Form 8-K QTS Realty Trust, Inc. For: Apr 25
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): April 25, 2016
QTS Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
| Maryland | 001-36109 | 46-2809094 | ||
|
(State or other jurisdiction of incorporation) |
(Commission File No.) |
(I.R.S. Employer Identification No.) |
|
12851 Foster Street Overland Park, KS 66213 |
66213 | |
| (Address of principal executive offices) | (Zip Code) |
(913) 814-9988
Registrant’s telephone number, including area code:
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On April 25, 2106, QTS Realty Trust, Inc. (the “Company”) announced its financial results for the first quarter ended March 31, 2016. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and a copy of the Company’s First Quarter 2016 Supplemental Information is attached hereto as Exhibit 99.2.
The information included in this Current Report on Form 8-K (including Exhibits 99.1 and 99.2 hereto) shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing made by the Company under the Exchange Act or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
|
Exhibit Number |
Exhibit Description | |
| 99.1 | Press Release dated April 25, 2016 | |
| 99.2 | First Quarter 2016 Supplemental Information | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| QTS Realty Trust, Inc. | |||
| By: |
/s/ Shirley E. Goza | ||
| Shirley E. Goza | |||
| Secretary and General Counsel | |||
April 25, 2016
EXHIBIT INDEX
|
Exhibit Number |
Exhibit Description | |
| 99.1 | Press Release dated April 25, 2016 | |
| 99.2 | First Quarter 2016 Supplemental Information | |
Exhibit 99.1
QTS REPORTS FIRST QUARTER 2016 OPERATING RESULTS
OVERLAND PARK, Kan. – April 25, 2016 – QTS Realty Trust, Inc. (“QTS” or the “Company”) (NYSE: QTS) today announced operating results for the first quarter ended March 31, 2016.
First Quarter Highlights
| · | Reported Operating FFO of $33.1 million in the first quarter of 2016, an increase of 70.1% compared to the first quarter of 2015. Operating FFO in the first quarter of 2016 included a non-cash deferred tax benefit of $1.9 million. Operating FFO for the first quarter of 2016 on a fully diluted per share basis was $0.68 per share, an increase of 35.0% compared to Operating FFO per share of $0.50 for the first quarter of 2015. FFO was $31.7 million in the first quarter of 2016, an increase of 64.1% compared to FFO of $19.3 million in the first quarter of 2015. |
| · | Reported Adjusted EBITDA of $43.0 million in the first quarter of 2016, an increase of 53.4% compared to the first quarter of 2015. |
| · | Reported NOI of $61.2 million in the first quarter of 2016, an increase of 51.0% compared to the first quarter of 2015. |
| · | Total revenues of $94.8 million recognized in the first quarter of 2016, an increase of 54.4% compared to the first quarter of 2015. Monthly Recurring Revenue (“MRR”) as of March 31, 2016 increased by 54.1% to $27.5 million compared to MRR as of March 31, 2015. |
| · | On April 1, 2016, the Company issued 6,325,000 shares of its Class A common stock and used substantially all of the net proceeds of approximately $276 million to repay amounts outstanding under its unsecured revolving credit facility. Pro forma for this issuance, the Company’s debt to annualized Adjusted EBITDA would have been 4.0x. |
| 1 QTS Q1 Earnings 2016 | Contact: [email protected] |
“We are pleased to be off to a strong start to 2016. Our customers continue to value the differentiated solution that our fully integrated platform provides on top of world-class, mega-scale infrastructure,” said Chad Williams, Chairman and CEO of QTS.
Williams added, “We are excited about the opportunities in our markets and with our customers, and look forward to the upcoming launch of our facility in Chicago in mid-2016.”
Financial Results
Net income recognized in the first quarter of 2016 was $6.9 million ($0.14 per basic and diluted share), which included approximately $2.1 million of transaction and integration costs and $2.6 million of income tax benefit, compared to net income of $5.0 million recognized in the first quarter of 2015.
QTS generated Operating FFO of $33.1 million, or $0.68 per fully diluted share, in the first quarter of 2016, which includes a tax benefit of approximately $1.9 million. The $33.1 million of Operating FFO represents an increase of approximately 70.1% compared to $19.4 million for the first quarter of 2015.
Additionally, QTS generated $43.0 million of Adjusted EBITDA in the first quarter of 2016, an increase of 53.4% compared to $28.0 million for the first quarter of 2015. MRR as of March 31, 2016 was $27.5 million, an increase of 54.1% compared to MRR as of March 31, 2015 of $17.8 million, with total revenues increasing by 54.4% to $94.8 million for the first quarter 2016 compared to $61.4 million for the first quarter 2015.
Leasing Activity
During
the first quarter of 2016, QTS entered into customer leases representing approximately $8.6 million of incremental
annualized rent, net of downgrades. This is impacted by a customer that reduced its MRR by $2.4 million on an annualized
basis, primarily due to the customer shifting a portion of its product mix as it transitions its infrastructure from QTS C3
to its own infrastructure environment housed in QTS data centers. As a result, the customer received a price reduction, in
line with the difference in pricing from a C3 to a blended C2/C3 environment. Subsequent to the end of the first quarter of
2016, QTS signed an incremental 4 megawatt lease in its
Dallas-Fort Worth facility with a leading global hybrid cloud provider, which, had it occurred during the first quarter,
would have nearly doubled the Company’s net leasing for the quarter. Overall and C1 new/modified blended lease rates
for the first quarter 2016 were impacted by the signing of a significant C1 contract with a strategic customer during the
first quarter of 2016. Pricing for this strategic customer reflects its unique power commitment, lease size and customized
solution. The solution for this customer meets the Company’s targeted return, and the size of the contract lowers the
overall lease rates per square foot for C1. Leasing activity in the Company’s C2/C3 categories has remained solid, with
increased pricing on a per square foot basis by approximately 10% compared to the trailing four quarter average, which was
attributable to customers utilizing additional services with those leases.
During
the first quarter of 2016, QTS renewed leases with a total annualized rent of $15.9 million at an average rent per square
foot of $950, which was 3.7% lower than the annualized rent prior to their respective renewals. This was driven by the change
in product mix for renewals of two larger customer leases. If the renewals related to these customers were excluded from the
renewal base, rates would have been consistent with pre-renewal rates. The Company defines renewals as leases for which the
customer retains the same amount of space before and after renewal. There is variability in the Company’s renewal
rates based on the mix of product types renewed, and renewal rates are expected to increase in the low to mid-single digits.
Rental churn (which the Company defines as MRR lost to a customer intending to fully exit the platform compared to total MRR
at the beginning of the period) was 2.3% for the first quarter of 2016.
During the first quarter of 2016, QTS commenced customer leases (which includes new customers and also existing customers that renewed their lease term) at an average rent of $776 per square foot compared to a trailing four quarter average of $597 per square foot. This increase in total overall rates for the first quarter of 2016 was largely due to the magnitude of C2/C3 lease commencements relative to C1 lease commencements, as well as C1 lease rates being higher than their prior four quarter average. The C2/C3 average commencement rates decreased slightly compared to the trailing four quarter average due to larger C2 customers and a lower level of service related to those customers.
As of March 31, 2016, the booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of March 31, 2016) was approximately $4.3 million, or $51.6 million of annualized rent, and compares to $47.7 million at December 31, 2015. The booked-not-billed balance is expected to contribute an incremental $15.5 million to revenue in 2016 (representing $26.3 million in annualized revenues), an incremental $6.8 million in 2017 (representing $11.4 million in annualized revenues), and an incremental $13.9 million in annualized revenues thereafter.
| 2 QTS Q1 Earnings 2016 | Contact: [email protected] |
Development, Redevelopment,
and Acquisitions
During the first quarter of 2016, the Company brought online approximately 7.9 megawatts of gross power and approximately 34,000 net rentable square feet (“NRSF”) of raised floor and various portions of customer specific capital at an aggregate cost of approximately $57 million. In addition, during the first quarter of 2016, the Company continued redevelopment of the Dallas-Fort Worth, Atlanta-Metro, Richmond and Chicago facilities to have space ready for customers later in 2016 and forward. The Company expects to bring an additional 106,000 raised floor NRSF into service in the remaining quarters of 2016 at an aggregate cost of approximately $229 million, which includes build out for the 4 megawatt lease that the Company signed with a customer in April 2016 at the Dallas-Fort Worth facility.
Balance Sheet and Liquidity
As of March 31, 2016, the Company’s total debt balance was $956.7 million, resulting in a debt to annualized Adjusted EBITDA of 5.6x. Pro forma for the equity issuance discussed below, the Company’s debt to annualized Adjusted EBITDA would have been 4.0x. This ratio continues to be impacted by various portions of the Company’s portfolio that were placed into service in the first quarter of 2016 which have not yet produced a stabilized Adjusted EBITDA. In addition, the Company incurred costs included in construction in progress related to revenue which will begin to ramp in the remainder of 2016 associated with the Company’s booked-not-billed backlog of $51.6 million in annualized rent.
As of March 31, 2016, the Company had total available liquidity of approximately $300 million which was comprised of $290 million of available capacity under the Company’s unsecured revolving credit facility and approximately $10 million of cash and cash equivalents. Pro forma for the equity issuance discussed below, the Company would have had total available liquidity of approximately $576 million.
On April 1, 2016, the Company issued 6,325,000 shares of QTS’ Class A common stock at a price
of $45.50 per share in an underwritten public offering, which included the exercise of the underwriters’ overallotment option
in full. The Company used substantially all of the net proceeds of approximately $276 million to repay amounts outstanding under
its unsecured revolving credit facility.
2016 Guidance
The Company is raising its guidance
for Operating FFO and now expects a range of $135.0 million to $140.0 million. The Company is maintaining its 2016 guidance for
Operating FFO per share in the range of $2.54 to $2.64 per share, Adjusted EBITDA in the range of $177.0 million to $185.0 million
and Capital Expenditures, excluding acquisitions, of approximately $300.0 million to $350.0 million. The Company is also maintaining
its guidance for churn of 5-8% for 2016 and continues to anticipate Adjusted EBITDA margin to expand by approximately 300 basis
points over second half 2015 levels over the next few years.
This guidance is calculated based on revenue growth that is back-end loaded and ramping during the
year and does not contemplate any acquisitions or dispositions. The guidance also incorporates approximately $4 - $5 million of
estimated tax benefit recognized in 2016.
Non-GAAP Financial Measures
This release includes certain non-GAAP financial measures that management believes are helpful
in understanding the Company’s business, as further described below.
Conference Call Details
The Company will host a conference call and webcast on April 26, 2016, at 10:00 a.m. Eastern time (9:00 a.m. Central time) to discuss its financial results, current business trends and market conditions.
The dial-in number for the conference call is (877) 883-0383 (U.S.) or (412) 902-6506 (International). The participant entry number is 5975914# and callers are asked to dial in ten minutes prior to start time. A link to the live broadcast and the replay will be available on the Company’s website (www.qtsdatacenters.com) under the Investors tab.
| 3 QTS Q1 Earnings 2016 | Contact: [email protected] |
About QTS
QTS Realty Trust, Inc. (NYSE: QTS) is a leading provider of secure, compliant data
center solutions, hybrid cloud and fully managed services. QTS' integrated technology service platform of custom data center (C1),
colocation (C2) and cloud and managed services (C3) provides flexible, scalable, secure IT solutions for web and IT applications.
QTS' Critical Facilities Management (CFM) provides increased efficiency and greater performance for third-party data center owners
and operators. QTS owns, operates or manages 24 data centers and supports more than 1,000 customers in North America, Europe
and Asia Pacific.
QTS Investor Relations Contact
Stephen Douglas – Vice President
– Investor Relations and Strategic Planning
Jeff Berson – Chief Investment Officer
William Schafer – Chief Financial Officer
Forward Looking Statements
Some of the statements contained in this release constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In particular, statements pertaining to the Company’s capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, all of the statements regarding anticipated growth in funds from operations and anticipated market conditions are forward-looking statements. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
The forward-looking statements contained in this release reflect the Company’s current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed in any forward-looking statement. The Company does not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: adverse economic or real estate developments in the Company’s markets or the technology industry; global, national and local economic conditions; risks related to the Company’s international operations; difficulties in identifying properties to acquire and completing acquisitions; the Company’s failure to successfully develop, redevelop and operate acquired properties or lines of business, including data centers acquired in the Company’s acquisition of Carpathia Hosting, Inc.; significant increases in construction and development costs; the increasingly competitive environment in which the Company operates; defaults on, or termination or non-renewal of leases by customers; increased interest rates and operating costs, including increased energy costs; financing risks, including the Company’s failure to obtain necessary outside financing; decreased rental rates or increased vacancy rates; dependence on third parties to provide Internet, telecommunications and network connectivity to the Company’s data centers; the Company’s failure to qualify and maintain its qualification as a real estate investment trust; environmental uncertainties and risks related to natural disasters; financial market fluctuations; and changes in real estate and zoning laws, revaluations for tax purposes and increases in real property tax rates.
