Q1 2021 CyrusOne Inc Earnings Call
Good morning, and welcome to the Cyrusone and first quarter 2021 earnings call. All participants will be in listen only mode. If you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation from being offered for me to ask questions. Please note. This event is being recorded.
I would like to turn the call over to Mr. Michael Schafer VP of capital markets and Investor Relations. Please go ahead.
Thank you Nick Good morning, everyone and welcome to Cyrusone first quarter 2021 earnings call today, I'm joined by Bruce Duncan, President and CEO, Kathryn and my Lark, CFO and John and hate them.
Before we begin I would like to remind you that our first quarter earnings release, along with the first quarter financial tables are available on the Investor Relations section of our website at Cyrusone Dot com.
I would also like to remind you that comments made on today's call and some of the responses to your questions deal with forward looking statements related to Cyrusone and are subject to risks and uncertainties factors that may cause our actual results to differ from expectations are detailed in the company's filings with the SEC, which you may access on the.
He sees website or on Cyrusone dot com and we undertake no obligation to revise these statements. Following the date of this conference call except as required by law. In addition, and some of the company's remarks. This morning contain non-GAAP financial measures you can find reconciliations of those measures to the most comparable GAAP measures and their earnings release.
Which is posted on the investors section of the company's website.
And I would now like to turn the call over to our President and CEO Bruce Duncan.
Thank you Michael and welcome to the Cyrusone and first quarter earnings call.
I want to begin by acknowledging and thanking our team for their tremendous effort during the winter storm that impacted Texas and late February and keeping our data centers operational and taking care of our customers.
Well it was a very difficult week for me throughout the state the expertise dedication and hard work.
Of our people helped us manage through these unprecedented circumstances.
Now turning to the quarter, beginning with slide four despite the negative impact of higher electricity rates and taxes due to the storm.
We had good financial results.
Which catherine will discuss in more detail shortly.
We also had a good leasing quarter.
Signing approximately 28 megawatts totaling $35 $4 million and annualized GAAP revenue primarily.
Driven by bookings from Hyperscale customers and our U S markets.
We ended the quarter with a record backlog of approximately $113 million positioning us well for continued growth this year and beyond.
Moving to slide five we completed construction on developments and the New York Metro area and Frankfurt.
Totally and approximately 78000, Colocation square feet and 14 megawatts.
Our development pipeline as at the end of the core here.
And just as a projects across the U S and Europe.
Totally and approximately 380000 Colocation square feet.
And 100 megawatts.
With 69% of the square footage under development pre leased.
We are also excited to announce the execution of an agreement to acquire a 12 acre development site in Frankfurt to support growth and one of our leading market.
We continue to maintain a strong balance sheet with low leverage and significant liquidity to fund our growth and.
<unk> $385 million and available forward equity.
Slide six provides detail on our leisure and results for the core.
As well as the revenue contribution across our portfolio by industry verticals as at the end of March.
Our hyperscale customers accounted for 79%.
Annualized GAAP revenue signed during the quarter.
With the lower average pricing of $103 per kilowatt and with a higher average lease term of 9.7 years, reflecting a mix heavily weighted towards that segment.
Over the trailing 12 months period, our booking have totaled 15% of our base revenue.
This indicates that we are still generating strong top line growth net of the impact of churn.
By having a much larger business than we did a few years ago.
As of the end of the quarter, 51% of our total revenue was from Hyperscale customers and 49% was from enterprise customers.
Turning to slide seven.
Our interconnection revenue was up 10% and the first quarter and the bottom left hand corner of the slide we've highlighted some of our key portfolio metrics, including the NOI contribution of 92% from owned facilities.
In addition, we and our relatively young portfolio, a high quality customer base with nearly 80% of revenue coming from the fortune 1000, and long term leases.
And the right hand side of the slide shows we continue to make good progress on ESG initiatives, which as we have discussed before is it and area of focus for all of our stakeholders.
We recently announced that our Carrollton and location in the Dallas area will be our second net positive water datacenter. Following the announcement of our Phoenix location, and then net positive water data center last year.
Water efficiency projects resulted in a two thirds decrease and water consumption and our Carrollton facility and 2020.
And we continue to take steps towards the for the further conservation and one of the most important natural resources.
Moving to slide eight I want to highlight our U S leasing results since discussing this is an area of emphasis on our third quarter 2020 call.
Given our loss of market share over the last few years.
During the last two quarters, we have averaged approximately 24 megawatts and just over $33 million and annualized GAAP revenue side.
With over 100% compared to the prior four quarter average.
Nearly 60% of the leasing during this period with with Hyperscale customers, including 78% in the first quarter.
Not surprisingly these customers are deploying and our key hyperscale markets.
Notably in Northern Virginia, and Phoenix.
Importantly, we have capacity across our locations to accommodate larger deployments.
And our ability to deliver technical solutions to meet specific customer requirements has contributed to the strong recent performance.
