CYRUSONE INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)
This Report on Form 10-Q, together with other statements and information publicly disseminated by our company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. In particular, statements pertaining to our capital resources, portfolio performance, financial condition and results of operations contain certain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions, demographics and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates" or "anticipates" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and we may not be able to realize them. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: (i) the potential widespread and highly uncertain impact of public health outbreaks, epidemics and pandemics, such as the COVID-19 pandemic; (ii) loss of key customers; (iii) indemnification and liability provisions as well as service level commitments in our contracts with customers imposing significant costs on us in the event of losses; (iv) economic downturn, natural disaster or oversupply of data centers in the limited geographic areas that we serve; (v) risks related to the development of our properties including, without limitation, obtaining applicable permits, power and connectivity and our ability to successfully lease those properties; (vi) weakening in the fundamentals for data center real estate, including but not limited to, increased competition, falling market rents, decreases in or slowed growth of global data, e-commerce and demand for outsourcing of data storage and cloud-based applications; (vii) loss of access to key third-party service providers and suppliers; (viii) risks of loss of power or cooling which may interrupt our services to our customers; (ix) inability to identify and complete acquisitions and operate acquired properties; (x) our failure to obtain necessary outside financing on favorable terms, or at all; (xi) restrictions in the instruments governing our indebtedness; (xii) risks related to environmental, social and governance matters; (xiii) unknown or contingent liabilities related to our acquisitions; (xiv) significant competition in our industry; (xv) recent turnover, or the further loss of, any of our key personnel; (xvi) risks associated with real estate assets and the industry; (xvii) failure to maintain our status as a REIT (as defined below) or to comply with the highly technical and complex REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code"); (xviii) REIT distribution requirements could adversely affect our ability to execute our business plan; (xix) insufficient cash available for distribution to stockholders; (xx) future offerings of debt may adversely affect the market price of our common stock; (xxi) increases in market interest rates will increase our borrowing costs and may drive potential investors to seek higher dividend yields and reduce demand for our common stock; (xxii) market price and volume of stock could be volatile; (xxiii) risks related to regulatory changes impacting our customers and demand for colocation space in particular geographies; (xxiv) our international activities, including those conducted as a result of land acquisitions and with respect to leased land and buildings, are subject to special risks different from those faced by us inthe United States ; (xxv) the continuing uncertainty about the future relationship between theUnited Kingdom and theEuropean Union following theUnited Kingdom's withdrawal from theEuropean Union ; (xxvi) expanded and widened price increases in certain selective materials for data center development capital expenditures due to international trade negotiations; (xxvii) a failure to comply with anti-corruption laws and regulations; (xxviii) legislative or other actions relating to taxes; (xxix) any significant security breach or cyber-attack on us or our key partners or customers; (xxx) the ongoing trade conflict betweenthe United States andthe People's Republic of China ; (xxxi) increased operating costs and capital expenditures at our facilities, including those resulting from higher utilization by our customers, general market conditions and inflation, exceeding revenue growth; and (xxxii) other factors affecting the real estate and technology industries generally. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , and our other filings with theUnited States Securities and Exchange Commission ("SEC"). Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We disclaim any obligation other than as 34 -------------------------------------------------------------------------------- required by law to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors or for new information, data or methods, future events or other changes. 35 --------------------------------------------------------------------------------
Overview
Our Company. We are a fully integrated, self-managed data center real estate
investment trust ("REIT") that owns, operates and develops enterprise-class,
carrier-neutral, multi-tenant and single-tenant data center properties. Our data
centers are generally purpose-built facilities with redundant power and cooling.
They are not network specific and enable customer connectivity to a range of
telecommunication carriers. We provide mission-critical data center real estate
assets that protect and ensure the continued operation of information technology
("IT") infrastructure for approximately 929 customers in 57 data centers,
including one data recovery center, in 17 markets (11 cities in the U.S. ;
London, U.K. ; Singapore ; Frankfurt, Germany ; Amsterdam, The Netherlands ; Dublin ,
The Republic of Ireland and Paris, France ).
We continue to monitor the global outbreak of the novel coronavirus (COVID-19)
and to take steps to mitigate the potential risks to us posed by the pandemic.
