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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 June 30, 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)
Maryland46-0691837
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.01 par valueCONEThe NASDAQ Global Select Market
1.450% Senior Notes due 2027CONE27The Nasdaq Stock Market LLC



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

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




        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
        If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes      No  
There were 116,873,172 shares of common stock outstanding as of July 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 June 30, 2020, the total number of outstanding shares of our common stock was approximately 116.9 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)
June 30, 2020December 31, 2019
Assets
Investment in real estate:
Land$175.5  $147.6  
Buildings and improvements1,857.9  1,761.4  
Equipment3,229.5  3,028.2  
Gross operating real estate
5,262.9  4,937.2  
Less accumulated depreciation(1,562.7) (1,379.2) 
       Net operating real estate3,700.2  3,558.0  
Construction in progress, including land under development1,024.8  946.3  
Land held for future development217.2  206.0  
Total investment in real estate, net
4,942.2  4,710.3  
Cash and cash equivalents70.7  76.4  
Rent and other receivables (net of allowance for doubtful accounts of $1.6 and $1.8 as of June 30, 2020 and December 31, 2019, respectively)
307.0  291.9  
Restricted cash1.3  1.3  
Operating lease right-of-use assets, net204.7  161.9  
Equity investments184.9  135.1  
Goodwill455.1  455.1  
Intangible assets (net of accumulated amortization of $225.9 and $207.5 as of June 30, 2020 and December 31, 2019, respectively)
174.9  196.1  
Other assets127.3  113.9  
Total assets$6,468.1  $6,142.0  
Liabilities and equity
Debt$3,156.9  $2,886.6  
Finance lease liabilities28.8  31.8  
Operating lease liabilities240.5  195.8  
Construction costs payable155.7  176.3  
Accounts payable and accrued expenses127.0  122.7  
Dividends payable59.7  58.6  
Deferred revenue and prepaid rents166.2  163.7  
Deferred tax liability55.8  60.5  
Other liabilities16.8  11.4  
Total liabilities4,007.4  3,707.4  
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value, 100,000,000 authorized; no shares issued or outstanding
    
Common stock, $0.01 par value, 500,000,000 shares authorized and 116,852,894 and 114,808,898 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
1.2  1.1  
Additional paid in capital3,305.9  3,202.0  
Accumulated deficit(824.7) (767.3) 
Accumulated other comprehensive loss(21.7) (1.2) 
Total stockholders’ equity2,460.7  2,434.6  
Total liabilities and equity$6,468.1  $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 June 30,Six Months Ended June 30,
2020201920202019
Revenue$256.4  $251.5  $502.3  $476.5  
Operating expenses:
Property operating expenses99.0  103.3  191.6  186.6  
Sales and marketing3.8  5.3  8.5  10.6  
General and administrative20.3  19.7  47.2  41.9  
Depreciation and amortization109.7  102.1  217.8  204.2  
Transaction, acquisition, integration and other related expenses0.1  1.4  0.5  1.7  
Impairment losses2.4    2.4    
Total operating expenses235.3  231.8  468.0  445.0  
Operating income21.1  19.7  34.3  31.5  
Interest expense, net(13.9) (21.1) (29.9) (44.8) 
Gain (loss) on marketable equity investment50.4  (8.5) 65.1  92.7  
Loss on early extinguishment of debt    (3.4)   
Foreign currency and derivative losses, net(13.9)   (8.8)   
Other income (expense)0.1      (0.1) 
Net income (loss) before income taxes43.8  (9.9) 57.3  79.3  
Income tax benefit1.2  1.4  2.4  1.6  
Net income (loss)$45.0  $(8.5) $59.7  $80.9  
Weighted average number of common shares outstanding - basic115.3  113.1  115.1  110.7  
Weighted average number of common shares outstanding - diluted115.7  113.1  115.4  111.1  
Income (loss) per share - basic$0.39  $(0.08) $0.52  $0.73  
Income (loss) per share - diluted$0.39  $(0.08) $0.52  $0.73  

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 June 30,Six Months Ended June 30,
2020201920202019
Net income (loss)$45.0  $(8.5) $59.7  $80.9  
Other comprehensive income:
Foreign currency translation adjustment14.1  (2.4) (9.9) (1.8) 
Net loss on cash flow hedging instruments(9.5) (3.6) (10.6) (0.9) 
Comprehensive income (loss)$49.6  $(14.5) $39.2  $78.2  

