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CyrusOne Inc (NASDAQ:CONE)
Q1 2021 Earnings Call
Apr 29, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the CyrusOne First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Now I'd like to turn the call over to Michael Schafer, VP of Capital Markets and Investor Relations. Please go ahead.

Michael Schafer -- Vice President of Capital Markets & Investor Relations

Thank you, Nick. Good morning, everyone, and welcome to CyrusOne's first quarter 2021 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 first quarter earnings release, along with the first 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 our 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

Thank you, Michael, and welcome to CyrusOne's first quarter earnings call. I want to begin by acknowledging and thanking our team for their tremendous effort during the winter storm that impacted Texas in late February, keeping our data centers operational and taking care of our customers. While it was a very difficult week for many throughout the state, the expertise, dedication and hard work of our people helped us manage through these unprecedented circumstances. Now turning to the quarter, beginning with slide four. Despite the negative impact of higher electricity rates in Texas due to the storm, we had good financial results, which Katherine will discuss in more detail shortly. We also had a good leasing quarter, signing approximately 28 megawatts, totaling $35.4 million in annualized GAAP revenue, primarily driven by bookings from hyperscale customers in our US markets. We ended the quarter with a record backlog of approximately $113 million, positioning us well for continued growth this year and beyond. Moving to slide five. We completed construction on developments in the New York Metro area and Frankfurt, totaling approximately 78,000 colocation square feet and 14 megawatts.

Our development pipeline as of the end of the quarter consisted of projects across the US and Europe, totaling approximately 380,000 colocation square feet and 100 megawatts with 69% of the square footage under development pre-leased. We are also excited to announce the execution of an agreement to acquire a 12-acre development site in Frankfurt to support growth in one of our leading markets. We continue to maintain a strong balance sheet with low leverage and significant liquidity to fund our growth, including $385 million in available forward equity. slide six provides detail on our leasing results for the quarter, as well as the revenue contribution across our portfolio by industry verticals as of the end of March. Our hyperscale customers accounted for 79% of the annualized GAAP revenue signed during the quarter, with the lower average pricing of $103 per kilowatt and with a higher average lease term of 9.7 years, reflecting the mix heavily weighted toward this segment. Over the trailing 12-month period, our bookings have totaled 15% of our base revenue. This indicates that we are still generating strong top line growth, net of the impact of churn, despite having a much larger business than we did a few years ago. As of the end of the quarter, 51% of our total revenue was from hyperscale customers and 49% was from enterprise customers.

Turning to slide seven. Our interconnection revenue was up 10% in the first quarter. In the bottom left-hand corner of the slide, we've highlighted some of our key portfolio metrics, including the NOI contribution of 92% from owned facilities. In addition, we have a relatively young portfolio, a high-quality customer base with nearly 80% of revenue coming from the Fortune 1000 and long-term leases. As the right-hand side of the slide shows, we continue to make good progress on ESG initiatives, which as we have discussed before is an area of focus for all of our stakeholders. We recently announced that our Carrollton location, in the Dallas area, will be our second net positive water data center, following the announcement of our Phoenix location as a net positive water data center last year. Water efficiency projects resulted in a two-thirds decrease in water consumption at our Carrollton facility in 2020 and we continue to take steps toward the further conservation of one of the most important natural resources. Moving to slide eight. I want to highlight our US leasing results. Since discussing this is an area of emphasis on our third quarter 2020 call, given our loss of market share over the last few years. During the last two quarters, we have averaged approximately 24 megawatts and just over $33 million in annualized GAAP revenue signed, up over 100% compared to the prior fourth quarter average. Nearly 60% of the leasing during this period was with hyperscale customers, including 78% in the first quarter. Not surprisingly, these customers are deploying in our key hyperscale markets, notably Northern Virginia and Phoenix.

Importantly, we have capacity across our locations to accommodate larger deployments and our ability to deliver technical solutions to meet specific customer requirements has contributed to the strong recent performance. While European leasing in the first quarter was softer than it has been in recent quarters, we continue to have productive discussions with our hyperscale customers about potential opportunities in these locations. One of the benefits of having a broad and diverse portfolio with a presence across the key data center markets in both the US and Europe is that we are less dependent on any particular market for leasing to drive growth. Overall, we continue to be encouraged by the demand we are seeing, particularly from hyperscale customers. And it is our job as a team to convert this demand into signed leases. Turning to slide nine. As I mentioned earlier, we are excited about the execution of an agreement to acquire a 12-acre development site in Frankfurt. This will give us 63 megawatts of additional power capacity to continue to grow in one of the strongest data center markets in Europe. More broadly, we have shell and land inventory across key locations in the US and Europe to respond to demand as it materializes. This represents more than 1,000 megawatts of total potential incremental power capacity and would more than double the size of our footprint. Our development capabilities allow us to bring online significant capacity quickly throughout our portfolio, including the scale builds that are required by hyperscalers.