We provide a critical service to our customers and are considered an essential
business by most governments, and our employees are continuing to operate our
data centers. Our data center portfolio remains fully operational and we have
experienced minimal disruptions in our business, including construction
projects. We have not been notified by customers of any significant delays in
expected implementation timelines. We have taken precautions with regard to
employees and facility hygiene, imposed travel restrictions on employees and
implemented additional protocols such as social distancing and limiting the
number of people at our facilities to protect those required to work on-site at
our facilities including employees, customers and vendors and suppliers. Also we
have not experienced any significant delays in the collection of revenue and
customers requesting relief or other rent concessions have not been significant
in number or amount as of this filing. We continue to evaluate recent
developments involving COVID-19 cases and monitor developments that impact our
business and respond as we believe is warranted.
Our Portfolio
Our 57 data centers, including one recovery center, total 8.6 million Gross
Square Feet ("GSF"), of which 84% of the Colocation Square Feet ("CSF") is
leased and has 971 megawatts ("MW") of power capacity. This includes 13
buildings where we lease such facilities comprising approximately 11% of our
total GSF as of September 30, 2021 . Also included in our total GSF, CSF and MW
are pre-stabilized assets (which include data halls that have been in service
for less than 24 months or are less than 85% leased) with approximately 400,090
GSF and 34% of the CSF is leased with capacity of 43 MW of power.
In addition, we continue to invest primarily in global digital gateway markets
and have properties under development comprising approximately 0.8 million GSF
and 49 MW of power capacity. The estimated remaining total costs to develop
these properties is projected to be between $326.0 million and $390.0
million . The final costs to develop are likely to change depending on several
factors including the customer capital improvements required based on the future
lease contracts executed on such properties. We also have 508 acres of land
available for future data center development.
Operational Overview
The following discussion provides an overview of our capital and financing
activity, operations and transactions for the nine months ended September 30,
2021 and should be read in conjunction with the full discussion of our operating
results, liquidity and capital resources included in this Form 10-Q, as well as
the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K
for the year ending December 31, 2020 and in this Form 10-Q.
Outlook
We seek to maximize the growth of long-term earnings and shareholder value primarily through increasing cash flow at existing properties and developing high-quality data center assets and campuses at attractive yields with long-term, stable operating income. In addition, the Company will, from time to time, acquire existing properties which meet our strategic criteria, offer in-place cash flow and have strong growth prospects. Fundamental secular trends for data center real estate have remained strong, including the exponential growth in global data, the growth of e-commerce and demand for outsourcing of data storage and cloud-based applications. Large cloud-based demand, in particular, is strong in theU.S. andEurope . The favorable trends have attracted new capital funding for multiple data center platforms, including both public and private companies, leading to significant increases in supply in most major markets in which we operate. While demand remains robust, the supply outlook has led to pricing pressure, particularly with large hyperscale customers that are driving an increase in demand, which we expect to continue in 2021. In terms of capital investment, we will continue to pursue selective development of new data centers primarily in global digital gateway markets where we project demand and market rental rates will provide attractive financial returns. 36 --------------------------------------------------------------------------------
We may, from time to time, selectively dispose of non-core assets to recycle capital and improve long-term growth in earnings and cash flow, as well as to improve the overall quality of our portfolio.
Our access to the investment grade debt capital markets is critical to managing our business. We recently completed senior debt issuances in 2021 and 2020 along with the amendment of our credit facility in 2020 at favorable terms to extend our near-term maturities and reduce our overall borrowing rates. We are committed to maintaining our investment grade ratings and have a strong balance sheet. We anticipate having sufficient liquidity to fund our capital and operating expenses, including costs to maintain our properties and distributions, though we may finance investments, including developments and acquisition, with the issuance of new shares of our common stock, proceeds from asset sales or through additional borrowings. Please see "Financial Condition, Liquidity and Capital Resources" for additional discussion. Inflation TheU.S. and European economies where we operate have experienced low inflation over the last several years, and as a result, inflation has not had a significant impact on our business over this period. We continue to monitor our supply chain costs, as increases in inflation may adversely impact our business. However, the availability of equipment and materials that support the development and construction of our data centers has begun to experience constraints on supplies resulting in increased lead times and is leading to moderate increases in prices on equipment. Through our supplier networks we have contracted at fixed prices for supply of our near-term equipment needs, but continued supply chain constraints may over time result in increased costs of our construction projects. In addition, our business may be adversely impacted by inflation as our customer leases generally do not provide for annual increases in rent based on inflation. As a result, we bear the risk of increases in the costs of operating and maintaining our data center facilities. Most of our leases have contractual rent escalations, typically ranging from 1-3% per annum; in addition most of our revenue from colocation contracts is structured to pass-through the cost of sub-metered utilities. In the future, we expect more of our leases to be structured to pass-through utility costs. In addition, approximately 71% of our leases, based on annualized rent, expire within six years and we will be looking to replace existing leases with new leases at then existing market rates.
