CyrusOne inc (CONE) Q2 2021 Earnings Call Transcript

Image source: The Motley Fool.

CyrusOne inc (CONE)
Q2 2021 Earnings Call
Jul 29, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the CyrusOne Second Quarter 2021 Earnings Call. All participants will be in listen-only mode. [Operator Instructions]

I'd 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 Capital Markets and Investor Relations

Thank you, Grant. Good morning, everyone, and welcome to CyrusOne's second quarter 2021 earnings call. Today, I am joined by Dave Ferdman, President and CEO; Katherine Motlagh, CFO; and John Hatem, COO. Before we begin, I would like to remind you that our second quarter earnings release, along with the second 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, Dave Ferdman.

David Ferdman -- Director

Thank you, Michael, and welcome to CyrusOne's second quarter earnings call. As announced yesterday afternoon, the Board has separated with Bruce Duncan as President and CEO. This was not related to any matter regarding the company's operations, financial conditions or results or the business more broadly including the strategy. The Board recognizes Bruce has many contributions during the past year and on their behalf, I would like to thank him for his service and leadership. I will be serving as President and CEO on an interim basis while the Board undertakes a search to identify the company's next President and CEO, as some of you may know, I was Co-Founder of CyrusOne more than 20 years ago. I served as the President and CEO for 2000 until June of 2010, when the company was sold to Cincinnati Bell. And then I served as the Chief Strategy Officer until the IPO. When I transitioned to the CyrusOne Board, I am a member of the Board's executive committee and have previously served on the transaction committee. I look forward to leveraging my knowledge of the industry, my continued relationships with customers and employees and working with the team to continue to drive profitable growth. We have a great platform, great customer base, and the demand outlook remains strong and the business as well-positioned. Moving to the quarter. Beginning with slide four, you can see our key second quarter financial metrics, which Katherine will discuss shortly. We have strongly showing results, which included contributions from both hyperscale and enterprise customers across our European and U.S. markets. We signed approximately 21 megawatts totaling $41.8 million in annualized GAAP revenue. Our revenue backlog increased to a record $129 million as of the end of June with the total contract value of nearly $1.1 billion, equating to a weighted average lease term of more than eight years.

Turning to slide five. We continue to take steps to support our growth. We completed construction on 146,000 co-location square feet, totaling 45 megawatts across our U.S. and European markets, including Dublin, London, Northern Virginia and San Antonio. Our development pipeline consists of 280,000 co-location square feet, totaling 64 megawatts, slightly weighted toward Europe, including two new projects in London. We are excited to announce our expansion into Madrid. Madrid is one of the fastest growing data center markets in Europe with the purchase of approximately five acres of land that will provide an estimated 21 megawatts of power capacity. I look forward to talk more about this in a few minutes. We further strengthened our balance sheet through the execution of our inaugural green senior notes offering issuing EUR500 million with a tenure of seven years priced to yield just over 1.3%. We also raised $232 million in forward equity through our ATM program during the quarter. And as of the end of June, we had nearly $520 million and available forward equity to fund our development and manage our leverage. Moving to slide six. $41 million in annualized GAAP revenue signed was up 27% compared to the four quarter average -- prior four quarter average. As we've discussed before the weighted average MRR per kilowatt signed for any quarter is largely a function of the leasing mix and contrast to the first quarter in which the leasing was more heavily weighted toward hyperscale customers and primarily in our U.S. markets, in the second quarter, we had more significant contributions from enterprise customers and our European markets. Approximately one-third of our bookings was from enterprise customers and approximately 60% of the leasing was in Europe.

Consistent with the trend over the last several years, the revenue contribution from our hyperscale customers continues to increase representing approximately 53% of our portfolio rent as the end of the quarter. Slide seven provides an update on our interconnection results, as well as some of our key portfolio metrics. As the right hand side of the slide shows, we continue to make good progress on ESG initiatives. In addition to executing the green notes offering, we have achieved 100% renewable energy in Europe. Well ahead of the 2030 target set forth in the EU climate neutral data center pack. Turning to slide eight, we provide an update on Europe. I mentioned our entry into Madrid, and we think there's great opportunity in this market. It is the fastest growing data center market in Europe, outside of the core flat D markets with an estimated 66 megawatts of take up in 2020. Our hyperscale customers have been expanding here. And as we've talked about, it's important for us to be able to offer solutions to these customers it as many markets as possible. The more valuable we can be to them with broad geographical product offering, particularly in Europe, where it can be challenging to secure capacity, the more opportunities we have to win their business going forward. We are now in six markets in Europe, up from two, when we entered in late 2018. Upon completion of the projects in our development pipeline, we have more than 200 megawatts of power capacity in Europe, representing approximately 20% of our total portfolio. We signed approximately $25 million in annualized revenues and these markets during the quarter. The leasing was broad-based geographically with Dublin, Frankfurt and London, each accounting for more than two megawatts signed. We continue to see good demand in Europe. And it's up to us to ensure we have the capacity across our markets and to convert opportunities into signed leases.

