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    CONE   US23283R1005

CYRUSONE INC.

(CONE)
Delayed Nasdaq  -  04:00 2022-03-24 pm EDT
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CYRUSONE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/28/2021 | 04:54pm EDT
This Report on Form 10-Q, together with other statements and information
publicly disseminated by our company, contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We
intend such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 and include this statement for purposes of
complying with these safe harbor provisions.
In particular, statements pertaining to our capital resources, portfolio
performance, financial condition and results of operations contain certain
forward-looking statements. Likewise, all of our statements regarding
anticipated growth in our funds from operations and anticipated market
conditions, demographics and results of operations are forward-looking
statements. You can identify forward-looking statements by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "estimates" or
"anticipates" or the negative of these words and phrases or similar words or
phrases that are predictions of or indicate future events or trends and that do
not relate solely to historical matters. You can also identify forward-looking
statements by discussions of strategy, plans or intentions. Forward-looking
statements involve numerous risks and uncertainties and you should not rely on
them as predictions of future events. Forward-looking statements depend on
assumptions, data or methods that may be incorrect or imprecise and we may not
be able to realize them. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected.
The following factors, among others, could cause actual results and future
events to differ materially from those set forth or contemplated in the
forward-looking statements: (i) the potential widespread and highly uncertain
impact of public health outbreaks, epidemics and pandemics, such as the COVID-19
pandemic; (ii) loss of key customers; (iii) indemnification and liability
provisions as well as service level commitments in our contracts with customers
imposing significant costs on us in the event of losses; (iv) economic downturn,
natural disaster or oversupply of data centers in the limited geographic areas
that we serve; (v) risks related to the development of our properties including,
without limitation, obtaining applicable permits, power and connectivity and our
ability to successfully lease those properties; (vi) weakening in the
fundamentals for data center real estate, including but not limited to,
increased competition, falling market rents, decreases in or slowed growth of
global data, e-commerce and demand for outsourcing of data storage and
cloud-based applications; (vii) loss of access to key third-party service
providers and suppliers; (viii) risks of loss of power or cooling which may
interrupt our services to our customers; (ix) inability to identify and complete
acquisitions and operate acquired properties; (x) our failure to obtain
necessary outside financing on favorable terms, or at all; (xi) restrictions in
the instruments governing our indebtedness; (xii) risks related to
environmental, social and governance matters; (xiii) unknown or contingent
liabilities related to our acquisitions; (xiv) significant competition in our
industry; (xv) recent turnover, or the further loss of, any of our key
personnel; (xvi) risks associated with real estate assets and the industry;
(xvii) failure to maintain our status as a REIT (as defined below) or to comply
with the highly technical and complex REIT provisions of the Internal Revenue
Code of 1986, as amended (the "Code"); (xviii) REIT distribution requirements
could adversely affect our ability to execute our business plan; (xix)
insufficient cash available for distribution to stockholders; (xx) future
offerings of debt may adversely affect the market price of our common stock;
(xxi) increases in market interest rates will increase our borrowing costs and
may drive potential investors to seek higher dividend yields and reduce demand
for our common stock; (xxii) market price and volume of stock could be volatile;
(xxiii) risks related to regulatory changes impacting our customers and demand
for colocation space in particular geographies; (xxiv) our international
activities, including those conducted as a result of land acquisitions and with
respect to leased land and buildings, are subject to special risks different
from those faced by us in the United States; (xxv) the continuing uncertainty
about the future relationship between the United Kingdom and the European Union
following the United Kingdom's withdrawal from the European Union; (xxvi)
expanded and widened price increases in certain selective materials for data
center development capital expenditures due to international trade negotiations;
(xxvii) a failure to comply with anti-corruption laws and regulations; (xxviii)
legislative or other actions relating to taxes; (xxix) any significant security
breach or cyber-attack on us or our key partners or customers; (xxx) the ongoing
trade conflict between the United States and the People's Republic of China;
(xxxi) increased operating costs and capital expenditures at our facilities,
including those resulting from higher utilization by our customers, general
market conditions and inflation, exceeding revenue growth; and (xxxii) other
factors affecting the real estate and technology industries generally.
While forward-looking statements reflect our good faith beliefs, they are not
guarantees of future performance. For a further discussion of these and other
factors that could impact our future results, performance or transactions, see
Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year
ended December 31, 2020, and our other filings with the United States Securities
and Exchange Commission ("SEC"). Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as a prediction of
actual results. We disclaim any obligation other than as
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required by law to publicly update or revise any forward-looking statement to
reflect changes in underlying assumptions or factors or for new information,
data or methods, future events or other changes.
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Overview

