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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

CyrusOne Inc.
(Exact name of registrant as specified in its charter)
Maryland
46-0691837
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2101 Cedar Springs Road, Suite 900, Dallas, TX 75201
(Address of Principal Executive Offices) (Zip Code)

(972) 350-0060
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
CONE
The NASDAQ Global Select Market

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 113,196,466 shares of common stock outstanding as of October 24, 2019 with a par value of $0.01 per share.



EXPLANATORY NOTE

Unless otherwise indicated or unless the context requires otherwise, all references in this report to "we," "us," "our," "our Company" or "the Company" refer to CyrusOne Inc., a Maryland corporation, together with its consolidated subsidiaries, including CyrusOne LP, a Maryland limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references to "our operating partnership" or "the operating partnership" refer to CyrusOne LP together with its consolidated subsidiaries.

CyrusOne Inc. is a real estate investment trust, or REIT, whose only material asset is its ownership of the operating partnership units of CyrusOne LP. CyrusOne Inc. does not conduct business itself, other than acting as the sole beneficial owner and trustee of CyrusOne GP, a Maryland statutory trust, issuing public equity from time to time and guaranteeing certain debt of CyrusOne LP and certain of its subsidiaries. CyrusOne Inc., directly or indirectly, owns all the operating partnership units of CyrusOne LP and has the full, exclusive and complete responsibility for the operating partnership's day-to-day management and control. 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, 2019, the total number of outstanding shares of our common stock was approximately 113.2 million.




INDEX
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CyrusOne Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
(unaudited)
 
September 30, 2019
December 31, 2018
Assets
 
 
Investment in real estate:
 
 
Land
$
147.3

$
118.5

Buildings and improvements
1,732.0

1,677.5

Equipment
2,950.3

2,630.2

Gross operating real estate
4,829.6

4,426.2

Less accumulated depreciation
(1,292.7
)
(1,054.5
)
       Net operating real estate
3,536.9

3,371.7

Construction in progress, including land under development
836.9

744.9

Land held for future development
204.3

176.4

Total investment in real estate, net
4,578.1

4,293.0

Cash and cash equivalents
51.7

64.4

Rent and other receivables (net of allowance for doubtful accounts of $1.5 and $1.7 as of September 30, 2019 and December 31, 2018, respectively) 
279.3

234.9

Restricted cash
1.3


Operating lease right-of-use assets, net
90.7


Equity investments
104.3

198.1

Goodwill
455.1

455.1

Intangible assets (net of accumulated amortization of $196.4 and $166.9 as of September 30, 2019 and December 31, 2018, respectively)
203.7

235.7

Other assets
128.7

111.3

Total assets
$
5,892.9

$
5,592.5

Liabilities and equity
 
 
Debt
$
2,776.1

$
2,624.7

Finance lease liabilities
30.7

156.7

Operating lease liabilities
124.3


Construction costs payable
131.2

195.3

Accounts payable and accrued expenses
132.4

121.3

Dividends payable
57.7

51.0

Deferred revenue and prepaid rents
164.0

148.6

Deferred tax liability
59.6

68.9

Total liabilities
3,476.0

3,366.5

Commitments and contingencies


Stockholders' equity
 
 
Preferred stock, $.01 par value, 100,000,000 authorized; no shares issued or outstanding


Common stock, $.01 par value, 500,000,000 shares authorized and 113,196,585 and 108,329,314 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
1.1

1.1

Additional paid in capital
3,094.2

2,837.4

Accumulated deficit
(657.4
)
(600.2
)
Accumulated other comprehensive loss
(21.0
)
(12.3
)
Total stockholders’ equity
2,416.9

2,226.0

Total liabilities and equity
$
5,892.9

$
5,592.5


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

5


CyrusOne Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)

 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2019
2018
2019
2018
Revenue
$
250.9

$
206.6

$
727.4

$
600.1

Operating expenses:
 
 
 
 
Property operating expenses
103.0

77.7

289.6

214.4

Sales and marketing
5.1

4.3

15.7

14.0

General and administrative
19.8

19.3

61.6

57.2

Depreciation and amortization
105.4

84.0

309.6

236.2

Transaction, acquisition, integration and other related expenses
4.4

1.1

6.2

3.4

Total operating expenses
237.7

186.4

682.7

525.2

Operating income
13.2

20.2

44.7

74.9

Interest expense, net
(19.6
)
(25.8
)
(64.4
)
(69.4
)
Gain (loss) on marketable equity investment
12.4

(36.6
)
105.1

106.6

Loss on early extinguishment of debt



(3.1
)
Impairment loss on real estate
(0.7
)

(0.7
)

Foreign currency and derivative gains, net
5.5


5.5


Other expense
(0.2
)

(0.3
)

Net income (loss) before income taxes
10.6

(42.2
)
89.9

109.0

Income tax benefit (expense)
2.0

(0.2
)
3.6

(2.0
)
Net income (loss)
$
12.6

$
(42.4
)
$
93.5

$
107.0

Weighted average number of common shares outstanding - basic
113.1

98.8

111.5

97.8

Weighted average number of common shares outstanding - diluted
113.5

98.8

111.9

98.4

Income (loss) per share - basic
$
0.11

$
(0.43
)
$
0.83

$
1.09

Income (loss) per share - diluted
$
0.11

$
(0.43
)
$
0.83

$
1.08


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

6


CyrusOne Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)

 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2019
2018
2019
2018
Net income (loss)
$
12.6

