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Growth in the cloud: CyrusOne CFO Diane Morefield

Deloitte on Cloud Blog

As cloud usage expands, data center REIT CyrusOne approaches projects more as a supply chain manager than as a real estate developer.

July 31, 2019

A blog post by Robert FitzGerald

A veteran of the real estate investment trust sector, Diane Morefield, EVP and CFO of CyrusOne Inc., says the increasing movement to the cloud is shaping the data center REIT’s strategy, fueling its recent global expansion, and informing a high-speed culture. “We take a bricks-and-mortar supply chain model and apply it to the future, which differentiates us from many other real estate developers,” Morefield says.

In this interview, Morefield discusses why the label “nontraditional REIT” doesn’t apply to CyrusOne in her view, and how finance acts as a hub to the business, with Robert FitzGerald, an Audit & Assurance partner at Deloitte & Touche LLP. She also explains what she looks for in finance talent, and describes her efforts to promote the recruitment, inclusion, and advancement of women and other groups in the REIT sector, with Carol Larson, an Audit & Assurance partner at Deloitte & Touche LLP and champion for Women in Finance for Deloitte’s CFO Program.

FitzGerald: What cloud developments are you and your finance organization focusing on?

Morefield: Our customers’ increasing use of cloud technology and our own expansion internationally are two areas where the finance team has been spending more time supporting the business. When CyrusOne went public in January 2013, we had no cloud companies on the customer roster. Today, cloud customers represent almost 40 percent of our revenue, and I expect that percentage to rise substantially during the next few years. In some ways, CyrusOne is at the crossroads of three industries: real estate, investment trusts, and technology.

In addition, the top cloud companies are global, and so is their data, so going global was a strategic imperative for the company. When we expand internationally, it’s because our customers are telling us they want us there. As a result of acquiring a London-based private data center company and other investments, the company is in four European markets—London, Frankfurt, Amsterdam, and Dublin. Our site selection team has secured additional sites for data center developments, which is the primary reason we raised more than $6 billion of gross capital in the past few years.

FitzGerald: How has the growth in cloud usage affected the business and how does finance support it?

Morefield: I’ve seen more collaboration between customers and our sales team from both a technical and strategic perspective. It’s incumbent upon us to maintain high levels of physical security, including a power and cooling infrastructure that protects the equipment storing customer data. Sales teams meet with customer engineers and procurement teams to understand data center specifications and security, and the finance function is part of the planning. We monitor the company’s capacity to commission the construction of new data centers, both in the US and internationally, and partner with our in-house construction and design group on the procurement and supply chain management processes.

Sales teams also talk with our business leaders to understand which cloud applications are forecast to experience rapid growth over the next year or two and how that might translate into a need for additional data center space. Again, finance has a contributing role. We prepare financial analyses across a wide range of functions and support activities such as tracking development costs. Finance also helps with the structuring and underwriting of significant leases, particularly cloud agreements that are often larger, longer term, and more complicated than standard leases.

FitzGerald: Data center REITs have been called nontraditional. How do you describe your business model?

Morefield: Data center REITs have been classified as nontraditional REITs since their inception. It may be a more complicated model, but we have all the traits of a traditional REIT. We sign long-term leases—five to 15 years—with credit-quality tenants; have annual escalators to the rent and the lease terms; are geographically diverse; have a strong balance sheet; and borrow unsecured. The main difference between us and a large-office REIT is that we put servers, not people, in our buildings. Also, if the economy pulls back a little, our business model may be more resilient than other types of REITs; it isn’t likely there will be less demand for data and data storage.

We also approach projects more as a supply chain manager, rather than as a real estate developer. For example, we’ve modeled our procurement function—which reports into finance, and partners with our construction and design group—and procurement processes after how supply chains operate in the manufacturing industry.

The approach stems from the makeup of our executive team. Our CEO and other senior executives come from the manufacturing industry, while other executives have backgrounds in the technology and engineering sectors. Our general counsel and I are the only executives with a real estate background.

As part of our model, we also maintain an extensive land inventory in a variety of geographies, which enables us to build a ground-up facility ready to commission in six months. If the shell of the data center is built, we can complete a facility in 12 weeks. That enables us to provide our clients with state-of-the-art facilities quickly and generally at a lower cost than if we were acting as a pure real estate developer.

Larson: Given that CyrusOne cuts across industries, what kind of finance talent do you seek?

Morefield: We want some people with real estate experience because that’s our core business. But we also look for talent that understands technology and how it drives the business, as well as high-energy, nimble team members who will easily adapt to the rapid pace of our business. Unlike many REITs, we seek finance professionals with international experience because of our overseas expansion. One of the employee programs we put in place quickly after our acquisition of Europe’s Zenium Data Centers was a compliance training program for employees outside the US similar to the annual compliance training our US-based employees take. It includes eight modules, including ones on the EU’s General Data Protection Regulation and the US Foreign Corrupt Practices Act.

Larson: Women remain underrepresented in higher-level finance jobs across the business spectrum. What is your perspective with regard to the gap?

Morefield: I chair the steering committee of the Dividends Through Diversity and Inclusion Initiative, a program developed by the National Association of Real Estate Investment Trusts to promote the recruitment, inclusion, and advancement of women and members of other under-represented groups in REITs and the broader commercial real estate industry. I have been passionate about this issue since early in my career. While progress has been made, it has been slow, and the number of women in CEO and CFO positions remains low.

However, I am encouraged by recent efforts to put more women on boards. We saw the needle move in favor of more women board members when large institutional investors pushed for gender diversity. Still, to this day, I attend many senior-level meetings where I am the only woman. Some of the disparity can be attributed to unconscious bias. We should recognize that unconscious bias can begin with a pipeline of candidates for C-suite positions that is not diverse. That certainly is something that training and education can help to address going forward.

This article first appeared on the WSJ and is part of an ongoing series of interviews with CEOs, CFOs, and other executives. Diane Morefield’s participation in this article is solely for educational purposes based on her knowledge of the subject and the views expressed by her are solely her own. This article should not be deemed or construed to be for the purpose of soliciting business for CyrusOne, nor does Deloitte advocate or endorse the services or products provided by CyrusOne.

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