As the slide shows, we have delivered 529,000 colocation square feet and 95 megawatts over the past 12 months. Our strong balance sheet, with substantial available liquidity, gives us significant capacity to fund developments at a relatively low-cost of capital. In closing, the demand environment remains strong and we are well positioned to capitalize on opportunities across our markets. Before I turn the call over to Katherine, I want to remind you, that we will be hosting our virtual Investor Day on June 16. I and the other members of the senior management team look forward to reviewing industry trends, our business and our strategy and we hope you will be able to attend, so please RSVP and get that on your calendar. With that, Katherine will now provide more color on our financial performance for the quarter and an update on our guidance for the year. Katherine?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Thank you, Bruce and good morning everyone. Continuing with slide 11, please note that our first quarter results were significantly impacted by winter storm Uri. The electricity rate impact of the storm on metered power reimbursement at our Dallas and Houston data centers was $27.8 million. This was the main driver behind the 21% increase in revenue year-over-year. As you know, this is a zero margin pass-through cost that increases our revenue, but dilutes our margin. Adjusted to exclude the storm impact on metered power from both revenue and property operating expenses, our NOI and adjusted EBITDA margins would have been 60.1% and 51.8% respectively. Additionally, the electricity rates during the storm negatively impacted adjusted EBITDA by approximately $3.7 million. This was primarily driven by the impact of electricity costs associated with full-service leases at our Texas data centers. For these leases, power is not billed as a pass-through. This adjusted EBITDA impact was largely offset by the receipt of lease termination fees and the reversal of a property tax accrual, which combined totaled approximately $3 million. As a result, after adjusting for one-time items including the negative impact of the storm and the positive impact of the lease termination fees and the reversal of the property tax accrual, adjusted EBITDA would have been slightly higher than reported adjusted EBITDA. As we had indicated in our last quarter's call, we expect the churn to be more heavily weighted toward the first half of this year. In the first quarter, churn was slightly elevated compared to recent quarters at 1.8% with the majority driven by customer exits and footprint consolidation.

We continue to anticipate that full year churn will be in the range of 4% to 6% with second quarter churn higher than churn in each of the last two quarters of the year. Moving to slide 12. The revenue contribution from our European market continues to increase as leases in our backlog commenced. As of the end of the quarter, Europe represented approximately 13% of our portfolio, up from 11% as of the end of the fourth quarter. We expect that this trend will continue given the significant proportion of leases across these markets in our backlog and the growth opportunity in Europe relative to the current size of our business there. During the quarter, we exited Stamford, Omega facility, which was a very small lease facility consisting of 19,000 square feet of office space and no colocation space with annualized rents totaling approximately $300,000. We elected not to renew this lease at the expiration and most of other customers at this facility were migrated to our Norwalk location. Total colocation square foot capacity across our portfolio grew by approximately 12.5%, primarily driven by demand in Europe as well as key U.S. markets such as Phoenix and San Antonio. slide 13, provides a snapshot of our development pipeline as of the end of the quarter with projects across nine markets in the United States and Europe. We have approximately 380,000 colocation square feet and 100 megawatts under development with a relatively even split domestically and internationally.

The colocation square footage under development is 69% pre-leased. It's up from 50% at the end of the fourth quarter, meaningfully derisking our capital investment. Upon completion of these projects, our portfolio will consist of nearly 1,000 megawatts of power with our European markets representing nearly 20% of that total. Since last quarter, we have begun development of 102,000 square feet in Northern Virginia and 62,000 square feet in Phoenix in response to strong demand in those markets. Turning to slide 14. Our credit profile remains strong with net debt to adjusted EBITDA of 5.6 times, excluding the impact of $385 million in available forward equity. At the end of the first quarter, we drew down approximately $95 million in equity, issuing approximately 1.4 million shares. We expect to draw down the remaining available forward equity in the coming quarters to fund our development, meet our settlement obligation and manage our leverage in our targeted mid to upper five times range. slide 15 shows the expected commencement timing for leases signed during the quarter, as well as our overall backlog, which consists of a record $113.3 million in annualized GAAP revenue. We expect that nearly $64 million will commence over the next two quarters. Of the remaining amount, nearly $50 million is expected to commence in the fourth quarter and beyond.

As noted at the bottom of this slide, approximately $26 million relates to the lease that we have discussed in prior quarters where the customer is deploying 4.5 megawatt blocks annually through mid-2026. Of the remaining $24 million, approximately $5 million is expected to commence at the end of this year with $19 million anticipated to commence in 2022 weighted toward the second half of that year. Moving to slide 16, we are increasing the lower and upper ends of the guidance ranges for total revenue and metered power reimbursements by $30 million to account for the impact of the storm in the first quarter. And we are reaffirming our other guidance ranges. As you think about modeling the second quarter, please note, that you will have the full run rate impact of the elevated churn that occurred in the first quarter, plus slightly elevated second quarter churn compared to each of the last two quarters of the year. Additionally, the lease commencements in the second quarter are expected to be more weighted toward the end of the quarter. And lastly, you will have the full run-rate impact of the additional shares that we issued at the end of the first quarter. In closing, the team is focused on consistent and disciplined execution across all areas of our business, to ensure that we are well positioned to generate profitable growth.

The secular demand trends that have benefited us in the industry are expected to continue in the coming years, providing a strong foundation for us to create significant value for our shareholders. We appreciate you participating in our call. And we're now happy to take questions. Given the number of people in the queue, we kindly request, that each person asks one question, so that we can stay on schedule and conclude the call on time at noon Eastern. Thank you. And Nick, please open the lines.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] First question is from Jon Atkin of RBC. Please go ahead.

Jon Atkin -- RBC -- Analyst

Thanks very much. So I was just interested in the Analyst Day. And Bruce or Katherine if there's anything more you might be able to give us in the way of preview topics that you're going to explore, whether it's strategic financial or operational in nature. And then, had a question about Europe, you mentioned productive discussions. I wondered if there's any headway that you could characterize kind of the late-stage pipeline for anything hyperscale related as well as the Frankfurt land parcel. What part of Frankfurt is that if you are able to share that? Thanks very much.