$
(42.4
)
$
93.5

$
107.0

Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustment
(21.5
)
(1.8
)
(23.3
)
(1.7
)
Net gain on cash flow hedging instruments
15.5


14.6


Comprehensive income (loss)
$
6.6

$
(44.2
)
$
84.8

$
105.3


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

7


CyrusOne Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in millions)
(unaudited)

 
Stockholders' Equity
 
Shares of Common Stock Outstanding
Common Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated Other Comprehensive Income (Loss)
Total
Stockholders'
Equity
 
Balance at January 1, 2019
108.3

$
1.1

$
2,837.4

$
(600.2
)
$
(12.3
)
$
2,226.0

Adoption of accounting standards:
 
 
 


 


     Impact of adoption of ASU 2016-02 related to leases (See Note 3)



9.5


9.5

Net income



89.4


89.4

Issuance of common stock, net
2.0


105.0



105.0

Stock-based compensation expense


4.5



4.5

Tax payment upon exercise of equity awards


(8.7
)


(8.7
)
Foreign currency translation adjustment




0.6

0.6

Net gain on cash flow hedging instruments




2.7

2.7

Dividends declared, $0.46 per share



(50.9
)

(50.9
)
Balance at March 31, 2019
110.3

$
1.1

$
2,938.2

$
(552.2
)
$
(9.0
)
$
2,378.1

Net loss



(8.5
)

(8.5
)
Issuance of common stock, net
2.9


147.6



147.6

Other


0.1



0.1

Stock-based compensation expense


3.7



3.7

Tax payment upon exercise of equity awards


(0.1
)


(0.1
)
Foreign currency translation adjustment




(2.4
)
(2.4
)
Net loss on cash flow hedging instruments




(3.6
)
(3.6
)
Dividends declared, $0.46 per share



(52.3
)

(52.3
)
Balance at June 30, 2019
113.2

$
1.1

$
3,089.5

$
(613.0
)
$
(15.0
)
$
2,462.6

Net income



12.6


12.6

Issuance of common stock, net


0.7



0.7

Stock-based compensation expense


4.2



4.2

Tax payment upon exercise of equity awards


(0.2
)


(0.2
)
Foreign currency translation adjustment




(21.5
)
(21.5
)
Net gain on cash flow hedging instruments




15.5

15.5

Dividends declared, $0.50 per share



(57.0
)

(57.0
)
Balance at September 30, 2019
113.2

$
1.1

$
3,094.2

$
(657.4
)
$
(21.0
)
$
2,416.9


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

8


CyrusOne Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in millions)
(unaudited)

 
Stockholders' Equity
 
Shares of Common Stock Outstanding
Common Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated Other Comprehensive Income (Loss)
Total
Stockholders'
Equity
 
Balance at January 1, 2018
96.1

$
1.0

$
2,125.6

$
(486.9
)
$
74.2

$
1,713.9

Adoption of accounting standards:
 
 
 
 
 
 
     Revenue recognition, cumulative modified retrospective



0.3


0.3

     Financial instruments (equity investment), cumulative adjustment



75.6

(75.6
)

Net income



43.5


43.5

Issuance of common stock, net
2.8


142.9



142.9

Stock-based compensation expense


3.9



3.9

Tax payment upon exercise of equity awards


(4.4
)


(4.4
)
Foreign currency translation adjustment




0.1

0.1

Dividends declared, $0.46 per share



(45.6
)

(45.6
)
Balance at March 31, 2018
98.9

$
1.0

$
2,268.0

$
(413.1
)
$
(1.3
)
$
1,854.6

Net income



105.9


105.9

Issuance of common stock, net
0.2


9.3



9.3

Stock-based compensation expense


4.5



4.5

Tax payment upon exercise of equity awards


(0.3
)


(0.3
)
Dividends declared, $0.46 per share



(45.8
)

(45.8
)
Balance at June 30, 2018
99.1

$
1.0

$
2,281.5

$
(353.0
)
$
(1.3
)
$
1,928.2

Net income



(42.4
)

(42.4
)
Issuance of common stock, net
6.8

0.1

399.6



399.7

Stock-based compensation expense


4.6



4.6

Tax payment upon exercise of equity awards
(0.1
)

(0.4
)


(0.4
)
Foreign currency translation adjustment




(1.8
)
(1.8
)
Dividends declared, $0.46 per share



(48.9
)

(48.9
)
Balance at September 30, 2018
105.8

$
1.1

$
2,685.3

$
(444.3
)
$
(3.1
)
$
2,239.0


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

9


CyrusOne Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Nine Months Ended September 30,
 
2019
2018
Cash flows from operating activities:
 
 
Net income
$
93.5

$
107.0

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
309.6

236.2

Provision for bad debt expense
(0.2
)
0.6

Unrealized gain on marketable equity investment
(38.2
)
(106.6
)
Realized gain on marketable equity investment
(66.9
)

Foreign currency and derivative gains, net
(5.5
)

Loss on asset disposals
0.2


Impairment loss on real estate
0.7


Loss on early extinguishment of debt

3.1

Interest expense amortization, net
3.5

3.0

Stock-based compensation expense
12.4

13.0

Deferred income tax expense
(6.4
)

Operating lease cost
14.6


Change in operating assets and liabilities:
 
 
Rent and other receivables, net and other assets
(51.5
)
(55.4
)
Accounts payable and accrued expenses
11.8

(23.4
)
Deferred revenue and prepaid rents
16.1

25.4

Operating lease liabilities
(16.7
)

