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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 March 31, 2020
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.)
2850 N. Harwood Street, Suite 2200, Dallas, TX 75201
(Address of Principal Executive Offices) (Zip Code)

(972) 350-0060
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
CONE
The NASDAQ Global Select Market
1.450% Senior Notes due 2027
CONE27
The Nasdaq Stock Market LLC



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    

Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    
Yes      No  




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes      No  
There were 115,199,834 shares of common stock outstanding as of April 24, 2020 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 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 March 31, 2020, the total number of outstanding shares of our common stock was approximately 115.0 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)
 
March 31, 2020
December 31, 2019
Assets
 
 
Investment in real estate:
 
 
Land
$
172.2

$
147.6

Buildings and improvements
1,786.3

1,761.4

Equipment
3,106.4

3,028.2

Gross operating real estate
5,064.9

4,937.2

Less accumulated depreciation
(1,469.5
)
(1,379.2
)
       Net operating real estate
3,595.4

3,558.0

Construction in progress, including land under development
990.6

946.3

Land held for future development
205.4

206.0

Total investment in real estate, net
4,791.4

4,710.3

Cash and cash equivalents
57.3

76.4

Rent and other receivables (net of allowance for doubtful accounts of $1.6 and $1.8 as of March 31, 2020 and December 31, 2019, respectively) 
305.3

291.9

Restricted cash
1.3

1.3

Operating lease right-of-use assets, net
208.6

161.9

Equity investments
153.1

135.1

Goodwill
455.1

455.1

Intangible assets (net of accumulated amortization of $216.0 and $207.5 as of March 31, 2020 and December 31, 2019, respectively)
184.5

196.1

Other assets
121.9

113.9

Total assets
$
6,278.5

$
6,142.0

Liabilities and equity
 
 
Debt
$
3,047.0

$
2,886.6

Finance lease liabilities
29.4

31.8

Operating lease liabilities
243.0

195.8

Construction costs payable
183.4

176.3

Accounts payable and accrued expenses
121.0

122.7

Dividends payable
58.7

58.6

Deferred revenue and prepaid rents
167.3

163.7

Deferred tax liability
57.0

60.5

Other liabilities
7.9

11.4

Total liabilities
3,914.7

3,707.4

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 115,014,251 and 114,808,898 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
1.2

1.1

Additional paid in capital
3,199.9

3,202.0

Accumulated deficit
(811.0
)
(767.3
)
Accumulated other comprehensive loss
(26.3
)
(1.2
)
Total stockholders’ equity
2,363.8

2,434.6

Total liabilities and equity
$
6,278.5

$
6,142.0


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 March 31,
 
2020
2019
Revenue
$
245.9

$
225.0

Operating expenses:
 
 
Property operating expenses
92.6

83.3

Sales and marketing
4.7

5.3

General and administrative
26.9

22.2

Depreciation and amortization
108.1

102.1

Transaction, acquisition, integration and other related expenses
0.4

0.3

Total operating expenses
232.7

213.2

Operating income
13.2

11.8

Interest expense, net
(16.0
)
(23.7
)
Gain on marketable equity investment
14.7

101.2

Loss on early extinguishment of debt
(3.4
)

Foreign currency and derivative gains, net
5.1


Other expense
(0.1
)
(0.1
)
Net income before income taxes
13.5

89.2

Income tax benefit
1.2

0.2

Net income
$
14.7

$
89.4

Weighted average number of common shares outstanding - basic
114.9

108.3

Weighted average number of common shares outstanding - diluted
115.1

108.8

Income per share - basic
$
0.13

$
0.82

Income per share - diluted
$
0.13

$
0.82


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 March 31,
 
2020
2019
Net income
$
14.7

$
89.4

Other comprehensive income:
 
 
Foreign currency translation adjustment
(24.0
)
0.6

Net (loss) gain on cash flow hedging instruments
(1.1
)
2.7

Comprehensive (loss) income
$
(10.4
)
$
92.7


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 as of 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



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 as of March 31, 2019
110.3

$
1.1

$
2,938.2

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

 
 
 
 
 
 
 
Balance as of January 1, 2020
114.8

$
1.1

$
3,202.0

$
(767.3
)
$
(1.2
)
$
2,434.6

Net income



14.7


14.7

Issuance of common stock, net
0.2

0.1

0.5



0.6

Stock-based compensation expense


3.7



3.7

Tax payment upon exercise of equity awards


(6.3
)


(6.3
)
Foreign currency translation adjustment




(24.0
)
(24.0
)
Net loss on cash flow hedging instruments




(1.1
)
(1.1
)
Dividends declared, $0.50 per share



(58.4
)

(58.4
)
Balance as of March 31, 2020
115.0

$
1.2

$
3,199.9

$
(811.0
)
$
(26.3
)
$
2,363.8


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

8


CyrusOne Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended March 31,
 
2020
2019
Cash flows from operating activities:
 
 
Net income
$
14.7

$
89.4

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
108.1

102.1

Provision for bad debt expense
(0.1
)

Unrealized gain on marketable equity investment
(14.7
)
(101.2
)
Foreign currency and derivative gains, net
(5.1
)

