10-Q 1 cone-20210930.htm 10-Q cone-20210930

Washington, D.C. 20549

For the quarterly period ended September 30, 2021

For the transition period from ___________ to ___________
Commission File Number: 001-35789

CyrusOne Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.01 par valueCONEThe NASDAQ Global Select Market
1.450% Senior Notes due 2027CONE27The Nasdaq Stock Market LLC

    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      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      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
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
    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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes      No  
There were 126,912,271 shares of common stock outstanding as of October 22, 2021 with a par value of $0.01 per share.


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 of the issued and outstanding operating partnership units of CyrusOne LP as of September 30, 2021, except for de minimis holdings by certain officers and employees of the Company of LTIP Units (as described below) in CyrusOne LP as a result of awards granted under the LTIP (as defined below), 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 our Annual Report on Form 10-K for the year ended December 31, 2020, as amended ("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 September 30, 2021, the total number of outstanding shares of our common stock was approximately 126.9 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 as previously disclosed we elected to early adopt amended Regulation S-K Items 301, 302 and 303 in our Form 10-K.


CyrusOne Inc.
(in millions, except share and per share amounts)
September 30, 2021December 31, 2020
Investment in real estate:
Land$211.6 $208.8 
Buildings and improvements2,336.3 2,035.2 
Equipment4,064.7 3,538.9 
Gross operating real estate6,612.6 5,782.9 
Less accumulated depreciation(2,080.4)(1,767.9)
Net operating real estate4,532.2 4,015.0 
Construction in progress, including land under development729.8 982.2 
Land held for future development293.0 268.3 
Total investment in real estate, net5,555.0 5,265.5 
Cash and cash equivalents456.4 271.4 
Rent and other receivables (net of allowance for doubtful accounts of $2.1 and $3.5 as of September 30, 2021 and December 31, 2020, respectively)
409.2 334.2 
Restricted cash24.3 1.5 
Operating lease right-of-use assets, net148.5 211.4 
Equity investments30.3 67.1 
Goodwill455.1 455.1 
Intangible assets (net of accumulated amortization of $272.5 and $249.3 as of September 30, 2021 and December 31, 2020, respectively)
132.7 157.8 
Other assets128.0 133.4 
Total assets$7,339.5 $6,897.4 
Liabilities and equity
Debt$3,515.1 $3,409.0 
Finance lease liabilities157.2 29.1 
Operating lease liabilities183.9 249.1 
Construction costs payable104.6 133.0 
Accounts payable and accrued expenses192.1 151.3 
Dividends payable66.3 63.3 
Deferred revenue and prepaid rents227.9 174.1 
Deferred tax liability41.9 53.0 
Other liabilities45.0 77.3 
Total liabilities4,534.0 4,339.2 
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value, 100,000,000 authorized; no shares issued or outstanding
Common stock, $0.01 par value, 500,000,000 shares authorized and 126,913,710 and 120,442,521 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
1.3 1.2 
Additional paid in capital3,952.7 3,537.3 
Accumulated deficit(1,125.3)(966.6)
Accumulated other comprehensive loss(23.2)(13.7)
Total stockholders’ equity2,805.5 2,558.2 
Total liabilities and equity$7,339.5 $6,897.4 

The accompanying notes are an integral part of the condensed consolidated financial statements.