While forward-looking statements reflect the Company’s good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and other periodic reports the Company files with the Securities and Exchange Commission.
| 4 QTS Q1 Earnings 2016 | Contact: [email protected] |
Combined Consolidated Balance Sheets
(in thousands)
| March 31, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Real Estate Assets | ||||||||
| Land | $ | 57,128 | $ | 57,112 | ||||
| Buildings, improvements and equipment | 1,241,885 | 1,180,386 | ||||||
| Less: Accumulated depreciation | (255,344 | ) | (239,936 | ) | ||||
| 1,043,669 | 997,562 | |||||||
| Construction in progress | 340,511 | 345,655 | ||||||
| Real Estate Assets, net | 1,384,180 | 1,343,217 | ||||||
| Cash and cash equivalents | 9,744 | 8,804 | ||||||
| Rents and other receivables, net | 30,880 | 28,233 | ||||||
| Acquired intangibles, net (1) | 125,733 | 115,702 | ||||||
| Deferred costs, net (2) (3) | 31,367 | 30,042 | ||||||
| Prepaid expenses | 10,644 | 6,502 | ||||||
| Goodwill (1) | 171,679 | 181,738 | ||||||
| Other assets, net (4) | 35,181 | 33,101 | ||||||
| TOTAL ASSETS | $ | 1,799,408 | $ | 1,747,339 | ||||
| LIABILITIES | ||||||||
| Unsecured credit facility, net (3) | $ | 607,105 | $ | 520,956 | ||||
| Senior notes, net of discount and debt issuance costs (3) | 291,186 | 290,852 | ||||||
| Capital lease and lease financing obligations | 46,666 | 49,761 | ||||||
| Accounts payable and accrued liabilities | 69,064 | 95,924 | ||||||
| Dividends and distributions payable | 17,358 | 15,378 | ||||||
| Advance rents, security deposits and other liabilities | 20,061 | 18,798 | ||||||
| Deferred income taxes (1) | 21,049 | 18,813 | ||||||
| Deferred income | 16,435 | 16,991 | ||||||
| TOTAL LIABILITIES | 1,088,924 | 1,027,473 | ||||||
| EQUITY | ||||||||
| Common stock, $0.01 par value, 450,133,000 shares authorized, 41,434,961 and 41,225,784 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively (5) | 414 | 412 | ||||||
| Additional paid-in capital (5) | 671,650 | 670,275 | ||||||
| Accumulated dividends in excess of earnings (5) | (61,754 | ) | (52,732 | ) | ||||
| Total stockholders’ equity (5) | 610,310 | 617,955 | ||||||
| Noncontrolling interests (5) | 100,174 | 101,911 | ||||||
| TOTAL EQUITY (5) | 710,484 | 719,866 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 1,799,408 | $ | 1,747,339 | ||||
| (1) | As a result of more in-depth and ongoing analysis, the purchase price allocation associated with the acquisition of Carpathia Hosting, Inc. (“Carpathia”) was further adjusted during the first quarter of 2016, with the primary adjustments being a $14.7 million increase in intangible assets, a $4.9 million increase in deferred tax liability and a reduction in goodwill of $10.1 million. |
| (2) | As of March 31, 2016 and December 31, 2015, deferred costs, net, included $5.9 million and $6.3 million of deferred financing costs net of amortization, respectively, $22.8 million and $21.0 million of deferred leasing costs net of amortization, respectively, and $2.7 million and $2.9 million, net of amortization, related to a leasing arrangement at the Company’s Princeton facility, respectively. |
| (3) | Debt issuance costs related to the Senior Notes and term loan portion of the Company’s unsecured credit facility have been reclassified from other assets, net to the related debt liability line items for both periods presented, as required by recently issued accounting guidance. |
| (4) | As of March 31, 2016 and December 31, 2015, other assets, net, primarily included $27.9 million and $25.9 million of corporate fixed assets, respectively, primarily relating to construction of corporate offices, leasehold improvements and product related assets. |
| (5) | The March 31, 2016 equity amounts do not reflect the issuance of 6,325,000 shares of Class A common stock at $45.50 per share which closed on April 1, 2016 and generated net proceeds of approximately $276 million. |
| 5 QTS Q1 Earnings 2016 | Contact: [email protected] |
Combined Consolidated Statements of Operations and Comprehensive Income
(unaudited and in thousands)
| Three Months Ended (unaudited) | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| Revenues: | ||||||||||||
| Rental | $ | 68,426 | $ | 66,240 | $ | 49,333 | ||||||
| Recoveries from customers | 5,435 | 5,177 | 5,664 | |||||||||
| Cloud and managed services | 18,890 | 19,406 | 5,795 | |||||||||
| Other (1) | 2,017 | 1,867 | 594 | |||||||||
| Total revenues | 94,768 | 92,690 | 61,386 | |||||||||
| Operating expenses: | ||||||||||||
| Property operating costs | 31,781 | 32,063 | 19,336 | |||||||||
| Real estate taxes and insurance | 1,740 | 1,448 | 1,485 | |||||||||
| Depreciation and amortization | 28,639 | 27,020 | 16,243 | |||||||||
| General and administrative (2) | 20,286 | 19,890 | 13,838 | |||||||||
| Transaction and integration costs (3) | 2,087 | 5,026 | 105 | |||||||||
| Total operating expenses | 84,533 | 85,447 | 51,007 | |||||||||
| Operating income | 10,235 | 7,243 | 10,379 | |||||||||
| Other income and expense: | ||||||||||||
| Interest expense | (5,981 | ) | (5,730 | ) | (5,342 | ) | ||||||
| Other expense, net (4) | - | (385 | ) | - | ||||||||
| Income before taxes and loss on sale of real estate | 4,254 | 1,128 | 5,037 | |||||||||
| Tax benefit of taxable REIT subsidiaries (5) | 2,605 | 4,370 | - | |||||||||
| Loss on sale of real estate | - | (164 | ) | - | ||||||||
| Net income | 6,859 | 5,334 | 5,037 | |||||||||
| Net income attributable to noncontrolling interests (6) | (970 | ) | (731 | ) | (955 | ) | ||||||
| Net income attributable to QTS Realty Trust, Inc. | $ | 5,889 | $ | 4,603 | $ | 4,082 | ||||||
| (1) | Other revenue – Includes straight line rent, sales of scrap metals and other unused materials and various other income items. Straight line rent was $1.9 million, $1.8 million and $0.4 million for the three months ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively. |
| (2) | General and administrative expenses – Includes personnel costs, sales and marketing costs, professional fees, travel costs, product investment costs and other corporate general and administrative expenses. General and administrative expenses were 21.4%, 21.5%, and 22.5% of total revenues for the three month periods ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively. |
| (3) | Transaction and integration costs – For the three month periods ended March 31, 2016, December 31, 2015 and March 31, 2015, the Company recognized aggregated $2.1 million, $5.0 million ($0.4 million related to transaction costs) and $0.1 million, respectively, related to the examination of actual and potential acquisitions. Integration costs for the three month periods ended March 31, 2016 and December 31, 2015, include various costs to integrate QTS and Carpathia, including consulting fees, costs to consolidate office space and costs which are currently duplicated but will be eliminated in the near future. Integration costs for the three months ended December 31, 2015 included $3.1 million in non-cash charges related to QTS’ decision to transfer QTS’ Federal Cloud customers to Carpathia’s existing Federal Cloud platform. |
| (4) | Other expense, net – Generally includes write offs of unamortized deferred financing costs associated with the early extinguishment of certain debt instruments. |
| (5) | Tax benefit of taxable REIT subsidiaries – For the three months ended March 31, 2016 and December 31, 2015, the Company recorded an approximate $2.6 million and $4.4 million non-cash deferred tax benefit, respectively, related to recorded operating losses which include certain transaction and integration costs. |
| (6) | Noncontrolling interest –The noncontrolling ownership interest of QualityTech, LP was 14.1%, and 17.3% as of March 31, 2016 and 2015, respectively, with the decrease primarily attributable to the equity issuance in June 2015. |
| 6 QTS Q1 Earnings 2016 | Contact: [email protected] |
Reconciliations of Net Income to FFO, Operating FFO & Adjusted Operating FFO
(unaudited and in thousands)
The Company calculates FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of property, real estate-related depreciation and amortization and similar adjustments for unconsolidated partnerships and joint ventures. The Company generally calculates Operating FFO as FFO excluding certain non-routine charges and gains and losses that management believes are not indicative of the results of the Company’s operating real estate portfolio. The Company believes that Operating FFO provides investors with another financial measure that may facilitate comparisons of operating performance and liquidity between periods and, to the extent other REITs calculate Operating FFO on a comparable basis, between the Company and these other REITs. The Company calculates Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment, paid leasing commissions, amortization of deferred financing costs and bond discount, non-real estate depreciation, straight line rent adjustments, non-cash deferred taxes and non-cash compensation.
A reconciliation of net income to FFO, Operating FFO and Adjusted Operating FFO is presented below:
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| FFO | ||||||||||||
| Net income | $ | 6,859 | $ | 5,334 | $ | 5,037 | ||||||
| Real estate depreciation and amortization | 24,869 | 22,575 | 14,302 | |||||||||
| Loss on sale of real estate | - | 164 | - | |||||||||
| FFO | 31,728 | 28,073 | 19,339 | |||||||||
| Write off of unamortized deferred finance costs | - | 385 | - | |||||||||
| Integration costs | 2,053 | 4,552 | - | |||||||||
| Transaction costs | 34 | 474 | 105 | |||||||||
| Deferred tax benefit associated with transaction and integration costs | (748 | ) | (1,970 | ) | - | |||||||
| Operating FFO * | 33,067 | 31,514 | 19,444 | |||||||||
| Maintenance Capex | (335 | ) | (2,711 | ) | (17 | ) | ||||||
| Leasing commissions paid | (5,807 | ) | (3,237 | ) | (3,084 | ) | ||||||
| Amortization of deferred financing costs and bond discount | 877 | 872 | 849 | |||||||||
| Non real estate depreciation and amortization | 3,770 | 4,445 | 1,941 | |||||||||
| Straight line rent revenue and expense | (1,610 | ) | (2,398 | ) | (365 | ) | ||||||
| Non-cash deferred tax benefit from operating results | (1,857 | ) | (2,400 | ) | - | |||||||
| Equity-based compensation expense | 2,050 | 1,758 | 1,307 | |||||||||
| Adjusted Operating FFO * | $ | 30,155 | $ | 27,843 | $ | 20,075 | ||||||
| * | The Company’s calculations of Operating FFO and Adjusted Operating FFO may not be comparable to Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not use the same definition. |
| 7 QTS Q1 Earnings 2016 | Contact: [email protected] |
Reconciliations of Net Income to EBITDA and Adjusted EBITDA
(unaudited and in thousands)
The Company calculates EBITDA as net income (loss) adjusted to exclude interest expense and interest income, provision (benefit) for income taxes (including income taxes applicable to sale of assets) and depreciation and amortization. The Company believes that EBITDA is another metric that is often utilized to evaluate and compare the Company’s ongoing operating results and also, in part, to assess the value of the Company’s operating portfolio. In addition to EBITDA, the Company calculates an adjusted measure of EBITDA, which the Company refers to as Adjusted EBITDA, as EBITDA excluding write off of unamortized deferred financing costs, gain (loss) on extinguishment of debt, transaction and integration costs, equity-based compensation expense, restructuring costs and gain (loss) on sale of real estate. The Company believes that Adjusted EBITDA provides investors with another financial measure that can facilitate comparisons of operating performance between periods and between REITs.