Proceeds from swap terminations
2.9


Loss on early extinguishment of debt
3.4


Interest expense amortization, net
2.0

1.2

Stock-based compensation expense
3.7

4.5

Deferred income tax benefit
(2.0
)
(0.8
)
Operating lease cost
6.2

5.0

Other income (expense)
0.2

(0.5
)
Change in operating assets and liabilities:
 
 
Rent and other receivables, net and other assets
(29.4
)
(18.0
)
Accounts payable and accrued expenses
(1.2
)
(39.8
)
Deferred revenue and prepaid rents
3.2

7.1

Operating lease liabilities
(5.6
)
(5.1
)
Net cash provided by operating activities
86.3

43.9

Cash flows from investing activities:
 
 
Investment in real estate
(196.5
)
(301.9
)
Equity investments
(3.3
)

Net cash used in investing activities
(199.8
)
(301.9
)
Cash flows from financing activities:
 
 
Issuance of common stock, net
0.6

105.0

Dividends paid
(58.4
)
(50.4
)
Payment of deferred financing costs
(13.6
)

Proceeds from revolving credit facility
244.4

275.7

Repayments of revolving credit facility
(623.1
)

Proceeds from Euro bond
550.6


Proceeds from unsecured term loan
1,100.0


Repayments of unsecured term loan
(1,100.0
)

Payments on finance lease liabilities
(0.7
)
(0.6
)
Tax payment upon exercise of equity awards
(6.3
)
(8.7
)
Net cash provided by financing activities
93.5

321.0

Effect of exchange rate changes on cash, cash equivalents and restricted cash
0.9

(0.1
)
Net decrease in cash, cash equivalents and restricted cash
(19.1
)
62.9

Cash, cash equivalents and restricted cash at beginning of period
77.7

64.4

Cash, cash equivalents and restricted cash at end of period
$
58.6

$
127.3

Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, including amounts capitalized of $6.0 million and $9.3 million in 2020 and 2019, respectively
$
8.3

$
46.7

Non-cash investing and financing activities:
 
 
Construction costs payable
183.4

155.5

Dividends payable
58.7

51.5

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

9

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 March 31, 2020, all of the issued and outstanding Operating Partnership units of CyrusOne LP are owned, directly or indirectly, by the Company. Our customers operate in a number of industries, including information technology, financial services, energy, oil and gas, mining, medical, research and consulting services, and consumer goods and services. We currently operate 50 data centers, including two 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
Risks and Uncertainties
The novel strain of the coronavirus (COVID-19) identified in China in late 2019 has globally spread throughout Asia, Europe, the Middle East and Americas and has resulted in authorities implementing numerous measures to attempt to contain the virus. This includes travel bans, shelter in place regulations and other restrictions and shutdowns. We are monitoring the global outbreak and the potential risks to us posed by the pandemic. Our data centers have remained operational however, we have modified our business practices by temporarily closing our corporate headquarters and regional locations, transitioned non-essential employees to working remotely from their homes, implemented restrictions on the physical participation in meetings and significantly limited business travel. The effect of the pandemic and measures implemented by authorities could disrupt our supply chain, including the provision of services to us by our vendors and could result in restrictions on construction activities. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time. There is considerable uncertainty about the impact of these measures and restrictions on our Company and customers and the effects of these measures and how long they will remain in effect could adversely impact our business, financial condition, results of operations and liquidity.
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, 2019, which was filed with the Securities and Exchange Commission ("SEC") on February 20, 2020. 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 March 31, 2020 and December 31, 2019, and for the three months ended March 31, 2020 and 2019. 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, 2019. 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.




10

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


Investment in Real Estate
Acquisition of Properties
Investment in real estate consist of land, buildings, improvements and integral equipment utilized in our data center operations. We expect most acquisitions to be an acquisition of assets rather than a business combination as our typical acquisitions consist of properties whereby substantially all the fair value of gross assets acquired is concentrated in a single asset set (land, building and in-place leases), which are treated as asset acquisitions. See Business Combinations and Asset Acquisitions herein.
Business Combinations and Asset Acquisitions
We evaluate whether an acquisition is a business combination or an asset acquisition by determining whether the set of assets is a business.
Asset Acquisitions
When substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the transaction is accounted for as an asset acquisition. Asset acquisitions are recorded at the 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.


11

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


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 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 did not record any impairment losses for the three months ended March 31, 2020 or 2019.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include all non-restricted cash held in financial institutions and other non-restricted highly liquid short-term investments with original maturities of three months or less. Restricted cash includes cash equivalents restricted by contract or regulation, including letters of credit.
Equity Investments

We hold investments in various joint ventures where the Company evaluates its ability to influence the operating or financial decisions of the investee in applying the appropriate method of accounting for such investments. Influence tends to be more effective as the investor's percent of ownership in the voting rights of the investee increases. Our equity investments represent less than 20% of the voting rights of the investees and we do not exercise influence over the investee's operating and financial decisions. Accordingly, we do not account for our equity investments using the equity method of accounting. For further information about our equity investments, see Note 7, Equity Investments.

Our investment in GDS Holdings Limited ("GDS") is classified as "available for sale" and is carried at fair value. Changes in the fair value are reported as a component of net income in Gain on marketable equity investments.