CyrusOne Inc.
(in millions, except per share data)
Three Months Ended September 30,Nine Months Ended September 30,
Revenue$304.1 $262.8 $887.3 $765.1 
Operating expenses:
Property operating expenses133.4 109.7 391.0 301.3 
Sales and marketing3.6 4.5 11.1 13.0 
General and administrative30.8 29.7 70.4 76.9 
Depreciation and amortization127.5 113.1 372.6 330.9 
Transaction, acquisition, integration and other related expenses0.2 1.6 0.4 2.2 
Impairment losses and loss on asset disposals0.1 8.8 0.7 11.1 
Total operating expenses295.6 267.4 846.2 735.4 
Operating income (loss)8.5 (4.6)41.1 29.7 
Interest expense, net(17.3)(13.3)(47.2)(43.2)
Gain on marketable equity investment 4.7 2.4 69.8 
Loss on early extinguishment of debt (3.1) (6.5)
Foreign currency and derivative gains (losses), net14.4 (22.9)31.2 (31.7)
Other expense (income)0.1  (0.1) 
Net income (loss) before income taxes5.7 (39.2)27.4 18.1 
Income tax benefit1.0 1.9 4.9 4.3 
Net income (loss)$6.7 $(37.3)$32.3 $22.4 
Weighted average number of common shares outstanding - basic124.2 118.7 122.4 116.3 
Weighted average number of common shares outstanding - diluted124.3 118.7 122.5 116.7 
Net income (loss) per share - basic$0.05 $(0.32)$0.26 $0.19 
Net income (loss) per share - diluted$0.05 $(0.32)$0.26 $0.19 

The accompanying notes are an integral part of the condensed consolidated financial statements.

CyrusOne Inc.
(in millions)
Three Months Ended September 30,Nine Months Ended September 30,
Net income (loss)$6.7 $(37.3)$32.3 $22.4 
Other comprehensive (loss) income:
Foreign currency translation adjustment(27.0)36.8 (42.0)26.9 
Net gain (loss) on cash flow hedging instruments13.6 (20.9)32.5 (31.5)
Comprehensive (loss) income$(6.7)$(21.4)$22.8 $17.8 

The accompanying notes are an integral part of the condensed consolidated financial statements.

CyrusOne Inc.
(in millions)

Stockholders' Equity
 Shares of Common Stock OutstandingCommon StockAdditional
Accumulated Other Comprehensive Income (Loss)Total
Balance as of January 1, 2020114.8 $1.1 $3,202.0 $(767.3)$(1.2)$2,434.6 
Net income— — — 14.7 — 14.7 
Issuance of common stock, net0.2 0.1 0.5 — — 0.6 
Stock-based compensation expense— — 3.7 — — 3.7 
Tax payment upon exercise of equity awards— — (6.3)— — (6.3)
Foreign currency translation adjustment— — — — (24.0)(24.0)
Net loss on cash flow hedging instruments— — — — (1.1)(1.1)
Dividends declared, $0.50 per share
— — — (58.4)— (58.4)
Balance as of March 31, 2020115.0 $1.2 $3,199.9 $(811.0)$(26.3)$2,363.8 
Net income— — — 45.0 — 45.0 
Issuance of common stock, net1.9  102.8 — — 102.8 
Stock-based compensation expense— — 3.3 — — 3.3 
Tax payment upon exercise of equity awards— — (0.1)— — (0.1)
Foreign currency translation adjustment— — — — 14.1 14.1 
Net loss on cash flow hedging instruments— — — — (9.5)(9.5)
Dividends declared, $0.50 per share
— — — (58.7)— (58.7)
Balance at June 30, 2020116.9 $1.2 $3,305.9 $(824.7)$(21.7)$2,460.7 
Net loss— — — (37.3)— (37.3)
Issuance of common stock, net3.5  222.5 — — 222.5 
Stock-based compensation expense— — 6.7 — — 6.7 
Tax payment upon exercise of equity awards— — (2.2)— — (2.2)
Foreign currency translation adjustment— — — — 36.8 36.8 
Net loss on cash flow hedging instruments— — — — (20.9)(20.9)
Dividends declared, $0.51 per share
— — — (61.9)— (61.9)
Balance at September 30, 2020120.4 $1.2 $3,532.9 $(923.9)$(5.8)$2,604.4 

The accompanying notes are an integral part of the condensed consolidated financial statements.