Net cash provided by operating activities
277.0

202.9

Cash flows from investing activities:
 
 
Investment in real estate
(727.3
)
(631.2
)
Asset acquisitions, primarily real estate, net of cash acquired


(461.8
)
Proceeds from sale of equity investments
199.8


Equity investments
(0.3
)

Proceeds from the sale of real estate assets
0.9


Net cash used in investing activities
(526.9
)
(1,093.0
)
Cash flows from financing activities:
 
 
Issuance of common stock, net
253.3

551.9

Dividends paid
(153.5
)
(132.3
)
Proceeds from revolving credit facility
534.3

370.0

Repayments of revolving credit facility
(183.2
)
(370.0
)
Proceeds from unsecured term loan

1,295.1

Repayments of unsecured term loan
(200.0
)
(902.7
)
Payments on finance lease liabilities
(2.1
)
(7.8
)
Tax payment upon exercise of equity awards
(9.0
)
(5.1
)
Net cash provided by financing activities
239.8

799.1

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(1.3
)
0.1

Net decrease in cash, cash equivalents and restricted cash
(11.4
)
(90.9
)
Cash, cash equivalents and restricted cash at beginning of period
64.4

151.9

Cash, cash equivalents and restricted cash at end of period
$
53.0

$
61.0

Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, including amounts capitalized of $26.2 million and $15.9 million in 2019 and 2018, respectively
$
109.0

$
98.5

Cash paid for income taxes
3.0

3.3

Non-cash investing and financing activities:
 
 
Construction costs payable
131.2

160.5

Dividends payable
57.7

49.7

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

10

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(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. wholly owns CyrusOne LP (the "Operating Partnership") and the subsidiaries of the Operating Partnership (collectively, "CyrusOne", "we", "us", "our", and the "Company") is an owner, operator and developer of enterprise-class, carrier-neutral, multi-tenant and single-tenant data center properties. As of September 30, 2019, all the issued and outstanding operating partnership units of CyrusOne LP are owned, directly or indirectly, by the Company. Our customers operate in a number of industries, including information technology, financial services, energy, oil and gas, mining, medical and consumer goods and services. We currently operate 49 data centers, including two data recovery centers located in the United States, United Kingdom, Germany and Singapore.
On January 24, 2013, the Company completed its initial public offering (the "IPO") of common stock and its common stock currently trades on the NASDAQ Exchange under the ticker symbol "CONE".

2. Summary of Significant Accounting Policies
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, 2018, which was filed with the Securities and Exchange Commission ("SEC") on February 22, 2019. 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, 2019 and December 31, 2018, and for the three and nine months ended September 30, 2019 and 2018. 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, 2018. All amounts reflected are in millions except share and per share data.

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.
Reclassifications
Certain financial information has been revised to conform to the current year presentation due to changes in the significance of the particular activity. The following items have been reclassified:
Balance Sheet as of December 31, 2018
Straight-line rent receivable of $128.7 million included in rent and other receivables was previously included in other assets.

Statement of Cash Flows for the period ended September 30, 2018
The cash flow effect of the change in proceeds from our unsecured term loan of $1.7 billion included in proceeds from unsecured term loan was previously included in debt.
The cash flow effect of the change in repayments of our unsecured term loan of $1.3 billion included in repayments of unsecured term loan was previously included in debt.
Investment in Real Estate
Acquisition of Properties
Investment in real estate consist of land, buildings, improvements and integral equipment utilized in our data center operations. We expect most acquisitions to be an acquisition of assets rather than a business combination as our typical acquisitions consist

11

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)


of properties whereby substantially all the fair value of gross assets acquired is concentrated in a single asset set (land, building and in-place leases), which are treated as asset acquisitions. See Business Combinations and Asset Acquisitions herein.
Business Combinations and Asset Acquisitions
We evaluate whether an acquisition is a business combination or an asset acquisition by determining whether the set of assets is a business.
Asset Acquisitions
When substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the transaction is accounted for as an asset acquisition. Asset acquisitions are recorded at the cumulative acquisition costs and allocated to the assets acquired and liabilities assumed on a relative fair value basis. The Company allocates the purchase price of real estate to identifiable tangible assets such as land, building, land improvements and tenant improvements acquired based on their fair value. In estimating the fair value of each component, management considers appraisals, replacement cost, its own analysis of recently acquired and existing comparable properties, market rental data and other related information. Transaction costs associated with asset acquisitions are capitalized.
Business Combinations
When substantially all of the fair value is not concentrated in a group of similar identifiable assets, the set of assets will generally be considered a business and the Company applies the purchase method for business combinations, where all tangible and identifiable intangible assets acquired and all liabilities assumed are recorded at fair value. Any excess purchase price is recorded as goodwill. Transaction costs associated with business combinations are expensed as incurred.
The following discussion applies to our initial determination of fair value and the resulting subsequent accounting which is generally applicable to both asset acquisitions and business combinations.
The fair value of any tangible real estate assets acquired is determined by valuing the building as if it were vacant, and the fair value is then allocated to land, buildings, equipment and improvements based on available information including replacement cost, appraisal or using net operating income capitalization rates, discounted cash flow analysis or similar fair value models.

We determine in-place lease values based on our evaluation of the specific characteristics of each tenant’s lease agreement and by applying a fair value model. The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease up periods considering current market conditions. In estimating fair value of in-place leases, we consider items such as real estate taxes, insurance, leasing commissions, tenant improvements and other operating expenses to execute similar leases as well as projected rental revenue and carrying costs during the expected lease up period. We amortize the value of in-place leases acquired to expense over the approximate weighted average remaining term of the leases, adjusted for projected tenant turnover, on a composite basis.