Our Company. We are a fully integrated, self-managed data center real estate
investment trust ("REIT") that owns, operates and develops enterprise-class,
carrier-neutral, multi-tenant and single-tenant data center properties. Our data
centers are generally purpose-built facilities with redundant power and cooling.
They are not network specific and enable customer connectivity to a range of
telecommunication carriers. We provide mission-critical data center real estate
assets that protect and ensure the continued operation of information technology
("IT") infrastructure for approximately 929 customers in 57 data centers,
including one data recovery center, in 17 markets (11 cities in the U.S.;
London, U.K.; Singapore; Frankfurt, Germany; Amsterdam, The Netherlands; Dublin,
The Republic of Ireland and Paris, France).
We continue to monitor the global outbreak of the novel coronavirus (COVID-19)
and to take steps to mitigate the potential risks to us posed by the pandemic.
We provide a critical service to our customers and are considered an essential
business by most governments, and our employees are continuing to operate our
data centers. Our data center portfolio remains fully operational and we have
experienced minimal disruptions in our business, including construction
projects. We have not been notified by customers of any significant delays in
expected implementation timelines. We have taken precautions with regard to
employees and facility hygiene, imposed travel restrictions on employees and
implemented additional protocols such as social distancing and limiting the
number of people at our facilities to protect those required to work on-site at
our facilities including employees, customers and vendors and suppliers. Also we
have not experienced any significant delays in the collection of revenue and
customers requesting relief or other rent concessions have not been significant
in number or amount as of this filing. We continue to evaluate recent
developments involving COVID-19 cases and monitor developments that impact our
business and respond as we believe is warranted.
Our Portfolio
Our 57 data centers, including one recovery center, total 8.6 million Gross
Square Feet ("GSF"), of which 84% of the Colocation Square Feet ("CSF") is
leased and has 971 megawatts ("MW") of power capacity. This includes 13
buildings where we lease such facilities comprising approximately 11% of our
total GSF as of September 30, 2021. Also included in our total GSF, CSF and MW
are pre-stabilized assets (which include data halls that have been in service
for less than 24 months or are less than 85% leased) with approximately 400,090
GSF and 34% of the CSF is leased with capacity of 43 MW of power.
In addition, we continue to invest primarily in global digital gateway markets
and have properties under development comprising approximately 0.8 million GSF
and 49 MW of power capacity. The estimated remaining total costs to develop
these properties is projected to be between $326.0 million and $390.0
million. The final costs to develop are likely to change depending on several
factors including the customer capital improvements required based on the future
lease contracts executed on such properties. We also have 508 acres of land
available for future data center development.
Operational Overview

The following discussion provides an overview of our capital and financing
activity, operations and transactions for the nine months ended September 30,
2021 and should be read in conjunction with the full discussion of our operating
results, liquidity and capital resources included in this Form 10-Q, as well as
the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K
for the year ending December 31, 2020 and in this Form 10-Q.

Outlook


We seek to maximize the growth of long-term earnings and shareholder value
primarily through increasing cash flow at existing properties and developing
high-quality data center assets and campuses at attractive yields with
long-term, stable operating income. In addition, the Company will, from time to
time, acquire existing properties which meet our strategic criteria, offer
in-place cash flow and have strong growth prospects.

Fundamental secular trends for data center real estate have remained strong,
including the exponential growth in global data, the growth of e-commerce and
demand for outsourcing of data storage and cloud-based applications. Large
cloud-based demand, in particular, is strong in the U.S. and Europe. The
favorable trends have attracted new capital funding for multiple data center
platforms, including both public and private companies, leading to significant
increases in supply in most major markets in which we operate. While demand
remains robust, the supply outlook has led to pricing pressure, particularly
with large hyperscale customers that are driving an increase in demand, which we
expect to continue in 2021.