Bruce W. Duncan -- President, Chief Executive Officer

Great. Thanks Jon. In terms of Investor Day, again, we think it will be a great opportunity to spend some time. And for you to spend time not only with me and Katherine, but with the rest of the senior management team, to hear about sort of our thinking in terms of the business, thinking about, how we're thinking about recycling, thinking about in terms of what we think sort of metrics that we're going to be looking at and things changes. And how we think about goalpost that is what we think is achievable. That's not going to be guidance, but over the next two, three, four years, what the goal is. And so we think it will be a good discussion. And we look forward to it. So again, we hope everybody will join us for that. In terms of Europe, again, Europe was very light in the quarter in terms of signed bookings. But we're very encouraged, as I said in my remarks about, business over there. We are -- there's good demand. We're -- we've got a great team over there. And we're working hard on things. So, nothing to report, but we're encouraged by business.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

And I would add, Jon, good morning. First of all, in Europe, most of our demand is hyperscalers. And as you know, the hyperscalers don't really work on a quarter-to-quarter business. So our discussions with the customers are very active. And it's just a lumpy business.

Bruce W. Duncan -- President, Chief Executive Officer

And as to location, when we get to Investor Day, hopefully, we will close or tell you where the locution is. But right now since it's not closed, we would rather not talk about it.

Jon Atkin -- RBC -- Analyst

And then -- thank you for that. And then just on the follow-up then. So sounds like multiyear outlook would that, be for revenues, EBITDA, FFO per share? Anything that, you're kind of thinking around the type of outlook that you would provide?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yeah. So we'll consider the framework of key metrics. And that would help you understand, how we run the business, and how we see the growth and especially profitable growth, top and bottom line Jon.

Bruce W. Duncan -- President, Chief Executive Officer

But again, it's not guidance. But just sort of the goalpost, in terms of what we think is achievable.

Jon Atkin -- RBC -- Analyst

Understood. Thank you.

Bruce W. Duncan -- President, Chief Executive Officer

Thank you.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from Aryeh Klein of BMO Capital Markets. Please go ahead.

Aryeh Klein -- BMO Capital Markets -- Analyst

Thank you. I was wondering if you can give some color on the markets, where hyperscale leasing was done in the U.S.? And then, you talk about some of the go-to-market changes a few quarters ago. How are you seeing that play out in the pipeline?

Bruce W. Duncan -- President, Chief Executive Officer

Sure. Aryeh, I would say, again, if you look at the quarter, in terms of the hyperscale demand, in terms of signing the leases Phoenix and Northern Virginia are basically neck-to-neck. And Phoenix just edged them out a little bit. And then, Dallas is a distant third. But again, we're seeing great demand there. In terms of -- as we look forward, I would tell you that we have a great team that's focused on this and we've got great product and we've got availability. And we're encouraged by what we're seeing in terms of demand. And again, it's up to us to execute and bring home the signed leases, but we're encouraged.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yeah. Aryeh in Northern Virginia and Phoenix in particular those two markets, we have a line of sight to 100 megawatts or so of capacity. So those are the very key markets for us.

Aryeh Klein -- BMO Capital Markets -- Analyst

Great. And then just on the rate increases utility rate increases obviously unexpected. Has there been any pushback from customers on that? We haven't seen that kind of impact from some of your competitors. And obviously we hope this was a one-off event. But is there anything that you could do differently to prevent these kind of surprises?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yeah. So let me take this. First of all we are in very close discussions with the customers as well as with the utility providers that provided our power to our sites. And in terms of pushback I think it's a collaborative effort with our customers. For us this is a service that we provide for them for the metered power reimbursement customers. And for all-in customers, it is included in their rates. So as we disclosed, we've incurred $3.7 million in cost charges from that portion of our business. Going forward, we have to see how the power and commodities develop in the market in -- specifically in the state of Texas and broader and we will manage this accordingly with our customers.

Aryeh Klein -- BMO Capital Markets -- Analyst

Got it. Thank you.

Operator

Thank you. The next question is from Richard Choe, JPMorgan. Please go ahead.

Richard Choe -- JPMorgan -- Analyst

Hi. I was wondering if we can get a little more color on the hyperscale business that you're signing in the US. Is it coming from one or two customers? Or is this from multiple customers over the past few quarters? And what does the pipeline going forward look like? Are you talking to multiple cloud providers? Thank you.

Bruce W. Duncan -- President, Chief Executive Officer

I would say in terms of -- there's great demand by a number of customers. So again, we're encouraged by that. In terms of -- we really don't discuss pipeline in terms of the funnel on that. But again we -- as I said in our remarks, we're very encouraged by what we're seeing in the marketplace. And it's up to us to deliver solutions to customers and get leases signed. But again, the demand is out there.

Richard Choe -- JPMorgan -- Analyst

Great. Thank you.

Operator

Thank you. The next question Erik Rasmussen with Stifel. Please go ahead.

Erik Rasmussen -- Stifel -- Analyst

Yeah. Thank you. Maybe bookings eased off somewhat for Q4. Maybe if you could just comment on the types of deals the team is tracking and maybe how that plays into potentially better leasing throughout the quarter. And with that, do you see Northern Virginia Phoenix still playing key roles in that?