Summary of significant transactions and activities for the nine month period ended
Real estate acquisitions, development and other activities
During the nine months ended
InJune 2021 , the Company entered into lease amendments for the two data center leases located inLondon, United Kingdom to extend the lease terms. Per lease modification accounting rules under ASC 842, these leases were classified as finance leases on the modification effective date. Previously these leases were accounted as operating leases. The finance lease asset and liability are presented in Buildings and improvements and Finance lease liabilities in the Condensed Consolidated Balance sheets, respectively.
In
During the nine months endedSeptember 30, 2021 , cash capital expenditures were$580.2 million , of which$566.5 million related to the development and construction of data centers. We continue to make a significant investment to build and develop data centers which will require additional capital investment. The expansion and development of additional power capacity and building square feet during the nine months endedSeptember 30, 2021 primarily related to development in key markets, primarily inNorthern Virginia ,Phoenix ,Frankfurt ,Dublin ,London ,Somerset ,Paris ,San Antonio andMadrid .
Capital and financing activity
Fundraising activity
Credit facilities
As ofSeptember 30, 2021 , we had$800.0 million outstanding under the Amended Credit Agreement (as defined below) and$2,744.7 million of senior notes. For more information, see Note 9, Debt. 37 -------------------------------------------------------------------------------- OnMarch 31, 2020 ,CyrusOne LP , aMaryland limited partnership (the "Operating Partnership"), and subsidiary of the Company, entered into an amendment to its credit agreement, dated as ofMarch 29, 2018 (as so amended, the "Amended Credit Agreement"), among theOperating Partnership , as borrower, the lenders party thereto (the "Lenders") andJPMorgan Chase Bank, N.A ., as administrative agent for the Lenders. Proceeds from the Amended Credit Agreement were used, among other things, to refinance and replace the credit facilities under the Company's prior credit agreement. The Amended Credit Agreement provides for (i) a$1.4 billion senior unsecured multi-currency revolving credit facility (the "Revolving Credit Facility"), (ii) senior unsecured term loans due 2023 in a dollar equivalent principal amount of$400.0 million (the "2023 Term Loan Facility"), and (iii) senior unsecured term loans due 2025 in a principal amount of$700.0 million (the "2025 Term Loan Facility"). The Amended Credit Agreement also includes an accordion feature pursuant to which theOperating 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 inU.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 thanU.S. Dollars). The Revolving Credit Facility matures onMarch 29, 2024 with one 12-month extension option. The 2023 Term Loan Facility matures onMarch 29, 2023 with two 1-year extension options, and the 2025 Term Loan Facility matures onMarch 28, 2025 . Senior debt
At
OnJanuary 22, 2020 ,CyrusOne LP andCyrusOne Finance Corp. closed an offering of €500.0 million aggregate principal amount of 1.450% senior notes dueJanuary 2027 (the "2027 Notes"). Capital Activity During the nine months endedSeptember 30, 2021 , the Company settled forward agreements entered into inMay 2020 andSeptember 2020 totaling 5.7 million common shares at an average price of$69.91 for proceeds of$403.8 million , net of expenses. During the second quarter of 2021, the Company entered into sales agreements pursuant to which the Company may issue and sell from time to time shares of its common stock having an aggregate sales price of up to$750.0 million (the "2021 ATM Stock Offering Program"). The 2021 ATM Stock Offering Program replaced a prior program. During the three months endedSeptember 30, 2021 , the Company did not enter into any forward agreements. During the three months endedSeptember 30, 2020 , the Company entered into forward agreements for 3.0 million common shares for estimated net proceeds of approximately$218.7 million , subject to adjustment for a floating interest rate factor and scheduled dividends. The Company currently expects to fully physically settle the remaining forward equity sale agreements byJune 2022 and receive cash proceeds upon one or more settlement dates at the Company's discretion, prior to the final settlement dates under the forward equity sale agreements, in which case we expect to receive aggregate net cash proceeds at settlement equal to the number of shares specified in such forward equity sale agreements multiplied by the relevant forward price per share. The weighted average forward sale price that we expect to receive upon physical settlement of the agreements will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread and (ii) scheduled dividends during the terms of the agreements. As ofSeptember 30, 2021 , there was$513.4 million under the 2021 ATM Stock Offering Program available for future offerings.