We determine the value of above-market and below-market in-place leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) estimates of current market lease rates for the corresponding in-place leases, measured over a period equal to (i) the remaining non-cancellable lease term for above-market leases, or (ii) the remaining non-cancellable lease term plus any renewal options that we consider are reasonably certain that a lessee will execute such renewal option when a lease commences. We record the fair value of above-market and below-market leases as intangible assets or liabilities, and amortize them as an adjustment to revenue over the lease term. 

We determine the fair value of assumed debt by calculating the net present value of the scheduled debt service payments using current market-based terms for interest rates for debt with similar terms that management believes we could obtain on similar structures and maturities. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining term of the loan.

In a business combination, we retain the previous lease classification unless there is a lease modification and that modification is not accounted for as a separate new lease. We elected to apply the short-term lease measurement and recognition exemption available under the new accounting standard for leases (discussed below in Note 3. "Recently Adopted Accounting Standards") to leases that have a remaining lease term of 12 months or less at the acquisition date, and accordingly, do not recognize an intangible asset if the terms of an operating lease are favorable relative to market terms, or a liability if the terms are unfavorable relative to

12

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)


market terms. Leasehold improvements are amortized over the shorter of the useful life of the assets and the remaining lease term at the date of acquisition.
Capitalization of Costs
We capitalize costs directly related to the development, pre-development or improvement of our investment in real estate, referred to as capital projects and other activities included within this paragraph. Costs associated with our capital projects are capitalized as incurred. If the project is abandoned, these costs are expensed during the period in which the project is abandoned. Costs considered for capitalization include, but are not limited to, construction costs, interest, real estate taxes, insurance and utilities, if appropriate. We capitalize indirect costs such as personnel, office and administrative expenses that are directly related to our development projects based on an estimate of the time spent on the construction and development activities. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. We determine when the capitalization period begins and ends through communication with project and other managers responsible for the tracking and oversight of individual projects. In the event that the activities to ready the asset for its intended use are suspended, the capitalization period will cease until such activities are resumed. In addition, we capitalize incremental initial direct costs incurred for successful origination of new leases which include internal and external leasing commissions. Interest expense is capitalized based on actual qualifying capital expenditures from the period when development commences until the asset is ready for its intended use, at the weighted average borrowing rate during the period. These costs are included in investment in real estate and depreciated over the estimated useful life of the related assets.
Costs incurred for maintaining and repairing our properties, which do not extend their useful lives, are expensed as incurred.
Impairment Losses
When events or circumstances indicate that the carrying amount of a real estate investment may not be recoverable, we review the carrying value of the asset. When such impairment indicators exist, we review an estimate of the undiscounted future cash flows expected to result from the use of the real estate investment and proceeds from its eventual disposition and compare such amount to the carrying amount 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 recorded an impairment loss of $0.7 million for the three and nine months ended September 30, 2019, respectively, on our South Bend - Monroe facility. We did not record any impairment losses for the three and nine months ended September 30, 2018.
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 accounting. For further information about our equity investments, see Note 7. "Equity Investments".

Our investment in GDS Holdings Limited ("GDS") is classified as "available for sale" and is carried at fair value.

Revenue Recognition

Our revenue consists of lease revenue and revenue from contracts with customers. The Company adopted Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), the new accounting standard for leases, effective January 1, 2019 using the modified retrospective approach and prior periods were not restated. In addition, the Company adopted Revenue from Contracts with Customers (“ASC 606”), the new accounting standard for revenue from contracts with customers, effective January 1, 2018 using the modified retrospective approach. See Note 3. “Recently Adopted Accounting Standards” and Note 4. “Revenue Recognition”.

13

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)


Lease Revenue:
Our leasing revenue primarily consists of colocation rent, metered power reimbursements and interconnection revenue and is accounted for under ASC 842, Leases. We generally are not entitled to reimbursements for rental expenses including real estate taxes, insurance or other common area operating expenses.
a. Colocation Rent Revenue
Colocation rent revenues, including interconnection revenue, are fixed minimum lease payments generally billed monthly in advance based on the contracted power or leased space. Some contracts may provide initial free rent periods and rents that escalate over the term of the contract. If rents escalate without the lessee gaining access to or control over additional leased power or space at the beginning of the lease term, the rental payments are recognized as revenue on a straight-line basis over the term of the lease. If rents escalate because the lessee gains access to and control over additional power and or leased space, revenue is recognized in proportion to the additional power or space in the periods that the lessee has control over the use of the additional power or space. The excess of revenue recognized over amounts contractually due is recognized as a straight-line receivable, which is included in rent and other receivables in our consolidated balance sheet. Some of our leases are structured on a gross basis in which the customer pays a fixed amount for colocation space and power. The revenue for these types of leases is recorded in colocation rent revenue.
b. Metered Power Reimbursements Revenue
Some of our leases provide that the customer is separately billed for power based upon actual or estimated metered usage at rates then in effect. Metered power reimbursement revenue is variable lease payments generally billed one month in arrears, and an estimate of this revenue is accrued in the month that the associated power is provided and recorded in metered power reimbursements revenue.
Revenue from Contracts with Customers
Managed services, equipment sales, installations and other services are recognized under ASC 606.
Equipment sold by us generally consists of servers, switches, networking equipment, cable infrastructure and cabinets. Revenue is recognized at a point-in-time when control of the equipment transfers to the customer from the Company, which generally occurs upon delivery to the customer.

