CyrusOne Inc.
Q4 2014 Earnings Call Transcript

Published: 19 Feb 2015

[Operator:]

Good day, and welcome to the CyrusOne Fourth Quarter 2014 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note, that this event is being recorded. I'd now like to turn the conference over to Mr. Anubhav Raj. Please go ahead.

[Anubhav Raj:]

Thank you, Chad. Good afternoon, everyone, and welcome to CyrusOne's Fourth Quarter 2014 Earnings Call. Today, I'm joined by Gary Wojtaszek, President and CEO; and Kim Sheehy, CFO. Before we begin, I would like to remind you that our fourth quarter earnings release, along with the fourth quarter financial tables, are available on the Investor Relations section of our website at cyrusone.com. I would also like to remind you that comments made on today's call and some of the responses to your questions deal with forward-looking statements related to CyrusOne and are subject to risks and uncertainties. Factors that may cause our actual results to differ from expectations are detailed in the company's filings with the SEC, which you may access on the SEC's website or on cyrusone.com. We undertake no obligation to revise these statements following the date of this conference call, except as required by law. In addition, some of the company's remarks this afternoon contain non-GAAP financial measures. You can find reconciliations to those measures to the most comparable GAAP measures in the earnings release, which is posted on the Investors section of the company's website. I would now like to turn the call over to our President and CEO, Gary Wojtaszek.

[Gary Wojtaszek:]

