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CyrusOne Inc (NASDAQ:CONE)
Q4 2020 Earnings Call
Feb 18, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the CyrusOne Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michael Schafer, VP of Capital Markets and Investor Relations. Please go ahead.

Michael Schafer -- Vice President of Investor Relations

Thank you, Kate. Good morning, everyone, and welcome to CyrusOne's Fourth Quarter 2020 Earnings Call. Today, I am joined by Bruce Duncan, President and CEO; Katherine Motlagh, CFO; and John Hatem, COO. 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 morning contain non-GAAP financial measures. You can find reconciliations of 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, Bruce Duncan.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Thanks, Michael, and welcome to CyrusOne's fourth quarter earnings call. Before I begin my prepared remarks, I want to give a big shout out and thank you to all of my CyrusOne teammates worldwide. These last 11 months, dealing with COVID and now the current major Texas winter storm, have been very difficult and challenging, more than any other time in the company's history. And you all have risen to the challenge. Your dedication and commitment, taking care of our customers and our data center facilities, as well as each other has been extraordinary.

So on behalf of the senior leadership team, I thank each and every one of you from the bottom of my heart. You are very special and talented teammates, and it is an honor and privilege to work with you. With that, let me start with my prepared remarks. I'd like to begin by saying that we are very pleased with our leasing results for the fourth quarter, with broad-based demand across industry verticals, including significant contributions from both our hyperscale and enterprise customers. The leasing was also well diversified across geographies, with importantly, a meaningful improvement from recent quarters in our U.S. market and continued strong performance in Europe. For the full year, we signed $156.8 million in annualized revenue, the highest total in the company's history, up significantly, 56% and from our 2019 bookings. As a result, we began 2021 with a record backlog and good leasing momentum. With that said, I recognize that the guidance for this year is disappointing. The outlook is being impacted by an expected increase in churn as well as an extension of the book-to-bill cycle, particularly for hyperscale leases in Europe, but also to some extent, in the U.S., in large part driven by the pandemic and customers taking more time to deploy. This is reflected in the anticipated commencement timing for leases in our year-end backlog as well as our assumption about the revenue and EBITDA contribution this year from new leases that we expect to sign. Please note that this is a strictly timing issue with an increase in the period between signing and commencement for some of the bigger deployments impacting this year's results. Importantly, the average term of leases signed during 2020 on a colocation square foot weighted average basis was 8.2 years, improving the quality and durability of our rental stream. The team is focused on driving better normalized FFO per share performance, and we have placed a significant emphasis on improving this metric going forward. Beginning with slide four, you can see the financial results for the fourth quarter, which Katherine will discuss shortly. We signed 31 megawatts, totaling $49.3 million in annualized GAAP revenues during the quarter, one of the biggest leasing quarters in the company's history. As a result of the strong leasing, we began 2021 with a backlog of $101 million, which helps to derisk our growth this year and positions us well for growth in 2022 and beyond. Turning to slide five. We completed construction on 194,000 colocation square feet and 48 megawatts in the fourth quarter across markets in both the U.S. and Europe, most of which is tied to signed leases. Our development pipeline at the end of the year is weighted toward Europe, with 50% of the square footage under construction pre-leased. Additionally, we are expanding into Paris, one of the leading markets in Europe with a fully pre-leased data center. We continue to strengthen our balance sheet.

Selling additional equity on a forward basis through our ATM program in the fourth quarter and monetizing our remaining investment in GDS. slide six provides additional detail on our leasing results for the quarter and full year. The MRR per kilowatt signed for leases during the quarter was $131, and the lease term was 9.8 years on a colocation square foot weighted average basis. As I mentioned, we saw good demand from both our hyperscale and enterprise customers. With deals greater than 500 kilowatts, representing 74% of our bookings for the quarter. The enterprise accounted for $19.5 million in annualized revenue signed, including several deals greater than 500 kilowatts. And the leasing total was significantly higher than our average of $10.5 million, through the first three quarters of the year. We were also pleased with results across our U.S. markets. With $32.6 million in annualized revenue signed, which I will talk more about in a minute. As of the end of the year, hyperscale companies and enterprises each represented approximately 50% of our total portfolio rent. For the full year, the MRR per kilowatt signed was $130, and approximately 2/3 of the leasing was with hyperscale customers, up significantly from the prior year when there was a more even hyperscale enterprise split. Moving to slide seven. Fourth quarter industry connection revenue was up 12% compared to the same period a year ago. In December, we launched our Google Cloud Direct Connect offering, adding five new direct on-ramps across our portfolio, offering our enterprise customers additional flexibility to meet their hybrid cloud needs efficiently and cost effectively.

We also continue to make good progress on our commitment to a sustainable future. We recently announced that we will purchase nearly 70 megawatts of renewable energy, generated by the Azure Sky solar project in North Texas. This will provide the equivalent of 100% of the power requirements at our Allen data center and approximately 70% of the power requirements at our Carrollton data center. The agreement reflects our commitment to transition to renewable energy resources in local communities. Turning to slide eight. Demand throughout Europe remained strong as hyperscale companies continue to expand across key markets. In the fourth quarter, we signed $16.8 million in annualized revenue. And our European markets accounted for 47% of our leasing over the full year. As I mentioned earlier, we are excited to expand into Paris. And are doing so with a fully pre-leased development, minimizing the risk that comes with entry into a new market. Construction is under way on the first phase of a data center, supporting a 27-megawatt customer deployment that will ramp in blocks through mid-2026, with the capital spend closely aligned to the timing of revenue recognition. As the chart at the bottom of the slide shows, upon completion of the projects in our development pipeline, our European footprint will be 100 megawatts, representing approximately 20% of our total portfolio.