Moving to slide nine. We are well-positioned heading into the second half of the year. As of the end of June, our development pipeline was 86% pre-leased on a co-location square footage basis, which is a near all-time high. As a result, we have meaningfully decreased the risk of our investments. And upon completion of these projects and commencement of the leases, we will be generating attractive returns. Additionally, we have significant embedded contractual revenues as a result of our quarter end backlog. The backlog is equivalent to approximately 14% of our trailing 12-month based revenue. As Katherine will discuss not all of this backlog will contribute to next year financial results. However, the impact of the backlog combined with the full year 2022 impact of leases that commenced earlier this year, plus the impact of future leasing sets up us well for continued growth next year. We have shown land inventory across our markets in the U.S. and Europe to support our growth with more than 1,250 megawatts of potential built out power capacity. This inventory is primarily in digital gateway markets, which are the higher growth GDP centers in which demand has concentrated giving us significant runway for future growth. And with nearly $2.3 billion in available liquidity, as of the end of the quarter, we have funding capacity to support near-term opportunities while maintaining significant financial flexibility and a strong balance sheet. In closing, we remain very bullish on the industry and our business and we're seeing continued strong demand in both Europe and the U.S. We are well-positioned to capitalize on opportunities and the team is focused on consistent execution and providing outstanding service to our customers.

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, Dave, and good morning, everyone. Continuing with slide 11, revenue growth for the quarter was positively impacted by a 43% increase in metered power reimbursements, primarily driven by higher usage across both our United States and European markets. Excluding those power reimbursements revenue growth was approximately 6%. Additionally because these reimbursements are an expense path through the disproportionally higher growth in this line item had a negative impact on our margin. Excluding metered power reimbursements, our NOI and adjusted EBITDA margin decrease year-over-year by 1.5 and 1.1 percentage points respectively. The year-over-year comparison is affected by the positive impact of the last year's second quarter results of the receipt of $3 million in lease termination fees. While in the second quarter of this year, we received $400,000 in lease termination fees. On last quarter's call, I mentioned that second quarter churn was expected to be higher than churn in each of the last two quarters of the year. However, some rate churn that we anticipated to occur this quarter has been pushed out. As a result, second quarter churn of 0.8% was lower than we had forecast, but we continue to expect full year churn to be in the range of 4% to 6%. At our Investor Day, we discussed our view on renewal express over the next few years, and we have shown these rate impact for like-for-like renewals in the second quarter. The like-for-like renewal population for this quarter was relatively small. And the weighted average rate on these renewals was up 4% on a GAAP basis ad was flat on a cash basis. These spreads were positively impacted by the push out of the rate churns that I just mentioned. Turning to slide 12. The contribution from Europe continues to increase as leases commenced with these markets currently representing approximately 14% of our total rents. We brought our first data center in Dublin online during this quarter.

And we're pleased to report that the first data hall is fully leased. The addition of this market to our portfolio further enhances the geographical diversification of our business. Moving to slide 13, we have developments underway across our United States and European markets totally 280,000 co-location square feet and 64 megawatts, slightly weighted toward Europe. As Dave noted, this developments are 86% preleased on a co-location square footage basis, significantly, they're risking our capital investments. We also have 303,000 square feet of powered shell under construction in Paris and London. The total cost to complete the project in our pipeline is $318 million at the midpoint of our estimated range. And upon completion of these developments, our portfolio will consist of nearly 1,000 megawatts, up approximately 20% from June of 2020. Turning to slide 14, in May, we executed our inaugural green bond offering, raising EUR500 million through the issuance of 70-year senior notes bearing a coupon of 1.125%. The net proceeds were used to repay euro denominated borrowings under our revolving credit facility and for general corporate purposes, including pre-funding additional euro denominated development spend. We intend to allocate an amount equal to these proceeds to fund existing or future green assets for projects. This transaction further smoothed out and extended our debt maturity schedule and increased our percentage of fixed rate debt, while decreasing our weighted average interest rates. Our percentage of fixed rate debt, which was 86% at the end of the quarter is in line with that of other investment grade REIT and significantly mitigate our exposure to rising interest rates. As slide 15 shows, we continue to maintain a strong balance sheet with liquidity as of the end of the quarter, totaling $2.28 billion.

During the quarter, we sold approximately 3 million shares on a forward basis under our ATM equity program, which will result in net proceeds of approximately $232 million upon settlement by June 2022. Combined with forward sales agreement entered into the second half of last year, we have approximately $519 million in available forward equity. Also during the quarter, we settled the forward sale agreement entered into last year, resulting in net proceeds of approximately $95 million, which were used to repay a portion of amounts outstanding under our revolving credit facility and for general corporate purposes. We are announcing at 2% increase in the third quarter dividends to $0.52 per share, up $0.01 from the second quarter dividend. This represents an annualized yield of nearly 3% based on our current share price. While paying an attractive dividend, we continue to maintain one of the lowest payout ratios among REIT, in order to retain internally generated cash flow to reinvest in the business. Turning to slide 16, our backlog at the end of the quarter totaled $129 million in annualized GAAP revenue, up from $113 million as of the end of the first quarter. Approximately $76 million is expected to commence in the second half of this year, resulting in a significant contribution to growth next year. Of the remaining $53 million, approximately $26 million is expected to commence next year, heavily weighted toward the second half of the year. Moving to slide 17, we are revising our 2021 guidance ranges. We are increasing the lower end of our guidance range base -- for base revenue by $10 million, resulting in the $5 million increase in the midpoint. This is primarily driven by a more favorable full year churn outlook, including the timing impact I mentioned earlier. Additionally, we're increasing both the lower and upper end of our guidance range for metered power reimbursements by $10 million, as a result of higher usage across our markets.