A reconciliation of net income to EBITDA and Adjusted EBITDA is presented below:
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| EBITDA and Adjusted EBITDA | ||||||||||||
| Net income | $ | 6,859 | $ | 5,334 | $ | 5,037 | ||||||
| Interest expense | 5,981 | 5,730 | 5,342 | |||||||||
| Interest income | - | - | - | |||||||||
| Tax benefit of taxable REIT subsidiaries | (2,605 | ) | (4,370 | ) | - | |||||||
| Depreciation and amortization | 28,639 | 27,020 | 16,243 | |||||||||
| EBITDA | 38,874 | 33,714 | 26,622 | |||||||||
| Write off of unamortized deferred finance costs | - | 385 | - | |||||||||
| Equity-based compensation expense | 2,050 | 1,758 | 1,307 | |||||||||
| Integration costs | 2,053 | 4,552 | - | |||||||||
| Transaction costs | 34 | 474 | 105 | |||||||||
| Loss on sale of real estate | - | 164 | - | |||||||||
| Adjusted EBITDA | $ | 43,011 | $ | 41,047 | $ | 28,034 | ||||||
| 8 QTS Q1 Earnings 2016 | Contact: [email protected] |
Reconciliations of Net Income to Net Operating Income (NOI)
(unaudited and in thousands)
The Company calculates net operating income (“NOI”) as net income (loss), excluding: interest expense, interest income, tax expense (benefit) of taxable REIT subsidiaries, depreciation and amortization, write off of unamortized deferred financing costs, gain (loss) on extinguishment of debt, transaction and integration costs, gain (loss) on sale of real estate, restructuring costs and general and administrative expenses. The Company believes that NOI is another metric that is often utilized to evaluate returns on operating real estate from period to period and also, in part, to assess the value of the operating real estate. A reconciliation of net income to NOI is presented below:
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| Net Operating Income (NOI) | ||||||||||||
| Net income | $ | 6,859 | $ | 5,334 | $ | 5,037 | ||||||
| Interest expense | 5,981 | 5,730 | 5,342 | |||||||||
| Depreciation and amortization | 28,639 | 27,020 | 16,243 | |||||||||
| Write off of unamortized deferred finance costs | - | 385 | - | |||||||||
| Tax benefit of taxable REIT subsidiaries | (2,605 | ) | (4,370 | ) | - | |||||||
| Integration costs | 2,053 | 4,552 | - | |||||||||
| Transaction costs | 34 | 474 | 105 | |||||||||
| Loss on sale of real estate | - | 164 | - | |||||||||
| General and administrative expenses | 20,286 | 19,890 | 13,838 | |||||||||
| NOI (1) | $ | 61,247 | $ | 59,179 | $ | 40,565 | ||||||
| Breakdown of NOI by facility: | ||||||||||||
| Atlanta-Metro data center | $ | 19,972 | $ | 18,256 | $ | 16,766 | ||||||
| Atlanta-Suwanee data center | 11,500 | 10,488 | 10,130 | |||||||||
| Santa Clara data center | 3,764 | 3,786 | 3,377 | |||||||||
| Richmond data center | 6,602 | 6,431 | 4,255 | |||||||||
| Sacramento data center | 1,922 | 1,875 | 1,871 | |||||||||
| Princeton data center | 2,356 | 2,471 | 2,349 | |||||||||
| Dallas-Fort Worth data center | 2,624 | 1,804 | 749 | |||||||||
| Leased data centers acquired in 2015 | 11,415 | 12,885 | - | |||||||||
| Other facilities | 1,092 | 1,183 | 1,068 | |||||||||
| NOI (1) | $ | 61,247 | $ | 59,179 | $ | 40,565 | ||||||
| (1) | Includes facility level G&A expense allocation charges of 4% of cash revenue for all entities, with the exception of the leased facilities acquired in 2015, which include G&A expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.0 million, $5.2 million and $2.5 million for the three month periods ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively. |
| 9 QTS Q1 Earnings 2016 | Contact: [email protected] |
Reconciliations of Total Revenues to Recognized MRR in the period and MRR at period end
(unaudited and in thousands)
The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases (which represent customer leases that have been executed but for which lease payments have not commenced) as of a particular date, unless otherwise specifically noted. The Company calculates recognized MRR as the recurring revenue recognized during a given period, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. Management uses MRR and recognized MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from customer leases. A reconciliation of total revenues to recognized MRR in the period and MRR at period-end is presented below:
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| Recognized MRR in the period | ||||||||||||
| Total period revenues (GAAP basis) | $ | 94,768 | $ | 92,690 | $ | 61,386 | ||||||
| Less: Total period recoveries | (5,435 | ) | (5,177 | ) | (5,664 | ) | ||||||
| Total period deferred setup fees | (1,903 | ) | (1,907 | ) | (1,246 | ) | ||||||
| Total period straight line rent and other | (4,268 | ) | (4,456 | ) | (2,012 | ) | ||||||
| Recognized MRR in the period | 83,162 | 81,150 | 52,464 | |||||||||
| MRR at period end | ||||||||||||
| Total period revenues (GAAP basis) | $ | 94,768 | $ | 92,690 | $ | 61,386 | ||||||
| Less: Total revenues excluding last month | (63,020 | ) | (61,627 | ) | (40,100 | ) | ||||||
| Total revenues for last month of period | 31,748 | 31,063 | 21,286 | |||||||||
| Less: Last month recoveries | (1,876 | ) | (1,415 | ) | (1,749 | ) | ||||||
| Last month deferred setup fees | (676 | ) | (716 | ) | (418 | ) | ||||||
| Last month straight line rent and other | (1,716 | ) | (1,443 | ) | (1,292 | ) | ||||||
| MRR at period end | $ | 27,480 | $ | 27,489 | $ | 17,827 | ||||||
| 10 QTS Q1 Earnings 2016 | Contact: [email protected] |
Exhibit 99.2
Table of Contents
| Overview | |
| Company Profile | 3 |
| Financial Statements | |
| Combined Consolidated Balance Sheets | 4 |
| Combined Consolidated Statements of Operations and Comprehensive Income (Loss) | 5 |
| Summary of Financial Data | 6 |
| Reconciliations of Return on Invested Capital (ROIC) | 8 |
| Implied Enterprise Value and Weighted Average Shares | 9 |
| Operating Portfolio | |
| Data Center Properties | 10 |
| Redevelopment Costs Summary | 11 |
| Redevelopment Summary | 12 |
| NOI by Facility and Capital Expenditure Summary | 13 |
| Leasing Statistics – Signed Leases | 14 |
| Leasing Statistics – Renewed Leases and Rental Churn | 16 |
| Leasing Statistics – Commenced Leases | 17 |
| Lease Expirations | 18 |
| Largest Customers | 19 |
| Industry Segmentation | 20 |
| Product Diversification | 21 |
| Capital Structure | |
| Debt Summary and Debt Maturities | 22 |
| Interest Summary | 23 |
| Appendix | 24 |
| 1 QTS Q1 Earnings 2016 | Contact: [email protected] |
Forward Looking Statements
Some of the statements contained in this document constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In particular, statements pertaining to the Company’s capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, all of the statements regarding anticipated growth in funds from operations and anticipated market conditions are forward-looking statements. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
The forward-looking statements contained in this document reflect the Company’s current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed in any forward-looking statement. The Company does not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: adverse economic or real estate developments in the Company’s markets or the technology industry; global, national and local economic conditions; risks related to our international operations; difficulties in identifying properties to acquire and completing acquisitions; the Company’s failure to successfully develop, redevelop and operate acquired properties or lines of business, including data centers acquired in the Company’s acquisition of Carpathia Hosting, Inc.; significant increases in construction and development costs; the increasingly competitive environment in which the Company operates; defaults on, or termination or non-renewal of, leases by customers; increased interest rates and operating costs, including increased energy costs; financing risks, including the Company’s failure to obtain necessary outside financing; decreased rental rates or increased vacancy rates; dependence on third parties to provide Internet, telecommunications and network connectivity to the Company’s data centers; the Company’s failure to qualify and maintain its qualification as a real estate investment trust; environmental uncertainties and risks related to natural disasters; financial market fluctuations; and changes in real estate and zoning laws, revaluations for tax purposes and increases in real property tax rates.
While forward-looking statements reflect the Company’s good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and other periodic reports the Company files with the Securities and Exchange Commission.
| 2 QTS Q1 Earnings 2016 | Contact: [email protected] |
Company Profile
| 3 QTS Q1 Earnings 2016 | Contact: [email protected] |
Combined Consolidated Balance Sheets
(in thousands)
| March 31, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Real Estate Assets | ||||||||
| Land | $ | 57,128 | $ | 57,112 | ||||
| Buildings, improvements and equipment | 1,241,885 | 1,180,386 | ||||||
| Less: Accumulated depreciation | (255,344 | ) | (239,936 | ) | ||||
| 1,043,669 | 997,562 | |||||||
| Construction in progress | 340,511 | 345,655 | ||||||
| Real Estate Assets, net | 1,384,180 | 1,343,217 | ||||||
| Cash and cash equivalents | 9,744 | 8,804 | ||||||
| Rents and other receivables, net | 30,880 | 28,233 | ||||||
| Acquired intangibles, net (1) | 125,733 | 115,702 | ||||||
| Deferred costs, net (2) (3) | 31,367 | 30,042 | ||||||
| Prepaid expenses | 10,644 | 6,502 | ||||||
| Goodwill (1) | 171,679 | 181,738 | ||||||
| Other assets, net (4) | 35,181 | 33,101 | ||||||
| TOTAL ASSETS | $ | 1,799,408 | $ | 1,747,339 | ||||
| LIABILITIES | ||||||||
| Unsecured credit facility, net (3) | $ | 607,105 | $ | 520,956 | ||||
| Senior notes, net of discount and debt issuance costs (3) | 291,186 | 290,852 | ||||||
| Capital lease and lease financing obligations | 46,666 | 49,761 | ||||||
| Accounts payable and accrued liabilities | 69,064 | 95,924 | ||||||
| Dividends and distributions payable | 17,358 | 15,378 | ||||||
| Advance rents, security deposits and other liabilities | 20,061 | 18,798 | ||||||
| Deferred income taxes (1) | 21,049 | 18,813 | ||||||
| Deferred income | 16,435 | 16,991 | ||||||
| TOTAL LIABILITIES | 1,088,924 | 1,027,473 | ||||||
| EQUITY | ||||||||
| Common stock, $0.01 par value, 450,133,000 shares authorized, 41,434,961 and 41,225,784 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively (5) | 414 | 412 | ||||||
| Additional paid-in capital (5) | 671,650 | 670,275 | ||||||
| Accumulated dividends in excess of earnings (5) | (61,754 | ) | (52,732 | ) | ||||
| Total stockholders’ equity (5) | 610,310 | 617,955 | ||||||
| Noncontrolling interests (5) | 100,174 | 101,911 | ||||||
| TOTAL EQUITY (5) | 710,484 | 719,866 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 1,799,408 | $ | 1,747,339 | ||||
| (1) | As a result of more in-depth and ongoing analysis, the purchase price allocation associated with the acquisition of Carpathia Hosting, Inc. (“Carpathia”) was further adjusted during the first quarter of 2016, with the primary adjustments being a $14.7 million increase in intangible assets, a $4.9 million increase in deferred tax liability and a reduction in goodwill of $10.1 million. |
| (2) | As of March 31, 2016 and December 31, 2015, deferred costs, net, included $5.9 million and $6.32 million of deferred financing costs net of amortization, respectively, $22.8 million and $21.0 million of deferred leasing costs net of amortization, respectively, and $2.7 million and $2.9 million, net of amortization, related to a leasing arrangement at the Company’s Princeton facility, respectively. |