Slide nine provides an update on the near-term priorities, that we discussed on last quarter's call. The first priority was to improve our leasing share in the United States. The $32.6 million in annualized revenue signed across the U.S. market was more than double the prior four quarter average with contribution from customers, across many industry verticals throughout our markets. With our revised targeted hyperscale stabilized yield range of 8% to 10%, we are able to be more competitive for deals while still generating attractive equity returns. We also have capacity across our key markets to meet demand including shell and land inventory. As I just discussed, Europe remains very strong, and we now have a presence across all of the major European data center markets. As in the U.S., we have sufficient inventory to continue to support our growth, including available shell and land to more than double the size of our footprint. The demand continues to be driven primarily by our U.S.-based hyperscale customers. Although we expect that over time, enterprise demand will contribute to our growth. Our proven track record with the hyperscalers as well as our broad footprint and strong credit profile, put us in a good competitive position across these markets.

Lastly, we are planning to have our virtual Investor Day on June 16, giving you an opportunity to hear from all of the members of the senior management team. We will provide a comprehensive review of key industry trends our business and our strategy, including a framework to help you think about growth in the coming years. It has been a very busy year. And while we have a lot of work ahead of us, the demand trends remain strong, and we are well positioned to compete and help our customers with their IT infrastructure requirements. It is incumbent upon us to execute our plan and create value for our shareholders. Before I turn the call over to Katherine, I want to say how excited I am to have her as a partner. She has a tremendous background and is very smart, energetic, and she will play an important role in our success in the coming year. With that, Katherine will now provide you more color on our financial performance for the quarter and discuss our guidance for the year. Katherine?

Katherine Motlagh -- Executive Vice President And Chief Financial Officer

Thank you, Bruce, and good morning, everyone. I'm thrilled to join CyrusOne in such an exciting time for the data center industry. In my first call as the CFO, I can say with confidence that I'm joining a company with incredible momentum supported by favorable secular trends, a competitive platform with a presence in key markets and a solid financial position. As Bruce indicated, we believe there is a significant opportunity ahead of us. And we are focused on ensuring the business is best positioned for sustainable and profitable growth.

Turning to slide 11. Revenue growth in the fourth quarter of 2020 was driven by a 10% increase in occupied colocation square feet and a 12% interconnection revenue growth, partially offset by the impact of $4.7 million in lease termination fees received in the fourth quarter of 2019. The decrease in NOI margin of approximately four percentage points was driven by several factors. The fourth quarter 2020 margin was negatively impacted by an increase in 0 margin pass-through metered power reimbursements that reached nearly 17% of our total revenue and an increase in cooling costs in our Frankfurt facility related to chiller inefficiencies, which we are addressing. Additionally, the fourth quarter 2019 margin was higher as a result of onetime items. Specifically, the reversal of a property tax accrual as well as the lease termination fees I just mentioned. Normalized FFO was up slightly compared to last year, due primarily to a decrease in interest expense as a result of lower rates, which more than offset the decrease in adjusted EBITDA. Rent churn was 0.9% in the fourth quarter. It's lower than we expected, but relatively in line with the results from each of the prior three quarters. And churn for the full year totaled 3.6%. Moving to slide 12. We have a well-balanced portfolio with revenue contribution spread across our markets, and with notable growth in Europe as a result of recent lease commencements.

We anticipate the percentage of revenue attributable to these markets will continue to increase as leases in our backlog commence and we further scale our business in Europe. As slide 13 shows, our development pipeline consists of 289,000 colocation square feet and 73 megawatts as well as 279,000 square feet of powered shell under construction in Paris and Dublin, which will add more than 40 megawatts of capacity to our footprint. Please note that the powered shell in Paris will support the customer deployment included in our leasing in 2020. As Bruce mentioned, 50% of colocation square footage under development is pre-leased, and we have substantial liquidity to fund the remaining costs. Upon completion of these projects, our portfolio on both a square footage and power basis, will be nearly 20% larger compared to the portfolio at the end of 2020. Turning to slide 14. We continue to strengthen our balance sheet to ensure that we have maximum financial flexibility to support profitable growth and to protect our investment-grade credit ratings.

As of the end of the year, our pro forma leverage adjusted for available forward equity remained low at five times, and we had more than $1.7 billion in available liquidity. As noted by Bruce earlier, we executed additional forward sales in the fourth quarter, and we have approximately $485 million in available forward equity to help fund our development pipeline and manage leverage within our targeted mid- to upper five times range. We also monetized our remaining GDS investment, raising approximately $177 million in net proceeds, of which $67 million was received in January. slide 15 shows the expected commencement timing for leases signed in the fourth quarter and for our backlog as of the end of the year.

Just over half the revenue in the backlog is expected to commence within the first two quarters of the year. Of the nearly $50 million in leases expected to commence in the third quarter and beyond, as we have discussed in prior quarters and as shown in the footnote, approximately $26 million is associated with 22.5 megawatts expected to be deployed in 4.5 megawatt blocks annually from mid-2020 to mid-2026. Of the remaining $24 million, approximately $5 million is expected to commence in the second half of this year, approximately $14 million the following year, and the remaining $5 million in 2023. Before I discuss the guidance for 2021, I'd like to note that we have included two additional line items in the additional information section on Page 17 of our fourth quarter supplemental disclosure document.