In terms of capital investment, we will continue to pursue selective development
of new data centers primarily in global digital gateway markets where we project
demand and market rental rates will provide attractive financial returns.

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We may, from time to time, selectively dispose of non-strategic assets to recycle capital and enhance long-term growth in earnings and cash flows, as well as to improve the overall quality of our portfolio.


Our access to the investment grade debt capital markets is critical to managing
our business. We recently completed senior debt issuances in 2021 and 2020 along
with the amendment of our credit facility in 2020 at favorable terms to extend
our near-term maturities and reduce our overall borrowing rates. We are
committed to maintaining our investment grade ratings and have a strong balance
sheet. We anticipate having sufficient liquidity to fund our capital and
operating expenses, including costs to maintain our properties and
distributions, though we may finance investments, including developments and
acquisition, with the issuance of new shares of our common stock, proceeds from
asset sales or through additional borrowings. Please see "Financial Condition,
Liquidity and Capital Resources" for additional discussion.
Inflation

The U.S. and European economies where we operate have experienced low inflation
over the last several years, and as a result, inflation has not had a
significant impact on our business over this period. We continue to monitor our
supply chain costs, as increases in inflation may adversely impact our business.
However, the availability of equipment and materials that support the
development and construction of our data centers has begun to experience
constraints on supplies resulting in increased lead times and is leading to
moderate increases in prices on equipment. Through our supplier networks we have
contracted at fixed prices for supply of our near-term equipment needs, but
continued supply chain constraints may over time result in increased costs of
our construction projects. In addition, our business may be adversely impacted
by inflation as our customer leases generally do not provide for annual
increases in rent based on inflation. As a result, we bear the risk of increases
in the costs of operating and maintaining our data center facilities. Most of
our leases have contractual rent escalations, typically ranging from 1-3% per
annum; in addition most of our revenue from colocation contracts is structured
to pass-through the cost of sub-metered utilities. In the future, we expect more
of our leases to be structured to pass-through utility costs. In addition,
approximately 71% of our leases, based on annualized rent, expire within six
years and we will be looking to replace existing leases with new leases at then
existing market rates.

Summary of Significant Transactions and Activities for the Nine Months Ended September 30, 2021 and 2020

Real Estate Acquisitions, Development and Other Activities

During the nine months ended September 30, 2021, the Company purchased approximately 22 acres of land for future development in Madrid, Spain; Amsterdam, The Netherlands; San Antonio, Texas and Frankfurt, Germany for a cost totaling $39.8 million.


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.


During the nine months ended September 30, 2021, cash capital expenditures were
$580.2 million, of which $566.5 million related to the development and
construction of data centers. We continue to make a significant investment to
build and develop data centers which will require additional capital investment.
The expansion and development of additional power capacity and building square
feet during the nine months ended September 30, 2021 primarily related to
development in key markets, primarily in Northern Virginia, Phoenix, Frankfurt,
Dublin, London, Somerset, Paris, San Antonio and Madrid.

Capital and Financing Activity

Financing Activity

Credit Facilities


As of September 30, 2021, we had $800.0 million outstanding under the Amended
Credit Agreement (as defined below) and $2,744.7 million of senior notes. For
more information, see Note 9, Debt.