| (3) | Debt issuance costs related to the Senior Notes and term loan portion of the Company’s unsecured credit facility have been reclassified from other assets, net to the related debt liability line items for both periods presented, as required by recently issued accounting guidance. |
| (4) | As of March 31, 2016 and December 31, 2015, other assets, net, primarily included $27.9 million and $25.9 million of corporate fixed assets, respectively, primarily relating to construction of corporate offices, leasehold improvements and product related assets. |
| (5) | The March 31, 2016 equity amounts do not reflect the issuance of 6,325,000 shares of Class A common stock at $45.50 per share which closed on April 1, 2016 and generated net proceeds of approximately $276 million. |
| 4 QTS Q1 Earnings 2016 | Contact: [email protected] |
Combined Consolidated Statements of Operations and Comprehensive Income
(unaudited and in thousands)
| Three Months Ended (unaudited) | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| Revenues: | ||||||||||||
| Rental | $ | 68,426 | $ | 66,240 | $ | 49,333 | ||||||
| Recoveries from customers | 5,435 | 5,177 | 5,664 | |||||||||
| Cloud and managed services | 18,890 | 19,406 | 5,795 | |||||||||
| Other (1) | 2,017 | 1,867 | 594 | |||||||||
| Total revenues | 94,768 | 92,690 | 61,386 | |||||||||
| Operating expenses: | ||||||||||||
| Property operating costs | 31,781 | 32,063 | 19,336 | |||||||||
| Real estate taxes and insurance | 1,740 | 1,448 | 1,485 | |||||||||
| Depreciation and amortization | 28,639 | 27,020 | 16,243 | |||||||||
| General and administrative (2) | 20,286 | 19,890 | 13,838 | |||||||||
| Transaction and integration costs (3) | 2,087 | 5,026 | 105 | |||||||||
| Total operating expenses | 84,533 | 85,447 | 51,007 | |||||||||
| Operating income | 10,235 | 7,243 | 10,379 | |||||||||
| Other income and expense: | ||||||||||||
| Interest expense | (5,981 | ) | (5,730 | ) | (5,342 | ) | ||||||
| Other expense, net (4) | - | (385 | ) | - | ||||||||
| Income before taxes and loss on sale of real estate | 4,254 | 1,128 | 5,037 | |||||||||
| Tax benefit of taxable REIT subsidiaries (5) | 2,605 | 4,370 | - | |||||||||
| Loss on sale of real estate | - | (164 | ) | - | ||||||||
| Net income | 6,859 | 5,334 | 5,037 | |||||||||
| Net income attributable to noncontrolling interests (6) | (970 | ) | (731 | ) | (955 | ) | ||||||
| Net income attributable to QTS Realty Trust, Inc. | $ | 5,889 | $ | 4,603 | $ | 4,082 | ||||||
| (1) | Other revenue - Includes straight line rent, sales of scrap metals and other unused materials and various other income items. Straight line rent was $1.9 million, $1.8 million and $0.4 million for the three month periods ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively. |
| (2) | General and administrative expenses - Includes personnel costs, sales and marketing costs, professional fees, travel costs, product investment costs and other corporate general and administrative expenses. General and administrative expenses were 21.4%, 21.5%, and 22.5% of total revenues for the three month periods ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively. |
| (3) | Transaction and integration costs - For the three month periods ended March 31, 2016, December 31, 2015 and March 31, 2015, the Company recognized aggregated $2.1 million, $5.0 million ($0.4 million related to transaction costs) and $0.1 million, respectively, related to the examination of actual and potential acquisitions. Integration costs for the three month periods ended March 31, 2016 and December 31, 2015, include various costs to integrate QTS and Carpathia, including consulting fees, costs to consolidate office space and costs which are currently duplicated, but will be eliminated in the near future. Integration costs for the three months ended December 31, 2015 included $3.1 million in non-cash charges related to QTS’ decision to transfer QTS’ Federal Cloud customers to Carpathia’s existing Federal Cloud platform. |
| (4) | Other expense, net - Generally includes write offs of unamortized deferred financing costs associated with the early extinguishment of certain debt instruments. |
| (5) | Tax benefit of taxable REIT subsidiaries – For the three months ended March 31, 2016 and December 31, 2015, the Company recorded an approximate $2.6 million and $4.4 million non-cash deferred tax benefit, respectively, related to recorded operating losses which includes certain transaction and integration costs. |
| (6) | Noncontrolling interest – The noncontrolling ownership interest of QualityTech, LP was 14.1% and 17.3% as of March 31, 2016 and 2015, respectively, with the decrease primarily attributable to the equity issuance in June 2015. |
| 5 QTS Q1 Earnings 2016 | Contact: [email protected] |
Summary of Financial Data
(in thousands, except operating portfolio statistics data)
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| Summary of Results | 2016 | 2015 | 2015 | |||||||||
| Total revenue | $ | 94,768 | $ | 92,690 | $ | 61,386 | ||||||
| Net income | 6,859 | 5,334 | 5,037 | |||||||||
| Other Data | ||||||||||||
| FFO | $ | 31,728 | $ | 28,073 | $ | 19,339 | ||||||
| Operating FFO | $ | 33,067 | $ | 31,514 | $ | 19,444 | ||||||
| Operating FFO per share | $ | 0.68 | $ | 0.65 | $ | 0.50 | ||||||
| Fully diluted weighted average shares | 48,974 | 48,830 | 39,209 | |||||||||
| Recognized MRR in the period | $ | 83,162 | $ | 81,150 | $ | 52,464 | ||||||
| MRR (at period end) | $ | 27,480 | $ | 27,489 | $ | 17,827 | ||||||
| EBITDA | $ | 38,874 | $ | 33,714 | $ | 26,622 | ||||||
| Adjusted EBITDA | $ | 43,011 | $ | 41,047 | $ | 28,034 | ||||||
| NOI | $ | 61,247 | $ | 59,179 | $ | 40,565 | ||||||
| NOI as a % of revenue | 64.6 | % | 63.8 | % | 66.1 | % | ||||||
| Adjusted EBITDA as a % of revenue | 45.4 | % | 44.3 | % | 45.7 | % | ||||||
| General and administrative expenses as a % of revenue | 21.4 | % | 21.5 | % | 22.5 | % | ||||||
| Annualized ROIC | 15.6 | % | 15.8 | % | 15.5 | % | ||||||
| March 31, | December 31, | ||||||
| Balance Sheet Data | 2016 | 2015 | |||||
| Real estate at cost | $ | 1,639,524 | $ | 1,583,153 | |||
| Net investment in real estate | 1,384,180 | 1,343,217 | |||||
| Total assets | 1,799,408 | (2) | 1,747,339 | (2) | |||
| Total debt (1) | 956,667 | (2) | 873,763 | (2) | |||
| Debt to last quarter annualized Adjusted EBITDA | 5.6 | x(3) | 5.3 | x | |||
| Debt to undepreciated real estate assets | 58.4 | %(2) | 55.2 | %(2) | |||
| Debt to Implied Enterprise Value | 29.1 | %(2) | 28.4 | %(2) | |||
| (1) | Excludes the cash and cash equivalent offset and includes capital leases and lease financing obligations. |
| (2) | In accordance with recent accounting changes, as noted on page 4, certain debt issuance costs have been reclassified from assets to liabilities in the prior period presented above. In addition, the Company has excluded the Senior Note discount and associated debt issuance costs from the Total Debt line item for both periods presented. As a result, the amounts referenced above represent the full amount of debt that will be repaid. |
| (3) | On April 1, 2016, the Company issued 6,325,000 shares of its Class A common stock at a price of $45.50 per share. The Company used substantially all of the net proceeds to repay amounts outstanding under its unsecured revolving credit facility. If the Company applied the net proceeds to its revolving credit facility on March 31, 2016, its Debt to last quarter annualized Adjusted EBITDA would have been 4.0x. |
| 6 QTS Q1 Earnings 2016 | Contact: [email protected] |
| March 31, | December 31, | |||||||
| Operating Portfolio Statistics | 2016 | 2015 | ||||||
| Built out square footage: | ||||||||
| Raised floor | 1,152,506 | 1,118,506 | ||||||
| Leasable raised floor (1) | 895,511 | 839,356 | ||||||
| Leased raised floor | 784,628 | 761,166 | ||||||
| Total Raw Shell: | ||||||||
| Total | 4,878,342 | 4,878,342 | ||||||
| Basis-of-design raised floor space (1) | 2,184,631 | 2,184,631 | ||||||
| Data center properties | 24 | 24 | ||||||
| Basis of design raised floor % developed | 52.8 | % | 51.2 | % | ||||
| Data center % occupied | 87.6 | %(2) | 90.7 | % | ||||
| (1) | See definition in Appendix. |
| (2) | The occupancy percentage does not include a significant customer at the Dallas-Fort Worth facility which was signed in the first quarter of 2016 and commenced billing in the second quarter of 2016. Inclusion of this customer would have increased the total occupancy percentage to approximately 89.3%. |
| 7 QTS Q1 Earnings 2016 | Contact: [email protected] |
Reconciliations of Return on Invested Capital (ROIC)
(unaudited and in thousands)
| Return on Invested Capital (ROIC) | Three Months Ended | |||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| NOI (1) | $ | 61,247 | $ | 59,179 | $ | 40,565 | ||||||
| Annualized NOI | 244,988 | 236,716 | 162,260 | |||||||||
| Average undepreciated real estate assets and other net fixed assets placed in service (2) | 1,568,645 | 1,498,674 | 1,043,654 | |||||||||
| Annualized ROIC | 15.6 | % | 15.8 | % | 15.5 | % | ||||||
| (1) | Includes facility level G&A allocation charges of 4% of cash revenue for all facilities, with the exception of the leased facilities acquired in 2015, which include G&A expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.0 million, $5.2 million and $2.5 million for the three month periods ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively. |
| (2) | Calculated by using average quarterly balance of each account. |
| Calculation of Average Undepreciated Real
Estate Assets and other Net Fixed Assets Placed in Service | As of | |||||||||||
| Undepreciated Real Estate Assets and other | March 31, | December 31, | March 31, | |||||||||
| Net Fixed Assets Placed in Service | 2016 | 2015 | 2015 | |||||||||
| Real Estate Assets, net | $ | 1,384,180 | $ | 1,343,217 | $ | 1,077,619 | ||||||
| Less: Construction in progress | (340,511 | ) | (345,655 | ) | (266,234 | ) | ||||||
| Plus: Accumulated depreciation | 255,344 | 239,936 | 192,107 | |||||||||
| Plus: Goodwill | 171,679 | 181,738 | - | |||||||||
| Plus: Other fixed assets, net | 13,185 | 12,815 | 21,843 | |||||||||
| Plus: Acquired intangibles, net | 90,070 | * | 82,020 | * | 17,262 | |||||||
| Plus: Leasing Commissions, net | 25,494 | 23,778 | 21,872 | |||||||||
| Total as of period end | $ | 1,599,441 | $ | 1,537,849 | $ | 1,064,469 | ||||||
| Average undepreciated real estate assets and other net fixed assets as of reporting period (1) | $ | 1,568,645 | $ | 1,498,674 | $ | 1,043,654 | ||||||
| (1) | Calculated by using average quarterly balance of each account. |
| * | Net of acquired intangible liabilities and deferred tax liabilities. In addition, for the period ended March 31, 2016, there was a reclassification between goodwill and acquired intangibles. |
| 8 QTS Q1 Earnings 2016 | Contact: [email protected] |
Implied Enterprise Value
| Implied Enterprise Value as of March 31, 2016: | ||||
| Total Shares Outstanding: | ||||
| Class A Common Stock | 41,301,961 | |||
| Class B Common Stock | 133,000 | |||
| Total Shares Outstanding | 41,434,961 | |||
| Units of Limited Partnership (1) | 7,362,402 | |||
| Options to purchase Class A Common Stock (2) | 360,514 | |||
| Fully Diluted Total Shares and Units of Limited Partnership outstanding as of March 31, 2016 | 49,157,877 | |||
| Share price as of March 31, 2016 | $ | 47.38 | ||
| Market equity capitalization (in thousands) | $ | 2,329,100 | ||
| Debt (in thousands) | 956,667 | (3) | ||
| Implied Enterprise Value (in thousands) | $ | 3,285,767 |
| (1) | Includes 561,458 of operating partnership units representing the “in the money” value of Class O LTIP units on an “as if” converted basis as of March 31, 2016. |