Bruce W. Duncan -- President, Chief Executive Officer

We do feel Northern Virginia and Phoenix continue to play strong roles going forward for us. We also think Europe will continue to be very strong for us. It was an off quarter for us in Europe. But despite that $35 million is a very good number in terms of sales. So we're very happy with that. But again, as I said, demand is good and it's in the US, it's in Europe and we're encouraged. But again, it's up to us to deliver.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes.

John Hatem -- Executive Vice President and Chief Operating Officer

Yeah, Erik. And just to that too I mean the demand is diverse, right? Just -- it's enterprise, it's hyperscale and it's us providing that line of sight for both types of those customers of scale and ability to execute and that's really what drives -- that's what drives those signed leases that Bruce is talking about.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

In terms of the first quarter just to clarify, the 79% of our mix of orders came from the hyperscale customers.

Erik Rasmussen -- Stifel -- Analyst

Hey, great. Thank you.

Operator

Thank you. And our next question is from David Guarino with Green Street Advisors. Please go ahead.

David Guarino -- Green Street Advisors -- Analyst

Hey, thanks guys. A question for you Bruce. It feels like the European data center companies there's a new one that's popping up every week focused on development. So I'd love to kind of get your views on how long you think outsized development profit margin in Europe will persist before we just start to see I guess new supply start pressuring asking rents?

Bruce W. Duncan -- President, Chief Executive Officer

All right. It's a good question. I would say again Europe -- we like Europe, we continue to like Europe because it's harder to find products, it's hard to get the land, it's hard to get the power and zoning. So when you have it it's special. That being said, it's competitive over there. And -- but it's up to us in terms of find the right sites that our customers want. And if we can do that we think we can do -- get decent returns. But there's no question in our mind that returns are coming down. And so over time, I think they will come down to more the US in terms of rates -- not rates, but returns.

David Guarino -- Green Street Advisors -- Analyst

That's helpful. And then I guess just on the demand environment maybe for hyperscale data centers outside of the top markets in Europe. Could you maybe talk about that and what the company's I guess appetite or how comfortable they are shifting capital outside of some of the top markets?

Bruce W. Duncan -- President, Chief Executive Officer

Well, we'll talk about that at Investor Day. But I would say this in terms of going to markets, if we're going to new markets we want to make sure that we have a -- we want to de-risk it if we can and to have it pre-leased with a customer or substantial line of sight to leasing. And we're really not going to talk about specific markets until we are in them. But again, we think that over time we will go to different markets. But we'll talk more about that at our Investor Day.

David Guarino -- Green Street Advisors -- Analyst

Great. Thanks for the color.

Bruce W. Duncan -- President, Chief Executive Officer

Thank you.

Operator

Thank you. Next question comes from Colby Synesael of Cowen. Please go ahead.

Colby Synesael -- Cowen. -- Analyst

Great. Thank you. I was wondering if you could just give us an update on the Dublin market. You guys have a presence there. But can you just remind us what's actually been built? And just broadly speaking, what you would describe the demand environment to look like up there? And then secondly, I'm just curious if there's been any changes to sales compensation structure the go-to-market strategy of late? And if so, if you can give us some color on what might have happened and why? Thank you.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Hi, Colby. It's Katherine. I'll take your second question first, just because, as you know, every year at the beginning of the year we look at compensation in terms of targets and it includes our sales compensation as well. There hasn't been any substantial changes to the sales plan. It was more of a tweak of the nature. And so with that, we haven't really seen any impact on our sales organization. So it's been a pretty stable team, very engaged team and they're going after our sales funnel as you see our leasing continues to be strong and in the first quarter, it was at $35 million. Now in terms of Dublin, as you know, it's a self-build market, but we do have presence there and are working to develop that. And today, if you remember under development we have 76,000 co-location square feet, which equates to approximately 12 megawatts and we'll keep working in this market.

Bruce W. Duncan -- President, Chief Executive Officer

It's under in construction, it should be completed fairly soon.

John Hatem -- Executive Vice President and Chief Operating Officer

Next quarter.

Colby Synesael -- Cowen. -- Analyst

Thank you.

Operator

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

Frank Louthan -- Raymond James -- Analyst

Great. Thank you. I wanted to talk about sort of your future rents. Are you facing any material rent roll downs you expect to release? And what are the rates coming? And what are you looking to underwrite to with lease renewals going forward?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

I guess I'll take that since it's one of my favorite topics as it relates to the renewals and rent roll downs that we don't normally disclose. But we're working in a broader framework of our metrics and how we think about it. What I do want to point and guide you to is how we think about the churn and specifically elevated churn this quarter came -- as I mentioned in my prepared remarks, came from footprint consolidations and some customer exits. The renewal basis during the first quarter was very immaterial. So it's not really substantial to talk about roll downs in this quarter. But as we go further in the year there will be some more renewals that are coming to play and we'll talk about it then.

Frank Louthan -- Raymond James -- Analyst

Okay. Thank you very much.

Operator

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

Eric Luebchow -- Wells Fargo -- Analyst

Great. Thanks for taking the question. So, obviously pricing came down a bit on a per kilowatt basis due to your mix this quarter. But maybe you could just give us some color on what the returns on capital were with that average steel pricing just north of $100 per kilowatt? And then, kind of related to that development yield discussion, what are you seeing today in terms of your average cost to build in the US specifically? Have you been able to stay around $7 million per megawatt in some of your more mature markets? Or are there any impacts from kind of cost inflation higher land prices that maybe could drive those development costs a little higher? Thank you.