Well the European leasing and the first quarter was softer than it has been and in recent quarters. We continue to have productive discussions with our hyperscale customers about potential opportunities in these locations.
One of the benefits of having a broad and diverse portfolio with a presence across the key data center markets and both the U S and Europe is that we are less dependent on any particular market for leasing to drive growth.
Overall.
We continue to be encouraged by the demand we are seeing particularly from hyperscale customers.
And it is our job as a team to convert this demand into signed leases.
Turning to slide nine as I mentioned earlier, we are excited about the execution of an agreement to acquire a 12 acre development site and Frankfurt.
This will give us 63 megawatts of additional power capacity to continue to grow and one of the strongest data center markets in Europe.
More broadly we have shell and land inventory across key locations and U S and Europe to respond to demand as it materializes.
This represents more than a thousand megawatts of total potential incremental power capacity and was more than double the size of our footprint.
Our development capabilities allow us to bring online significant capacity quickly throughout our portfolio, including the scale builds that are required by hyperscale.
As the slide shows we have delivered 529000 Colocation square feet.
And 95 megawatts over the past 12 months.
Our strong balance sheet.
With substantial available liquidity gives us significant capacity to fund developments at a relatively low cost of capital.
Okay.
In closing.
The demand environment remains strong and we are well positioned to capitalize on opportunities across our markets.
Before I turn the call over to Kathryn and I want to remind you that we will be hosting our virtual investor day on June 16.
I and the other members of the senior management team look forward to reviewing industry trends, our business and our strategy.
And we hope you will you will be able to attend so please RSVP and get that on your calendar with that Kathryn will now provide more color on our financial performance for the quarter and an update on our guidance for the year gathering.
Thank you Brad and <unk>.
Good morning, everyone continuing with slide 11. Please note that our first quarter results were significantly impacted by winter storm Ori.
And the electricity rate impact of the storm on metered power reimbursements.
And at our Dallas, and Houston Data Center was $27 $8 million.
This was the main driver behind the 21% increase and revenue year over year.
And you know this is a zero margin pass through costs that increases our revenue, but dilutes our margin.
Adjusted to exclude the storm impact on metered power from both revenue and property operating expenses, our NOI and adjusted EBITDA margins would have been 61% and 51, 8% respectively.
Additionally, the electricity rate they are and this storm negatively impacted adjusted EBITDA by approximately $3 $7 million.
This was primarily driven by the impact of electricity costs and so.
I'll state it with full service leases at our Texas data centers.
And these leases power is not built in the past.
This adjusted EBITDA impact was largely offset by the receipt of lease termination fees and the reversal of a property tax accrual, which combined total of approximately $3 million.
As a result after adjusting for one time items, including the negative impact of the store.
And the positive impact of the lease termination fees and the reversal of the property tax accrual.
Adjusted EBITDA would have been slightly higher than reported adjusted EBITDA.
And we had indicated in our last quarters call. We expect the churn to be more heavily weighted toward the first half of this year.
And the first quarter churn was slightly elevated compared to recent quarters at one point and 8% with the majority driven by customer exits and footprint consolidation.
We continue to anticipate that full year churn will be in the range of 4% to 6% with second quarter churn higher and churn in each of the last two quarters of the year.
Moving to slide 12.
The revenue contribution from our European market continues to increase as leases in our backlog from that and.
And they'll stay and of the quarter Europe represented approximately 13% of our portfolio up from 11% as of the end of the fourth quarter.
We expect that this trend will continue given the significant proportion of leases across these markets in our backlog.
And the growth opportunity in Europe relative to the current size of our business there.
During the quarter, we exited our Stamford and Mega facility, which was a very small lease facility consisting of 19000 square feet of office space and no colocation space with annualized rent totaling approximately $300000.
We elected not to renew this lease at the exploration and most of our customers at this facility were migrated to our Norwalk location.
Total colocation square foot capacity across our portfolio grew by approximately 12, 5%.
I'm merely driven by demand in Europe, as well as key U S market, such as Phoenix and San Antonio.
Slide 13 provides a snapshot of our development pipeline as of the end of the quarter with projects across nine markets and the United States and Europe.
We have approximately 380000, colocation square feet, and 100 megawatts under development with a relatively even split domestically and internationally.
The Colocation square footage under development is 69% pre leased it's up from 50% at the end of the fourth quarter meaningfully de risking our capital investment.
Upon completion of these projects our portfolio will consist of nearly 2000 megawatts of power with our European markets, representing nearly 20% of that total.
Since last quarter, we have begun development of 102000 square feet, and Northern Virginia, and 62000 square feet in Phoenix in response to strong demand in those markets.
Turning to slide 14, our credit profile remains strong with net debt to adjusted EBITDA of $5 six times, excluding the impact of $385 million and available forward equity.
At the end of the first quarter, we drew down approximately $95 million and equity issuing approximately one 4 million shares.
