CyrusOne (NASDAQ: CONE) owns and operates data centers and is structured as a real estate investment trust (REIT). That means the company must invest at least three-fourths of its investable assets in real estate or related assets and that it must distribute at least 90% of its taxable income to shareholders.
Data center operators have grown rapidly along with the internet and now form an essential part of the digital infrastructure that underpins much of daily life for businesses, governments, and individuals. They provide data storage and security, host and share applications, and are a critical component in the cloud storage and computing environment.
They're also not all alike. Here's a deeper look at one data center REIT.
CyrusOne Company Profile
Dallas-based CyrusOne describes itself as a high-growth REIT that specializes in highly reliable enterprise-class, carrier-neutral data center properties that provide co-location outsourcing with high power redundancy and availability and hybrid cloud solutions.
The company operates more than 50 high-performance data centers worldwide, providing mission-critical facilities to about 1,000 customers, including approximately 200 Fortune 1000 companies.
CyrusOne makes about 85% of its revenue through leases and other income from those customers, with the rest coming from metered power reimbursements from its electricity providers. (Fun fact: According to the U.S. Department of Energy, data centers account for 2% of total U.S. electricity usage.)
The company has been trading publicly since Jan. 18, 2013. It began as a subsidiary of Cincinnati Bell (NYSE: CBB), operating data centers in that area before growing through acquisitions that included Cyrus Networks in Texas in 2010. Over the next two years, the company combined data centers in Cincinnati, Chicago, and Texas under the CyrusOne brand and has since added Phoenix; Santa Clara, California; London; Frankfurt, Germany; and Amsterdam to its national and international presence.
CyrusOne is one of five REITs that Nareit places in the data center category. The other four are CoreSite Realty (NYSE: COR), Digital Realty (NYSE: DLR), Equinix (NASDAQ: EQIX) and QTS Realty Trust (NYSE: QTS). It's one of the smaller of the group -- Equinix is easily the largest -- but CyrusOne does have growth plans.
The company says it is focused on attracting customers that have not have historically outsourced their data center needs, including large enterprises, in their current and future markets. A key part of that strategy will be speed to market with new centers through its Massively Modular design approach that it says can produce a large, ready-to-commission data center from the ground up in an industry-best 12 to 16 weeks.
Speaking of new ground, in 2020 the company acquired 33 acres of land in London to support continued growth in one of the leading data center markets in Europe. Construction of new data center capacity also was completed in the New York metro area, and there were development projects underway in Frankfurt; Dublin; London; San Antonio; Council Bluffs, Iowa; Phoenix; and Northern Virginia.
CyrusOne also is expanding its hybrid cloud offerings, including launching in December 2020 the availability of Google Cloud Interconnect through several of its data centers.
Long-term leases with existing and new customers are key to the company's success, as well. As CyrusOne says itself, "Our offerings provide flexibility, reliability, and security and are delivered through a tailored, customer service-focused platform that is designed to foster long-term relationships."
CyrusOne Stock Performance
In large part because they're so essential, data centers are a profitable business with solid prospects going forward. As of Dec. 31, 2020, the five data center REITs tracked by Nareit were yielding 2.30% and yielded 21% in total return for 2020. CyrusOne was yielding 2.79% with a one-year total return of 18.41% as of Jan. 30. The FTSE Nareit All Equity REITs Index, by comparison, was down 10.63% in one-year total return as of Jan. 29.
Despite a tough third quarter that saw the company report a net income loss of $37.3 million, CyrusOne still reported a 10% gain in funds from operations (FFO) for that quarter -- one of the most telling measures of a REIT's performance -- and paid a cash dividend of $0.51 per share, the same as it did the previous quarter and continuing an uninterrupted string of quarterly payouts dating to its first in March 2016.
As for the stock price itself, CyrusOne went public at $21 a share on Jan. 18, 2013, and has generally climbed steadily since. In late January 2021, CyrusOne stock was trading for about $73 a share after dipping as low as $43.72 during the first weeks of the pandemic and briefly went over $80 a share in August 2020.
The Millionacres Bottom Line on CyrusOne
Gartner (NYSE: IT) predicts end-user spending on global data center infrastructure to grow for the next four years after a 10% drop in 2020 because of the pandemic. That includes reaching $200 billion in 2021, an increase of 6% from 2020, driven by investments in the public cloud and larger enterprise data centers.
CyrusOne is a good example of companies investing in both those areas that Gartner cites -- with its commitment to Google Cloud Interconnect and expansion projects in multiple markets. The company's experience dates to the first days of outsourced data centers, and its financial performance has been solid.
Combine that with the long-term leases and sticky relationships that the company works to forge with its growing roster of global customers who must have this service -- from CyrusOne or somebody else -- and this looks like a stock to consider as a long-term buy.