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On March 31, 2020, CyrusOne LP, a Maryland limited partnership (the "Operating
Partnership"), and subsidiary of the Company, entered into an amendment to its
credit agreement, dated as of March 29, 2018 (as so amended, the "Amended Credit
Agreement"), among the Operating Partnership, as borrower, the lenders party
thereto (the "Lenders") and JPMorgan Chase Bank, N.A., as administrative agent
for the Lenders. Proceeds from the Amended Credit Agreement were used, among
other things, to refinance and replace the credit facilities under the Company's
prior credit agreement.
The Amended Credit Agreement provides for (i) a $1.4 billion senior unsecured
multi-currency revolving credit facility (the "Revolving Credit Facility"), (ii)
senior unsecured term loans due 2023 in a dollar equivalent principal amount of
$400.0 million (the "2023 Term Loan Facility"), and (iii) senior unsecured term
loans due 2025 in a principal amount of $700.0 million (the "2025 Term Loan
Facility"). The Amended Credit Agreement also includes an accordion feature
pursuant to which the Operating Partnership is permitted to obtain additional
revolving or term loan commitments so long as the aggregate principal amount of
commitments and/or term loans under the Amended Credit Agreement does not exceed
$4.0 billion. The Revolving Credit Facility provides for borrowings in U.S.
Dollars, Euros, Pounds Sterling, Canadian Dollars, Australian Dollars, Japanese
Yen, Hong Kong Dollars, Singapore Dollars and Swiss Francs (subject to a
sublimit of $750.0 million on borrowings in currencies other than U.S. Dollars).
The Revolving Credit Facility matures on March 29, 2024 with one 12-month
extension option. The 2023 Term Loan Facility matures on March 29, 2023 with two
1-year extension options, and the 2025 Term Loan Facility matures on March 28,
2025.
Senior debt

On May 26, 2021, CyrusOne Europe Finance DAC closed an offering of €500.0 million aggregate principal amount of 1.125% senior notes due May 2028 (the "2028 Notes").


On January 22, 2020, CyrusOne LP and CyrusOne Finance Corp. closed an offering
of €500.0 million aggregate principal amount of 1.450% senior notes due January
2027 (the "2027 Notes").

Capital Activity

During the nine months ended September 30, 2021, the Company settled forward
agreements entered into in May 2020 and September 2020 totaling 5.7 million
common shares at an average price of $69.91 for proceeds of $403.8 million, net
of expenses.

During the second quarter of 2021, the Company entered into sales agreements
pursuant to which the Company may issue and sell from time to time shares of its
common stock having an aggregate sales price of up to $750.0 million (the "2021
ATM Stock Offering Program"). The 2021 ATM Stock Offering Program replaced a
prior program. During the three months ended September 30, 2021, the Company did
not enter into any forward agreements. During the three months ended
September 30, 2020, the Company entered into forward agreements for 3.0 million
common shares for estimated net proceeds of approximately $218.7 million,
subject to adjustment for a floating interest rate factor and scheduled
dividends.

The Company currently expects to fully physically settle the remaining forward
equity sale agreements by June 2022 and receive cash proceeds upon one or more
settlement dates at the Company's discretion, prior to the final settlement
dates under the forward equity sale agreements, in which case we expect to
receive aggregate net cash proceeds at settlement equal to the number of shares
specified in such forward equity sale agreements multiplied by the relevant
forward price per share. The weighted average forward sale price that we expect
to receive upon physical settlement of the agreements will be subject to
adjustment for (i) a floating interest rate factor equal to a specified daily
rate less a spread and (ii) scheduled dividends during the terms of the
agreements.
As of September 30, 2021, there was $513.4 million under the 2021 ATM Stock
Offering Program available for future offerings.

Concentration of Revenue


We define our annualized backlog as the twelve-month recurring revenue
(calculated in accordance with generally accepted accounting principles in the
United States of America ("GAAP")) for executed lease contracts achieved upon
full occupancy which have not commenced as of the end of a period. Our backlog
as of September 30, 2021 and December 31, 2020 was approximately $105.9 million
and $101.0 million, respectively. During the nine months ended September 30,
2021, one customer represented 19% of our revenue. We expect 23% of our backlog
lease contracts to commence in the fourth quarter of 2021, 45% in 2022 and 32%
in 2023 and thereafter. Because GAAP revenue for any period is generally a
function of straight-line revenue recognized from lease contracts in existence
at the beginning of a period, as well as lease contract renewals and
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new customer lease contracts commencing during the period, backlog as of any
period is not necessarily indicative of near-term performance. Our definition of
backlog may differ from other companies in our industry.