We expect to draw down the remaining available forward equity in the coming quarters to fund our development needs our settlement obligations and manage our leverage in our targeted mid to upper five times range.
Slide 15 shows the expected commencement timing for leases signed during the quarter as well as our overall backlog, which consists of a record $113 $3 million in annualized GAAP revenue.
We expect that nearly 64 million will commence over the next two quarters.
Of the remaining and moms nearly 50 million is expected to commence in the fourth quarter and beyond.
As noted at the bottom of this slide approximately 26 million relates to the lease that we have discussed in prior quarter, where the customers deploy four five megawatt block.
Annually through mid 2026.
Of the remaining 24 million approximately 5 million is expected to commence at the end of this year.
With 19 million anticipated to commence in 2022 weighted towards the second half of that year.
Moving to slide 16, we are increasing the lower and upper ends of the guidance ranges for total revenue and metered power reimbursements by $30 million to account for the impact of the storm in the first quarter.
And we are reaffirming our other guidance range.
And you think about modeling the second quarter.
Please note that you will have the full run rate impact of the elevated churn that occurred and the first quarter, but slightly elevated second quarter churn and compare it to each of the last two quarters of the year.
Additionally, the lease commencement in the commencement in the second quarter are expected to be more weighted towards the end of day quarter.
And lastly, you will have the full run rate impact of the additional shares that we issued at the end of the first quarter.
In closing the team is focused on consistent and disciplined execution across all areas of our business to ensure that we're well positioned to generate profitable growth.
The secular demand trends that have benefited us and the industry are expected to continue in the coming years, providing a strong foundation for us to create significant value for our shareholders.
We appreciate you participating in our call and we're now happy to take questions.
Given the number of people and the Q, we kindly request that each person ask one.
One question. So that we can stay on schedule and conclude the call on time at noon eastern.
Thank you and Nick Please open the line.
And I'll begin the question and answer session to ask a question you May Press Star then one and you touched on zone.
Using a speakerphone please pick up your handset before pressing the keys.
And all your question. Please press Star then two.
As time, we'll pause momentarily to assemble the roster.
First question is from Jon Atkin of RBC. Please go ahead.
Thanks very much.
So I was just interested and the analyst day, and Bruce or Casper, and if theres anything more you might be able to give us and the way a preview topics that you are going to explore whether strategic financial or operational in nature.
And then <unk>.
I had a question about Europe, you mentioned productive discussions and I wondered if there's and.
Any way that you can characterize kind of late stage pipeline for anything hyperscale related as well as the debt.
Frankfurt land parcel what part of Frankfurt is that if you are able to show that thanks very much.
Thanks, John.
In terms of Investor Day, again, we think it will be great opportunity to spend some time and you do spend time, not only with me and Katherine but with the rest of the senior management team.
Here about sort of our thinking in terms of the business and start thinking about how we think about recycling.
And about in terms of what we think sort of metrics that we're gonna be looking at and things changes and and how we think about goalpost that is what we think is achievable.
It's not gonna be guidance over the next.
Two or three or four years, but what the goal is.
And so we think it'll be a you know a good discussion and we look forward to it. So again, we hope everybody who will join us for that in terms of Europe.
Again, Europe was very light in the quarter in terms of signed bookings, but we're very encouraged as I said and in my remarks about business over there.
There's good demand.
Where you know we've got a great team over there and.
We're working hard on things and nothing to report, but we're encouraged by business.
And I would add Jon good morning, first of all and Europe, and most of our demand and demand is hyper scaler and as you know their hyperscale or don't really work on a quarter to quarter business. So our discussions with the customers are very active and it's just a lumpy business.
And as to the location.
When we get to Investor day, hopefully are.
We will close and we'll tell you where to locate Acacia and but right now since it's not closed.
I'd, rather not talk about it and then and thank you for that and then just on the follow up and so it sounds like multi year outlook.
Would that be for revenues EBITDA and <unk> per share and.
And anything that you've kind of thinking around the type of outlook that you would provide.
Yeah, So well, we'll consider the framework of key metrics and that would help you understand how we run the business and how we see the growth and especially profitable growth top and bottom line, John but against that guidance, but just sort of the goalpost in terms of what we think the cheap.
Understood. Thank you.
Okay.
That's true.
Thank you. The next question is from a recliner BMO capital markets. Please go ahead.
Thank you I was wondering if you can give some color on the markets, where our hyperscale leasing was done and the U S. And then you talk about some of the go to market changes a few quarters ago have you seen that play out and the pipeline.
Sure.
I would say again, if you look at the quarter.
In terms of the Hyperscale demand growth.
Signed leases, Phoenix, and and northern Virginia, and basically neck and neck and Phoenix.
I, just urge them out and a little bit and then Dallas is a distant third but again, we're seeing great demand there in terms of as we look forward I would say that the we have a great team. That's focused on this and we've got great product and we've got availability and and we're encouraged by what we're seeing in terms of demand and again is that.
To us to execute and and.