These items relate to above and below market rent amortization and deferred taxes. Primarily associated with the acquisition of Zenium. These adjustments are common among our data center REIT peers as well as power REIT, the industry in which I spent the past five years. And the inclusion of these items aligns our supplemental disclosures closer to the financial statements. Now turning to slide 16. The guidance midpoints for lease and other revenues from customer and adjusted EBITDA reflect increases of 7% and 8%, respectively, compared to 2020 results. We expect that full year 2021 churn will be in the range of 4% to 6%. As Bruce mentioned, the anticipated increase in churn compared to last year, particularly in the first half of this year, is having an impact on our outlook.

We estimate that approximately 1/3 of churn will be rate driven. With the remaining 2/3, related to customer footprint consolidation, migrations to other data centers within our portfolio and exits. Also impacting our 2021 outlook is the lengthening of the book-to-bill cycle that Bruce discussed. Please note that the expected increase in 0 margin, metered power reimbursements of approximately 18%, negatively impact the implied adjusted EBITDA margin based on the midpoint of the total revenue and adjusted EBITDA guidance ranges. The more muted growth in normalized FFO per share is driven by the factors that I just mentioned and the impact of funding requirements.

With capital expenditures expected to increase to $975 million in 2021 at the midpoint of our guidance range. In closing, we begin the year in a solid financial position, with a record revenue capacity to meet customer demand across our markets, in Europe and U.S. and a strong balance sheet with significant liquidity to support our profitable growth. We appreciate you participating in our call, and we are now happy to take questions. Given the number of people in the queue, we kindly request that each person, please ask one question so that we can stay on schedule and conclude the call on time at noon, Eastern. Thank you. And Kate, please open the line.

Questions and Answers:

Operator

[Operator Instructions] The first question is from Ari Klein of BMO Capital Markets. Please go ahead.

Aryeh Klein -- BMO Capital Markets -- Analyst

Can you maybe elaborate a little bit on the timing issues between deployments and commencements. Is that broad-based specific to customer or geography?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Sure, Ari. I'll start, and then I'll hand it over to John. I would say we're seeing -- it's taking more time, especially over in Europe, in terms of as a result of the pandemic in terms of getting things done and getting permits and so it's a longer process than we anticipated. But John, do you want to just talk about that?

John Hatem -- Executive Vice President & Chief Operating Officer

Yes. Sure. Thanks, Ari. So yes, Ari, I mean, it's broad-based. It's not it's not customer-specific, right? It's market specific, right, mostly due to the pandemic, right? Like Bruce said, permits, equipment lead times, I mean everything is driving. And on the customer side, just straight up execution on their side for contracts and such.

Aryeh Klein -- BMO Capital Markets -- Analyst

Got it. And then just on the strategic initiatives that you've been highlighting and around improving share and the lower targeted yields. I know it's early, but what are you seeing on the ground post these changes and announcements? And anything in the pipeline you can point to?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Sure. Ari, again, we announced last quarter that we are bringing our targeted stabilized yields down 8% to 10%. We weren't leading in the market. We were median the market. In terms of that, again, we're very pleased with what we've seen in the fourth quarter. We had very good results at $49.3 million. I think what was encouraging there is it's broad-based in terms of where we're getting traction in terms of leasing. So we're encouraged. I would say that there's still a lot of demand out there, and our job as a team is to get our fair share, and we're all over it.

Aryeh Klein -- BMO Capital Markets -- Analyst

Okay. Thank you.

Operator

Your next question is from Richard Choe of JPMorgan. Please go ahead.

Yong Choe -- JPMorgan Chase -- Analyst

I wanted to follow-up a little bit on the churn. Is it mainly in the U.S. or in Europe? And then also, it looks like it's front-end loaded, but you expect it to come down for the second half of the year. A little more color there would be great.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Katherine, do you want to take that?

Katherine Motlagh -- Executive Vice President And Chief Financial Officer

Yes, Bruce. So when you think about the churn, think about the aging of our portfolio. So we have relatively young portfolio in Europe and a little bit more mature portfolio in U.S. So as the renewals come on, that's what's driving the churn. What we are seeing a little bit better-than-expected churn in the second half in the latter part of 2020 is driven mostly by some of our good efforts on customer renewals but also the headwinds for the customers, whether from the timing and delaying some of their decisions from 2020 to 2021, which is why we anticipate some of the churn will pick up in 2021.

Yong Choe -- JPMorgan Chase -- Analyst

Great. Thank you.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

So again, the churn is primarily in the U.S. As Katherine said, our portfolio in Europe is pretty new.

Operator

The next question is from Erik Rasmussen of Stifel. Please go ahead.