Concentration of income
We define our annualized backlog as the twelve-month recurring revenue (calculated in accordance with generally accepted accounting principles inthe United States of America ("GAAP")) for executed lease contracts achieved upon full occupancy which have not commenced as of the end of a period. Our backlog as ofSeptember 30, 2021 andDecember 31, 2020 was approximately$105.9 million and$101.0 million , respectively. During the nine months endedSeptember 30, 2021 , one customer represented 19% of our revenue. We expect 23% of our backlog lease contracts to commence in the fourth quarter of 2021, 45% in 2022 and 32% in 2023 and thereafter. Because GAAP revenue for any period is generally a function of straight-line revenue recognized from lease contracts in existence at the beginning of a period, as well as lease contract renewals and 38 -------------------------------------------------------------------------------- new customer lease contracts commencing during the period, backlog as of any period is not necessarily indicative of near-term performance. Our definition of backlog may differ from other companies in our industry. 39 --------------------------------------------------------------------------------
Results of operations for the three and nine months ended
IN MILLIONS, excluding data per share and per share
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 $ Change % Change 2021 2020 $ Change % Change
Revenue:
Colocation rent $ 236.4 $ 212.5 $ 23.9 11.2 % $ 681.5 $ 624.0 $ 57.5 9.2 %
Metered power reimbursements 62.5 44.6 17.9 40.1 % 188.6 116.5 72.1 61.9 %
Equipment sales 0.8 0.6 0.2 33.3 % 3.4 10.0 (6.6) (66.0) %
Other revenue 4.4 5.1 (0.7) (13.7) % 13.8 14.6 (0.8) (5.5) %
Total revenue 304.1 262.8 41.3 15.7 % 887.3 765.1 122.2 16.0 %
Operating expenses:
Property operating expenses 133.4 109.7 23.7 21.6 % 391.0 301.3 89.7 29.8 %
Sales and marketing 3.6 4.5 (0.9) (20.0) % 11.1 13.0 (1.9) (14.6) %
General and administrative 30.8 29.7 1.1 3.7 % 70.4 76.9 (6.5) (8.5) %
Depreciation and amortization 127.5 113.1 14.4 12.7 % 372.6 330.9 41.7 12.6 %
Transaction, acquisition, integration and other
related expenses 0.2 1.6 (1.4) (87.5) % 0.4 2.2 (1.8) (81.8) %
Impairment losses and loss on asset disposals 0.1 8.8 (8.7) (98.9) % 0.7 11.1 (10.4) (93.7) %
Total operating expenses 295.6 267.4 28.2 10.5 % 846.2 735.4 110.8 15.1 %
Operating income (loss) 8.5 (4.6) 13.1 n/m 41.1 29.7 11.4 38.4 %
Interest expense, net (17.3) (13.3) (4.0) 30.1 % (47.2) (43.2) (4.0) 9.3 %
Gain on marketable equity investment - 4.7 (4.7) (100.0) % 2.4 69.8 (67.4) (96.6) %
Loss on early extinguishment of debt - (3.1) 3.1 (100.0) % - (6.5) 6.5 (100.0) %
Foreign currency and derivative gains (losses),
net 14.4 (22.9) 37.3 n/m 31.2 (31.7) 62.9 n/m
Other expense (income) 0.1 - 0.1 n/m (0.1) - (0.1) n/m
Net income (loss) before income taxes 5.7 (39.2) 44.9 (114.5) % 27.4 18.1 9.3 51.4 %
Income tax benefit 1.0 1.9 (0.9) (47.4) % 4.9 4.3 0.6 n/m
Net income (loss) $ 6.7 $ (37.3) $ 44.0 n/m $ 32.3 $ 22.4 $ 9.9 44.2 %
Operating gross margin 2.8 % (1.8) % n/m 4.6 % 3.9 % 17.9 %
Capital expenditures:(1)
Investment in real estate $ 211.3 $ 231.1 $ (19.8) (8.6) % $ 566.5 $ 679.2 $ (112.7) (16.6) %
Recurring capital expenditures 7.2 3.1 4.1 132.3 % 13.7 13.0 0.7 5.4 %
Total $ 218.5 $ 234.2 $ (15.7) (6.7) % $ 580.2 $ 692.2 $ (112.0) (16.2) %
Metrics information:
CSF(2) 5,049,810 4,471,413 578,397 12.9 % 5,049,810 4,471,413 578,397 12.9 %
Leased rate(3) 84 % 84 % - % - 84 % 84 % - % n/m
(1) Expenditures that expand, improve or extend the life of real estate and
non-real estate property are capital expenditures. Management views its capital
expenditures as comprised of acquisitions of real estate, development of real
estate, recurring capital expenditures and all other non-real estate capital
expenditures. Purchases of land or buildings from third parties represent
acquisitions of real estate. Capital spending that expands or improves our data
centers is deemed development of real estate. Replacements of data center
equipment are considered recurring capital expenditures. Purchases of software,
computer equipment and furniture and fixtures are included in non-real estate
capital expenditures.