Managed services include providing of 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.
Rent and Other Receivables
Receivables consist principally of trade receivables from customers and straight-line rent receivables with estimated credit losses recorded as an allowance for doubtful accounts.
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 (loss).
Stock-Based Compensation
We have a stock-based incentive award plan for our employees and directors. Stock-based compensation expense associated with these awards is recognized in general and administrative expenses, property operating expenses, and sales and marketing expenses in our consolidated statements of operations. We measure stock-based compensation at the estimated fair value on the grant date

14

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)


and recognize the amortization of stock-based compensation expense over the requisite service period. Fair value is determined based on assumptions related to volatility, interest rates and the market, and our 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/loss 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

Derivative instruments are measured at fair value and recorded as assets or 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. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in the condensed consolidated statement of comprehensive income (loss) until the hedged item is recognized in earnings. Any ineffective portion of a derivative's change in fair value is immediately recognized in earnings. For interest rate derivatives, amounts recognized in earnings are reflected in interest expense. For a derivative designated and that qualified as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative are reported in the condensed consolidated statement of comprehensive income (loss). Any ineffective portion of the change in fair value of the derivative is recognized directly in earnings. Amounts are reclassified out of other comprehensive income (loss) into earnings when the hedged investment is either sold or substantially liquidated.

3. Recently Adopted Accounting Standards

Leases

We adopted ASU 2016-02 (codified in ASC 842, Leases) on January 1, 2019, applied the package of practical expedients included therein and utilized the modified retrospective transition method with the cumulative effect of transition on the effective date. By applying the modified retrospective transition method, the presentation of financial information for periods prior to January 1, 2019 was not restated.

We elected the package of practical expedients, which permits us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the treatment of any initial direct costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment.

As a Lessee

The ASU requires that a liability be recorded on the balance sheet for all leases where the reporting entity is a lessee, based on the present value of future lease obligations. A corresponding right-of-use ("ROU") asset will also be recorded. Amortization of the lease obligation and the ROU asset for leases classified as operating leases are on a straight-line basis. Leases classified as financing leases are required to be accounted for as financing arrangements similar to the accounting treatment for capital leases under ASC 840, Leases (the former accounting standard for all leases, ("ASC 840")).

We elected the practical expedient to combine our lease and related non-lease components by asset class for our leases.

15

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)


We elected the practical expedient to not evaluate land easements not previously accounted for as leases prior to the entity’s adoption of the new accounting standard for leases.

We elected to apply the short-term lease measurement and recognition exemption available for leases under the new accounting standard for leases that have a remaining lease term of 12 months or less.

The adoption of ASC 842 had a significant impact on our consolidated balance sheet due to the recognition of approximately $87.0 million of ROU assets and $123.2 million of lease liabilities for operating leases. We recognized a $9.5 million cumulative effect adjustment to retained earnings. The adjustment to retained earnings was driven principally by measurement of operating lease liabilities at the present value of the remaining lease payments at the adoption date of January 1, 2019. The increase was offset in part by impairment of ROU assets associated with one build-to-suit ("BTS") arrangement recognized as an operating lease under the new accounting standard for leases.

Additionally, we de-recognized certain previously recognized BTS lease assets and liabilities which under the new accounting standard for leases are recognized as operating lease ROU assets and lease liabilities. Prior to the adoption of the new accounting standard for leases, these leases were accounted as financing arrangements or BTS leases assets and liabilities and recorded as buildings and improvement and lease financing arrangements. The table below reflects the impact of adoption of the lease standard on our consolidated balance sheets as of September 30, 2019 and December 31, 2018 (in millions) related to previously reported BTS leases:
Impact to the consolidated balance sheets:
As of December 31, 2018
As of September 30, 2019
Buildings and improvements
$
77.4

$

Operating lease right-of-use assets

60.9

Finance lease liabilities
123.3


Operating lease liabilities

94.3


Prior to the adoption of the new accounting standard for leases, BTS lease assets were amortized over the useful life of the asset and recorded as amortization expense and accretion of BTS lease liability was recorded as an interest expense in consolidated statement of operations. Upon adoption of the new accounting standard for leases, BTS leases are accounted as operating leases and amortization and accretion of lease liabilities of these operating leases are recorded as lease expenses in property operating expenses in our consolidated statement of operations.

As a Lessor

The accounting for lessors remained largely unchanged from ASC 840. However, the new accounting standard for leases requires that lessors expense certain costs to obtain a lease that are not incremental to origination of a lease. Upon adoption, initial direct costs that are not incremental are expensed as general and administrative expense in our consolidated statements of operations. Prior to the adoption of the new standard, these costs were capitalizable. As a result of electing the package of practical expedients, initial direct costs have not been reassessed prior to the effective date and therefore adoption of the lease standard did not have an impact on our previously reported consolidated statements of operations with respect to initial direct costs.

In addition, under the new accounting standard for leases, certain exceptions under the previous standard for real estate no longer are applicable in the evaluation of the lease classification as an operating, sales type or direct financing lease. In the event that a real estate lease is classified as sales-type lease, subject to certain conditions, a gain or loss is recognized based on the present value of the lease payments and residual value.

We elected the practical expedient to combine all of our lease and nonlease revenue components into a single combined lease component as nonlease components have the same pattern of transfer as the related predominant operating lease components. Our customer leases include options to extend or terminate the lease agreements. We do not generally include extension or termination options in a customer’s lease term for lease classification purposes or for recognizing lease revenue unless we are reasonably certain the customer will exercise these extension or termination options at lease commencement.