| (2) | Represents options to purchase 360,514 shares of Class A Common Stock of QTS Realty Trust, Inc. representing the “in the money” value of options on an “as if” converted basis as of March 31, 2016. |
| (3) | Excludes the Senior Note discount and all debt issuance costs reflected as liabilities at March 31, 2016. |
The following table presents the weighted average fully diluted shares for the three months ended March 31, 2016:
| Three Months Ended | ||||
| March 31, 2016 | ||||
| Weighted average shares outstanding - basic | 41,292,445 | |||
| Effect of Class A and Class RS partnership units (1) | 6,800,944 | |||
| Effect of Class O units on as "as if" converted basis (1) | 561,458 | |||
| Effect of options to purchase Class A common stock on an "as if" converted basis (1)(2) | 319,004 | |||
| Weighted average shares outstanding - diluted | 48,973,851 | |||
| (1) | The Class A units, Class RS units and Class O units represent limited partnership interests in the Operating Partnership. |
| (2) | The weighted average share price for the three months ended March 31, 2016 was $44.38. |
| 9 QTS Q1 Earnings 2016 | Contact: [email protected] |
Data Center Properties
(in thousands, except NRSF data)
The following table presents an overview of the portfolio of data center properties that the Company owns or leases, referred to herein as our data center properties, based on information as of March 31, 2016:
| Operating
Net Rentable Square Feet (Operating NRSF) (3) | ||||||||||||||||||||||||||||||||||||||||||
| Property | Year Acquired (1) | Gross Square Feet (2) | Raised Floor (4) | Office
& Other (5) | Supporting Infrastructure (6) | Total | % Occupied and Billing (7) | Annualized Rent (8) | Available Utility Power (MW) (9) | Basis
of Design NRSF | % Raised Floor | |||||||||||||||||||||||||||||||
| Richmond, VA | 2010 | 1,318,353 | 151,623 | 51,093 | 162,717 | 365,433 | 85.4 | % | $ | 34,052,528 | 110 | 556,623 | 27.2 | % | ||||||||||||||||||||||||||||
| Atlanta, GA (Metro) | 2006 | 968,695 | 442,986 | 36,953 | 326,926 | 806,865 | 93.7 | % | $ | 87,005,171 | 72 | 527,186 | 84.0 | % | ||||||||||||||||||||||||||||
| Dallas-Fort Worth, TX | 2013 | 698,000 | 78,014 | 6,981 | 59,825 | 144,820 | 74.7 | % | $ | 12,187,705 | 140 | 292,000 | 26.7 | % | ||||||||||||||||||||||||||||
| Princeton, NJ | 2014 | 553,930 | 58,157 | 2,229 | 111,405 | 171,791 | 100.0 | % | $ | 9,702,840 | 22 | 158,157 | 36.8 | % | ||||||||||||||||||||||||||||
| Suwanee, GA | 2005 | 369,822 | 185,422 | 8,697 | 108,266 | 302,385 | 83.0 | % | $ | 55,534,998 | 36 | 208,008 | 89.1 | % | ||||||||||||||||||||||||||||
| Chicago, IL | 2014 | 317,000 | - | - | - | - | - | % | $ | - | 8 | 133,000 | - | % | ||||||||||||||||||||||||||||
| Santa Clara, CA* | 2007 | 135,322 | 55,494 | 944 | 45,687 | 102,125 | 98.0 | % | $ | 24,971,531 | 11 | 80,347 | 69.1 | % | ||||||||||||||||||||||||||||
| Jersey City, NJ** | 2006 | 122,448 | 31,503 | 14,208 | 41,901 | 87,612 | 95.2 | % | $ | 11,933,829 | 7 | 52,744 | 59.7 | % | ||||||||||||||||||||||||||||
| Sacramento, CA | 2012 | 92,644 | 54,595 | 2,794 | 23,916 | 81,305 | 46.1 | % | $ | 11,863,954 | 8 | 57,906 | 94.3 | % | ||||||||||||||||||||||||||||
| Miami, FL | 2008 | 30,029 | 19,887 | - | 6,592 | 26,479 | 67.6 | % | $ | 5,354,559 | 4 | 19,887 | 100.0 | % | ||||||||||||||||||||||||||||
| Leased facilities acquired in 2015 *** | 2015 | 154,693 | 72,332 | 5,242 | 14,169 | 91,743 | 86.2 | % | $ | 76,277,992 | 20 | 96,280 | 75.1 | % | ||||||||||||||||||||||||||||
| Other | Misc | 117,406 | 2,493 | 49,337 | 29,290 | 81,120 | 62.0 | % | $ | 877,270 | 1 | 2,493 | 100.0 | % | ||||||||||||||||||||||||||||
| Total | 4,878,342 | 1,152,506 | 178,478 | 930,694 | 2,261,678 | 87.6 | % | $ | 329,762,377 | 439 | 2,184,631 | 52.8 | % | |||||||||||||||||||||||||||||
| (1) | Represents the year a property was acquired or, in the case of a property under lease, the year the Company’s initial lease commenced for the property. |
| (2) | With respect to the Company’s owned properties, gross square feet represents the entire building area. With respect to leased properties, gross square feet represents that portion of the gross square feet subject to our lease. This includes 252,041 square feet of QTS office and support space, which is not included in operating NRSF. |
| (3) | Represents the total square feet of a building that is currently leased or available for lease plus developed supporting infrastructure, based on engineering drawings and estimates, but does not include space held for redevelopment or space used for the Company’s own office space. |
| (4) | Represents management’s estimate of the portion of NRSF of the facility with available power and cooling capacity that is currently leased or readily available to be leased to customers as data center space based on engineering drawings. |
| (5) | Represents the operating NRSF of the facility other than data center space (typically office and storage space) that is currently leased or available to be leased. |
| (6) | Represents required data center support space, including mechanical, telecommunications and utility rooms, as well as building common areas. |
| (7) | Calculated as data center raised floor that is subject to a signed lease for which billing has commenced (784,628 square feet as of March 31, 2016), divided by leasable raised floor based on the current configuration of the properties (895,511 square feet as of March 31, 2016), expressed as a percentage. The Dallas-Fort Worth occupancy does not include a significant customer which was signed in the first quarter of 2016 and commenced billing in the second quarter of 2016. Inclusion of this customer would have increased the Dallas-Fort Worth occupancy percentage to approximately 95.8%. |
| (8) | The Company defines annualized rent as MRR multiplied by 12. The Company calculates MRR as monthly contractual revenue under executed contracts as of a particular date, which includes revenue from the Company’s C1, C2 and C3 rental activities and cloud and managed services, but excludes customer recoveries, deferred set up fees and other one-time and variable revenues. MRR does not include the impact from booked-not-billed contracts as of a particular date, unless otherwise specifically noted. |
| (9) | Represents installed utility power and transformation capacity that is available for use by the facility as of March 31, 2016. |
| * | Subject to long-term ground lease. |
| ** | Represents facilities that we lease. |
| *** | Includes 13 facilities. All facilities are leased, including those subject to capital leases. |
| 10 QTS Q1 Earnings 2016 | Contact: [email protected] |
Redevelopment Costs Summary
(in millions, except NRSF data)
During the first quarter of 2016, the Company brought online approximately 7.9 megawatts of gross power and approximately 34,000 NRSF of raised floor and customer specific capital at its Atlanta-Metro and Dallas-Fort Worth data centers at an aggregate cost of approximately $57 million. The under construction table below summarizes the Company’s outlook for development projects which it expects to complete by December 31, 2016 (in millions).
| Under Construction Costs (1) | ||||||||||||||
| Property | Actual (2) | Estimated
Cost to Completion (3) | Total | Expected Completion date | ||||||||||
| Richmond | $ | 13 | $ | 10 | $ | 23 | Q3 2016 | |||||||
| Atlanta-Metro | 28 | 10 | 38 | Q4 2016 | ||||||||||
| Atlanta-Suwanee | 13 | 2 | 15 | Q3 2016 | ||||||||||
| Chicago | 20 | 25 | 45 | Q3 2016 | ||||||||||
| Dallas-Fort Worth | 65 | 25 | 90 | Q4 2016 | ||||||||||
| Jersey City | 3 | 9 | 12 | Q3 2016 | ||||||||||
| Santa Clara | 1 | 5 | 6 | Q3 2016 | ||||||||||
| Totals | $ | 143 | $ | 86 | $ | 229 | ||||||||
| (1) | In addition to projects currently under construction, the Company’s near-term redevelopment projects are expected to be delivered in a modular manner, and the Company currently expects to invest additional capital to complete these near term projects. The ultimate timing and completion of, and the commitment of capital to, the Company’s future redevelopment projects are within the Company’s discretion and will depend upon a variety of factors, including the actual contracts executed, availability of financing and the Company’s estimation of the future market for data center space in each particular market. |
| (2) | Actual costs under construction through March 31, 2016. In addition to the $143 million of construction costs incurred through March 31, 2016 for redevelopment expected to be completed by December 31, 2016, as of March 31, 2016 the Company had incurred $198 million of additional costs (including acquisition costs and other capitalized costs) for other redevelopment projects that are expected to be completed after December 31, 2016. |
| (3) | Represents management’s estimate of the additional costs required to complete the current NRSF under development. There may be an increase in costs if customers’ requirements exceed the Company’s current basis of design. |
| 11 QTS Q1 Earnings 2016 | Contact: [email protected] |
Redevelopment Summary
(in millions, except NRSF data)
The following redevelopment table presents an overview of the Company’s redevelopment pipeline, based on information as of March 31, 2016. This table shows the Company’s ability to increase its raised floor of 1,152,506 square feet by approximately 1.9 times to 2.2 million square feet as of March 31, 2016.
| Raised Floor NRSF | ||||||||||||||||||||
| Overview as of March 31, 2016 | ||||||||||||||||||||
| Property | Current
NRSF in Service | Under Construction (1) | Future Available (2) | Basis of
Design NRSF | Approximate Adjacent Acreage of Land (3) | |||||||||||||||
| Richmond | 151,623 | 15,000 | 390,000 | 556,623 | 111.1 | |||||||||||||||
| Atlanta-Metro | 442,986 | 10,000 | 74,200 | 527,186 | 6.0 | |||||||||||||||
| Dallas-Fort Worth | 78,014 | 30,100 | 183,886 | 292,000 | 29.4 | |||||||||||||||
| Princeton | 58,157 | - | 100,000 | 158,157 | 65.0 | |||||||||||||||
| Atlanta-Suwanee | 185,422 | 19,000 | 3,586 | 208,008 | 15.4 | |||||||||||||||
| Santa Clara | 55,494 | 3,250 | 21,603 | 80,347 | - | |||||||||||||||
| Sacramento | 54,595 | - | 3,311 | 57,906 | - | |||||||||||||||
| Jersey City | 31,503 | 15,000 | 6,241 | 52,744 | - | |||||||||||||||
| Chicago | - | 14,000 | 119,000 | 133,000 | 23.0 | |||||||||||||||
| Miami | 19,887 | - | - | 19,887 | - | |||||||||||||||
| Leased facilities acquired in 2015 | 72,332 | - | 23,948 | 96,280 | - | |||||||||||||||
| Other | 2,493 | - | - | 2,493 | - | |||||||||||||||
| Totals as of March 31, 2016 | 1,152,506 | 106,350 | 925,775 | 2,184,631 | 249.9 | |||||||||||||||
| (1) | Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use on or before December 31, 2016. |
| (2) | Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use after December 31, 2016. |
| (3) | The total cost basis of adjacent land, which is land available for the future development, is approximately $20 million. This is |
included in land on the Combined Consolidated Balance Sheets. The Basis of Design NRSF does not include any build-out on the adjacent land.
| 12 QTS Q1 Earnings 2016 | Contact: [email protected] |
NOI by Facility and Capital Expenditure Summary
(unaudited and in thousands)
The Company calculates net operating
income, or NOI, as net income (loss), excluding: interest expense, interest income, depreciation and amortization, write-off of
unamortized deferred financing costs, tax expense (benefit) of taxable REIT subsidiaries, gain (loss) on extinguishment of debt,
transaction and integration costs, gain (loss) on sale of real estate, restructuring costs and general and administrative expenses.