And the sign leases, but we're encouraged.
I think northern Virginia, and Phoenix in particular, those two markets. We have a line of sight to 100 megawatts or so of capacity. So those are the very key markets for us.
Right and.
And then just on the on the rate increases and utility rate increases obviously unexpected.
Has there been any pushback from customers on that we haven't seen that kind of impact from some of your competitors and.
And obviously, we hope this is a one off event, but it was there anything and you can do differently to prevent these kind of surprises.
Yeah. So let me take this first of all we are and Theyre very close discussions with the customers as well as with the utility providers that provided our.
Power to our sites and.
In terms of.
Pushed back I think it's a collaborative effort with our customers for US. This is a service that we provide for them for that meter power reimbursement and customers and for all and customers. It's it is included in there right. So as we disclosed we've incurred $3 7 million in <unk>.
Cost charges from.
From that portion of our business going forward, we have to see how the.
Our and commodities develop in the market and in specifically and the state of Texas and broader and we will manage this accordingly with our customers.
Got it thank you.
Thank you next question is from Richard Choe Jpmorgan. Please go ahead.
Hi, I was wondering if we can get a little more color on the hyperscale business that you're signing and the U S is it coming from one or two customers or is this from multiple customers over the past few quarters and.
What does the pipeline going forward looks like are you talking to multiple cloud providers. Thank you.
I would say in terms of.
And there's great demand from a.
A number of customers and so you know again and we're encouraged by that in terms of.
And I'll discuss pipeline in terms of.
The funnel on that but again as I said in our remarks, we're very encouraged by what we're seeing and the marketplace and it's up to US to you know lover of solutions to customers and and get leases signed but again.
The demand is out there.
Great. Thank you.
Thank you and our next question Erik Rasmussen with Stifel. Please go ahead.
Okay.
Yes, Thank you may.
And maybe a bookings each day.
And somewhat from Q4, maybe if you could just comment on the types of deals the team is tracking and.
And maybe how that plays into potentially better leasing throughout the quarter and and with that.
<unk> see northern Virginia, Phoenix still playing key roles in debt.
We do feel northern Virginia, and Phoenix continue.
Strong roles and going forward for US. We also think Europe will continue to be very strong force it with the off quarter for us and Europe, but despite that $35 million.
A good number in terms of sales. So we're very happy with that but again as I said demand is demand is good and it's it's you know and.
And U S as in Europe and and.
We're encouraged but again, it's up to us and deliver yeah.
Yeah, Eric and and just to that too I mean, the demand is diverse right just its enterprise and Hyperscale and it's us providing that line of sight for both types of those customers of scale and ability to execute and that's that's really what drives that is what drives those signed leases that Bruce was talking about.
In terms of the first quarter just to clarify the 79% of our mix of whether it came from the Hyperscale customers.
Okay, great. Thank you.
Thank you and our next question from David Raso of Green Street Advisors. Please go ahead.
Hey, Thanks, guys question for you Bruce It feels like the European data Center companies Theres, a new one that's popping up every week focus on development and so I'd love to kind of get your views on how long do you think outside of the development profit margins and Europe will persist before we just start to see I guess, new supply pressure and asking rents.
Alright, it's a good question I would say again Europe, we like Europe, we continue to like Europe, because it's harder to it's harder to find products hard and get the land, it's hard to get the power and Sony.
And so and your habit and special with that being said you know it's competitive over there and but it's up to us in terms of and find the right sites that our customers want and if we can do that we think we can do get decent returns, but theres no question in our mind that returns are coming down and and so over time I think they will.
We'll come down to a more and the U S and.
In terms of our rates.
And sort of and that rates with returns.
That's helpful. And then I guess just on the demand environment, maybe for Hyperscale data centers outside of the top markets in Europe could you maybe talk about that and what the companies you know I guess appetite or how comfortable they are shifting capital outside of some of the top markets.
And we're talking about that Investor day, but I would say that in terms of going to market.
And in new markets, we want to make sure that we have a.
De risk and if we can and to have it pre leased.
And with a customer or you know it's.
<unk>, you know line of sight to leasing and.
Really not going to talk about specific markets until we're in them.
But again, we think that over time, we will go to different markets and we'll talk more about that from Investor day.
Great. Thanks for the color in a day.
Thank you next question comes from Colby <unk> column and please go ahead.
Great. Thank you.
I was wondering if you just gave this and update on the Dublin market.
You guys have a presence there, but can you just remind us what's actually been built.
And just broadly speaking what you would describe the demand and magnitude like up there and then secondly.
And just curious if there's been any changes to sales compensation structure.
And go to market strategy and plate.
And if so.
If you can give us some color on what might have happened and why thank you.
Hi, Colby, it's Katherine I'll take your second question first.
Because as you know every year at the beginning of the year, we look at compensation in terms of targets and it includes our sales compensation as well there hasn't been any.
Substantive substantial changes to the.