Bruce W. Duncan -- President, Chief Executive Officer

Let me take the first and then John can talk about construction. I would say in terms of the yields that we've seen they're consistent with what we said before in terms of the 8% to 10% stabilized yields over the term. So again, we're pretty encouraged about that. And the nice thing about this business is in terms of the hyperscalers, it's the long-term leases. The 9.7 year term is we feel very good about in terms of that. But the yields are Eric within the range we talked about.

John Hatem -- Executive Vice President and Chief Operating Officer

Yes. Eric, it's John here, nice to talk to you. So firstly, I mean our construction costs are in line right with market right? And it drives to what Bruce is saying keeping those yields in place. We're always looking for efficiency around that build cost like we always have to make the right -- build the right product for our customers. So, that's in line. As far as commodity pricing and inflation on that stuff, we're not seeing anything impacting us today. We are constantly looking at it. We're locked in on our equipment pricing until the end of this year. And we've always had a diverse kind of focus when we think about shelf construction and we think about steel versus FRP. We look at all those things all the time, and we'll just pick the right product for the cost metric we're trying to achieve.

Eric Luebchow -- Wells Fargo -- Analyst

Great. Thank you.

Operator

Thank you. The next question comes from Jordan Sadler of KeyBanc. Please go ahead.

Jordan Sadler -- KeyBanc -- Analyst

Thanks and good morning. So I wanted to touch on Europe for a second. I know this was a lighter quarter there. But trying to gauge total availability in terms of what you really have available to lease right now. The development pipeline broadly speaking is, I think, high 60 percentage leased. But if we focus in on Europe how much availability is there?

Bruce W. Duncan -- President, Chief Executive Officer

We've got a bunch. If you look at London, we've got -- London four and five, we've got a little bits in some of the other projects. But in terms of total I would say, we've added up -- Michael, what would it be?

Michael Schafer -- Vice President of Capital Markets & Investor Relations

In excess of 100 megawatts across our markets.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes, probably across all the markets it will be over 100 megawatts. And then if you add our development pipeline, which is 45 megawatts, plus we have the land that's also we are just in the process of acquiring, plus the land that we acquired in the last year. So we have a good runway in Europe, and we're really positive about it.

Jordan Sadler -- KeyBanc -- Analyst

I guess, are you speaking to not yet commence development largely? Because I look at Frankfurt, it's 90% leased 252,000 square feet of colo space. I see London is 148,000 feet of colo you're 83% leased. Amsterdam is fully leased. That's your stabilized portfolio. And then among your development portfolio you've got 45 megawatts of total underdevelopment in Europe listed 45 megs.

John Hatem -- Executive Vice President and Chief Operating Officer

Jordan, I mean, we should -- I know, we're going to dive into this more at our Investor Day, but I mean Amsterdam is a perfect example. We have 4.5 megawatts built out there. There's three megawatts leased. The shell that's standing there's a 27-megawatt shell, right? So this is -- how do we turn that capacity into leasable capacity quickly, right? So key is where do we have land and shell that's what Katherine was speaking to. Plus we have additional land in Amsterdam for another 27-megawatt shell. So there's kind of that combination between land capacity, shell capacity and build capacity and they kind of fall into all different buckets depending on how soon we could execute on those.

Jordan Sadler -- KeyBanc -- Analyst

So give it over 100 megs basically?

Bruce W. Duncan -- President, Chief Executive Officer

Yes. Yes.

Jordan Sadler -- KeyBanc -- Analyst

Okay. And then one other question just on coming back to sort of maybe metrics. Bruce, what's your thoughts on, I mean, you've had sort of nearing a year looking at this business and spending time on this business. What are your thoughts on sort of offering up leasing spreads?

Bruce W. Duncan -- President, Chief Executive Officer

Offering up leasing spreads on renewals? Leasing spreads on...

Jordan Sadler -- KeyBanc -- Analyst

Yes, yes.

Bruce W. Duncan -- President, Chief Executive Officer

I think we're going to talk about in terms of Investor Day sort of how we look at churn and how we look at that. So I think we're going to talk about that. So make sure you show up.

Jordan Sadler -- KeyBanc -- Analyst

I'll be there. And then what about your escalators on that 9.7 years leases you guys...

Bruce W. Duncan -- President, Chief Executive Officer

We don't talk specific leases. But if you look at in general with our leases we have about a 2% escalation on all of our leases.

Jordan Sadler -- KeyBanc -- Analyst

Okay. And you're still getting that?

Bruce W. Duncan -- President, Chief Executive Officer

Yes. But that's a combination of hyperscale and enterprise in terms of it averages to about 2%.

Jordan Sadler -- KeyBanc -- Analyst

Okay. Thank you.

Operator

Thank you. And the next question is from Tim Long of Barclays. Please go ahead.

Tim Long -- Barclays -- Analyst

Thank you. Was hoping to ask about kind of what you're seeing on the enterprise side of the business. I guess, leasing looks like it was down a little bit quarter-on-quarter. Just give us a little color kind of what you're seeing on the pricing front. And any verticals that are coming out better or worse and maybe a little bit on pipeline as we get to reentry that you expect to the office? Do you expect to see more new logos in that business? Thank you.