We are increasing the lower end of our adjusted EBITDA guidance range by $5 million, resulting in the $2.5 million increase at mid-point. This is driven by the increase in base revenue, partially offset by slightly higher anticipated property operating expenses, primarily facility costs in Europe. We are decreasing both the lower and upper end of our development capex guidance range by $50 million. This is driven by timing with some spend that was expected to occur later this year, now expected to occur early next year. Finally, we are increasing both the lower and upper end of our normalized FFO per share guidance range by $0.05, with the midpoint also increasing by $0.05. The increase in the midpoint is primarily driven by the increase in adjusted EBITDA guidance midpoint and the shift and the expected timing of funding needs. In closing, we are pleased with the company's performance through the first half of the year. And the team continues to work hard to put us in the best position possible to take full advantage of opportunities and continue creating value for the shareholders. 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 asks one question. So that we can stay on schedule and conclude the call on time.

Thank you. And operator, please open the line.

Questions and Answers:

Operator

[Operator Instructions] Our first question today will come from Jon Atkin with RBC Capital Markets. Please go ahead.

Jon Atkin -- RBC Capital Markets -- Analyst

Thanks. So, Dave, I was interested in your prepared remarks up front, explaining the Bruce's departure and you gave some reasons why -- what it's not attributable to, but if you could maybe clarify a little bit, why the transition now, who you're looking for, what types of qualifications as you conducted new search. And would this not also be an opportunity to entertain strategic options given that you were the CEO, when the company was sold to Cincinnati Bell back in the day.Thanks.

David Ferdman -- Director

Thanks, John. Good to hear from you. Look, I can't really talk about matters of the board, but what I can tell you is that the board is prepared to kick off a search to find the highest qualified person to run the business. We're committed to the strategy of the company, we're committed to the team. We anticipate no future changes. And we're excited to kick off this search.

Jon Atkin -- RBC Capital Markets -- Analyst

So talk about who you might be looking for and then the question that I had about maybe strategic options given the hiatus that we now have at the CEO level.

David Ferdman -- Director

Yes. As soon as we kick off the search, we'll have a group to identify, and map out exactly the qualifications the background as we have not begun this exercise yet. I really can't comment on it, but it's an exercise that we look forward to. We haven't embarked upon it, but as far as strategic -- the company is committed -- the board is committed to the strategy of the company. We support the team. We're excited about the industry. We think the opportunity as good as it's ever been. And we're committed to the strategy.

Jon Atkin -- RBC Capital Markets -- Analyst

And then secondly, in terms of asset dispositions, any kind of updated thoughts as to the types of interests there may be for some of the legacy assets that might be disposed of over the multiyear timeframe that you talked about at the Analyst Day. And with respect to Europe, are we done for now in terms of new market entry or are there other markets that you think are interesting and opportunistic to expand into? Thanks.

David Ferdman -- Director

I'd like for Katherine to comment on the first portion of it.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes. Good morning, Jon. So on the recycling, as you recall, we committed at our Investor Day to the program of recycling $1 billion to $2 billion over the next three to four years. And as we execute on this program, we will let you know, once we complete on that. Right now, we have nothing to report on this other than we are committed to our recycling program. And as far as Europe, the entry to Madrid is a really strategic point for us. We believe it's a great market and we're open to new markets entry, collaborating with our customers as and when it makes sense and it's strategically fits within our portfolio. We do have expansion opportunities in our current footprint. So that's also our first priority.

Jon Atkin -- RBC Capital Markets -- Analyst

Thank you.

Operator

Our next question will come from Aryeh Klein with BMO Capital Markets. Please go ahead.

Aryeh Klein -- BMO Capital Markets -- Analyst

Thank you. Maybe just following up on the change, Bruce didn't have a data center tech background. Is that something as you search for the next CEO, you would value a little bit more highly than maybe previously.

David Ferdman -- Director

Thanks. Aryeh, we're going to go through a process with the firm, we search -- the search firm. And we're going to really get granular on how we should define requirements. Until we do that, I really don't want to comment, because I don't want to mislead, but we will go through a very thorough process to define and it looked deeply at that.

Aryeh Klein -- BMO Capital Markets -- Analyst

Got it. And then maybe just on the releasing spread headwinds or expectations that you outlined at the Investor Day. Can you provide some more insights on what markets you're anticipating the most significant headwinds there?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Aryeh, let me take that. So basically what we communicated at the Investor Day, in terms of our outlook on, like-for-like return -- like-for-like renewals in the future, depends on where our renewals happen. So it's more of a profile of the leases that we've entered in the past, that's come up for renewal. Now renewals are very complex negotiations as you know and they take time and they rotate and change. So it happens across all the markets and across our profile of the leases. So there's not an any particular market that I would highlight.

Aryeh Klein -- BMO Capital Markets -- Analyst

Okay. Thank you.

Operator

Our next question will come from Richard Choe with JPMorgan. Please go ahead.

Richard Choe -- JPMorgan -- Analyst

I wanted to follow up on the churn that was pushed out. Was this something that we should expect to the third quarter or could it be delayed further or maybe even avoided? Thank you.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Hi, Richard. Yes, I mean, obviously it's in our best interest to work with our customers and avoid charge to the extent possible as you know, the customers are going through their IT strategies and hybrid strategies and what collaborates with them. And as I just mentioned few minutes earlier, it's very complex and it takes time to collaborate and negotiate renewals with the customers and we work on it. And as those decisions get pushed out in the future they are delayed. At some point, we do like to come to resolutions on those and when they happen, we'll let you know.

Richard Choe -- JPMorgan -- Analyst

Great, thank you.