Sales plan and there was more all that tweaks the nature and so with that we haven't really seen any impact on our sales organization. So it's been pretty stable team.
Very engaged team and Theyre going after our sales funnel as you see our leasing continues to be strong and in the first quarter. It was at 35 million.
Now in terms of Dublin, and as you know, it's a self build market, but we do have presence there and are working to develop debt and today. If you remember under development, we have 76000, Colocation square feet, which equates to approximately 12 megawatts and we will keep.
Working in this market.
And it's under construction should be completed core.
Yep.
Thank you.
Yes.
Thank you and the next question is from Frank Louthan Raymond James. Please go ahead.
Great. Thank you I wanted to talk about sort of your future rents are you facing any material rent roll Downs you expect to.
The release and and and what are the rates coming in and what are you looking to underwrite two with some with lease renewals going forward.
I guess I'll take that since it's one of my favorite topics as it relates to that.
And renewals and rent roll downs that we don't normally disclose but we're working and a broader framework of our metrics and how we think about it what I do want to point and guide you to is how we think about the churn and specifically elevated churn. This quarter came as I mentioned in my prepared remarks came from.
Footprint consolidations and some customer exits the renewal basis. During the first quarter was very immaterial. So it's not really substantial to talk about roll downs and this quarter, but as we go further and the year there'll be some more renewals that are coming to play and we'll talk about it that.
Okay. Thank you very much.
Yeah.
Thank you our next question from <unk>.
And our golf Ball Wells Fargo. Please go ahead.
Great. Thanks for taking the question. So obviously pricing came down a bit on a per kilowatt basis due to your mix this quarter, but maybe you could just give us some color on what the returns on capital were with that average steel pricing just north of $100 per kilowatt, and then kind of related to that development yield discussion.
And what are you seeing today in terms of your average cost to build and the U S. Specifically have you been able to stay around 7 million per megawatt and some of your more mature markets or are there any impacts from kind of cost inflation and higher land prices, but maybe could drive those development cost a little higher. Thank you. Let me take the first and and John can talk about construction.
And I would say in terms of.
The yields that we're seeing are consistent with what we said before in terms of the 8% to 10% stabilized yields.
And the <unk>.
So again, we're pretty encouraged about that and the nice thing about this business is in terms of the Hyperscale is the long term leases to $9 seven year term and so we feel.
Very good about in terms of that but the yields are Eric within the zone.
The range we've talked about.
Yes, Eric John here, and nice to nice to talk to you.
So firstly I mean, our construction costs are in line with market and it drives to what Bruce and say and keeping those yields and place. We're always looking for efficiency around that build cost like we always have.
To make the right build the right product for our customers. So that's in line as far as commodity pricing and inflation on that stuff, we're not seeing anything impacting us today, we are constantly looking at it we're.
And we're locked in on our equipment pricing till the end of this year and.
And we've always had a diverse kind of focus when we think about shelf construction and we think about steel versus FRP. We look at all those things all the time.
And we'll just pick the right product for the for the cost metric, we're trying to achieve.
Great. Thank you.
Thank you. The next question comes from Jordan Sadler of Keybanc. Please go ahead.
And.
Good morning.
Wanted to touch on Europe for a second I know this is Lee.
Later quarter, there, but true.
And to gauge total availability in terms of what you really have available from lease right now.
And the development pipeline broadly speaking is.
I think a high 60 percentage leased but if we focus in on Europe, how much availability is there.
We've got a bunch of if you look at London, We've got you now.
London, four and five.
Got you.
So it's a little.
A little bit and some of the other projects, but in terms of total I would say we ended up Michael what would it be.
And excess of 100 megawatts across our markets, yes, probably.
Across all of the market there'll be over 100 megawatts and and then if you add our development pipeline to which is 45 megawatts plus we have the land. That's also weird just in the process of acquiring lots and land that we acquired and the last year. So we have a good runway and Europe, and we're really positive about it.
I guess are you speaking to the not yet commenced development largely because I look at Frankfurt, It's 90% leased 252000 square feet of Colo space, and London 148000 feet of Colo Youre, 83% leased.
Amsterdam is fully leased and that's your stabilized portfolio and then.
Among your development portfolio, you've got 45 megawatts of total <unk>.
Underdevelopment and Europe listed and 45.
Jordan I mean, we should will and I think we're going to dive into this and we're in Investor day, but I mean, Amsterdam's and perfect example, we have four and five megawatts and built out there theres three megawatts leased the.
Michelle that standing Theres, a 27 megawatt shell right. So this is how do we turn that capacity into leasable capacity quickly right. So key is where do we have land and shell and that's what Kathryn was speaking to plus we have additional land and and Amsterdam for another 27 megawatt shell. So theres kind of that combination between land capacity shell capacity and built.
Cassidy.
And they kind of fall into all different buckets, depending on how soon we could execute on those.
You peg it at over 100, Megs basically yes.
Okay.
And then.
One other question just on.