Revenue Recognition

Our revenue consists of lease revenue and revenue from contracts with customers.

12

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 Condensed Consolidated Balance Sheet. Some of our leases are structured on a gross basis in which the customer pays a fixed amount for colocation space and power. The revenue for these types of leases is recorded in colocation rent revenue.
b. Metered Power Reimbursements Revenue
Some of our leases provide that the customer is separately billed for power based upon actual or estimated metered usage at rates then in effect. Metered power reimbursement revenue is variable lease payments generally billed one month in arrears, and an estimate of this revenue is accrued in the month that the associated power is provided and recorded in metered power reimbursements revenue.
Revenue from Contracts with Customers
Revenue from our managed services, equipment sales, installations and other services are recognized under ASC 606, Revenue from Contracts with Customers.
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.
Contract assets were $0.5 million as of March 31, 2020 and were not material as of December 31, 2019. Contract liabilities were not material as of both March 31, 2020 and December 31, 2019.
Rent and Other Receivables
Receivables consist principally of trade receivables from customers and straight-line rent receivables with expected 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.


13

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


Stock-Based Compensation
We have a stock-based incentive award plan for our employees and directors. Stock-based compensation expense associated with these awards is recognized in General and administrative expenses, Property operating expenses, and Sales and marketing expenses in our Condensed Consolidated Statements of Operations. We measure stock-based compensation at the estimated fair value on the grant date and recognize the amortization of stock-based compensation expense over the requisite service period. Fair value is determined based on assumptions related to stock volatility, risk-free rate of return, and estimates of market and company performance.
Fair Value Measurements
Fair value measurements are utilized in accounting for business combinations, asset acquisitions, testing of goodwill and other long-lived assets for impairment, recording unrealized gain on available-for-sale securities, derivatives and related disclosures. Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy that prioritizes certain inputs used in the methodologies of measuring fair value for asset and liabilities, is as follows:
Level 1—Observable inputs for identical instruments such as quoted market prices;
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs); and
Level 3—Unobservable inputs that reflect our determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including our own data.

Derivative Instruments

Derivative instruments are measured at fair value and recorded in Other assets and Other liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. 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, net. 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

Intangibles-Goodwill and Other Internal-Use Software

We adopted ASU 2018-15, Intangibles Goodwill and Other Internal Use Software on a prospective basis effective January 1, 2020. The adoption did not have a significant impact on the Company.
 
Fair Value Measurement

On January 1, 2020, we adopted ASU 2018-13, Fair Value Measurement, which changes the fair value measurement disclosure requirements of ASC 820, Fair Value Measurement. The amendments are part of the FASB’s disclosure framework project to improve the effectiveness of disclosures important to financial statement users including information about assets and liabilities measured at fair value in our Condensed Consolidated Balance Sheets. The adoption did not have a significant impact on the Company.

Financial Instruments - Credit Losses

On January 1, 2020, we adopted ASU 2016-13, Financial Instruments-Credit Losses (CECL), which requires certain financial assets to be presented at the net amount expected to be collected. CECL and its related amendments apply to our customer contract

14

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


trade receivables, notes receivable and net investments in leases. Our Rent and other receivables are primarily comprised of rent receivables, which are not within the scope of this sub-topic. The adoption did not have a significant impact on the Company because of our limited exposure to financial instruments subject to this standard.

New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies various aspects related to the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes and clarifies certain aspects of the guidance to promote consistency among reporting entities. The guidance is effective for periods beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the impact of the new standard.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London interbank offered rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company is evaluating the impact of this ASU.

Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, lessors may provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in new accounting standard for leases addresses changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the impact from the COVID-19 pandemic on lessee’s business. In April 2020, the Financial Accounting Standards Board issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under the new accounting standard for leases, the Company must determine, on a lease by lease basis, if a lease concession resulted in a lease modification. The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and circumstances. The Company is evaluating the impact of this guidance.

4. Revenue Recognition
Lease Revenue
Lease revenue primarily consists of colocation rent and metered power reimbursements from the lease of our data centers. Colocation leases may include all or portions of a data center, where customers may also lease office space to support their colocation operations. Revenue is primarily based on power usage as well as square footage. Customer lease arrangements customarily contain provisions that allow for renewal or continuation on a month-to-month arrangement, and certain leases contain early termination rights. We do not include any of these extension or termination options in a customer’s lease term for lease classification purposes or for recognizing lease revenue unless we are reasonably certain the customer will exercise these extension or termination options at lease commencement. At lease commencement, early termination is generally not deemed probable due to the significant economic penalty incurred by the lessee to exercise its early termination right and to relocate their equipment installed in our facilities. Generally, our customer lease arrangements do not provide any option to purchase and are classified as operating leases. We have operating leases with one customer that represents approximately 20% and 21% of our revenue for the three months ended March 31, 2020 and 2019, respectively.