CyrusOne Inc.
(in millions)

Stockholders' Equity
 Shares of Common Stock OutstandingCommon StockAdditional
Accumulated Other Comprehensive Income (Loss)Total
Balance as of January 1, 2021120.4 $1.2 $3,537.3 $(966.6)$(13.7)$2,558.2 
Net income— — — 18.2 — 18.2 
Issuance of common stock, net2.1 — 95.8 — — 95.8 
Stock-based compensation expense— — 4.4 — — 4.4 
Tax payment upon exercise of equity awards— — (8.9)— — (8.9)
Foreign currency translation adjustment— — — — (15.0)(15.0)
Net gain on cash flow hedging instruments— — — — 23.9 23.9 
Dividends declared, $0.51 per share
— — — (61.8)— (61.8)
Balance as of March 31, 2021122.5 $1.2 $3,628.6 $(1,010.2)$(4.8)$2,614.8 
Net income— — — 7.4 — 7.4 
Issuance of common stock, net1.5  98.4 — — 98.4 
Stock-based compensation expense— — 4.3 — — 4.3 
Net loss on cash flow hedging instruments— — — — (5.0)(5.0)
Dividends declared, $0.51 per share
— — — (63.3)— (63.3)
Balance at June 30, 2021124.0 $1.2 $3,731.3 $(1,066.1)$(9.8)$2,656.6 
Net income— — — 6.7 — 6.7 
Issuance of common stock, net2.9 0.1 213.6 — — 213.7 
Stock-based compensation expense— — 8.5 — — 8.5 
Tax payment upon exercise of equity awards— — (0.7)— — (0.7)
Foreign currency translation adjustment— — — — (27.0)(27.0)
Net gain on cash flow hedging instruments— — — — 13.6 13.6 
Dividends declared, $0.52 per share
— — — (65.9)— (65.9)
Balance at September 30, 2021126.9 $1.3 $3,952.7 $(1,125.3)$(23.2)$2,805.5 

The accompanying notes are an integral part of the condensed consolidated financial statements.

CyrusOne Inc.
(in millions)
Nine Months Ended September 30,
Cash flows from operating activities:
Net income$32.3 $22.4 
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation and amortization372.6 330.9 
Provision for bad debt expense(1.0)0.3 
Gain on marketable equity investment(2.4)(69.8)
Foreign currency and derivative (gains) losses, net(31.2)31.7 
Proceeds from swap terminations 2.9 
Impairment losses and loss on asset disposals0.7 11.1 
Loss on early extinguishment of debt 6.5 
Interest expense amortization, net5.7 5.2 
Stock-based compensation expense17.2 13.7 
Deferred income tax benefit(8.0)(7.1)
Operating lease cost15.3 15.0 
Other (expense) income(0.2)0.6 
Change in operating assets and liabilities:
Rent and other receivables, net and other assets(90.6)(29.1)
Accounts payable and accrued expenses42.9 22.0 
Deferred revenue and prepaid rents54.3 2.3 
Operating lease liabilities(18.2)(16.7)
Net cash provided by operating activities389.4 341.9 
Cash flows from investing activities:
Investments in real estate(580.2)(692.2)
Proceeds from sale of equity investments46.6 31.8 
Equity investments(7.4)(6.5)
Proceeds from the sale of real estate assets4.4 0.3 
Net cash used in investing activities(536.6)(666.6)
Cash flows from financing activities:
Issuance of common stock, net407.9 325.9 
Dividends paid(187.9)(174.7)
Proceeds from revolving credit facility173.4 595.5 
Repayments of revolving credit facility(610.5)(966.7)
Proceeds from Euro bond603.1 561.2 
Proceeds from unsecured term loan 1,100.0 
Repayments of unsecured term loan (1,400.0)
Proceeds from issuance of senior notes 395.2 
Payment of deferred financing costs(5.0)(15.1)
Payments on finance lease liabilities(3.5)(2.0)
Tax payment upon exercise of equity awards(9.6)(8.6)
Net cash provided by financing activities367.9 410.7 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(12.9)(5.8)
Net increase in cash, cash equivalents and restricted cash207.8 80.2 
Cash, cash equivalents and restricted cash at beginning of period272.9 77.7 
Cash, cash equivalents and restricted cash at end of period$480.7 $157.9 
Supplemental disclosure of cash flow information:
Cash paid for interest, including amounts capitalized of $15.6 million and $17.0 million in 2021 and 2020, respectively
$45.8 $36.3 
Cash paid for income taxes4.0 3.2 
Non-cash investing and financing activities:
Construction costs payable104.6 168.2 
Dividends payable66.3 63.1 
The accompanying notes are an integral part of the condensed consolidated financial statements.