Bruce W. Duncan -- President, Chief Executive Officer

Mike, do you want to take that?

Michael Schafer -- Vice President of Capital Markets & Investor Relations

Yes. Sure. So as Bruce mentioned in his remarks, we had a really strong fourth quarter among enterprises with $20 million signed a little bit lighter in the first quarter relative to what we've seen historically and part a function of that. But we're -- we remain encouraged by what we're seeing in that segment. It's across verticals, it's across markets. And we feel good about it. The pricing, Tim, varies by deal, right? I mean, the bigger the enterprise deal is the pricing is going to reflect that. So, there's a wide variety of deal sizes out there, which impacts the pricing. In terms of new logos, I think, we've been relatively consistent in terms of what we've brought in over the past few quarters. It's been a little bit lighter than what we had brought in prior years. But I think once we get on the other side of this pandemic, we'll probably see an increase in the number of new customers we're able to add.

Tim Long -- Barclays -- Analyst

Okay. And just a follow-up, it sounds like decent growth in interconnect, but still small and a lot of the new leases contain that. So could you talk a little bit about what you think of as far as you getting the new customer growth but volume growth for that business to become more meaningful? Thanks.

Michael Schafer -- Vice President of Capital Markets & Investor Relations

Yes. I mean, we've always viewed interconnection as an enabler of our colocation business. And really what we're seeing now is what we've seen historically. It's a growth in cross-connects, as we're building these ecosystems within data centers and then customers -- enterprise customers particularly taking advantage of the SDN offerings with Megaport in particular. And that's what we expect to see going forward. The revenue this quarter was impacted. We had a prior period credit for a customer that impacted revenue. We had a little bit of churn. But again we're viewing interconnection as we always have as an enabler of our colocation business.

Tim Long -- Barclays -- Analyst

Thank you.

Operator

Thank you. Next question is from Nick Del Deo, MoffettNathanson. Please go ahead.

Bruce W. Duncan -- President, Chief Executive Officer

Yes, I think, it's the usual ebb and flow. I mean it all depends in terms of -- if they have time and they'd love to do it themselves in terms of -- if we have the right site and they need demand then we're providing a solution for them. So we think -- and we think that continues in terms of -- we help provide solutions to them. As long as we can keep doing that we think it's a great business for us and for them. So we're pretty encouraged. Do you want to add anything John?

John Hatem -- Executive Vice President and Chief Operating Officer

Yes. Nick, I mean, I think for especially the large hyperscalers and even some of these enterprises at scale we think about I mean people who would do their own versus lease with us it's -- they view us as an extension of their team, right? They have a demand that they need to hit for their cloud business or whatever their business is right and leasing is a lever that they use, right? And they want to lease with people who are going to deliver. Execute on the project hit the sustainability goals hit the safety goals. I mean it's not an easy business, right? And it takes an army to do that and they expect you to perform just like they do right? So...

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Or better.

John Hatem -- Executive Vice President and Chief Operating Officer

Or Better right? Or better.

Bruce W. Duncan -- President, Chief Executive Officer

For sure better. For sure better.

Nick Del Deo -- MoffettNathanson -- Analyst

All right. Well, thank you.

Operator

Thank you. The next question is from Jeff Kvaal, Wolfe Research. Please go ahead.

Jeff Kvaal -- Wolfe Research -- Analyst

Yes. Thanks very much for taking the question. A couple of quarters ago you adjusted the yield targets that you were hoping for in the long-term. And, I guess, I'm wondering to what extent that is reverberating in the marketplace and how long that effect will be with you. Will you start to lap that at some point? Or will it reverberate for a couple of years perhaps? And, I guess, a second side point that you introduced a moment ago I think is -- sounds like you were a little worried about the European pricing more so than the US, which is holding up, but it also suggested as though you -- and I may have misinterpreted this but it sounds as though you thought that the U.S. pricing actually may harmonize with the Europe pricing over time.

Bruce W. Duncan -- President, Chief Executive Officer

All right. Well, let me be clear. Number one, as it relates to the US when we went down to the 8% to 10% threshold in terms of our view of what yields are acceptable for us we weren't doing that to lead the market, we were doing that to meet the market and as the market was already there. So we did that. We also -- in terms of, I think, that brought us in the market. I'd say also in terms of we have capacity we've developed the capacity for our clients. So we had in the markets like Northern Virginia, Dallas and in Phoenix. So I think that's helped. So we're very encouraged by what we're seeing there. In terms of the yields rents are higher in Europe the costs are higher in Europe. So you've got to factor that in. In terms of the overall yields in Europe they've traditionally been higher than the US, but I do think over time those have come down some. But right -- the pricing is higher in Europe than it is in the US because the costs there are much higher.

Jeff Kvaal -- Wolfe Research -- Analyst

Okay. Thank you. And then just a follow-up on that yield 8% to 10%. How long will that be visible in the financials? Is this something that works its way through the system in two or three quarters or a year? Or does -- as renewals come up is this kind of the new benchmark that we'll look to?

Bruce W. Duncan -- President, Chief Executive Officer

Well I'm not sure what you're saying, but I would say again in the yields we're getting people in there in like 16 weeks you're going to see that they're in there. Some of these are developments that would take longer. And if it takes longer it will show up in a year or so. But go ahead, Katherine.