16

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)


Revenue from contracts with customers

On January 1, 2018, we adopted the Financial Accounting Standards Board ("FASB") pronouncement ASU 2014-09 with respect to revenue recognition. The revised guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseded prior revenue recognition guidance, including industry-specific revenue guidance. The revised guidance replaced most existing revenue and real estate sale recognition guidance in GAAP. The standard specifically excludes lease contracts, which is our primary recurring revenue source; however, our revenue accounting for managed services, equipment sales, installations and other services will follow the revised guidance. We adopted the new standard using the modified retrospective transition method, where financial statement presentations prior to the date of adoption are not restated. Transactions that were not closed as of the adoption date were adjusted to reflect the new standard and we recorded an adjustment to beginning retained earnings of $0.3 million.

As allowed under GAAP, we have adopted the practical expedient that allows us not to 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 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.

Share based payments granted to nonemployees

On January 1, 2019, we adopted ASU 2018-07, Compensation-Stock Compensation (Topic 718) which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under this ASU, the guidance on such payments to nonemployees aligns with the requirements for share-based payments granted to employees. The adoption did not have a significant impact as the Company accounts for its share-based payments.

Equity investments

On January 1, 2018, we adopted ASU 2016-01 related to equity investments. Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are measured at fair value with changes in fair value recognized in net income. Prior to adoption of this update, changes in fair value for available for sale equity investments were recorded in other comprehensive income (loss). The adoption of the new standard was made through a cumulative-effect adjustment to beginning retained earnings of $75.6 million.

Changes in Shareholders' Equity

In August 2018, the SEC issued Securities Act Release No. 33-10532, Disclosure Update and Simplification, which amends certain of its disclosure requirements and is intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. The amendments became effective on November 5, 2018. Among the amendments is the requirement to present the changes in shareholders' equity in the interim financial statements (either in a separate statement or footnote) for interim periods on Form 10-Q. In accordance with the SEC's rule, the company's first presentation of changes in shareholders’ equity was shown in the Form 10-Q for the quarter ended March 31, 2019.

New Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software, which clarifies the accounting for implementation costs incurred in a hosting arrangement that is a service contract. Capitalization of these implementation costs are accounted for under the same guidance as implementation costs incurred to develop or obtain internal-use software and recorded as a prepaid asset. These capitalized costs are to be expensed ratably over the hosting arrangement term as operating expense, along with the service fees. The guidance is effective for periods beginning after December 15, 2019 and early adoption is allowed. The Company is evaluating the impact of the new standard but does not believe that adoption will have a significant impact on the Company.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, which changes the fair value measurement disclosure requirements of ASC 820, Fair Value Measurement. The amendments are part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by GAAP that is most important to financial statement users and are intended to improve the effectiveness

17

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)


of disclosure requirements on fair value measurement by using those concepts. The guidance is effective for periods beginning after December 15, 2019 and early adoption is allowed. The Company is evaluating the impact of the new standard.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, providing guidance which requires certain financial assets to be presented at the net amount expected to be collected. The FASB has subsequently issued various amendments to further clarify the scope of the initial guidance. ASU 2016-13 and its related amendments will apply to our trade receivables, notes receivable, net investments in leases and any other future financial assets that have the contractual right to receive cash that we may acquire in the future. FASB further clarified that receivables arising from operating leases are not within the scope of this sub-topic. The guidance is effective for periods beginning January 1, 2020 and early adoption is allowed. We are currently evaluating the impact of the new standard but do not believe the adoption will have a significant impact on the Company.

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.

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):
For the Period Ended September 30, 2019
Minimum Lease Payments
2019
$
188.2

2020
708.0

2021
603.2

2022
508.8

2023
413.5

2024
319.3

Thereafter
957.4

Total
$
3,698.4



Disclosures related to periods prior to adoption of the New Accounting Standard for Leases

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):
For the Period Ended December 31, 2018
Minimum Lease Payments
2019
$
647.6

2020
553.7

2021
453.0

2022
365.5

2023
284.4

Thereafter
835.9

Total
$
3,140.1




18

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(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, 2019, lease revenue disaggregated by primary revenue stream is as follows (in millions):

Lease Revenue
Three Months Ended September 30, 2019
Nine Months Ended September 30, 2019
Colocation (Minimum lease payments)
$
202.4

$
588.2

Meter power reimbursements (Variable lease payments)
41.1

101.3

Total Lease revenue
$
243.5

$
689.5


For the three and nine months ended September 30, 2019 and 2018, 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 customers
2019
2018
2019
2018
Equipment sales and services
$
2.4

$
3.7

$
23.4

$
12.0

Other revenue
5.0

4.4

14.5

12.7

Total Revenue from contracts with customers
$
7.4

$
8.1

$
37.9

$
24.7



Other revenue from contracts with customers includes $4.1 million and $11.8 million of revenue from managed services for the three and nine months ended September 30, 2019, respectively, and $3.3 million and $9.7 million for the three and nine months ended September 30, 2018, 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, 2019 and 2018.

The balances from customers accounts receivables were $5.2 million and $9.4 million as of September 30, 2019 and December 31, 2018, respectively. Contract assets were $0.8 million as of September 30, 2019 and were not material as of December 31, 2018. Contract liabilities were not material as of both September 30, 2019 and December 31, 2018. One customer represented approximately 22% and 19% of our revenue for the nine months ended September 30, 2019 and 2018, respectively.