15

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


At March 31, 2020, the future minimum lease payments to be received under non-cancellable operating leases, excluding month-to-month arrangements and metered power reimbursements are shown below (in millions):
As of March 31, 2020
Minimum Lease Payments
2020
$
569.2

2021
651.8

2022
552.2

2023
440.4

2024
341.8

2025
285.4

Thereafter
739.8

Total
$
3,580.6



At March 31, 2019, the future minimum lease payments to be received under non-cancellable operating leases, excluding month-to-month arrangements and metered power reimbursements are shown below (in millions):
As of March 31, 2019
Minimum Lease Payments
2019
$
520.1

2020
631.9

2021
542.8

2022
454.3

2023
365.2

2024
295.9

Thereafter
940.0

Total
$
3,750.2


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 months ended March 31, 2020, lease revenue disaggregated by primary revenue stream is as follows (in millions):

Lease revenue
Three Months Ended March 31, 2020
Three Months Ended March 31, 2019
Colocation (Minimum lease payments)
$
204.0

$
188.4

Metered power reimbursements (Variable lease payments)
34.8

28.5

Total lease revenue
$
238.8

$
216.9


For the three months ended March 31, 2020 and 2019, revenue from contracts with customers disaggregated by primary revenue stream is as follows (in millions):
 
Three Months Ended March 31,
Revenue from contracts with customers
2020
2019
Equipment sales and services
$
2.5

$
3.9

Other revenue
4.6

4.2

Total revenue from contracts with customers
$
7.1

$
8.1




16

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


Other revenue from contracts with customers includes $4.1 million and $3.4 million of revenue from managed services for the three months ended March 31, 2020 and 2019, respectively. Total revenues from contracts with customers generated from operations outside of the United States were $0.7 million and insignificant for the three months ended March 31, 2020 and 2019, respectively.

Accounts receivable associated with revenue from contracts with customers were $5.2 million and $6.4 million as of March 31, 2020 and December 31, 2019, 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 Condensed 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 Condensed Consolidated Balance Sheets. Many of our lease agreements include options to extend the lease, which are not included in our minimum lease payments unless they are reasonably certain to be exercised at lease commencement. Rental expense related to operating leases is recognized on a straight-line basis over the lease term.

We operate five data center facilities and have a data center under development subject to finance leases. 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 13 data centers and 4 offices supporting our sales and corporate activities under operating lease agreements. Our operating leases have remaining lease terms ranging from one to 25 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 March 31, 2020
Three Months Ended March 31, 2019
Operating lease cost
$
6.2

$
5.0

Finance lease cost:
 
 
   Amortization of assets
0.4

0.6

   Interest on lease liabilities
0.4

0.5

Total net lease cost
$
7.0

$
6.1




17

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


Supplemental balance sheet information related to leases is as follows (in millions, except lease term and discount rate):
 
March 31, 2020
December 31, 2019
Operating leases:
 
 
   Operating lease right-of-use assets
$
208.6

$
161.9

   Operating lease liabilities
$
243.0

$
195.8

Finance leases:
 
 
   Property and equipment, at cost
$
32.0

$
34.9

   Accumulated amortization
(5.3
)
(5.0
)
Property and equipment, net
$
26.7

$
29.9

Finance lease liabilities
$
29.4

$
31.8

 
 
 
Weighted average remaining lease term (in years):
 
 
Operating leases
17.4

15.8

Finance leases(a)
18.1

18.1

 
 
 
Weighted average discount rate:
 
 
Operating leases
3.8
%
3.9
%
Finance leases(a)
4.9
%
4.9
%

(a) Excludes a 999-year ground lease in Dublin, The Republic of Ireland entered into during the third quarter of 2019. The Dublin finance lease was capitalized as land and included in Construction in progress, including land under development on the consolidated balance sheets.

Supplemental cash flow and other information related to leases is as follows (in millions):
 
Three Months Ended March 31, 2020
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
$
5.6

$
5.1

Operating cash flows from finance leases
0.4

0.5

Financing cash flows from finance leases
0.7

0.6

 
 
 
Non-cash right-of-use assets obtained in exchange for lease liabilities:
 
 
Operating leases
$
50.6

$
87.0

Finance leases




Maturities of lease liabilities were as follows as of March 31, 2020 (in millions):
 
Operating Leases
 
Finance Leases
2020
$
16.8

 
$
3.6

2021
25.2

 
4.0

2022
26.7

 
2.8

2023
23.0

 
1.8

2024
18.5

 
1.3

2025
17.0

 
1.3

Thereafter
205.5

 
27.9

Total lease payments
$
332.7

 
$
42.7

Less: Imputed interest
(89.7
)
 
(13.3
)
Total lease obligations
$
243.0

 
$
29.4




18

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


Maturities of lease liabilities were as follows as of December 31, 2019 (in millions):
 
Operating Leases
 
Finance Leases
2020
$
22.4

 
$
5.0

2021
21.0

 
4.1

2022
22.4

 
2.9

2023
18.5

 
1.9

2024
13.9

 
1.4

Thereafter
165.4

 
31.1

Total lease payments
$
263.6

 
$
46.4

Less: Imputed interest
(67.8
)
 
(14.6
)
Total lease obligations
$
195.8

 
$
31.8



6. Investment in Real Estate

Land for future development

During the three months ended March 31, 2019, the Company purchased approximately 30 acres of land for $40.1 million in San Antonio and Santa Clara. The Company did not purchase any land during the three months ended March 31, 2020.

