases
signed but that have not commenced are not included.
Recurring Rent Churn Percentage. We calculate recurring rent churn percentage 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.
Capital Expenditures. Expenditures that expand, improve or extend the life of real estate and non-real estate property are capital
expenditures. Management views its capital expenditures as comprised of acquisitions of real estate, development of real estate,
recurring capital expenditures and all other non-real estate capital expenditures. Purchases of land or buildings from third
parties represent acquisitions of real estate. Capital spending that expands or improves our data centers is deemed development
of real estate. Replacements of data center equipment are considered recurring capital expenditures. Purchases of software,
computer equipment and furniture and fixtures are included in non-real estate capital expenditures.
58
Factors That May Influence Future Results of Operations
Rental Income. Our revenue growth depends on our ability to maintain our existing revenue base and to sell new capacity that
becomes available as a result of our development activities. As of December 31, 2020, we have leased approximately 84% of
our CSF. Our ability to grow revenue with our existing customers will also be affected by our ability to maintain or increase
rental rates at our properties. Rates contracted with our customers that renewed in 2020 were lower than the rates previously in
effect, a trend that we expect to continue and to be driven by increases in data center supply and cloud company offerings. As
such, we anticipate decreases in rates as contracts renew which could continue to affect our revenue in future periods. Future
economic downturns, regional downturns affecting our markets, or oversupply of or decrease in demand for data center
colocation services could impair our ability to attract new customers or renew existing customers’ leases on favorable terms,
and this could adversely affect our ability to maintain or increase revenues.
Leasing Arrangements. As of December 31, 2020, 22% of our leased GSF was to customers on a gross basis. Under a gross
lease, the customer pays a fixed monthly rent amount, and we are responsible for all data center facility electricity, maintenance
and repair costs, property taxes, insurance and other utilities associated with that customer’s space. For leases under this model,
fluctuations in our customers’ monthly utilization of power and the prices our utility providers charge us impact our
profitability. As of December 31, 2020, 78% of our leased GSF was to customers with separately billed metered power. Under
the metered power model, the customer pays us a fixed monthly rent amount, plus its actual costs of sub-metered electricity
used to power its data center equipment, plus an estimate of costs for electricity used to power supporting infrastructure for the
data center, expressed as a factor of the customer’s actual electricity usage. We are responsible for all other costs listed in the
description of the gross lease above. Fluctuations in a customer’s utilization of power and the supplier pricing of power do not
impact our profitability as much under the metered power model. In future periods, we expect more of our contracts to be
structured to bill power on a metered power basis.
Growth and Expansion Activities. Our ability to grow our revenue and profitability will depend on our ability to acquire and
develop data center space globally at an appropriate cost and to lease the data center space to customers on favorable terms.
During the year ended December 31, 2020, we increased our operational GSF by 12.7%, bringing our total GSF to
approximately 8.0 million at December 31, 2020. Our portfolio, as of December 31, 2020, also included approximately 0.8
million GSF under development, as well as 2.3 million GSF of additional powered shell space under roof available for
development. In addition, we have approximately 534 acres of land that are available for future data center shell development.
We expect that the eventual construction of this future development space will enable us to accommodate a portion of the future
demand of our existing and future customers and increase our future revenue, profitability and cash flows.
Scheduled Lease Expirations. Our ability to maintain low recurring rent churn and renew expiring customer leases on favorable
terms will impact our results of operations. Our data center uncommitted capacity as of December 31, 2020, was approximately
2.2 million GSF. Excluding month-to-month leases, leases representing 9% and 10% of our total GSF are scheduled to expire in
2021 and 2022, respectively. These leases represented approximately 18% and 15% of our total annualized rent as of
December 31, 2020. Month-to-month leases represented 4% of our total annualized rent as of December 31, 2020. Recurring
rent churn was 3.6% for the year ended December 31, 2020, as compared to 4.9% for the year ended December 31, 2019. Our
recurring rent churn for each quarter in 2020 ranged from 0.6% to 1.1%, in comparison to a range of 0.6% to 2.1% in 2019.
Conditions in Significant Markets. Our properties are located in 17 distinct markets (11 cities in the U.S.; London, U.K.;
Singapore; Frankfurt, Germany; Amsterdam, The Netherlands; Dublin, The Republic of Ireland and Paris, France). Cincinnati,
Dallas, Houston, New York Metro, Northern Virginia, Phoenix and San Antonio accounted for approximately 79% of our
annualized rent as of December 31, 2020. We have recently expanded into development in Amsterdam, The Netherlands, and
Dublin, the Republic of Ireland. General economic conditions and regulations in these markets could impact our overall
profitability.
59
Results of Operations
Comparison of Years Ended December 31, 2020 and 2019
IN MILLIONS, except per share data
For the Year Ended December 31,
2020
2019
$ Change
2020 vs. 2019
% Change
2020 vs. 2019
Revenue:
Colocation rent
Metered power reimbursements
Equipment sales
Other revenue
Total revenue
Operating expenses:
Property operating expenses
Sales and marketing
General and administrative
Depreciation and amortization
Transaction, acquisition, integration and other
related expenses
Impairment losses and (gain) loss on asset disposals
Total operating expenses
Operating income
Interest expense, net
Gain on marketable equity investment
Loss on early extinguishment of debt
Foreign currency and derivative losses, net
Other expense
Net income before income taxes
Income tax benefit (expense)
Net income
Operating gross margin
Capital expenditures *:
Investment in real estate
Recurring capital expenditures
Total
Metrics information:
CSF*
Leased rate*
Income per share - basic and diluted
Dividends declared per share
$
$
$
$
$
$
842.1
$
793.5
$
161.4
10.6
19.4
1,033.5
411.6
18.3
99.3
449.4
3.7
11.1
993.4
40.1
(57.7)
89.5
(6.5)
(27.6)
—
37.8
3.6
138.8
29.7
19.3
981.3
383.4
20.2
83.5
417.7
8.4
1.1
914.3
67.0
(82.0)
132.3
(71.8)
(7.5)
(0.3)
37.7
3.7
41.4
$
41.4
$
3.9 %
6.8 %
896.7
$
866.5
$
13.8
9.9
910.5
$
876.4
$
48.6
22.6
(19.1)
0.1
52.2
28.2
(1.9)
15.8
31.7
(4.7)
10.0
79.1
(26.9)
24.3
(42.8)
65.3
(20.1)
0.3
0.1
(0.1)
—
30.2
3.9
34.1
6.1 %
16.3 %
(64.3) %
0.5 %
5.3 %
7.4 %
(9.4) %
18.9 %
7.6 %
(56.0) %
n/m
8.7 %
(40.1) %
(29.6) %
(32.4) %
n/m
n/m
n/m
0.3 %
(2.7)
n/m
3.5 %
39.4 %
3.9 %
4,665,000
4,165,000
500,000
12.0 %
84 %
0.35
2.02
$
$
85 %
0.36
1.92
*
See “Key Operating Metrics” above for a definition of capital expenditures, CSF and leased rate.
60
Operations
As of December 31, 2020, we had approximately 1,000 customers, many of which have leases at multiple locations. Our
recurring revenues consist of rental revenue for colocation space and metered power reimbursements based upon customers
with leases, and our nonrecurring revenues consist of equipment sales and installation services based on contracts with
customers. We provide customers with data center services pursuant to leases with initial terms ranging from three to ten years.
As of December 31, 2020, the weighted average remaining term was 3.8 years based upon annualized rent. Lease expirations
through 2023, excluding month-to-month leases, represent 32% of our total GSF, or 49% of our aggregate annualized rent as of
December 31, 2020. At the end of the lease term, customers may allow the contract to expire, sign a new lease or automatically
renew pursuant to the terms of their lease. The automatic renewal period could be for varying lengths, depending on the terms
of the contract, such as, for the original lease term, one year or month-to-month. As of December 31, 2020, 3% of our GSF was
subject to month-to-month leases.
Revenue
For the year ended December 31, 2020, revenue was $1,033.5 million, an increase of $52.2 million, or 5.3% compared to
$981.3 million for the year ended December 31, 2019. Fluctuations in revenue are dependent upon our ability to maintain our
existing revenue base, sell new capacity, and maintain or increase rental rates at our properties. Recurring rent churn percentage
of 3.6% for the year ended December 31, 2020 decreased by 1.4% as compared to the 4.9% for the year ended December 31,
2019.
The revenue increase of $52.2 million for the year ended December 31, 2020, as compared to the year ended December 31,
2019 is primarily due to the following:
•
•
•
•
$42.2 million increase in colocation rent, primarily due to a $61.7 million increase for new leasing, partially offset by
$11.0 million of rent churn related to expired leases and $8.5 million of lower termination fees primarily in the U.S.
markets;
$22.6 million increase in metered power reimbursements, and
$6.4 million increase in interconnection revenue; partially offset by
$19.0 million decrease in equipment sales and other services.
Operating Expenses
Property operating expenses
For the year ended December 31, 2020, Property operating expenses were $411.6 million, an increase of $28.2 million, or
7.4%, compared to $383.4 million for the year ended December 31, 2019 primarily due to the following:
•
•
•
$45.1 million increase in property operating expenses primarily due to expansion at our properties and newly
developed properties placed in service including increases in utilities, repairs and maintenance, property taxes and
other operating expenses; and
$0.8 million increase in personnel costs including severance; partially offset by
$17.7 million decrease in equipment cost of sales due to higher sales volume during the year ended December 31,
2019.
Sales and marketing expenses
For the year ended December 31, 2020, Sales and marketing expenses were $18.3 million, a decrease of $1.9 million, or 9.4%,
compared to $20.2 million for the year ended December 31, 2019, primarily due to lower personnel costs as a result of changes
in the organization structure.
61
General and administrative expenses
For the year ended December 31, 2020, General and administrative expenses were $99.3 million, an increase of $15.8 million,
or 18.9%, compared to $83.5 million for the year ended December 31, 2019, primarily due to the following:
•
•
•
•
$7.8 million increase primarily due to $14.8 million increase in severance related to the separation of certain senior
executives from the Company and a general reduction in force, partially offset by $7.0 million of lower amortization of
stock-based compensation for senior executives;
$6.9 million increase in legal and professional fees primarily due to increased costs related to higher tax fees and costs
related to legal and tax planning, customer lease contract negotiations and security; and
$2.4 million increase in rent and other facilities costs; partially offset by
$1.3 million decrease in other general and administrative expenses.
Depreciation and amortization expense
For the year ended December 31, 2020, Depreciation and amortization expense was $449.4 million, an increase of $31.7
million, or 7.6%, compared to $417.7 million for the year ended December 31, 2019. This increase was primarily driven by
asset additions that were placed in service after the fourth quarter of 2019. Since December 31, 2019, approximately $818.3
million of new data center assets have been placed in service. Depreciation and amortization expense is expected to increase in
future periods as we complete the development of properties and installation of equipment and facilities to support our
operations.
Impairment losses and (gain) loss on asset disposals
For the year ended December 31, 2020, Impairment losses and (gain) loss on asset disposals were $11.1 million as the result of
our planned disposition of land held for future development in Atlanta, GA to a third-party and impairment related to equipment
held for use in inventory at our U.S. data centers. For the year ended December 31, 2019, Impairment losses and (gain) loss on
asset disposals were $1.1 million primarily due to an impairment loss on the South Bend - Monroe facility, which was being
actively marketed for sale and subsequently disposed of in May 2020.
Non-Operating Income and Expenses
Interest expense, net
For the year ended December 31, 2020, Interest expense, net was $57.7 million, a decrease of $24.3 million, or 29.6%, as
compared to $82.0 million for the year ended December 31, 2019, primarily due to lower borrowing costs associated with
refinancing of our credit agreement in March 2020 and the issuance of senior notes following our obtaining investment grade
ratings in October 2019 and:
•
•
•
•
$43.8 million decrease due to lower interest rates partially offset by an increase in average debt outstanding of
$388.1 million; partially offset by
$10.1 million increase due to lower capitalized interest as a result of the Company's lower overall average interest rate;
$8.3 million increase related to cross-currency and interest rate swap hedging instruments; and
$1.1 million increase related to a decline in interest income.
We anticipate drawing on our Revolving Credit Facility to fund, in part, our capital requirements for investments in data centers
and potential land acquisitions. Accordingly, we anticipate our interest expense to increase in future periods.
Gain on marketable equity investment
For the year ended December 31, 2020, the Gain on our marketable equity investment in GDS Holdings Limited ("GDS") was
$89.5 million, a decrease of $42.8 million, as compared to a gain of $132.3 million for the year ended December 31, 2019. The
decrease was primarily the result of the Company holding fewer American depository shares (“ADS”s) in the current year as
compared to the prior year due to the sale of ADSs. In January 2021, we fully disposed of our investment in GDS. See Note 8,
Equity Investments, for information related to our accounting for our equity investment in GDS.
Loss on early extinguishment of debt
For the year ended December 31, 2020, Loss on early extinguishment of debt was $6.5 million, primarily due to repayment of
borrowings under the $3.0 Billion Credit Facility (as defined in Note 11, Debt) and the repayment of $300.0 million of the 2023
Term Loan under the Amended Credit Agreement. For the year ended December 31, 2019, Loss on early extinguishment of
62
debt was $71.8 million, primarily due to the Company's repayment of the $1.2 billion aggregate outstanding principal balance
of existing senior notes upon the completion of a new senior notes offering in December 2019.
Foreign currency and derivative losses, net
For the year ended December 31, 2020, Foreign currency and derivative losses, net were a loss of $27.6 million which was a
result of a $32.1 million loss associated with the translation adjustment on undesignated Euro denominated borrowings in
excess of our net investment, partially offset by a $4.5 million gain on cross-currency swaps from the settlement of certain
undesignated Euro/USD cross-currency swaps. For the year ended December 31, 2019, Foreign currency and derivative losses,
net were a loss of $7.5 million, which was the result of a decrease in the fair value of the portion of our Euro/USD cross-
currency swap that were not designated as hedges and changes in the fair value were immediately recognized in earnings. We
currently have Euro denominated debt that is not hedged, and the translation impact from changes in Euro/USD exchanges rates
will impact future earnings.
Income tax expense
For the years ended December 31, 2020 and 2019, the Company had income tax benefits of $3.6 million and $3.7 million,
respectively.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
For a discussion comparing the Company’s financial condition and results of operations for the year ended December 31, 2019
compared to the year ended December 31, 2018 refer to subsection “Results of Operations - Year Ended December 31, 2019
Compared to Year Ended December 31, 2018” of Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019, which is incorporated by
reference herein.
63
Significant Balance Sheet Fluctuations
The table below relates to significant fluctuations in certain line items of our Consolidated Balance Sheets from December 31,
2019 to December 31, 2020 (in millions):
December 31, 2020
December 31, 2019
Difference
Total investment in real estate, net
$
5,265.5 $
4,710.3 $
Equity investments
Revolving Credit Facility
Term Loans
Senior Notes
Additional paid in capital
67.1
432.9
800.0
2,213.2
3,537.3
135.1
615.0
1,100.0
1,200.0
3,202.0
555.2
(68.0)
(182.1)
(300.0)
1,013.2
335.3
The increase in Total investment in real estate, net was primarily due to the continued development of data centers in Dallas,
Dublin, Frankfurt, Iowa, London, the New York Metro area, Northern Virginia, Phoenix, San Antonio and Santa Clara, less
depreciation expense of $387.9 million. Land purchases for future development were made in Frankfurt, Germany and London,
United Kingdom.
The decrease in Equity investments was primarily due to the sale of 1.8 million GDS ADSs in 2020. This equity investment had
a fair value of $44.2 million as of December 31, 2020. We did not receive any distributions related to our equity investment
during the years ended December 31, 2020 or 2019. In January 2021, we fully disposed of our investment in GDS.
The decrease in borrowing under the Revolving Credit Facility was primarily due to the proceeds of the 2027 Notes and 2030
Notes used to pay down borrowings on the US Revolver and EUR Revolver under the Revolving Credit Facility.
The decrease in Term Loans was primarily due to the proceeds of the 2030 Notes used to repay $300.0 million of the
outstanding indebtedness under the 2023 Term Loan Facility.
The increase in the Senior Notes was primarily due to the 2027 Notes offering and the 2030 Notes offering. For more
information, see Note 11, Debt.
The increase in Additional paid in capital was primarily due to proceeds from sales of the Company's common stock pursuant to
the 2020 ATM Stock Offering Program.
Investing Activities
For the year ended December 31, 2020, our capital expenditures of $910.5 million primarily related to the continued
development in key markets, primarily in Dublin, Iowa, Frankfurt, London, the New York Metro area, Northern Virginia,
Phoenix, San Antonio, Santa Clara and Dallas. In addition, included in capital expenditures are land purchases of $58.0 million
in Frankfurt and London for future development.
For the year ended December 31, 2019, capital expenditures were $876.4 million primarily related to the acquisition of land for
future development and continued development in key markets, primarily in Amsterdam, Austin, Dallas, Frankfurt, London,
Northern Virginia, Phoenix and Raleigh-Durham. Included in capital expenditures are land purchases of $54.7 million in Santa
Clara, San Antonio, Dublin and Council Bluffs for future development. We also made a capital contribution of approximately
$3.8 million to our investment in ODATA Brasil S.A. and ODATA Colombia S.A.S (collectively "ODATA").
For the year ended December 31, 2018, capital expenditures were $1,328.5 million. Our capital expenditures for 2018 included
the acquisition of Zenium for $462.8 million. In addition, 2018 capital expenditures included $865.7 million related primarily to
the continued development in key markets, primarily Chicago, Dallas, Northern Virginia and Somerset. We also made an equity
investment in ODATA for $12.6 million.
Key Performance Indicators - Non-GAAP Financial Measures
In addition to amounts presented in accordance with GAAP, we also present certain supplemental non-GAAP financial
measures related to our performance. These non-GAAP financial measures should not be construed as being more important
than, or a substitute for, comparable GAAP financial measures. In compliance with SEC requirements, our non-GAAP financial
64
measures presented herein are reconciled to net income, the most directly comparable GAAP financial measure. Neither the
SEC nor any regulatory body has passed judgment on these non-GAAP measurements.
Funds from Operations and Normalized Funds from Operations
We use funds from operations ("FFO") and normalized funds from operations ("Normalized FFO"), which are non-GAAP
financial measures commonly used in the REIT industry, as supplemental performance measures. We use FFO and Normalized
FFO as supplemental performance measures because, when compared period over period, they capture trends in occupancy
rates, rental rates and operating costs. We also believe that, as widely recognized measures of the performance of REITs, FFO
and Normalized FFO are used by investors as a basis to evaluate REITs.
We calculate FFO as Net income computed in accordance with GAAP before Real estate depreciation and amortization and
Impairment losses and (gain) loss on asset disposals. While it is consistent with the definition of FFO promulgated by NAREIT,
our computation of FFO may differ from the methodology for calculating FFO used by other REITs. Accordingly, our FFO
may not be comparable to others.
We calculate Normalized FFO as FFO adjusted for Loss on early extinguishment of debt; Gain on marketable equity
investment; Foreign currency and derivative losses, net; New accounting standards and regulatory compliance and the related
system implementation costs; Amortization of tradenames; Transaction, acquisition, integration and other related expenses;
Cash severance and management transition costs; Severance-related stock compensation costs; Legal claim costs; and other
items as appropriate. We believe our Normalized FFO calculation provides a comparable measure between different periods.
Other REITs may not calculate Normalized FFO in the same manner. Accordingly, our Normalized FFO may not be
comparable to others.
In addition, because FFO and Normalized FFO exclude Real estate depreciation and amortization, and capture neither the
changes in the value of our properties that result from use or from market conditions, nor the level of capital expenditures and
leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect
and could materially impact our results from operations, the utility of FFO and Normalized FFO as measures of our
performance is limited. Therefore, FFO and Normalized FFO should be considered only as supplements to Net income
presented in accordance with GAAP as measures of our performance. FFO and Normalized FFO should not be used as
measures of our liquidity or as indicative of funds available to fund our cash needs, including our ability to make distributions.
FFO and Normalized FFO also should not be used as supplements to or substitutes for cash flow from operating activities
computed in accordance with GAAP.
On January 1, 2019, we adopted the new accounting standard with respect to leases, see Note 3, Summary of Significant
Accounting Policies and Note 6, Leases - As a Lessee, to our audited consolidated financial statements for additional
information. We have adopted the new standard using the modified retrospective transition method, where financial statement
presentations prior to the date of adoption are not restated. Accordingly, all information related to periods prior to 2019 have
not been adjusted, including non-GAAP measurements.
65
The following table reflects the reconciliation of GAAP net income to FFO and Normalized FFO for the years ended
December 31, 2020, 2019 and 2018 (amounts in millions):
Net income
Real estate depreciation and amortization
Impairment losses and (gain) loss on asset disposals
Year Ended
December 31,
2020
2019
2018
$
41.4 $
41.4 $
440.1
11.1
408.5
1.1
1.2
325.5
—
Funds from Operations ("FFO") - NAREIT defined
$
492.6 $
451.0 $
326.7
Loss on early extinguishment of debt
Gain on marketable equity investment
Foreign currency and derivative losses, net
New accounting standards and regulatory compliance and the related system implementation costs
Amortization of tradenames
Transaction, acquisition, integration and other related expenses
Cash severance and management transition costs
Severance-related stock compensation costs
Legal claim costs
6.5
71.8
(89.5)
(132.3)
27.6
—
1.2
3.7
14.1
2.9
0.3
7.5
0.8
1.3
8.4
(0.6)
—
1.1
3.1
(9.9)
—
3.0
1.7
4.8
2.3
—
0.6
Normalized Funds from Operations ("Normalized FFO")
$
459.4 $
409.0 $
332.3
Net Operating Income
We use Net Operating Income ("NOI"), which is a non-GAAP financial measure commonly used in the REIT industry, as a
supplemental performance measure. We use NOI as a supplemental performance measure because, when compared period over
period, it captures trends in occupancy rates, rental rates and operating expenses. We also believe that, as a widely recognized
measure of the performance of REITs, NOI is used by investors as a basis to evaluate REITs.
We calculate NOI as Net income, adjusted for Sales and marketing expenses, General and administrative expenses,
Depreciation and amortization expenses, Transaction, acquisition, integration and other related expenses, Interest expense, net,
Gain on marketable equity investment, Loss on early extinguishment of debt, Impairment losses and (gain) loss on asset
disposals, Foreign currency and derivative losses, net, Other expense, Income tax (benefit) expense and other items as
appropriate. Amortization of deferred leasing costs is presented in Depreciation and amortization expenses, which is excluded
from NOI. Sales and marketing expenses are not property-specific, rather these expenses support our entire portfolio. As a
result, we have excluded these Sales and marketing expenses from our NOI calculation, consistent with the treatment of
General and administrative expenses, which also support our entire portfolio. Because the calculation of NOI excludes various
expenses, the utility of NOI as a measure of our performance is limited. Other REITs may not calculate NOI in the same
manner. Accordingly, our NOI may not be comparable to others. Therefore, NOI should be considered only as a supplement to
Net income presented in accordance with GAAP as a measure of our performance. NOI should not be used as a measure of our
liquidity or as indicative of funds available to fund our cash needs, including our ability to make distributions. NOI also should
not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.
66
The following table reflects the reconciliation of Net Income to NOI for the years ended December 31, 2020, 2019 and 2018:
Net income
Sales and marketing expenses
General and administrative expenses
Depreciation and amortization expenses
Transaction, acquisition, integration and other related expenses
Interest expense, net
Gain on marketable equity investment
Loss on early extinguishment of debt
Impairment losses and (gain) loss on asset disposals
Foreign currency and derivative losses, net
Other expense
Income tax (benefit) expense
Net Operating Income
Year Ended
December 31,
2020
2019
2018
$
41.4 $
41.4 $
18.3
99.3
449.4
3.7
57.7
20.2
83.5
417.7
8.4
82.0
(89.5)
(132.3)
6.5
11.1
27.6
—
71.8
1.1
7.5
0.3
(3.6)
(3.7)
1.2
19.6
80.6
334.1
5.0
94.7
(9.9)
3.1
—
—
—
0.6
$
621.9 $
597.9 $
529.0
Financial Condition, Liquidity and Capital Resources and Material Terms of Our Indebtedness
Liquidity and Capital Resources
We are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid
deduction and excluding any net capital gains, to our stockholders on an annual basis in order to maintain our status as a REIT
for federal income tax purposes. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly
distributions to common stockholders from cash flows from operating activities. All such distributions are at the discretion of
our board of directors.
We have an effective shelf registration statement that allows us to offer for sale unspecified amounts of various classes of
equity and debt securities and warrants. As circumstances arise, we may issue debt, equity and/or warrants from time to time on
an opportunistic basis, dependent upon market conditions and available pricing.
Short-term Liquidity
The effects of the COVID-19 pandemic continue to evolve rapidly. While the impact of COVID-19 on certain operating and
administrative costs for the year ended December 31, 2020 was not material, we have incurred additional general and
administrative and maintenance costs to operate our data centers and offices. We expect these costs will continue into 2021,
however, the extent to which these costs continue or increase will depend on factors that are uncertain and unpredictable at this
time, including federal, state, and local regulations as well as the duration and severity of the pandemic. While the pandemic
may impact our cash flows from customers, the extent and duration of that impact is also uncertain and unpredictable at this
time. Some of our customers have communicated that the COVID-19 pandemic has disrupted their businesses, which is
impacting their ability to pay rent on time and they have requested extended payment terms and rent abatement, which may
impact the timing and amount of rent we collect in the future. For the year ended December 31, 2020, the impact of the
pandemic on rent concessions and collections of rent has not been significant.