Operator

Our next question today will come from Simon Flannery with Morgan Stanley. Please go ahead.

Simon Flannery -- Morgan Stanley -- Analyst

Great. Thank you very much. Dave, I wonder if you could just talk a little bit about what are the things you're going to be really focused on in the next few months as we go through the search process, what are your kind of top three priorities?

David Ferdman -- Director

Great. Thanks, Simon. Good to hear from you. It's a great question. And my focus is going to be on meeting with customers, investors and employees. I've been involved in the business for 20 years. I feel like I really have a great grasp of what's going on in the industry and in the business. And the more time I can spend with our customers and investors and of course the team, the better, and that's where my priorities will be focused.

Simon Flannery -- Morgan Stanley -- Analyst

Right. And any comments on the pipeline, the overall demand environment good leasing this quarter.

David Ferdman -- Director

Demand is strong and we're really excited, we've got a record backlog, we feel real good about the demands.

Simon Flannery -- Morgan Stanley -- Analyst

Thank you.

Operator

Next question will come from Erik Rasmussen with Stifel. Please go ahead.

Erik Rasmussen -- Stifel -- Analyst

Thanks for taking the question. Maybe just to clarify or to follow-up on the CEO search, what sort of the timing that you're looking for in terms of identifying a new CEO candidate. I realize it's still early days. And then does this include both internal candidates as well as external? And then maybe my question is, in addition given this appears to be a lot of momentum that's built up through the first half of this year. So it's evident in the results in the raised outlook for the year. What are the main priorities for the team as you sort of go into the second half of the year and sort of what's driving that optimism for improving fundamentals?

David Ferdman -- Director

Thanks, Erik. Look, the timeline is -- it's hard to tell these things. I mean, we're going to have get together and pick a search firm shortly. And then once we've gone through the process with them, we can determine how long we think it will be. It's just hard to guess. As far as internal and external, we haven't had that conversation. There may be internal candidates, there may be external. It's just too early to tell, this is very fresh. The second half of the year, we're committed to the strategy. We feel strong, demand is strong, the backlog is fantastic, we're being very, very focused on just executing on the strategy as we laid out. And the team is really enthusiastic. So I don't have any different guidance than we've already given.

Erik Rasmussen -- Stifel -- Analyst

Okay. Thank you.

Operator

Our next question will come from Frank Louthan with Raymond James. Please go ahead.

Frank Louthan -- Raymond James -- Analyst

Right. Great. Thank you. So just wanted to follow-up a little bit on, we just had the Analyst Day. Are there any aspects of the strategy that were laid out that are no longer viable, you won't really be pursuing? What sort of the takeaway from there. Thanks.

David Ferdman -- Director

Thanks, Frank. No, we're really excited about the strategy. I actually watch the entire Investor Day start to finish twice. The Board is committed to the strategy. The team is committed to the strategy. There are absolutely no changes to report.

Frank Louthan -- Raymond James -- Analyst

Okay, great. Just a quick follow-up, are there any other key personnel that you need to hire or put in place to kind of achieve the strategy? Where are you on sort of the senior team.

David Ferdman -- Director

We feel great about the senior team. We have no open slots that we're looking for.

Frank Louthan -- Raymond James -- Analyst

All right, great. Thank you.

Operator

Our next question will come from Colby Synesael with Cowen. Please go ahead.

Colby Synesael -- Cowen -- Analyst

Great. Thank you. Apologize for beating a dead horse here, but I'm going to do it anyways. I guess, what value are you gaining being so closeted as to the why you're making the CEO change. I mean, Dave, to your own point, it's fresh. I mean, it seems like you guys just did this, your stocks off 5% since this call started based on, I think a frustration, which is then part of the theme of this company over the last year, in terms of just not really sharing much information. You've gone through four CEOs in the last 18 months. Don't you guys think that investors deserve to understand a little bit more about what's going on with the company?

David Ferdman -- Director

Colby, I totally respect the frustration. I understand the question. There's just certain things that are private to the board and I can't comment on. And I'm really -- I look over the last -- you can look a lot less 10 years, 15 years of the company, and while there's been changes to the company, the momentum continues. The team is strong. The secular demands of the industry are great. The team really has been able to translate that into successful growth, profitable growth. And I get it. I mean, look, this team is -- we call it high, wide and deep, we get very, very -- we're not dependent on any one individual. And I understand the frustration. And I feel the same, if I were not getting an answer, but there's matters that are private, that I just can't answer. And so we focus on the things we can control and there's just such a tremendous momentum, and we just had such a great quarter that we're just -- we're focused on execution.

Colby Synesael -- Cowen -- Analyst

Well, hopefully there will be a point that comes soon, when you guys can share more information on really what did happen, what is going on, because I do think that that's a big problem for you guys right now. And then I guess just secondly, as I shipped over the 18% to 22% cash renewal spread that you disclosed at the Analyst Day, just want to get a clarification. Is that simply where your current rates are relative to market or is that genuinely what you think is going to happen in terms of where you're actually going to take your rates over that time period? Thank you.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes, Colby. This is Katherine. Let me take that one. So our outlook on like-for-like renewals that we communicated and the Investor Day is basically a comparison to the rates that or leases that will come up for renewal or scheduled to come up based on the lease expiration days -- the date that we know now in the next three years compared to the market rates of today. It does not necessarily imply that we would get to that point. We'll try to mitigate that risk as we renew leases and work with the customers.