Real Estate Investments and Intangible Assets and Related Depreciation and Amortization

As of March 31, 2020 and December 31, 2019, major components of our real estate investments and intangibles and related accumulated depreciation and amortization are as follows (in millions):
As of:
March 31, 2020
 
December 31, 2019
 
Cost
Accumulated Depreciation and Amortization
Net book value
 
Cost
Accumulated Depreciation and Amortization
Net book value
Investment in real estate
 
 
 
 






   Building and improvements
$
1,786.3

$
(567.1
)
$
1,219.2

 
$
1,761.4

$
(545.1
)
$
1,216.3

   Equipment
3,106.4

(902.4
)
2,204.0

 
3,028.2

(834.1
)
2,194.1

 
 
 
 
 
 
 
 
Intangible assets
 
 
 
 
 
 
 
   Customer relationships
$
247.1

$
(154.1
)
$
93.0

 
$
247.1

$
(151.1
)
$
96.0

   In-place leases
134.2

(51.9
)
82.3

 
137.1

(46.7
)
90.4

   Other contractual
19.2

(10.0
)
9.2

 
19.4

(9.7
)
9.7

      Total intangible assets
$
400.5

$
(216.0
)
$
184.5

 
$
403.6

$
(207.5
)
$
196.1



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 $94.9 million and $88.9 million for the three months ended March 31, 2020 and 2019, respectively.

Other contract intangible assets include tradename, favorable leasehold interests and above market leases. Amortization expense related to intangibles was $13.2 million and $13.2 million for the three months ended March 31, 2020 and 2019, respectively.


19

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


7. Equity Investments

The Company has the following equity investments where it maintains a noncontrolling interest in the investees (in millions).

 
 
Equity Investments as of:
Investees
Equity Method
March 31, 2020
December 31, 2019
GDS, Class A share equivalent
Fair value
$
133.4

$
118.7

ODATA Brasil S.A.
Cost method
17.4

15.4

ODATA Colombia S.A.S
Cost method
2.3

1.0

Equity investments
 
$
153.1

$
135.1



The Company has an equity investment in GDS, a developer and operator of high-performance, large-scale data centers in China. As of March 31, 2020, the American Depositary Share ("ADS") Class A ordinary share equivalent was $57.97 per ADS based on its closing price. We account for our equity investment in GDS using the fair value method. We hold approximately 2.3 million GDS ADSs, with a total fair value of $133.4 million as of March 31, 2020. For the three months ended March 31, 2020 and March 31, 2019 we recognized $14.7 million and $101.2 million, respectively, in Gain on marketable equity investment.

As of March 31, 2020 and December 31, 2019, the Company had a total $19.7 million and $16.4 million, respectively, investment 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. 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, including 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 Company does not exercise significant influence and the investment is accounted for using the cost method. Subsequent to quarter end, on April 1, 2020, the Company made an additional $1.4 million investment in ODATA.

8. Other Assets

As of March 31, 2020 and December 31, 2019, the components of Other assets are as follows (in millions):
 
March 31, 2020
December 31, 2019
Deferred leasing and other contract costs
$
62.9

$
53.2

Prepaid expenses
22.8

22.1

Non-real estate assets, net
16.5

16.3

Derivative assets
0.6

3.5

Other assets
19.1

18.8

Total
$
121.9

$
113.9



Non-real estate assets, net primarily include administrative related equipment and office leasehold improvements, depreciated or amortized over the shorter of the assets useful life or the related lease term. Other assets primarily includes land deposits, fuel inventory, notes receivable, deferred tax assets, net of allowance and other deferred costs.

20

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


9. Debt
As of March 31, 2020 and December 31, 2019, the components of Debt are as follows (unless otherwise noted, interest rate and maturity date information are as of March 31, 2020) (in millions):

March 31, 2020
December 31, 2019
Interest Rate
Maturity Date
Amended Credit Agreement:
 
 
 
 
    Revolving Credit Facility:
 
 
 
March 2024(b)
      US Revolver(a)
$
203.0

$

Monthly LIBOR + 1.00%
 
      EUR Revolver


 
 
      GBP Revolver(a)
31.0


Monthly LIBOR + 1.00%
 
2023 Term Loan Facility(c)
400.0


Monthly LIBOR + 1.20%
March 2023
2025 Term Loan Facility
700.0


Monthly LIBOR + 1.20%
March 2025
$3.0 Billion Credit Facility:


 


 
    $1.7 Billion Revolving Credit Facility:
 
 
 
March 2022
      US Revolver

555.0

Monthly LIBOR + 1.20%
 
      EUR Revolver

33.6

Monthly EURIBOR + 1.20%
 
      GBP Revolver

26.4

Monthly LIBOR + 1.20%
 
2023 Term Loan

800.0

Monthly LIBOR + 1.35%
March 2023
2025 Term Loan

300.0

Monthly LIBOR + 1.65%
March 2025
2024 Notes, including bond discount of $0.8 million
599.2

599.2

2.900
%
November 2024
2029 Notes, including bond discount of $1.7 million
598.3

598.2

3.450
%
November 2029
2027 Notes, including bond discount of $0.7 million(d)
549.3


1.450
%
January 2027
Deferred financing costs
(33.8
)
(25.8
)


Total
$
3,047.0

$
2,886.6

 
 

(a) - Monthly USD LIBOR and GBP LIBOR as of March 31, 2020 was 1.00% and 0.25%, respectively.
(b) - The Company has an option to exercise a one-year extension option, subject to certain conditions.
(c) - The Company has an option to exercise two 1-year extension options, subject to certain conditions.
(d) - The notes are Euro bonds and the amount is in USD equivalent.