Erik Peter Rasmussen -- Stifel, Nicolaus & Company -- Analyst

Yeah. Thanks. Maybe just on hyperscale. Activity really seemed like it picked up, especially in the U.S. for you guys. Just trying to get a sense of how sustainable this activity is and where you're seeing sort of the biggest opportunities as it relates to your sales funnel. And I think maybe within that, comment on sort of the mix between U.S. and Europe. That would be helpful.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

All right, Erik. Let me -- I would say we're very encouraged in terms of what we're seeing right now in terms of demand. I think that the hyperscalers are active. We are seeing broad-based demand, as we've talked about. If you looked at our top five markets for the quarter were Frankfurt, Northern Virginia, San Antonio, Phoenix and Dallas, and we are encouraged by that. But as we said last quarter, when our numbers weren't so good. It's a lumpy business. So I think deals take longer to get done and that sort of thing. So again, we're encouraged. We -- there is good demand out there. But one quarter does not a trend make, as I tell the team, and we've got to keep going and keep putting up some good numbers. And again, there's good activity and I'm confident in the team that we're going to be able to continue to do this. But again, there's a lot of work. But again, the good news is there's a lot of demand, both here and in Europe.

Erik Peter Rasmussen -- Stifel, Nicolaus & Company -- Analyst

Okay. Thank you.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Thank you.

Operator

The next question is from Frank Louthan of Raymond James. Please go ahead

Frank Garrett Louthan -- Raymond James & Associates -- Analyst

I wanted to dig a little bit into the sales process. Can you give us -- be a little bit more specific about the strategies that you're -- specific strategies you're employing to drive sales? And then as a follow-up kind of related to that, is there something that you're doing that's impacting the sales cycle? Or is it more something that's changing on the customer side?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

I would say in terms of -- in CyrusOne, we've got our own sales force, our internal sales force does 90% of our leasing, and it's a great team. And I would say, the secret sauce, if you will, is the relationships we have with our customers throughout the organization and a track record of delivering on what we say. So trying to understand what their needs are. And again, our customers build their own facilities as well. But they do business with us because we can provide solutions to them. So it's the relationships we have with them throughout the organization, not only the sales side, but John and his team design, construction and throughout the organization. So I think that, that's one of our strengths, and it's very important to our success.

John Hatem -- Executive Vice President & Chief Operating Officer

Yes. And Frank, it's John. I mean, we're in front of our customers directly, right, talking about everything on the sales side as well as, obviously, on the infrastructure side. And that's the most exciting thing, right? We're in front of our enterprise customers, we're in front of our hyperscale customers, and really having that relationship is key to success.

Frank Garrett Louthan -- Raymond James & Associates -- Analyst

I mean is that different than what you've done in the past? I mean, the bookings have struggled a little bit for the last couple of years. Just curious if you're doing any -- running any new plays and is any of those changes you're making and how you're approaching the sales process impact -- you having an impact on the sales cycle lengthening? Or is that more customer driven?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

I think the sale -- the length is customer-driven in terms of taking more time. But in terms of us doing different, I would say a couple of things. John's back, which I think has been a great addition. And we've changed out in terms of the leadership in the sales group with Brent Behrman taking that leadership role. So I think that was a very positive impact. And again, we had a great fourth quarter. We got to keep going and showing progress, but we're encouraged and glad we could continue with this momentum.

Frank Garrett Louthan -- Raymond James & Associates -- Analyst

All right. Great. Thank you.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Thank you.

Operator

The next question is from Matthew Niknam of Deutsche Bank. Please go ahead

Matthew Niknam -- Deutsche Bank -- Analyst

It's -- mine is related to sources of funding for the development capex. So beyond new debt and equity, any updates you can give us on how you're thinking about additional or alternative sources of capital to fund expansion, whether it's through portfolio dispositions or potential JVs? And then I have a really quick follow-up. On the recurring capex, I think it's moving up from about $14 million to about $20 million to $40 million this year. If there's any color to provide in terms of what's driving that pickup this year?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

All right. Let me take the first one. I would say that -- well, Katherine, do you want to take it?

Katherine Motlagh -- Executive Vice President And Chief Financial Officer

Yes. Sure. Thanks, Bruce. So Matt, first of all, we are looking at different sources and -- of capital funding and the capital structure. Now as you can see at $1.7 billion liquidity starting this year as well as $485 million available from the forward equity. We're pretty capitalized to maintain and to support our capex for this year, which is a little higher than you've seen in the past. Going forward, we'll be looking at different options and opportunities, and we are really looking forward to share with you our strategies at our Investor Day in June.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Yes. I think that's important. The Investor Day, we're going to go through in terms of recycling and talking through that. And I think from our standpoint, again, the good news is where we are today. We've funded all of our needs, really, through this year with our forward equity and the sale of monetized GDS. But I would anticipate that we will raise some equity this year on a forward basis for next year. But we're also going to discuss on Investor Day sort of a strategy in terms of how we're thinking about recycling capital.

Katherine Motlagh -- Executive Vice President And Chief Financial Officer

Yes. And also coming back to your second question, on the recurring capex. So mostly, if you recall in my prepared remarks, I mentioned our inefficient chillers isolated to Frankfurt -- to our Frankfurt property. And we are addressing it, but we have to incur recurring capex, and it's how would you -- the large part of that replacement of the chillers.

Matthew Niknam -- Deutsche Bank -- Analyst

Got it. Thank you.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Next question.

Operator

The next question is from Simon Flannery of Morgan Stanley. Please go ahead.

Simon William Flannery -- Morgan Stanley -- Analyst

I wonder if you could just talk a little bit more about Paris. How did that all come about? Was that customer driven? Is this something that could become a bigger campus beyond what you've signed up so far? And any commentary around the returns that you're seeing in that market?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

All right. Michael, you want to take that?