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Results of Operations Three and Nine Months Ended September 30, 2021, Compared to Three and Nine Months Ended September 30, 2020:

IN MILLIONS, except share and per share data

                                                    Three Months Ended September 30,                                 Nine Months Ended September 30,
                                                         2021               2020         $ Change     % Change            2021              2020         $ Change      % Change
Revenue:
Colocation rent                                   $        236.4     $        212.5     $  23.9            11.2  % $        681.5     $        624.0    $   57.5             9.2  %
Metered power reimbursements                                62.5               44.6        17.9            40.1  %          188.6              116.5        72.1            61.9  %
Equipment sales                                              0.8                0.6         0.2            33.3  %            3.4               10.0        (6.6)          (66.0) %
Other revenue                                                4.4                5.1        (0.7)          (13.7) %           13.8               14.6        (0.8)           (5.5) %
Total revenue                                              304.1              262.8        41.3            15.7  %          887.3              765.1       122.2            16.0  %

Operating expenses:
Property operating expenses                                133.4              109.7        23.7            21.6  %          391.0              301.3        89.7            29.8  %
Sales and marketing                                          3.6                4.5        (0.9)          (20.0) %           11.1               13.0        (1.9)          (14.6) %
General and administrative                                  30.8               29.7         1.1             3.7  %           70.4               76.9        (6.5)           (8.5) %
Depreciation and amortization                              127.5              113.1        14.4            12.7  %          372.6              330.9        41.7            12.6  %
Transaction, acquisition, integration and other
related expenses                                             0.2                1.6        (1.4)          (87.5) %            0.4                2.2        (1.8)          (81.8) %
Impairment losses and loss on asset disposals                0.1                8.8        (8.7)          (98.9) %            0.7               11.1       (10.4)          (93.7) %
Total operating expenses                                   295.6              267.4        28.2            10.5  %          846.2              735.4       110.8            15.1  %
Operating income (loss)                                      8.5               (4.6)       13.1                n/m           41.1               29.7        11.4            38.4  %
Interest expense, net                                      (17.3)             (13.3)       (4.0)           30.1  %          (47.2)             (43.2)       (4.0)            9.3  %
Gain on marketable equity investment                           -                4.7        (4.7)         (100.0) %            2.4               69.8       (67.4)          (96.6) %
Loss on early extinguishment of debt                           -               (3.1)        3.1          (100.0) %              -               (6.5)        6.5          (100.0) %
Foreign currency and derivative gains (losses),
net                                                         14.4              (22.9)       37.3                n/m           31.2              (31.7)       62.9                n/m
Other expense (income)                                       0.1                  -         0.1                n/m           (0.1)                 -        (0.1)               n/m
Net income (loss) before income taxes                        5.7              (39.2)       44.9          (114.5) %           27.4               18.1         9.3            51.4  %
Income tax benefit                                           1.0                1.9        (0.9)          (47.4) %            4.9                4.3         0.6                n/m
Net income (loss)                                 $          6.7     $        (37.3)    $  44.0                n/m $         32.3     $         22.4    $    9.9            44.2  %
Operating gross margin                                       2.8   %           (1.8)  %                        n/m            4.6   %            3.9  %                     17.9  %
Capital expenditures:(1)
Investment in real estate                         $        211.3     $        231.1     $ (19.8)           (8.6) % $        566.5     $        679.2    $ (112.7)          (16.6) %
Recurring capital expenditures                               7.2                3.1         4.1           132.3  %           13.7               13.0         0.7             5.4  %
Total                                             $        218.5     $        234.2     $ (15.7)           (6.7) % $        580.2     $        692.2    $ (112.0)          (16.2) %
Metrics information:
CSF(2)                                                 5,049,810          4,471,413      578,397           12.9  %      5,049,810          4,471,413      578,397           12.9  %
Leased rate(3)                                                84   %             84   %       -  %            -                84   %             84  %        -  %             n/m


(1) Expenditures that expand, improve or extend the life of real estate and
non-real estate property are capital expenditures. Management views its capital
expenditures as comprised of acquisitions of real estate, development of real
estate, recurring capital expenditures and all other non-real estate capital
expenditures. Purchases of land or buildings from third parties represent
acquisitions of real estate. Capital spending that expands or improves our data
centers is deemed development of real estate. Replacements of data center
equipment are considered recurring capital expenditures. Purchases of software,
computer equipment and furniture and fixtures are included in non-real estate
capital expenditures.
(2) CSF represents the GSF at an operating facility that is currently leased or
readily available for lease as colocation space, where customers locate their
servers and other IT equipment.
(3) Leased rate is calculated by dividing CSF under signed leases for colocation
space (whether or not the lease has commenced billing) by total CSF.