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 OutstandingCommon StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated Other Comprehensive Income (Loss)Total
Stockholders'
Equity
Balance as of January 1, 2019108.3  $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, net2.0  —  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, 2019110.3  $1.1  $2,938.2  $(552.2) $(9.0) $2,378.1  
Net loss—  —  —  (8.5) —  (8.5) 
Issuance of common stock, net2.9  —  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 as of June 30, 2019113.2  $1.1  $3,089.5  $(613.0) $(15.0) $2,462.6  
Stockholders' Equity
 Shares of Common Stock OutstandingCommon StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated Other Comprehensive Income (Loss)Total
Stockholders'
Equity
Balance as of January 1, 2020114.8  $1.1  $3,202.0  $(767.3) $(1.2) $2,434.6  
Net income—  —  —  14.7  —  14.7  
Issuance of common stock, net0.2  0.1  0.5  —  —  0.6  
Stock-based compensation expense  —  3.7  —  —  3.7  
Tax payment upon exercise of equity awards  —  (6.3) —  —  (6.3) 
Foreign currency translation adjustment—  —  —  —  (24.0) (24.0) 
Net loss on cash flow hedging instruments—  —  —  —  (1.1) (1.1) 
Dividends declared, $0.50 per share
—  —  —  (58.4) —  (58.4) 
Balance as of March 31, 2020115.0  $1.2  $3,199.9  $(811.0) $(26.3) $2,363.8  
Net income—  —  —  45.0  —  45.0  
Issuance of common stock, net1.9    102.8  —  —  102.8  
Stock-based compensation expense—  —  3.3  —  —  3.3  
Tax payment upon exercise of equity awards  —  (0.1) —  —  (0.1) 
Foreign currency translation adjustment—  —  —  —  14.1  14.1  
Net loss on cash flow hedging instruments—  —  —  —  (9.5) (9.5) 
Dividends declared, $0.50 per share
—  —  —  (58.7) —  (58.7) 
Balance at June 30, 2020116.9  $1.2  $3,305.9  $(824.7) $(21.7) $2,460.7  

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)
Six Months Ended June 30,
20202019
Cash flows from operating activities:
Net income$59.7  $80.9  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization217.8  204.2  
Provision for bad debt expense  (0.3) 
Gain on marketable equity investment(65.1) (92.7) 
Foreign currency and derivative losses, net8.8    
Proceeds from swap terminations2.9    
Impairment on land held for future development2.2    
Loss on early extinguishment of debt3.4    
Interest expense amortization, net3.6  2.3  
Stock-based compensation expense7.0  8.2  
Deferred income tax benefit(4.2) (3.4) 
Operating lease cost13.0  9.6  
Other income (expense)0.5  (0.2) 
Change in operating assets and liabilities:
Rent and other receivables, net and other assets(31.0) (41.1) 
Accounts payable and accrued expenses4.7  (8.2) 
Deferred revenue and prepaid rents2.0  18.0  
Operating lease liabilities(11.1) (9.8) 
Net cash provided by operating activities214.2  167.5  
Cash flows from investing activities:
Investments in real estate(458.0) (514.8) 
Proceeds from sale of equity investments8.2  199.8  
Equity investments(4.7) (0.3) 
Proceeds from the sale of real estate assets0.3    
Net cash used in investing activities(454.2) (315.3) 
Cash flows from financing activities:
Issuance of common stock, net103.3  252.6  
Dividends paid(116.1) (101.3) 
Payment of deferred financing costs(12.5)   
Proceeds from revolving credit facility438.8  287.8  
Repayments of revolving credit facility(723.1)   
Proceeds from Euro bond550.2    
Proceeds from unsecured term loan1,100.0    
Repayments of unsecured term loan(1,100.0) (200.0) 
Payments on finance lease liabilities(1.3) (1.2) 
Tax payment upon exercise of equity awards(6.4) (8.8) 
Net cash provided by financing activities232.9  229.1  
Effect of exchange rate changes on cash, cash equivalents and restricted cash1.4  (0.3) 
Net (decrease) increase in cash, cash equivalents and restricted cash(5.7) 81.0  
Cash, cash equivalents and restricted cash at beginning of period77.7  64.4  
Cash, cash equivalents and restricted cash at end of period$72.0  $145.4  
Supplemental disclosure of cash flow information:
Cash paid for interest, including amounts capitalized of $11.4 million and $18.1 million in 2020 and 2019, respectively
$30.0  $62.7  
Cash paid for income taxes0.1  2.8  
Non-cash investing and financing activities:
Construction costs payable155.7  149.5  
Dividends payable59.7  53.0  
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 June 30, 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 53 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 the 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 continue to monitor the global outbreak and the potential risks to us posed by the pandemic. Our data centers have remained fully operational and to date we have experienced minimal disruptions in our business, including construction projects, 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 duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time. The effect of the pandemic and measures implemented by authorities could disrupt our supply chain, which currently remains fully functional, including the provision of services to us by our vendors and could result in restrictions on construction activities. There continues to be 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 June 30, 2020 and December 31, 2019, and for the three and six months ended June 30, 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. During the quarter ended June 30, 2020, we entered into a nonbinding offer to sell land to a third-party, which resulted in the recognition of an impairment loss of $2.4 million in the quarter related to our investment in land held in Atlanta for future development. There were no impairment losses for the quarter ended March 31, 2020 or three or six months ended June 30, 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.