Colby Synesael -- Cowen -- Analyst

Great. Thank you.

Operator

Our next question will come from David Guarino with Green Street Advisors. Please go ahead.

David Guarino -- Green Street Advisors -- Analyst

Thanks. Katherine, maybe this one's for you. I appreciate the added disclosure on the GAAP and cash renewal rents. Maybe first, is this going to be a metric that you'll provide going forward? And then historically, what percentage of your leases renewing are actually considered, like-for-like. I know some of your peers blend together the new and renewal leases, so it's somewhat difficult to compare those metrics.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes. Hi, Dave. So let me take this, first of all is, like-for-like in the last two quarters have been a very small portion of our renewals. It's hard to predict what in the future, what portion of our renewals would be exactly like-for-like. It is very complex. And as customers go through their IT hybrid strategies, it's very hard to determine what exactly would be like-for-like. As far as historical, I'll probably get back to you at some point. I don't have those numbers in front of me to compare that, but yes, we will continue to disclose this metric and talk about it.

David Guarino -- Green Street Advisors -- Analyst

Okay. And then maybe I want to ask also on the strategy of issuing equity and the reason I asked that is, I know that's part of the company's strategy to issue equity to fund its development projects. When you did it in Q2, the share price you achieved was pretty attractive. So was that just a temporary opportunity you guys saw and said, hey, let's go raise capital at this price or was that planned and it just happened to be really well timed.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

So we -- the way we use forward ATM program is we really like that program, because it gives us flexibility and it gives us opportunity to raise funds, when it's market is favorable, but it also gives us an opportunity to take those funds down to funds our development pipeline in the next nine to 12 months. So that's the flexibility that we like about this program. The amount of forward equity that we raised in the second quarter of this year was consistent with our forecast and our plans and expectations to fund our development pipeline. We were fortunate and opportunistic on the market conditions. I do agree with you. And then we have to take down some of our commitments from prior year as well. So it is the flexibility of this program that is attractive to us.

David Guarino -- Green Street Advisors -- Analyst

All right. Thanks for that.

Operator

Our next question will come from Matt Niknam with Deutsche Bank. Please go ahead.

Matt Niknam -- Deutsche Bank -- Analyst

Hey, thank you for taking the question. My question is on U.S. hyperscale, if I sort of look at the 42 million in leasing and I peel away enterprise and I peel away Europe hyper scale. It seems like U.S. hyperscale leasing was only about 3 million in the quarter. And I know this can be really lumpy, but I'm just wondering, is there any changes you saw on the competitive front into quarter, anything change in terms of market dynamics or demand that you can comment on? Thanks.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Matt, so let me just, first of all, remind you that we have talked about how lumpy hyperscale leasing is and how we like the geographical diversification. So in the first quarter, we had a record U.S. leasing. In the second quarter, we have strong Europe leasing. So those transactions are still large in deployments are large and they take time to collaborate with the customers and sign those leases. So as far as the overall broad market, it's not an any indication that what type of leasing we'll have. We don't talk about future leasing. We talk about the leases that we have signed, but I'll let Dave can talk about the market in the broadest sense.

David Ferdman -- Director

Yes. The market is strong, demand is strong, while we've been having such a huge focus on Europe. We have works in great demand in the U.S. right now as well. And so the business is always kind of a local business, right. And so we feel strong about where we have capacity and we're not seeing anything that would give us concern.

Matt Niknam -- Deutsche Bank -- Analyst

Just one quick follow-up. And I believe I know the answer to this, but I want to make sure I get this right too. At the Investor Day, there was a target laid out for mid single digit and FFO per share growth in the next couple of years, does that still hold as well with Bruce leaving?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes. As Dave said earlier, there is no change to strategy. The strategy that was laid out at investor day is what we are focused on execution.

Matt Niknam -- Deutsche Bank -- Analyst

Perfect. Thank you.

Operator

Our next question will come from Brendan Lynch with Barclays. Please go ahead.

Brendan Lynch -- Barclays -- Analyst

Great. Thanks for taking my questions. Once it just digging a little bit on the capital recycling programs, you need to give some color on protecting the customer relationships that you have. Increasingly, do you have a component of interconnection and your customers are buying into a platform. So it's not necessarily just the one asset that they're, I'm just kind of curious how you're thinking about protecting those relationships as you sell some of those assets. Thanks,

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Thanks, Brendan. Let me take this one, just because the capital recycling program we just announced last month and we set up a target of $1 billion to $2 billion over three years or so. We'll be very disciplined. And obviously we take our customer relationship very seriously, and it's a big -- an important asset for us. So capital recycling program is focused more on our non-core assets and optimizing that portfolio. To the extent that makes sense and our portfolio sets our customer needs is how we would approach that program. Dave?

David Ferdman -- Director

We're very sensitive to this topic and I'm glad you brought it up. This is a platform and our customers are traditionally deployed in several places. So we don't take it lightly. We look at all aspects, but we are committed to the strategy and we are committed to the market. So at the end of the day, we balance all of those aspects and the customer always comes first.

Brendan Lynch -- Barclays -- Analyst

Great. Thank you for taking my question.

Operator

Our next question will come from Sami Badri with Credit Suisse. Please go ahead.