Michael Schafer -- Vice President of Investor Relations

Sure. So the Paris was an opportunity with a specific customer. We're excited to be in that market. It really rounds out our presence in the key European markets. And we think just having a broader set of markets to be able to offer to our hyperscale customers, particularly as they expand in Europe, is good and will help us in our positioning relative to the competition. So we're excited to be there. Great opportunity, and it's a long-term lease, which will provide growth for us in the coming years.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

And our challenge is to find more sites like this in Paris because it's very difficult, but we're working on it and -- to continue our growth there. But we're very excited to be in all the major markets in Europe right now with this lease.

Simon William Flannery -- Morgan Stanley -- Analyst

Great. And any comments on the competitive environment in Paris?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

I would say the competitive environment everywhere -- every place is competitive. I would say that, again, with Europe, the good news about Europe is it's less competitive than the United States because there's less supply, less competitors. But again, that's not to say it's not competitive. It's competitive, but -- for instance, in Paris, we're just finding sight. It's very hard to find -- be able to find good sites that you're able to develop. So it's difficult. But that -- again, what I love about Europe, the good news -- the hard thing is -- the bad news is it's hard to develop, and it could cost more than the other thing. The good news is, once you have something, it has more value. So we like that.

Simon William Flannery -- Morgan Stanley -- Analyst

Thank you.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Thank you.

Operator

The next question is from Michael Rollins of Citi. Please go ahead

Michael Ian Rollins -- Citigroup Inc. -- Analyst

Two questions, if I could. First, just curious if you could provide some context on the renewal spreads or just some of same-store metrics just to understand what's happening in terms of revenue in the existing facilities that are up for renewals? And then secondly, just as you're thinking about development yields. You mentioned the focus now for the U.S. is at 8% to 10%. What's the focus of that development yield in Europe? And what's the risk that those hyperscale yields come down from where they are today given the competitive climate?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Well, I would say -- let me take the second one first. I would say that the development yields, I would think that you should be thinking of development yields of -- stabilized yields of 8% to 10%, both in the U.S. and in Europe because I do think there is some compression in places there, too. So I think that 8% to 10%, they'll be at the higher end of that range, maybe a little bit above that, but the stabilized yields are going to be in that ballpark. So I think you need to think about it that way. In terms of the renewal spreads, Katherine, do you want to take that? I would just say in terms of -- we're going to talk more about this at the Investor Day, but do you have any comments, Katherine, you want to talk about?

Katherine Motlagh -- Executive Vice President And Chief Financial Officer

Yes. Mike, what I would say is our average renewal rate on a GAAP basis was slightly down for the quarter. Generally speaking, I would guide you to think about how we look at churn, right? Our churn was a little bit better in the second half of 2020, but we expect more headwinds from the churn. And 1/3 of that comes at a rate reduction. The rest of it is more consolidations and some of the exits and moving between the facilities. But I would think about it in that framework, and we'll give you a little bit more color when we come to June at the Investor Day.

Michael Ian Rollins -- Citigroup Inc. -- Analyst

Thanks very much.

Operator

The next question is from Colby Synesael with Cowen. Please go ahead.

Colby Alexander Synesael -- Cowen and Company -- Analyst

First off, congratulations on your leasing in the quarter. My questions are the following, though, do you lease out Frankfurt IV in the fourth quarter? And if so, is that -- should we be thinking of the 11 megawatts, which you talked about before? Or is it the 17 megawatts that you now have referenced in your development table? And then also, what are your biggest markets in terms of leasing opportunity in 2021 based on the capacity that you have available to sell? And I guess what I'm really getting at is do you think that the capacity or lack of capacity could be a constraint or restriction to your leasing opportunity in 2021 versus what we just saw in 2020?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

All right. Well, let me take the second one and then maybe, Michael, you can take the first one. I would say that we've got good capacity. I mean, in terms of -- if you look at what we have capacity and let's just take the U.S. market. Good capacity in most of the U.S. markets, Northern Virginia, Phoenix, Dallas, I mean, so we have capacity. And I think that's great. In Europe, we've got capacity. And in London and a little bit in Frankfurt and Amsterdam and so we've got -- things are -- I feel pretty good that we're not going to be caught without capacity. And we're working hard, as we talked about last quarter. I think what I said in our new acquisition in London, and we're working on some other acquisitions in some of the other European markets that we'll hopefully get done in the next quarter or 2. But -- so we're going to make sure we have capacity. We're very excited about our position in Europe, as I mentioned, will be 20% of our portfolio, and we have enough capacity in terms of what we have with land and powered shells, that we're able to double that footprint in fairly short order. So I think that's pretty exciting because it's a great market to be in. And again, in the U.S. market, we have capacity and we get it even in a county in Santa Clara that we're about ready to get our final permitting, we hope, not pun but by midyear. So we're excited about that project as well.

Michael Schafer -- Vice President of Investor Relations

Yes. Colby, on your question on Frankfurt IV. The 17 megawatts consistent with how we present our properties is on a nonredundant basis. So the 11 is what's leasable, and there's a substantial portion of that that's leased up. And as Bruce mentioned, in terms of capacity, we're obviously focused on it to ensure that we have the ability to meet our customers' demand as they continue to expand.