CyrusOne Inc.
(in millions of dollars, except per share)

1. Description of Business

CyrusOne Inc., together with CyrusOne GP (the "General Partner"), a wholly-owned subsidiary of CyrusOne Inc., through which CyrusOne Inc. 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 September 30, 2021, all of the issued and outstanding operating partnership units of CyrusOne LP are owned, directly or indirectly, by the Company except for de minimis holdings by certain officers and employees of the Company of LTIP Units (as described below) in CyrusOne LP as a result of awards granted under the LTIP (as defined below). 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 57 data centers, including one recovery center, located in the United States, United Kingdom, Germany, The Netherlands, The Republic of Ireland, Singapore and France.
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. Summary of Significant Accounting Policies
Risks and Uncertainties
The novel strain of the coronavirus (COVID-19) identified in China in late 2019 has spread globally and has resulted in authorities implementing numerous measures to attempt to contain the virus. This has included 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. We have continued to implement restrictions on physical participation in meetings and limit business travel, which have disrupted how we operate our business. 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, including variants such as Delta, the extent and effectiveness of containment actions, the rate and effectiveness of vaccinations 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. These factors and the continuing uncertainty around them 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.
Interim Unaudited Financial Information
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission ("SEC") on February 19, 2021. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been omitted from this report on Form 10-Q pursuant to the rules and regulations of the SEC.
Results for the interim periods in this report are not necessarily indicative of future financial results and have not been audited by our independent registered public accounting firm. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary to present fairly our condensed consolidated financial statements as of September 30, 2021 and December 31, 2020, and for the three and nine months ended September 30, 2021 and 2020. These adjustments are of a normal recurring nature and consistent with the adjustments recorded to prepare the annual audited consolidated financial statements as of December 31, 2020. All amounts reflected are in millions except share and per share data.


CyrusOne Inc.
(in millions of dollars, except per share)

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries and any consolidated variable interest entities. All intercompany balances and transactions have been eliminated in consolidation.
Investment in Real Estate
Acquisition of Properties
Investment in real estate consists 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.
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 did not record any impairment losses for the three or nine months ended September 30, 2021. For the three and nine months ended September 30, 2020, we recognized an impairment loss of $8.8 million and $11.2 million, respectively, which includes an $8.8 million impairment loss in both periods 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 in the nine months ended September 30, 2020 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. 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 7, Equity Investments.

Our 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.


CyrusOne Inc.
(in millions of dollars, except per share)

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 Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”). 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 Condensed Consolidated Balance Sheets. 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 generally 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 ("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.
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 $0.7 million and $0.4 million as of September 30, 2021 and December 31, 2020, respectively. Contract liabilities were not material as of both September 30, 2021 and December 31, 2020.


CyrusOne Inc.
(in millions of dollars, except per share)

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 ASC 842. Straight-line rent receivable, net was $175.8 million and $172.6 million at September 30, 2021 and December 31, 2020, 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.
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 Condensed 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 (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.

CyrusOne Inc.
(in millions of dollars, except per share)

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 gains (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 (loss) income and reclassify it to the applicable line item in the Condensed 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 (loss) income and recognize the amount in Interest expense, net in the Condensed 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 gains (losses), net in the Condensed 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 Condensed Consolidated Statements of Operations.