Coming back to me.
<unk> metrics.
And just what's your thoughts and I mean, you've had sort of debt.
Nearing a year.
Looking at this business and spending time on this business.
What are your thoughts out and sort of offering.
Leasing spreads.
Offering up leasing spreads on renewals leasing spreads on yeah.
I think we're going to talk about in terms of Investor day sort of how we look at churn and how we look at and at that so I think.
And I talk about debt so make sure you show up.
I'll be there and then.
What about your escalators on net $9 seven years leases you guys and again, we don't.
Specific leases, but if you looked at and general with our leases we have about a 2% escalation on all of our leases.
Okay, and Youre still getting net.
Yes.
And Thats, a combination of Hyperscale and enterprise in terms of it and it averages to about 2%.
Okay. Thank you.
Thank you and the next question is from Tim long of Barclays. Please go ahead.
Thank you.
I was hoping to ask about kind of what youre seeing on the on the enterprise side of the business I guess leasing it looks like it was down a little bit quarter on quarter.
And just give us a little color kind of what youre seeing on the pricing front.
And any any verticals that are that are coming out better.
Or worse, and maybe a little bit on pipeline as we get.
To reentry do you expect to the office and expect to see more new logos and that business. Thank you, Michael and I take that yeah sure. So as Bruce mentioned in his remarks, you know we had a really strong fourth quarter. Among enterprises was $20 million times little bit lighter and the first quarter relative to what we've seen historically.
Part a function of that.
We remain encouraged by what we're seeing in that segment, it's across verticals it's across markets.
And and we feel good about the pricing Tim varies by deal right I mean, the bigger enterprise deal is the.
Pricing is going to reflect that so there's a wide variety of deals sizes out there, which.
The impacts of pricing and terms of new logos I think we've been relatively consistent in terms of.
What we've brought in over the past few quarters, it's been a little bit lighter than what we had brought in.
And prior years, but I think once we get on the other side of this pandemic, we will probably see an increase and number of new customers, we're able to add okay. Thanks, and just a follow up.
It sounds like a decent growth and interconnect, but still small and a lot of the new leases contain that and so could you talk a little bit about when you are and what you think as far as you.
Are you getting the new customer growth, but but volume growth for that business to become more meaningful.
Yes, I mean, we've always viewed interconnection as an enabler of our co location business.
And really what we're seeing now is what we've seen historically, it's a growth and cross connects as we're building. These ecosystems within data centers, and then customers enterprise customers, particularly taken advantage of the SDN offerings with Mega Port in particular, and that's what we expect to see going forward.
Forward.
Net revenue this quarter was impacted we had a prior period credit for a customer that and.
Impacted revenue, we had a little bit of churn, but again, we're we're view and interconnection and as we always have as an enabler of our co location business.
Thank you.
Sure.
Yeah.
Thank you. Our next question from Nick del Deo Moffett Nathan. Please go ahead.
Hey, Thanks for taking my question.
Or are you guys observe and any change in the propensity for the major hyperscale or is in sourced versus outsourced or does your market intelligence and customer conversations suggest any changes and I bet on that front.
Or is this kind of the usual seasonal ebb and flow.
Yes, I think it's the usual ebb and flow I mean, it all depends in terms of they have time and they'd love to do it themselves in terms of if we have the right site and and and they need the.
This is a demand and we're providing a solution for them. So we think and we think that continues in terms of.
We help provide solutions to them as long as we can keep doing that we think it's a great business for us and and.
And and for them. So we're pretty encouraged and I think Jack yes, Nick I mean, I think for the especially the large hyper scaler and even some of these enterprises at scale, we think about I mean people, who would do their own versus lease with US is they view us as an extension of their team. They have the demand that they need to hit for their cloud business or what.
Their businesses right and leasing is a lever that they use right and they want to lease with people who are going to deliver.
Execute on the projects hit the sustainability goals hit the safety goals I mean, it's a.
And not an easy business right and it takes it and army to do that and they expect you to perform just like they do right.
And what better or better.
Yes, sure bad debt.
Alright, well thank you okay.
Thank you. The next question is from Jeff Cabal of Wolfe Research. Please go ahead.
Okay.
Yes, thanks very much for taking the question.
Ah.
A couple of quarters ago, you adjusted the yield targets that you were hoping for and the long term and and I guess I'm wondering to what extent.
That is reverberating and the marketplace and how long that.
That effect will be with you when you start to lap that at some point or will reverberate for a couple.
A couple of years, perhaps.
And I guess, a second side point that you've introduced a moment ago. I think is it sounds like you were a little worried about the European pricing more sales in the U S, which is holding up but it also suggested and so.
Yes.
Mr presents and it sounds as though you thought that the U S pricing actually make harmonized.
Europe price.
And over time.
To be clear and number one is it relates to the U S and when we went down to the 8% to 10% threshold in terms of our view of what yields are acceptable for us we weren't doing that and lead the market. We're doing that to meet the market that the market was already there. So we did that we also in terms of I think that provide us in the March.