5. Leases - As a Lessee

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Variable lease payments consisting of non-lease components and services are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation is incurred.

The new accounting standard for leases defines initial direct costs as only the incremental costs of signing a lease. Initial direct costs related to leasing that are not incremental are expensed as general and administrative expense in our consolidated statements of operations. As a result of electing the package of practical expedients, initial direct costs incurred prior to the effective date have not been reassessed.

Our operating lease agreements primarily consist of leased real estate and are included within operating lease ROU assets and operating lease liabilities on the consolidated balance sheets. Many of our lease agreements include options to extend the lease, which are not included in our minimum lease payments unless they are reasonably certain to be exercised at lease commencement. Rental expense related to operating leases is recognized on a straight-line basis over the lease term.

We operate four data center facilities and have a data center under development subject to finance leases. During the third quarter of 2019, the Company entered into one ground lease in Dublin, Ireland for a term of 999 years (see Note 6. "Investment in Real

19

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)


Estate" for more information). The Dublin finance lease was capitalized as land and included in Construction in progress, including land under development on the Condensed Consolidated Balance Sheet. The remaining term of our data center finance leases range from two to twenty-one 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 consistent with the presentation under ASC 840 in the prior year. In addition, we lease 15 other office locations and data centers under operating lease agreements, including 11 data centers and 4 offices supporting our sales and corporate activities. Our operating leases have remaining lease terms ranging from one to twenty-five 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, 2019
Nine Months Ended September 30, 2019
Operating lease cost
$
5.0

$
14.6

Finance lease cost:
 
 
   Amortization of assets
0.4

1.5

   Interest on lease liabilities
0.4

1.3

Total net lease cost
$
5.8

$
17.4



Supplemental balance sheet information related to leases is as follows (in millions, except lease term and discount rate):
 
September 30, 2019
Operating leases:
 
   Operating lease right-of-use assets
$
90.7

   Operating lease liabilities
$
124.3

Finance leases:
 
   Property and equipment, at cost
$
32.3

   Accumulated amortization
(4.3
)
Property and equipment, net
$
28.0

Finance lease liabilities
$
30.7

 
 
Weighted average remaining lease term (in years):
 
Operating leases
14.4

Finance leases(a)
18.1

 
 
Weighted average discount rate:
 
Operating leases
4.5
%
Finance leases(a)
5.0
%

(a) Excludes the 999-year ground lease in Dublin, Ireland.


20

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(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, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
16.7

Operating cash flows from finance leases
1.3

Financing cash flows from finance leases
2.1

 
 
Non-cash right-of-use assets obtained in exchange for lease liabilities:
 
Operating leases
$
101.4

Finance leases
0.8



Maturities of lease liabilities were as follows (in millions):
 
As of September 30, 2019
 
Operating Leases
 
Finance Leases
2019
$
3.5

 
$
1.6

2020
20.4

 
4.1

2021
16.2

 
4.0

2022
16.5

 
2.8

2023
12.9

 
1.8

2024
8.7

 
1.4

Thereafter
91.8

 
29.0

Total lease payments
$
170.0

 
$
44.7

Less: Imputed interest
(45.7
)
 
(14.0
)
Total lease obligations
$
124.3

 
$
30.7



As of September 30, 2019, we have one additional operating lease commitment that has not commenced of approximately $22.2 million fixed contractual payments with an expected lease term of approximately 12 years.

Disclosures related to periods prior to adoption of the New Accounting Standard for Leases

The following table summarizes aggregate minimum principal payments of the finance lease obligations and future minimum lease payments required under operating leases for the five years subsequent to December 31, 2018, and thereafter (in millions):
 
Operating Leases
 
Finance Leases
2019
$
5.0

 
$
2.7

2020
4.9

 
2.8

2021
3.7

 
2.9

2022
3.7

 
2.0

2023
3.5

 
1.0

Thereafter
43.4

 
22.0

Total lease payments
$
64.2

 
$
33.4



6. Investment in Real Estate

Land for future development

During the three months ended September 30, 2019, the Company purchased for future development approximately 9 acres of land for $4.4 million in Dublin, Ireland. During the nine months ended September 30, 2019, the Company purchased approximately 54 acres of land for $51.8 million in Dublin, Ireland, San Antonio and Santa Clara. During the nine months ended September 30,

21

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)


2018, the Company purchased approximately 167 acres of land for $159.6 million in Dallas, Frankfurt, Northern Virginia, Phoenix and Santa Clara.

Leases of real estate

The Company entered into a 999-year ground lease of 16 acres in Dublin, Ireland for future development of a 6 MW datacenter and commenced construction during the three months ended September 30, 2019. The Company prepaid $6.3 million of the lease payments and concluded that the present value of lease payments was equal to substantially all of the fair value of the land and classified the lease as a finance lease. In addition, the Company entered into a lease for land comprising 3 acres and a building shell of approximately 51,000 square feet in London, UK for 25 years, including an option to extend for an additional 25 years. The Company immediately began development and construction of a 6 MW datacenter in London. We determined that the option to renew was not reasonably certain to be exercised. The fixed lease payments are £0.9 million per year and we classified the lease as an operating lease because the lease term was not for a major part of the remaining economic life of the building shell; nor did the lease qualify as a finance lease based on the other criteria under ASC 842.