Our short-term liquidity requirements primarily consist of Operating, Sales and marketing, and General and administrative
expenses, dividend payments and recurring capital expenditures for our data center properties. We generally expect to meet
these requirements from our cash flow from operations, cash balances, availability under our Revolving Credit Facility and
settlement of the ATM forward equity sale agreements. For the year ended December 31, 2020, our cash provided by operating
activities was $456.3 million which was $220.1 million more than dividends paid during the year ended December 31, 2020 of
$236.2 million.
67
We have contractual interest obligations which include interest payments on the 2024 Notes, 2027 Notes, 2029 Notes, 2030
Notes, the Amended Credit Agreement, finance lease liabilities and operating lease liabilities. Assuming no early payment of
debt in future years, our current interest obligations are as follows:
IN MILLIONS
Total
< 1 Year
1-3 Years
3-5 years
Thereafter
Interest payments on senior notes, credit
agreement, finance lease liabilities and operating
lease liabilities(1)
$
662.7 $
95.8 $
188.2 $
149.2 $
229.5
1.
Includes contractual interest payments on the 2024 Notes, 2027 Notes, 2029 Notes, 2030 Notes, the Amended Credit Agreement, finance lease
liabilities and operating lease liabilities assuming no early payment of debt in future periods and the exercise of the one-year extension option on the
Revolving Credit Facility. Our contractual interest obligations were $573.6 million at December 31, 2019. See Note 6, Leased - As a Lessee, for further
discussion of our finance lease liabilities and operating lease liabilities.
Available capacity under the Amended Credit Agreement as of December 31, 2020 was $956.3 million related to the Revolving
Credit Facility. Total liquidity as of December 31, 2020 was approximately $1,712.4 million, which included the $956.3 million
available under the Revolving Credit Facility, cash and cash equivalents of $271.4 million and the pro forma impact of the
settlement of the forward sale agreements of $484.7 million. At December 31, 2020, we had borrowings of $432.9 million
under the Revolving Credit Facility. At December 31, 2019, we had borrowings of $615.0 million under the $1.7 Billion
Revolving Credit Facility.
In January 2020, CyrusOne LP and CyrusOne Finance Corp. closed their offering of €500.0 million aggregate principal amount
of 1.450% senior notes due January 2027 for net proceeds of $569.8 million. In September 2020, CyrusOne LP and CyrusOne
Finance Corp. closed their offering of $400.0 million aggregate principal amount of 2.150% senior notes due November 2030
for net proceeds of $395.2 million.
During the year ended December 31, 2020, CyrusOne Inc. entered into forward sale agreements with financial institutions
acting as forward purchasers under the New 2018 ATM Stock Offering Program and the 2020 ATM Stock Offering Program,
as applicable, with respect to approximately 10.2 million shares of its common stock at a weighted average price of $68.98 per
share, net of expenses. The Company received proceeds of $219.1 million from the sale of 3.4 million of its common shares by
the forward purchasers in respect of forward equity sale agreements entered during the year ended December 31, 2020. The
Company currently expects to fully physically settle the remaining forward equity sale agreements by November 2021 and
receive cash proceeds upon one or more settlement dates at the Company’s discretion, prior to the final settlement dates under
the forward equity sale agreements, in which case we expect to receive aggregate net cash proceeds at settlement equal to the
number of shares specified in such forward equity sale agreements multiplied by the relevant forward price per share. The
weighted average forward sale price that we expect to receive upon physical settlement of the agreements will be subject to
adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchasers’ stock
borrowing costs and (iii) scheduled dividends during the terms of the agreements. During the year ended December 31, 2020,
the Company fully physically settled the forward equity sale agreements entered into in November 2019, March 2020 and May
2020. See Note 15, Stockholders' Equity for more information about our settlement.
68
The following table represents a summary of forward sale of equity of our common stock for the year ended December 31,
2020 (in millions):
Offering Program
Total as of December 31, 2019
March 9, 2020 Forward Offering - Sales
May 13, 2020 Forward Offering - Sales
May 26, 2020 Forward Offering - Sales
May 29, 2020 Forward Offering - Sales
November 29, 2019 Forward Offering settlement
March 9, 2020 Forward Offering settlement
May 13, 2020 Forward Offering settlement
September 15, 2020 Forward Offering - Sales
September 30, 2020 Forward Offering - Sales
November 6, 2020 Forward Offering - Sales
Total as of December 31, 2020
Forward Shares Sold/
(Settled)
Net Proceeds Received
Remaining Proceeds
Available(1)
1.6 $
2.0
1.4
1.4
1.3
(1.6)
(2.0)
(1.4)
1.4
1.6
1.1
— $
—
—
—
—
96.5
121.2
97.9
—
—
—
6.8 $
315.6 $
96.5
121.2
97.9
96.2
96.4
(96.5)
(121.2)
(97.9)
102.3
114.5
75.3
484.7
(1) As of December 31, 2020, the total estimated proceeds, net of adjustments for (i) a floating interest rate factor equal to a
specified daily rate less a spread, (ii) the forward purchasers’ stock borrowing costs and (iii) scheduled dividends
adjustments is $484.7 million subject to further adjustment when the forward offerings are settled as described above.
Our total common stock issuance for the year ended December 31, 2020 was $325.7 million primarily related to proceeds from
forward equity settlement, shares vesting and options exercised. As of December 31, 2020, there was $150.8 million under the
2020 ATM Stock Offering Program available for future offerings.
During the year ended December 31, 2020 and 2019, we sold a portion of our investment in GDS for net proceeds of $144.1
million and $199.0 million, respectively. In January 2021, we fully liquidated our investment in GDS.
As of December 31, 2020, the total number of outstanding shares of common stock was approximately 120.4 million.
Long-term Liquidity
Our long-term liquidity requirements primarily consist of our capital expenditures for the development and acquisition of our
data centers. For the year ended December 31, 2020, our cash capital expenditures were $910.5 million. Our capital
expenditures are primarily discretionary, excluding leases under contract, to expand our existing data center properties, acquire
or construct new facilities. We intend to continue to develop and expand properties, where we believe there is sufficient demand
or have contracted to lease, and are prepared to commit additional resources to support this growth. We expect our total
estimated capital expenditures for 2021 to be between $925.0 million and $1,025.0 million. We expect to meet our long-term
liquidity requirements, including potential acquisitions, from cash and cash equivalents, cash flows from our operations,
issuances of debt and equity securities, and borrowings under our Revolving Credit Facility.
While we regularly monitor commodity and labor pricing trends related to our data center development capital expenditures, a
large proportion of our current development project costs are under firm price commitments. Accordingly, while we have
experienced price increases in certain selective materials due to recent international trade negotiations and actions, we currently
do not anticipate any material adverse effect on our overall development costs.
As of December 31, 2020, all of our outstanding debt matures from March 2023 to November 2030, with a weighted average of
6.0 years to maturity. We expect to refinance these debts at or before their maturities, or retire the debt from the sources
described in this section. Our interest rate mix was 73% fixed and 27% floating.
In addition to the sources of capital described herein, we have access to other potential sources of capital including mortgage
financing, property dispositions and proceeds from contributions and partial sale of properties into joint ventures.
69
Off-Balance Sheet Arrangements
Indemnification
During the normal course of business, we make certain indemnities, commitments and guarantees under which we may be
required to make payments in relation to certain transactions. These include (i) intellectual property indemnities to customers in
connection with the use, sale and/or license of products and services, (ii) indemnities to vendors and service providers
pertaining to claims based on our negligence or willful misconduct and (iii) indemnities involving the representations and
warranties in certain contracts. In addition, we have made contractual commitments to several employees providing for
payments upon the occurrence of certain prescribed events. The majority of these indemnities, commitments and guarantees do
not provide for any limitation on the maximum potential for future payments that we could be obligated to make.
Also as a part of our normal course of business we procure certain data center equipment (generally generators and power
distribution units) and electricity power under purchase commitments, where we would be required to purchase certain
minimum volumes. In general, we expect to manage these contracts such that the committed volume levels are below our
current requirements and at prices that are below current spot market prices. However, if our requirements were to decrease or
the spot market prices were to decrease, we could be obligated to complete the remaining minimum purchase commitments,
holding the excess equipment for future development or disposing at then current prices. As of December 31, 2020, our
aggregate commitments under these contracts is approximately $84.2 million.
Material Terms of Our Indebtedness
See Note 11, Debt, for the material terms of our indebtedness under the Amended Credit Agreement and our 2024 Notes, 2027
Notes, 2029 Notes and 2030 Notes.
70
Cash Flows
Our primary sources of cash during 2020 were earnings from our operations, net proceeds from our Amended Credit
Agreement, and net proceeds from the issuances of common stock, 2027 Notes and 2030 Notes. Our primary uses of cash
during 2020 were capital expenditures for the development of real estate, funding our operations and payment of dividends.
The following table summarizes our cash flows for the years ended December 31, 2020, 2019 and 2018.
IN MILLIONS
For the year ended December 31,
Cash provided by operating activities
Cash used in investing activities
Cash provided by financing activities
Comparison of Years Ended December 31, 2020 and 2019
2020
2019
2018
$
456.3 $
(772.4)
507.2
365.7 $
(679.9)
324.8
309.3
(1,341.1)
944.7
Cash provided by operating activities for the year ended December 31, 2020 was $456.3 million compared to $365.7 million for
the year ended December 31, 2019. The increase of $90.6 million was due to the following:
•
Increases in net cash provided by operating activities of $132.5 million was primarily due to the following:
◦
$24.0 million increase due to a $52.2 million increase in revenue offset in part by a $28.2 million increase in
property operating expenses;
$60.6 million decrease in interest payments due to overall lower rates;
$47.9 million net increase due to changes in operating assets and liabilities; partially offset by
Decreases in net cash provided by operating activities of $41.9 million primarily due to the following:
◦
◦
•
◦
◦
$22.8 million decrease in other cash outflows over the corresponding prior year period; and
$19.1 million increase in severance and bonus payments.
Cash used in investing activities for the year ended December 31, 2020 was $772.4 million compared to $679.9 million for the
year ended December 31, 2019. The increase in cash used in investing activities for the year ended December 31, 2020 of $92.4
million compared to the year ended December 31, 2019 is primarily due to lower proceeds from the sale of our GDS ADSs and
increased investments in real estate in 2020 compared to 2019.
Investments in real estate
For the year ended December 31, 2020, our capital expenditures were $910.5 million, as shown on the statement of cash flows.
Substantially all of our investing activity is related to our development activities. Our capital expenditures for 2020 primarily
related to the acquisition of land for future development and continued development in key markets, primarily in Dallas,
Dublin, Frankfurt, Iowa, London, the New York Metro area, Northern Virginia, Paris, Phoenix, San Antonio and Santa Clara.
Included in capital expenditures are land purchases of $58.0 million in Frankfurt, Germany and London, United Kingdom for
future development.
For the year ended December 31, 2019, our capital expenditures were $876.4 million, as shown on the statement of cash flows.
Substantially all of our investing activity related to our development activities. Our capital expenditures for 2019 primarily
related to the acquisition of land for future development and continued development in key markets, primarily in Amsterdam,
Austin, Dallas, Frankfurt, London, Northern Virginia, Phoenix and Raleigh-Durham. Included in capital expenditures are land
purchases of $54.7 million in Santa Clara, San Antonio, Dublin and Council Bluffs for future development.
Equity Investments
During the year ended December 31, 2020, the Company made capital contributions of approximately $6.5 million to our four
unconsolidated ventures in Brazil, Chile, Colombia and Mexico, with ODATA, a Brazilian headquartered company. These
investment outflows were partially offset by total net proceeds of $144.1 million from the sale of approximately 1.8 million
ADSs from our GDS investment.
During the year ended December 31, 2019, we also made a capital contribution of approximately $3.8 million to our ODATA
investment. This investment outflow was partially offset by proceeds of $199.0 million from the sale of 5.7 million ADSs from
our GDS investment and proceeds from the sale of real estate assets of $1.3 million.
71
Cash provided by financing activities for the year ended December 31, 2020 was $507.2 million compared to $324.8 million for
the year ended December 31, 2019. The increase of $182.4 million was due to the following:
•
•
•
•
•
•
•
•
•
•
•
$1,200.0 million increase related to the repayment of senior notes in 2019 with no comparable repayment in 2020;
$553.5 million increase in proceeds from the issuance of the 2027 Notes, which were our first Euro bonds issued. See
Note 11, Debt for additional information on the 2027 Notes;
$107.0 million increase in proceeds from borrowings on our revolving credit facility;
$72.0 million decrease in the payment of early debt extinguishment costs; and
$0.6 million decrease in tax payments upon the exercise of equity awards; offset in part by,
$802.2 million decrease in proceeds from the issuance of senior notes;
$783.6 million increase in payments on our revolving credit facility;
$100.0 million increase in repayments of the unsecured term loan primarily due to the repayment of $1,200.0 million
of the term loans under the prior credit facility, partially offset by $1,100.0 million in proceeds from the Amended
Credit Agreement;
$31.5 million decrease in proceeds from the issuance of common stock. The Company issued 5.6 million shares in the
current period and 6.5 million shares issued in the prior year period;
$25.8 million increase in dividend payments due to the increase in the dividend and the number of common shares
outstanding; and
$7.6 million increase in payments for deferred financing costs related to the refinancing of the Revolving Credit
Facility and issuance of the 2027 Notes and 2030 Notes.
Issuer and guarantor subsidiary summarized financial information
The 2024 Notes, the 2027 Notes, the 2029 Notes and the 2030 Notes issued by CyrusOne LP (the "LP Co-Issuer") and
CyrusOne Finance Corp. (the "Finance Co-Issuer" and, together with the LP Co-Issuer, the "Co-Issuers") are fully and
unconditionally and jointly and severally guaranteed on a senior unsecured basis by CyrusOne Inc. (the "Parent Guarantor").
The indentures governing the 2024 Notes, 2027 Notes, 2029 Notes and 2030 Notes contain affirmative and negative covenants
customarily found in indebtedness of this type, including covenants that restrict, subject to certain exceptions, the Company's
ability to incur secured or unsecured indebtedness. The Company and its subsidiaries are also required to maintain total
unencumbered assets of at least 150% of their unsecured debt on a consolidated basis, subject to certain qualifications set forth
in the indentures. The covenants contained in the indentures do not restrict the Company’s ability to pay dividends or
distributions to stockholders.
Only the Parent Guarantor guarantees the 2024 Notes, 2027 Notes, 2029 Notes and 2030 Notes. The 2024 Notes, 2027 Notes,
2029 Notes and 2030 Notes are structurally junior in right of payment to the indebtedness and other liabilities of the Co-Issuers’
subsidiaries (the “Non-Guarantors”), and the guarantee is structurally junior in right of payment to the liabilities of any of the
Parent Guarantor's subsidiaries (other than the Co-Issuers). These Non-Guarantors are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts due pursuant to the 2024 Notes, 2027 Notes, 2029 Notes and
2030 Notes, or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Any right
that the Co-Issuers or Parent Guarantor have to receive any assets of any of the Non-Guarantors upon the bankruptcy,
liquidation or reorganization of those Non-Guarantors, and the consequent rights of holders of the 2024 Notes, 2027 Notes,
2029 Notes and 2030 Notes to realize proceeds from the sale of any of such Non-Guarantors’ assets, will be structurally
subordinated to the claims of such Non-Guarantors’ creditors, including trade creditors, mortgage holders and holders of
preferred equity interests of those Non-Guarantors. Accordingly, in the event of a bankruptcy, liquidation or reorganization or
any of the Non-Guarantors, the Non-Guarantors will pay the holders of their debts, holders of preferred equity interests and
their trade creditors before distributing any of their assets to us. The Non-Guarantors conduct substantially all of our operations
and hold substantially all of our assets.
The guarantee obligations of the Parent Guarantor under the 2024 Notes, 2027 Notes, 2029 Notes and 2030 Notes will
terminate under the customary circumstances of legal defeasance or covenant defeasance, each as described in the applicable
indenture, or if the Co-Issuers’ obligations under the applicable indenture are discharged.
The guarantee obligations of the Parent Guarantor under the 2024 Notes, 2027 Notes, 2029 Notes and 2030 Notes are subject to
certain limitations necessary to prevent the guarantee from constituting a fraudulent conveyance under applicable laws. Under
these laws, the guarantee could be voided, or claims in respect of the guarantee could be subordinated to certain obligations of
the Parent Guarantor if, among other things, the Parent Guarantor, at the time it entered into the guarantee, received less than
reasonably equivalent value or fair consideration for entering into the guarantee and was one of the following:
•
insolvent or rendered insolvent by reason of entering into a guarantee;
72
•
•
engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital;
or
intended to incur, or believed that it would incur, debts or contingent liabilities beyond its ability to pay them as they
became due.
The Parent Guarantor is a REIT whose only material asset is its ownership of operating partnership units of the LP Co-Issuer.
The LP Co-Issuer and its subsidiaries hold substantially all the assets of the Company. The LP Co-Issuer conducts the
operations of the business, along with its subsidiaries. The Finance Co-Issuer does not have any operations or revenues.
Pursuant to amended Rule 3-10 of Regulation S-X, the following aggregate summarized financial information is provided for
CyrusOne Inc., CyrusOne LP and CyrusOne Finance Corp. This aggregate summarized financial information has been prepared
from the books and records maintained by CyrusOne, CyrusOne LP and CyrusOne Finance Corp. The aggregate summarized
financial information does not include the investments in non-guarantor subsidiaries nor the earnings from non-guarantor
subsidiaries and therefore is not necessarily indicative of the results of operations or financial position had CyrusOne LP and
CyrusOne Finance Corp. operated as independent entities. Intercompany transactions have been eliminated.
The Issuers and Guarantors had Intercompany receivables from non-guarantors of $1.8 billion for each of the periods ended
December 31, 2020 and December 31, 2019. The Issuers and Guarantors had Debt of $3.4 billion and $2.9 billion for the
periods ended December 31, 2020 and December 31, 2019, respectively. During the year ended December 31, 2020, the Issuers
and Guarantors had Interest expense, net of $79.0 million, Foreign currency and derivative losses, net of $27.6 million, and
Loss on early extinguishment of debt of $6.5 million. More detailed financial information for the Issuers and Guarantors was
not material.
73
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We have exposure to interest rate risk, arising from variable-rate borrowings under our Amended Credit Agreement and our
fixed-rate long-term debt.
Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to
lower overall borrowing costs. To achieve the financing objectives, we borrow primarily at fixed rates or variable rates with
what we believe are the lowest margins available. With regard to variable rate financing, we manage interest rate cash flow risk
by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash
flows. We have not entered into, and do not plan to enter into, financial instruments for trading or speculative purposes.
As of December 31, 2020, we had approximately $2.2 billion of contractually outstanding consolidated debt at a weighted
average fixed interest rate of approximately 2.51% and $1.2 billion of amounts outstanding under credit facilities with a
weighted average variable interest rate of monthly LIBOR plus 1.08%. As of December 31, 2019, we had approximately $1.2
billion of contractually outstanding consolidated debt at a weighted average fixed interest rate of approximately 2.66% and $1.7
billion of amounts outstanding under credit facilities with a weighted average variable interest rate of monthly LIBOR plus
1.29%. Monthly LIBOR as of December 31, 2020 and 2019 was 0.15% and 1.80%, respectively.
Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt unless such
instruments are traded or are otherwise terminated prior to maturity. However, interest rate changes will affect the fair value of
our fixed rate instruments.
Conversely, movements in interest rates on variable rate debt would change our future earnings and cash flows, but not
significantly affect the fair value of those instruments. We are exposed to interest rate changes primarily as a result of our
variable rate debt we incur on our Amended Credit Agreement and our consolidated cash investments. As of December 31,
2020 and 2019, our floating rate debt outstanding was $1,232.9 million and $1,715.0 million, respectively. We quantify our
exposure to interest rate risk based on how changes in interest rates affect our net income. We consider changes in the 30-day
LIBOR rate to be most indicative of our interest rate exposure as it is a function of the base rate for our credit facilities. We
consider increases of 0.5% to 2.0% in the 30-day LIBOR rate to be reflective of reasonable changes we may experience in the
current interest rate environment. The table below reflects the annual consolidated effect of an increase in the 30-day LIBOR to
our net income related to our significant variable interest rate exposures as of December 31, 2020 and 2019 (amounts in
millions, where positive amounts reflect an increase in net income and bracketed amounts reflect a decrease in net income):
Variable rate credit facilities expense:
As of December 31, 2020
As of December 31, 2019
2.0%
1.5%
1.0%
0.5%
$
$
(24.7)
(34.3)
$
$
(18.5)
(25.7)
$
$
(12.3)
(17.2)
$
$
(6.2)
(8.6)
Floating rate interest income was $0.2 million and $1.3 million for the years ended December 31, 2020 and 2019, respectively.
There is no assurance that we would realize such income or expense as such changes in interest rates could alter our asset or
liability positions or strategies in response to such changes. Also, where variable rate debt is used to finance development
projects, the cost of the development is also impacted. If these costs exceed budgeted interest reserves, we may be required to
fund the excess out of other capital sources. The table above reflects interest expense prior to any adjustments for capitalized
interest related to developments.
74
The following table sets forth the carrying value and fair value face amounts, maturity date and average interest rates at
December 31, 2020, for our fixed-rate and variable-rate debt, excluding capital leases and other financing arrangements:
IN MILLIONS
Fixed-rate debt (2024 Notes)
Average interest rate on fixed-rate debt
Fixed-rate debt (2027 Notes)
Average interest rate on fixed-rate debt
Fixed-rate debt (2029 Notes)
Average interest rate on fixed-rate debt
Fixed-rate debt (2030 Notes)
Average interest rate on fixed-rate debt
Variable-rate debt (2023 Term Loan Facility)
Average interest rate on variable-rate debt
Variable-rate debt (2025 Term Loan Facility)
Average interest rate on variable-rate debt
Euro loan (Revolving Credit Facility)
Average interest rate on variable-rate debt
GBP loan (Revolving Credit Facility)
Average interest rate on variable-rate debt
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2021
2022
2023
2024
2025
Thereafter
— —
$ 599.3
—
— —
2.900 % —
—
—
Total Carrying
Value
Total Fair
Value
$
599.3 $ 640.7
— —
—
—
$ 612.6
$
612.6 $ 619.9
— —
—
—
1.450 %
— —
—
—
$ 598.4
$
598.4 $ 644.1
— —
—
—
3.450 %
— —
—
— —
—
—
—
$ 395.3
$
395.3 $ 388.6
2.150 %
— $ 100.0
—
—
—
$
100.0 $ 100.0
—
1.350 % —
—
— —
—
$ 700.0
—
—
— —
—
1.350 %
— $ 275.9
—
—
—
1.000 % —
—
— $ 157.0
—
—
—
1.030 %
—
—
—
—
—
—
—
$
$
$
700.0 $ 700.0
275.9 $ 275.9
157.0 $ 157.0
The fair values of our 2024 Notes, 2027 Notes, 2029 Notes and 2030 Notes as of December 31, 2020, and 2024 Notes and 2029
Notes as of December 31, 2019 were based on the quoted market prices for these notes, which is considered Level 1 of the fair
value hierarchy. The carrying value of the Revolving Credit Facility, the 2023 Term Loan Facility and the 2025 Term Loan
Facility approximates estimated fair value as of December 31, 2020, due to the floating rate nature of the interest rates and the
stability of our credit ratings. These fair value measurements are considered Level 3 of the fair value hierarchy. The fair value
of the GDS equity investment as of December 31, 2020 was based on the quoted market price for the stock which is considered
Level 1 of the fair value hierarchy.
Interest Rate Swaps
On September 3, 2019, the Company entered into a floating-fixed interest rate swap agreement to convert $300.0 million
outstanding of term loan to 1.19% fixed rate debt. On September 21, 2020, the Company paid down $300.0 million of term
loans under the 2023 Term Loan Facility. The $300.0 million floating-fixed interest rate swap remains in place and continues to
provide an effective hedge of the risk of changes in cash flows attributable to USD-LIBOR term loans through March 2023.
The Company recognized a loss of $10.5 million and a gain of $3.5 million for the years ended December 31, 2020 and 2019,
respectively, related to the changes in fair value of the interest rate swap which were recognized in OCI. As of December 31,
2020, interest rate swaps were a liability of $7.0 million reported in Other liabilities. As of December 31, 2019, interest rate
swaps were an asset of $3.5 million reported in Other assets. The hedge is designed to reduce the Company's exposure to
fluctuations in interest rates.
Foreign Currency Risk
As a result of our expansion outside of the United States, we have foreign operations in France, Germany, The Netherlands,
United Kingdom, Singapore and The Republic of Ireland that expose us to risk from the effects of exchange rate movements of
respective foreign currencies, which may affect future costs and cash flows. Foreign currency risk is the possibility that our
results of operations or financial position could be affected by changes in exchange rates. Our exposure to foreign currency
primarily relates to our foreign currency denominated in British pound sterling and Euro, included within Total investment in
real estate, net, which was $1.5 billion and $1.0 billion as of December 31, 2020 and 2019, respectively. For the years ended
December 31, 2020 and 2019, our Foreign currency translation adjustment included within Stockholders’ equity was an
increase of $40.5 million and $11.8 million, respectively. The Foreign currency translation adjustment of $28.7 million was
primarily due to an increase in the forward spot rate on two cross-currency EUR/USD contracts to sell $500.0 million and
purchase €450.7 million that mature in March 2023.
75
As a result of our expansion into foreign countries, primarily in Europe, our exposure to foreign currency is expected to
increase, primarily related to British pound sterling and Euro. We could mitigate future investment and operational foreign
currency exposure by borrowing under our Amended Credit Agreement in the particular foreign currency, subject to availability
and applicable borrowing conditions. However, we would expect to incur foreign currency transaction gains and losses, which
would impact our consolidated net income, and translation of financial statements from the foreign functional currency to U.S.
dollars, which would be included in Other comprehensive income or loss and Stockholders’ equity. As of December 31, 2020,
we have outstanding borrowings under our Revolving Credit Facility of $157.0 million which is denominated in British pound
sterling and $275.9 million which is denominated in Euros. As of December 31, 2020, we had $612.6 million outstanding under
the 2027 Notes, which are denominated in Euros. See Note 11, Debt, for further information.