Jeff Kvaal -- Wolfe Research -- Analyst

Okay.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes. And Jeff if you go back a year ago I mean, when we had our yield expectations in the mid-teens or so and we passed on some of the deals. So new business was impacted by that. And as Bruce pointed out we are just -- we were going at the market. We were not leading the market when we lowered our yields 8% to 10%. So this is the market expectations for business and that drives the pricing in the marketplace. And we are able to be competitive at that level because we're still with our structure are able to generate same double-digit returns on equity because of the leverage and the cost of debt that we have.

Bruce W. Duncan -- President, Chief Executive Officer

Yes. Just to go -- to follow-up on Katherine's point. If you look at it you look at our -- and you say you're doing a 9% deal all, right? And use our leverage of 5.8 times and you assume interest rates of 3%. What that means is your return on equity -- on the equity you're putting in will yield a 15%, 16% return. And so it's a very attractive return for our investors we think. So again -- and that's at a 9% not 10% range whatever. So we think it's a pretty attractive return still.

Jeff Kvaal -- Wolfe Research -- Analyst

Thank you.

Operator

Thank you. Next question is from Michael Funk of Bank of America. Please go ahead.

Michael Funk -- Bank of America -- Analyst

Hi, good morning. Thank you for the question. First one is on the commencement timing slide I think, it's slide number 15 in the deck. I know it's hard to compare quarter-over-quarter but it does appear that commencements got pushed back more to the second half of 2021. So I hope you could comment on that? And if that assessment is correct, maybe comment on what's pushing out the commencement time? Is it customer behavior? Is it your ability to provide the space? What's providing that change?

Bruce W. Duncan -- President, Chief Executive Officer

It's Michael. So relative to the commencement timing that we had provided last quarter there wasn't a significant shift I think maybe a couple of million dollars here and there, but that's normal because we're estimating and we update our estimates every quarter. But there was not a significant shift this quarter in our expectations relative to last quarter.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

And also I would point out the fact that the leases that we signed this quarter the $35.4 million are all expected to commence within the four quarters.

Michael Funk -- Bank of America -- Analyst

Great. And one more if I could Bruce, I think you mentioned when addressing the Analyst Day business and then recycling I think you mentioned I'm assuming that you don't mean ESG that you mean asset sales. And if that's correct can you give us a highlight of what types of assets looking to recycle timing for that? You know...

Bruce W. Duncan -- President, Chief Executive Officer

I would love to give you all that information. And you just tune in June 16. We look forward to it.

Michael Funk -- Bank of America -- Analyst

Great. Appreciate it.

Operator

Thank you. Next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

Simon Flannery -- Morgan Stanley -- Analyst

Great, thank you. Good morning. So nice to see the 69% pre-leased space. How are you thinking about your focus on making sure you have enough space in some of the hotter markets like Northern Virginia and Phoenix. Is there any plans? How high will you let that run before you start planning the next phases?

Bruce W. Duncan -- President, Chief Executive Officer

Simon it's a very good question. Again we look at it to see the demand and because we want to make sure we have capacity. So we're looking at that because there is great demand in both of those -- both Northern Virginia and Phoenix. So we're looking at that and making sure we're going to have capacity available so...

Simon Flannery -- Morgan Stanley -- Analyst

Okay. And then what about new markets either in the US or in Europe? There's been a lot of talk about the focus of customers on these sort of second- third-tier markets as the edge more important. Do you see opportunities there?

Bruce W. Duncan -- President, Chief Executive Officer

I would say on the edge it's not going to be our primary focus. I would say that we've got a big development site in the Santa Clara. And John and I will talk about that. We're very excited about it.

John Hatem -- Executive Vice President and Chief Operating Officer

Yes Simon nice to talk to you. Yes Santa Clara we're looking for our entitlements to be done by the end of the year there. So I mean that's a high barrier to entry kind of market so we're really excited about that. And I think just a big project.

Bruce W. Duncan -- President, Chief Executive Officer

It's a huge project 70 megawatts.

John Hatem -- Executive Vice President and Chief Operating Officer

Yes, yes. So 70-megawatt project there. And one of the hyperscale markets we're not in right that we're looking forward to getting into. As far as the second and third tier markets I think Bruce mentioned it like that's kind of stuff is going to happen with an anchor at scale right? If we have an anchor to go into that market well that's when we'll look at that stuff.

Simon Flannery -- Morgan Stanley -- Analyst

Okay. Thank you.

Operator

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

Sami Badri -- Credit Suisse -- Analyst

Hi, thank you. I just have a couple. Katherine maybe the first one for you regarding the customer that we saw consolidating the footprint. What industries were those customers from or verticals?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Sami so the you're referring to the churn that we had customers exiting and consolidating footprint. It's across a couple. It's not one specific customer. So it's across the verticals as well. And it happened actually in the Dallas market. And so we already have new demand for that space that we're looking out into.

Sami Badri -- Credit Suisse -- Analyst

Okay. Got it. The other question I had was you guys signed now MRR per KW at $103 per KW in the quarter. And when you compare that to just the last quarter even just year-on-year that's down quite a bit. Now the reason why I kind of just want to understand this $103 number a little bit better here is that you've laid out an 8% to 10% return target. Is 8% to 10% achievable at $103? And what if this $103 dips down to say $95? Is that 8% to 10% still achievable?