Credit facilities

On March 31, 2020, CyrusOne LP, a Maryland limited partnership and subsidiary of CyrusOne Inc., entered into an amendment to its credit agreement, dated as of March 29, 2018 (as so amended, the “Amended Credit Agreement”), among the Operating Partnership, as borrower, the lenders party thereto (the “Lenders”) and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders. Proceeds from the Amended Credit Agreement were used, among other things, to refinance and replace the credit facilities under the $3.0 Billion Credit Facility (as defined below).
The Amended Credit Agreement provides for (i) a $1.4 billion senior unsecured multi-currency revolving credit facility (the “Revolving Credit Facility”), (ii) senior unsecured term loans due 2023 in a dollar equivalent principal amount of $400.0 million (the “2023 Term Loan Facility”), and (iii) senior unsecured term loans due 2025 in a principal amount of $700.0 million (the “2025 Term Loan Facility”). The Amended Credit Agreement also includes an accordion feature pursuant to which the Operating Partnership is permitted to obtain additional revolving or term loan commitments so long as the aggregate principal amount of commitments and/or term loans under the Amended Credit Agreement does not exceed $4.0 billion. The Revolving Credit Facility provides for borrowings in U.S. Dollars, Euros, Pounds Sterling, Canadian Dollars, Australian Dollars, Japanese Yen, Hong Kong Dollars, Singapore Dollars and Swiss Francs (subject to a sublimit of $750.0 million on borrowings in currencies other than U.S. Dollars). The Revolving Credit Facility matures on March 29, 2024 with one 12-month extension option. The 2023 Term Loan Facility matures on March 29, 2023 with two 1-year extension options, and the 2025 Term Loan Facility matures on March 28, 2025.

21

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


The interest rates for borrowings under the Amended Credit Agreement are, at the option of the borrower, based on a floating rate or base rate, plus a margin determined by reference to a pricing grid based on the lower of (i) the rate corresponding to the then applicable credit rating for the Operating Partnership’s senior unsecured debt or (ii) the rate corresponding to the then applicable ratio of the Company’s consolidated total indebtedness to its gross asset value. The Amended Credit Agreement includes certain restricted covenants, requirements to maintain certain financial ratios, including with respect to unencumbered assets, and events of default.
On March 31, 2020, borrowings of $1.3 billion under the Amended Credit Agreement were used to repay the $3.0 Billion Credit Facility, which consisted of a $1.7 billion revolving credit facility ("$1.7 Billion Revolving Credit Facility"), which included a $750.0 million multicurrency borrowing sublimit, a 5-year term loan with commitments totaling $1.0 billion and a $300.0 million 7-year term loan (collectively, the "$3.0 Billion Credit Facility"). The aggregate outstanding principal balance under the Amended Credit Agreement as of March 31, 2020, was $1.3 billion, and the Company recognized a loss on early extinguishment of debt of $3.4 million in connection with the repayment of the $3.0 Billion Credit Facility.
It is not known whether LIBOR will continue after 2021 in a legally workable form. There is a risk that an adverse outcome of the LIBOR transition after 2021 could increase our interest and other costs relative to our outstanding subordinated debt. We may not be able to refinance those instruments on terms that reduce those costs to the level we would have expected if LIBOR were to continue indefinitely, unchanged. Also, a transition from LIBOR could impact or change our hedge accounting practices.
Prior to obtaining an investment grade rating in September 2019 and shifting to a ratings-based pricing grid under the $1.7 Billion Revolving Credit Facility, we paid commitment fees for the unused amount of borrowings on the $1.7 Billion Revolving Credit Facility and fees on any outstanding letters of credit equal to 0.25% per annum of the actual daily amount by which the aggregate revolving commitments exceeded the sum of outstanding revolving loans and letter of credit obligations. Following the shift to a ratings-based pricing grid, we pay a facility fee calculated based on the aggregate revolving commitments. The facility fee rate varies based on ratings-based pricing levels, and is currently equal to 0.25% per annum of the aggregate revolving commitments. The facility fee or commitment fee, as applicable, was $1.1 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively.
As of March 31, 2020, we had $400.0 million, $700.0 million and $234.0 million outstanding under the 2023 Term Loan Facility, the 2025 Term Loan Facility and the Revolving Credit Facility, respectively, and additional borrowing capacity under the Amended Credit Agreement was approximately $1.2 billion ($1.2 billion under the Revolving Credit Facility and zero under the 2023 Term Loan Facility and 2025 Term Loan Facility), net of $10.6 million of outstanding letters of credit.
Senior notes
Euro bonds
On January 22, 2020, the Operating Partnership and CyrusOne Finance Corp., a single-purpose finance subsidiary, both wholly-owned subsidiaries of the Company (together, the "Issuers"), completed a public offering of 500.0 million aggregate principal amount of 1.450% Senior Notes due 2027 (the “2027 Notes”). The Company received proceeds of 495.3 million, net of underwriting costs and other deferred financing costs. The Company used the proceeds to repay floating rate Euro denominated obligations and fund continued development in Europe.
The 2027 Notes are senior unsecured obligations of the Issuers guaranteed by CyrusOne Inc., which rank equally in right of payment with all existing and future unsecured senior indebtedness of the Issuers. The 2027 Notes are effectively subordinated in right of payment to any future secured indebtedness, if any, to the extent of the value of the assets securing such indebtedness. The 2027 Notes may be redeemed at our option prior to their scheduled maturity dates at the prices and premiums and on the terms set forth in the respective indentures governing the notes.
US bonds