The Company believes that NOI is another metric that is often utilized to evaluate returns on operating real estate from period
to period and also, in part, to assess the value of the operating real estate. The breakdown of NOI by facility is shown below:
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| Breakdown of NOI by facility: | ||||||||||||
| Atlanta-Metro data center | $ | 19,972 | $ | 18,256 | $ | 16,766 | ||||||
| Atlanta-Suwanee data center | 11,500 | 10,488 | 10,130 | |||||||||
| Santa Clara data center | 3,764 | 3,786 | 3,377 | |||||||||
| Richmond data center | 6,602 | 6,431 | 4,255 | |||||||||
| Sacramento data center | 1,922 | 1,875 | 1,871 | |||||||||
| Princeton data center | 2,356 | 2,471 | 2,349 | |||||||||
| Dallas-Fort Worth data center | 2,624 | 1,804 | 749 | |||||||||
| Leased data centers acquired in 2015 | 11,415 | 12,885 | - | |||||||||
| Other facilities | 1,092 | 1,183 | 1,068 | |||||||||
| NOI (1) | $ | 61,247 | $ | 59,179 | $ | 40,565 | ||||||
| (1) | Includes facility level G&A allocation charges of 4% of cash revenue for all facilities, with the exception of the leased facilities acquired in 2015, which include G&A expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.0 million, $5.2 million and $2.5 million for the three month periods ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively. |
Capital expenditures incurred are summarized as follows:
| Capital Expenditures (1) | ||||||||
| Three Months Ended March 31, | ||||||||
| 2016 | 2015 | |||||||
| Redevelopment | $ | 53,482 | $ | 86,067 | ||||
| Maintenance capital expenditures | 335 | 17 | ||||||
| Other capitalized costs | 6,696 | 6,059 | ||||||
| Total capital expenditures | $ | 60,513 | $ | 92,143 | ||||
| (1) | Does not include capitalized leasing commissions included in deferred costs or other management-related fixed assets included in other assets. |
| 13 QTS Q1 Earnings 2016 | Contact: [email protected] |
Leasing Statistics – Signed Leases
The mix of leasing activity has a significant impact on quarterly rates, both within major product segments and for overall blended leasing rates. The Company’s rate performance will vary quarter to quarter based on the mix of deals leased – C1 Custom Data Center, C2 Colocation (Cabinet, Cage and Suite), and C3 Cloud and Managed Services categories all vary on a rate per square foot basis. The amounts below include renewals when there was a change in square footage rented, and renewals where C3 dedicated server cloud customers had shifts in their MRR related to their use of fully depreciated equipment. The amounts below exclude renewals where square footage remained consistent before and after renewal. (See renewal table on page 16 for such renewals).
During the first quarter of 2016, the Company signed 367 new and modified leases aggregating to $20.5 million of annualized rent which includes new leased revenue plus revenue from modified renewals. Removing annualized modified renewal MRR and deducting period downgrades results in $8.6 million in incremental annualized rent for the quarter. This is impacted by a customer that reduced its MRR by $2.4 million on an annualized basis, primarily due to the customer shifting a portion of its product mix as it transitions its infrastructure from QTS C3 to its own infrastructure environment housed in QTS data centers. As a result, the customer received a price reduction, in line with the difference in pricing from a C3 to a blended C2/C3 environment. Subsequent to the end of the first quarter of 2016, the Company signed an incremental 4 megawatt lease in its Dallas-Fort Worth facility with a leading global hybrid cloud provider, which, had it occurred during the first quarter, would have nearly doubled the Company’s net leasing for the quarter. The Company signed a significant C1 contract with a strategic customer during the first quarter of 2016. Pricing for this strategic customer reflects its unique power commitment, lease size and customized solution. The solution for this customer meets the Company’s targeted return, and the size of the contract lowers the rate per square foot for C1. Leasing activity in the Company’s C2/C3 categories has remained solid, with increased pricing on a per square foot basis compared to the prior four quarter average attributable to customers utilizing additional services with those leases.
Annualized Rent of New and Modified
Leases represents total MRR associated with all new and modified leases for the respective periods for the purposes of computing
annualized rent rates per square foot during the period. Incremental Annualized Rent, Net of Downgrades reflects net incremental
MRR signed during the period for purposes of tracking incremental revenue contribution.
| Period | Number of Leases | Total Leased sq ft | Annualized Rent per Leased sq ft | Annualized Rent of New and Modified Leases | Incremental Annualized Rent, Net of Downgrades | |||||||||||||||
| New/modified leases signed - Total | Q1 2016 | 367 | 47,262 | $ | 434 | $ | 20,503,532 | $ | 8,566,303 | |||||||||||
| P4QA* | 378 | 22,558 | 827 | 18,663,337 | 9,909,131 | |||||||||||||||
| Q4 2015 | 357 | 21,801 | 801 | 17,471,080 | 9,849,694 | |||||||||||||||
| Q3 2015 | 448 | 7,513 | 1,686 | 12,669,407 | 5,582,511 | |||||||||||||||
| Q2 2015 | 365 | 13,867 | 1,207 | 16,734,571 | 10,585,921 | |||||||||||||||
| Q1 2015 | 340 | 47,052 | 590 | 27,778,291 | 13,618,400 | |||||||||||||||
| New/modified leases signed - C1 | Q1 2016 | 16 | 38,960 | $ | 240 | $ | 9,361,740 | |||||||||||||
| P4QA* | 20 | 10,409 | 367 | 3,822,332 | ||||||||||||||||
| Q4 2015 | 20 | 10,476 | 373 | 3,910,932 | ||||||||||||||||
| Q3 2015 | 20 | 128 | 3,983 | 509,776 | ||||||||||||||||
| Q2 2015 | 22 | 644 | 831 | 535,306 | ||||||||||||||||
| Q1 2015 | 18 | 30,386 | 340 | 10,333,313 | ||||||||||||||||
| New/modified leases signed - C2/C3 | Q1 2016 | 351 | 8,302 | $ | 1,342 | $ | 11,141,792 | |||||||||||||
| P4QA* | 358 | 12,150 | 1,222 | 14,841,008 | ||||||||||||||||
| Q4 2015 | 337 | 11,325 | 1,197 | 13,560,148 | ||||||||||||||||
| Q3 2015 | 428 | 7,385 | 1,647 | 12,159,631 | ||||||||||||||||
| Q2 2015 | 343 | 13,223 | 1,225 | 16,199,265 | ||||||||||||||||
| Q1 2015 | 322 | 16,666 | 1,047 | 17,444,990 | ||||||||||||||||
| * | Average
of prior 4 quarters NOTE: Figures above do not include cost recoveries. In general, C1 customers reimburse the Company for certain operating costs whereas C2/C3 customers are on a gross lease basis. As a result, pricing and resulting per square foot rates for C2/C3 customers includes the recovery of such operating costs. |
14 QTS Q1 Earnings 2016 | Contact: [email protected] |
The following table outlines the booked-not-billed (“BNB”) balance as of March 31, 2016 and how that will affect revenue in 2016 and subsequent years:
| Booked-not-billed ("BNB") | 2016 | 2017 | Thereafter | Total | ||||||||||||
| MRR | $ | 2,193,305 | $ | 953,087 | $ | 1,153,782 | $ | 4,300,174 | ||||||||
| Incremental revenue | 15,498,764 | 6,790,469 | 13,845,391 | |||||||||||||
| Annualized revenue | 26,319,656 | 11,437,039 | 13,845,391 | 51,602,086 | ||||||||||||
The Company estimates the remaining cost to provide the space, power, connectivity and other services to the customer contracts which had not billed as of March 31, 2016 to be approximately $30 million. This estimate generally includes C1 customers with newly contracted space of more than 3,300 square feet. The space, power, connectivity and other services provided to customers that contract for smaller amounts of space is generally provided by existing space which was previously developed.
15 QTS Q1 Earnings 2016 | Contact: [email protected] |
Leasing Statistics – Renewed Leases and Rental Churn
The mix of leasing activity has a significant impact on quarterly rates, both within major product segments and for overall blended renewal rates. The Company’s rate performance will vary quarter to quarter based on the mix of deals leased – C1 Custom Data Center, C2 Colocation, and C3 Cloud and Managed Services categories all vary on a rate per square foot basis.
Consistent with the Company’s 3C strategy and business model, the renewal rates below reflect total MRR per square foot including all subscribed services. For comparability, the Company includes only those customers that have maintained consistent space footprints in the computations below. All customers with space changes are incorporated into new/modified leasing statistics and rates.
The overall blended rate for renewals signed in the first quarter of 2016 was 3.7% lower than the rates for those customers immediately prior to renewal. The decline in the renewal rates was due to changes in product mix by two customers that renewed. If the renewals related to those customers were excluded from the renewal base, rates would have been consistent with pre-renewal rates. The Company continues to believe that renewal rate increases in the low to mid-single digits are generally appropriate.
Rental Churn (which the Company defines as MRR lost to a customer intending to fully exit the platform compared to total MRR at the beginning of the period) was 2.3% for the first quarter of 2016.
| Period | Number
of renewed leases | Total Leased sq ft | Annualized rent per leased sq ft | Annualized Rent | Rent
Change (1) | |||||||||||||||||
| Renewed Leases - Total | Q1 2016 | 59 | 16,705 | $ | 950 | $ | 15,871,969 | -3.7 | %** | |||||||||||||
| P4QA* | 75 | 9,369 | 838 | 7,851,529 | 2.3 | % | ||||||||||||||||
| Q4 2015 | 71 | 9,306 | 1,002 | 9,329,194 | 2.3 | % | ||||||||||||||||
| Q3 2015 | 89 | 12,338 | 742 | 9,157,450 | 0.9 | % | ||||||||||||||||
| Q2 2015 | 76 | 9,540 | 785 | 7,492,287 | 5.1 | % | ||||||||||||||||
| Q1 2015 | 65 | 6,291 | 863 | 5,427,185 | 1.2 | % | ||||||||||||||||
| Renewed Leases - C1 | Q1 2016 | - | - | $ | - | $ | - | 0.0 | % | |||||||||||||
| P4QA* | 1 | 1,850 | 266 | 491,258 | 9.7 | % | ||||||||||||||||
| Q4 2015 | 1 | 4,200 | 241 | 1,013,852 | 3.0 | % | ||||||||||||||||
| Q3 2015 | 3 | 3,200 | 297 | 951,180 | 17.9 | % | ||||||||||||||||
| Q2 2015 | - | - | - | - | 0.0 | % | ||||||||||||||||
| Q1 2015 | - | - | - | - | 0.0 | % | ||||||||||||||||
| Renewed Leases - C2/C3 | Q1 2016 | 59 | 16,705 | $ | 950 | $ | 15,871,969 | -3.7 | %** | |||||||||||||
| P4QA* | 74 | 7,519 | 979 | 7,360,271 | 1.9 | % | ||||||||||||||||
| Q4 2015 | 70 | 5,106 | 1,629 | 8,315,343 | 2.2 | % | ||||||||||||||||
| Q3 2015 | 86 | 9,138 | 898 | 8,206,270 | -0.7 | % | ||||||||||||||||
| Q2 2015 | 76 | 9,540 | 785 | 7,492,287 | 5.1 | % | ||||||||||||||||
| Q1 2015 | 65 | 6,291 | 863 | 5,427,185 | 1.2 | % | ||||||||||||||||
| * | Average of prior 4 quarters |
| ** | The decline in the renewal rate of 3.7% was due to changes in product mix by two customers that renewed. If the renewals related to those customers were excluded from the renewal base, rates would have been consistent with pre-renewal rates. |
| (1) | Calculated as the percentage change of the rent per square foot immediately before renewal when compared to the rent per square foot immediately after renewal. |
16 QTS Q1 Earnings 2016 | Contact: [email protected] |
Leasing Statistics – Commenced Leases
The mix of leasing activity across C1, C2 and C3 has significant impact on quarterly rates, both within major product segments and for overall blended commencement rates. The Company’s rate performance will vary quarter to quarter based on the mix of deals leased. C1 Custom Data Center, C2 Colocation, and C3 Cloud and Managed Services categories all vary on a rate per square foot basis.
During the first quarter of 2016,
the Company commenced customer leases (which includes both new customers and existing customers that modified their lease terms)
representing approximately $38.7 million of annualized rent at $776 per square foot. This compares to customer leases representing
an aggregate trailing four quarter average of approximately $30.3 million of annualized rent at $597 per square foot.