Sami Badri -- Credit Suisse -- Analyst

Hi, thank you for the question. I want to look at just the P&L and look at your general and administrative expenses that actually dropped off quite a bit sequentially in 2Q 2021. And what I'm really doing here is I'm triangulating with what you guys actually reported on your leasing with 33% of annualized GAAP revenue coming from enterprise. So maybe just to think about what this business needs to spend on general, administrative and sales and marketing, and to think about the balance between hyperscale and enterprise, how much are you guys going to have to spend an opex to sustain signings and business, and kind of like my bigger question here is when we move from 2021 and into the out years, and considering your strategy, what is the adjusted EBITDA margin profile we're solving for here?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Hi, Sami. So first of all, and I recognize that we haven't filed our Q yet, but I -- let me just tell you that was a one-time item and SG&A this quarter. It was a settlement on an insurance related to a lawsuit that has been outstanding for a few years. So absent of that, our SG&A has been pretty consistent and steady. I -- as you recall, in the Investor Day, we pointed out to our margin expansion that we expect to reach -- we expect to improve x metered power margin by 300 points by the 2025 time horizon. So that's our goal. And we continue serving our mix of our customers both enterprise and hyperscale. So I'm not sure if exactly one size fits all, but we do have inside sales force that works with our customers and so our primary direct sales channel.

John Hatem -- Executive Vice President & Chief Operating Officer

Yes. Hey, Sami, it's John. So I just want to add something to that. Like, when we think about enterprise and hyperscale, like these are still going to large scale campuses, right. And the operational, the opex efficiency, you get translates to both sets of customers, right. So it doesn't look like all this enterprise customer costs us more to operate than this hyperscale customer. I think that's just important to keep in mind. These customers are going into the same assets while their deals may not be as large. They're getting the same operational level of service from us.

David Ferdman -- Director

And Sami, I'd like to add a little bit to that too, because I think there's -- as we've seen the business evolved over time, the way I look at this is similar to John had stated a little differently. Everything's a cloud these days, right. So you've got public clouds and private clouds. The deployments on our side of the same, the opex efficiency the same, it doesn't -- it's just a private cloud is if we call it enterprise, they're using it internally, the public cloud is reselling it as a service. But to us, the provider, we do the same thing. So I think it's important to understand that the scale and the efficiencies we get due to scale are great. It doesn't matter to us whether it's a public cloud deployment or a private cloud deployment.

Sami Badri -- Credit Suisse -- Analyst

Got it. Thank you. And just a follow-up request here, and I'm doing this mainly on behalf of a lot of the industry experts and just relationships I've built in the data center industry in over the last couple of years I've been covering this sector. But what kind of executives are you looking for to fill the new CEO role? And you don't need to give us specifics here on person or profile, but maybe just regional focus or hyperscale versus enterprise kind of just ironing out a little bit more focus on what you guys are looking for the next successor to come in from a CEO perspective.

David Ferdman -- Director

So, Sami, I think I was asked the same question earlier and we haven't defined it. We're picking up this is really fresh. We're picking a firm, we're going to go through a really detailed process to define that. And without sounding coy, I mean, we need the right person, who's the best fit for the company. And that's both a cultural fit. It's a knowledgeable fit, enthusiasm fit, I mean, all of those different things, but until we actually embark upon the process, I think I'd be front running by trying to guess and lay some qualifications out.

Sami Badri -- Credit Suisse -- Analyst

Got it. Thank you.

Operator

Our next question will come from Jordan Sadler with KeyBanc. Please go ahead.

Jordan Sadler -- KeyBanc -- Analyst

Thank you. And Dave, good to be with you. And thanks for that last response. I think I get it on the new search, but I think in your commentary, you've mentioned that the Board is committed to the strategy and to the opportunity, which really seems like the Board is committed to staying the course, essentially hiring the new President, CEO. Does this mean that the company is not for sale?

David Ferdman -- Director

The Board is committed to the strategy. We're committed to the team. That's -- that hasn't changed and it's not going to change.

Jordan Sadler -- KeyBanc -- Analyst

Okay. So the Board -- has the Board discussed hiring bankers to sell the company.

David Ferdman -- Director

We don't matter -- we don't comment on matters of the Board.

Jordan Sadler -- KeyBanc -- Analyst

Okay. And then you've been involved with the company for 20 plus years or so, but you stepped away almost a decade ago. How actively involved have you been in the operations of the business as a Board member, if at all, and for instance, do you still have relationships with the customers.

David Ferdman -- Director

It's a small world, right. And being someone who was on the inside, you kind of always stay on the inside. I mean, I've known a lot of the customers. I know a lot of people on this call, I know a lot of the employees and I've maintained relationships with all of them. I wouldn't say I've been involved in the operations of the business. I'd say I've been at Board oversight. I think I did a pretty good job of going from being a CEO to being a Board member, which is not easy. But I've maintained good relationships with a lot of customers and a lot of employees. And while I don't know a lot of the investors, because I haven't been in this seat, I'm excited to meet them.

Jordan Sadler -- KeyBanc -- Analyst

Along those lines, in terms of the search, will you toss your hat in the ring for the potential full-time role?

David Ferdman -- Director

Yes. It's too fresh and early for me to comment on that. I think I need to kind of sit -- be around for a little while before I consider that.

Jordan Sadler -- KeyBanc -- Analyst

Okay. Thanks for your patience.

David Ferdman -- Director

Thank you, Jordan.

Operator

Our next question will come from Michael Bilerman with Citi. Please go ahead.