Thanks, Raj. Good afternoon, everyone, and welcome to CyrusOne's Fourth Quarter 2014 Earnings Call. I'd like to begin by saying that CyrusOne had another tremendous year in our second year as a public company. Our story has always been one of the growth in 2014 was no different including strong organic revenue growth through record leasing with significant contributions by both existing and new customers and the expansion of our footprint adding approximately 185,000 feet of raised floor and establishing an East Coast presence with the addition of Northern Virginia to the portfolio. My discussion today is going to be focused on highlighting some of the key growth stories for the business as well as addressing some of the concerns of being raised about the potential impact of the recent decline in oil prices on our business. Afterwards, Kim will discuss our quarterly financial results in more detail and provide full year guidance Beginning with slide three, you can see that CyrusOne managed to put up a lot of W’s again this year but none more important and delivering on our financial guidance. We delivered every metric we committed to and the strength of our platform continues to grow. Fourth quarter revenue was up 20% over the fourth quarter of 2013. Normalized FFO and AFFO were up 32% and 43% respectively over the fourth quarter of 2013 and adjusted-EBITDA was up 12%. We are announcing a 50% increase in the quarterly dividend for the first quarter of ’15 which follows a 31% increase last year meaning we've nearly doubled our dividend from two years ago which highlights the underlying growth of our AFFO and our focus on driving returns from our shareholders. We leased 44,000 colocation square feet in the fourth quarter culminating a record year of 236,000 colocations square feet leased which was an increase of 33% over 2013. We also added three new Fortune 1000 logos in the fourth quarter bringing our total new Fortune 1000 customers for the year to 15. Moving to slide four, we have continued to increase our customer base at a healthy pace with total and Fortune 1000 customers growing at a compound annual rate in excess of 10% over the last two years. When trying to convince Fortune 1000 CIOs to entrust us with their mission critical gear, it's a powerful statement to say that we've done at 144 times before. Slide five highlights the success we've had in our capital allocation over the past two years. As shown we've been able to consistently demonstrate that we are deploying capital in a manner that enable strong investment returns. Since the first quarter of 2013 we have invested almost 400 million into the business which is a 46% increase in investment. Yet we have been able to consistently deliver yields between 16% and 19% over this period. We have been able to achieve these results because of the way we design and deliver our product which enables us to deliver facilities at a low cost at a fast time to market. Additionally since on average approximately 50% of our growth each quarter comes from existing customers, we have a fairly good line of sight to their growth which enables us to on a relatively high utilization rates and significantly derisk our capital investment. In fact we closed the year at an 88% utilization rate which is up 3 percentage points from the end of 2013 despite adding a record of 185,000 square feet of raised floor during the course of '14. Historically we have spent a lot of time discussing our design and build methodology which has enabled us to allocate capital-efficiently to drive our development yields. Turning to slide six, I wanted to highlight some of the other things that we have been doing over the past few years, which explain the other part of the development yield equation with elements of both same store and development growth. First, over the past two years we have had an emphasis on incorporating escalators in both new contracts as well as renewals which is something that historically we never did, of new leases assigned over that period approximately 75% included escalators with the weighted average increase of 2.7%, currently over 30% of our portfolio has escalators which is up from practically nothing two years ago. The next two sources of growth are associated with leasing up available space and enhancing yields on existing leases with a variety of low cost and high margin ancillary products and services. One area where we've been particularly successful is interconnection which I'll talk more about in a minute. Both existing and new customers contributes significantly to our growth. Existing customers accounted for 58% of the new MRR signed in 2014 which is especially powerful given the 20% rate of growth we achieved. The future growth associated with our embedded customer basis and valuable asset and one of the reasons why we have an unwavering focus on new customer acquisition. For example, in 2014 approximately 27% of new MRR's signed was associated with intensification of power and ancillary products and services without any additional data center space resulting in an increase to ARPU. Lastly we have a robust development pipeline with a nutshell capacity to expand to 2 million square feet of raised floor and enough land to grow to 5 million square feet of raised floor and what we believe to be among the lowest build cost in the industry and not a fraction of what our customers can construct data centers for. We are deploying our capital on a just-in-time basis according to near term demand from our customers minimizing the capital at risk. All these factors have enabled us to execute on our business plan over the past several years and we believe we will continue to do so enabling our ability to deliver long-term value to our shareholders. On slide seven, I wanted to highlight the success we are having with our interconnection product. As we have said in the past our National IX platform enables Fortune 1000 enterprises to easily replicate the multi-node data center architecture they require at a fraction of the cost. Connectivity is becoming increasingly important product offering as enterprises continue to shift to a more distributor architecture that demands robust connectivity solutions. Such as the National IX. The chart on the bottom shows the steady increase in interconnection revenue on a sequential basis since the first quarter of 2013 which was when we launched our National IX. Since Q1 '13 our IX business has grown by 63% and in this past quarter it increased by 40% versus the same period last year. Interconnection is a valuable product offering in our portfolio and its importance will only increase overtime and we believe should exceed the growth rate of our colocation business. Not only as the IX product line reported on a standalone basis, it has been net critical enabler for our core colocation business as over the past two years, the National IX has helped us win colocation leases representing over $100 million in total revenue. Lastly, our name recognition with largest cloud operators has increased significantly as they are interested in selling no products and services to the Fortune 1000 companies that are customers of ours. Moving to slide eight, I want to take a moment to share some further details on our development yields as our development yields progress. This has been one of the top questions I have received and I would like to provide further clarity on the magnitude of the investments we have made over the past two years and the yields which they can deliver overtime. We have historically highlighted our total portfolio’s development yield being in the mid to upper teens. And you can imagine the yields on our stabilized facilities tend to be in the upper teens to low 20% while many of our recent non-stabilized developments currently have lower yields. We believe we can achieve mid to upper teens on recent developments upon stabilization. This is based on several factors first and foremost is our relatively low cost of development. This is supplemented by our ability to attain higher asset utilization by leasing at multiple resiliency levels. Our yields are also enhanced to the breadth of our product offering which includes deployments to small as a single cabinet in a high margin interconnection services all resulting in a higher revenue on a per square foot basis. To highlight these trends I thought it would be helpful to review the yield trends on three representative properties in our portfolio. I will start off with our San Antonio facility which is the smallest property we developed over the past few years. It was brought online in the third quarter of 2012 and fully leased the year later. On our third quarter '13 call after we fully leased the facility we indicated expectations of a stabilized development yield of 15%. However primarily as a result of ancillary products and services sold we have been able to increase the development yield to 18%. Next we show Houston West II which is a facility that can support approximately 80% more data center space than San Antonio. The facility was brought online in the second quarter of 2013. It is now fully build out but only 73% leased and is generating a development yield of 15%. Once we fully lease this space we expect the development yield could reach an excess of 18%. The final example is Carrollton which is shown on slide nine. This is one of the largest data center in the country and the largest in Texas at nearly 700,000 square feet of. It is an earlier stage of development than San Antonio or Houston West. This is a massive facility with capacity for seven data hauls totaling more than 400,000 square feet of raised floor. We currently have built three of the seven hauls which is about 40% of what is planned. We have invested approximately $155 million in this facility over the past three years. As you can see in the chart initially we were running in a negative 4% return which improved to a positive 3% at the end of 2013 and as of the end of the year it is yielding 13%. You can really get an appreciation for the incremental returns on the facility of the size by looking at the yields over the past year. The increase from 3% to 13% is especially noteworthy when considering an additional $60 million of capital was invested throughout 2014 much of which is not yet generating a return. The development yield for this facility should steadily increase as we develop the remainder of the footprint and increase the utilization of the facility. Moving to slide 10. We have substantial runway to efficiently grow our footprint. We estimate that we can increase our colocation square footage to 2 million with existing undeveloped power show such as in Carrollton and power show currently under development such as those we are building in San Antonio and Houston at an average build cost of approximately $5 million per megawatt. If we were also to develop all the land we currently own we estimate that we could increase our square footage to 5 million at an average build cost of between $6 million to $7 million per megawatt. This gives us tremendous ability to scale our business very efficiently. Turning to slide 11. One of the questions I have just heard once or twice over the last several months is what is the impact of oil on your business? Well I can’t predict what will actually occur, what I can say is that there are misperceptions about the impact of current oil prices on CyrusOne. So let me provide some further perspective. First, there is a broad secular trend out - there is a broad secular data center outsourcing trend which is driving enterprises to outsource their data center requirements to providers like CyrusOne. Enterprises outsource their data centers because the economics are very compelling. We can deliver a data center solution that is several times more efficient from a capital and operating expense perspective or while delivering a superior solution in a fraction of the time. Unlike other real estate sectors the data center industry is especially resilient in challenging economic environments as our product offering becomes even more financially compelling. This resiliency is highlighted in the chart on the next slide. The period from 2008 to 2010 which was the worst financial recession this country has encountered since the 1930's was also a time when many companies were aggressively cutting back their capital investment if the overall data center industry grew at over 18% annually. Similarly during this period oil prices also declined dramatically in at $35 a barrel were actually than they are today. However, Cyrus's revenue grew significantly in 2009 exceeding what we're currently doing. If anything we would not expect the lower price of oil to negatively change the underlying secular trend associated with outsourcing data centers. Turning to slide 12, unlike the internet or cloud companies are relatively insignificant proportion of enterprise spending is on data centers. Our top 10 oil and gas customers have combined annual revenues in excess of $1 trillion. And if you look at the amount they are paying us for data center services it is six one-thousands of a percent of their operating expense. So while many oil and gas companies have cut back capital investment, the real reductions are occurring in the big ticket items not in their IT investments. You simply cannot hit the CapEx reductions these large companies are looking for by cutting back data center purchases that just will not move the need all at all. Lastly our growth trajectory has not been as dependent on the energy vertical as we have diversified and expanded geographically and have been successful in any customers in generating incremental business in other verticals. As of December 2012, energy customers represented 37% of our annualized rent. As of December 2014, they represent 28% of our annual rent. Over the last two years annualized rent from our energy customers has increased at a nice CAGR of 7% but over the same period annualized revenue from all of our other customers has increased at a CAGR of approximately 30%. Having said that I still expect energy customers to contribute and believe there is plenty of opportunity to grow this part of our business. This vertical was very consistent throughout 2014 for us contributing between 125k and 135k and new MRR signed each quarter with no significant change in buying habits in the last two quarters of 2014 when the price of oil begin at the set. It's also important to keep in mind that our energy customers are running a number of different types of applications in our data centers from operating systems managing the production to various back office and financial applications to monitoring systems to transport systems many of these applications have little to do with exploration related activities. I recently traveled around the state and meet with various customers a one CIO with oil and gas company I spoke with, joked that they are not planning on shutting down their SAP platform any time soon. On the exploration front, there has been an increasing focus on data analytics to try to reduce valuable variable costs as much as possible before setting up a new rig and this increased focus result in more seismic processing incurring in our data centers with energy price is down it becomes increasingly important at certain and to be a certain and precise as possible before spending the large dollars needed to extract the oil. One of the companies we signed a lease within the fourth quarter was a large oil and gas company that showcases the broader relationships we have established with the customers that used many of our products. This is the customer that previously started a small deployment with us a few years ago as their business grew they expanded into our Houston West facility with the larger footprint. And they basically virtualized their entire IT footprint and expanded into our Austin facility which they are using for disaster recovery purposes. As they expanded into office they were able to take advantage of our National IX which provides the connectivity between the sites. And now recently they decided to locate the primary global network operation center in our Houston facility and it will be moving approximately 80 people to our facility to run all of their IT systems. This is the great example of the types of relationships we cultivate with our customers and shows how they can leverage the various products we offer. Also just to reiterate this is a very large oil and gas company and they just signed their most recent lease with us in the fourth quarter of this year. Moving to slide 13, there has also been concerned expressed by some potential effects of the decline in oil prices on the Texas economy more broadly and its impact on CyrusOne. The simple fact is that we are a geographically diversified company and not solely focused or reliant on Texas. That said, we still believe in the Texas market and the fact of the matter is that the Texas economy today is much less dependent on energy and specifically oil than it has been in the past. Oil taxes as a share of state revenue are down from 13% in the early 80's to a range of 4% to 6% over the last several years. Texas has been growing job and attracting people and companies for variety of reason independent of oil including a pro-business environment, low taxation or low cost of living and affordable housing. Since the end of 2007, 1.2 million net jobs have been created in Texas compared to 700,000 net jobs in the other 49 states combined. Additionally there are more than 25 non-oil and gas fortune 500 companies headquartered in the state, so the bottom line is Texas is more than just oil. In closing, we ended 2014 on a great note. This was our 8th straight quarter of strong financial results and continued growth as a public company. I am excited for what the future holds for CyrusOne given our growth, our low leverage, high-quality customer base and strong developments yields both on our total portfolio and recently stabilized developments. However I still cannot help noticed the valuation GAAP relative to the broader universe and our industry peers on a forward multiple basis, but if we continue to focus on executing our plan in time I believe the valuation will take care of itself. Now I'll turn the call over to Kim who will provide more color on our financial performance, Thank you.

[Kimberly Sheehy:]

Thank you Gary. Good afternoon everyone and thank you for joining us today. As Gary highlighted we had another strong year and are well positioned to capitalize on opportunity to grow in 2015. I will provide additional color on our fourth quarter financial results and speak to the annual guidance for 2015. Continuing with slide 16 revenue for the fourth quarter was $86.9 million and increase of $14.6 million or 20% from the fourth quarter of 2013. The year-over-year increase was driven by a 21% increase and leased colocation square feet and additional IX services, with both new and existing customers contributing significantly to our growth. We've leased 44,000 colocation square feet in the quarter. The leases signed for 5.3 megawatts of power primarily at facilities in our Northern Virginia, Phoenix and Texas markets. Based on square footage 78% of the colocation square feet leased was to meter power customers with executed leases having a weighted average term of 69 months. 80% of the new leases on a monthly recurring revenue weighted basis have escalators on an average annual rates of approximately 2.6%. The quarter closed out of record year of leasing as we leased 236,000 square feet, a 33% increase from 2013. Our rent churn in the fourth quarter was 1.7% down from the third quarter and more in line with the first two quarters of 2014. For the first quarter of 2015, we anticipate an elevated churn of approximately 3%. This is a result of three customers terminated or renegotiated during the fourth quarter. One of the three customers exited our Galleria facility as they completed a long-term initiative to migrate all their equipment into larger space in our Houston West facility. The second customers business has actually declined and they no longer needed as much space and the third customer increased their footprint with us and was given a price reduction to bring them to market rates to the size and multi-site development deployment they have with us. We anticipate quarterly churn to return to level more in line with historical trends between 1% and 2% during the remainder of 2015. Moving to other renewals during the fourth quarter we renewed like for like leases representing approximately $20 million of annual revenue and in aggregate the price per KW declined by approximately 1%. Moving to slide 17, the new leases signed this quarter represents 950,000 and monthly recurring rent on a steady state basis for approximately $11.4 million in annualized GAAP revenue excluding estimates for faster power. Including estimates for faster power charges leases signed this quarter represents approximately $13.9 million of annualized GAAP revenue once the customers have fully ramped in. By the end of the fourth quarter we had commenced approximately 33% of contracted revenue for leases that were executed during this period. As of the end of the fourth quarter our total backlog of annualized GAAP revenue stood at $9.2 million. We estimate that by the end of the first quarter we will have commenced leases representing 99% of the backlog. Moving to slide 18 net operating income was $54.9 million for the fourth quarter and an increase of $6.9 million or 14% from the fourth quarter of 2013. The NOI margin of The NOI margin of 63% was down 3 percentage points versus the fourth quarter of last year, primarily driven by the impact of higher electricity usage with meter power reimbursement of approximately $5 million. Adjusted EBITDA increased by $4.7 million to $44.6 million, up 12% from last year, driven primarily by the increase in NOI. This was partially offset by increases in SG&A expenses excluding non-cash compensation due to higher payroll and the additional costs related to our SOX and COSO compliance implementation highlighted on the second quarter call related to our growth into large accelerated filer status in 2014. Normalized FFO for the fourth quarter was $31.2 million, an increase of 32% from the fourth quarter of 2013, driven primarily by growth in adjusted EBITDA, as well as a decrease in interest expense. The reduction in interest expense was primarily result of higher capitalized interest and the impact of our open market bond repurchase program which I will talk about in more detail later. The increase in capitalized interest was primarily driven by an increase in construction in progress and related cash outflows, which resulted in more interest and capitalized in the quarter. AFFO for the fourth quarter was $29.8 million and increase of 43% over the fourth quarter of 2013, driven primarily by the increase in the normalized FFO. Slide 19 compares our performance on a sequential basis. Revenue increased $2.1 million or 2% from the previous quarter, driven primarily by strong recent leasing. NOI increased by $3.1 million, as property operating expenses were $1 million lower compared to the prior quarter driven primarily by seasonality and electricity expense and the NOI margin was up 2 percentage points. The adjusted EBITDA margin of 51% was up flat compared to the prior quarter, as an increase in NOI margin was partially offset by an increase in G&A expenses related to higher consulting fees, payroll and the timing of some accounting fee. The $2.3 million increase in normalized FFO was driven by the increase in adjusted EBITDA, the increase in AFFO was driven by the increase in normalized FFO and lower reoccurring capital expenditures partially offset by higher leasing commissions and deferred revenue in straight-line rent adjustments. Slide 20 shows a market level snapshot of our portfolio at the end of the fourth quarter in 2014 and 2013. Utilization is up 3 percentage points compared to last year on a 16% capacity increase, reflecting particularly strong demand in our markets. In October, we commissioned 37,000 colocation square feet in our new Phoenix facility which as we had indicated previously has already been leased by customer. I also wanted to highlight the percentage of annualized rent from owned facilities has been steadily increasing over the last two years and as of the end of 2014 was 79%, up from 63% at the end of 2012. All of our newer facilities including those constructed over the last two years or owned and we currently plan for all future build to be owned facilities as well. As a result, we expect the own percentage to increased overtime. Capital expenditures in the fourth quarter were $89.3 million compared to $63 million last year. Spending relates primarily to the completion of the Phoenix facility as well as continue construction of our new facilities in Houston, Northern Virginia and San Antonio. Slide 21 shows our net debt and market capitalization as of December 31st. Our net debt of $636.7 million increased by approximately $98 million over the prior quarter, primarily driven by continued investments of capital and development activity. Our net leverage as of the end of the quarter remained relatively low at 3.6 time’s annualized fourth quarter 2014 adjusted EBITDA. As of the end of the fourth quarter, we had $351.5 million of available liquidity which should provide us with enough funding capacity for the next two years. During the quarter, we repurchased approximately $150 million an aggregate face value of our senior unsecured notes at a price of approximately 108.5, which was highly NPV positive. Conservatively assuming a 2.5% interest rate on our revolving credit facility, this will result the reduction in 2015 interest expense of approximately $5 million compared to 2014. In summary, we believe that our relatively low leverage significant liquidity no near-term maturities and overall capital structure provide us with ample flexibility to support our future growth. Moving to slide 22 as Gary mentioned we are increasing the dividend for the first quarter of 2015 to $0.315 up 50% from the 2014 quarterly dividend $0.21. As a reminder of last year we increased our dividend by 31% from the 2013 quarterly dividend $0.16 so the dividend for the first quarter of 2015 represents nearly 100% increase over the 2013 quarterly dividend. As I have mentioned on prior calls we target a payout ratio based on AFFO. In 2014 our AFFO per share increased more than 50% resulting in a payout ratio of 49% slightly below the lower end of our targeted range of 50% to 60%. For 2015, we are slightly increasing the targeted range resulting in a payout ratio that we expect to be more closely in line with the historical peer group average. Based on our February 17th closing stock price of $28.22, the annualized dividend yield is 4.45%. And considering how to maximize the value for our shareholders we must take into account the returns we believe we can generate through reinvestment opportunities, so we are very thoughtful in determining the optimal allocation of cash, balancing short-term and long-term consideration and now turning to guidance. Slide 23 shows our outlook for the full year of 2015. We expect revenue to be between $370 million and $385 million based on executed leases through the fourth quarter and expectations for 2015. As part of the revenue guidance we are introducing metered power reimbursement guidance to facilitate modeling. As we have mentioned in the past our base of customers is increasingly moving towards metered power leases in which power cost are passed through to the customer based on actual usage. You can find metered power reimbursements for the past five quarters in our earnings supplement. We expect our churn percentage for the year on a monthly recurring rent basis to be relatively in line with the total for 2014 however as we discussed earlier we anticipate the timing in 2015 to be more front loaded with elevated churn in the first quarter so the impact on total revenue for the year will be greater. We expect the 2 percentage point decrease in our NOI margin compared to 2014 driven by higher electricity expense and an increase in property operating expenses as new facilities are brought online. Assuming the midpoint of our guidance metered power reimbursements as a percentage of total revenue as expected to increase approximately 1 percentage point. Since Q3 reimbursements do not have any associated margin benefit as the accounts reflect only half of the NOI margin decline. The remainder is driven by margin dilution as new facilities are brought online in Austin, Houston, Northern Virginia, Phoenix and San Antonio. In 2014 the only new facility that was brought online was in Phoenix and it was pre-leased minimizing NOI dilutions. We expect adjusted EBITDA to be between $185 million and $195 million. The implied adjusted EBITDA margin assuming the midpoint of the revenue and adjusted EBITDA guidance range is approximately 50% down 1 percentage point from the full year 2014 margins. The decrease is driven by the reduction in the NOI margin partially offset by greater leverage of our SG&A cost. Excluding non-cash compensation we expect SG&A to be relatively in line with 2014 resulting in an approximately 1 percentage point benefit to the adjusted EBITDA margin. We expect normalized FFO per diluted share and share equivalent to be between $1.90 and $2. We expect 2015 non-cash compensation to be approximately $3 million higher than 2014 as we have three tranches of our annual brands as well as the initial brand associated with the IPO which best in January of 2016. We anticipate our non-cash compensation expense to return to 2014 levels in 2016. We are assuming our interest expense to be relatively flat compared to 2014 as savings from the open market bond repurchase program offset the increase in interest expenses associated with the additional revolver borrowings to fund our growth. We expect capital expenditures to be in the range of $215 million to $240 million with development capital in the range of $210 million and $230 million. As we have mentioned before the primary drivers of the decline are the assumptions of the no expansion market in 2015 and less investment required in new shell construction given the investments we made in 2014. I’d like to provide some color on our development activity which we show on the next slide. Slide 24 shows 2014 and planned 2015 development activity. In 2014 we began construction on four new shows of occasions in Houston, Northern Virginia, Phoenix and San Antonio representing an aggregate of 685,000 square feet of powered shell. The shells on Phoenix and Northern Virginia have been completed and we expect finish construction on the shells in Houston and San Antonio later this year. We delivered nearly 185,000 square feet of rates for and 42 megawatts of power capacity in 2015 primarily in Phoenix, Dallas and Houston. Additionally last month we bought online the initial 30,000 square feet of rate for and 6 megawatts of power capacity in Northern Virginia. In 2015, we anticipate construction or the purchase of 300,000 to 400,000 of powered shell in our Austin, Northern Virginia and Phoenix market. We are in the final stages of the purchase as an approximately 175,000 square foot existing shell near our Austin II facility. We hope to close on the property within the next week. We plan on beginning construction on new shells in our Northern Virginia and Phoenix markets later in the year as customer demand want. We expect to bring 275,000 to 325,000 square feet of raised floor online in 2015 and anticipate ending the year with a total of approximately 1.5 million square feet of raised floor. In closing, we are very pleased with the results in 2014 and the record leasing. The addition of nearly 60 new customers including 50 Fortune 1,000 customers and strong demand for our IX product. We remain focused on meeting the needs of our customers and continuing to grow the company. Thank you for your time today. This concludes our prepared remarks. Operator, please open the line for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes today from Emmanuel Korchman with Citigroup. Please go ahead.

[Emmanuel Korchman:]

Hey, good afternoon. Kim, may be you can help us understand what sort of drove the big 4Q be versus your November guidance? It was something accelerated into the year that you had expected not have sell 2015 or is there something else going on there?

[Kimberly Sheehy:]

Are you talking about in revenue or which?

[Emmanuel Korchman:]

I mean it looks like your sort of top-line growth was faster than you expected it to be the big B versus guidance.

[Kimberly Sheehy:]

It is primarily timing of when we started recognizing revenue on leases. As far as we just installed quicker than we would have originally forecasted.

[Emmanuel Korchman:]

Got it. And then if we sort of think about that same life for the backlog. How much of the backlog is in newly delivered developments versus older product sort of taking up utilization the one that are expected?

[Kimberly Sheehy:]

I am not - you are trying to know how much is the backlog?

[Emmanuel Korchman:]

$9 million of backlog to be absorbed in 1Q how much of that is in the new developments that have been open but not commence and how much of it is in sort of other products where you are going see occupancy tick-up?

[Kimberly Sheehy:]

They are almost all in new developments so that are coming online so, we will be recognizing that in the first quarter. If you look at the chart most of it will be recognized by the end of the first quarter.

[Emmanuel Korchman:]

And then may be Gary just my last question. As you think your sort of targeted mix of new customers versus current do you purposely tried in market to one versus the other or you sort of okay with whichever way it goes I guess certainly got to get some new flags.

[Gary Wojtaszek:]

I mean we would not turn any customers away but our primary focus and our marketing efforts and sales efforts is getting new customers as I last quarter we were trying to provide some color on the value associated with new customer while we mention then with that 40% of the NPV of the new customer acquisition is in the business that we don’t on day so it is actually the most important meaning indicator for us and I think probably everyone in the industry you know your ability to attract new customers is the most important metric that we are focused on from a sales and marketing perspective.

[Emmanuel Korchman:]

Great, thank you.

[Operator:]

The next question is from Jordan Sadler with KeyBanc Capital Markets.

[Jordan Sadler:]

Thank you. Good afternoon. Wanted to first touch on oil Gary you gave a very comprehensive overview of I think the exposure and the lack of expected impact. And I can appreciate that. I guess I was curious just too sort of some of that in terms of the demand funnel that you see and sort of customer traffic, is it safe to say that that's steady no change versus prior quarters.

[Gary Wojtaszek:]

Yeah we haven't seen any change actually even in some of the prepared remarks we're talking about that yeah we've been doing about 130,000 each quarter in the oil and gas and that's been pretty consistent in the last half of the year when oil started heading it said it's been unchanged, I mean there is definitely focus in the industry about what's going on broadly but we've not seen any noticeable difference in our business when previously when oil hit $35 a barrel in some of the growth rates that we experienced then and at the time Cyrus was predominantly just the Houston based company. We saw a growth rates that were multiple higher in terms of where we're currently are today. So I don't think we're going to see that same type of growth but I think what it just points to is just broadly speaking is that the underlying secular trend of data centers is an outsourcing trend and as capital becomes tighter and people are more focused on pulling out expense. Our business proposition is even more compelling to their CFOs.

[Jordan Sadler:]

Okay. That make sense. And then somewhat related perhaps in terms of the Houston, can you maybe speak of the change I think Kim I picked up in your prepared remarks there were some changes around the margin in terms of some of these customers, but I'm curious at the Galleria and Houston you saw an uptick in annualized rent sequentially yet that the colocation square footage is significantly less leased than it was and similarly we noticed that the Green's point facility dropped off of the schedule and I assume that's a lease exploration but any other exposures to potential operating lease explorations, we should know about.

[Gary Wojtaszek:]

Yeah I can handle bunch of those questions. So the Green's point one so that was a lease that we were renting that we terminated and we migrated then it was about 13,000 square feet we migrated all of those customers into our other facilities. And one of the other questions in terms of in the Galleria space going down. That was actually for oil and gas customer that we've been working on a project for it started about two years ago. They did a much bigger application with us in our Houston West facility which is our newest facility so they basically tripled the amount of power that they were purchasing for almost doubled the space. But that was a two year migration that it took them to get out of our - out of the small Galleria facility and migrated into the larger Houston West facility.

[Jordan Sadler:]

So that it commenced in previous periods in the Houston West.

[Gary Wojtaszek:]

Yeah well there was two different leases. so you basically see this what you will see I mean that was one of the customers that in Kim's prepared remarks we're talking about our churn will pick up this coming quarter and that's one of the customers as part of that like when those things lead to place it isn't like each of those leases were done separately. So you're going to get that churn reduction at the time when the initial lease expires but 18 months ago they entered into the previous lease that was done to migrate them from this space to the new space.

[Jordan Sadler:]

Okay. And you mentioned you terminated a Green's point. Was that terminated prior to lease exploration and with your cost associated with that and then any other leasehold positions that you may look to terminate and anything that might have been the catalyst there that you could lend some offer some insight.

[Kimberly Sheehy:]

No if there were no cost to it was as the lease termination. And it was just a really small kind of insufficient really facility so to cut the largest customer wanted to be in the other facility so it made sense to get out of the lease.

[Jordan Sadler:]

But could be clear the lease matured right you didn't turn okay and any others that you would look to vacate?

[Gary Wojtaszek:]

Yeah I think if you look that what you have seen historically Jordan as we have been, we purchase some of the existing facilities that we were interested in, that we were leasing last year for all the other non-strategic ones we would basically look to exit those as those leases are matured and we would migrate those customers back into our other facilities. The one thing that’s nice about our IX platform is, since we have interconnected all of our facilities together we allow an easy path for customers to migrate out of one facility into another. So if you went through on our supplemental disclosure which we actually added and putting a lot of additional information that everyone has been looking for recently, you will see any of the smaller leases in there those are the ones that we would look to basically exit at the time of the lease expirations.

[Jordan Sadler:]

Alright, that’s helpful. Thank you. I will hop back in the queue.

[Kimberly Sheehy:]

Thanks.

[Gary Wojtaszek:]

Thanks.

[Operator:]

The next question is from Amir Rozwadowski with Barclays.

[Amir Rozwadowski:]

Thank you very much and good afternoon folks.

[Gary Wojtaszek:]

Hey Amir.

[Amir Rozwadowski:]

I wanted to touch upon sort of cash usage here. It seems your focus on the dividends certainly you folks have also seen optimizing sort of your balance sheet here with sort of the CapEx requirements particularly on the new bills coming down a bit here. How should we think about sort of cash usage at least for the near-term to mid-term?

[Gary Wojtaszek:]

It’s going to be, it’s going to continue to drop. We made significant amount of capital investment in our business last year that’s giving us a lot of additional capacity on shelf space. So you will see some of that fall off this year because we are not going to be building out as much shelf capacity, it’s predominantly going to be going into power same thing next year we probably see a similar type of decline. This is also I mean kind of apples-to-apples that we don’t go into any other new locations. What we are talking about on the last quarter’s call was that we believe that we wanted to focus on FFO growth over this period and every time we expanded into a new market there is some dilution in our top line and that’s been impacting our FFO as we wanted to demonstrate to everyone was the realization of how much incremental yields we will generate from all the capital investment that we have made in our business because all of this is basically kind of deployed currently and we only have got a $130 million left in SIP. So on a relative basis we only have about 8% of assets in SIP relative to all the assets that we have, which is really small.

[Amir Rozwadowski:]

Great, that’s helpful. And then just wanted to touch upon a bit on the competitive landscape if I look at sort of your total customer growth and particularly those coming from the Fortune 1000 customers it seems as though you're continuing to make pretty, pretty remarkable progress with gaining momentum in the marketplace. Given your sort of current footprint right now how should we think about the opportunities that going forward here are in terms of new potential customer wins we focus?

[Gary Wojtaszek:]

We think it’s going to be more the same. I mean our focus has been since inception that we focus on selling to enterprises we think that as a great group of customers to go after, because they are just in the beginning stages of this outsourcing trends. It’s a difficult selling process to go through. It takes really long time. But we figured out how to identify those customers, how to target on them, how to convince them to trust us and as a somewhat build on itself in that we have a 144 really large customers now that we have been able to convince to trust us with their critical - and that just got - on itself and gives with the other potential customers that we are talking to less concerned to outsource with. We expect it’s going to continue just like it has historically.

[Amir Rozwadowski:]

Perfect. Thanks so much for the incremental color.

[Gary Wojtaszek:]

Sure, thanks.

[Operator:]

Our next question comes from Stephen Douglas with Bank of America.

[Stephen Douglas:]

Great. Thanks for taking the question and thanks for the additional details on the energy segment exposure. So may be one.

[Gary Wojtaszek:]

We had one question last quarter on that Steve, so

[Stephen Douglas:]

So may be another question on energy segment piece kind of flex their assumption around what’s going to happen with oil prices. Historically if I wondering what has been your experience if any with customer that have kind of bankruptcy I would assume that in the scenarios customers that want to preserve as much of the value the business as possible as generally wouldn't really shut down their data center infrastructure. But just wondering what kind of you've seen historically and maybe what your comfort level is in terms of your ability to continue to pay in full throughout the counter process?

[Gary Wojtaszek:]

Sure. Yeah, I mean to give you some color 85% of our oil and gas customers are customers with $5 billion plus in revenue investment grade tech companies. We’re predominantly dealing with the big companies out there. Historically, we haven’t really had much exposure to any type of bankruptcy situations. I think historically we talked about our turn half of the turn metric was basically related to price declines and the other half was related to customers that either when bankrupt or didn’t do business with us any longer. But now on average or basically looking at maybe 40 points, 50 points of churn each quarter associated with bankruptcy or people just closing up shop. It has been relatively limited.

[Stephen Douglas:]

And if I look at that 85%, is there any kind of concentration in either the four years or the more recent years, when I look at kind of renewal schedule?

[Gary Wojtaszek:]

No, I don’t, there is not been any significant change in that over the last couple of years.

[Stephen Douglas:]

Okay. Thanks guys.

[Operator:]

Our next question comes from Colby Synesael with Cowen and Company.

[Unidentified Analyst:]

Hi, this is actually John on for Colby, thanks for taking the questions as it relates to 2015 revenue guidance. Can you talk about the level of leasing you need to see to be maybe trending towards the higher end of guidance or maybe relative to 2014? Thank you.

[Gary Wojtaszek:]

Well, I mean we expect that the amount of revenue associated with power is going to decline versus this year, it was really high our proportional basis. We’re expecting 50% absolute revenue growth next year to this year. What we’re standing on a funnel there has been basically unchanged over the last four, five quarters now. So plan of having some record bookings this year, we’ve managed to fill-up follow again and we’re expanding on the same size follow as we were a year ago at this time. The other thing that we are expecting to grow nicely we provided some color on this call for the first time was our IX business. So our IX business since the launch of our National IX is grow 63% and well Kim pointed in her comments was that in the last quarter year-over-year a group 40%. So that product line has done really well for us, we expect that’s going to grow, we expect to grow faster than underlying colocation business as customers become more, more aware of that product and how to use it for the things they’re trying to architect on the under data center side.

[Unidentified Analyst:]

Thank you very much.

[Gary Wojtaszek:]

Thank you.

[Operator:]

The next question is from Vincent Chao of Deutsche Bank.

[Vincent Chao:]

Hey, good afternoon everyone. Hey, I just want to go back to the 3% insurance for the first quarter, obviously you guys don’t provide that net of any additions and we talked about the first tenant sounds like they took rents or took space earlier in the year. So that will be move out, but just curious what the total impact on revenues will be, when you factor in the third customers additional space if they’re taking?

[Gary Wojtaszek:]

I give you the churn impact what we are expecting for the year in terms of absolute numbers is pretty much unchanged from one it was in ’14, it’s roughly a million and monthly expected churn. The difference though is timing related and that we expect or that to be front loaded this year than it was last year, so there is probably $2 million on increased revenue versus what we saw last year.

[Kimberly Sheehy:]

And then just to clarify Gary that was 1.8 and monthly revenue for the year not monthly churn.

[Vincent Chao:]

Right, got it, got it, okay. And just maybe another question on the oil and gas, which again comes early that you provided was quite helpful. But just in terms of lease explorations for next year and after remain how much of that is tight to the energy vertical?

[Gary Wojtaszek:]

What was your question in terms of lease exploration over the next two years? How much is sort of energy tenant?

[Gary Wojtaszek:]

I just look at that.

[Kimberly Sheehy:]

I don't know what the site elevator are, I mean we can look and get back to you. I mean there is nothing that is at the top of our list that we are worried about. So it's that we can look at the mix.

[Vincent Chao:]

Okay, thanks. That was it. Thanks.

[Kimberly Sheehy:]

Okay, thanks.

[Operator:]

Next question is from Barry McCarver with Stephens Inc.

[Barry McCarver:]

Hey, good afternoon guys. Good quarter and thanks for taking my questions. So I guess first question we've talked a lot about demand. Are you seeing any change in the amount of supplier or capacity for data center space from your competitors in the various markets?

[Gary Wojtaszek:]

No, I mean we've heard people talked about what their plans are but that's about it. I mean I think as we've been saying for a while we just bring on demand I mean we bring on supply relative to our customer demand and so we're not as focused on what other folks are doing, we are more focused on our funnel. If our funnel isn't there to support the additional capacity. We don't bring it on. So like this quarter you see I mean our utilization went up to 88% which was I think the highest in the last 4 or 5 quarters, right. So it's come out of a lot in spite of bringing on a lot of additional spaces here and that's all because we are tracking our demand closely.

[Barry McCarver:]

And I think you made the comment in the prepared remarks and then again on questions about power revenue as a percentage of power revenue was expected to be down in 2015 versus 2014 but still grow.

[Kimberly Sheehy:]

Anew revenue being left. So the amount that came on in '14 we aren't expecting as much growth in 2015 but as a percent of revenue it will be up 1%.

[Gary Wojtaszek:]

Yeah.

[Kimberly Sheehy:]

We dissolve a very large increase in '14 that we don't expect to repeat in '15.

[Barry McCarver:]

Was that just because of the mix of customers towards really large customer or something else?

[Gary Wojtaszek:]

That's right.

[Kimberly Sheehy:]

Yeah.

[Barry McCarver:]

Okay and then Kim could you review your comments regarding the dividend which that the dividend enough for one key that's a really nice step up thank you for that. I think you said a percentage of FFO your target rate was static and I couldn't write it down fast enough.

[Kimberly Sheehy:]

Yeah, our target is 60% to 70% of AFFO. It was that we had announced I think last year was closer to 60% we bumped it up about 10% from an estimate and then of course with the AFFO growth as well that's where we getting to the 15% increase.

[Barry McCarver:]

Okay and then in terms of the cost of coming into full [ph] compliance. Is that fully into the kind of recurring quarterly expense run rate going forward I mean I guess I'm asking if I think the cramped the full years ratchet expenses into six months for 2014 and I would guess it would guess it would be a little bit more measured each quarter.

[Kimberly Sheehy:]

Right.

[Barry McCarver:]

For this year, is that correct?

[Kimberly Sheehy:]

Yeah that's the way to think about it. I mean we did a full year in the last two months. So it's certainly in the run rate. I mean we are expecting SG&A in total to stay flat year-over-year. But it should be more evenly spread.

[Barry McCarver:]

Great, that's all my question. Thanks a lot guys.

[Gary Wojtaszek:]

Sure, thanks.

[Operator:]

Our next question comes from Sergei [indiscernible] with Gabelli & Company.

[Unidentified Analyst:]

Good afternoon guys. Congratulations on the quarter. Couple questions one on M&A environment. There had been a few deals in the data center space recently in Europe obviously TLCTA [ph] agreed to acquired interactions healthy motivation [indiscernible] at over 15 times EBITDA. Gary what are your thoughts on the M&A environment in the sector in the US and globally and how can CyrusOne participate and maybe you could remind us on your criteria for acquisition and how you compare acquisition opportunities to your organic growth opportunities that you see in front of the company.

[Gary Wojtaszek:]

Sure. Yes, I think I said repeatedly it's scale in this business really matter and I'm glad to see some of that consolidation happening as I think it's a good indication the health of the business. Scale is important because when you are selling to the large customers that we are being able to provide a global solution. Where you can handle their data centers needs around the world that something that is really valuable to our customers. So we expect that's going to happen and think that's a person to cases of it. There is clearly synergies associated with be in different locations and some of the other players in the space their synergy associated with the type of customer were predominantly enterprise other customers are less focused on enterprise we have a colocation footprint other folks don't have a colocation type product offering. So there is a lot of synergies I think broadly that you're going to be able to get through M&A activity. So I think this makes a lot of sense for everyone in the industry to continue to look at this. We've been reticent in the past when we've looked at some of these things just where we traded at and we still believe that we're trading at a low multiple relative to the value that we see in our company. So we've been very reticent to do anything if involves any type of equity dilution because we think that we would be in the wrong into that trade. That said we do think this make sense for the synergy values that I have lead out. Historically in some of the not necessarily platform acquisitions but some of the sale leasebacks that we've looked at some of the cap rates in those asset type deals are really reach for our from our perspective we think that organically we've been able to show a great confidence in generating 16% to 19% development deals and now we've been choosing to deploy our capital at that way as a better return to our shareholders and chasing some of these sale leaseback transactions. I think if there was a strategic asset that make sense for us in a particular location I think that something that we will consider looking at only to the extent that there were some ability to drive additional growth out of that asset. So to answer your questions in terms of like what are the criteria we're looking for customers, we're looking for locations and we're looking for diversifications of product. So those other things that we're looking when we're considering different options.

[Unidentified Analyst:]

Great. And sort of related question kind of but it's also related to general kind of global international strategy as well. So for example [indiscernible] interaction potentially it could create a stronger competitive to equity exchange in Europe. And I was wondering if you see any opportunities for partnership or resale agreement or agency relationship was a combined company or another provider in Europe and what are pluses and minuses of such an agreement versus the kind of your approach where you are building or anything you own locations based on existing customer demand.

[Gary Wojtaszek:]

Yeah I mean those are always difficult to work through but from a commercial perspective we're not seeing a whole lot of demand from our customers for oversea space and some of them may be related to that fact that we don't have locations there so they're not sharing that with us. But in case as we're that has come up with our customers we've reached out to some of the folks that were friends with just kind a share the deal with them. But that's nothing that we see a lot of demand from currently in our current customer base.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

The next question comes from Omotayo Okusanya with Jefferies.

[Omotayo Okusanya:]

It wasn't bad at all. Good afternoon guys and thanks for the extra color around Texas and the oil and gas market I think that was very helpful. Just the couple from me, 2015 guidance and the development spending it seems like a development spends are coming down a little bit. Just kind a given how excited you are about demand and I was just kind a curious why development track seem to be slowing somewhat in '15.