Total overall commencement rates for the first quarter of 2016 increased compared to the prior four quarter average largely due to the magnitude of C2/C3 lease commencements relative to C1 lease commencements, as well as C1 lease rates being higher than their prior four quarter averages. The C2/C3 average commencement rates decreased slightly compared to the prior four quarter average due to larger C2 customers and a lower level of service related to those customers.
| Period | Number of leases | Total Leased sq ft | Annualized
rent per leased sq ft | Annualized Rent | ||||||||||||
| Leases commenced - Total | Q1 2016 | 411 | 49,858 | $ | 776 | $ | 38,666,890 | |||||||||
| P4QA* | 481 | 50,779 | 597 | 30,317,716 | ||||||||||||
| Q4 2015 | 446 | 52,783 | 733 | 38,669,556 | ||||||||||||
| Q3 2015 | 651 | 77,273 | 490 | 37,887,304 | ||||||||||||
| Q2 2015 | 459 | 51,248 | 525 | 26,884,427 | ||||||||||||
| Q1 2015 | 369 | 21,813 | 817 | 17,829,577 | ||||||||||||
| Leases commenced - C1 | Q1 2016 | 21 | 17,540 | $ | 225 | $ | 3,941,117 | |||||||||
| P4QA* | 28 | 30,432 | 197 | 6,005,527 | ||||||||||||
| Q4 2015 | 21 | 40,618 | 233 | 9,457,608 | ||||||||||||
| Q3 2015 | 33 | 43,199 | 181 | 7,822,312 | ||||||||||||
| Q2 2015 | 37 | 29,622 | 168 | 4,961,821 | ||||||||||||
| Q1 2015 | 21 | 8,289 | 215 | 1,780,368 | ||||||||||||
| Leases commenced - C2/C3 | Q1 2016 | 390 | 32,318 | $ | 1,075 | $ | 34,725,773 | |||||||||
| P4QA* | 453 | 20,347 | 1,208 | 24,572,207 | ||||||||||||
| Q4 2015 | 425 | 12,165 | 2,401 | 29,211,948 | ||||||||||||
| Q3 2015 | 618 | 34,074 | 882 | 30,064,992 | ||||||||||||
| Q2 2015 | 422 | 21,626 | 1,014 | 21,922,606 | ||||||||||||
| Q1 2015 | 348 | 13,524 | 1,264 | 17,089,279 | ||||||||||||
| * | Average of prior 4 quarters |
17 QTS Q1 Earnings 2016 | Contact: [email protected] |
Lease Expirations
C1 leases are typically 5-10 years with the majority of C1 lease expirations occurring in 2017 and beyond. C2/C3 leases are typically 3 years in duration, thus the majority of C2/C3 lease expirations are in 2016 and 2017. The following table sets forth a summary schedule of the lease expirations as of March 31, 2016 at the properties in the Company’s portfolio. Unless otherwise stated in the footnotes, the information set forth in the table assumes that customers exercise no renewal options and all early termination rights are exercised:
| Year of Lease Expiration | Number
of Leases Expiring (1) | Total Raised Floor of Expiring Leases | % of Portfolio Leased Raised Floor | Annualized Rent (2) | % of Portfolio Annualized Rent | C1 as %
of Portfolio Annualized Rent | C2 as %
of Portfolio Annualized Rent | C3 as %
of Portfolio Annualized Rent | ||||||||||||||||||||||||
| Month-to-Month (3) | 315 | 7,092 | 1 | % | $ | 9,606,869 | 3 | % | 0 | % | 2 | % | 1 | % | ||||||||||||||||||
| 2016 | 1,483 | 76,055 | 10 | % | 73,511,978 | 22 | % | 4 | % | 11 | % | 7 | % | |||||||||||||||||||
| 2017 | 1,115 | 131,446 | 17 | % | 79,144,857 | 24 | % | 5 | % | 16 | % | 3 | % | |||||||||||||||||||
| 2018 | 845 | 267,703 | 34 | % | 86,498,186 | 26 | % | 11 | % | 9 | % | 6 | % | |||||||||||||||||||
| 2019 | 205 | 25,133 | 3 | % | 17,381,137 | 5 | % | 1 | % | 3 | % | 1 | % | |||||||||||||||||||
| 2020 | 104 | 38,602 | 5 | % | 16,848,014 | 6 | % | 1 | % | 4 | % | 1 | % | |||||||||||||||||||
| After 2020 | 68 | 238,597 | 30 | % | 46,771,336 | 14 | % | 14 | % | 0 | % | 0 | % | |||||||||||||||||||
| Portfolio Total | 4,135 | 784,628 | 100 | % | $ | 329,762,377 | 100 | % | 36 | % | 45 | % | 19 | % | ||||||||||||||||||
| (1) | Represents each agreement with a customer signed as of March 31, 2016 for which billing has commenced; a lease agreement could include multiple spaces and a customer could have multiple leases. |
| (2) | Annualized rent is presented for leases commenced as of March 31, 2016. The Company defines annualized rent as MRR multiplied by 12. The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect the accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements. |
| (3) | Consists of customers whose leases expired prior to March 31, 2016 and have continued on a month-to-month basis. |
18 QTS Q1 Earnings 2016 | Contact: [email protected] |
Largest Customers
As of March 31, 2016, the Company’s portfolio was leased to over 1,000 customers comprised of companies of all sizes representing an array of industries, each with unique and varied business models and needs. The following table sets forth information regarding the ten largest customers in the portfolio based on annualized rent as of March 31, 2016 (does not include rents or maturities associated with booked-not-billed customers or ramps for existing customers which have not yet commenced billing):
| Principal Customer Industry | Product | Number of Locations | Annualized Rent (1) | % of Portfolio Annualized Rent | Weighted
Average Remaining Lease Term (Months) (2) | |||||||||||
| Internet | C1 | 2 | $ | 37,751,980 | 11.4 | % | 54 | |||||||||
| Information Technology | C1 | 2 | 11,382,314 | 3.6 | % | 97 | ||||||||||
| Information Technology | C1, C3 | 3 | 11,320,874 | 3.4 | % | 98 | ||||||||||
| Technology | C2, C3 | 5 | 10,184,608 | 3.1 | % | 12 | ||||||||||
| Internet | C1 | 1 | 9,644,400 | 2.9 | % | 31 | ||||||||||
| Government | C2, C3 | 2 | 9,405,960 | 2.9 | % | 10 | ||||||||||
| Technology | C2, C3 | 5 | 7,286,112 | 2.2 | % | 11 | ||||||||||
| Retail | C3 | 2 | 6,089,106 | 1.8 | % | 25 | ||||||||||
| Information Technology | C2, C3 | 6 | 5,951,678 | 1.8 | % | 14 | ||||||||||
| Technology | C2, C3 | 2 | 5,338,813 | 1.6 | % | 33 | ||||||||||
| Total / Weighted Average | $ | 114,355,845 | 34.7 | % | 46 | |||||||||||
| (1) | Annualized rent is presented for leases commenced as of March 31, 2016. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date. This amount reflects the annualized cash rental payments. It does not reflect any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements. |
| (2) | Weighted average based on customer’s percentage of total annualized rent expiring and is as of March 31, 2016. |
19 QTS Q1 Earnings 2016 | Contact: [email protected] |
Industry Segmentation
The following table sets forth information relating to the industry segmentation as of March 31, 2016:
The following table sets forth information relating to the industry segmentation as of December 31, 2015:
| (1) | Subsequent to December 31, 2015, industries of certain customers have been refined and reclassified. As such, the industry segmentation table as of December 31, 2015 has been conformed to these new classifications. |
20 QTS Q1 Earnings 2016 | Contact: [email protected] |
Product Diversification
The following table sets forth information relating to the distribution of leases at the properties, by type of product offering, as of March 31, 2016:
| (1) | As
of March 31, 2016, C1 customers renting at least 6,600 square feet represented $79.3
million of annualized C1 MRR, C1 customers renting 3,300 square feet to 6,599 square feet
represented $19.5 million of annualized C1 MRR, and C1 customers renting below 3,300 square
feet represented $21.2 million of annualized C1 MRR. As of March 31, 2016, C1 customers’
median used square footage was 3,876 square feet. |
The following table sets forth information relating to the distribution of leases at the properties, by type of product offering, as of December 31, 2015:
| (1) | As of December 31, 2015, C1 customers renting at least 6,600 square feet represented $72.5 million of annualized C1 MRR, C1 customers renting between 3,300 and 6,599 square feet represented $17.8 million of annualized C1 MRR, and C1 customers renting below 3,300 square feet represented $21.4 million of annualized C1 MRR. As of December 31, 2015, C1 customers’ median used square footage was 3,876 square feet. |
21 QTS Q1 Earnings 2016 | Contact: [email protected] |
Debt Summary and Debt Maturities
(in thousands)
| Weighted Average | ||||||||||||||
| Coupon Interest Rate at | March 31, | December 31, | ||||||||||||
| March 31, 2016 | Maturities | 2016 | 2015 | |||||||||||
| Unsecured Credit Facility | ||||||||||||||
| Revolving Credit Facility | 1.99 | % | December 17, 2019 | $ | 310,000 | (1) | $ | 224,002 | ||||||
| Term Loan I | 1.94 | % | December 17, 2020 | 150,000 | 150,000 | |||||||||
| Term Loan II | 1.93 | % | April 27, 2021 | 150,000 | 150,000 | |||||||||
| Senior Notes (2) | 5.88 | % | August 1, 2022 | 300,000 | 300,000 | |||||||||
| Capital Lease and Lease Financing Obligations | 3.40 | % | 2016 - 2025 | 46,666 | 49,761 | |||||||||
| Total | 3.26 | % | $ | 956,666 | $ | 873,763 | ||||||||
| (1) | On April 1, 2016, the Company received net proceeds of approximately $276 million from its Class A common stock equity issuance, the majority of which was used to repay amounts outstanding on its revolving credit facility. |
| (2) | Excludes the Senior Note discount and debt issuance costs reflected as liabilities at March 31, 2016. |
As of March 31, 2016:
| Debt instruments | 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total | |||||||||||||||||||||
| Unsecured Credit Facility | $ | - | $ | - | $ | - | $ | 310,000 | (1) | $ | 150,000 | $ | 150,000 | $ | 610,000 | |||||||||||||
| Senior Notes (2) | - | - | - | - | - | 300,000 | 300,000 | |||||||||||||||||||||
| Capital Lease and Lease Financing Obligations | 9,463 | 12,388 | 8,804 | 2,461 | 2,190 | 11,360 | 46,666 | |||||||||||||||||||||
| Total | $ | 9,463 | $ | 12,388 | $ | 8,804 | $ | 312,461 | $ | 152,190 | $ | 461,360 | $ | 956,666 | ||||||||||||||
| (1) | On April 1, 2016, the Company received net proceeds of approximately $276 million from its Class A common stock equity issuance, the majority of which was used to repay amounts outstanding on its revolving credit facility. |
| (2) | Excludes the Senior Note discount and all debt issuance costs reflected as liabilities at March 31, 2016. |
22 QTS Q1 Earnings 2016 | Contact: [email protected] |
Interest Summary
(unaudited and in thousands)
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| Interest expense and fees | $ | 7,885 | $ | 7,514 | $ | 6,471 | ||||||
| Amortization of deferred financing costs and bond discount | 877 | 872 | 849 | |||||||||
| Capitalized interest (1) | (2,781 | ) | (2,656 | ) | (1,978 | ) | ||||||
| Total interest expense | $ | 5,981 | $ | 5,730 | $ | 5,342 | ||||||
| (1) | The weighted average interest rate for the three months ended March 31, 2016, December 31, 2015, and March 31, 2015 was 3.77%, 3.88%, and 4.71%, respectively. As of March 31, 2016 and December 31, 2015 our weighted average coupon interest rate was 3.26% and 3.31%, respectively. |
23 QTS Q1 Earnings 2016 | Contact: [email protected] |
Appendix
Non-GAAP Financial Measures
This document includes certain non-GAAP financial measures that management believes are helpful in understanding the Company’s business, as further described below.
The Company considers the following non-GAAP financial measures to be useful to investors as key supplemental measures of the Company’s performance: (1) FFO; (2) Operating FFO; (3) Adjusted Operating FFO; (4) MRR; (5) NOI; (6) EBITDA; and (7) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss and cash flows from operating activities as a measure of the Company’s operating performance and liquidity. FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDA and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDA and Adjusted EBITDA as reported by other companies that do not use the same definition or implementation guidelines or interpret the standards differently from us.
Definitions
C1 – Custom Data Center. Power costs are passed on to customers (metered power); generally 3,000 square feet or more of raised floor; lease term of 5 to 10 years; customers are large corporations, government agencies, and global Internet businesses.
C2 – Colocation. Power overages charged separately; specified kW included in lease; up to 3,000 square feet of raised floor; lease term of up to 3 years; customers are large corporations, small and medium businesses and government agencies.