The Company has entered into cross-currency swaps whereby the Company pays floating interest rate and receives floating
interest rate to hedge the variability of future cash flows attributable to changes in the 1-month USD LIBOR versus EUR
LIBOR rates (a pay-floating, receive-floating interest rate swap). The pay-floating, receive-floating interest rate swap payments
are recognized in Interest expense, net in the Condensed Consolidated Statements of Operations.
As of December 31, 2020, the Company has two cross-currency EUR/USD contracts to sell $500.0 million and purchase
€450.7 million maturing in March 2023 representing a fair value liability of $52.2 million reported in Other Liabilities. As of
December 31, 2019, our cross-currency swaps were a liability of $11.4 million reported in Other Liabilities.
The Company recognized losses of $42.5 million for the year ended December 31, 2020 on cross-currency swaps that were
designated as net investment hedges which were recognized in OCI. The Company recognized gains of $4.5 million for the year
ended December 31, 2020 on undesignated cross-currency contracts which were recognized in Foreign currency and derivative
losses, net in the Condensed Consolidated Statements of Operations. The Company recognized losses of $7.5 million on
undesignated cross-currency contracts for the year ended December 31, 2019, which were recognized in Foreign currency and
derivative losses, net in the Consolidated Statements of Operations.
Commodity Price Risk
Certain of our operating costs are subject to price fluctuations caused by the volatility of the underlying commodity prices,
including electricity used in our data center operations, and building materials, such as steel and copper, used in the
construction of our data centers. In addition, the lead time to purchase certain equipment for our data centers is substantial
which could result in increased costs for these construction projects. In addition, we have entered into several contracts to
purchase electricity. As of December 31, 2020 and 2019, these contracts represented less than our forecasted usage.
76
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements of CyrusOne Inc.
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Note 1 - Description of Business
Note 2 - Basis of Presentation
Note 3 - Summary of Significant Accounting Policies
Note 4 - Recently Issued Accounting Standards
Note 5 - Revenue Recognition
Note 6 - Leases - As a Lessee
Note 7 - Investment in Real Estate
Note 8 - Equity Investments
Note 9 - Goodwill, Intangible and Other Long-Lived Assets
Note 10 - Other Assets
Note 11 - Debt
Note 12 - Fair Value of Financial Instruments and Hedging Activities
Note 13 - Employee Benefit Plans
Note 14 - Income Per Share
Note 15 - Stockholders' Equity
Note 16 - Stock-Based Compensation
Note 17 - Income Taxes
Note 18 - Commitments and Contingencies
Note 19 - Subsequent Event
78
81
82
83
84
85
86
86
86
86
92
94
96
98
99
99
100
101
104
107
107
108
109
115
117
117
We early adopted the new amendment to Regulation S-K Item 302, which eliminates Supplementary Financial Information.
77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of CyrusOne Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CyrusOne Inc. (the "Company") as of December 31, 2020
and 2019, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows, for each of
the three years in the period ended December 31, 2020, and the related notes and the schedules listed in the Index at Item 15
(a)(2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 19, 2021, expressed an unqualified opinion on the Company's internal control over
financial reporting.
Change in Accounting Principle
As discussed in Note 4 to the financial statements, effective January 1, 2019, the Company adopted FASB Accounting
Standards Update 2016-02, Leases, using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Impairment Losses and Investment in Real Estate - Refer to Note 3 and Note 7 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of its Investment in Real Estate for impairment involves an initial assessment of each real estate
asset to determine whether events or changes in circumstances exist that may indicate that the carrying amounts of real estate
assets are no longer recoverable.
The Company makes significant assumptions to evaluate real estate assets for possible indications of impairment. Changes in
these assumptions could have a significant impact on the real estate assets identified for further analysis. For the year ended
December 31, 2020, the company recognized approximately $11.2 million of impairment loss on real estate assets.
We identified the determination of impairment indicators for real estate assets as a critical audit matter because of the
significant assumptions management makes when determining whether events or changes in circumstances have occurred
78
indicating that the carrying amounts of real estate assets may not be recoverable. This required a high degree of auditor
judgment when performing audit procedures to evaluate whether management appropriately identified impairment indicators.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s evaluation of Investment in Real Estate for indicators of impairment included
the following, among others:
• We tested the effectiveness of controls related to the identification of impairment indicators for Investments in Real
Estate.
• We evaluated management’s assumptions regarding the identification of events or circumstances indicating the
carrying amount of a real estate investment may not be recoverable and compared the assumptions to Company
documentation and external sources.
• We inquired with the accounting and facilities management personnel regarding the occurrence of any events that may
have significantly affected the property’s value and inquired of the overall condition of the premises based on the
property managers’ observations of any signs of deterioration or other indicators of impairment.
/s/ Deloitte & Touche LLP
Dallas, Texas
February 19, 2021
We have served as the Company's auditor since 2011.
79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of CyrusOne Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of CyrusOne Inc. (the “Company”) as of December 31, 2020,
based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control —
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our
report dated February 19, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Dallas, Texas
February 19, 2021
80
CYRUSONE INC.
Consolidated Balance Sheets
IN MILLIONS, except share and per share amounts
As of December 31,
Assets
Investment in real estate:
Land
Buildings and improvements
Equipment
Gross operating real estate
Less accumulated depreciation
Net operating real estate
Construction in progress, including land under development
Land held for future development
Total investment in real estate, net
Cash and cash equivalents
Rent and other receivables (net of allowance for doubtful accounts of $3.5 and $1.8
as of December 31, 2020 and 2019, respectively)
Restricted cash
Operating lease right-of-use assets, net
Equity investments
Goodwill
Intangible assets (net of accumulated amortization of $249.3 and $207.5 as of
December 31, 2020 and 2019, respectively)
Other assets
Total assets
Liabilities and equity
Debt
Finance lease liabilities
Operating lease liabilities
Construction costs payable
Accounts payable and accrued expenses
Dividends payable
Deferred revenue and prepaid rents
Deferred tax liability
Other liabilities
Total liabilities
Commitment and contingencies
Stockholders' equity
Preferred stock, $.01 par value, 100,000,000 authorized; no shares issued or
outstanding
Common stock, $.01 par value, 500,000,000 shares authorized and 120,442,521 and
114,808,898 shares issued and outstanding at December 31, 2020 and 2019,
respectively
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and equity
2020
2019
208.8 $
2,035.2
3,538.9
5,782.9
(1,767.9)
4,015.0
982.2
268.3
5,265.5
271.4
334.2
1.5
211.4
67.1
455.1
157.8
133.4
6,897.4 $
3,409.0 $
29.1
249.1
133.0
151.3
63.3
174.1
53.0
77.3
4,339.2
147.6
1,761.4
3,028.2
4,937.2
(1,379.2)
3,558.0
946.3
206.0
4,710.3
76.4
291.9
1.3
161.9
135.1
455.1
196.1
113.9
6,142.0
2,886.6
31.8
195.8
176.3
122.7
58.6
163.7
60.5
11.4
3,707.4
—
—
1.2
3,537.3
(966.6)
(13.7)
2,558.2
6,897.4 $
1.1
3,202.0
(767.3)
(1.2)
2,434.6
6,142.0
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
81
CYRUSONE INC.
Consolidated Statements of Operations
IN MILLIONS, except per share data
For the Year Ended December 31,
Revenue
Operating expenses:
Property operating expenses
Sales and marketing
General and administrative
Depreciation and amortization
Transaction, acquisition, integration and other related expenses
Impairment losses and (gain) loss on asset disposals
Total operating expenses
Operating income
Interest expense, net
Gain on marketable equity investment
Loss on early extinguishment of debt
Foreign currency and derivative losses, net
Other expense
Net income before income taxes
Income tax benefit (expense)
Net income
Weighted average number of common shares outstanding - basic
Weighted average number of common shares outstanding - diluted
Income per share - basic
Income per share - diluted
2020
2019
2018
$
1,033.5 $
981.3 $
821.4
411.6
18.3
99.3
449.4
3.7
11.1
993.4
40.1
(57.7)
89.5
(6.5)
(27.6)
—
37.8
3.6
41.4 $
117.3
117.6
0.35 $
0.35 $
383.4
20.2
83.5
417.7
8.4
1.1
914.3
67.0
(82.0)
132.3
(71.8)
(7.5)
(0.3)
37.7
3.7
41.4 $
112.1
112.5
0.36 $
0.36 $
292.4
19.6
80.6
334.1
5.0
—
731.7
89.7
(94.7)
9.9
(3.1)
—
—
1.8
(0.6)
1.2
99.8
100.4
—
—
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
82
CYRUSONE INC.
Consolidated Statements of Comprehensive Income (Loss)
IN MILLIONS
For the Year Ended December 31,
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment
Net loss on cash flow hedging instruments
Comprehensive income (loss)
2020
2019
2018
$
41.4 $
41.4 $
1.2
40.5
(53.0)
28.9 $
11.8
(0.7)
52.5 $
(10.9)
—
(9.7)
$
The accompanying notes are an integral part of the consolidated financial statements.
83
CYRUSONE INC.
Consolidated Statements of Equity
IN MILLIONS
Balance as of January 1, 2018
Adoption of accounting standards:
Revenue recognition, cumulative modified retrospective
Financial instruments (equity investment), cumulative adjustment
Net income
Issuance of common stock, net
Stock-based compensation expense
Tax payment upon exercise of equity awards
Foreign currency translation adjustment
Dividends declared, $1.84 per share
Balance as of December 31, 2018
Adoption of accounting standards:
Impact of adoption of ASU 2016-02 related to leases
Net income
Issuance of common stock, net
Stock-based compensation expense
Tax payment upon exercise of equity awards
Foreign currency translation adjustment
Net loss on cash flow hedging instruments
Dividends declared, $1.92 per share
Balance as of December 31, 2019
Net income
Issuance of common stock, net
Stock-based compensation expense
Tax payment upon exercise of equity awards
Foreign currency translation adjustment
Net loss on cash flow hedging instruments
Dividends declared, $2.02 per share
Balance at December 31, 2020
Shares of
Common
Stock
Outstanding
Common
Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
96.1 $
1.0 $
2,125.6 $
(486.9) $
74.2 $
1,713.9
—
—
—
12.3
—
(0.1)
—
—
—
—
—
0.1
—
—
—
—
—
—
—
699.5
17.5
(5.2)
—
—
0.3
75.6
1.2
—
—
—
—
(190.4)
—
(75.6)
—
—
—
—
(10.9)
—
0.3
—
1.2
699.6
17.5
(5.2)
(10.9)
(190.4)
108.3 $
1.1 $
2,837.4 $
(600.2) $
(12.3) $
2,226.0
—
—
6.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
357.2
16.7
(9.3)
—
—
—
9.5
41.4
—
—
—
—
—
(218.0)
—
—
—
—
—
11.8
(0.7)
—
9.5
41.4
357.2
16.7
(9.3)
11.8
(0.7)
(218.0)
114.8 $
1.1 $
3,202.0 $
(767.3) $
(1.2) $
2,434.6
—
5.6
—
—
—
—
—
—
0.1
—
—
—
—
—
—
325.6
18.4
(8.7)
—
—
—
41.4
—
—
—
—
—
(240.7)
—
—
—
—
40.5
(53.0)
—
41.4
325.7
18.4
(8.7)
40.5
(53.0)
(240.7)
120.4 $
1.2 $
3,537.3 $
(966.6) $
(13.7) $
2,558.2
The accompanying notes are an integral part of the consolidated financial statements.
84
CYRUSONE INC.
Consolidated Statements of Cash Flows
IN MILLIONS
For the Year Ended December 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provision for bad debt expense
Gain on marketable equity investment
Foreign currency and derivative losses, net
Proceeds from swap terminations
(Gain) loss on asset disposals
Impairment losses
Loss on early extinguishment of debt
Interest expense amortization, net
Stock-based compensation expense
Deferred income tax benefit
Operating lease cost
Other expense (income)
Change in operating assets and liabilities:
Rent and other receivables, net and other assets
Accounts payable and accrued expenses
Deferred revenue and prepaid rents
Operating lease liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Investments in real estate
Asset acquisitions, primarily real estate, net of cash acquired
Proceeds from sale of equity investments
Equity investments
Proceeds from the sale of real estate assets
Net cash used in investing activities
Cash flows from financing activities:
Issuance of common stock, net
Dividends paid
Proceeds from revolving credit facility
Repayments of revolving credit facility
Proceeds from Euro bond
Proceeds from unsecured term loan
Repayments of unsecured term loan
Proceeds from issuance of senior notes
Repayments of senior notes
Payment of debt extinguishment costs
Payment of deferred financing costs
Payments on finance lease liabilities
Tax payment upon exercise of equity awards
Net cash provided by financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosure of cash flow information:
Cash paid for interest, including amounts capitalized of $22.6 million, $32.9 million and $24.4
million in 2020, 2019 and 2018, respectively
Cash paid for income taxes
Non-cash investing and financing activities:
Construction costs payable
Dividends payable
2020
2019
2018
$
41.4 $
41.4 $
1.2
449.4
1.7
(89.5)
27.6
2.9
(0.1)
11.2
6.5
6.8
18.4
(6.9)
20.4
0.1
(58.0)
39.0
8.8
(23.4)
456.3
(910.5)
—
144.1
(6.5)
0.5
(772.4)
325.7
(236.2)
763.7
(966.1)
553.5
1,100.0
(1,400.0)
395.2
—
—
(16.4)
(3.5)
(8.7)
507.2
4.1
195.2
77.7
272.9 $
62.4 $
3.7
133.0
63.3
417.7
1.7
(132.3)
7.5
3.6
0.4
0.7
71.8
5.0
16.7
(7.5)
20.3
0.2
(74.2)
(0.8)
15.6
(22.1)
365.7
(876.4)
—
199.0
(3.8)
1.3
(679.9)
357.2
(210.4)
656.7
(182.5)
—
—
(200.0)
1,197.4
(1,200.0)
(72.0)
(9.4)
(2.9)
(9.3)
324.8
2.7
13.3
64.4
77.7 $
123.0 $
3.5
176.3
58.6
334.1
2.6
(9.9)
—
—
—
—
3.1
4.0
17.5
—
—
(0.6)
(80.2)
3.0
34.5
—
309.3
(865.7)
(462.8)
—
(12.6)
—
(1,341.1)
699.6
(181.1)
688.3
(647.4)
—
1,300.0
(900.0)
—
—
—
—
(9.5)
(5.2)
944.7
(0.4)
(87.5)
151.9
64.4
115.4
3.4
195.3
51.0
$
$
The accompanying notes are an integral part of the consolidated financial statements.
85
CYRUSONE INC.
Notes to Consolidated Financial Statements
1. Description of Business
CyrusOne Inc., together with CyrusOne GP (the "General Partner"), a wholly-owned subsidiary of CyrusOne Inc., through
which CyrusOne Inc. wholly owns CyrusOne LP (the "Operating Partnership") and the subsidiaries of the Operating
Partnership (collectively, “CyrusOne”, “we”, “us”, “our”, and the “Company”) is an owner, operator and developer of
enterprise-class, carrier-neutral, multi-tenant and single-tenant data center properties. As of December 31, 2020, all of the
issued and outstanding Operating Partnership units of CyrusOne LP are owned, directly or indirectly, by the Company. Our
customers operate in a number of industries, including information technology, financial services, energy, oil and gas, mining,
medical, research and consulting services, and consumer goods and services. We currently operate 55 data centers, including
two recovery centers, located in the United States, United Kingdom, Germany, The Netherlands and Singapore.
On January 24, 2013, the Company completed its initial public offering (the "IPO") of common stock and its common stock
currently trades on the NASDAQ Exchange under the ticker symbol "CONE".
2. Basis of Presentation
The accompanying financial statements are prepared on a consolidated basis. In addition, the accompanying financial
statements have been prepared in accordance with generally accepted accounting principles in the U.S. (GAAP) and include the
accounts of the Company, as well as all wholly-owned subsidiaries and any consolidated variable interest entities. All
intercompany transactions and balances have been eliminated in consolidation.
3. Summary of Significant Accounting Policies
Risks and Uncertainties
The novel strain of the coronavirus (COVID-19) identified in China in late 2019 has globally spread throughout Asia, Europe,
the Middle East and the Americas and has resulted in authorities implementing numerous measures to attempt to contain the
virus. This includes travel bans, shelter in place regulations and other restrictions and shutdowns. We continue to monitor the
global outbreak and to take steps to mitigate the potential risks to us posed by the pandemic. To date, our data center portfolio
remains fully operational and we have experienced minimal disruptions in our business, including construction projects,
however, we have modified our business practices by temporarily closing our corporate headquarters and regional locations,
transitioned non-essential employees to working remotely from their homes, implemented restrictions on the physical
participation in meetings and significantly limited business travel, all of which have disrupted how we operate our business and
may remain in place for an indeterminate amount of time. The duration and extent of the impact from the COVID-19 pandemic
depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of
the virus, the extent and effectiveness of containment actions, the distribution and effectiveness of vaccines and the impact of
these and other factors on our employees, customers, suppliers and vendors. The effect of the pandemic and measures
implemented by authorities could disrupt our supply chain, which currently remains fully functional, including the provision of
services to us by our vendors and could result in restrictions on construction activities. There has been and continues to be
considerable uncertainty about the impact of these measures and restrictions on our Company and customers and the effects of
these measures and how long they will remain in effect, which could adversely impact our employees, customers, vendors and
suppliers resulting in a material adverse effect on our business, financial condition, results of operations, cash flows and ability
to pay dividends as well as the market price of our common stock.
Investment in Real Estate
Acquisition of Properties
Investment in real estate consist of land, buildings, improvements and integral equipment utilized in our data center operations.
We expect most acquisitions to be an acquisition of assets rather than a business combination as our typical acquisitions consist
of properties whereby substantially all the fair value of gross assets acquired is concentrated in a single asset set (land, building
and in-place leases), which are treated as asset acquisitions. See Business Combinations and Asset Acquisitions herein.
Business Combinations and Asset Acquisitions
We evaluate whether an acquisition is a business combination or an asset acquisition by determining whether the set of assets is
a business.
Asset Acquisitions
When substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of
similar identifiable assets, the transaction is accounted for as an asset acquisition. Asset acquisitions are recorded at the
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Notes to Consolidated Financial Statements - (continued)
cumulative acquisition costs and allocated to the assets acquired and liabilities assumed on a relative fair value basis. The
Company allocates the purchase price of real estate to identifiable tangible assets such as land, building, land improvements and
tenant improvements acquired based on their fair value. In estimating the fair value of each component, management considers
appraisals, replacement cost, its own analysis of recently acquired and existing comparable properties, market rental data and
other related information. Transaction costs associated with asset acquisitions are capitalized.
Business Combinations
When substantially all of the fair value is not concentrated in a group of similar identifiable assets, the set of assets will
generally be considered a business and the Company applies the purchase method for business combinations, where all tangible
and identifiable intangible assets acquired and all liabilities assumed are recorded at fair value. Any excess purchase price is
recorded as goodwill. Transaction costs associated with business combinations are expensed as incurred.
The following discussion applies to our initial determination of fair value and the resulting subsequent accounting which is
generally applicable to both asset acquisitions and business combinations.
The fair value of any tangible real estate assets acquired is determined by valuing the building as if it were vacant, and the fair
value is then allocated to land, buildings, equipment and improvements based on available information including replacement
cost, appraisal or using net operating income capitalization rates, discounted cash flow analysis or similar fair value models.
We determine in-place lease values based on our evaluation of the specific characteristics of each tenant’s lease agreement and
by applying a fair value model. The estimates of fair value of in-place leases include an estimate of carrying costs during the
expected lease up periods considering current market conditions. In estimating fair value of in-place leases, we consider items
such as real estate taxes, insurance, leasing commissions, tenant improvements and other operating expenses to execute similar
leases as well as projected rental revenue and carrying costs during the expected lease up period. We amortize the value of in-
place leases acquired to expense over the approximate weighted average remaining term of the leases, adjusted for projected
tenant turnover, on a composite basis.
We determine the value of above-market and below-market in-place leases for acquired properties based on the present value
(using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual
amounts to be paid pursuant to the in-place leases and (2) estimates of current market lease rates for the corresponding in-place
leases, measured over a period equal to (i) the remaining non-cancellable lease term for above-market leases, or (ii) the
remaining non-cancellable lease term plus any renewal options that we consider are reasonably certain that a lessee will execute
such renewal option when a lease commences. We record the fair value of above-market and below-market leases as intangible
assets or liabilities, and amortize them as an adjustment to revenue over the lease term.
We determine the fair value of assumed debt by calculating the net present value of the scheduled debt service payments using
current market-based terms for interest rates for debt with similar terms that management believes we could obtain on similar
structures and maturities. Any difference between the fair value and stated value of the assumed debt is recorded as a discount
or premium and amortized over the remaining term of the loan.
In a business combination, we retain the previous lease classification unless there is a lease modification and that modification
is not accounted for as a separate new lease. We elected to apply the short-term lease measurement and recognition exemption
available under the new accounting standard for leases (discussed below in Note 4, Recently Issued Accounting Standards) to
leases that have a remaining lease term of 12 months or less at the acquisition date, and accordingly, do not recognize an
intangible asset if the terms of an operating lease are favorable relative to market terms, or a liability if the terms are
unfavorable relative to market terms. Leasehold improvements are amortized over the shorter of the useful life of the assets and
the remaining lease term at the date of acquisition.
Capitalization of Costs
We capitalize costs directly related to the development, pre-development or improvement of our investment in real estate,
referred to as capital projects and other activities included within this paragraph. Costs associated with our capital projects are
capitalized as incurred. If the project is abandoned, these costs are expensed during the period in which the project is
abandoned. Costs considered for capitalization include, but are not limited to, construction costs, interest, real estate taxes,
insurance and utilities, if appropriate. We capitalize indirect costs such as personnel, office and administrative expenses that are
directly related to our development projects based on an estimate of the time spent on the construction and development
activities. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use
are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use.
We determine when the capitalization period begins and ends through communication with project and other managers
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Notes to Consolidated Financial Statements - (continued)
responsible for the tracking and oversight of individual projects. In the event that the activities to ready the asset for its intended
use are suspended, the capitalization period will cease until such activities are resumed. In addition, we capitalize incremental
initial direct costs incurred for successful origination of new leases which include internal and external leasing commissions.
Interest expense is capitalized based on actual qualifying capital expenditures from the period when development commences
until the asset is ready for its intended use, at the weighted average borrowing rate during the period. These costs are included
in Investment in real estate and depreciated over the estimated useful life of the related assets.
Costs incurred for maintaining and repairing our properties, which do not extend their useful lives, are expensed as incurred.
Impairment Losses
When events or circumstances indicate that the carrying amount of a real estate investment may not be recoverable, we review
the carrying value of the asset. When such impairment indicators exist, we review an estimate of the undiscounted future cash
flows expected to result from the use of the real estate investment and proceeds from its eventual disposition and compare such
amount to the carrying value of the real estate investment. If our undiscounted cash flows indicate that we are unable to recover
the carrying value of the real estate investment, an impairment loss is recognized. An impairment loss is measured as the
amount by which the real estate investment's carrying value exceeds its estimated fair value. We recognized an impairment loss
of $11.2 million for the year ended December 31, 2020 which includes an $8.8 million impairment loss based on our estimate
of the decrease in the fair value of the equipment held for use in inventory at our U.S. data centers and a $2.4 million
impairment loss based on the estimated fair value for our investment in land held in Atlanta for future development as the
Company sold this land to a third-party in February 2021. We recognized an impairment loss of $0.7 million for the year ended
December 31, 2019, primarily due to an impairment loss on our South Bend - Monroe facility, which was being actively
marketed for sale. We did not record any impairment losses for the year ended December 31, 2018. These fair values were
based on unobservable inputs and the determination of fair value of real estate assets to be held for use is derived using the
discounted cash flow method and involves a number of management assumptions relating to future economic events that could
materially affect the determination of the ultimate fair value. Such assumptions are Level 3 inputs and include, but are not
limited to, projected vacancy rates, rental rates, property operating expenses and required capital expenditures. These factors
require management's judgment of factors such as market knowledge, historical experience, lease terms, tenant financial
strength, economy, demographics, environment, property location, age, physical condition and expected return requirements,
among other things. The aforementioned factors are taken as a whole by management in the determination of fair value. See
Fair Value Measurements below for further information on fair value.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include all non-restricted cash held in financial institutions and other non-restricted highly liquid
short-term investments with original maturities of three months or less. Restricted cash includes cash equivalents restricted by
contract or regulation, including letters of credit.
Equity Investments
We hold investments in various joint ventures where the Company evaluates its ability to influence the operating or financial
decisions of the investee in applying the appropriate method of accounting for such investments. Influence tends to be more
effective as the investor's percent of ownership in the voting rights of the investee increases. Our equity investments represent
less than 20% of the voting rights of the investees and we do not exercise influence over the investee's operating and financial
decisions. Accordingly, we do not account for our equity investments using the equity method of accounting. For further
information about our equity investments, see Note 8, Equity Investments.
Our investment in GDS Holdings Limited ("GDS") is classified as "available for sale" and is carried at fair value. Changes in
the fair value are reported as a component of net income in Gain on marketable equity investment.
Our other equity investments are carried at cost because we do not exercise influence over the operating and financial decisions
of the ventures and there is no readily determinable fair value and our investments are recorded at cost less impairment, if any.
Dividends paid from operating profits are reported as a component of net income, while other dividends are reported as a return
of capital.