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The three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Operations

As of September 30, 2021, we had approximately 929 customers, many of which have
leases at multiple locations. Our recurring revenues consist of rental revenue
for colocation space and metered power reimbursements based upon customers with
leases, and our nonrecurring revenues consist of equipment sales and
installation services based on contracts with customers. We provide customers
with data center services pursuant to leases with initial terms ranging from
three to ten years. As of September 30, 2021, the weighted average remaining
term was 3.8 years based upon annualized rent. Lease expirations through 2023,
excluding month-to-month leases, represent 29% of our total GSF, or 38% of our
aggregate annualized rent as of September 30, 2021. At the end of the lease
term, customers may allow the contract to expire, sign a new lease or
automatically renew pursuant to the terms of their lease. The automatic renewal
period could be for varying lengths, depending on the terms of the contract,
such as, for the original lease term, one year or month-to-month. As of
September 30, 2021, 2% of our GSF was subject to month-to-month leases.

Revenue


For the three months ended September 30, 2021, revenue was $304.1 million, an
increase of $41.3 million, or 15.7% compared to $262.8 million for the three
months ended September 30, 2020. Revenue increased $1.4 million for the three
months ended September 30, 2021 compared to the same period in 2020 due to
favorable currency translation. Fluctuations in revenue are dependent upon our
ability to maintain our existing revenue base, sell new capacity, and maintain
or increase rental rates at our properties. Recurring rent churn percentage of
0.5% for the three months ended September 30, 2021 decreased by 0.1% as compared
to the 0.6% for the three months ended September 30, 2020. The Company
calculates recurring rent churn percentage as any reduction in recurring rent
due to customer terminations, service reductions or net pricing decreases as a
percentage of rent at the beginning of the period, excluding any impact from
metered power reimbursements or other usage-based billing.

CSF increased 13% at September 30, 2021 as compared to September 30, 2020. Leased CSF as of September 30, 2021 and 2020 were both 84%. CSF Occupied as of September 30, 2021 and 2020 were both 83%.


The revenue increase of $41.3 million for the three months ended September 30,
2021, as compared to the three months ended September 30, 2020 is primarily due
to the following:
•$23.3 million increase in colocation rent, primarily due to a $33.8 million
increase for new leasing at completed developments at U.S. and European
properties, partially offset by $10.5 million of rent churn related to expired
leases;
•$17.9 million increase in metered power reimbursements primarily due to new
leasing and higher usage; and
•$0.8 million increase in interconnection revenue; partially offset by
•$0.5 million decrease in equipment sales and associated installation services
with one significant customer during the three months ended September 30, 2020;
and
•$0.2 million of lower termination fees and other revenue.

Operating Expenses

Property operating expenses


For the three months ended September 30, 2021, Property operating expenses were
$133.4 million, an increase of $23.7 million, or 21.6%, compared to $109.7
million for the three months ended September 30, 2020, primarily due to the
following:
•$23.9 million increase in property operating expenses primarily due to
increases in electricity, repair and maintenance, personnel costs, contract
services, rent and taxes and insurance related to the expansion at existing
properties and newly developed properties placed in service in the U.S. and
Europe; partially offset by
•$0.2 million decrease in equipment cost of sales due to lower equipment sales
volume associated with one significant customer during the current quarter.

Sales and marketing expenses


For the three months ended September 30, 2021, Sales and marketing expenses were
$3.6 million, a decrease of $0.9 million, or 20.0%, compared to $4.5 million for
the three months ended September 30, 2020 primarily due to lower personnel costs
as a result of changes in the organizational structure, decline in events and
travel expenses as company travel has been restricted since March 2020 as a
result of the pandemic, lower advertising and lower professional and consulting
fees.
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General and administrative expenses


For the three months ended September 30, 2021, General and administrative
expenses were $30.8 million, an increase of $1.1 million, or 3.7%, compared to
$29.7 million for the three months ending September 30, 2020, primarily due to
the following:
•$1.2 million increase in legal fees primarily due to customer lease contract
negotiations and contract services;
•$0.7 million increase in other general and administrative expenses; and
•$0.4 million increase in rent and facilities costs; partially offset by
•$0.7 million decrease in employee related and stock compensation expense
primarily due to forfeitures and a decrease in payroll taxes; and
•$0.5 million decrease in license fees and support for information systems.