Acquisition of data centers

On August 24, 2018, the Company completed its previously announced acquisition of Zenium Topco Ltd. and certain other affiliated entities ("Zenium"). Zenium is a hyperscale data center provider in Europe with four operating data centers in London and Frankfurt, and land sites available for development in London and Frankfurt. In connection with the acquisition, and after giving effect to a post-closing working capital adjustment, the Company paid aggregate cash consideration of approximately $462.8 million, net of approximately $12.7 million of cash acquired, and assumed outstanding indebtedness of approximately $86.3 million. In the fourth quarter of 2018, the Company paid approximately $1.0 million related to the post-closing working capital adjustment which is included above in the aggregate cash consideration. The Company financed the acquisition with proceeds from the $300.0 million delayed draw term loan included in the 2023 Term Loan and $174.5 million of borrowings under the $1.7 billion Revolving Credit Facility (each as defined below).

The Company evaluated the acquisition and determined that substantially all of the fair value of the gross assets was concentrated in a group of similar identifiable assets and accounted for the transaction as an acquisition of assets.

Real Estate Investments and Intangible Assets and Related Depreciation and Amortization

As of September 30, 2019 and December 31, 2018, major components of our real estate investments and intangible assets, and related accumulated depreciation and amortization, are as follows (in millions):
 
September 30, 2019
 
December 31, 2018
 
Investment in Real Estate
Intangible Assets
 
Investment in Real Estate
Intangible Assets
 
Buildings and Improvements
Equipment
Customer Relationships
In Place Leases
Other Contract Intangible Assets
 
Buildings and Improvements
Equipment
Customer Relationships
In Place Leases
Other Contract Intangible Assets
Cost
$
1,732.0

$
2,950.3

$
247.1

$
133.8

$
19.2

 
$
1,677.5

$
2,630.2

$
247.1

$
136.0

$
19.5

Less: accumulated depreciation and amortization
(522.9
)
(769.8
)
(147.8
)
(39.4
)
(9.2
)
 
(481.8
)
(572.7
)
(137.9
)
(21.1
)
(7.9
)
Net
$
1,209.1

$
2,180.5

$
99.3

$
94.4

$
10.0

 
$
1,195.7

$
2,057.5

$
109.2

$
114.9

$
11.6



Depreciation and amortization are calculated using the straight-line method over the useful lives of the assets. The typical life of owned assets are as follows:
Buildings
30 years
Building improvements
30 years
Equipment
20 years


Leased real estate and leasehold improvements are depreciated over the shorter of the asset's useful life or the remaining lease term. Depreciation expense was $92.1 million and $269.9 million for the three and nine months ended September 30, 2019, and $74.9 million and $210.0 million for the three and nine months ended September 30, 2018, respectively.


22

CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)


Other contract intangible assets include tradename, favorable leasehold interests and above market leases. Amortization expense related to intangibles was $13.3 million and $39.7 million for the three and nine months ended September 30, 2019, and $9.1 million and $26.2 million for the three and nine months ended September 30, 2018, respectively.

7. Equity Investments

The Company has an equity investment in GDS, a developer and operator of high-performance, large-scale data centers in China. As of September 30, 2019, the American Depositary Share ("ADS") Class A ordinary share equivalent was $40.08 per ADS based on its closing price. In April 2019, we sold approximately 5.7 million GDS ADSs for a total sales price of approximately $200.0 million. We continue to hold approximately 2.3 million GDS ADSs, with the remaining GDS ADSs being subject to a lock-up period which expired October 12, 2019, subject to customary carve outs. As a result of this lack of marketability, we applied an estimated discount of 0.9% to this equity investment resulting in an equity investment fair value of $91.4 million as of September 30, 2019.

IN MILLIONS
Three Months Ended September 30, 2019
Nine Months Ended September 30, 2019
Net gain (loss) on marketable equity investment
$
12.4

$
105.1

Less: Net gain (loss) recognized on marketable equity investment sold

66.9

Unrealized gain (loss) on marketable equity investment held as of September 30, 2019
$
12.4

$
38.2



The gain (loss) on investment is recognized in the consolidated statement of operations in gain (loss) on marketable equity investment.

Through September 30, 2019, the Company has made an $11.9 million investment in exchange for a 10% equity interest in ODATA Brasil S.A. and ODATA Colombia S.A.S. (collectively "ODATA"). ODATA, a Brazilian headquartered company, specializes in providing colocation services to wholesale customers, such as hyperscale cloud providers, financial services and telecommunications companies, and also to enterprises across multiple industries. Through September 30, 2019, the Company has made investments totaling $1.1 million in ODATA Colombia S.A.S. (“ODATA Colombia”). In connection with these investments, CyrusOne and ODATA entered into a commercial agreement covering leasing activity with CyrusOne customers in the ODATA portfolio. In addition, our Chief Technology Officer joined the ODATA board of directors in October 2018. In evaluating the appropriate accounting method for its investment in ODATA, the Company considered its right to appoint a director to the ODATA board of directors, as well as other relevant factors, in evaluating the Company's ability to exercise significant influence over the operating and financial policies of ODATA as provided in ASC 323-10-15-6 and concluded that the investment should be accounted for under the cost method. During the three months ended September 30, 2019, the Company made no capital contributions to ODATA Brazil or Colombia.

8. Other Assets

As of September 30, 2019 and December 31, 2018, the components of other assets are as follows (in millions):
 
September 30, 2019
December 31, 2018
Deferred leasing and other contract costs
$
49.6

$
43.6

Prepaid expenses
23.1

26.4

Non-real estate assets, net
17.7

18.4

Derivative assets
20.5


Other assets
17.8

22.9

Total