12

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

Revenue Recognition

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

Lease Revenue:
Our leasing revenue primarily consists of colocation rent, metered power reimbursements and interconnection revenue and is accounted for under 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 $1.1 million as of June 30, 2020 and were not material as of December 31, 2019. Contract liabilities were not material as of both June 30, 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
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CyrusOne Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (unaudited)
(in millions of dollars, except per share)

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

Derivative Instruments

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

Lease Modification Q&A

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 ASC 842, Leases, the 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 the lessor's business. In April 2020, the Financial Accounting Standards Board ("FASB") 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 adoption of this guidance has not had a material impact on our financial statements.

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

Guarantor Financial Information

In March 2020, the SEC amended Rule 3-10 of Regulation S-X to reduce and simplify financial disclosure requirements for issuers and guarantors of registered debt offerings. The guidance is effective January 4, 2021, with early adoption permitted. This new guidance replaces the previous requirement to provide condensed consolidating financial information in the registrant’s financial statements with a requirement to provide alternative financial disclosures in Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" or its financial statements. We adopted these amendments as of April 1, 2020, and the alternative disclosures are presented in Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the information previously included in the Notes to Condensed Consolidated Financial Statements has been removed.

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 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.

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

lease classification purposes or for recognizing lease revenue unless we are reasonably certain the customer will exercise these extension or termination options at lease commencement. At lease commencement, early termination is generally not deemed probable due to the significant economic penalty incurred by the lessee to exercise its early termination right and to relocate their equipment installed in our facilities. Generally, our customer lease arrangements do not provide any option to purchase and are classified as operating leases. We have substantial revenue primarily related to lease revenue from one customer that represents approximately 19% and 22% of our total revenue for the six months ended June 30, 2020 and 2019, respectively.

At June 30, 2020, the future minimum lease payments to be received under non-cancellable operating leases, excluding month-to-month arrangements and metered power reimbursements are shown below (in millions):
As of June 30, 2020Minimum Lease Payments
2020$386.8  
2021685.4  
2022585.2  
2023471.1  
2024361.3  
2025294.4  
Thereafter822.3  
Total$3,606.5  

At June 30, 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 June 30, 2019Minimum Lease Payments
2019$363.6  
2020679.7  
2021577.3  
2022486.0  
2023395.4  
2024307.3  
Thereafter953.8  
Total$3,763.1  
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 six months ended June 30, 2020 and 2019, lease revenue disaggregated by primary revenue stream is as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
Lease revenue2020201920202019
Colocation (Minimum lease payments)$207.5  $197.3  $411.5  $385.6  
Metered power reimbursements (Variable lease payments)37.1  31.7  71.9  60.3  
Total lease revenue$244.6  $229.0  $483.4  $445.9  

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

For the three and six months ended June 30, 2020 and 2019, revenue from contracts with customers disaggregated by primary revenue stream is as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
Revenue from contracts with customers2020201920202019
Equipment sales and services$6.9  $17.1  $9.4  $21.1  
Other revenue4.9  5.4  9.5  9.5  
Total revenue from contracts with customers$11.8  $22.5  $18.9  $30.6  

Other revenue related to contracts with customers in the table above includes managed services and other services revenue of $3.8 million and $7.9 million for the three and six months ended June 30, 2020, respectively, and $4.3 million and $7.7 million for the three and six months ended June 30, 2019, respectively.

Total revenues from contracts with customers generated from operations outside of the United States were $3.6 million and $4.2 million for the three and six months ended June 30, 2020, respectively, and were insignificant for the three and six months ended June 30, 2019, respectively.

Accounts receivable associated with revenue from contracts with customers were $7.5 million and $6.4 million as of June 30, 2020 and December 31, 2019, respectively.

5. Leases - As a Lessee

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

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 terms of our data center finance leases range from one 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 less than one year to 25 years and one ground lease in Houston has a lease term that expires in 2066.

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

The components of lease expense are as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Operating lease cost$6.8  $4.6  $13.0  $9.6  
Finance lease cost:
   Amortization of assets0.4  0.6  0.8  1.1  
   Interest on lease liabilities0.3  0.4  0.7  0.9  
Total net lease cost$7.5  $5.6  $14.5  $11.6  

Supplemental balance sheet information related to leases is as follows (in millions, except lease term and discount rate):
 June 30, 2020December 31, 2019
Operating leases: