CyrusOne Continues Expansion, Eyes New Markets

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An overhead view of the first 36,000 square foot data hall at the new CyrusOne data center in Chandler, Arizona. The sloped ceiling supports the building's water collection and retention system. (Photo: Colleen Miller)

It's been a whirlwind 2013 thus far for CyrusOne. The data center service provider has completed its IPO, opened two large data centers, upgraded power at another, and reported record sales and leasing in its first earnings report as public company. The company, which was spun off from parent Cincinnati Bell, is looking at new markets and could expand through acquisitions, executives say.

CyrusOne leased 41,000 square feet of data center space in the fourth quarter of 2012, with more than half of that activity focused in San Antonio and Houston, the company reported. New customers including seven Fortune 1000 companies, bringing its total to 115 members of the Fortune 1000. CyrusOne now has 518 customers, adding 31 new customers during to 2012.

"In spite of the fiscal cliff concerns, our customers continue to purchase from us to the point where we had record sales in the quarter," said Gary Wojtaszek, President and CEO of CyrusOne. "At the end of the quarter, our San Antonio facility which we just commissioned in July was 60 percent sold out. Our London facility sold out and basically everything in Houston sold out plus we sold some additional space across the rest of our portfolio."

Building in Multiple Markets

Those deals boosted data center utilization to 78 percent at the end of 2012. In recent weeks, CyrusOne has been adding capacity, commissioning the first facility on its new Phoenix data center campus, completing an expansion phase on its West Houston campus and upgrading the power infrastructure in its facility in Lewisville, Texas. The Lewisville site, in the Dallas market, now has 25 MVA of redundant utility capacity from Texas New Mexico Power .

"This upgraded infrastructure is designed to support our customers’ growth, particularly those within the rapidly expanding financial and energy markets," said John Hatem, vice president of data center design and construction at CyrusOne. "With nearly three times the amount of total available power, this upgrade will help us to better serve our customers with higher density and availability in both the short and long term."

In Phoenix, CyrusOne commissioned 36,000 square feet of data center space, the first phase in the company's vision for a 1 million square foot campus. The construction of the first phase was completed in a little more than seven months (see A Data Center Blooms in the Desert for details). Construction on the new Houston West facility was also completed in seven months, the company said last week.

"We are commissioning our sites at record-setting speeds compared to the two or three year timeframes it typically takes an enterprise company to design and build their own facility,” said Kevin Timmons, chief technology officer at CyrusOne. “Our speed to market and quick deployment times, are some of the key reasons that our Fortune 1000 customers mention when choosing to do business with us. The efficiency of our supply chain and engineering capabilities, allow our customers to easily grow with us.”

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The CyrusOne West Houston data center campus (Photo: CyrusOne)

Focus on Interconnection Opportunity

CyrusOne went public in January in an IPO on the NASDAQ stock market. With its colocation and wholesale data center business experiencing solid growth, the next phase in the company's strategy is interconnections.

"We see the connectivity portion of our business as a key instrumental product offering that will enable us to change the economics associated with just an individual asset to basically really develop a platform," said Wojtaszek. "I think there’s a couple of our competitors in the market that have just done a phenomenal job in terms of driving tremendous shareholder value. We think that there is opportunities for replicating some of the success out there. It’s pretty exciting opportunity for us."

CyrusOne is in transition from a provider with infrastructure focused in two states - Ohio and Texas - into a national provider. That will mean expansion into ket data center markets where the company currently has no presence.

East Coast, California as Expansion Markets

"If you look at our U.S. platform and you drew latency circles around our existing facilities, you would come up with some soft spots in our current portfolio, particularly on the East Coast, Pacific Northwest and Northern California area, where we don’t have facilities today," said Wojtaszek, who said data centers are needed in these regions to address customer latency requirements. "So, geographically, that’s where we would be looking to expand in the U.S. in terms of new markets. But the predominance of our additional capital investment this year will be in the existing markets that we currently are at as we look to expand with the demand driven by our customers."

While CyrusOne has tuned its supply chain and construction techniques to shorten the time needed to deploy data center space, it may also consider acquiring existing facilities or providers to speed its expansion.

"Our base strategy does not include any M&A," Wojtaszek said in a recent conference call with securities analysts. "However, I think the M&A opportunity is going to be a real one. We are going to look at this very selectively. We are looking at opportunities that can potentially give us geographic expansion in the markets that we are currently not (located) and where we need to provide a product to provide for the latency requirements of the applications that our customers are requiring. The other thing that we would consider as part of that is access to the customers that we are going after (in the Fortune 1000).

"I do think that this industry is going to become more and more bifurcated, between those companies that have access to a capital and those companies that are platform-based," he added. "I believe if you’re not part of a platform in this industry, you will slowly find yourself the odd man out. I think over time we are going to be able to use our strong balance sheet. I think CyrusOne is going to be pretty attractive to a lot of potential partners as we build out our platform. So we are going to continue to look at different opportunities there and see if we can make something make sense for our shareholders."