Colby Alexander Synesael -- Cowen and Company -- Analyst

So again, just to people -- you guys don't see capacity being a hindrance to leasing in 2021?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Well, let me just say this, Colby, I hope we do. I hope we get so many leases it is a problem. But right now, we don't think it's going to be a problem, no.

Colby Alexander Synesael -- Cowen and Company -- Analyst

Okay. Thank you.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Thanks.

Operator

The next question is from Jon Atkin of RBC. Please go ahead.

Jonathan Atkin -- RBC Capital Markets -- Analyst

So I appreciate the color about kind of the top five markets where you saw leasing momentum Bruce, you also talked about kind of delayed customer decision. So I'm wondering to what extent you saw slippage from -- on decisions from 4Q into 1Q? And what that might bode in terms of early year momentum on the leasing front?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Well, again, I would say that the pressure is on us, when -- just thinking about what the -- when I think about what the upside could be in our guidance, it's going to be -- we get some leasing done early and get people in there early because it takes so long to talk about the timetable to get people in. So we've got it beyond that and get some leases done here in the next few months to have any meaningful impact on the balance of the year in terms of having some upside in the numbers. So we're all over it, but it's got to be for products that we already have on the shelf that we can do that. But again, there is demand. And again, there is demand in the U.S. markets and again, when we've got available capacity. We just got to get the -- get some of the leases done, and we'll see if we get it done, but it's competitive. So it's not -- but there's work to be done, but we're -- the team is working hard on it. So we'll see.

Jonathan Atkin -- RBC Capital Markets -- Analyst

Slide 15, I was curious, the backlog commencements. There's a lot -- the $49.8 million, how much of that is spread into 2022 and even into 2023? Can you give us a little bit of a color so that we can kind of think about our medium-term forecast a little bit more accurately?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Sure. Katherine or Michael, you want to take that?

Katherine Motlagh -- Executive Vice President And Chief Financial Officer

Yes, I'll take that. So John, first of all, but I think most of this is toward '22 and '23, if you think about it. I mean if you look at the beginning of the year, we're about $25 million per quarter, so a little bit more longer weighted. And also remember that it includes $26 million of that 22.5 megawatts. That's expected to be deployed all the way to mid-2026.

Jonathan Atkin -- RBC Capital Markets -- Analyst

Thank you.

Operator

The next question is from Eric Luebchow of Wells Fargo. Please go ahead.

Eric Thomas Luebchow -- Wells Fargo Securities -- Analyst

I'm curious, you had a pretty good enterprise leasing quarter. So maybe you could talk about, was that driven by a single larger customer deal? Or do you see any type of momentum in the business? And should we think about -- as you look at your enterprise funnel into 2021, is there an opportunity to kind of outperform the kind of $10 million to $12 million that you've done historically. So how should we think about that customer segment as we enter 2021?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Eric, I would say, again, we were very pleased with the big number for enterprise in the quarter. And it wasn't just one customer, it's a number of customers. So it was, again, a number of customers that took greater than 500 megawatts. So it's very encouraging. So we like that a lot. That being said, again, it was such a big quarter relative to our usual $9 million to $12 million a quarter. I would not factor that in that we think that, that's going to be the run rate going forward. I think you're going to go back to more of the regular amount. But it was a very good quarter. John, you might want to talk about -- John was front and center in a bunch of these customers on it.

John Hatem -- Executive Vice President & Chief Operating Officer

Yes, Eric. Yes. So I mean, we're seeing great, great demand on the enterprise side. And we're really seeing, like what we're seeing is this enterprise at scale, right, where we're seeing greater than 500 kW deals coming from enterprise customers. And our portfolio is obviously well positioned to accept those. And our operating prowess in the space helps us close those deals.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

It was a great quarter for enterprise. Going forward, I would not assume that that's going to be the new run rate. I'd bring that back.

Eric Thomas Luebchow -- Wells Fargo Securities -- Analyst

Yes. Got it. Thanks, Bruce.

Operator

The next question is from Nick Del Deo of MoffettNathanson. Please go ahead.

Nicholas Ralph Del Deo -- MoffettNathanson -- Analyst

Bruce, you noted that you want to bring a greater focus to FFO per share growth rather than, call it, aggregate growth. Are there specific steps that you've taken to further that goal? Or are those efforts still kind of in the planning phase?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

No, no, we're having some bunch of things. And again, that's going to be one of the focuses on investors to walk through some of the things we're doing to try and change the -- the thinking and how we're looking at things. And also that we're going to talk more about recycling capital as well. So again, we think it's an important focus. This is a great company. It's done some great things. But we are changing the focus from just revenue growth to try and get down to what I think shareholders care about, which is FFO per share and AFFO per share growth. So that's a focus, and we're going to walk through that in more detail in June.

Operator

The next question is from Michael Funk of Bank of America. Please go ahead.

Michael J. Funk -- BofA Securities -- Analyst

Yes. Bruce, Katherine, Michael, hope you're all doing well on a personal basis. But operationally, wanted to ask about the potential impact from the cold and the power outages in Texas? Do you see operational impact or financial impact from that?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Sure. I think it's early for the financial impact, but let me -- Mike will talk a little bit about the power costs? And then John, can give you a little flavor about what's going on because he's been 24/7 as our Texas teams have been in all over. So Michael?