Bruce W. Duncan -- President, Chief Executive Officer

It is achievable. Remember the reason it's $102 is because the mix. The mix was all hyperscale. That is -- so that -- last quarter it was at like $133 because you had the enterprise with in whatever. It's also in the US versus in Europe and rates are lower in the US than Europe. So I would say at the rate the $102 we have very good returns. As I said earlier that $103 we're in the range of the 8% to 10% and it's a very good return on a leverage basis.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes. So we underwrite our yield to that yield of 8% to 10%. So the fact that we close these bookings that means it meets our underwriting criteria.

Sami Badri -- Credit Suisse -- Analyst

Okay. Got it. And then maybe Katherine one last question here is for modeling. How much cash do you guys need on hand and on the balance sheet to just keep running the business? And I only ask this because you are straddling different regions now. You have a lot of long-dated development projects taking place, just how much cash should we be modeling on a quarterly run rate basis?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yeah. So actually the way to think about it is, there's not a minimum cash that we want to keep on the balance sheet. We have access to revolving credit facilities. We also have a forward equity $385 million, which we all -- we use that as a source to find the business and the run rate. So if you look at between the leverage and our access to capital and the liquidity of $1.6 billion overall, we're pretty much well positioned for the -- to fund the years of development. And then looking forward, we are always considering forward ATM programs as a vehicle to find our future development.

John Hatem -- Executive Vice President and Chief Operating Officer

Yeah. And Sami, I'd also add to that, just be mindful that we're operating with three different currencies now. So USD and then in Europe obviously sterling and Euro, so you have to have minimum levels across those currencies to be able to fund short-term requirements.

Sami Badri -- Credit Suisse -- Analyst

Got it, got it. Just maybe asking this question a little bit differently. Do you guys need $30 million of cash on your balance sheet? Or do you guys need more like $150 million of cash at any given quarter on your balance sheet?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Again, so it depends. It depends on any quarter you see now our range of cash on hand from $30 million to $200 million. So that's a pretty good wide range, but we manage it according to our leverage and funding capacity that we need.

John Hatem -- Executive Vice President and Chief Operating Officer

And just bear in mind that, we did draw down $95 million in equity at the very end of the first quarter. And then we had a dividend payment that we funded as we always do at the beginning of the next quarter.

Sami Badri -- Credit Suisse -- Analyst

Got it. Thank you.

Operator

Thank you. [Operator Instructions] Next question comes from Tayo Okusanya of Mizuho. Please go ahead.

Tayo Okusanya -- Mizuho -- Analyst

Yes. Good morning. So I wanted to focus in on guidance a little bit. You did talk about the $0.03 negative impact from the power situation. And maybe when you kind of back out all the onetime items you probably would have done a little bit better than your reported number. You have -- you're kind of talking about a pretty decent kind of leasing outlook despite some other concerns around Europe. And your churn is expected to kind of slow going forward. So, I guess, when I look at all of that, I'm just kind of curious number one, why guidance wasn't raised. Maybe what's some of the offsetting factors could be over the course of the rest of the year to kind of -- just kind of maintain guidance? Just because it felt like there was some type of momentum from 1Q 2021 results and some of your commentary today on the earnings call?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Thank you. Let me take that, Tayo. So we are staying within our stated guidance, because a lot of the activity during the first quarter were as I mentioned in my prepared remarks were of onetime nature, whether it's a negative impact of Storm Uri, or a couple of positive events for example lease termination fees and others. So from that perspective, we do look at our margin, if adjusted for those onetime items for the remainder of the year stay in 50% or so, which is within the range of our guidance. And in terms of the bottom line and as a normalized debt flow per share is the guidance we also stay within the range, because we are raising the equity as we took down $85 million at the end of the quarter. And so we continue to have to take $385 million for the remainder of the year. So you've got to be mindful of that within our stated guidance.

Tayo Okusanya -- Mizuho -- Analyst

That's helpful. Thank you.

Operator

Thank you. We have no further questions. And I'll turn the call back over to Mr. Bruce Duncan for closing remarks.

Bruce W. Duncan -- President, Chief Executive Officer

Thank you, operator. Let me conclude with two things. First, if you have any questions please feel free to reach out to Michael, Katherine or me and don't forget to RSVP for our Investor Day on June 16. And finally, and most importantly, I want to thank my CyrusOne teammates for all their good work this quarter. As a result of your hard work, we're making good progress and your efforts are much appreciated. You're an extraordinary team, and we thank you for all you're doing to make us better. So thank you all, and thank you for the call. Any questions call us. Thank you.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Michael Schafer -- Vice President of Capital Markets & Investor Relations

Bruce W. Duncan -- President, Chief Executive Officer

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

John Hatem -- Executive Vice President and Chief Operating Officer

Jon Atkin -- RBC -- Analyst

Aryeh Klein -- BMO Capital Markets -- Analyst

Richard Choe -- JPMorgan -- Analyst

Erik Rasmussen -- Stifel -- Analyst

David Guarino -- Green Street Advisors -- Analyst

Colby Synesael -- Cowen. -- Analyst

Frank Louthan -- Raymond James -- Analyst

Eric Luebchow -- Wells Fargo -- Analyst

Jordan Sadler -- KeyBanc -- Analyst

Tim Long -- Barclays -- Analyst

Nick Del Deo -- MoffettNathanson -- Analyst

Jeff Kvaal -- Wolfe Research -- Analyst

Michael Funk -- Bank of America -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Sami Badri -- Credit Suisse -- Analyst

Tayo Okusanya -- Mizuho -- Analyst

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