Goodwill
We evaluate goodwill for possible impairment at least annually or upon the occurrence of events or circumstances that indicate
that they would more likely than not reduce the fair value of a reporting unit below its carrying amount.
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Notes to Consolidated Financial Statements - (continued)
For our annual impairment evaluation, we have the option of performing a qualitative or quantitative goodwill impairment
analysis. A qualitative analysis, step zero, analyzes the macro-economic environment in which we operate for any significant
changes such as deterioration in the market that the Company operates or overall financial performance such as declining cash
flows. Also, entity specific changes are analyzed such as change in management, strategy or composition of reporting unit. This
assessment of qualitative factors serves as a basis for determining whether it is necessary to perform the step one test. A
quantitative analysis, step one, requires the Company to estimate the fair value of the reporting unit and compare the fair value
to the carrying value to identify whether the value of the recorded goodwill is impaired. Changes in certain assumptions could
have a significant impact on the impairment test for goodwill under step one. The most critical assumptions are projected future
growth rates, operating margins, capital expenditures, tax rates, terminal values and discount rates. These assumptions are
subject to change as our long-term plans and strategies are updated each year.
During the fourth quarters of 2020, 2019 and 2018, we performed a qualitative evaluation and determined that the fair value of
the reporting unit is substantially in excess of the carrying amount and therefore determined that further quantitative impairment
testing was not necessary.
Rent and Other Receivables
Receivables consist principally of rent receivables including straight-line rent receivables. A general reserve may be recognized
as an allowance for doubtful accounts when collectibility is not probable, after applying the overall collectibility constraint
under the new accounting standard for leases. Straight-line rent receivable, net was $172.6 million and $156.8 million at
December 31, 2020 and 2019, respectively. The allowance for doubtful accounts is estimated based upon historic patterns of
credit losses for aged receivables as well as specific provisions for certain identifiable, potentially uncollectible balances.
Deferred Revenue and Prepaid Rents
Deferred revenue is recorded when a customer makes a contractual payment in excess of revenues recognized in accordance
with GAAP. Prepaid rent liability is recorded when a customer makes an advance payment or they are contractually obligated
to pay any amounts in advance of the associated lease or service period.
Revenue Recognition
Our revenue consists of lease revenue and revenue from contracts with customers.
Lease Revenue:
Our leasing revenue primarily consists of colocation rent, metered power reimbursements and interconnection revenue and is
accounted for under ASC 842, Leases. We generally are not entitled to reimbursements for rental expenses including real estate
taxes, insurance or other common area operating expenses.
a. Colocation Rent Revenue
Colocation rent revenues, including interconnection revenue, are fixed minimum lease payments generally billed monthly in
advance based on the contracted power or leased space. Some contracts may provide initial free rent periods and rents that
escalate over the term of the contract. If rents escalate without the lessee gaining access to or control over additional leased
power or space at the beginning of the lease term, the rental payments are recognized as revenue on a straight-line basis over the
term of the lease. If rents escalate because the lessee gains access to and control over additional power and or leased space,
revenue is recognized in proportion to the additional power or space in the periods that the lessee has control over the use of the
additional power or space. The excess of revenue recognized over amounts contractually due is recognized as a straight-line
receivable, which is included in Rent and other receivables in our Consolidated Balance Sheet. Some of our leases are
structured on a gross basis in which the customer pays a fixed amount for colocation space and power. The revenue for these
types of leases is recorded in colocation rent revenue.
b. Metered Power Reimbursements Revenue
Some of our leases provide that the customer is separately billed for power based upon actual or estimated metered usage at
rates then in effect. Metered power reimbursement revenue is variable lease payments generally billed one month in arrears, and
an estimate of this revenue is accrued in the month that the associated power is provided and recorded in metered power
reimbursements revenue.
Revenue from Contracts with Customers
Revenue from our managed services, equipment sales, installations and other services are recognized under ASC 606, Revenue
from Contracts with Customers.
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Notes to Consolidated Financial Statements - (continued)
Equipment sold by us generally consists of servers, switches, networking equipment, cable infrastructure and cabinets. Revenue
is recognized at a point-in-time when control of the equipment transfers to the customer from the Company, which generally
occurs upon delivery to the customer.
Managed services include providing a full-service managed data center, monitoring customer computer equipment, managing
backups and storage, utilization reporting and other related ancillary information technology services. Management service
contracts generally range from one to five years.
Installation services include mounting, wiring, and testing of customer owned equipment. The installation period is typically
short term in duration, and accordingly, revenue from the installation of customer equipment is recognized at a point-in-time
once the installation is complete and the performance obligation is satisfied. Other services generally include installation of
customer equipment, performing customer system re-boots, server cabinet and cage management, power monitoring, shipping
and receiving, resolving technical issues, and other services requested by the customer. Other service revenue is measured
based on the consideration specified in the contract and recognized over time as we satisfy the performance obligation.
We adopted the practical expedient in ASC 606 that allows the Company to not disclose information about remaining
performance obligations that have original expected durations of one year or less, the amount of the transaction price allocated
to the remaining performance obligations and when we expect to recognize that amount as revenue for the year. We have also
adopted the “as invoiced” practical expedient, whereby the Company recognizes revenue in the amount that directly
corresponds to the amount of value transferred to the customer.
Contract assets were $0.4 million as of December 31, 2020 and were not material as of December 31, 2019. Contract liabilities
were not material as of both December 31, 2020 and December 31, 2019.
Depreciation and Amortization Expense
Depreciation expense is recognized over the estimated useful lives of real estate applying the straight-line method. The useful
life of leased real estate and leasehold improvements is the lesser of the economic useful life of the asset or the term of the
lease, including optional renewal periods if renewal is reasonably certain.
Amortization expense is recognized over the estimated useful lives of finite-lived intangibles. Finite-lived intangibles include
trademarks, customer relationships, favorable leasehold interests, in-place leases, trade names and deferred leasing costs. See
Note 9, Goodwill, Intangible and Other Long-Lived Assets, for details.
Foreign Currency Translation and Transactions
The financial position of foreign subsidiaries is translated at the exchange rates in effect at the end of the period, while revenues
and expenses are translated at average exchange rates during the period. Gains or losses from translation of foreign operations
where the local currency is the functional currency are included as components of Other comprehensive income (loss). Gains or
losses from foreign currency transactions are included in determining net income.
Stock-Based Compensation
We have a stock-based incentive award plan for our employees and directors. Stock-based compensation expense associated
with these awards is recognized in General and administrative expenses, Property operating expenses and Sales and marketing
expenses in our Consolidated Statements of Operations. We measure stock-based compensation at the estimated fair value on
the grant date and recognize the amortization of stock-based compensation expense over the requisite service period. Fair value
is determined based on assumptions related to stock volatility, risk-free rate of return and estimates of market and company
performance.
Fair Value Measurements
Fair value measurements are utilized in accounting for business combinations, asset acquisitions, testing of goodwill and other
long-lived assets for impairment, recording unrealized gain on available-for-sale securities, derivatives and related disclosures.
Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier
hierarchy that prioritizes certain inputs used in the methodologies of measuring fair value for asset and liabilities, is as follows:
Level 1—Observable inputs for identical instruments such as quoted market prices;
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability
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Notes to Consolidated Financial Statements - (continued)
(i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by
correlation or other means (market corroborated inputs); and
Level 3—Unobservable inputs that reflect our determination of assumptions that market participants would use in pricing the
asset or liability. These inputs are developed based on the best information available, including our own data.
Derivative Instruments
We primarily hedge our foreign currency risk by borrowing in the currencies in which we invest. We may use derivative
financial instruments, such as cross-currency swaps to manage foreign currency exchange rate risk related to both our foreign
investments and the related earnings. In addition, we occasionally use interest rate swap contracts to manage interest rate risk
and limit the impact of future interest rate changes on earnings and cash flows, primarily related to variable-rate debt.
Derivative instruments are measured at fair value and recorded in Other assets and Other liabilities, depending on our rights or
obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value
through earnings.
Designated Derivatives. We may choose to designate our derivative financial instruments, generally cross-currency swaps as
net investment hedges in foreign operations. At inception of the transaction, we designate the derivative financial instrument as
a hedge of a specific underlying exposure, including the risk management objective and the strategy for undertaking the hedge
transaction. We formally assess both at inception and at least quarterly thereafter, the effectiveness of our hedging transactions.
Due to the high degree of effectiveness between the hedging instruments and the underlying exposures hedged, fluctuations in
the value of the derivative financial instruments will generally be offset by changes in the cash flows or fair values of the
underlying exposures being hedged.
In addition to the net investment hedges described above, we may issue debt in a currency that is not the same functional
currency of the borrowing entity to hedge our international investments. We designate the debt and related accrued interest as a
net investment hedge to offset the translation and economic exposures related to our international investments. If the debt and
related accrued interest exceeds the designated amount of our international investment, the foreign currency remeasurement on
the unhedged portion of the debt during the period is recognized in Foreign currency and derivative losses, net.
For cash flow hedges, such as interest rate swaps, we report the effective portion of the gain or loss as a component of other
comprehensive income (loss) and reclassify it to the applicable line item in the Consolidated Statements of Operations,
generally Interest expense, net over the corresponding period of the underlying hedged item. The ineffective portion of a
derivative financial instrument’s change in fair value is recognized in earnings, generally Interest expense, net at the time the
ineffectiveness occurred. To the extent the hedged debt related to our interest rate swaps and forwards is paid off early, we write
off the remaining balance in other comprehensive income (loss) and recognize the amount in Interest expense, net in the
Consolidated Statements of Operations.
Undesignated Derivatives. Derivative instruments, such as cross-currency swaps, for which hedge accounting is not applied are
recorded at fair value in Other assets and Other liabilities and gains and losses resulting from changes in the fair value are
reported in Foreign currency and derivative losses, net in the Consolidated Statements of Operations.
In addition, we may choose to not designate our interest rate swap and forward contracts. If a swap or forward contract is not
designated as a hedge, the changes in fair value of these instruments is immediately recognized in earnings in Interest expense,
net in the Consolidated Statements of Operations.
Segment Information
Our data centers have similar revenues and operating expenses across all geographic locations. The service offerings and
delivery of services are provided in a similar manner, using the same types of facilities and similar technologies. Our chief
operating decision maker, the Company's Chief Executive Officer, reviews our financial information on an aggregate basis and
makes decisions about the allocations of Company resources and as a result, we have one reportable business segment.
Revenues from properties were $1,033.5 million, $981.3 million and $821.4 million for the years ended December 31, 2020,
2019 and 2018, respectively. We had Investment in real estate, net of $5.3 billion and $4.7 billion, at December 31, 2020 and
2019, respectively.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of
accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and
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Notes to Consolidated Financial Statements - (continued)
circumstances relating to various transactions had been different or different assumptions were made, it is possible that different
accounting policies would have been applied, resulting in different financial results or a different presentation of our financial
statements. Estimates, judgments and assumptions are based on historical experiences that we believe to be reasonable under
the circumstances. From time to time we re-evaluate those estimates and assumptions. Our discussion and analysis of financial
condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with GAAP. Our management evaluates these estimates on an ongoing basis, based upon information currently
available and on various assumptions management believes are reasonable as of the date of the financial statements. Significant
estimates include and are related to determining lease terms and revenue recognition, the fair value for purchase price
allocations for business combinations and asset acquisitions, capitalization of costs and the useful lives of real estate and other
long-lived assets.
Our actual results may differ from these estimates.
Reclassifications
Certain financial information has been revised to conform to the current year presentation due to changes in the significance of
the particular activity. The following items have been reclassified:
Statement of Cash Flows for the year ended December 31, 2019
•
Unrealized gain on marketable equity investment ($65.6 million) and Realized gain on marketable equity investment
($66.7 million) are combined in the current presentation. These items were previously disclosed on separate lines in
the comparable prior year period.
4. Recently Issued Accounting Standards
Recently Adopted Accounting Pronouncements
Lease Modification Q&A
Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic,
lessors may provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in ASC 842,
Leases, addresses changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not
contemplate concessions being so rapidly executed to address the impact from the COVID-19 pandemic on the lessor's
business. In April 2020, the Financial Accounting Standards Board ("FASB") issued a question and answer document (the
“Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result
of the COVID-19 pandemic. Under the new accounting standard for leases, the Company must determine, on a lease by lease
basis, if a lease concession resulted in a lease modification. The Lease Modification Q&A allows the Company, if certain
criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting
framework or not, with such election applied consistently to leases with similar characteristics and circumstances. The adoption
of this guidance has not had a material impact on our financial statements.
Guarantor Financial Information
In March 2020, the SEC amended Rule 3-10 of Regulation S-X to reduce and simplify financial disclosure requirements for
issuers and guarantors of registered debt offerings. The guidance is effective January 4, 2021, with early adoption permitted.
This new guidance replaces the previous requirement to provide condensed consolidating financial information in the
registrant’s financial statements with a requirement to provide alternative financial disclosures in Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" or its financial statements. We adopted these
amendments as of April 1, 2020, and the alternative disclosures are presented in Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the information previously included in the Notes to
Consolidated Financial Statements has been removed.
Intangibles-Goodwill and Other Internal-Use Software
On January 1, 2020, we adopted ASU 2018-15, Intangibles Goodwill and Other Internal Use Software on a prospective basis.
The adoption did not have a significant impact on the Company.
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Notes to Consolidated Financial Statements - (continued)
On January 1, 2020, we adopted ASU 2018-13, Fair Value Measurement, which changes the fair value measurement disclosure
requirements of ASC 820, Fair Value Measurement. The amendments are part of the FASB’s disclosure framework project to
improve the effectiveness of disclosures important to financial statement users including information about assets and liabilities
measured at fair value in our Condensed Consolidated Balance Sheets. The adoption did not have a significant impact on the
Company.
Financial Instruments - Credit Losses
On January 1, 2020, we adopted ASU 2016-13, Financial Instruments-Credit Losses (CECL), which requires certain financial
assets to be presented at the net amount expected to be collected. CECL and its related amendments apply to our customer
contract trade receivables, notes receivable and net investments in leases. Our Rent and other receivables are primarily
comprised of rent receivables, which are not within the scope of this sub-topic. The adoption did not have a significant impact
on the Company because of our limited exposure to financial instruments subject to this standard.
Leases
We adopted ASU 2016-02 (codified in ASC 842, Leases) on January 1, 2019, applied the package of practical expedients
included therein and utilized the modified retrospective transition method with the cumulative effect of transition recorded as an
adjustment to retained earnings on the effective date. By applying the modified retrospective transition method, the presentation
of financial information for periods prior to January 1, 2019 was not restated.
We elected the package of practical expedients, which permits us to not reassess (1) whether any expired or existing contracts
are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the treatment of any initial direct
costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient, which permits entities to
use hindsight in determining the lease term and assessing impairment.
As a Lessee
The ASU requires that a liability be recorded on the balance sheet for all leases where the reporting entity is a lessee, based on
the present value of future lease obligations discounted based on the implicit rate or alternatively our incremental borrowing
rate. The implicit rate is generally not determinable and, as a result, we use our incremental borrowing rate at the lease
commencement date to determine the present value. We determine our incremental borrowing rate based on an estimate of our
existing yield curve at the lease commencement. The rates are then adjusted for various factors to estimate the company’s
secured rate, including the lease term and collateralization. The determination of our incremental borrowing rate requires
judgment. A corresponding right-of-use ("ROU") asset will also be recorded. Amortization of the lease obligation and the ROU
asset for leases classified as operating leases are on a straight-line basis. Leases classified as financing leases are required to be
accounted for as financing arrangements similar to the accounting treatment for capital leases under ASC 840, Leases (the
former accounting standard for all leases, ("ASC 840")).
We elected the practical expedient to combine our lease and related non-lease components by asset class for our leases.
We elected the practical expedient to not evaluate land easements not previously accounted for as leases prior to the entity’s
adoption of the new accounting standard for leases.
We elected to apply the short-term lease measurement and recognition exemption available for leases under the new accounting
standard for leases that have an original lease term of 12 months or less.
The adoption of ASC 842 had a significant impact on our Consolidated Balance Sheets due to the recognition of approximately
$87.0 million of ROU assets and $123.2 million of lease liabilities for operating leases. We recognized a $9.5 million
cumulative effect adjustment to retained earnings. The adjustment to retained earnings was driven principally by measurement
of operating lease liabilities at the present value of the remaining lease payments at the adoption date of January 1, 2019. The
increase was offset in part by impairment of ROU assets associated with one build-to-suit ("BTS") arrangement recognized as
an operating lease under the new accounting standard for leases.
Additionally, we de-recognized certain previously recognized BTS lease assets and liabilities which under the new accounting
standard for leases are recognized as operating lease ROU assets and lease liabilities. Prior to the adoption of the new
accounting standard for leases, these leases were accounted as financing arrangements or BTS leases assets and liabilities and
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Notes to Consolidated Financial Statements - (continued)
recorded as buildings and improvement and lease financing arrangements. Prior to the adoption of the new accounting standard
for leases, BTS lease assets were amortized over the useful life of the asset and recorded as amortization expense and accretion
of BTS lease liability was recorded as an interest expense in the Consolidated Statements of Operations. Upon adoption of the
new accounting standard for leases, BTS leases are accounted as operating leases and amortization and accretion of lease
liabilities of these operating leases are recorded as lease expenses in property operating expenses in our Consolidated
Statements of Operations.
As a Lessor
The accounting for lessors remained largely unchanged from ASC 840. However, the new accounting standard for leases
requires that lessors expense certain costs to obtain a lease that are not incremental to origination of a lease. Upon adoption,
initial direct costs that are not incremental are expensed as general and administrative expense in our Consolidated Statements
of Operations. Prior to the adoption of the new standard, these costs were capitalizable. As a result of electing the package of
practical expedients, initial direct costs have not been reassessed prior to the effective date and therefore adoption of the lease
standard did not have an impact on our previously reported Consolidated Statements of Operations with respect to initial direct
costs.
In addition, under the new accounting standard for leases, certain exceptions under the previous standard for real estate no
longer are applicable in the evaluation of the lease classification as an operating, sales type or direct financing lease. In the
event that a real estate lease is classified as a sales-type lease, subject to certain conditions, a gain or loss is recognized based on
the present value of the lease payments and residual value.
We elected the practical expedient to combine all of our lease and nonlease revenue components into a single combined lease
component as nonlease components have the same pattern of transfer as the related predominant operating lease components.
Our customer leases include options to extend or terminate the lease agreements. We do not generally include extension or
termination options in a customer’s lease term for lease classification purposes or for recognizing lease revenue unless we are
reasonably certain the customer will exercise these extension or termination options at lease commencement.
New Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying GAAP to contracts,
hedging relationships and other transactions that reference the London interbank offered rate ("LIBOR") or another reference
rate expected to be discontinued because of reference rate reform. The expedients and exceptions do not apply to contract
modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging
relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained
through the end of the hedging relationship. The Company is evaluating the impact of this ASU.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
which simplifies various aspects related to the accounting for income taxes, eliminates certain exceptions within ASC
740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The
guidance is effective for periods beginning after December 15, 2020, with early adoption permitted. The Company is evaluating
the impact of the new standard.
5. Revenue Recognition
Lease Revenue
Lease revenue primarily consists of colocation rent and metered power reimbursements from the lease of our data centers.
Colocation leases may include all or portions of a data center, where customers may also lease office space to support their
colocation operations. Revenue is primarily based on power usage as well as square footage. Customer lease arrangements
customarily contain provisions that allow for renewal or continuation on a month-to-month arrangement, and certain leases
contain early termination rights. We do not include any of these extension or termination options in a customer’s lease term for
lease classification purposes or for recognizing lease revenue unless we are reasonably certain the customer will exercise these
extension or termination options at lease commencement. At lease commencement, early termination is generally not deemed
probable due to the significant economic penalty incurred by the lessee to exercise its early termination right and to relocate
their equipment installed in our facilities. Generally, our customer lease arrangements do not provide any option to purchase
and are classified as operating leases. We have substantial revenue primarily related to lease revenue from one customer that
94
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
represented approximately 19%, 21% and 18% of our total revenue for the years ended December 31, 2020, 2019 and 2018,
respectively.
At December 31, 2020, the future minimum lease payments to be received under non-cancellable operating leases, excluding
month-to-month arrangements and metered power reimbursements are shown below (in millions):
As of December 31, 2020
Minimum Lease Payments
2021
2022
2023
2024
2025
Thereafter
Total
$
$
771.1
658.5
527.5
409.3
339.1
922.9
3,628.4
At December 31, 2019, the future minimum lease payments to be received under non-cancellable operating leases, excluding
month-to-month arrangements and metered power reimbursements are shown below (in millions):
As of December 31, 2019
Minimum Lease Payments
2020
2021
2022
2023
2024
Thereafter
Total
$
$
736.2
620.2
528.2
426.5
328.7
973.9
3,613.7
Revenue from Contracts with Customers
Revenue from equipment sales and the installation of customer equipment is recognized at a point-in-time. Title to such assets
are transferred to the customer, and the benefits of the installation service are typically consumed at the completion of the
service.
Disaggregation of Revenue
For the years ended December 31, 2020 and 2019, lease revenue disaggregated by primary revenue stream is as follows (in
millions):
Lease revenue
Colocation (Minimum lease payments)
Metered power reimbursements (Variable lease payments)
Total lease revenue
Year Ended
December 31, 2020
Year Ended
December 31, 2019
$
$
842.1 $
161.4
1,003.5 $
793.5
138.8
932.3
For the years ended December 31, 2020, 2019 and 2018 revenue from contracts with customers disaggregated by primary
revenue stream is as follows (in millions):
Revenue from contracts with customers
Equipment sales and services
Other revenue
Total revenue from contracts with customers
Year Ended
December 31, 2020
Year Ended
December 31, 2019
Year Ended
December 31, 2018
$
$
10.6 $
19.4
30.0 $
29.7 $
19.3
49.0 $
15.3
17.4
32.7
95
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
Other revenue related to contracts with customers in the table above includes managed services and other services revenue of
$15.9 million, $15.9 million and $13.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Total revenues from contracts with customers generated from operations outside of the United States were $4.7 million, $2.9
million and insignificant for the years ended December 31, 2020, 2019 and 2018, respectively.
Accounts receivable associated with revenue from contracts with customers were $2.3 million and $6.4 million as of
December 31, 2020 and 2019, respectively.
6. Leases - As a Lessee
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make
lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on
the estimated present value of lease payments over the lease term. Variable lease payments consisting of non-lease components
and services are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation is
incurred.
The new accounting standard for leases defines initial direct costs as only the incremental costs of signing a lease. Initial direct
costs related to leasing that are not incremental are expensed as general and administrative expense in our Consolidated
Statements of Operations. As a result of electing the package of practical expedients, initial direct costs incurred prior to the
effective date have not been reassessed.
Our operating lease agreements primarily consist of leased real estate and are included within Operating lease ROU assets and
Operating lease liabilities on the Consolidated Balance Sheets. Many of our lease agreements include options to extend the
lease, which are not included in our minimum lease payments unless they are reasonably certain to be exercised at lease
commencement. Rental expense related to operating leases is recognized on a straight-line basis over the lease term.
We operate five data center facilities and have a data center under development subject to finance leases. During the third
quarter of 2019, the Company entered into one ground lease in Dublin, The Republic of Ireland for a term of 999 years (see
Note 7, Investment in Real Estate, for more information). The Dublin finance lease was capitalized as land and included in
Construction in progress, including land under development on the Consolidated Balance Sheets. The remaining terms of our
data center finance leases range from one to twenty years with options to extend the initial lease term on all but one lease. As a
result of electing the package of practical expedients, data center finance leases are included in Buildings and improvements,
Equipment and Finance lease liabilities in our Consolidated Balance Sheets. In addition, we lease 13 data centers and 3 offices
supporting our sales and corporate activities under operating lease agreements. Our operating leases have remaining lease terms
ranging from less than one year to twenty-four years and one ground lease in Houston has a lease term that expires in 2066.
The components of lease expense are as follows (in millions):
Operating lease cost
Finance lease cost:
Amortization of assets
Interest on lease liabilities
Total net lease cost
Year Ended December
31, 2020
Year Ended December
31, 2019
$
$
20.4 $
2.1
1.5
24.0 $
20.3
2.3
1.7
24.3
96
Supplemental balance sheet information related to leases is as follows (in millions, except lease term and discount rate):
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
Operating leases:
Operating lease right-of-use assets
Operating lease liabilities
Finance leases:
Property and equipment, at cost
Accumulated amortization
Property and equipment, net
Finance lease liabilities
Weighted average remaining lease term (in years):
Operating leases
Finance leases(a)
December 31, 2020
December 31, 2019
$
$
$
$
$
211.4
249.1
34.7
(7.1)
27.6
29.1
$
$
$
$
$
161.9
195.8
34.9
(5.0)
29.9
31.8
14.3
18.2
15.8
18.1
Weighted average discount rate:
Operating leases
Finance leases(a)
(a) Excludes a 999-year ground lease in Dublin, The Republic of Ireland entered into during the third quarter of 2019. The Dublin property is under active development
and the finance lease is included in Construction in progress, including land under development on the Consolidated Balance Sheets.