Michael Schafer -- Vice President of Investor Relations

Yes. Sure. So as it relates to exposure to rising rates, we have a significant portion of our energy requirements in Dallas and Houston that are hedged at low rates. And then Austin and San Antonio are regulated markets. Additionally, a substantial percentage of our leases are meter power. So the power is a pass through, so we're not bearing the risk on that. So we're in good shape from that perspective. John, you can talk more about the operational impact.

John Hatem -- Executive Vice President & Chief Operating Officer

Yes, Michael. I mean, operationally, and Bruce mentioned it in his earlier remarks, but what the teams have done on the ground here has been phenomenal, obviously, unprecedented event going on here in Texas. Operationally, our sites have been stable and electrically, we've maintained 100% uptime, and we've had some minor cooling issues that we've been dealing with. But like I said, this has been an all-out effort by the teams to keep our customers' data centers up and running, keep our facilities up and running. And no major impacts, and we're coming out of this, hopefully, in the next 24 hours. And the freezing temperatures will subside, and we'll get back to business as usual.

Michael J. Funk -- BofA Securities -- Analyst

Yes. I could -- if I could, one more on churn, please. So you're guiding for churn of 4% to 6% in 2021. You gave us some color around the drivers there. Thinking about the portfolio, though, is 4% to 6% the right rate going forward when you think about this customer usage, driving maybe more consolidation in the future, the potential for renewal rates to be lower. Is that the right range longer term? Or there are reasons to believe that could be lower?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Kat, do you want to take that?

Katherine Motlagh -- Executive Vice President And Chief Financial Officer

Yes, Bruce. Let me take that. So if you think about it, our historical range we've communicated in the past was 5% to 7%, and it's been running closer to 5% and under. Now going forward, as portfolio renewals are coming on. And you do feel that there is a consolidation happening, especially in the enterprise segment. We believe that 4% to 6% is probably the right range, somewhere in the midpoint of 5%, as historically we've seen is probably at this point is what we are thinking about. And the 1/3 of it is related to the rate really, and then the rest is consolidation. So think about it that way.

Michael J. Funk -- BofA Securities -- Analyst

Great. Thank you, Katherine.

Katherine Motlagh -- Executive Vice President And Chief Financial Officer

You're welcome.

Operator

The next question is from Sami Badri of Credit Suisse. Please go ahead.

Ahmed Sami Badri -- Credit Suisse -- Analyst

The first question is on your interconnection growth rate at quarter in 4Q '20, there was a deceleration from the prior quarter. You guys came in at 12% year-on-year, 4Q '20 versus slightly above that at 3Q '20. Can you just maybe walk us a little bit through what's going on the cross-connect activity? And then maybe what 2021 looks like, just given some of the delays we've been discussing and the ramp in construction and leasing. Can we just get kind of a trajectory or an idea what that's going to look like?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Michael, do you want to take that?

Michael Schafer -- Vice President of Investor Relations

Yes, Sami. I mean the growth drivers remain the same on that front. Number one, it is the development of ecosystems within our data centers. So as you have more customer types, they have an increased desire to connect to one another, so that's Number one. And Number two, as we've talked about before, is our SDN partnerships, particularly with Megaport. Its customers are really pleased with the opportunity to connect in to various cloud providers through the Megaport platform. And so we benefit from the physical cross-connect there. So those continue to be the drivers, and I would anticipate into the future as well, those drivers will be in place. And then as we talked about, we have the we have the offering with Google in the five locations with direct connect through that platform.

Ahmed Sami Badri -- Credit Suisse -- Analyst

Got it. Got it. And then I want to just follow-up on the Texas question that was asked earlier regarding effect of what's going on with the power rate. Is there going to be any kind of effect maybe on 1Q or 2Q power rate, assuming this drags on for a little bit longer? But mainly an impact on EBITDA margin, if it's possible -- if that plays out worse than you were expecting?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Mike, you want to take that?

Michael Schafer -- Vice President of Investor Relations

Yes. Yes. I mean, I'd say it's too early to tell. But again, a significant portion of our risk is taken care of, given that we have hedges in place in Dallas and Houston, and given that a significant proportion of our contracts are pass-through.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

So the answer there is we don't know. It's too early. We don't think it's going to be a big issue. But again, we can't say anything because it's too early to figure out, and we got to see if the heat dance that we're all doing, it works and it warms up and we get back to normal here.

Ahmed Sami Badri -- Credit Suisse -- Analyst

Got it. Got it. Thank you.

Operator

The next question is from Tim Long of Barclays. Please go ahead.

Timothy Patrick Long -- Barclays Bank -- Analyst

Just wanted to follow back up on enterprise, 2-parter here. First, can you talk a little bit about kind of what you saw in Q4 and kind of current trends with existing customers versus new logos? How is that mix looking and trending? And then second, when you start to think about ramping European enterprise, what's that going to take? What kind of time line would that be? What kind of costs would be associated with trying to get that business going more meaningfully to catch up with hyperscale?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Let me take the second, and then I'll give Michael the first. In terms of European and ramping up to the enterprise. Again, we love -- what we love right now our balance is 50-50 in terms of revenues between enterprise and hyperscale. In Europe, though we're almost all hyperscale, and that's because that's where the growth has been. I mean our -- the hyperscale customers, our U.S. hyperscale customers are very focused there, and it's been a great opportunity for them, and we're trying to help them do that. As I said in my prepared remarks, we hope to build up enterprise. But again, I think that'll take a little bit longer. Right now, it's just given the demand there is by the hyperscalers. We want to -- if we could have a balanced -- more balanced business, we'd like to do that. But right now, the demand is so much greater by the hyperscalers. Michael, do you want to take the first one, talking about...