[Kimberly Sheehy:]

It's really development isn't slowing it's the timing of when I mean in '14 we've spend a lot of capital on shell building buildings. We've build almost 700,000 square feet in shell. And so in '15 we're going to be building more and just the data hauls and the power infrastructure and not we don't need the shell. So development in our existing our existing markets we expect to continue it's really just what we're spending at all.

[Omotayo Okusanya:]

Got it. Okay that's helpful. And then just to confirm again because of a lot of that is no longer shell building it's just that it's more of the new rooms and things like that that because you now have a much shell spend associated with that you expect that to be higher yield going forward.

[Gary Wojtaszek:]

Yeah actually Tayo in my portion of the presentation we provided historical results in our yield.

[Omotayo Okusanya:]

Projects yeah.

[Gary Wojtaszek:]

Right and so that and the purpose of that was really to kind of highlight this because if you see I mean we are going to have about 2 million square foot of shell space by the end of this year and so all of that capital is basically burdening our current returns but as that stuff sells out we bring in some additional utilized space in there those yields go up pretty nicely and we would expect broadly speaking across the entire portfolio that would occur.

[Omotayo Okusanya:]

Great that’s helpful and then 15 guidance just look at the share count need about 66 million at the end of fourth quarter you would close about 65.2 million for the additional 1 million shares or so is that all stock based compensation for 15 or what exactly that incremental share count?

[Kimberly Sheehy:]

We build an estimate for stock based compensation just to be conservative there.

[Omotayo Okusanya:]

Okay but that’s about twice the size of these stock concession in 14 does that in 14 about 10 million?

[Kimberly Sheehy:]

I don’t believe so I think it’s pretty consistent.

[Gary Wojtaszek:]

Yeah, the one thing I think some folks definitely from modeling perspective this year in 15 is going to be the peak year from a stock compensation because there were some initial brands may for the team at the time of IPO those were three investing day after this year so stock compensation is that to speak now a little bit down.

[Kimberly Sheehy:]

On the expense side the share count assumption was fairly consistent with last year.

[Omotayo Okusanya:]

Okay that’s very helpful and then that’s it from me. Thank you very much.

[Kimberly Sheehy:]

Thank you.

[Gary Wojtaszek:]

Thanks.

[Operator:]

Our next question comes from Simon Flannery with Morgan Stanley.

[Unidentified Analyst:]

Hi, this is Alice [ph] for Simon thanks for taking the question maybe I am just kind of turning away from other - could you just talk a little bit more about your assumption for kind of 2015 margins or maybe over the little bit more about kind of margins going on a longer-term process kind of do you have target margin in place?

[Kimberly Sheehy:]

Sure, if you start like with the NOI margin I mean 62% margin to 2015 and we do expect that to go about 50% in 15 and the 2% decline is really the result of half of it is related to our assumption around increased meter powered go through zero margin the other half is the dilution that we would expect to see as we bring on new facilities throughout 2015 initially they are dilutive with and the cost of the asset coming online and then as we reset its peak us in margin so but I think the low 60% is what you would expect in the near future as we are still developing new facility because that dilution continue. On the EBITDA side in 15 we expect 50% EBITDA margin which is pretty consistent in what we see in 1% I believe and that’s really a result of the NOI margins coming down slightly and our SG&A is actually being lowered greater leveraged staying flat so peaks up the margin up slightly.

[Unidentified Analyst:]

Okay thanks for color.

[Kimberly Sheehy:]

Sure.

[Operator:]

Next question is from Frank Louthan with Raymond James.

[Unidentified Analyst:]

Hi, thanks this is Alex here for Frank just going back to the revenue guidance, on the prepared remarks question you’ve talked about being able to run at a high utilization given your high percentage of demand coming from existing customers so with that in mind and they announced 300,000 colo square feet being brought on in 2015 which is about 50% higher than 14 what would keep you from growing revenue in absolute dollars at a similar rate to 2014 the guidance applies 15 million year-over-year slow down?

[Gary Wojtaszek:]

I think some of that slowdown that’s where we are talking to in terms of the power acreage last year we saw roughly 75% year-over-year increase in a revenue we don’t expect that’s going to increase as much go forward but what we are looking at this year we are looking at same slightly more in sales for 15 as opposed to 14 we are sitting on a similar funnel as we were last year and so we're expecting that we’re going to do pretty well. On the upside, we have Northern Virginia facility that we didn’t have last year. So we think that’s going to give us some additional benefit, we announced from last quarter’s call that was about 40% sold out with one customer, we subsequent so that we sold out so more as we hope to have some additional favorable good news at the end of the first quarter with regard to the success that we’ve had in Northern Virginia, which has gone pretty nicely for us.

[Kimberly Sheehy:]

Yeah. And leasing, we’re talking about the fourth quarter and a lot of that is for Northern Virginia, which have been come online yet. So when you look at the square footage, we’re talking about delivering in ’15 that includes that square footage. So it’s a little bit of timing thing when you look at year-over-year on the square footage.

[Unidentified Analyst:]

Okay, great. Thank you.

[Operator:]

Our next question comes from Ross Nussbaum with UBS.

[Ross Nussbaum:]

Hey, good afternoon. I just want to circle back to the normalized FFO guidance. And first client it seems kind of conservative to me because you’re already had a run rate of Q4 of $1.92 and I guess I appreciate some of the comments that we’re made on margins and perhaps a little bit of turn. But when I look back to last year in 2014, you guys blew away your original guidance by you ended up being 8% above your original midpoint of your guidance. I’m trying to figure out, are you just being equally conservative for 2015 or are there some other negative offsets to the current normalized FFO run rate?

[Kimberly Sheehy:]

Sure. I mean, I think you hit on the first one, we do expect to see the margin compression a little bit on NOI. We also as we mentioned before expect about 3 million more in stock-based compensation in the year, which will impact the FFO and then additional shares that we’re including also dilute the FFO. And then also with the lower amount of development capital being spent in the year we would expect lower capital interest as well. So those are sort of the key drivers, so I think what is making the difference.

[Ross Nussbaum:]

Okay, that’s helpful. A question on the tenant front, if I am looking at your supplemental correctly, your seventh largest tenant which is 4.1% of revenues their leases up later this year. Can you give us some sense of what you think going to happen there whether it’s a renewal or not?

[Gary Wojtaszek:]

Yeah, we expect to search in renewal.

[Ross Nussbaum:]

Okay. And then finally and this is on the same page your supplemental and I don’t know if something that I missed before, I just need to get refreshed on, but I’m looking at footnote E as a relates to your second largest tenant. Can you refresh us all on looks like you’re expecting some contract consent, so that those can be assigned over to you from Cincinnati Bell? Can you refresh us on what’s going on there?

[Gary Wojtaszek:]

Yeah, yeah. So this was a holdover from Cincinnati Bell. So this was actually, this customer was Cincinnati Bell’s largest customer. So they were multiple difference contracts that we’re in place between Cincinnati Bell's customer including some telecom services, wireless services, managed services and data center services. And so it would really detailed contracts with them. And so as part of the IPO, we basically were assigned, we were assigned that contract, that customer was assigned to us all the payments for that basically get remitted to Cincinnati Bell and then back down through us and we’ve been working on separating all of the contracts between Cincinnati Bell and that particular customer to go direct with us and just taking a long time. Actually, we talked a little bit about this over the course of last year and this is a company that has expanding with us down in a couple of locations in Phoenix and then Carrollton and they actually just product as recently that they want to begin separating these contracts and how we go directly with us and separating it from Cincinnati Bell.

[Kimberly Sheehy:]

But here a new disclosure Ross, there has been since the IPO actually maybe just in pickup on it.

[Ross Nussbaum:]

Yeah, I just added to read all your footnotes this quarter. And then I just need, they’re crashed my head instead it’s been two years since the IPO looking - by the hour on this one?

[Kimberly Sheehy:]

No, it was, no.

[Ross Nussbaum:]

Okay. Thank you.

[Operator:]

Our next question is from Jonathan Schildkraut with Evercore ISI.

[Unidentified Analyst:]

Hey, it’s Rob for Jonathan. Thanks for taking my question. I know those are higher commission expense in the quarter I am assuming there were some more indirect sales, sales from the indirect channel, I was wondering what percentage came from the indirect sales channel and if there is a difference in these deployments in terms of their size or vertical or services they are taking? And in addition to that I was wondering if the deals that you have been wining what percent of these have been competitive deals versus the results of cultivation of long-term customer relationships?

[Kimberly Sheehy:]

Let me try to answer the commission and you can take second. On the commission what you are seeing is really just a result of the timing and what you are seeing I am assuming you are looking at the commission payment and the FFO and we more of our leases in Q4 were actually direct and not indirect but the timing of commissions was lumpy in the fourth quarter as we paid out a lot of commission on leases earlier in the year. We wait and we started building customers before we pay those commissions out. So, it doesn’t always match up with when we announce the lease.

[Gary Wojtaszek:]

Yeah with regard to the proportion of customers I think this quarter was about 80% of the bookings that we had this quarter from existing customers which I think was the highest this year, I think it actually may be in the second quarter I think about 92%. So it was one of the highest bookings from existing customers that we had this year.

[Ross Nussbaum:]

Okay, you also said that the metered power the past two power is increasing in 2015 it seems like based on the guidance it looks percentage wise about the same 2014, is that right?

[Kimberly Sheehy:]

The total amount of power that we would expect to come through as the revenue line is up about 1% as a percent of revenue, next year is our forecast I think what you are referring to is we continue to see about 80% to 90% of our new contracts metered power, I don't if that’s clarifying for you.

[Ross Nussbaum:]

Yeah, I think so.

[Kimberly Sheehy:]

Okay

[Gary Wojtaszek:]

Hey Ross, I misspoke in the supplemental on page 22 I was correcting that 81% did come from existing this quarter but the 92 was wrong, I don’t know what I was picking up. That was the highest that we had all year the other one was 75% in 2013.

[Ross Nussbaum:]

Got it, Thank you.

[Operator:]

Our next question is from Matthew Hinds [ph] with Stifel.

[Unidentified Analyst:]

Hi, thanks good afternoon. Just a couple of questions around the CapEx guidance I guess in terms of the timing I would assume that the development CapEx is going to be fairly first half loaded, given kind of what you spoke about in the development pipeline, but just probably you can shed some light on kind of the distribution of that spending as we move throughout the year?

[Gary Wojtaszek:]

Yeah, it’s probably going to be weighted more towards the back half of the year. We are not going to be I don’t know what the exact split is but I would say by guess I would say close to 40% would be spent in the first half, 60% in the back half.

[Unidentified Analyst:]

Okay, thanks. And then secondly on recurring CapEx side, your recurring spend came in quite a bit lower this year versus what’s the guidance called for and then just looking at the 2015 guidance being flat with last year I am wondering if there were some non-recurring factors impacting the 2014 recurring spend or just kind of what’s driving the changes or is that again just kind of conservatism as a minor part?

[Kimberly Sheehy:]

It’s a little bit conservatism on the recurring and nothing in particular has driven to change anything win maintenance that’s being both the recurring its timing, it’s lumpy and it’s hard for us to forecast one quarter it takes - but there is nothing new that we are trying to work into the numbers.

[Unidentified Analyst:]

Okay, thanks. And just one lastly if I may in terms of your capital structure you touched on valuation a bit earlier and obviously there was an accretive debt repurchase opportunity that you were able to take advantage of in the quarter, but given where the equity is trading and the discount versus peers I am wondering what’s the thought process is around buybacks and how you might weigh that against the limited flow that’s out there?

[Gary Wojtaszek:]

Yeah, we think that doing buybacks at this point which the contrary to getting more liquidity out there is. Something that we've talked about because it just feels that it is a good buying but that something that longer term we think is not going to be in the best interest of all of our shareholders. We think that if we continue to perform and benefit of numbers likes that we did this quarter that eventually people are going to recognize the value of the NOI growth story that we think that we're offering.

[Unidentified Analyst:]

Yeah certainly step in the right direction.

[Gary Wojtaszek:]

Thanks.

[Operator:]

Our next question is from John Peterson [ph] with MLV & Company.

[Unidentified Analyst:]

Hi great thanks. I was curious along the lines of some of the acquisitions and consolidations we see in the sector recently. What the sale leaseback market looks like I know that AT&T and Verizon are supposedly out there trying to market their data center I assume there was potential sale leaseback opportunities. And then maybe even within some of the enterprises you work with maybe specifically the energy companies so there is opportunities for them maybe are they looking to raise capital as they might do sale leaseback with CyrusOne for any existing [indiscernible] as they own.

[Gary Wojtaszek:]

Yeah well I mean the sale leasebacks that market has been a fire I mean people have been chasing a really low cap rate deals and that's basically kind a kept us for the sidelines so those are nearly as attractive to us to just kind a deploying capital in our existing facilities and generating high yields that we do. We've looked at them but we're only interested and through their perspective where we can kind a grow those businesses and put an additional capital and customers in there and so buying an asset at a 7% cap rate 8% cap rate we don't think is a good as a good alternative to invest our capital and relative to what we could do organically.

[Unidentified Analyst:]

Okay. and how does those 7% to 8% cap rates on sale leaseback you can compare to a multi-tenant data center as that might has the market it doesn't seem like we see very many of those but what do you think that is the cap rate would be for that.

[Gary Wojtaszek:]

I don't know I mean there is not too many of those down there I think the guys that are looking at doing it won't underlying service provider to basically kind a provide that operational aspect of these things so I think that's the reason why you haven't seen many of these things go to market. I really don't know I mean it's difficult to do from our perspective because the way we've look at it is we're trying to help our customer solves a multi-site data center architecture challenge that they have. And we think that would be disingenuous for us to sale off particular data center asset to get a return on that. Given that these customers or multiple data centers with us they are not entering into that relationship with us expecting that we would ever sale one of those data centers they're looking just as a long-term outsourcing solution. So kind of opportunistically trying to raise some cash by selling one off asset it's probably not something in the long-term interest of our franchise.

[Unidentified Analyst:]

Great so if you haven't sale anything it will be the whole company. And then just very different question, on the dividend increase I was just curious I don't think I heard - anybody asset, how much of that was required from your anticipated taxable income going up and how much of that is you guys are choosing to bring it up that high to Match what you want the distribution to be.

[Kimberly Sheehy:]

None of its required based on our taxable income at this point.

[Unidentified Analyst:]

Okay, thank you. Appreciate it.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

[Gary Wojtaszek:]

Well thanks everyone we appreciate you spending time with us today and talking about our results. If you have any other quarters definitely don't hesitate to reach out to Roger or Chafer [ph]. Thanks a lot. Have a good day. Bye.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.