And I'd say also in terms of capacity weak development.
Cassie for our clients that we had in the markets like Northern Virginia, Dallas and.
And in Phoenix, So I think that that's helped so we're very encouraged by what we've seen there in terms of yields or rents.
Rents are higher in Europe, the costs are higher and Europe do you guys.
After that and in terms of the overall yields in Europe.
Traditionally been higher than the U S. But I do think over time that those would come down some but the pricing is higher in Europe, and the U S because of the classes.
Much higher.
Okay. Thank you and then just to follow up on that.
Eight to 10.
Uh huh.
And how long will that be.
The visible and the financials and so somebody that works its way through the system and two or three quarters, a year or just as renewals come up is the strength of new benchmark that will.
And that we'll look to.
Well I'm not sure what you are saying, but I would say again.
And the yields that we're getting people in there and in like 16 weeks, you know you're going to see debt.
They are and where some of these are developments that would take longer and.
And if it takes longer you know.
Show up and in a year or so but go ahead and scan.
Yeah, and Jeff If you go back a year ago.
And we had our yield expectations and the mid teens or.
So and we passed on some of the deal.
And so new business was impacted by that and as Bruce pointed out we are just we were at.
I'm going to add the market, we were not leading the market when we lowered our yields 8% to 10%. So this is the market expectations for business and that drives the pricing in the marketplace and we are able to be competitive at that level because.
With our structure are able to generate sales.
Same double digit returns on equity because of the leverage and the cost of debt that we yes, just to follow up with Kathryn point.
If you look at it you look at our and you say you do and a 9% deal right and you use our leverage of five eight times and you're assuming interest rates of 3%.
What that means is your return on equity on the equity youre, putting in will yield a 15 and 16% return and so it's a very attractive.
The return for our investors, we think so again and that's at a 9% and that 10% range or whatever so we think it's a pretty attractive returns still.
Thank you Bob.
Yeah.
Thank you next question from Michael from Bank of America. Please go ahead.
Yeah, Hi, good morning. Thank you for the questions first one is on the commencement timing and Florida Slide number 15, and the deck and I don't know.
It's hard to compare quarter over quarter, but it doesn't appear on the commencement got pushed back.
And the second half of 2021, so I hope you could comment on that and if that assessment is correct maybe comment on what's pushing out the commencement timing is the customer behavior is and your ability to.
Provide the space.
Providing that change and Michael.
Relative to the commencement timing that we had provided last quarter. There was a significant shift I think maybe a couple million dollars here and there, but that's normal because we're estimating and we update our estimates every quarter, but.
There was not a significant shift this quarter and our expectations relative to last quarter and also I would point out. The fact that the leases that we signed this quarter that $35 4 million are all expected to commence within the four quarters.
Great and one more if I could Bruce I think you mentioned when addressing the analyst day.
Business, and then recycling and I think you mentioned and I'm, assuming that you don't mean ESG, you mean asset sales and if that's correct.
Can you give us a highlight of what types of assets looking to recycle.
Timing for that CVR.
CBRE reported net.
Well I would love to give you all that information and you just Tony in June 16th we look forward.
Yeah.
Great I appreciate it.
Okay.
Thank you next question comes from Simon Flannery from Morgan Stanley. Please go ahead.
Alright, Thank you and good morning, so nice to see the 69% pre leased space how are you thinking about.
And your focus on making sure you have enough space and some of the harder markets like Northern Virginia, and Phoenix is there any plans how high would you let that run before you start.
Planning and the night basis.
And that's a very good question and again, we look at it and see the demand and because we want to make sure. We have capacity. So we're looking at debt because there is great demand in both of those both northern Virginia and Phoenix. So we're looking at debt and making sure. We're gonna have capacity available so.
Okay, and then what about new markets either in the U S or in Europe.
This will be and a lot of talk about the.
True to <unk>.
Focus of customers on these sort of second and third tier markets theatrical comes more important do you see opportunities there.
I would say on the edge.
It's not going to be our primary focus I would say that we've got a big development site in Santa Clara, John and Mike will talk about that and we're excited about.
Yes, and Thats, just nice to talk to you.
Sure.
We're looking for for our entitlement should be done by the end of the year. There. So I mean thats it.
And as a high barrier to entry kind of market. So we're really excited about that and I think just I think project and huge project 77 net yeah.
Yeah, So 70 megawatt project there.
And one of the Hyperscale markets, we're not in right that we're looking forward to getting into as far as the second and third tier markets I think Bruce mentioned it like.
And that's kind of stuff's going to happen with an anchor at scale right. If we have an anchor to go into that market.
And that's when we'll look at that stuff.
Okay. Thank you.
Thank you and next question from Sami Badri from Credit Suisse. Please go ahead.
Alright. Thank you I just have a couple.
Katherine maybe the person for you regarding the customer and we saw consolidated footprint.