3.9 %
4.9 %
3.7 %
4.7 %
Supplemental cash flow and other information related to leases is as follows (in millions):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Non-cash right-of-use assets obtained in exchange for lease liabilities:
Operating leases
Finance leases
Maturities of lease liabilities were as follows (in millions):
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: Imputed interest
Total lease obligations
97
Year Ended December
31, 2020
Year Ended December
31, 2019
$
$
23.4 $
1.5
3.5
65.2 $
—
22.1
1.7
2.9
175.1
0.8
As of December 31, 2020
Operating Leases
Finance Leases
$
27.8 $
27.9
23.9
19.4
17.8
221.6
338.4 $
(89.3)
249.1 $
$
$
4.2
3.0
2.0
1.4
1.5
30.5
42.6
(13.5)
29.1
Maturities of lease liabilities were as follows (in millions):
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: Imputed interest
Total lease payments
7. Investment in Real Estate
Land for future development
As of December 31, 2019
Operating Leases
Finance Leases
$
22.4 $
21.0
22.4
18.5
13.9
165.4
263.6 $
(67.8)
195.8 $
$
$
5.0
4.1
2.9
1.9
1.4
31.1
46.4
(14.6)
31.8
During the year ended December 31, 2020, the Company purchased approximately 35 acres of land for $58.0 million in
Frankfurt, Germany and London, United Kingdom. During the year ended December 31, 2019, the Company purchased
approximately 74 acres of land for $54.7 million in Dublin, the Republic of Ireland, San Antonio, Santa Clara and Council
Bluffs, Iowa.
Leases of real estate
In March 2020, the Company entered into a 25-year lease comprising a 45,000 square feet building and commenced
development of a 27 MW data center in Paris, France, which was preleased to a customer. We have one renewal option for 25
years which was not reasonably certain at commencement and the lease was classified as an operating lease.
In September 2019, the Company entered into a 999-year ground lease for 16 acres in Dublin, The Republic of Ireland, and
purchased 9 acres of land totaling 24 acres for future development of a 6 MW data center. Construction commenced in July
2019. The Company prepaid $6.3 million of the lease payments and concluded that the present value of lease payments was
equal to substantially all of the fair value of the land and classified the lease as a finance lease.
In August 2019, the Company entered into a lease for land comprising 3 acres and a building shell of approximately 51,000
square feet in London, UK for 25 years, including an option to extend for an additional 25 years. The Company immediately
began development and construction of a 6 MW data center in London. We determined that the option to renew was not
reasonably certain to be exercised. The fixed lease payments are £0.9 million per year and we classified the lease as an
operating lease because the lease term was not for a major part of the remaining economic life of the building shell; nor did the
lease qualify as a finance lease based on the other criteria under ASC 842.
In November 2019, the Company entered into a lease for land comprising 6.5 acres and a building shell of approximately
105,000 square feet in London, UK for 20 years, including an option to extend for an additional 15 years. We determined that
the option to renew was not reasonably certain to be exercised. The fixed lease payments are £2.1 million per year and we
classified the lease as an operating lease because the lease term was not for a major part of the remaining economic life of the
building shell; nor did the lease qualify as a finance lease based on the other criteria under ASC 842.
Real estate related capital expenditures
Construction in progress was $982.2 million and $946.3 million, including land which was under active development of
$5.1 million and $61.8 million as of December 31, 2020 and December 31, 2019, respectively.
For the year ended December 31, 2020, our capital expenditures were $910.5 million, as shown on the statement of cash flows.
Substantially all of our investing activity related to our development activities. Our capital expenditures for 2020 primarily
related to the acquisition of land for future development and continued development in key markets, primarily in Dallas,
Dublin, Frankfurt, Iowa, London, the New York Metro area, Northern Virginia, Paris, Phoenix, San Antonio and Santa Clara.
98
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
Included in capital expenditures are land purchases of $58.0 million in Frankfurt, Germany and London, United Kingdom for
future development.
For the year ended December 31, 2019, our capital expenditures were $876.4 million, as shown on the statement of cash flows.
Substantially all of our investing activity related to our development activities. Our capital expenditures for 2019 primarily
related to the acquisition of land for future development and continued development in key markets, primarily in Amsterdam,
Austin, Dallas, Frankfurt, London, Northern Virginia, Phoenix and Raleigh-Durham. Included in capital expenditures are land
purchases of $54.7 million in Santa Clara, San Antonio, Dublin and Council Bluffs for future development.
For the year ended December 31, 2020, impairment charges of $11.2 million were recognized which includes an $8.8 million
impairment loss based on our estimate of the decrease in the fair value of the equipment held for use in inventory at our U.S.
data centers and a $2.4 million impairment loss based on the estimated fair value for our investment in land held in Atlanta for
future development as the Company entered into a non-binding contract to sell this land to a third-party. For the year ended
December 31, 2019, impairment charges of $0.7 million were recognized primarily due to an impairment on the South Bend -
Monroe facility, which was being actively marketed for sale.
8. Equity Investments
The Company has the following equity investments where it has a noncontrolling interest in the investees (in millions).
Investees
GDS, Class A share equivalent
ODATA investments
Equity investments
Equity Investments as of:
Equity Method
December 31, 2020
December 31, 2019
Fair value
Cost method
$
$
44.2 $
22.9
67.1 $
118.7
16.4
135.1
The Company has an equity investment in GDS, a developer and operator of high-performance, large-scale data centers in
China. We account for our equity investment in GDS using the fair value method. On October 18, 2017, the Company
purchased newly issued unregistered ordinary shares equivalent to 8.0 million American depository shares (ADS) at a price per
Class A ordinary share equivalent to $12.45 per ADS, a 4% discount to the October 17, 2017 closing price, for a total
investment of $100.0 million. Each ADS is equivalent to eight ordinary shares. For the year ended December 31, 2020, we sold
approximately 1.8 million GDS ADSs for total net proceeds of approximately $164.1 million with $19.9 million of the proceeds
settled after year end. For the year ended December 31, 2019, we sold approximately 5.7 million GDS ADSs for total net
proceeds of approximately $199.0 million. As of December 31, 2020, our investment includes approximately 0.5 million GDS
ADSs at the ADS Class A ordinary share equivalent of $93.64 for a total fair value of $44.2 million. During January 2021, we
disposed of our remaining investment of approximately 0.5 million GDS ADSs for net proceeds of $46.6 million.
The Company recognized Gains on marketable equity investment in GDS ADSs held and sold as follows:
IN MILLIONS
Net gain on marketable equity investment
Less: Net gain recognized on marketable equity investment sold
Unrealized gain on marketable equity investment
Year Ended
December 31, 2020
Year Ended
December 31, 2019
Year Ended
December 31, 2018
$
$
89.5 $
69.6
19.9 $
132.3 $
66.7
65.6 $
9.9
—
9.9
The gain on investment is recognized in the Consolidated Statements of Operations in Gain on marketable equity investment.
As of December 31, 2020 and December 31, 2019, the Company had a total investment of $22.9 million and $16.4 million,
respectively, in four unconsolidated ventures in Brazil, Chile, Colombia and Mexico, with ODATA, a Brazilian headquartered
company, specializing in providing colocation services to customers across multiple industries. In evaluating the appropriate
accounting method for its ventures with ODATA, we considered our voting interests and ability to exercise significant
influence over the operating and financial policies of each venture and concluded that the Company does not exercise
significant influence and our investments are accounted for using the cost method. During the years ended December 31, 2020
and 2019, the Company made additional investments totaling $6.5 million and $3.8 million in ODATA, respectively.
99
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
9. Goodwill, Intangible and Other Long-Lived Assets
The carrying amount of goodwill was $455.1 million as of December 31, 2020 and 2019.
Summarized below are the carrying values for the major classes of intangible assets:
IN MILLIONS
For the year ended December 31,
2020
2019
Weighted-
Average
Remaining
Life
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Total
Gross
Carrying
Amount
Accumulated
Amortization
Total
Customer relationships
Trademark/tradename
Favorable leasehold interest
In-place customer leases
Above and below market leases
Total
9 $
247.1 $
(163.1) $
84.0 $
247.1 $
(151.1) $
96.0
4
36
4
5
11.6
5.7
(9.0)
(1.6)
2.6
4.1
11.5
5.6
(7.8)
(1.2)
140.4
(74.6)
65.8
137.1
(46.7)
2.3
(1.0)
1.3
2.3
(0.7)
3.7
4.4
90.4
1.6
$
407.1 $
(249.3) $
157.8 $
403.6 $
(207.5) $
196.1
There were no goodwill or intangible asset impairments for the years ended December 31, 2020, 2019 or 2018. The fair value
of goodwill and other intangibles is substantially in excess of carrying value for the years ended December 31, 2020, 2019 and
2018.
Amortization expense for acquired intangible assets was $38.9 million, $39.9 million and $30.6 million for the years ended
December 31, 2020, 2019 and 2018, respectively.
The following table presents estimated amortization expense for each of the next five years and thereafter, commencing January
1, 2021:
IN MILLIONS
2021
2022
2023
2024
2025
Thereafter
Total
10. Other Assets
Total
$
32.6
29.3
20.4
18.6
17.3
39.6
$
157.8
As of December 31, 2020 and 2019, the components of Other assets are as follows (in millions):
Deferred leasing and other contract costs
Prepaid expenses
Non-real estate assets, net
Derivative assets
Other assets
Total
December 31, 2020 December 31, 2019
$
$
62.4 $
19.1
13.8
—
38.1
133.4 $
53.2
22.1
16.3
3.5
18.8
113.9
Non-real estate assets, net primarily consists of administrative related software and computers and office equipment, which are
depreciated or amortized over the shorter of the assets useful life or the lease term. Other assets primarily includes land
deposits, fuel inventory, other receivables, deferred tax assets, net of allowance and other deferred costs.
100
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
11. Debt
As of December 31, 2020 and 2019, the components of Debt are as follows (unless otherwise noted, interest rate and maturity
date information are as of December 31, 2020) (in millions):
December 31,
2020
December 31,
2019
Interest Rate Maturity Date
Amended Credit Agreement:
Revolving Credit Facility:
EUR Revolver
GBP Revolver(a)
2023 Term Loan Facility(c)
2025 Term Loan Facility
$3.0 Billion Credit Facility:
$1.7 Billion Revolving Credit Facility:
US Revolver
EUR Revolver
GBP Revolver
2023 Term Loan
2025 Term Loan
2024 Notes, including bond discount of $0.7 million
and $0.8 million, respectively
2029 Notes, including bond discount of $1.6 million
and $1.8 million, respectively
2027 Notes, including bond discount of $0.6 million(d)
2030 Notes, including bond discount of $4.7 million
Deferred financing costs
Total
$
275.9 $
157.0
100.0
700.0
—
—
—
—
—
599.3
598.4
612.6
395.3
(29.5)
—
—
—
—
Monthly EURIBOR +
1.00%
Monthly LIBOR +
1.00%
Monthly LIBOR +
1.20%
Monthly LIBOR +
1.20%
Monthly LIBOR +
1.20%
Monthly EURIBOR +
1.20%
Monthly LIBOR +
1.20%
Monthly LIBOR +
1.35%
Monthly LIBOR +
1.65%
March 2024(b)
March 2023
March 2025
March 2022
March 2023
March 2025
2.900 % November 2024
3.450 % November 2029
1.450 % January 2027
2.150 % November 2030
555.0
33.6
26.4
800.0
300.0
599.2
598.2
—
—
$
3,409.0 $
2,886.6
(25.8)
—
—
(a) - Monthly USD LIBOR and GBP LIBOR as of December 31, 2020 was 0.15% and 0.03%, respectively.
(b) - The Company has an option to exercise a one-year extension option, subject to certain conditions.
(c) - The Company has an option to exercise two 1-year extension options, subject to certain conditions.
(d) - The 2027 Notes represent €495.3 million, including bond discount of €0.7 million of Euro bonds.
Credit facilities
On March 31, 2020, CyrusOne LP, a Maryland limited partnership and subsidiary of CyrusOne Inc., entered into an amendment
to its credit agreement, dated as of March 29, 2018 (as so amended, the “Amended Credit Agreement”), among the Operating
Partnership, as borrower, the lenders party thereto (the “Lenders”) and JPMorgan Chase Bank, N.A., as administrative agent for
the Lenders. Proceeds from the Amended Credit Agreement were used, among other things, to refinance and replace the credit
facilities under the $3.0 Billion Credit Facility (as defined below).
The Amended Credit Agreement provides for (i) a $1.4 billion senior unsecured multi-currency revolving credit facility (the
“Revolving Credit Facility”), (ii) senior unsecured term loans due 2023 in a dollar equivalent principal amount of
$400.0 million (the “2023 Term Loan Facility”), and (iii) senior unsecured term loans due 2025 in a principal amount of
$700.0 million (the “2025 Term Loan Facility”). The Amended Credit Agreement also includes an accordion feature pursuant
to which the Operating Partnership is permitted to obtain additional revolving or term loan commitments so long as the
aggregate principal amount of commitments and/or term loans under the Amended Credit Agreement does not exceed
$4.0 billion. The Revolving Credit Facility provides for borrowings in U.S. Dollars, Euros, Pounds Sterling, Canadian Dollars,
Australian Dollars, Japanese Yen, Hong Kong Dollars, Singapore Dollars and Swiss Francs (subject to a sublimit of
$750.0 million on borrowings in currencies other than U.S. Dollars). The Revolving Credit Facility matures on March 29, 2024
with one 12-month extension option. The 2023 Term Loan Facility matures on March 29, 2023 with two 1-year extension
options, and the 2025 Term Loan Facility matures on March 28, 2025.
101
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
The interest rates for borrowings under the Amended Credit Agreement are, at the option of the borrower, based on a floating
rate or base rate, plus a margin determined by reference to a pricing grid based on the lower of (i) the rate corresponding to the
then applicable credit rating for the Operating Partnership’s senior unsecured debt or (ii) the rate corresponding to the then
applicable ratio of the Company’s consolidated total indebtedness to its gross asset value. The Amended Credit Agreement
includes certain restricted covenants, requirements to maintain certain financial ratios, including with respect to unencumbered
assets, and events of default.
On March 31, 2020, borrowings of $1.3 billion under the Amended Credit Agreement were used to repay the $3.0 Billion
Credit Facility, which consisted of a $1.7 billion revolving credit facility ("$1.7 Billion Revolving Credit Facility"), which
included a $750.0 million multicurrency borrowing sublimit, a 5-year term loan with commitments totaling $1.0 billion and a
$300.0 million 7-year term loan (collectively, the "$3.0 Billion Credit Facility"). The aggregate outstanding principal balance
under the Amended Credit Agreement as of March 31, 2020, was $1.3 billion, and the Company recognized a loss on early
extinguishment of debt of $3.4 million in connection with the repayment of the $3.0 Billion Credit Facility.
On March 29, 2018, the Company entered into a new $3.0 billion unsecured credit facility. The new credit facility consists of a
$1.7 billion revolving credit facility ("$1.7 Billion Revolving Credit Facility"), which includes a $750.0 million multicurrency
borrowing sublimit, a 5-year term loan with commitments totaling $1.0 billion ("2023 Term Loan") and a $300.0 million 7-year
term loan ("2025 Term Loan") (collectively, the "$3.0 Billion Credit Facility"). In April 2019, the Company used the proceeds
from the sale of GDS shares to pay down $200.0 million of the 2023 Term Loan.
On March 29, 2018, borrowings of $1.0 billion under the $3.0 Billion Credit Facility were used to fully retire a previous $2.0
billion credit facility. The aggregate outstanding principal balance of the $2.0 billion credit facility at the date of the prepayment
was $900.0 million and we recognized a loss on early extinguishment of debt of $3.1 million.
It is not known whether the current administrator of LIBOR will continue to publish one-month LIBOR after 2021 or extend the
cessation until a later date as global regulators have publicly supported. There is a risk that an adverse outcome of the LIBOR
transition after 2021 could increase our interest and other costs relative to our outstanding subordinated debt. We may not be
able to refinance those instruments on terms that reduce those costs to the level we would have expected if the administrator of
LIBOR were to continue publishing indefinitely. Also, a transition from LIBOR could impact or change our hedge accounting
practices.
Prior to obtaining an investment grade rating in September 2019 and shifting to a ratings-based pricing grid under the $1.7
Billion Revolving Credit Facility, we paid commitment fees for the unused amount of borrowings on the $1.7 Billion Revolving
Credit Facility and fees on any outstanding letters of credit equal to 0.25% per annum of the actual daily amount by which the
aggregate revolving commitments exceeded the sum of outstanding revolving loans and letter of credit obligations. Following
the shift to a ratings-based pricing grid, we pay a facility fee calculated based on the aggregate revolving commitments. The
facility fee rate varies based on ratings-based pricing levels, and is currently equal to 0.25% per annum of the aggregate
revolving commitments. We also paid commitment fees on the revolving credit facility under a previous $2.0 billion credit
facility through its retirement in March 2018. The facility fee or commitment fee, as applicable, was $2.9 million, $2.6 million
and $3.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.
As of December 31, 2020, we had $100.0 million, $700.0 million and $432.9 million outstanding under the 2023 Term Loan
Facility, the 2025 Term Loan Facility and the Revolving Credit Facility, respectively, and additional borrowing capacity under
the Amended Credit Agreement was approximately $1.0 billion, net of $10.8 million of outstanding letters of credit.
Senior notes
Euro bonds
On January 22, 2020, the Operating Partnership and CyrusOne Finance Corp., a single-purpose finance subsidiary, both wholly-
owned subsidiaries of the Company (together, the "Issuers"), completed a public offering of €500.0 million aggregate principal
amount of 1.450% senior notes due January 2027 (the “2027 Notes”). The Company received proceeds of €495.3 million, net of
discount, underwriting costs and other deferred financing costs. The Company used the proceeds to repay floating rate Euro
denominated obligations and fund continued development in Europe.
The 2027 Notes are senior unsecured obligations of the Issuers guaranteed by CyrusOne Inc., which rank equally in right of
payment with all existing and future unsecured senior indebtedness of the Issuers. The 2027 Notes are effectively subordinated
in right of payment to any future secured indebtedness, if any, to the extent of the value of the assets securing such
102
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
indebtedness. The 2027 Notes may be redeemed at our option prior to their scheduled maturity dates at the prices and premiums
and on the terms set forth in the respective indentures governing the notes.
US bonds
On September 21, 2020, the Issuers completed a public offering of $400.0 million aggregate principal amount of 2.150% senior
notes due November 2030 (the "2030 Notes"). The Company received proceeds of $392.6 million, net of discount, underwriting
costs and other deferred financing costs. The Company used the proceeds to repay $300.0 million of the outstanding
indebtedness under the Operating Partnership's 2023 Term Loan Facility, to repay the then outstanding balance of $20.0 million
on the US Revolver balance under the Revolving Credit Facility and the remainder for general corporate purposes. In
connection with the repayment of outstanding indebtedness of the senior unsecured term loans due March 2023, the Company
recognized a loss on early extinguishment of debt of $3.1 million.
On December 5, 2019, the Issuers completed a public offering of $600.0 million aggregate principal amount of 2.900% senior
notes due November 2024 (the "2024 Notes") and $600.0 million aggregate principal amount of 3.450% senior notes due
November 2029 (the “2029 Notes”). The Company received proceeds of $1,197.4 million, net of discounts, underwriting costs
and other deferred financing costs. The Company used the proceeds to finance the repurchase of all of its 5.000% senior notes
due 2024 (the "Old 2024 Notes") and all of its 5.375% senior notes due 2027 (the "Old 2027 Notes" and together with the Old
2024 Notes, the "Old Notes"), including the payment of consent payments, for the redemption and discharge of Old Notes that
remained outstanding after the completion of the tender offers and consent solicitations, for the payment of related premiums,
fees, discounts and expenses and for general corporate purposes. In connection with the repurchase of the Old Notes, the
Company recognized a loss on early extinguishment of debt of $71.8 million.
The 2024 Notes, 2029 Notes and 2030 Notes are senior unsecured obligations of the Issuers guaranteed by CyrusOne Inc.,
which rank equally in right of payment with all existing and future unsecured senior indebtedness of the Issuers. The 2024
Notes, 2029 Notes and 2030 Notes are effectively subordinated in right of payment to any future secured indebtedness of the
Issuers, if any, to the extent of the value of the assets securing such indebtedness. The 2024 Notes, 2029 Notes and 2030 Notes
may be redeemed at our option prior to their scheduled maturity dates at the prices and premiums and on the terms set forth in
the respective indentures governing the notes.
In September 2019, CyrusOne LP received an investment grade rating and the guarantees of the $3.0 Billion Credit Facility by
CyrusOne LP’s existing domestic subsidiaries were released. In connection therewith, the guarantees of the Old 2024 Notes and
the Old 2027 Notes by such guarantors were also released.
Financial debt covenants
Our debt agreements contain customary provisions with respect to events of default, affirmative and negative covenants and
borrowing conditions. The most restrictive covenants are generally included in the Amended Credit Agreement. The Amended
Credit Agreement requires us to maintain certain financial covenants including the following, in each case on a consolidated
basis, a minimum fixed charge ratio, maximum total and secured leverage ratios, maximum net operating income to debt
service ratio and a maximum ratio of unsecured indebtedness to unencumbered asset value. In order to continue to have access
to amounts available under the Amended Credit Agreement, the Company must remain in compliance with all of that
agreement's covenants. As of December 31, 2020, we are in compliance with the financial covenants of our debt agreements.
Debt Maturities
The following table summarizes aggregate maturities of the Amended Credit Agreement and 2024 Notes, 2027 Notes, 2029
Notes and 2030 Notes for the five years subsequent to December 31, 2020, and thereafter:
IN MILLIONS
2021
2022
2023
2024
2025
Thereafter
Total debt
Amended Credit
Agreement(a)(b)
Senior Notes
Total
$
— $
—
100.0
432.9
700.0
—
$
1,232.9 $
— $
—
—
—
—
100.0
600.0
1,032.9
—
1,613.2
2,213.2 $
700.0
1,613.2
3,446.1
103
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
(a) - The Company has an option to exercise a one-year extension option on the Revolving Credit Facility, subject to certain conditions.
(b) - The Company has an option to exercise two one-year extension options on the 2023 Term Loan Facility, subject to certain conditions.
12. Fair Value of Financial Instruments and Hedging Activities
Fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a
basis for considering assumptions in fair value measurements, a fair value hierarchy that distinguishes between market
participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that
are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant
assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established.
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to
access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as
inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are
observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability that are typically
based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of
the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the fair value measurement falls is based on the lowest level input that is significant to the fair value
measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement requires
judgment and considers factors specific to the asset or liability.
The fair value of Cash and cash equivalents, Rent and other receivables, Construction costs payable, Dividends payable and
Accounts payable and accrued expenses approximate their carrying value because of the short-term nature of these financial
instruments. The carrying value, exclusive of deferred financing costs, for the revolving credit facilities and the floating rate
term loans approximate estimated fair value as of December 31, 2020 and 2019, due to the floating rate nature of the interest
rates and the stability of our credit ratings.
We determine the fair value of our derivative financial instruments using widely accepted valuation techniques including
discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign
exchange rates and implied volatilities. We determine the fair values of our interest rate swaps using the market standard
methodology of netting the discounted future fixed cash receipts or payments and the discounted expected variable cash
payments. We base the variable cash payments on an expectation of future interest rates, or forward curves, derived from
observable market interest rate curves. We base the fair values of our net investment hedges on the change in the spot rate at the
end of the period as compared with the strike price at inception.
We incorporate credit valuation adjustments to appropriately reflect nonperformance risk for us and the respective counterparty
in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we
consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and
guarantees.
We have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy.
Although the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current
credit spreads to evaluate the likelihood of default by us and our counterparties, we assess the significance of the impact of the
credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation
adjustments are not significant to the overall valuation of our derivatives.
104
CYRUSONE INC.
Notes to Consolidated and Combined Financial Statements - (continued)
The carrying value and fair value of other financial instruments are as follows (in millions):
IN MILLIONS
Debt:
Variable Rate Debt:
Revolving Credit Facility
2023 Term Loan Facility
2025 Term Loan Facility
Fixed Rate Debt:
2024 Notes - 2.900%(1)
2029 Notes - 3.450%(1)
2027 Notes - 1.450%(1)
2030 Notes - 2.150%(1)
Derivative Contracts:
Cross Currency Swaps Liability(2)
Interest Rate Swap Liability(2)
Interest Rate Swap Asset(2)
Equity Investments carried at Fair Value:
GDS equity investment(3)
December 31, 2020
December 31, 2019
Carrying Value
Fair Value
Carrying Value
Fair Value
$
432.9 $
100.0
700.0
599.3
598.4
612.6
395.3
—
—
—
432.9 $
100.0
700.0
640.7
644.1
619.9
388.6
52.2
7.0
—
615.0 $
615.0
—
—
599.2
598.2
—
—
—
—
—
—
—
602.1
603.1
—
—
11.4
—
3.5
44.2
44.2
118.7
118.7
(1) - The fair value of notes are based on quoted market prices for these notes, which is considered Level 1 of the fair value hierarchy.
(2) - The fair values of our cross currency and interest rate swaps are determined using the market standard methodology of netting the
discounted future fixed cash flows and the discounted expected variable cash flows based on an expectation of future interest rates derived
from Level 2 observable market interest rate curves.
(3) - The fair value is based on quoted market prices for the GDS ADSs, which is considered Level 1 of the fair value hierarchy.
For the years ended December 31, 2020 and 2019, we recognized impairment losses of $11.2 million and $0.7 million,
respectfully, included in Impairment losses and (gain) loss on asset disposals in our Consolidated Statements of Operations. We
utilize estimates of the fair value of assets to determine impairment losses. These estimates include Level 3 inputs including
market rents, expected occupancy and estimates of additional capital expenditures, and cashflows from each investment.
Hedging Activities
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency
exchange rate movements. We have not entered into, and do not plan to enter into, financial instruments for trading or
speculative purposes. To manage foreign currency exposure, we have entered into Euro denominated debt and cross-currency
swaps to hedge the Company's net investment in its Euro functional currency consolidated subsidiaries and the variability in
EUR-USD exchange rate.
Accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the designation of the
derivative, including whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting
and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and
qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a
particular risk, such as foreign currency risk or interest rate risk, are considered fair value hedges. Derivatives designated and
qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on
the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable
to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.
For derivatives designated as "cash flow" hedges, the change in the fair value of the derivative is initially reported in Other
comprehensive income ("OCI") in our Consolidated Statements of Comprehensive Income (Loss) and subsequently reclassified
into Gain (loss) when the hedged transaction affects earnings, or the hedging relationship is no longer highly effective. We
105
CYRUSONE INC.
Notes to Consolidated and Combined Financial Statements - (continued)
assess the effectiveness of each hedging relationship whenever financial statements are issued, or earnings are reported and at
least every three months. We also use derivatives, such as foreign currency swaps, that are not designated as hedges to manage
foreign currency exchange rate risks. The changes in fair values of these derivatives that were not designated or did not qualify
as hedging instruments are immediately, recognized in earnings within the line item Foreign currency and derivative losses, net
in the Consolidated Statements of Operations.
The following table summarizes the Company's derivative positions as of December 31, 2020 and 2019 (in millions):
Maturity
Date
Notional
Amount
Hedged Risk
Asset
Liability
Asset
Liability
December 31, 2020
December 31, 2019
Designated derivatives
Cross Currency Swaps
EUR - USD
EUR - USD
EUR - USD
Interest Rate Swaps
3/29/2023
$
250.0 Net investment hedge
$
— $
26.0 $
— $
3/29/2023
1/15/2020
250.0 Net investment hedge
155.9 Net investment hedge
—
—
26.2
—
—
—
3.8
3.9
1.4
USD Libor
3/29/2023
300.0
Interest rate hedge - Float
to fixed
—
7.0
3.5
—
Undesignated derivatives
Cross Currency Swaps
EUR - USD
EUR - USD
1/15/2020
1/15/2020
265.3 Foreign currency exchange
25.6 Foreign currency exchange
—
—
—
—
—
—
2.1
0.2
Total
Cross-Currency Swaps
$
— $
59.2 $
3.5 $
11.4
The Company has entered into cross-currency swaps whereby the Company pays floating interest rate and receives floating
interest rate to hedge the variability of future cash flows attributable to changes in the 1-month USD LIBOR versus EUR
LIBOR rates (a pay-floating, receive-floating interest rate swap). The pay-floating, receive-floating interest rate swap payments
are recognized in Interest expense, net in the Condensed Consolidated Statements of Operations.
As of December 31, 2020, the Company has two cross-currency EUR/USD contracts to sell $500.0 million and purchase
€450.7 million maturing in March 2023 representing a fair value liability of $52.2 million reported in Other liabilities. As of
December 31, 2019, our cross-currency swaps were a fair value liability of $11.4 million reported in Other liabilities.
The Company recognized losses of $42.5 million for the year ended December 31, 2020 on cross-currency swaps that were
designated as net investment hedges which were recognized in OCI. The Company recognized gains of $4.5 million for the year
ended December 31, 2020 on undesignated cross-currency contracts which were recognized in Foreign currency and derivative
losses, net in the Consolidated Statements of Operations. The Company recognized losses of $7.5 million on undesignated
cross-currency contracts for the year ended December 31, 2019, which were recognized in Foreign currency and derivative
losses, net in the Consolidated Statements of Operations.
Interest Rate Swaps
On September 3, 2019, the Company entered into a floating-fixed interest rate swap agreement to convert $300.0 million of
variable interest rate debt of the 2023 Term Loan Facility to 1.19% fixed rate debt to hedge the risk of changes in cash flows
attributable to USD-LIBOR interest payments. On September 21, 2020, the Company paid down $300.0 million of term loans
under the 2023 Term Loan Facility. The $300.0 million floating-fixed interest rate swap remains in place and continues to
provide an effective hedge of the risk of changes in cash flows attributable to USD-LIBOR term loans through March 2023.
The Company recognized a loss of $10.5 million and a gain of $3.5 million for the years ended December 31, 2020 and 2019,
respectively, related to the changes in fair value of the interest rate swap which were recognized in OCI. As of December 31,
2020, interest rate swaps were a liability of $7.0 million reported in Other liabilities. As of December 31, 2019, interest rate
swaps were an asset of $3.5 million reported in Other assets.
106
CYRUSONE INC.
Notes to Consolidated and Combined Financial Statements - (continued)
Net Investment Hedges
Exchange rate variations impact our financial results because the financial results of our foreign subsidiaries are translated to
U.S. dollars each period, with the effect of exchange rate variations being recorded in OCI as part of the cumulative foreign
currency translation adjustment. As a result, changes in the value of our borrowings under the foreign currency denominated
revolver under our Revolving Credit Facility, 2027 Notes and synthetically swapped debt will be reported in the same manner
as foreign currency translation adjustments, which are recorded in OCI as part of the cumulative foreign currency translation
adjustment.
The following table presents the effect of our derivative financial instruments on our accompanying consolidated financial
statements (in millions):
Derivatives in Cash Flow Hedging Relationships
Cross-Currency and Interest Rate Swaps:
Amount of gain (loss) recognized in OCI for derivatives
Amount of gain (loss) reclassified from accumulated OCI for derivatives
December 31, 2020 December 31, 2019
$
$
(53.0) $
(1.7) $
(0.7)
0.7
During the next 12 months, we estimate that immaterial amounts will be reclassified from "Accumulated OCI" to Net income
(loss).
13. Employee Benefit Plans
Currently, our employees participate in health care plans sponsored by CyrusOne, which primarily provide for medical, dental
and vision. We incurred $3.3 million, $3.9 million and $3.3 million of expenses related to these plans for the years ended
December 31, 2020, 2019 and 2018, respectively.
CyrusOne offers a defined contribution 401(k) retirement savings plan to its employees. CyrusOne's matching contribution to
its retirement savings plan was $2.0 million, $1.9 million and $1.8 million for the years ended December 31, 2020, 2019 and
2018, respectively.
14. Income per Share
Basic income per share is calculated using the weighted average number of shares of common stock outstanding during the
period. In addition, Net income applicable to participating securities and the participating securities are both excluded from the
computation of basic income per share.
Diluted income per share is calculated using the weighted average number of shares of common stock outstanding during the
period, including restricted stock outstanding. If there is Net income during the period, the dilutive impact of common stock
equivalents outstanding are also reflected.
107
The following table reflects the computation of basic and diluted net income per share:
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
IN MILLIONS, except per share amounts
For December 31,
Numerator:
Net income
Less: Restricted stock dividends
Net income available to stockholders
Denominator:
Year Ended
Year Ended
Year Ended
2020
2019
2018
Basic
Diluted
Basic
Diluted
Basic
Diluted
$ 41.4 $ 41.4 $ 41.4 $ 41.4 $
1.2 $
1.2
(0.5)
(0.7)
$ 40.9 $ 40.9 $ 40.7 $ 40.7 $
(0.7)
(0.5)
(1.1)
0.1 $
(1.1)
0.1
Weighted average common outstanding-basic
117.3 117.3 112.1 112.1
99.8
99.8
Performance-based restricted stock and units
Weighted average shares outstanding-diluted
0.3
117.6
0.4
112.5
0.6
100.4
EPS:
Net income per share-basic
Effect of dilutive shares:
Net income per share-diluted
15. Stockholders' Equity
$ 0.35
$ 0.36
$ —
$ 0.35
$ 0.36
$ —
During the fourth quarter of 2018, the Company entered into sales agreements pursuant to which the Company may issue and
sell from time to time shares of its common stock having an aggregate sales price of up to $750.0 million (the "New 2018 ATM
Stock Offering Program"). During the second quarter of 2020, the Company entered into sales agreements pursuant to which
the Company may issue and sell from time to time shares of its common stock having an aggregate sales price of up to
$750.0 million (the "2020 ATM Stock Offering Program"). The 2020 ATM Stock Offering Program replaced the New 2018
ATM Stock Offering Program.
During the year ended December 31, 2020, the Company settled forward agreements totaling 5.0 million common shares at an
average price of $63.61 for proceeds of $315.6 million, net of expenses. During the year ended December 31, 2019, the
Company sold approximately 6.5 million shares of its common stock under its New 2018 ATM Stock Offering Program at an
average price of $55.43, generating net proceeds of approximately $355.6 million, net of sales commissions, underwriting
discounts and estimated expenses of $4.3 million. As of December 31, 2020, there was approximately $150.8 million under the
2020 ATM Stock Offering Program available for future offerings. At December 31, 2020, the Company had approximately
120.4 million shares of common stock outstanding.
Forward Sales
In November 2019, CyrusOne Inc. entered into a forward equity sale agreement with a financial institution acting as forward
purchaser under the New 2018 ATM Stock Offering Program with respect to 1.6 million shares of its common stock at an initial
forward price of $61.67 per share. The Company fully physically settled this forward equity sale agreement in June 2020. Upon
settlement, the Company issued all such shares to such financial institution in its capacity as forward purchaser, in exchange for
proceeds of approximately $96.5 million, in accordance with the provisions of the forward equity sale agreement.
During the year ended December 31, 2020, CyrusOne Inc. entered into forward equity sale agreements with financial
institutions acting as forward purchasers under the New 2018 ATM Stock Offering Program and the 2020 ATM Stock Offering
Program, as applicable, with respect to approximately 10.2 million shares of its common stock at a weighted average price of
$68.98 per share, net of expenses. The Company received proceeds of $219.1 million from the sale of 3.4 million of its
common shares by the forward purchasers in respect of forward equity sale agreements entered during the year ended
December 31, 2020. The Company currently expects to fully physically settle the remaining forward equity sale agreements by
November 2021 and receive cash proceeds upon one or more settlement dates at the Company’s discretion, prior to the final
settlement dates under the forward equity sale agreements, in which case we expect to receive aggregate net cash proceeds at
settlement equal to the number of shares specified in such forward equity sale agreements multiplied by the relevant forward
price per share. The weighted average forward sale price that we expect to receive upon physical settlement of the agreements
will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward
purchasers’ stock borrowing costs and (iii) scheduled dividends during the terms of the agreements.
108
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
The following table represents a summary of forward sale of equity of our common stock for the year ended December 31,
2020 (in millions):
Offering Program
Total as of December 31, 2019
March 9, 2020 Forward Offering - Sales
May 13, 2020 Forward Offering - Sales
May 26, 2020 Forward Offering - Sales
May 29, 2020 Forward Offering - Sales
November 29, 2019 Forward Offering settlement
March 9, 2020 Forward Offering settlement
May 13, 2020 Forward Offering settlement
September 15, 2020 Forward Offering - Sales
September 30, 2020 Forward Offering - Sales
November 6, 2020 Forward Offering - Sales
Total as of December 31, 2020
Forward Shares Sold/
(Settled)
Net Proceeds Received
Remaining Proceeds
Available(1)
1.6 $
2.0
1.4
1.4
1.3
(1.6)
(2.0)
(1.4)
1.4
1.6
1.1
— $
—
—
—
—
96.5
121.2
97.9
—
—
—
6.8 $
315.6 $
96.5
121.2
97.9
96.2
96.4
(96.5)
(121.2)
(97.9)
102.3
114.5
75.3
484.7
(1) As of December 31, 2020, the total estimated proceeds, net of adjustments for (i) a floating interest rate factor equal to a
specified daily rate less a spread, (ii) the forward purchasers’ stock borrowing costs and (iii) scheduled dividends
adjustments is $484.7 million subject to further adjustment when the forward offerings are settled as described above.
Dividends
We have declared cash dividends on common shares and distributions on operating partnership units for the years ended
December 31, 2020 and 2019 as presented in the table below:
Record date
Payment date
Cash dividend per share or operating
partnership unit
March 29, 2019
June 28, 2019
September 27, 2019
January 2, 2020
March 27, 2020
June 26, 2020
September 25, 2020
January 4, 2021
April 12, 2019
July 12, 2019
October 11, 2019
January 10, 2020
April 9, 2020
July 10, 2020
October 9, 2020
January 8, 2021
$0.46
$0.46
$0.50
$0.50
$0.50
$0.50
$0.51
$0.51
As of December 31, 2020 and 2019 we had a dividend payable of $63.3 million and $58.6 million, respectively. On
February 17, 2021, we announced a regular cash dividend of $0.51 per common share payable to shareholders of record as of
the close of business on March 26, 2021, payable on April 9, 2021.
16. Stock-Based Compensation
Stock Plans
The board of directors of CyrusOne Inc. adopted the 2012 Long-Term Incentive Plan ("LTIP"), prior to the IPO, which was
amended and restated on May 2, 2016 and February 18, 2019. The LTIP is administered by the compensation committee of the
board of directors. Awards issuable under the LTIP include common stock, restricted stock, restricted stock units, stock options
and other incentive awards. CyrusOne Inc. has reserved a total of 8.9 million shares of CyrusOne Inc. common stock for
issuance pursuant to the LTIP, which may be adjusted for changes in capitalization and certain corporate transactions. To the
extent that an award, if forfeitable, expires, terminates or lapses, or an award is otherwise settled in cash without the delivery of
109
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
shares of common stock to the participant, then any unpaid shares subject to the award will be available for future grant or
issuance under the LTIP. The payment of dividend equivalents in cash in conjunction with any outstanding awards will not be
counted against the shares available for issuance under the LTIP. The related stock compensation expense incurred by
CyrusOne Inc. is allocated to the operating partnership. Shares available under the LTIP as of December 31, 2020 were
approximately 4.3 million. Shares vest according to each agreement and as long as the employee remains employed with the
Company. The Company has granted awards with time-based vesting, performance-based vesting and market-based vesting
features. The performance-based vesting metrics granted have varied and are described in each of the grant years below.
The market-based metric is total stockholder return (TSR) compared to the MSCI US REIT Index (REIT Index) as defined in
the award agreements. The market-based restricted stock/units vest annually based upon the achievement of certain criteria for
each of the three-year measurement periods. In each of the first two years vesting is limited to 100% of the target. If at the end
of the third year total performance over the three-year period exceeds the REIT Index by 2% or more, up to 200% of these
awards may vest. The market-based awards will vest based on the below scales. The scales are linear between each point and
awards are interpolated between the points.
- If CyrusOne's TSR is less than the return of the REIT Index equals 0%
- If CyrusOne's TSR is equal to or greater than the return of the REIT Index equals 100%; up to 200% if CyrusOne's TSR
exceeds the return of the REIT Index by 2%
- If CyrusOne's TSR exceeds the return of the REIT Index, but is negative, any calculated vesting amount will be reduced by
50%
The Company uses the Black-Scholes option-pricing model for time and performance-based options and a Monte Carlo
simulation for market-based awards. The fair values of these awards use assumptions such as volatility, risk-free interest rate,
and expected term of the awards.
The holders of restricted stock have all the rights and privileges of shareholders including the right to vote. The holders of
restricted stock units do not have all of the rights and privileges of shareholders and do not have the right to vote. These rights
will be acquired upon the settlement of the restricted stock units and the issuance of shares. The time-based restricted stock
units have the right to receive dividends that are payable within ten days following the date the dividends are payable to
shareholders. Market-based restricted stock units accrue dividends which are paid upon the vesting and settlement of the units.
Compensation expense is measured based on the estimated grant-date fair value. Expense for time-based grants is recognized
under a straight-line method. For market-based grants, expense is recognized under a graded expense attribution method. For
performance-based grants, expense is recognized under a graded expense attribution method if it is probable that the
performance targets will be achieved. Any dividends declared with respect to the performance and market-based shares shall be
accrued by the Company and distributed on the vesting date provided that the applicable performance goal has been attained.
The board of directors of CyrusOne Inc. approved the 2014 Employee Stock Purchase Plan ("ESPP") in February 2014, and
amended it effective January 2019. The ESPP provides employees with an opportunity to purchase common stock of the
Company at a discount and on a payroll deduction basis.
Stock-based compensation expense was as follows:
For the periods ended December 31,
2015 Grants
2016 Grants
2017 Grants
2018 Grants
2019 Grants and ESPP expense
2020 Grants and ESPP expense
Total
2020
2019
2018
$
$
— $
—
0.5
3.9
5.5
8.5
18.4 $
— $
1.1
3.1
5.4
7.1
—
16.7 $
0.4
5.7
4.6
6.8
—
—
17.5
110
2015 Grants
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
On February 10, 2015, the Company issued awards under the LTIP in the form of options and restricted stock. The stock
options are time-based and vest annually on a pro-rata basis over three years. Twenty percent of the restricted stock awards are
subject to time-based vesting and eighty percent of the restricted stock awards are equally split between performance-based and
market-based vesting. The performance-based metric is return on assets, which is a non-GAAP financial measure that is defined
in the award agreement. The time-based restricted stock will vest pro-rata annually over three years. The performance and
market-based restricted stock will vest annually based upon the achievement of certain criteria for each year of the three-year
measurement periods. The first two years are capped at 100% of the target with a cumulative true-up to a maximum of 200%
possible in year three.
In addition, during the year ended December 31, 2015, the Company also granted from time to time a total of 50,300 shares of
time-based restricted stock and 67,012 shares of performance-based restricted stock for various new employee hires with
vesting schedules ranging from annual to cliff vesting in three years.
Total awards granted in 2015 had a grant date fair value of $13.8 million. As of December 31, 2020, there was no unearned
compensation related to the awards granted in 2015 as all such awards are fully vested.
2016 Grants
On February 1, 2016, the Company issued 641,097 shares of time, performance and market-based awards under the LTIP in the
form of restricted stock. The grant date fair value of time and performance-based restricted shares was $36.99. The grant date
fair value of market-based restricted shares was $43.66. The Company issued stock options on February 1, 2016. The stock
option awards have a contractual life of 10 years from the award date and were granted with an exercise price equal to $36.99.
The Company issued 222,461 options with a grant date fair value of $6.99.
The performance-based metric is return on assets, which is a non-GAAP financial measure and is defined in the award
agreement. The time-based restricted stock awards generally vest pro-rata annually over a three-year period. The performance
and market-based restricted stock awards vest annually based upon the achievement of certain criteria for each of the three-year
measurement periods. The first two years are capped at 100% of the target with a cumulative true-up to a maximum of 200%
possible in year three. Certain employees were also awarded time-based restricted stock that cliff vest at the end of three years.
The stock options are time-based and vest annually on a pro-rata basis over three years.
In addition, during the year ended December 31, 2016, for various new employee hires, the following grants were made:
•
•
5,894 shares of time-based restricted stock which cliff vest in three years from the date of each grant.
47,667 shares of time-based restricted stock which vest annually on a pro rata basis over a three-year period from the
date of each grant.
Total awards granted in 2016 had a grant date fair value of $22.6 million. As of December 31, 2020, there was no unearned
compensation related to the awards granted in 2016 as all such awards are fully vested.
2017 Grants
On February 13, 2017, the Company issued time and market-based awards under the LTIP in the form of restricted stock units
and restricted stock. The Company granted 119,218 time-based restricted stock units that generally vest annually on a pro-rata
basis over a three-year period and 18,179 shares of time-based restricted stock that generally vest over a one-year period with a
grant date fair value of $48.13, and 129,146 market-based restricted stock units, at target, with a grant date fair value of $63.23.
In addition, during the year ended December 31, 2017 the Company granted from time to time a total of 20,852 time-based
restricted stock units that vest annually on a pro rata basis over a three-year period.
Total awards granted in 2017 had a grant date fair value of $15.9 million. As of December 31, 2020, there was no unearned
compensation related to the awards granted in 2017 as all such awards are fully vested.
2018 Grants
On February 26, 2018, the Company issued time and market-based awards under the LTIP in the form of restricted stock units
and restricted stock. The Company granted 161,797 time-based restricted stock units that generally vest annually on a pro-rata
basis over a three-year period and 17,052 shares of time-based restricted stock that generally vest over a one-year period with a
grant date fair value of $51.31, and 160,266 market-based restricted stock units, at target, with a grant date fair value of $52.53.
111
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
In addition, during the year ended December 31, 2018 the Company granted from time to time a total of 40,249 time-based
restricted stock units that vest annually on a pro rata basis over a three-year period.
Total awards granted in 2018 had a grant date fair value of $20.2 million. As of December 31, 2020, unearned compensation
representing the unvested portion of the awards granted in 2018 totaled $0.8 million, with a weighted average vesting period of
0.1 years.
2019 Grants
On February 21, 2019, the Company issued time and market-based awards under the LTIP in the form of restricted stock units
and restricted stock. The Company granted 175,073 time-based restricted stock units that generally vest annually on a pro-rata
basis over a three-year period and 16,681 shares of time-based restricted stock that generally vest over a one-year period with a
grant date fair value of $52.46, and 184,145 market-based restricted stock units, at target, with a grant date fair value of $43.67.
In addition, during the year ended December 31, 2019, the Company granted from time to time a total of 42,052 time-based
restricted stock units that vest annually on a pro rata basis over a three-year period.
Total awards granted in 2019 had a grant date fair value of $20.5 million. As of December 31, 2020, unearned compensation
representing the unvested portion of the awards granted in 2019 totaled $2.5 million, with a weighted average vesting period of
0.6 years.
2020 Grants
On February 25, 2020, the Company issued time and market-based awards under the LTIP in the form of restricted stock units.
The Company granted 118,974 time-based restricted stock units that generally vest annually on a pro-rata basis over a three-
year period and 57,557 market-based restricted stock units, at target, with a grant date fair value of $107.94. On April 30, 2020,
the Company granted 14,973 time-based restricted stock that generally vest over a one-year period with a grant date fair value
of $70.15.
In addition, during the year ended December 31, 2020, the Company granted from time to time a total of 1,226 time-based
restricted stock units that vest annually on a pro rata basis over a three-year period, 45,241 market-based restricted stock units,
at target, with a grant date fair value of $144.79, and 103,260 shares of time-based restricted stock that generally vest over a
three-year period with a grant date fair value of $73.98.
Total awards granted in 2020 had a grant date fair value of $30.1 million. As of December 31, 2020, unearned compensation
representing the unvested portion of the awards granted in 2020 totaled $17.8 million, with a weighted average vesting period
of 2.0 years.
Restricted Stock Units, Restricted Stock and Stock Option Activity
The following tables summarize the unvested restricted stock units, restricted stock and stock options activity and the weighted
average fair value of these shares at the date of grant for the year ended December 31, 2020 (performance-based awards are
reflected at the target amount of the grant):
Restricted Stock Units ("RSU")
Outstanding January 1,
Granted
TSR and other adjustments(a)
Exercised
Forfeited
Outstanding December 31,
2020
Restricted Stock
Units
Weighted
Average
Grant Date
Fair Value
646,619 $
221,402
164,076
(374,443)
(172,764)
484,890 $
55.80
93.72
91.32
77.78
60.03
66.66
(a) TSR adjustments represent the incremental shares earned for the total stockholder return (TSR) performance metric exceeding target and resulting in 200%
payout for the 2017 LTIP Performance Awards.
112
Restricted Stock ("RS")
Outstanding January 1,
Granted
Exercised
Forfeited
Outstanding December 31,
Stock Options
Outstanding January 1,
Granted
Exercised
Forfeited
Outstanding December 31,
Exercisable at December 31,
Vested and expected to vest
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
2020
Weighted
Average
Grant Date
Fair Value
Restricted Stock
52.46
74.12
52.46
—
74.12
16,681 $
118,233
(16,681)
—
118,233 $
2020
Weighted
Average
Exercise
Price
31.64
—
31.92
—
30.87
30.87
30.87
Options
375,086 $
—
(277,285)
—
97,801
97,801
97,801 $
The aggregate intrinsic value of options outstanding and options exercisable is based on the Company's closing stock price on
the last trading day of the fiscal year for in-the-money options. The aggregate intrinsic value represents the cumulative
difference between the fair market value of the underlying common stock and the option exercise prices. The total intrinsic
value of options exercised during 2020 was $10.5 million, 2019 was $0.4 million and 2018 was $0.6 million.
The aggregate intrinsic value of both options outstanding and options exercisable at December 31, 2020 was $4.1 million.
113
Stock Option Assumptions
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
The following table summarizes the stock option assumptions for the years ended December 31, 2020, 2019 and 2018:
Options Outstanding
Weighted
Average
Remaining
Contractual
Terms
(Years)
Number
of
Shares
Options Exercisable
Weighted
Average
Remaining
Contractual
Terms
(Years)
Number
of
Shares
53,086
143,358
12,719
192,060
51,985
143,358
12,719
167,024
16,930
43,317
—
37,554
4.3
6.1
6.6
6.8
3.3
5.1
5.6
6.1
0.9
0.6
0.0
0.6
53,086
143,358
12,719
130,425
51,985
143,358
12,719
167,024
16,930
43,317
—
37,554
4.3
6.1
6.6
6.7
3.3
5.1
5.6
6.1
0.9
0.6
0.0
0.6
Assumption Range
Expected
Annual
Dividend
Yield
Expected
Terms
in Years
3.4%
4.4%
4.4%
4.1%
3.4%
4.4%
4.4%
4.1%
3.4%
4.4%
4.4%
4.1%
6.0
5.5-6.5
5.5-6.5
5.5-6.5
6.0
5.5-6.5
5.5-6.5
5.5-6.5
6.0
5.5-6.5
5.5-6.5
5.5-6.5
Risk-Free
Interest Rate
0.92%
1.6% - 1.75%
1.6% - 1.75%
1.47% - 1.64%
0.92%
1.6% - 1.75%
1.6% - 1.75%
1.47% - 1.64%
0.92%
1.6% - 1.75%
1.6% - 1.75%
1.47% - 1.64%
Expected
Volatility
35%
32.5% - 37.5%
32.5% - 37.5%
27.5% - 35.0%
35%
32.5% - 37.5%
32.5% - 37.5%
27.5% - 35.0%
35%
32.5% - 37.5%
32.5% - 37.5%
27.5% - 35.0%
Exercise Prices
2018
2019
2020
$23.58
$28.42
$30.74
$36.99
$23.58
$28.42
$30.74
$36.99
$23.58
$28.42
$30.74
$36.99
114
17. Income Taxes
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
CyrusOne Inc. elected to be taxed as a REIT under the Code, commencing with its taxable year ended December 31, 2013. To
remain qualified as a REIT, the Company is required to distribute at least 90% of its taxable income to its stockholders and
meet various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution
levels and diversity of stock ownership. Provided the Company continues to qualify for taxation as a REIT, the Company is
generally not subject to corporate level federal income tax on the earnings distributed currently to its stockholders. It is the
Company's policy and intent, subject to change, to distribute 100% of its taxable income and therefore no provision is required
in the accompanying financial statements for federal income taxes with regards to activities of CyrusOne Inc. and its subsidiary
pass-through entities.
CyrusOne Inc. and certain of its subsidiaries are subject to state and local income taxes, franchise taxes, and gross receipts
taxes. The Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries ("TRSs"). The Company's TRSs
are subject to U.S. federal, state and local corporate income taxes. The Company's foreign subsidiaries are subject to corporate
income taxes in the jurisdictions in which they operate.
Income tax (benefit) expense for the years ended December 31, 2020, 2019 and 2018 as reported in the accompanying
Consolidated Statements of Operations was comprised of the following:
IN MILLIONS
Current
Federal
State
Foreign
Total current expense
Deferred:
Federal
State
Foreign
Total deferred (benefit) expense
Total income tax (benefit) expense
Year Ended December 31,
2019
2020
2018
$
$
$
$
1.5 $
2.0
5.0
8.5 $
— $
—
(12.1)
(12.1)
(3.6) $
1.7 $
1.9
0.2
3.8 $
— $
—
(7.5)
(7.5)
(3.7) $
An income tax expense reconciliation between the U.S. statutory tax rate and the effective tax rate is as follows:
IN MILLIONS
Year Ended December 31,
2019
2020
2018
Income tax at U.S. federal statutory income tax rate
State and local taxes, net of federal income tax benefit
Impact of REIT status
Permanent differences
Foreign tax rate and currency differences
Anti-hybrid disallowances
Deferred tax true ups and other
Unrecognized tax benefits
Valuation allowance
Income tax (benefit) expense
$
$
3.9 $
1.6
(18.2)
0.1
(2.7)
2.4
1.0
5.0
3.3
(3.6) $
7.9 $
1.7
(13.7)
(0.7)
(1.0)
1.6
—
—
0.5
(3.7) $
1.0
2.0
—
3.0
—
—
(2.4)
(2.4)
0.6
0.4
2.0
(2.1)
(0.1)
0.2
0.1
—
—
0.1
0.6
115
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
The effective tax rate on income from continuing operations differs from tax at the statutory rate primarily due to the
Company's status as a REIT and taxation of its foreign subsidiaries.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
The components of the Company’s deferred tax assets and liabilities are as follows:
IN MILLIONS
Deferred tax assets
Net operating loss carryforwards
Accounts receivable/payable and other
Disallowed interest and other expenses
Finance leases
Total gross deferred tax assets
Valuation allowance
Total gross deferred tax assets, net
Deferred tax liabilities
Deferred rent and other
Fixed assets
Intangibles
Total gross deferred tax liabilities
Total net deferred tax assets/(liabilities)
Year Ended December 31,
2020
2019
$
$
$
$
$
$
19.7 $
9.1
3.4
1.6
33.8 $
(12.2)
21.6 $
(1.9) $
(67.5)
(5.2)
(74.6) $
(53.0) $
16.3
8.2
—
0.9
25.4
(7.6)
17.8
—
(67.4)
(10.9)
(78.3)
(60.5)
As of December 31, 2020, the Company’s deferred tax assets were primarily attributable to foreign NOL carryforwards that
generally do not expire. A valuation allowance will be recorded to reduce deferred tax assets to amounts that are more likely
than not to be realized. As of each reporting date, the Company’s management considers new evidence, both positive and
negative, that could impact management’s view with regard to future realization of deferred tax assets. The Company has
recorded a valuation allowance of $12.2 million as of December 31, 2020.
The Company and its subsidiaries file tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and
certain foreign jurisdictions. With few exceptions, the Company is no longer subject to examination of its U.S. federal, state and
local tax returns for years prior to 2016.
A reconciliation of the Company’s beginning and ending liability for unrecognized tax benefits is as follows:
IN MILLIONS
2020
2019
2018
Balance at January 1
Additions related to acquisitions
Additions for tax positions for the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Balance at December 31
$
$
— $
—
5.0
—
—
—
5.0 $
— $
—
—
—
—
—
— $
—
—
—
—
—
—
—
The Company’s entire liability for unrecognized tax benefit would affect the annual effective tax rate if recognized. The
Company recognizes accrued interest and penalties related to unrecognized tax benefits as additional tax expense. The
Company recorded no interest expense and penalties for the period ending December 31, 2020.
116
CYRUSONE INC.
Notes to Consolidated Financial Statements - (continued)
18. Commitments and Contingencies
Operating Leases
The Company leases certain data center facilities and equipment from third parties. Certain of these leases provide for renewal
options with fixed rent escalations beyond the initial lease term.
Standby Letters of Credit
As of December 31, 2020, the Company had outstanding letters of credit of $10.8 million as security for obligations under the
terms of its lessee agreements.
Performance Guarantees
Customer contracts generally require specified levels of performance related to uninterrupted service and cooling temperatures
and delivery of data center spaces at specified dates. If these performance standards are not met, the Company could be
obligated to issue billing credits to the customer. Management assesses the probability that a performance standard will not be
achieved. We recognized contingent losses of $3.5 million for performance guarantees for the year ended December 31, 2020.
No contingent losses were incurred for performance guarantees in 2019 or 2018.
Purchase Commitments
The Company has entered into non-cancellable contracted commitments for construction of data center facilities and acquisition
of equipment. As of December 31, 2020, these commitments were approximately $173.4 million and are expected to be
incurred over the next one to two years. In addition, the Company has entered into equipment and electricity power contracts,
which require minimum purchase commitments for power. These agreements range from one to two years and provide for
payments for early termination or require minimum payments for the remaining term. As of December 31, 2020, the minimum
commitments for these arrangements were approximately $84.2 million.
The Company has entered into an Agreement to Lease contract that requires the Company to enter into a lease upon shell
completion of a building in London, UK totaling 70,000 square feet with annual rent totaling £1.4 million for an initial lease
term of 20 years. We expect construction of the shell building to be completed in the first quarter of 2021.
Indemnifications
During the normal course of business, the Company and its subsidiaries have made certain indemnities and commitments to
customers, vendors and associated parties related to the use, protection and security of intellectual property and claims for
negligence or willful misconduct. Also, in the normal course of its business, the Company is involved in legal, tax and
regulatory proceedings arising from the conduct of its business activities. Management assesses the probability that these
performance standards, credits, claims or indemnities have been incurred and liabilities or asset reserves are established for loss
contingencies when the losses associated are deemed to be probable and the loss can be reasonably estimated. Based on
information currently available, the Company believes that the outcome of such matters will not, individually or in the
aggregate, have a material effect on its consolidated financial statements.
Contingencies
CyrusOne is involved in legal, tax and regulatory proceedings arising from the conduct of its business activities. Liabilities are
established for loss contingencies when losses associated with such claims are deemed to be probable, and the loss can be
reasonably estimated. Based on information currently available and consultation with legal counsel, we believe that the
outcome of all claims will not, individually or in the aggregate, have a material effect on our financial statements.
19. Subsequent Event
In February 2021, the State of Texas, including the Austin, Dallas, Houston and San Antonio metropolitan areas, was and is
subject to an extensive winter storm. We have 13 buildings located in Texas, which have experienced minimal operational
disruptions to date. We are assessing the impact of this storm, which we believe caused nominal damage to our properties,
however we anticipate an impact on Property operating expense due to higher utility expenses and other costs, some of which
may be recoverable from customers, as well as potential losses related to service level commitments, the extent of which cannot
be estimated at this time.
117
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief
Financial Officer (our principal executive officer and principal financial officer, respectively), we have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of December 31, 2020. Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that, as of December 31, 2020, the Company’s disclosure
controls and procedures were effective in ensuring information required to be disclosed by the Company in reports that it files
or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the SEC and is accumulated and communicated to the Company’s management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the
supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer,
management assessed the effectiveness of internal control over financial reporting as of December 31, 2020 based on the
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that assessment, management has concluded that our internal control over financial reporting was
effective at December 31, 2020, to provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Deloitte & Touche LLP, our independent registered public accounting firm, has audited our financial statements included in this
Annual Report on Form 10-K and has issued its attestation report on the effectiveness of our internal control over financial
reporting as of December 31, 2020, which report is included under Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with the evaluation required
by paragraph (d) of Rule 13a-15 of the Exchange Act that occurred during the three months ended December 31, 2020 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
On February 15, 2021, the Amended and Restated Agreement of Limited Partnership of CyrusOne LP, dated as of May 2, 2016,
by and among CyrusOne GP, a Maryland statutory trust, CyrusOne Inc., a Maryland corporation (the “Company”), and any
additional partner that is admitted from time to time to the partnership, as amended by the First Amendment to the Amended
and Restated Agreement of Limited Partnership of CyrusOne LP, dated February 18, 2019 (the “Operating Partnership
Agreement”), was amended (the “Second Amendment”) to clarify certain language and to update the LTIP Unit Designation
(Exhibit C of the Operating Partnership Agreement) to clarify certain language and to conform with tax requirements.
The description of the Second Amendment set forth herein is qualified in its entirety by reference to the full text of the Second
Amendment, which is filed herewith as Exhibit 10.4 and incorporated herein by reference.
118
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item can be found in the Proxy Statement for the 2021 Annual Meeting of Shareholders and is
incorporated herein by reference.
The Company has a Code of Business Conduct and Ethics that applies to all employees, including the Company’s principal
executive officer, principal financial officer, and principal accounting officer, as well as to the members of the Board of
Directors of the Company. The code is available at investor.cyrusone.com/corporate-governance. The Company intends to
disclose any changes in, or waivers from, this code by posting such information on the same website or by filing a Current
Report on Form 8-K, in each case to the extent such disclosure is required by rules of the SEC or NASDAQ.
Items 11. Executive Compensation
The information required by this item can be found in the Proxy Statement for the 2021 Annual Meeting of Shareholders and is
incorporated herein by reference.
Items 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item can be found in the Proxy Statement for the 2021 Annual Meeting of Shareholders and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item can be found in the Proxy Statement for the 2021 Annual Meeting of Shareholders and is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item can be found in the Proxy Statement for the 2021 Annual Meeting of Shareholders and is
incorporated herein by reference.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
are included in this report:
Consolidated Financial Statements and Schedules. The following consolidated financial statements and schedules
(1)
FINANCIAL STATEMENTS
The response to this portion of Item 15 is submitted under Item 8 of this Annual Report on Form 10-K.
(2)
FINANCIAL STATEMENT SCHEDULES
Schedule II—Valuation and Qualifying Accounts
Schedule III—Consolidated Real Estate and Accumulated Depreciation. The response to this portion of Item 15 is required to
be filed by Item 8 of this Annual Report on Form 10-K.
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the
related instructions or are inapplicable and therefore have been omitted.
(3)
EXHIBITS
See the accompanying Exhibit Index.
Exhibits may be obtained from us upon request at a charge that reflects the reproduction cost of such Exhibits. Requests should
be made to the Secretary of CyrusOne Inc., 2850 N. Harwood, Suite 2200, Dallas, Texas 75201. Exhibits are also available, free
of charge, on the SEC's website at www.sec.gov.
ITEM 16.
FORM 10-K SUMMARY
None.
119
Schedule II.
Valuation and Qualifying Accounts
(dollars in millions)
Allowance for Doubtful Accounts
2020
2019
2018
Deferred Tax Valuation Allowance
2020
2019
2018
Beginning
of Period
Charge
to Expenses
(Deductions)/
Additions
End
of Period
$
$
1.8 $
1.7
2.1
7.6 $
6.9
7.2
1.7 $
1.7
2.3
4.6 $
0.7
(0.3)
— $
(1.6)
(2.7)
— $
—
—
3.5
1.8
1.7
12.2
7.6
6.9
120
Schedule III. Real Estate Properties and Accumulated Depreciation
CyrusOne Inc.
(dollars in millions)
Initial Costs
As of December 31, 2020
Cost Capitalized Subsequent to
Acquisition
Gross Carrying Amount
Land
Building and
Improvements Equipment
Land
Building and
Improvements Equipment
Land
Building and
Improvements Equipment
Accumulated
Depreciation Acquisition
$
9.7 $
— $
— $ — $
14.0 $
42.2 $
9.7 $
14.0 $
42.2 $
Description
Amsterdam I
Austin II
Austin III
Chicago - Aurora I
Chicago - Aurora II
2.0
3.3
2.4
2.6
Chicago - Aurora Tower
—
Chicago - Lombard
Cincinnati - 7th Street
Cincinnati - Blue Ash*
Cincinnati - Hamilton
Cincinnati - Mason
Cincinnati - North Cincinnati
Council Bluffs I
Dallas - Allen
Dallas - Carrollton
Dallas - Lewisville
Dublin I
Florence
Frankfurt I
Frankfurt II
Frankfurt III
0.7
0.9
—
—
—
0.9
1.4
6.5
16.1
—
—
2.2
4.4
7.6
24.1
Houston - Galleria
—
1.4
2.0
7.1
—
—
—
—
1.6
3.4
1.9
4.6
14.5
9.7
5.9
9.1
16.1
Houston - Houston West I
Houston - Houston West II
Houston - Houston West III
London - Great Bridgewater
London I
London II
London III
Northern Virginia - Sterling I
Northern Virginia - Sterling II
Northern Virginia - Sterling III
Northern Virginia - Sterling IV
Northern Virginia - Sterling V
Northern Virginia - Sterling VI
Northern Virginia - Sterling VII
Northern Virginia - Sterling VIII
Northern Virginia - Sterling IX
Norwalk I*
Phoenix - Chandler I
Phoenix - Chandler II
Phoenix - Chandler III
Phoenix - Chandler IV
Phoenix - Chandler V
Phoenix - Chandler VI
Phoenix - Chandler VII
Raleigh-Durham I
San Antonio I
San Antonio II
San Antonio III
San Antonio IV
—
—
—
—
26.0
97.3
—
—
3.2
42.2
2.6
9.5
—
12.3
—
—
—
46.2
—
7.7
31.0
—
—
56.0
21.4
—
—
16.5
25.3
19.9
—
—
—
—
9.6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.2
—
—
109.7
47.7
—
2.0
0.1
—
—
—
20.5
58.7
—
—
—
—
0.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.7
0.1
—
—
—
—
0.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.1
—
—
—
0.3
—
—
2.0
3.3
2.4
2.6
—
0.7
0.9
—
—
—
0.9
1.4
6.5
16.1
—
—
2.2
4.4
7.6
24.1
—
1.4
2.7
7.2
—
—
—
—
1.7
3.4
1.9
4.6
14.5
9.7
5.9
9.1
16.1
—
2.5
2.1
2.0
2.0
1.8
2.4
4.2
2.1
4.6
2.6
2.3
2.1
23.5
12.7
6.4
23.1
6.4
1.6
72.0
(1.9)
34.2
20.3
65.5
18.1
15.7
67.2
11.9
—
36.2
8.3
149.1
63.5
15.0
64.0
22.8
18.1
(16.5)
26.1
31.3
11.8
20.2
28.8
22.3
10.5
93.8
68.9
0.4
24.9
20.1
13.9
64.4
39.8
73.1
1.2
8.3
37.5
0.2
7.9
2.0
17.3
18.3
40.3
356.0
39.5
—
9.6
25.5
59.2
84.2
23.0
53.9
53.9
32.4
1.5
31.2
56.8
30.4
62.2
112.5
62.0
77.9
324.3
220.4
0.1
44.9
22.0
(17.1)
(12.0)
61.9
16.2
10.5
18.4
17.1
25.1
1.1
10.3
28.7
30.3
40.2
56.9
71.9
39.8
48.9
44.7
87.7
103.4
—
26.5
38.3
61.4
99.6
51.6
121
23.5
12.7
32.4
23.1
6.4
4.8
114.2
0.7
43.7
20.3
77.8
18.1
15.7
67.2
58.1
—
43.9
39.3
149.1
63.5
71.0
85.4
22.8
18.1
—
51.4
51.2
11.8
20.2
28.8
22.3
20.1
93.8
68.9
0.4
24.9
20.1
1.2
61.9
16.2
11.4
18.4
17.1
25.1
1.1
83.8
31.7
30.3
40.2
56.9
13.9
64.4
137.1
73.1
1.2
8.3
37.5
0.2
7.9
2.0
17.3
18.3
40.3
356.0
41.7
—
9.6
135.2
106.9
84.2
25.0
54.0
53.9
32.4
1.5
51.7
115.5
30.4
62.2
112.5
62.0
78.0
324.3
220.4
0.1
44.9
22.0
13.3
71.9
39.8
51.4
44.7
87.7
103.4
—
97.8
38.3
61.4
99.6
51.6
3.0
22.5
23.0
74.0
22.3
0.9
9.1
106.4
0.7
37.9
16.7
53.8
0.8
7.5
165.3
76.1
—
39.5
26.3
29.1
1.6
65.8
99.5
44.4
17.0
1.1
13.6
34.0
1.3
36.8
46.2
24.7
27.9
90.1
40.7
—
6.5
1.9
5.1
62.2
28.2
21.6
16.4
16.0
31.3
0.1
48.2
40.3
31.1
40.0
21.6
2020
2011
2015
2016
2016
2018
2008
1999
2009
2007
2004
2008
2020
2017
2012
2010
2020
2005
2018
2018
2020
2010
2010
2013
2013
2011
2018
2018
2020
2013
2013
2017
2016
2016
2018
2020
2018
2020
2015
2011
2014
2016
2017
2017
2016
2016
2017
2011
2013
2017
2017
—
18.3
25.3
2.5
2.1
2.0
2.0
1.8
2.3
4.2
2.1
4.6
2.3
2.3
2.1
—
—
0.9
—
—
—
—
73.5
3.0
—
—
—
—
—
2.5
—
—
—
—
71.3
—
—
—
—
(dollars in millions)
Initial Costs
Cost Capitalized Subsequent to
Acquisition
Gross Carrying Amount
Description
San Antonio V
Santa Clara II
Somerset I
Stamford - Omega*
Stamford - Riverbend*
Totowa - Commerce
Totowa - Madison
Wappingers Falls I
Land
Building and
Improvements Equipment
Land
Building and
Improvements Equipment
Land
Building and
Improvements Equipment
Accumulated
Depreciation Acquisition
$
2.9 $
— $
— $
0.1 $
30.3 $
43.3 $
3.0 $
30.3 $
43.3 $
—
12.1
—
—
—
—
—
2.7
124.6
3.2
4.3
4.1
28.3
9.9
—
83.3
0.6
13.2
0.8
45.6
13.3
—
—
—
—
—
—
—
—
31.9
(3.1)
(3.4)
(3.7)
(22.2)
(6.7)
—
64.0
0.1
(4.3)
1.0
14.9
14.1
—
12.1
—
—
—
—
—
2.7
—
156.5
147.3
0.1
0.9
0.4
6.1
3.2
0.7
8.9
1.8
60.5
27.4
3.0
2.4
62.2
0.9
8.4
1.3
40.1
19.5
2020
2019
2017
2015
2015
2015
2015
2015
$ 207.4 $
602.2 $ 594.2 $
1.4 $
1,433.0 $ 2,944.7 $ 208.8 $
2,035.2 $ 3,538.9 $
1,767.9
Land held for future development
$ 268.3 $
— $
— $ — $
— $
— $ 268.3 $
— $
— $
—
The aggregate cost of the total properties for federal income tax purposes was $8,084.2 million at December 31, 2020. In addition, Construction in progress was
$982.2 million as we continue to build data center facilities.
* Reductions in Cost Capitalized Subsequent to Acquisition due to impairment losses recorded for the respective facility.
122
Historical Cost and Accumulated Depreciation and Amortization
The following table reconciles the historical cost and accumulated depreciation for the years ended December 31, 2020, 2019
and 2018.
(amounts in millions)
Property
Balance—beginning of period
Disposals
Impairments
Impact of adoption of ASU 2016-02
Additions (acquisitions and improvements)
Balance, end of period(1)
Accumulated Depreciation
Balance—beginning of period
Disposals
Impairments
Impact of adoption of ASU 2016-02
Additions (depreciation and amortization expense)
Balance, end of period
Years Ended December 31,
2020
2019
2018
$
6,089.5 $
5,347.5 $
3,840.8
(6.7)
(10.8)
—
961.4
(15.8)
(0.7)
(97.8)
856.3
7,033.4 $
6,089.5 $
1,379.2 $
1,054.5 $
(5.9)
(14.0)
—
—
394.6
1,767.9 $
—
(19.3)
358.0
1,379.2 $
(20.8)
—
—
1,527.5
5,347.5
782.4
(14.0)
—
—
286.1
1,054.5
$
$
$
(1) - Includes construction-in-progress of $982.2 million, $946.3 million and $744.9 million for the years ended December 31,
2020, 2019 and 2018, respectively that is not included in amounts reflected above in Schedule III.
123
EXHIBIT INDEX
Exhibit #
Exhibit Description
2.1 Share Purchase Agreement, dated as of October 18, 2017, between Cheetah Asia Holdings LLC, CyrusOne LLC
and GDS Holdings Limited (Incorporated by reference to Exhibit 2.1 of Form 8-K, filed by the Registrant on
October 24, 2017 (Registration No. 001-35789)).
2.2(a) Sale and Purchase Agreement dated December 21, 2017 among Zenium Topco Limited, CyrusOne Dutch
Holdings B.V., ZTP Seller Rep, LLC, CyrusOne LP and certain other sellers named thereto (Incorporated by
reference to Exhibit 99.1 of Form 8-K, filed by the Registrant on December 28, 2017 (Registration No.
001-35789)).
2.2(b) Extension Letter to Sale and Purchase Agreement dated December 21, 2017 among Zenium TopCo Limited,
CyrusOne Dutch Holdings B.V., ZTP Seller Rep, LLC, CyrusOne LP and certain other sellers named thereto
dated April 20, 2018 (Incorporated by reference to Exhibit 99.1 of Form 8-K, filed by CyrusOne Inc. on April 27,
2018 (Registration No. 001-35789)).
2.2(c) Extension Letter to Sale and Purchase Agreement dated December 21, 2017 among Zenium TopCo Limited,
CyrusOne Dutch Holdings B.V., ZTP Seller Rep, LLC, CyrusOne LP and certain other sellers named thereto
dated April 26, 2018 (Incorporated by reference to Exhibit 99.2 of Form 8-K, filed by CyrusOne Inc. on April 27,
2018 (Registration No. 001-35789)).
2.2(d) Extension Letter to Sale and Purchase Agreement dated December 21, 2017 among Zenium TopCo Limited,
CyrusOne Dutch Holdings B.V., ZTP Seller Rep, LLC, CyrusOne LP and certain other sellers named thereto
dated May 17, 2018 (Incorporated by reference to Exhibit 99.1 of Form 8-K, filed by CyrusOne Inc. on May 21,
2018 (Registration No. 001-35789)).
2.2(e) Extension Letter to Sale and Purchase Agreement dated December 21, 2017 among Zenium TopCo Limited,
CyrusOne Dutch Holdings B.V., ZTP Seller Rep, LLC, CyrusOne LP and certain other sellers named thereto
dated May 25, 2018 (Incorporated by reference to Exhibit 99.1 of Form 8-K, filed by CyrusOne Inc. on May 29,
2018 (Registration No. 001-35789)).
2.2(f) Extension Letter to Sale and Purchase Agreement dated December 21, 2017 among Zenium TopCo Limited,
CyrusOne Dutch Holdings B.V., ZTP Seller Rep, LLC, CyrusOne LP and certain other sellers named thereto
dated June 28, 2018 (Incorporated by reference to Exhibit 99.1 of Form 8-K, filed by CyrusOne Inc. on June 29,
2018 (Registration No. 001-35789)).
2.2(g) Extension Letter to Sale and Purchase Agreement dated December 21, 2017 among Zenium TopCo Limited,
CyrusOne Dutch Holdings B.V., ZTP Seller Rep, LLC, CyrusOne LP and certain other sellers named thereto
dated July 19, 2018 (Incorporated by reference to Exhibit 99.1 of Form 8-K, filed by CyrusOne Inc. on July 20,
2018 (Registration No. 001-35789)).
2.2(h) Extension Letter to Sale and Purchase Agreement dated December 21, 2017 among Zenium TopCo Limited,
CyrusOne Dutch Holdings B.V., ZTP Seller Rep, LLC, CyrusOne LP and certain other sellers named thereto
dated July 27, 2018 (Incorporated by reference to Exhibit 99.1 of Form 8-K, filed by CyrusOne Inc. on July 30,
2018 (Registration No. 001-35789)).
2.2(i) Extension Letter to Sale and Purchase Agreement dated December 21, 2017 among Zenium TopCo Limited,
CyrusOne Dutch Holdings B.V., ZTP Seller Rep, LLC, CyrusOne LP and certain other sellers named thereto
dated August 10, 2018 (Incorporated by reference to Exhibit 99.1 of Form 8-K, filed by CyrusOne Inc. on August
13, 2018 (Registration No. 001-35789)).
2.2(j) Extension Letter to Sale and Purchase Agreement dated December 21, 2017 among Zenium TopCo Limited,
CyrusOne Dutch Holdings B.V., ZTP Seller Rep, LLC, CyrusOne LP and certain other sellers named thereto
dated August 15, 2018 (Incorporated by reference to Exhibit 99.1 of Form 8-K, filed by CyrusOne Inc. on August
17, 2018 (Registration No. 001-35789)).
3.1 Articles of Amendment and Restatement of CyrusOne Inc. (Incorporated by reference to Exhibit 3.1 of Form 8-K,
filed by the Registrant on January 25, 2013 (Registration No. 001-35789)).
3.2 Amended and Restated Bylaws of CyrusOne Inc. (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed by
the Registrant on March 17, 2017 (Registration No. 001-35789)).
4.1(a) Indenture, dated as of March 17, 2017, by and among CyrusOne LP and CyrusOne Finance Corp., as issuers, the
guarantors party thereto and Wells Fargo Bank, N.A., as trustee, relating to the 5.000% Senior Notes due 2024
(Incorporated by reference to Exhibit 4.1 of Form 8-K, filed by the Registrant on March 17, 2017 (Registration
No. 001-35789)).
124
4.1(b) First Supplemental Indenture dated as of October 2, 2018, by and among C1-Allen LLC, C1-ATL LLC, C1-Mesa
LLC, C1-Sterling VIII LLC, Warhol TRS LLC, Warhol Partnership LLC, Warhol REIT LLC, C1-Santa Clara
LLC, CyrusOne LP, CyrusOne Finance Corp., the other guarantors party thereto and Wells Fargo Bank, N.A., as
trustee, relating to the 5.000% Senior Notes due 2024. (Incorporated by reference to Exhibit 4.1(b) of Form 10-K,
filed by CyrusOne Inc. on February 22, 2019 (Registration No. 001-35789))
4.1(c) Second Supplemental Indenture, dated as of October 30, 2019, by and among CyrusOne LP and CyrusOne
Finance Corp., as issuers, the guarantors party thereto and Wells Fargo Bank, N.A., as trustee, relating to the
5.000% Senior Notes due 2024 (Incorporated by reference to Exhibit 4.1(c) of Form 10-Q, filed by CyrusOne Inc.
on October 31, 2019 (Registration No. 001-35789)).
4.1(d) Third Supplemental Indenture, dated as of December 5, 2019, by and among CyrusOne LP and CyrusOne
Finance Corp., as issuers, the guarantors party thereto and Wells Fargo Bank, N.A., as trustee, relating to the
5.000% Senior Notes due 2024 (Incorporated by reference to Exhibit 4.4 of Form 8-K, filed by CyrusOne Inc. on
December 5, 2019 (Registration No. 001-35789)).
4.2(a) Indenture, dated as of March 17, 2017, by and among CyrusOne LP and CyrusOne Finance Corp., as issuers, the
guarantors party thereto and Wells Fargo Bank, N.A., as trustee, relating to the 5.375% Senior Notes due 2027
(Incorporated by reference to Exhibit 4.2 of Form 8-K, filed by the Registrant on March 17, 2017 (Registration
No. 001-35789)).
4.2(b) First Supplemental Indenture dated as of October 2, 2018, by and among C1-Allen LLC, C1-ATL LLC, C1-Mesa
LLC, C1-Sterling VIII LLC, Warhol TRS LLC, Warhol Partnership LLC, Warhol REIT LLC, C1-Santa Clara
LLC, CyrusOne LP, CyrusOne Finance Corp., the other guarantors party thereto and Wells Fargo Bank, N.A., as
trustee, relating to the 5.375% Senior Notes due 2027. (Incorporated by reference to Exhibit 4.2(b) of Form 10-K,
filed by CyrusOne Inc. on February 22, 2019 (Registration No. 001-35789)).
4.2(c) Second Supplemental Indenture, dated as of October 30, 2019, by and among CyrusOne LP and CyrusOne
Finance Corp., as issuers, the guarantors party thereto and Wells Fargo Bank, N.A., as trustee, relating to the
5.375% Senior Notes due 2027 (Incorporated by reference to Exhibit 4.2(c) of Form 10-Q, filed by CyrusOne Inc.
on October 31, 2019 (Registration No. 001-35789)).
4.2(d) Third Supplemental Indenture, dated as of December 5, 2019, by and among CyrusOne LP and CyrusOne
Finance Corp., as issuers, the guarantors party thereto and Wells Fargo Bank, N.A., as trustee, relating to the
5.375% Senior Notes due 2027 (Incorporated by reference to Exhibit 4.5 of Form 8-K, filed by CyrusOne Inc. on
December 5, 2019 (Registration No. 001-35789)).
4.3(a) Indenture, dated as of December 5, 2019, by and among CyrusOne LP and CyrusOne Finance Corp., as issuers,
and Wells Fargo Bank, N.A., as trustee (Incorporated by reference to Exhibit 4.1 of Form 8-K, filed by CyrusOne
Inc. on December 5, 2019 (Registration No. 001-35789)).
4.3(b) First Supplemental Indenture, dated as of December 5, 2019, by and among CyrusOne LP and CyrusOne Finance
Corp., as issuers, CyrusOne Inc., as guarantor and Wells Fargo Bank, N.A., as trustee, relating to the 2.900%
Senior Notes due 2024 (Incorporated by reference to Exhibit 4.2 of Form 8-K, filed by CyrusOne Inc. on
December 5, 2019 (Registration No. 001-35789)).
4.3(c) Second Supplemental Indenture, dated as of December 5, 2019, by and among CyrusOne LP and CyrusOne
Finance Corp., as issuers, CyrusOne Inc., as guarantor and Wells Fargo Bank, N.A., as trustee, relating to the
3.450% Senior Notes due 2029 (Incorporated by reference to Exhibit 4.3 of Form 8-K, filed by CyrusOne Inc. on
December 5, 2019 (Registration No. 001-35789)).
4.3(d) Third Supplemental Indenture, dated as of January 22, 2020, by and among CyrusOne LP and CyrusOne Finance
Corp., as issuers, CyrusOne Inc., as guarantor, Wells Fargo Bank, N.A., as trustee, and Deutsche Bank Trust
Company Americas, as paying agent and security registrar (Incorporated by reference to Exhibit 4.2 of Form 8-K,
filed by CyrusOne Inc. on January 22, 2020 (Registration No. 001-35789)).
4.3(e) Fourth Supplemental Indenture, dated as of September 21, 2020, by and among CyrusOne LP and CyrusOne
Finance Corp., as issuers, CyrusOne Inc., as guarantor and Wells Fargo Bank, N.A., as trustee, relating to the
2.150% Senior Notes due 2030 (Incorporated by reference to Exhibit 4.2 of Form 8-K, filed by CyrusOne Inc. on
September 21, 2020 (Registration No. 001-35789)).
4.4 Form of Certificate for Common Stock of CyrusOne Inc. (Incorporated by reference to Exhibit 4.1 of
Amendment No. 5 to the Registrant’s Registration Statement on Form S-11/A, filed by the Registrant on
December 13, 2012 (Registration No. 333-183132)).
4.5+ Description of Securities.
10.1 Certificate of Limited Partnership of CyrusOne LP (Incorporated by reference to Exhibit 3.3 of Form S-4, filed by
CyrusOne LP on October 28, 2015 (Registration No. 333-207647)).
10.2 Amended and Restated Limited Partnership Agreement of CyrusOne LP (Incorporated by reference to Exhibit
10.1 of Form 8-K, filed by CyrusOne Inc. on May 4, 2016 (Registration No. 001-35789)).
125
10.3 First Amendment to the Amended and Restated Agreement of Limited Partnership of CyrusOne LP, dated as of
February 18, 2019 (Incorporated by reference to Exhibit 10.3 of Form 10-K, filed by CyrusOne Inc. on February
22, 2019 (Registration No. 001-35789)).
10.4+ Second Amendment to the Amended and Restated Agreement of Limited Partnership of CyrusOne LP, dated as
of February 15, 2021.
10.5(a) Credit Agreement, dated as of March 29, 2018, among CyrusOne LP, the subsidiary borrowers party thereto, the
lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent for the lenders, KeyBank National
Association, as syndication agent, and JPMorgan Chase Bank, N.A., KeyBanc Capital Markets Inc., Barclays
Bank PLC, RBC Capital Markets, LLC and TD Securities (USA) LLC, as joint lead arrangers and joint
bookrunners (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed by the Registrant on April 4, 2018
(Registration No. 001-35789)).
10.5(b) Joinder Agreement dated as of October 2, 2018, by and among C1-Allen LLC, C1-ATL LLC, C1-Mesa LLC, C1-
Sterling VIII LLC, Warhol TRS LLC, Warhol Partnership LLC, Warhol REIT LLC, C1-Santa Clara LLC and
acknowledged by JPMorgan Chase Bank, N.A., relating to the Credit Agreement, dated as of March 29, 2018,
among CyrusOne LP, the subsidiary borrowers party thereto, the lenders party thereto, JPMorgan Chase Bank,
N.A., as administrative agent for the lenders, KeyBank National Association, as syndication agent, and JPMorgan
Chase Bank, N.A., KeyBanc Capital Markets Inc., Barclays Bank PLC, RBC Capital Markets, LLC and TD
Securities (USA) LLC, as joint lead arrangers and joint bookrunners (Incorporated by reference to Exhibit 10.5(b)
of Form 10-K, filed by CyrusOne Inc. on February 22, 2019 (Registration No. 001-35789)).
10.5(c) Amendment, dated as of March 31, 2020, among CyrusOne LP, the other loan parties thereto, the lenders party
thereto and JPMorgan Chase Bank, N.A., as administrative agent, to the Credit Agreement, dated as of March 29,
2018 (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed by CyrusOne Inc. on April 1, 2020
(Registration No. 001-35789)).
10.5(d) Reaffirmation Agreement, dated as of March 31, 2020, by and among CyrusOne Inc. and CyrusOne GP and
JPMorgan Chase Bank, N.A., as administrative agent (Incorporated by reference to Exhibit 10.2 of Form 8-K,
filed by CyrusOne Inc. on April 1, 2020 (Registration No. 001-35789)).
10.6 Form of 2018 Sales Agreement, dated February 27, 2018, by and among CyrusOne Inc., CyrusOne GP,
CyrusOne LP and each of Barclays Capital Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC,
Jefferies LLC, KeyBanc Capital Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC, Stifel, Nicolaus &
Company, Incorporated and SunTrust Robinson Humphrey, Inc. (Incorporated by reference to Exhibit 1.1 of
Form 8-K, filed by the Registrant on February 27, 2018 (Registration No. 001-35789)).
10.7 Forward Sale Agreement, dated September 25, 2018, between CyrusOne Inc. and Morgan Stanley & Co. LLC
(Incorporated by reference to Exhibit 1.2 of Form 8-K, filed by CyrusOne Inc. on October 1, 2018 (Registration
No. 001-35789)).
10.8 Form of Forward/Primary Sales Agreement, dated November 19, 2018, by and among CyrusOne Inc., CyrusOne
GP, CyrusOne LP and each of Barclays Capital Inc., BMO Capital Markets Corp., Deutsche Bank Securities Inc.,
Goldman Sachs & Co. LLC, Jefferies LLC, KeyBanc Capital Markets Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. LLC, MUFG Securities Americas Inc., Raymond James &
Associates, Inc. and RBC Capital Markets, LLC (Incorporated by reference to Exhibit 1.1 of Form 8-K, filed by
CyrusOne Inc. on November 19, 2018 (Registration No. 001-35789)).
10.9 Form of Primary Sales Agreement, dated November 19, 2018, by and among CyrusOne Inc., CyrusOne GP,
CyrusOne LP and each of Capital One Securities, Inc., Stifel, Nicolaus & Company, Incorporated, SunTrust
Robinson Humphrey, Inc. and TD Securities (USA) LLC (Incorporated by reference to Exhibit 1.2 of Form 8-K,
filed by CyrusOne Inc. on November 19, 2018 (Registration No. 001-35789)).
10.10(a) Form of Indemnification Agreement between CyrusOne Inc. and its directors and officers. (Incorporated by
reference to Exhibit 10.5 of Amendment No. 5 to the Registrant’s Registration Statement on Form S-11/A, filed
by the Registrant on December 13, 2012 (Registration No. 333-183132)).
10.10(b) Form of Indemnification Agreement between CyrusOne Inc. and its directors and officers. (Incorporated by
reference to Exhibit 10.1 of Form 8-K, filed by CyrusOne Inc. on July 27, 2016 (Registration No. 001-35789)).
10.11† CyrusOne 2012 Long Term Incentive Plan. (Incorporated by reference to Exhibit 10.7 of Amendment No. 3 to
the Registrant’s Registration Statement on Form S-11/A, filed by the Registrant on November 16, 2012
(Registration No. 333-183132)).
126
10.12† CyrusOne 2013 Short Term Incentive Plan (Incorporated by reference to Exhibit 10.8 of Amendment No. 3 to the
Registrant’s Registration Statement on Form S-11/A, filed by the Registrant on November 16, 2012 (Registration
No. 333-183132)).
10.13(a)† Employment Agreement, dated as of January 24, 2013, by and between CyrusOne LLC and Gary J. Wojtaszek
(Incorporated by reference to Exhibit 10.5 of Form 8-K, filed by the Registrant on January 29, 2013 (Registration
No. 001-35789)).
10.13(b)† Transition and Separation Agreement dated as of February 19, 2020 by and between Gary J. Wojtaszek and
CyrusOne LLC (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed by CyrusOne Inc. on February 21,
2020 (Registration No. 001-35789)).
10.14(a)† Employment Agreement, dated as of January 24, 2013, by and between CyrusOne LLC and Kevin L. Timmons
(Incorporated by reference to Exhibit 10.8 of Form 8-K, filed by the Registrant on January 29, 2013 (Registration
No. 001-35789)).
10.14(b)† Separation Agreement and Release of All Claims, dated as September 14, 2020, by and between Kevin Timmons
and CyrusOne LLC (Incorporated by reference to Exhibit 10.5 of Form 10-Q, filed by CyrusOne Inc. on October
29, 2020 (Registration No. 001-35789)).
10.15(a)† Employment Agreement, dated as of January 24, 2013, by and between CyrusOne LLC and Venkatesh S.
Durvasula (Incorporated by reference to Exhibit 10.18 of Form 10-K, filed by the Registrant on March 29, 2013
(Registration No. 001-35789)).
10.15(b)† Long-Term International Assignment Letter, dated October 30, 2018, by and between CyrusOne LLC and
Venkatesh S. Durvasula (Incorporated by reference to Exhibit 10.15(a) of Form 10-K, filed by CyrusOne Inc. on
February 22, 2019 (Registration No. 001-35789)).
10.15(c)† Offer Letter, dated as of November 6, 2018, by and between CyrusOne LLC and Venkatesh S. Durvasula
(Incorporated by reference to Exhibit 10.15(b) of Form 10-K, filed by CyrusOne Inc. on February 22, 2019
(Registration No. 001-35789)).
10.15(d)† Transition and Separation Agreement dated as of January 13, 2020 by and between Venkatesh S. Durvasula and
CyrusOne LLC (Incorporated by reference to Exhibit 10.1 of Form 8-K/A, filed by CyrusOne Inc. on January 17,
2020 (Registration No. 001-35789)).
10.15(e)† Omnibus Amendment Agreement, dated as of February 26, 2020 by and between Venkatesh S. Durvasula and
CyrusOne LLC (Incorporated by reference to Exhibit 10.1 of Form 8-K/A, filed by CyrusOne Inc. on February
27, 2020 (Registration No. 001-35789)).
10.15(f)† Transition and Separation Agreement, dated as of July 2, 2020 by and between Venkatesh S. Durvasula and
CyrusOne LLC (Incorporated by reference to Exhibit 10.2 of Form 8-K, filed by CyrusOne Inc. on July 2, 2020
(Registration No. 001-35789)).
10.16† Employment Agreement dated as of July 31, 2015, by and between CyrusOne LLC and Robert M. Jackson
(Incorporated by reference to Exhibit 10.1 of Form 8-K, filed by the Registrant on August 3, 2015 (Registration
No. 001-35789)).
10.17† Form of Executive Non-Statutory Performance Stock Option Award under the provisions of the CyrusOne 2012
Long Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed by the Registrant on
April 22, 2013 (Registration No. 001-35789)).
10.18† Form of Employee Non-Statutory Performance Stock Option Award under the provisions of the CyrusOne 2012
Long Term Incentive Plan (Incorporated by reference to Exhibit 10.2 of Form 8-K, filed by the Registrant on
April 22, 2013 (Registration No. 001-35789)).
10.19† Form of Executive Time-Based Restricted Stock Award under the provisions of the CyrusOne 2012 Long Term
Incentive Plan (Incorporated by reference to Exhibit 10.7 of Form 10-Q, filed by CyrusOne Inc. on August 7,
2015 (Registration No. 001-35789)).
10.20† Form of Executive Performance Restricted Stock Award under the provisions of the CyrusOne 2012 Long Term
Incentive Plan (Incorporated by reference to Exhibit 10.8 of Form 10-Q, filed by CyrusOne Inc. on August 7,
2015 (Registration No. 001-35789)).
10.21† Form of Executive Non-Statutory Stock Option Award under the provisions of the CyrusOne 2012 Long Term
Incentive Plan (Incorporated by reference to Exhibit 10.9 of Form 10-Q, filed by CyrusOne Inc. on August 7,
2015 (Registration No. 001-35789)).
10.22† Form of Employee Time-Based Restricted Stock Award under the provisions of the CyrusOne 2012 Long Term
Incentive Plan (Incorporated by reference to Exhibit 10.3 of Form 10-Q, filed by CyrusOne Inc. on May 6, 2016
(Registration No. 001-35789)).
127
10.23† Form of Director Restricted Stock Award under the provisions of the CyrusOne 2012 Long Term Incentive Plan
(Incorporated by reference to Exhibit 10.4 of Form 10-Q, filed by CyrusOne Inc. on May 6, 2016 (Registration
No. 001-35789))
10.24† Form of Executive Non-Statutory Stock Option Award under the provisions of the CyrusOne 2012 Long Term
Incentive Plan (Incorporated by reference to Exhibit 10.5 of Form 10-Q, filed by CyrusOne Inc. on May 6, 2016
(Registration No. 001-35789))
10.25† Form of Executive Performance Restricted Stock Award under the provisions of the CyrusOne 2012 Long Term
Incentive Plan (Incorporated by reference to Exhibit 10.6 of Form 10-Q, filed by CyrusOne Inc. on May 6, 2016
(Registration No. 001-35789))
10.26† Form of Executive Time-Based Restricted Stock Award under the provisions of the CyrusOne 2012 Long Term
Incentive Plan (Incorporated by reference to Exhibit 10.7 of Form 10-Q, filed by CyrusOne Inc. on May 6, 2016
(Registration No. 001-35789))
10.27† Form of Executive Retention Restricted Stock Award under the provisions of the CyrusOne 2012 Long Term
Incentive Plan (Incorporated by reference to Exhibit 10.8 of Form 10-Q, filed by CyrusOne Inc. on May 6, 2016
(Registration No. 001-35789))
10.28† Form of Employee Retention Restricted Stock Award under the provisions of the CyrusOne 2012 Long Term
Incentive Plan (Incorporated by reference to Exhibit 10.9 of Form 10-Q, filed by CyrusOne Inc. on May 6, 2016
(Registration No. 001-35789)).
10.29(a)† Employment Agreement, dated as of November 14, 2016, by and between CyrusOne LLC and Diane M.
Morefield (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed by CyrusOne Inc. on October 31, 2016
(Registration No. 001-35789))
10.29(b)† Transition and Retirement Agreement, dated as of July 30, 2020 by and between Diane M. Morefield and
CyrusOne LLC (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed by CyrusOne Inc. on July 31, 2020
(Registration No. 001-35789)).
10.30† CyrusOne Restated 2012 Long Term Incentive Plan (Incorporated by reference to Exhibit 99.1 of Form S-8, filed
by CyrusOne Inc. on July 1, 2016 (Registration No. 001-35789)).
10.31† Form of Time-Based Restricted Stock Award under the Restated CyrusOne 2012 Long Term Incentive Plan
(Incorporated by reference to Exhibit 10.42 of Form 10-K/A, filed by CyrusOne Inc. on February 28, 2017
(Registration No. 001-35789))
10.32† Form of Director Restricted Stock Award under the provisions of the CyrusOne Restated 2012 Long Term
Incentive Plan. (Incorporated by reference to Exhibit 10.1 of Form 10-Q, filed by CyrusOne Inc. on May 10,
2017 (Registration No. 001-35789)).
10.33† Form of Executive Time-Based Restricted Stock Unit Award under the provisions of the CyrusOne Restated 2012
Long Term Incentive Plan. (Incorporated by reference to Exhibit 10.2 of Form 10-Q, filed by CyrusOne Inc. on
May 10, 2017 (Registration No. 001-35789)).
10.34† Form of Executive Performance-Based Restricted Stock Unit Award under the provisions of the CyrusOne
Restated 2012 Long Term Incentive Plan. (Incorporated by reference to Exhibit 10.3 of Form 10-Q, filed by
CyrusOne Inc. on May 10, 2017 (Registration No. 001-35789)).
10.35† CyrusOne Restated 2012 Long Term Incentive Plan (as amended and restated February 18, 2019) (Incorporated
by reference to Exhibit 10.36 of Form 10-K, filed by CyrusOne Inc. on February 22, 2019 (Registration No.
001-35789)).
10.36† Form of Amendment to 2017-2019 PSU Grant Agreements (Incorporated by reference to Exhibit 10.36 of Form
10-K, filed by CyrusOne Inc. on February 20, 2020 (Registration No. 001-35789)).
10.37 Form of Forward/Primary Sales Agreement, dated May 6, 2020, by and among CyrusOne Inc., CyrusOne GP,
CyrusOne LP and each of J.P. Morgan Securities LLC, Barclays Capital Inc., BMO Capital Markets Corp., Credit
Agricole Securities (USA) Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, Jefferies LLC,
KeyBanc Capital Markets Inc., Morgan Stanley & Co. LLC, MUFG Securities Americas Inc., RBC Capital
Markets, LLC and TD Securities (USA) LLC (Incorporated by reference to Exhibit 1.1 of Form 8-K, filed by
CyrusOne Inc. on May 6, 2020 (Registration No. 001-35789)).
10.38 Form of Primary Sales Agreement, dated May 6, 2020, by and among CyrusOne Inc., CyrusOne GP, CyrusOne
LP and each of Fifth Third Securities, Inc., Stifel, Nicolaus & Company, Incorporated and SunTrust Robinson
Humphrey, Inc. (Incorporated by reference to Exhibit 1.2 of Form 8-K, filed by CyrusOne Inc. on May 6, 2020
(Registration No. 001-35789)).
128
10.39† Employment Agreement dated as of June 26, 2020 by and between Bruce W. Duncan and CyrusOne
Management Services LLC (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed by CyrusOne Inc. on
July 2, 2020 (Registration No. 001-35789)).
10.40(a)† Offer Letter to John Hatem, dated as of August 29, 2020 (Incorporated by reference to Exhibit 10.1 of Form 8-K,
filed by CyrusOne Inc. on September 2, 2020 (Registration No. 001-35789)).
10.40(b)† Severance Agreement, dated September 1, 2020 by and between John Hatem and CyrusOne Management
Services LLC (Incorporated by reference to Exhibit 10.2 of Form 8-K, filed by CyrusOne Inc. on September 2,
2020 (Registration No. 001-35789)).
10.41(a)† Offer Letter to Katherine Motlagh, dated as of October 4, 2020 (Incorporated by reference to Exhibit 10.1 of
Form 8-K, filed by CyrusOne Inc. on October 9, 2020 (Registration No. 001-35789)).
10.41(b)† Severance Agreement, dated as of October 8, 2020 by and between Katherine Motlagh and CyrusOne
Management Services LLC (Incorporated by reference to Exhibit 10.2 of Form 8-K, filed by CyrusOne Inc. on
October 9, 2020 (Registration No. 001-35789)).
21.1+ Subsidiaries of the Registrant
22+ List of Guarantors and Subsidiary Issuers of Guaranteed Securities.
23.1+ Consent of Deloitte & Touche LLP
31.1+ Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2+ Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1++ Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2++ Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(101.INS)* XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
(101.SCH)* XBRL Taxonomy Extension Schema Document.
(101.CAL)* XBRL Taxonomy Extension Calculation Linkbase Document.
(101.DEF)* XBRL Taxonomy Extension Definition Linkbase Document.
(101.LAB)* XBRL Taxonomy Extension Label Linkbase Document.
(101.PRE)* XBRL Taxonomy Extension Presentation Linkbase Document.
(104)*
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).
+ Filed herewith.
++ Furnished herewith.
* Submitted electronically with this report.
† This exhibit is a management contract or compensation plan or arrangement.
129
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized, on the 19th day of February, 2021, and this
report has been signed below on such date by the following persons on behalf of the registrant and in the capacities indicated.
SIGNATURES
CyrusOne Inc.
By:
/s/ Bruce W. Duncan
Bruce W. Duncan
President, Chief Executive Officer, and Director
(Principal Executive Officer)
By:
/s/ Katherine Motlagh
Katherine Motlagh
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
By:
/s/ Mark E. Skomal
Mark E. Skomal
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
130
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
Signature
Title
Date
/s/ Bruce W. Duncan
Bruce W. Duncan
/s/ Alex Shumate
Alex Shumate
/s/ David H. Ferdman
David H. Ferdman
/s/ John W. Gamble Jr.
John W. Gamble Jr.
/s/ Michael A. Klayko
Michael A. Klayko
/s/ T. Tod Nielsen
T. Tod Nielsen
/s/ William E. Sullivan
William E. Sullivan
/s/ Lynn Wentworth
Lynn Wentworth
President, Chief Executive Officer
February 19, 2021
and Director
Chairman of the Board of Directors
February 19, 2021
Director
February 19, 2021
Director
February 19, 2021
Director
February 19, 2021
Director
February 19, 2021
Director
February 19, 2021
Director
February 19, 2021
131