(2) CSF represents the GSF at an operating facility that is currently leased or
readily available for lease as colocation space, where customers locate their
servers and other IT equipment.
(3) Leased rate is calculated by dividing CSF under signed leases for colocation
space (whether or not the lease has commenced billing) by total CSF.
40
--------------------------------------------------------------------------------
The three months ended
Operations
As ofSeptember 30, 2021 , we had approximately 929 customers, many of which have leases at multiple locations. Our recurring revenues consist of rental revenue for colocation space and metered power reimbursements based upon customers with leases, and our nonrecurring revenues consist of equipment sales and installation services based on contracts with customers. We provide customers with data center services pursuant to leases with initial terms ranging from three to ten years. As ofSeptember 30, 2021 , the weighted average remaining term was 3.8 years based upon annualized rent. Lease expirations through 2023, excluding month-to-month leases, represent 29% of our total GSF, or 38% of our aggregate annualized rent as ofSeptember 30, 2021 . At the end of the lease term, customers may allow the contract to expire, sign a new lease or automatically renew pursuant to the terms of their lease. The automatic renewal period could be for varying lengths, depending on the terms of the contract, such as, for the original lease term, one year or month-to-month. As ofSeptember 30, 2021 , 2% of our GSF was subject to month-to-month leases.
Returned
For the three months endedSeptember 30, 2021 , revenue was$304.1 million , an increase of$41.3 million , or 15.7% compared to$262.8 million for the three months endedSeptember 30, 2020 . Revenue increased$1.4 million for the three months endedSeptember 30, 2021 compared to the same period in 2020 due to favorable currency translation. Fluctuations in revenue are dependent upon our ability to maintain our existing revenue base, sell new capacity, and maintain or increase rental rates at our properties. Recurring rent churn percentage of 0.5% for the three months endedSeptember 30, 2021 decreased by 0.1% as compared to the 0.6% for the three months endedSeptember 30, 2020 . The Company calculates recurring rent churn percentage as any reduction in recurring rent due to customer terminations, service reductions or net pricing decreases as a percentage of rent at the beginning of the period, excluding any impact from metered power reimbursements or other usage-based billing.
The CSF increased by 13% at
The revenue increase of$41.3 million for the three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 2020 is primarily due to the following: •$23.3 million increase in colocation rent, primarily due to a$33.8 million increase for new leasing at completed developments atU.S. and European properties, partially offset by$10.5 million of rent churn related to expired leases; •$17.9 million increase in metered power reimbursements primarily due to new leasing and higher usage; and •$0.8 million increase in interconnection revenue; partially offset by •$0.5 million decrease in equipment sales and associated installation services with one significant customer during the three months endedSeptember 30, 2020 ; and •$0.2 million of lower termination fees and other revenue.
Operating Expenses
Real estate operating expenses
For the three months endedSeptember 30, 2021 , Property operating expenses were$133.4 million , an increase of$23.7 million , or 21.6%, compared to$109.7 million for the three months endedSeptember 30, 2020 , primarily due to the following: •$23.9 million increase in property operating expenses primarily due to increases in electricity, repair and maintenance, personnel costs, contract services, rent and taxes and insurance related to the expansion at existing properties and newly developed properties placed in service in theU.S. andEurope ; partially offset by •$0.2 million decrease in equipment cost of sales due to lower equipment sales volume associated with one significant customer during the current quarter.