Depreciation and amortization expense


For the three months ended September 30, 2021, Depreciation and amortization
expense was $127.5 million, an increase of $14.4 million, or 12.7%, compared to
$113.1 million for the three months ending September 30, 2020. This increase was
primarily driven by asset additions that were placed in service after the third
quarter of 2020. Since September 30, 2020, approximately $1,182.0 million of new
data center assets have been placed in service. Depreciation and amortization
expense is expected to increase in future periods as we complete the development
of properties and installation of equipment and facilities to support our
operations.

Non-Operating Income and Expenses

Interest expense, net


For the three months ended September 30, 2021, Interest expense, net was $17.3
million, an increase of $4.0 million, or 30.1%, as compared to $13.3 million for
the three months ending September 30, 2020, primarily due to the following:
•$2.4 million increase primarily due to a $365.6 million increase in average
debt outstanding;
•$1.5 million increase due to lower capitalized interest as a result of the
Company's lower overall average interest rate; and
•$0.1 million increase related to cash settlements on cross currency and
interest rate swaps.

We anticipate drawing on our Revolving Credit Facility to fund, in part, our
capital requirements for investments in data centers and other capital
expenditures, accordingly, we anticipate our interest expense to increase in
future periods.

Gain on marketable equity investment


For the three months ended September 30, 2020, the Gain on our marketable equity
investment in GDS Holdings Limited ("GDS") was $4.7 million. See Note 7, Equity
Investments, for information related to our accounting for our equity investment
in GDS.

Foreign currency and derivative gains (losses), net


Foreign currency and derivative gains (losses), net were a gain of $14.4 million
and a loss of $22.9 million for the three months ended September 30, 2021 and
September 30, 2020, respectively, as a result of the translation adjustment on
our undesignated EURO denominated borrowings.

The nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.


Revenue

For the nine months ended September 30, 2021, revenue was $887.3 million, an
increase of $122.2 million, or 16.0% compared to $765.1 million for the nine
months ended September 30, 2020. Revenue increased $8.8 million for the nine
months ended September 30, 2021 compared to the same period in 2020 due to
favorable currency translation. Fluctuations in revenue are dependent upon our
ability to maintain our existing revenue base, sell new capacity, and maintain
or increase rental rates at our properties. Recurring rent churn percentage of
3.1% for the nine months ended September 30, 2021 increased by 0.4% as compared
to the 2.7% for the nine months ended September 30, 2020.

                                       42
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The revenue increase of $122.2 million for the nine months ended September 30,
2021, as compared to the nine months ended September 30, 2020 is primarily due
to the following:
•$72.1 million increase in metered power reimbursements primarily due to a
$27.8 million increase from Winter Storm Uri in Texas and $44.3 million due to
new leasing and higher usage;
•$56.7 million increase in colocation rent, primarily due to a $85.6 million
increase for new leasing at completed developments at U.S. and European
properties, partially offset by $28.9 million of rent churn related to expired
leases; and
•$3.3 million increase in interconnection revenue; partially offset by
•$7.4 million decrease in equipment sales and associated installation services
with one significant customer during the nine months ended September 30, 2020;
and
•$2.5 million of lower termination fees and Other revenue.

Operating Expenses

Property operating expenses


For the nine months ended September 30, 2021, Property operating expenses were
$391.0 million, an increase of $89.7 million, or 29.8%, compared to $301.3
million for the nine months ended September 30, 2020, primarily due to the
following:
•$96.5 million increase in property operating expenses primarily due to:
•$77.3 million increase in electricity due to $31.9 million increase from Winter
Storm Uri in Texas and $45.4 million increase related to expansion at existing
properties and newly developed properties placed in service in the U.S. and
Europe; and
•$19.2 million increase in property operating expenses primarily due to
increases in repair and maintenance, personnel costs, contract services, rent
and taxes and insurance related to expansion at existing properties and newly
developed properties placed in service in the U.S. and Europe; partially offset
by
•$6.8 million decrease in equipment cost of sales due to lower equipment sales
volume associated with one significant customer during the current period.