Michael Bilerman -- Citi -- Analyst

Yes, it's Michael Bilerman. So Dave, I was just wondering if you go back to, when you're sitting in the Board room, in the search last year, obviously you had Tesh in the seat who had been at the company and ran a pretty exhaustive search with the search firm. What were the qualifications that you looked for then that weren't met today that made you lead to the change, right? So what was the thing that you thought you were going to get? You obviously made a very large financial commitment to Bruce. You're now making a large financial exit and now have to go through it again, which is a lot of shareholder capital. So can you at least dive into a little bit about, you had prepared a fulsome search last year about trying to find the best individual to lead the company forward a year later, you've made the decision to go a different way. I think investors sort of should be able to get a little bit of color, especially because it's their money. And as a Board member, you worked for shareholders to give us a little bit more color about sort of the shift one year later.

David Ferdman -- Director

Michael, thank you. And it's a fair question and I appreciate it. Obviously I've said it a few times, there are certain matters of the Board. I can't comment on, but what I will tell you is that we did do an extensive search last year. And Tesh was considered for the job. And the Board made the best decision. They thought they could at the time. And the changes that we've just experienced this week have nothing to do with the business, it's operations, the financial reporting, the internal controls or procedures, or how Bruce managed the business. And so as we go forward, we're going to go down a similar path and we're just hoping for a different outcome.

Michael Bilerman -- Citi -- Analyst

So just personality and culture at the end of the day then.

David Ferdman -- Director

I -- well, I would love to be able to comment on matters of the Board. But I'm just prohibited from doing so. And so I -- while it's a fair question. We just have certain things that are private for the Board.

Michael Bilerman -- Citi -- Analyst

Yes. And I guess as you're thinking about the Board, just following on Jordan's question, do you feel like the Board needs more strategic advice as you go through the same process, again with a search firm to find a CEO, does it make sense to bring in sort of advisors to evaluate everything or is the Board committed now just stay the course and be a public company for a long time.

David Ferdman -- Director

I don't -- can you maybe articulate the question? I don't understand exactly what you're asking.

Michael Bilerman -- Citi -- Analyst

Well, I'm trying to understand that obviously the Board made decision that the company to grow needs a different leader, right, needs a different CEO, maybe you and maybe someone else, that may be someone with data center experience, maybe it's a different industry. The Board is obviously come to the conclusion that Bruce was not the individual that you would see managing this enterprise going forward. As part of that, shouldn't the Board also think about whether the company, maybe it's not the CEO, that's the problem, right. Maybe it's something else deeper that requires outside counsel to come in.

David Ferdman -- Director

We use advisors when the Board sees that. We use all kinds of advisors on a regular basis and we'll continue to do so.

Michael Bilerman -- Citi -- Analyst

And just lastly, just have you summed up the total amount of shareholder capital that's been spent between Gary, Tesh, Bruce, I mean, it's -- I think it's almost $50 million in totality when you sum everything up with all the payments and the stock grants and the terms.

David Ferdman -- Director

I have not spend time. Katherine, I don't know if you have a comment on that.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes. We -- I mean, Michael, we have public disclosures and we have filings and the numbers are out there so.

Michael Bilerman -- Citi -- Analyst

Yes. I'm just trying to -- I mean, that's a pretty big number and between all three. And so I'm just trying to get understanding of the Board, how they think about capital in these things. These are not small amounts of money that's being tossed around.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Right. We are focused on running the business and the Board made the decision that they made the decision and we are here to run the business. So that's what we focused on.

Michael Bilerman -- Citi -- Analyst

Okay. Thank you.

Operator

Our next question will come from Jeff Kvaal with Wolfe Research. Please go ahead.

Jeff Kvaal -- Wolfe Research -- Analyst

Yes. Thanks very much. And let me change gears a little bit, I guess, one of the things that we've heard a little bit about in the industry outside of actually -- brought it up last night is there's a bit of a increased propensity for the largest web scalers to try and self-build where they can. I'm wondering to what extent that is that dynamic that you are also seeing and what are the barriers that they face in that process?

John Hatem -- Executive Vice President & Chief Operating Officer

Hey Jeff, it's John. Thank you. So listen, the hyperscale customers have been building their own data centers for decades. And we've seen that split 50/50, 60/40, depending on the customer, depending on the market, that exists out there. We don't see it as a real headwinds. They at us as partners in this space, right. They need to deploy cloud services. Sometimes they can build it themselves. Sometimes they lease it. And not nothing new there.

Jeff Kvaal -- Wolfe Research -- Analyst

Swinging more toward self-build at the moment.

John Hatem -- Executive Vice President & Chief Operating Officer

I mean, like I said, Jeff, I don't think it is completely market dependent, right. I mean, look at -- if you look at Europe, its probably very little self-build. If you look at submarkets in the U.S. depending on their land position versus the provider's land position, maybe it swings the other way a little bit, but it's swung the other way, like I said, for years.

Jeff Kvaal -- Wolfe Research -- Analyst

Okay. Why don't I follow-up on the record backlog, obviously last few quarters, great leasing activity, record backlog, the sort of organic leasing revenue growth is kind of yet to see that lease in this guidance. And I'm wondering when we should see that translate through to the leasing performance.

David Ferdman -- Director

I mean, we've laid out this Michael -- Jeff, we've provided a commencement schedule and estimated commencement schedule. Katherine provided more color on that schedule. So that lays out exactly as we sit here today, what we think the timing's going to be on that backlog.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes. And remember, 86% of is pre-lease of the development pipeline. So that's in the backlog.