3. Recently Issued Accounting Standards

Recently Adopted Accounting Pronouncements

Reference Rate Reform

On March 12, 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2021, we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives in our financial statements consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Income Taxes

On January 1, 2021, we adopted 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 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.

New Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Topic 815). This ASU reduces the number of accounting models for

CyrusOne Inc.
(in millions of dollars, except per share)

convertible debt instruments and convertible preferred stock, and amends the guidance for the derivatives scope exception for contracts in an entity's own equity. The ASU also amends and makes targeted improvements to the related earnings per share guidance. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The standard allows for either modified or full retrospective transition methods. The Company is currently evaluating this ASU to determine the impact it may have on its financial statements.

4. 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 represented approximately 19% of our total revenue for both of the nine months ended September 30, 2021 and 2020.

At September 30, 2021, 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 September 30, 2021Minimum Lease Payments

At September 30, 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 September 30, 2020Minimum Lease Payments

CyrusOne Inc.
(in millions of dollars, except per share)

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 three and nine months ended September 30, 2021 and 2020 lease revenue disaggregated by primary revenue stream is as follows (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
Lease revenue2021202020212020
Colocation (Minimum lease payments)$236.4 $212.5 $681.5 $624.0 
Metered power reimbursements (Variable lease payments)62.5 44.6 188.6 116.5 
Total lease revenue$298.9 $257.1 $870.1 $740.5 

For the three and nine months ended September 30, 2021 and 2020, revenue from contracts with customers disaggregated by primary revenue stream is as follows (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
Revenue from contracts with customers2021202020212020
Equipment sales and services$0.8 $0.6 $3.4 $10.0 
Other revenue4.4 5.1 13.8 14.6 
Total revenue from contracts with customers$5.2 $5.7 $17.2 $24.6 

Other revenue related to contracts with customers in the table above includes managed services and other services revenue of $3.6 million and $11.4 million for the three and nine months ended September 30, 2021, respectively, and $4.0 million and $11.9 million for the three and nine months ended September 30, 2020, respectively.

Total revenues from contracts with customers generated from operations outside of the United States were insignificant for the three and nine months ended September 30, 2021 and $0.2 million and $4.4 million for the three and nine months ended September 30, 2020.

Accounts receivable associated with revenue from contracts with customers were $0.3 million and $2.3 million as of September 30, 2021 and December 31, 2020, respectively.

5. Leases - As a Lessee

Right-of-use ("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.

ASC 842 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 Condensed Consolidated Statements of Operations. As a result of electing the package of practical expedients, initial direct costs incurred prior to January 1, 2019 (the effective date for ASC 842) 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 Condensed 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.


CyrusOne Inc.
(in millions of dollars, except per share)

We operate seven data center facilities and have a data center under development subject to finance leases. The remaining terms of our data center finance leases range from one to twenty-nine 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 Condensed Consolidated Balance Sheets. In addition, we lease 10 data centers and 3 offices supporting our sales and corporate activities under operating lease agreements. Our operating leases have remaining lease terms ranging from approximately one year to twenty-three 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):
Three Months Ended September 30,Nine Months Ended September 30,
Operating lease cost$5.0 $5.1 $15.3 $15.0 
Finance lease cost:
   Amortization of assets0.4 0.7 1.5 1.5 
   Interest on lease liabilities1.1 0.4 2.3 1.1 
Total net lease cost$6.5 $6.2 $19.1 $17.6 

Supplemental balance sheet information related to leases is as follows (in millions, except lease term and discount rate):
 September 30, 2021December 31, 2020
Operating leases:
   Operating lease right-of-use assets$148.5$211.4
   Operating lease liabilities$183.9$249.1
Finance leases:
   Property and equipment, at cost$163.1$34.7
   Accumulated amortization(8.6)(7.1)
Property and equipment, net$154.5$27.6
Finance lease liabilities$157.2$29.1
Weighted average remaining lease term (in years):
Operating leases16.514.3
Finance leases(a)
Weighted average discount rate:
Operating leases4.0 %3.7 %
Finance leases(a)
2.6 %4.7 %
(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 Condensed Consolidated Balance Sheets.