Sales and marketing costs
For the three months endedSeptember 30, 2021 , Sales and marketing expenses were$3.6 million , a decrease of$0.9 million , or 20.0%, compared to$4.5 million for the three months endedSeptember 30, 2020 primarily due to lower personnel costs as a result of changes in the organizational structure, decline in events and travel expenses as company travel has been restricted sinceMarch 2020 as a result of the pandemic, lower advertising and lower professional and consulting fees. 41 --------------------------------------------------------------------------------
General and administrative expenses
For the three months endedSeptember 30, 2021 , General and administrative expenses were$30.8 million , an increase of$1.1 million , or 3.7%, compared to$29.7 million for the three months endingSeptember 30, 2020 , primarily due to the following: •$1.2 million increase in legal fees primarily due to customer lease contract negotiations and contract services; •$0.7 million increase in other general and administrative expenses; and •$0.4 million increase in rent and facilities costs; partially offset by •$0.7 million decrease in employee related and stock compensation expense primarily due to forfeitures and a decrease in payroll taxes; and •$0.5 million decrease in license fees and support for information systems.
Depreciation allowance
For the three months endedSeptember 30, 2021 , Depreciation and amortization expense was$127.5 million , an increase of$14.4 million , or 12.7%, compared to$113.1 million for the three months endingSeptember 30, 2020 . This increase was primarily driven by asset additions that were placed in service after the third quarter of 2020. SinceSeptember 30, 2020 , approximately$1,182.0 million of new data center assets have been placed in service. Depreciation and amortization expense is expected to increase in future periods as we complete the development of properties and installation of equipment and facilities to support our operations.
Non-operating income and expenses
Interest expense, net
For the three months endedSeptember 30, 2021 , Interest expense, net was$17.3 million , an increase of$4.0 million , or 30.1%, as compared to$13.3 million for the three months endingSeptember 30, 2020 , primarily due to the following: •$2.4 million increase primarily due to a$365.6 million increase in average debt outstanding; •$1.5 million increase due to lower capitalized interest as a result of the Company's lower overall average interest rate; and •$0.1 million increase related to cash settlements on cross currency and interest rate swaps. We anticipate drawing on our Revolving Credit Facility to fund, in part, our capital requirements for investments in data centers and other capital expenditures, accordingly, we anticipate our interest expense to increase in future periods.
Gain on investment in tradable shares
For the three months endedSeptember 30, 2020 , the Gain on our marketable equity investment in GDS Holdings Limited ("GDS") was$4.7 million . See Note 7, Equity Investments, for information related to our accounting for our equity investment in GDS.
Foreign exchange gains (losses) and derivatives, net
Foreign currency and derivative gains (losses), net were a gain of$14.4 million and a loss of$22.9 million for the three months endedSeptember 30, 2021 andSeptember 30, 2020 , respectively, as a result of the translation adjustment on our undesignated EURO denominated borrowings.
The nine months ended
Revenue For the nine months endedSeptember 30, 2021 , revenue was$887.3 million , an increase of$122.2 million , or 16.0% compared to$765.1 million for the nine months endedSeptember 30, 2020 . Revenue increased$8.8 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020 due to favorable currency translation. Fluctuations in revenue are dependent upon our ability to maintain our existing revenue base, sell new capacity, and maintain or increase rental rates at our properties. Recurring rent churn percentage of 3.1% for the nine months endedSeptember 30, 2021 increased by 0.4% as compared to the 2.7% for the nine months endedSeptember 30, 2020 . 42 -------------------------------------------------------------------------------- The revenue increase of$122.2 million for the nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 is primarily due to the following: •$72.1 million increase in metered power reimbursements primarily due to a$27.8 million increase from Winter Storm Uri inTexas and$44.3 million due to new leasing and higher usage; •$56.7 million increase in colocation rent, primarily due to a$85.6 million increase for new leasing at completed developments atU.S. and European properties, partially offset by$28.9 million of rent churn related to expired leases; and •$3.3 million increase in interconnection revenue; partially offset by •$7.4 million decrease in equipment sales and associated installation services with one significant customer during the nine months endedSeptember 30, 2020 ; and •$2.5 million of lower termination fees and Other revenue.