Industries with those customers from.
And from verticals.
Hi, Sami so debt.
You're referring to the term debt, we had customers exiting and consolidating footprint it's across a couple it's not one specific customer.
Cost of verticals as well.
And.
And it happened actually in the Dallas market and so we already have new demand for that space that we're looking out into <unk>.
Okay got it.
The other question I had was.
And you guys signed out and more per kw, one and three.
Kw and the quarter and then compare that to just the last quarter or even just year on year, that's down quite a bit now the reason why I kind of just want to understand is one of the three number a little bit better here that you've laid out and 8% to 10% return target is eight.
He went to 10% achievable and one with III and what does this one and three dips down to say 95, 8% to 10 still achievable.
And achieve a remember the reason it's 102 is because the mix.
And the mixes with our Hyperscale.
So this is it.
Yeah.
Last quarter it was like 133 cars.
Had the enterprise with it and whatever and it's also in the U S versus and Europe and rates are lower and the U S than Europe. So I would say at the rates to one or two we have very good returns as I said earlier.
103 were in the.
We're in the range of the 8% to 10% and it's a very good return on a leverage basis, yes. So we underwrite our deals to that yield of 8% to 10%. So the fact that we close these bookings that means that meets our underwriting criteria.
Okay got it and then maybe Catherine one last question here is from a modeling how much cash do you guys need on hand, and on the balance sheet and just keep running the business and I only ask just because you are straddling different regions. Now you have a lot of long dated debt.
Development projects, taking place just how much cash should we be modeling.
On a quarterly run rate basis, yeah, so actually the way to think about it and theres not a minimum cash that we want to keep on the balance sheet. We have access to revolving credit facilities. We also have a forward equity.
$385 million, which we are we use that as the sources to fund their business and their run rates. So if you look at between the leverage and our access to capital and the liquidity of $1 6 billion. Overall, we are pretty much well positioned for the two five debt the year of development.
And then looking forward, we are always considering forward ATM programs and.
Vehicle to fund our future development.
And it's Jamie I'd also add to that just be mindful that we're operating with three different currencies NASA USD, and then and Europe, obviously sterling and Euro. So you have to have minimum levels across those currencies to be able to fund short term requirements.
Got it got it.
Maybe just.
And maybe asking this question a little bit differently do you guys need $30 million of cash on your balance sheet and you guys need more like $150 million of cash at any given quarter on your balance sheet.
Again, it depends it depends on any quarter, what you've seen our range of cash on hand from 30 million to 200 million. So thats pretty good wide range, but we manage it according to our leverage and funding capacity that we need and just bear in mind that we did draw it out and $95 million and equity at the very end of the first quarter.
And then we had a dividend payment that we funded as we always do at the beginning of the.
And the next core.
Okay got it thank you.
Thank you Ken if you have a question please press star.
And Mark.
Our next question comes from Tayo Okusanya of Mizuho. Please go ahead.
Hi, yes, good morning, so most smokeless and on guidance a little bit.
You did talk about.
The <unk> <unk> negative impact from the from the power situation and if and when you kind of back out all the onetime items, you probably would've done a little bit better than your reported number.
Have you kind of talking about a pretty decent kind of leasing outlook. Despite some of the concerns around Europe and.
And your.
Churn and Thats, what does it kind of slow going forward, So I guess.
And when I look at all of that I'm, just kind of curious number one why guidance wasn't raised maybe what some other offsetting factors could be over the course of the rest of the year to kind of.
Kind of maintained guidance just because it felt like there was some type of momentum from from <unk> to 'twenty, one results and some of your commentary today on the earnings call.
Thank you let me take that.
We are staying within our stated guidance because a lot of debt.
Activity during the first quarter of where as I mentioned in my prepared remarks, we're off one time nature, whether it's a negative impact of storm you worry or a couple of positive events for example lease termination fees and others so from that perspective.
And to look at our margin if adjusted for those one time items for the remainder of the year stay in that 60% or so which is within the range of our guidance and in terms of that.
Bottomline and effort normalized <unk> per share is the guidance. We also stay within the range.
We are raising the equity and we.
Took down $85 million at the end of the quarter.
And.
So we continue to have to take $385 million for the remainder of the year. So you've got to be mindful of that within.
Stated guidance.
That's helpful. Thank you.
Okay. Thank you and no further questions from I'll turn the call back over Mr. Bruce Duncan for closing remarks. Thank you operator, let me conclude with two things first if you have any questions. Please feel free to reach out to Michael Catherine and me and don't forget to RSVP to our for our Investor Day on June 16th and <unk>.
Finally, and most importantly, I want to thank my Cyrusone teammates for all their good work this quarter as a result of your hard work and we're making good progress and your efforts are much appreciated you and extraordinary team and we thank you for all you're doing to make us better. So thank you all and thank you for the call and quite since call. It. Thank you.
Call is now concluded. Thank you for attending today's presentation you may now disconnect.