Michael Schafer -- Vice President of Investor Relations

Yes. Yes. So we're obviously, Tim, focused on bringing in new customers because, as we've talked about, for years now, just getting them in the door even it's with a small deal initially, provides an opportunity for future growth as they grow within their existing data center and then expand into other data centers. So we anticipate that it will most likely be a small percentage of MRR signed any one quarter. But once those customers are in, it represents a pretty significant opportunity. So I think it was 6% of bookings this quarter were from new customers. It's just been relatively consistent over the past few quarters.

Timothy Patrick Long -- Barclays Bank -- Analyst

Thank you.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Sure. Thank you.

Operator

The next question is from David Guarino of Green Street Advisors. Please go ahead.

David Anthony Guarino -- Green Street Advisors -- Analyst

A sizable portion of the industry's new leasing activity last year came from two hyperscale companies. Can you comment on any conversations you're having with those customers or other hyperscale customers just to gauge their data center needs in '21? And then also, do you think we're going to see a return of that word, lumpy, into the data center forecast this year?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

I think lumpy is going to be part of our speech going forward in terms of -- I think you have to look at it in terms of -- on a rolling four quarters of that. So I don't think -- as, again, these deals take time. They're long, they're larger. So I think the lumpy, as much as it'd be nice to get rid of lumpy, I think lumpy is a word we're going to keep hearing. But in terms of the demand, and I can't comment on your comment about the data center or two cloud companies that are clouding up the space. But I can comment that in terms of what we see out there is great demand. I mean, it's by all the hyperscalers, most hyperscalers, by everyone. I mean, there's good demand out there. Again, well, everyone keeps talking about, well, there is great demand in 2018 and 2019 was up. 2020 was great, will '21 be bad? We're not counting on that -- we're counting on '21 to be a good -- to be a very good year in terms of getting leasing done. But it's up to the team and all of us to get it done. And -- but we do think there's -- right now, we're encouraged by what we're seeing. But again, the proof is in the pudding in terms of what we signed because, again, as we talked, these deals take time. It's long and whatever. So we'll report back every quarter in how we're doing.

David Anthony Guarino -- Green Street Advisors -- Analyst

Great. Thanks for that.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Thank you.

Operator

The next question is from Tayo Okusanya from Mizuho. Please go ahead.

Omotayo Tejamude Okusanya -- Mizuho Securities -- Analyst

Yes. So my question is around -- you had discussed, last quarter, your desire to pick up market share after the company has been losing market share in the U.S. Could you talk a little bit about, again, if you kind of feel you've done everything you need to do from an operational perspective to start to pick up market share? Or if there are still things that do need to be done?

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

All right. Again, when we said it, we wanted to pick up market share, we're very encouraged by the fourth quarter. Again, the numbers we put on board over $30 million of the $49.3 million was in the U.S., and it was across a number of markets. So again, we feel very good about that. We feel about bringing our yield, targeted stabilized yield requirement of 8% to 10% helped us meet the market. More importantly, in terms of having a new head of sales, I think, has been helpful. I think reenergized the sales team. And I think John coming back in terms of -- to help us in terms of -- with our customers, in terms of go through their needs and how we can help them in terms of deliver the product they want in a timely manner and the quality they want has been very helpful, so John and his team. So I think we've got -- we have things in place. And again, it's up to us as a team to deliver. But I'm encouraged by what we saw in the fourth quarter. As I said earlier, one quarter is not a trend, and we got to keep it going.

Omotayo Tejamude Okusanya -- Mizuho Securities -- Analyst

Got that. Thank you.

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Thank you.

Operator

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

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

All right. Well, again, thank you very much for your time and your interest in CyrusOne. We very much appreciate it. If you have any questions, please follow-up with Katherine, Michael or myself. We look forward to it and continuing the dialogue and continuing to report back to you on our progress. So thanks again. We appreciate it.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Michael Schafer -- Vice President of Investor Relations

Bruce W. Duncan -- President, Chief Executive Officer, and member of the Board of Directors

Katherine Motlagh -- Executive Vice President And Chief Financial Officer

John Hatem -- Executive Vice President & Chief Operating Officer

Aryeh Klein -- BMO Capital Markets -- Analyst

Yong Choe -- JPMorgan Chase -- Analyst

Erik Peter Rasmussen -- Stifel, Nicolaus & Company -- Analyst

Frank Garrett Louthan -- Raymond James & Associates -- Analyst

Matthew Niknam -- Deutsche Bank -- Analyst

Simon William Flannery -- Morgan Stanley -- Analyst

Michael Ian Rollins -- Citigroup Inc. -- Analyst

Colby Alexander Synesael -- Cowen and Company -- Analyst

Jonathan Atkin -- RBC Capital Markets -- Analyst

Eric Thomas Luebchow -- Wells Fargo Securities -- Analyst

Nicholas Ralph Del Deo -- MoffettNathanson -- Analyst

Michael J. Funk -- BofA Securities -- Analyst

Ahmed Sami Badri -- Credit Suisse -- Analyst

Timothy Patrick Long -- Barclays Bank -- Analyst

David Anthony Guarino -- Green Street Advisors -- Analyst

Omotayo Tejamude Okusanya -- Mizuho Securities -- Analyst

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