Operating Expenses
Building operating expenses
For the nine months endedSeptember 30, 2021 , Property operating expenses were$391.0 million , an increase of$89.7 million , or 29.8%, compared to$301.3 million for the nine months endedSeptember 30, 2020 , primarily due to the following: •$96.5 million increase in property operating expenses primarily due to: •$77.3 million increase in electricity due to$31.9 million increase from Winter Storm Uri inTexas and$45.4 million increase related to expansion at existing properties and newly developed properties placed in service in theU.S. andEurope ; and •$19.2 million increase in property operating expenses primarily due to increases in repair and maintenance, personnel costs, contract services, rent and taxes and insurance related to expansion at existing properties and newly developed properties placed in service in theU.S. andEurope ; partially offset by •$6.8 million decrease in equipment cost of sales due to lower equipment sales volume associated with one significant customer during the current period.
Sales and marketing costs
For the nine months endedSeptember 30, 2021 , Sales and marketing expenses were$11.1 million , a decrease of$1.9 million , or 14.6%, compared to$13.0 million for the nine months endedSeptember 30, 2020 , primarily due to lower personnel costs as a result of changes in the organizational structure, decline in events and travel expenses as company travel has been restricted sinceMarch 2020 as a result of the pandemic, lower advertising and lower professional and consulting fees.
General and administrative expenses
For the nine months endedSeptember 30, 2021 , General and administrative expenses were$70.4 million , a decrease of$6.5 million , or 8.5%, compared to$76.9 million for the nine months endingSeptember 30, 2020 , primarily due to the following: •$7.2 million decrease in personnel costs including severance due to the departure of our Chief Executive Officer in the prior year period and a general reduction in force; •$0.6 million decrease in license fees and support for information systems; and •$0.2 million decrease in legal fees primarily due to the receipt of proceeds from the resolution of certain litigation; partially offset by •$1.0 million increase in rent and facilities costs; and •$0.5 million increase in other general and administrative expenses.
Depreciation allowance
For the nine months endedSeptember 30, 2021 , Depreciation and amortization expense was$372.6 million , an increase of$41.7 million , or 12.6%, compared to$330.9 million for the nine months endingSeptember 30, 2020 . This increase was primarily driven by asset additions that were placed in service after the third quarter of 2020. SinceSeptember 30, 2020 , approximately$1,182.0 million of new data center assets have been placed in service. Depreciation and amortization expense is expected to increase in future periods as we complete the development of properties and installation of equipment and facilities to support our operations. 43 --------------------------------------------------------------------------------
Non-operating income and expenses
Interest expense, net
For the nine months endedSeptember 30, 2021 andSeptember 30, 2020 , Interest expense, net was$47.2 million , an increase of$4.0 million , or 9.3%, as compared to$43.2 million for the three months endingSeptember 30, 2020 , primarily due to the following: •$4.0 million increase related to cash settlements on cross currency and interest rate swaps; and •$2.6 million increase due to lower capitalized interest as a result of the Company's lower overall average interest rate; partially offset by •$2.2 million decrease due to the repayment of a portion of the Amended Credit Agreement which decreased interest expense by$13.0 million , partially offset by a$373.6 million increase in average debt outstanding which increased interest expense by$10.8 million ; and •$0.4 million decrease related to an increase in interest income primarily due to interest on a sales tax refund. We anticipate drawing on our Revolving Credit Facility to fund, in part, our capital requirements for investments in data centers and other capital expenditures, accordingly, we anticipate our interest expense to increase in future periods.
Gain on investment in tradable shares
For the nine months endedSeptember 30, 2021 , the Gain on our marketable equity investment in GDS was$2.4 million , a decrease of$67.4 million , compared to$69.8 million for the nine months endedSeptember 30, 2020 . The decrease was primarily the result of our disposition of our remaining investment in GDS inJanuary 2021 . See Note 7, Equity Investments, for information related to our accounting for our equity investment in GDS.
Loss on early extinguishment of debt
For the nine months endedSeptember 30, 2020 , Loss on early extinguishment of debt was$6.5 million , primarily due to repayment of borrowings under the$3.0 Billion Credit Facility and the repayment of$300.0 million of the 2023 Term Loan under the Amended Credit Agreement.
Foreign exchange gains (losses) and derivatives, net
For the nine months endedSeptember 30, 2021 , Foreign currency and derivative gains (losses), net were a$31.2 million gain as a result of the translation adjustment on our undesignated EURO denominated borrowings. For the nine months endedSeptember 30, 2020 , Foreign currency and derivative gains (losses), net were a$31.7 million loss which was primarily the result of gains from the settlement of our Euro/USD cross-currency swap that were not designated as hedges and changes in the fair value were immediately recognized in earnings. 44
————————————————– ——————————
© Edgar online, source