Jeff Kvaal -- Wolfe Research -- Analyst

Yes. So let me broaden that a little bit, because our leasing is quite variable. And so I just want to make sure that the leasing strengths in the last couple of quarters isn't like an uptick, but it's -- it'll continue. And therefore there'll be more leasing strength to support the revenue growth for 2022 and beyond. This isn't a just a three quarter surge post the pricing action.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

We don't even talk about future leasing. We do tell you that the backlog and the profile of backlog will drive the revenue growth. And as Dave pointed out, the market demand is strong and we continue to look for opportunities to capitalize on it. Respectfully, if we can move to the next few questions, we have only a couple of minutes.

Jeff Kvaal -- Wolfe Research -- Analyst

Thank you.

Operator

Our next question will come from Eric Luebchow of Wells Fargo. Please go ahead.

Eric Luebchow -- Wells Fargo -- Analyst

Thanks for taking the question. So looking at your portfolio today, your development pipeline is almost fully leased, I think, 86%. So and some of your best markets in Europe, Northern Virginia, Phoenix are 90% to 100%. So kind of surprised that you would lower your capex guidance and I appreciate that there was some spend that got pushed out, but are you running into any supply constraints in the second half of the year that might impede your ability to continue leasing momentum? Or are there some projects going on in the background that haven't been disclosed on the development side that could provide some opportunity?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Hi, Eric. So, yes, I mean, we lowered the develop -- the capex guideline, not because of the project to being canceled or anything, but the timing of that capital expenditures is getting pushed out, some primarily due to permitting. Mostly, for example, Santa Clara is still in the process of permitting. We also had delays in permitting in Frankfurt. We do not anticipate we have experienced some issues with supply chains on the minor level, but let John talk about that.

John Hatem -- Executive Vice President & Chief Operating Officer

Yes. Eric, on the supply chain side, I mean to the permitting stuff too, that got Katherine mentioned, that's all it is. Those projects are teed up, contractors, everything. So we're just waiting on permits. But on the supply chain side, listen, we have seen some minor impacts to some equipment. And our supply chain has been robust enough to deal with that, but we're constantly watching it if there's a global issue and the team is all over it, so.

Eric Luebchow -- Wells Fargo -- Analyst

Okay, great. And just one quick follow-up on the enterprise leasing side, I thought you had signaled, maybe it would be flat or a little weaker, but it came in kind of ahead of the $9 million to $12 million you typically target per quarter. So maybe you could provide a little color, where there some larger enterprise deals that, that came in this quarter and maybe what does the pipeline look like going forward?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Yes. So enterprise business even though it's steadier then obviously, and less lumpy then hyperscale, but generally you still have deals that happen. They're not necessarily quarter-to-quarter. So if you remember our first quarter on enterprise wasn't as strong. So this was a little bit stronger as it's all about timing really at the end of the day when we signed the leases.

Eric Luebchow -- Wells Fargo -- Analyst

Okay. Thank you.

Operator

Our last question will come from Michael Funk with Bank of America. Please go ahead.

Michael Funk -- Bank of America -- Analyst

Yes. Thank you for having me in, guys. One few if I could Dave, I appreciate, you don't want to comment on internal Board discussions or deliberations, so more your opinion, Dave, clearly the public markets are forcing suboptimal levels of leverage on data center companies, even recycling assets, which is arguably a low cost source of capital seems to be punished in the short-term due to the dilution. So what is the advantage at this point to be in a public company versus being private for CyrusOne.

David Ferdman -- Director

As a public investment grade company, I'll tell you our customers really love that we've got access to capital. Our customers would always rather do business with us if we have capacity. And I think part of that is they know that we have access to capital. So the customers really enjoy it.

Michael Funk -- Bank of America -- Analyst

And so it's a concern that's being private that you wouldn't have access to enough capital to develop, is that the concern that the credit markets that we're even partners or owners wouldn't have access to the same amount of capital?

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Michael, I don't think we should comment on private versus public. We are a public company and we enjoy certain privileges as a public company, but we also in being more transparent, our customers and we -- and the customers appreciate that. And we take full advantage of where we are and we do have access to capital through the public markets, but it's -- that's where we are. We creating value for our shareholders as a public company.

Michael Funk -- Bank of America -- Analyst

Sure. I appreciate that. And thank you for the time.

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

Thank you.

Michael Funk -- Bank of America -- Analyst

Thank you. Take care.

David Ferdman -- Director

Thank you, all. I look forward to meeting some of you as I get out and about, and I appreciate your time today.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

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

David Ferdman -- Director

Katherine Motlagh -- Executive Vice President and Chief Financial Officer

John Hatem -- Executive Vice President & Chief Operating Officer

Jon Atkin -- RBC Capital Markets -- Analyst

Aryeh Klein -- BMO Capital Markets -- Analyst

Richard Choe -- JPMorgan -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Erik Rasmussen -- Stifel -- Analyst

Frank Louthan -- Raymond James -- Analyst

Colby Synesael -- Cowen -- Analyst

David Guarino -- Green Street Advisors -- Analyst

Matt Niknam -- Deutsche Bank -- Analyst

Brendan Lynch -- Barclays -- Analyst

Sami Badri -- Credit Suisse -- Analyst

Jordan Sadler -- KeyBanc -- Analyst

Michael Bilerman -- Citi -- Analyst

Jeff Kvaal -- Wolfe Research -- Analyst

Eric Luebchow -- Wells Fargo -- Analyst

Michael Funk -- Bank of America -- Analyst

More CONE analysis

All earnings call transcripts