CyrusOne Inc.
(in millions of dollars, except per share)

Supplemental cash flow and other information related to leases is as follows (in millions):
 Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$18.2 $16.7 
Operating cash flows from finance leases2.3 1.1 
Financing cash flows from finance leases3.5 2.0 
Non-cash right-of-use assets obtained in exchange for lease liabilities:
Operating leases$ $56.9 
Finance leases$128.4 $ 

Maturities of lease liabilities were as follows as of September 30, 2021 (in millions):
 Operating Leases Finance Leases
2021$6.6 $2.0 
202224.7  7.7 
202320.8  6.6 
202416.2  6.4 
202514.4  6.5 
20269.4  6.9 
Thereafter159.7  187.1 
Total lease payments$251.8  $223.2 
Less: Imputed interest(67.9) (66.0)
Total lease obligations$183.9  $157.2 

Maturities of lease liabilities were as follows as of December 31, 2020 (in millions):
 Operating Leases Finance Leases
2021$27.8 $4.2 
202227.9 3.0 
202323.9 2.0 
202419.4 1.4 
202517.8 1.5 
Thereafter221.6 30.5 
Total lease payments$338.4  $42.6 
Less: Imputed interest(89.3)(13.5)
Total lease obligations$249.1  $29.1 


CyrusOne Inc.
(in millions of dollars, except per share)

6. Investment in Real Estate

Land for future development

During the nine months ended September 30, 2021, the Company purchased land for future development in Madrid, Spain; Amsterdam, The Netherlands; San Antonio, Texas and Frankfurt, Germany totaling 22 acres for $39.8 million. During the nine months ended September 30, 2020, the Company purchased land for future development in Frankfurt, Germany and London, United Kingdom totaling 35 acres for $58.7 million.

Leases of real estate

In February 2021, the Company entered into a 20-year lease comprising a 130,000 square feet building and commenced development of a 18 megawatt ("MW") data center in London, United Kingdom. We have three renewal options for 15 years each which were not reasonably certain at commencement and the lease was classified as an operating lease. In June 2021, the Company entered into lease amendments for the two data center leases located in London, United Kingdom to extend the lease terms. Per lease modification accounting rules under ASC 842, these leases were classified as finance leases on the modification effective date. Previously these leases were accounted as operating leases. The finance lease asset and liability are presented in Buildings and improvements and Finance lease liabilities in the Condensed Consolidated Balance sheets, respectively.

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.

Real estate related capital expenditures

Construction in progress was $729.8 million and $982.2 million, including land which was under active development of $12.9 million and $5.1 million as of September 30, 2021 and December 31, 2020, respectively.

For the nine months ended September 30, 2021, our capital expenditures were $580.2 million, and substantially all of our investing activity related to our development activities. Our capital expenditures for the nine months ended September 30, 2021 primarily related to the acquisition of land for future development and continued development in key markets, primarily in Northern Virginia, Phoenix, Frankfurt, Dublin, London, Somerset, Paris, San Antonio and Madrid.
For the nine months ended September 30, 2020, our capital expenditures were $692.2 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 were land purchases of $58.7 million in Frankfurt and London for future development.


CyrusOne Inc.
(in millions of dollars, except per share)

Real Estate Investments and Intangible Assets and Related Depreciation and Amortization

As of September 30, 2021 and December 31, 2020, major components of our real estate investments and intangibles and related accumulated depreciation and amortization are as follows (in millions):
As of:September 30, 2021December 31, 2020
CostAccumulated Depreciation and AmortizationNet book valueCostAccumulated Depreciation and AmortizationNet book value
Investment in real estate
   Building and improvements$2,336.3 $(714.1)$1,622.2 $2,035.2 $