On December 5, 2019, the Issuers completed a public offering of $600.0 million aggregate principal amount of 2.900% senior notes due 2024 (the "2024 Notes") and $600.0 million aggregate principal amount of 3.450% senior notes due 2029 (the “2029 Notes”). The Company received proceeds of $1,197.4 million, net of underwriting costs and other deferred financing costs. The Company used the proceeds to finance the repurchase of all of its 5.000% senior notes due 2024 (the “Old 2024 Notes”) and all of its 5.375% senior notes due 2027 (the “Old 2027 Notes” and together with the Old 2024 Notes, the "Existing Notes"), including the payment of consent payments, for the redemption and discharge of Existing Notes that remained outstanding after the completion of the tender offers and consent solicitations, for the payment of related premiums, fees, discounts and expenses and for general corporate purposes. In connection with the repurchase of the Existing Notes, the Company recognized a loss on early extinguishment of debt of $71.8 million.

22

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


The 2024 Notes and 2029 Notes are senior unsecured obligations of the Issuers guaranteed by CyrusOne Inc., which rank equally in right of payment with all existing and future unsecured senior indebtedness of the Issuers. The 2024 Notes and 2029 Notes are effectively subordinated in right of payment to any future secured indebtedness of the Issuers, if any, to the extent of the value of the assets securing such indebtedness. The 2024 Notes and 2029 Notes may be redeemed at our option prior to their scheduled maturity dates at the prices and premiums and on the terms set forth in the respective indentures governing the notes.
Financial debt covenants
Our debt agreements contain customary provisions with respect to events of default, affirmative and negative covenants and borrowing conditions. The most restrictive covenants are generally included in the Amended Credit Agreement. The Amended Credit Agreement requires us to maintain certain financial covenants including the following, in each case on a consolidated basis, a minimum fixed charge ratio, maximum total and secured leverage ratios, maximum net operating income to debt service ratio and a maximum ratio of unsecured indebtedness to unencumbered asset value. In order to continue to have access to amounts available under the Amended Credit Agreement, the Company must remain in compliance with all of that agreement's covenants. As of March 31, 2020, we are in compliance with all provisions of our debt agreements.

10. Fair Value of Financial Instruments and Hedging Activities

Fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established. 

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability that are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the asset or liability.
The fair value of Cash and cash equivalents, Rent and other receivables, Construction costs payable, Dividends payable and Accounts payable and accrued expenses approximate their carrying value because of the short-term nature of these financial instruments. The carrying value, exclusive of deferred financing costs, for the revolving credit facilities and the floating rate term loans approximate estimated fair value as of March 31, 2020 and December 31, 2019, due to the floating rate nature of the interest rates and the stability of our credit ratings.
We determine the fair value of our derivative financial instruments using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates and implied volatilities. We determine the fair values of our interest rate swaps using the market standard methodology of netting the discounted future fixed cash receipts or payments and the discounted expected variable cash payments. We base the variable cash payments on an expectation of future interest rates, or forward curves, derived from observable market interest rate curves. We base the fair values of our net investment hedges on the change in the spot rate at the end of the period as compared with the strike price at inception.

We incorporate credit valuation adjustments to appropriately reflect nonperformance risk for us and the respective counterparty in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

We have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy. Although the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties, we assess the significance of the impact of the credit

23

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



valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.

The carrying value and fair value of other financial instruments are as follows (in millions):
 
March 31, 2020
December 31, 2019
 
Carrying Value
Fair Value
Carrying Value
Fair Value
2024 Notes - 2.900%
$
599.2

$
580.1

$
599.2

$
602.1

2029 Notes - 3.450%
598.3

536.3

598.2

603.1

2027 Notes - 1.450%
549.3

478.9



GDS Equity investment
133.4

133.4

118.7

118.7


The fair values of our 2024 Notes, 2027 Notes and 2029 Notes as of March 31, 2020 were based on the quoted market prices for these notes, which is considered Level 1 of the fair value hierarchy. The fair value of the GDS equity investment as of March 31, 2020 was based on the quoted market price for the stock which is considered Level 1 of the fair value hierarchy.
Hedging Activities

When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency exchange rate movements. We have not entered into, and do not plan to enter into, financial instruments for trading or speculative purposes. To manage foreign currency exposure, we have entered into Euro denominated debt and cross-currency swaps to hedge the Company's net investment in its Euro functional currency consolidated subsidiaries and the variability in EUR-USD exchange rate.

Accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the designation of the derivative, including whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as foreign currency risk or interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

For derivatives designated as "cash flow" hedges, the change in the fair value of the derivative is initially reported in Other comprehensive income ("OCI") in our Condensed Consolidated Statements of Comprehensive Income (Loss) and subsequently reclassified into Gain (loss) when the hedged transaction affects earnings, or the hedging relationship is no longer highly effective. We assess the effectiveness of each hedging relationship whenever financial statements are issued, or earnings are reported and at least every three months. We also use derivatives, such as foreign currency swaps, that are not designated as hedges to manage foreign currency exchange rate risks. The changes in fair values of these derivatives that were not designated or did not qualify as hedging instruments are immediately, recognized in earnings within the line item Foreign currency and derivative gains, net in the Condensed Consolidated Statements of Operations.


24

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



The following table summarizes the Company's derivative positions as of March 31, 2020 and December 31, 2019, (in millions):
 
 
 
 
 
 
 
March 31, 2020
 
December 31, 2019
 
 
Maturity Date
Notional Amount
 
Hedged Risk
 
Asset
Liability
 
Asset
Liability
Undesignated derivatives
 
 
 
 
 
 
 
 
 
 
Cross Currency Swaps
 
 
 
 
 
 
 
 
 
 
 
EUR - USD
01/15/2020
$
265.3

 
Foreign currency exchange
 
$

$

 
$

$
2.1

 
EUR - USD
01/15/2020
25.6

 
Foreign currency exchange
 


 

0.2

 
 
 
 
 
 
 
 
 
 
 
 
Designated derivatives
 
 
 
 
 
 
 
 
 
 
Cross Currency Swaps
 
 
 
 
 
 
 
 
 
 
 
EUR - USD
3/29/2023
250.0

 
Net investment hedge
 
0.4


 

3.8


EUR - USD
3/29/2023
250.0

 
Net investment hedge
 
0.2


 

3.9

 
EUR - USD
01/15/2020
155.9

 
Net investment hedge
 


 

1.4

 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swaps
 
 
 
 
 
 
 
 
 
 
 
USD Libor
3/29/2023
300.0

 
Interest rate hedge - Float to fixed
 

7.9

 
3.5


 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
1,246.8

 
 
 
$
0.6

$
7.9

 
$
3.5

$
11.4



Cross-Currency Swaps

The Company has entered into cross-currency swaps whereby the Company pays floating interest rate and receives floating interest rate to hedge the variability of future cash flows attributable to changes in the 1-month USD LIBOR versus EUR LIBOR rates (a pay-floating, receive-floating interest rate swap). The pay-floating, receive-floating interest rate swap payments are recognized in Interest expense, net in the Condensed Consolidated Statements of Operations.

As of March 31, 2020, the Company has two cross-currency EUR/USD contracts to sell $500.0 million and purchase 450.7 million maturing in March 2023 representing a fair value asset of $0.6 million. The Company recognized a $4.5 million gain on cross-currency contracts for the three months ended March 31, 2020, which are recognized in Foreign currency and derivative gains, net in the Condensed Consolidated Statements of Operations.

Interest Rate Swaps

On September 3, 2019, the Company entered into a floating-fixed interest rate swap agreement to convert $300.0 million of variable interest rate debt of the 2023 Term Loan Facility to 1.19% fixed rate debt.

Net Investment Hedges

Exchange rate variations impact our financial results because the financial results of our foreign subsidiaries are translated to U.S. dollars each period, with the effect of exchange rate variations being recorded in OCI as part of the cumulative foreign currency translation adjustment. As a result, changes in the value of our borrowings under the foreign currency denominated revolver under our Revolving Credit Facility, 2027 Notes and synthetically swapped debt will be reported in the same manner as foreign currency translation adjustments, which are recorded in OCI as part of the cumulative foreign currency translation adjustment. As of March 31, 2020, our cross-currency swaps were an asset of $0.6 million reported in Other assets, and interest rate swaps were a liability of $7.9 million reported in Other liabilities. As of December 31, 2019, our cross-currency swaps were a liability of $11.4 million reported in Other liabilities, and interest rate swaps were an asset of $3.5 million reported in Other assets.


25

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



The fair values of qualifying instruments used in hedging transactions as of March 31, 2020 and December 31, 2019 are as follows (in millions):
 
Balance Sheet Location
March 31, 2020
December 31, 2019
Derivatives Designated as Hedging Instruments
 
 
 
Assets:
 
 
 
      Cross-Currency Swaps
Other Assets
$
0.6

$

      Interest Rate Swap
Other Assets

3.5

Total
 
$
0.6

$
3.5

Liabilities:
 
 
 
      Interest Rate Swap
Other Liabilities
$
7.9

$

      Cross-Currency Swaps
Other Liabilities

9.1

Total
 
$
7.9

$
9.1


 
The following table presents the effect of our derivative financial instruments on our accompanying condensed consolidated financial statements (in millions):
 
For the Three Months Ended March 31,
 
2020
2019
Derivatives in Cash Flow Hedging Relationships
 
 
Cross-Currency and Interest Rate Swaps:
 
 
Amount of gain (loss) recognized in OCI for derivatives
$
(1.1
)
$
2.7