Data centers saw a huge boom in demand last year as people shifted into working remotely and relied on tech-based services like Facebook, Google, and YouTube, among many others. But now that people are returning to society and the workplace, demand is leveling off and returning to normalized levels.
Leasing concerns don't outweigh performance
One of the biggest drivers to negative share price growth over the past year is concern over soon-to-be-expiring leases. While lease expirations could pose a risk for a drop in revenues, CyrusOne is addressing it head on, having signed $35.4 million in GAAP revenue and leasing 28 MW in the first quarter.
CyrusOne's average lease term now extends to 4.3 years, meaning new leasing activity and expanding its data center presence will be a huge way to offset lease expirations. The company delivered 78K CSF, with 380K CSF in development, 69% of which is preleased. Of its active properties, 82% is currently leased.
As of Q1 2021, year-over-year revenues grew 21% while adjusted EBITDA and funds from operations (FFO) grew 6% and 8%, respectively. The company has $1.63 billion in cash and cash equivalents with no major debt maturities until 2024. Its debt-to-EBITDA ratio is 5.6 times, slightly high by REIT standards but manageable, given its payout ratio of 51% and current performance.
Right now, lowered consumer confidence means investors can buy shares in the company at a slight discount, especially when compared to the premium pricing of its competitors. CyrusOne definitely has growing pains and environmental challenges to overcome, but its high-quality tenant base, strong financials, and active efforts to improve its leasing moving forward means it's well-positioned for continued growth. So a 7% year-over-year dip isn't a cause for major concern.