Sales and marketing expenses


For the nine months ended September 30, 2021, Sales and marketing expenses were
$11.1 million, a decrease of $1.9 million, or 14.6%, compared to $13.0 million
for the nine months ended September 30, 2020, primarily due to lower personnel
costs as a result of changes in the organizational structure, decline in events
and travel expenses as company travel has been restricted since March 2020 as a
result of the pandemic, lower advertising and lower professional and consulting
fees.

General and administrative expenses


For the nine months ended September 30, 2021, General and administrative
expenses were $70.4 million, a decrease of $6.5 million, or 8.5%, compared to
$76.9 million for the nine months ending September 30, 2020, primarily due to
the following:
•$7.2 million decrease in personnel costs including severance due to the
departure of our Chief Executive Officer in the prior year period and a general
reduction in force;
•$0.6 million decrease in license fees and support for information systems; and
•$0.2 million decrease in legal fees primarily due to the receipt of proceeds
from the resolution of certain litigation; partially offset by
•$1.0 million increase in rent and facilities costs; and
•$0.5 million increase in other general and administrative expenses.

Depreciation and amortization expense


For the nine months ended September 30, 2021, Depreciation and amortization
expense was $372.6 million, an increase of $41.7 million, or 12.6%, compared to
$330.9 million for the nine months ending September 30, 2020. This increase was
primarily driven by asset additions that were placed in service after the third
quarter of 2020. Since September 30, 2020, approximately $1,182.0 million of new
data center assets have been placed in service. Depreciation and amortization
expense is expected to increase in future periods as we complete the development
of properties and installation of equipment and facilities to support our
operations.

                                       43
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Non-Operating Income and Expenses

Interest expense, net


For the nine months ended September 30, 2021 and September 30, 2020, Interest
expense, net was $47.2 million, an increase of $4.0 million, or 9.3%, as
compared to $43.2 million for the three months ending September 30, 2020,
primarily due to the following:
•$4.0 million increase related to cash settlements on cross currency and
interest rate swaps; and
•$2.6 million increase due to lower capitalized interest as a result of the
Company's lower overall average interest rate; partially offset by
•$2.2 million decrease due to the repayment of a portion of the Amended Credit
Agreement which decreased interest expense by $13.0 million, partially offset by
a $373.6 million increase in average debt outstanding which increased interest
expense by $10.8 million; and
•$0.4 million decrease related to an increase in interest income primarily due
to interest on a sales tax refund.

We anticipate drawing on our Revolving Credit Facility to fund, in part, our
capital requirements for investments in data centers and other capital
expenditures, accordingly, we anticipate our interest expense to increase in
future periods.

Gain on marketable equity investment


For the nine months ended September 30, 2021, the Gain on our marketable equity
investment in GDS was $2.4 million, a decrease of $67.4 million, compared to
$69.8 million for the nine months ended September 30, 2020. The decrease was
primarily the result of our disposition of our remaining investment in GDS in
January 2021. See Note 7, Equity Investments, for information related to our
accounting for our equity investment in GDS.

Loss on early extinguishment of debt


For the nine months ended September 30, 2020, Loss on early extinguishment of
debt was $6.5 million, primarily due to repayment of borrowings under the $3.0
Billion Credit Facility and the repayment of $300.0 million of the 2023 Term
Loan under the Amended Credit Agreement.

Foreign currency and derivative gains (losses), net


For the nine months ended September 30, 2021, Foreign currency and derivative
gains (losses), net were a $31.2 million gain as a result of the translation
adjustment on our undesignated EURO denominated borrowings. For the nine months
ended September 30, 2020, Foreign currency and derivative gains (losses), net
were a $31.7 million loss which was primarily the result of gains from the
settlement of our Euro/USD cross-currency swap that were not designated as
hedges and changes in the fair value were immediately recognized in earnings.


                                       44

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