C3 – Cloud and Managed Services. Power bundled with service; small amounts of space; customers rent managed virtual servers; lease term up to 3 years; customers are large corporations, small and medium businesses and government agencies.
Booked-not-billed (“BNB”). The Company defines booked-not-billed as customer leases that have been signed, but for which lease payments have not yet commenced.
Leasable raised floor. The Company defines leasable raised floor as the amount of raised floor square footage that the Company has leased plus the available capacity of raised floor square footage that is in a leasable format as of a particular date and according to a particular product configuration. The amount of leasable raised floor may change even without completion of new redevelopment projects due to changes in the Company’s configuration of C1, C2 and C3 product space.
Basis-of-design floor space. The Company defines basis-of-design floor space as the total data center raised floor potential of its existing data center facilities.
Operating NRSF. Represents the total square feet of a building that is currently leased or available for lease plus developed supporting infrastructure, based on engineering drawings and estimates, but does not include space held for redevelopment or space used for the Company’s own office space.
The Company. Refers to QTS Realty Trust, Inc., a Maryland corporation, together with its consolidated subsidiaries, including QualityTech, LP.
24 QTS Q1 Earnings 2016 | Contact: [email protected] |
FFO, Operating FFO and Adjusted Operating FFO
The Company considers funds from operations (“FFO”), to be a supplemental measure of its performance which should be considered along with, but not as an alternative to, net income (loss) and cash provided by operating activities as a measure of operating performance and liquidity. The Company calculates FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of property, real estate-related depreciation and amortization and similar adjustments for unconsolidated partnerships and joint ventures. The Company’s management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.
Due to the volatility and nature of certain significant charges and gains recorded in the Company’s operating results that management believes are not reflective of its core operating performance and liquidity, management computes an adjusted measure of FFO, which the Company refers to as Operating FFO. The Company generally calculates Operating FFO as FFO excluding certain non-routine charges and gains and losses that management believes are not indicative of the results of the Company’s operating real estate portfolio. The Company believes that Operating FFO provides investors with another financial measure that may facilitate comparisons of operating performance and liquidity between periods and, to the extent they calculate Operating FFO on a comparable basis, between REITs.
Adjusted Operating Funds From Operations (“Adjusted Operating FFO”) is a non-GAAP measure that is used as a supplemental operating measure specifically for comparing year over year ability to fund dividend distributions from operating activities. Adjusted Operating FFO is used by the Company as a basis to address cash flow and its ability to fund its dividend payments. The Company calculates Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment, paid leasing commissions, amortization of deferred financing costs and bond discount, non-real estate depreciation, straight line rent adjustments, non-cash deferred taxes and non-cash compensation.
The Company offers these measures because it recognizes that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare its operating performance and liquidity with that of other REITs. However, because FFO, Operating FFO and Adjusted Operating FFO exclude real estate depreciation and amortization and capture neither the changes in the value of the Company’s properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of its properties, all of which have real economic effect and could materially impact its financial condition, cash flows and results of operations, the utility of FFO, Operating FFO and Adjusted Operating FFO as measures of its operating performance and liquidity is limited. The Company’s calculation of FFO may not be comparable to measures calculated by other companies that do not use the NAREIT definition of FFO or do not calculate FFO in accordance with NAREIT guidance. In addition, the Company’s calculations of FFO, Operating FFO and Adjusted Operating FFO are not necessarily comparable to FFO, Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. FFO, Operating FFO and Adjusted Operating FFO are non-GAAP measures and should not be considered a measure of the Company’s results of operations or liquidity or as a substitute for, or an alternative to, net income (loss), cash provided by operating activities or any other performance measure determined in accordance with GAAP, nor is it indicative of funds available to fund its cash needs, including its ability to make distributions to its stockholders.
25 QTS Q1 Earnings 2016 | Contact: [email protected] |
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| FFO | ||||||||||||
| Net income | $ | 6,859 | $ | 5,334 | $ | 5,037 | ||||||
| Real estate depreciation and amortization | 24,869 | 22,575 | 14,302 | |||||||||
| Loss on sale of real estate | - | 164 | - | |||||||||
| FFO | 31,728 | 28,073 | 19,339 | |||||||||
| Write off of unamortized deferred finance costs | - | 385 | - | |||||||||
| Integration costs | 2,053 | 4,552 | - | |||||||||
| Transaction costs | 34 | 474 | 105 | |||||||||
| Deferred tax benefit associated with transaction and integration costs | (748 | ) | (1,970 | ) | - | |||||||
| Operating FFO * | 33,067 | 31,514 | 19,444 | |||||||||
| Maintenance Capex | (335 | ) | (2,711 | ) | (17 | ) | ||||||
| Leasing commissions paid | (5,807 | ) | (3,237 | ) | (3,084 | ) | ||||||
| Amortization of deferred financing costs and bond discount | 877 | 872 | 849 | |||||||||
| Non real estate depreciation and amortization | 3,770 | 4,445 | 1,941 | |||||||||
| Straight line rent revenue and expense | (1,610 | ) | (2,398 | ) | (365 | ) | ||||||
| Non-cash deferred tax benefit from operating results | (1,857 | ) | (2,400 | ) | - | |||||||
| Equity-based compensation expense | 2,050 | 1,758 | 1,307 | |||||||||
| Adjusted Operating FFO * | $ | 30,155 | $ | 27,843 | $ | 20,075 | ||||||
| * | The
Company’s calculations of Operating FFO and Adjusted Operating FFO may not be comparable
to Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not
use the same definition. |
Monthly Recurring Revenue (MRR)
The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted.
Separately, the Company calculates recognized MRR as the recurring revenue recognized during a given period, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues.
Management uses MRR and recognized MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from the Company’s customer leases. MRR and recognized MRR should not be viewed by investors as alternatives to actual monthly revenue, as determined in accordance with GAAP. Other companies may not calculate MRR or recognized MRR in the same manner. Accordingly, the Company’s MRR and recognized MRR may not be comparable to other companies’ MRR and recognized MRR. MRR and recognized MRR should be considered only as supplements to total revenues as a measure of its performance. MRR and recognized MRR should not be used as measures of the Company’s results of operations or liquidity, nor is it indicative of funds available to meet its cash needs, including its ability to make distributions to its stockholders.
26 QTS Q1 Earnings 2016 | Contact: [email protected] |
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| Recognized MRR in the period | ||||||||||||
| Total period revenues (GAAP basis) | $ | 94,768 | $ | 92,690 | $ | 61,386 | ||||||
| Less: Total period recoveries | (5,435 | ) | (5,177 | ) | (5,664 | ) | ||||||
| Total period deferred setup fees | (1,903 | ) | (1,907 | ) | (1,246 | ) | ||||||
| Total period straight line rent and other | (4,268 | ) | (4,456 | ) | (2,012 | ) | ||||||
| Recognized MRR in the period | 83,162 | 81,150 | 52,464 | |||||||||
| MRR at period end | ||||||||||||
| Total period revenues (GAAP basis) | $ | 94,768 | $ | 92,690 | $ | 61,386 | ||||||
| Less: Total revenues excluding last month | (63,020 | ) | (61,627 | ) | (40,100 | ) | ||||||
| Total revenues for last month of period | 31,748 | 31,063 | 21,286 | |||||||||
| Less: Last month recoveries | (1,876 | ) | (1,415 | ) | (1,749 | ) | ||||||
| Last month deferred setup fees | (676 | ) | (716 | ) | (418 | ) | ||||||
| Last month straight line rent and other | (1,716 | ) | (1,443 | ) | (1,292 | ) | ||||||
| MRR at period end | $ | 27,480 | $ | 27,489 | $ | 17,827 | ||||||
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA
The Company calculates EBITDA as net income (loss) adjusted to exclude interest expense and interest income, provision (benefit) for income taxes (including income taxes applicable to sale of assets) and depreciation and amortization. Management believes that EBITDA is useful to investors in evaluating and facilitating comparisons of the Company’s operating performance between periods and between REITs by removing the impact of its capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from its operating results.
In addition to EBITDA, the Company calculates an adjusted measure of EBITDA, which it refers to as Adjusted EBITDA, as EBITDA excluding write off of unamortized deferred financing costs, gains (losses) on extinguishment of debt, transaction and integration costs, equity-based compensation expense, restructuring costs, gain (loss) on legal settlement and gain (loss) on sale of real estate. The Company believes that Adjusted EBITDA provides investors with another financial measure that can facilitate comparisons of operating performance between periods and between REITs.
Management uses EBITDA and Adjusted EBITDA as supplemental performance measures as they provide useful measures of assessing the Company’s operating results. Other companies may not calculate EBITDA or Adjusted EBITDA in the same manner. Accordingly, the Company’s EBITDA and Adjusted EBITDA may not be comparable to others. EBITDA and Adjusted EBITDA should be considered only as supplements to net income (loss) as measures of the Company’s performance and should not be used as substitutes for net income (loss), as measures of its results of operations or liquidity or as an indications of funds available to meet its cash needs, including its ability to make distributions to its stockholders.
27 QTS Q1 Earnings 2016 | Contact: [email protected] |
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| EBITDA and Adjusted EBITDA | ||||||||||||
| Net income | $ | 6,859 | $ | 5,334 | $ | 5,037 | ||||||
| Interest expense | 5,981 | 5,730 | 5,342 | |||||||||
| Interest income | - | - | - | |||||||||
| Tax benefit of taxable REIT subsidiaries | (2,605 | ) | (4,370 | ) | - | |||||||
| Depreciation and amortization | 28,639 | 27,020 | 16,243 | |||||||||
| EBITDA | 38,874 | 33,714 | 26,622 | |||||||||
| Write off of unamortized deferred finance costs | - | 385 | - | |||||||||
| Equity-based compensation expense | 2,050 | 1,758 | 1,307 | |||||||||
| Integration costs | 2,053 | 4,552 | - | |||||||||
| Transaction costs | 34 | 474 | 105 | |||||||||
| Loss on sale of real estate | - | 164 | - | |||||||||
| Adjusted EBITDA | $ | 43,011 | $ | 41,047 | $ | 28,034 | ||||||
28 QTS Q1 Earnings 2016 | Contact: [email protected] |
Net Operating Income (NOI)
The Company calculates net operating income (“NOI”) as net income (loss), excluding: interest expense, interest income, tax expense (benefit) of taxable REIT subsidiaries, depreciation and amortization, write off of unamortized deferred financing costs, gain (loss) on extinguishment of debt, transaction and integration costs, gain (loss) on sale of real estate, restructuring costs and general and administrative expenses. The Company believes that NOI is another metric that is often utilized to evaluate returns on operating real estate from period to period and also, in part, to assess the value of the operating real estate. A reconciliation of net income (loss) to NOI is presented below:
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2016 | 2015 | 2015 | ||||||||||
| Net Operating Income (NOI) | ||||||||||||
| Net income | $ | 6,859 | $ | 5,334 | $ | 5,037 | ||||||
| Interest expense | 5,981 | 5,730 | 5,342 | |||||||||
| Depreciation and amortization | 28,639 | 27,020 | 16,243 | |||||||||
| Write off of unamortized deferred finance costs | - | 385 | - | |||||||||
| Tax benefit of taxable REIT subsidiaries | (2,605 | ) | (4,370 | ) | - | |||||||
| Integration costs | 2,053 | 4,552 | - | |||||||||
| Transaction costs | 34 | 474 | 105 | |||||||||
| Loss on sale of real estate | - | 164 | - | |||||||||
| General and administrative expenses | 20,286 | 19,890 | 13,838 | |||||||||
| NOI (1) | $ | 61,247 | $ | 59,179 | $ | 40,565 | ||||||
| Breakdown of NOI by facility: | ||||||||||||
| Atlanta-Metro data center | $ | 19,972 | $ | 18,256 | $ | 16,766 | ||||||
| Atlanta-Suwanee data center | 11,500 | 10,488 | 10,130 | |||||||||
| Santa Clara data center | 3,764 | 3,786 | 3,377 | |||||||||
| Richmond data center | 6,602 | 6,431 | 4,255 | |||||||||
| Sacramento data center | 1,922 | 1,875 | 1,871 | |||||||||
| Princeton data center | 2,356 | 2,471 | 2,349 | |||||||||
| Dallas-Fort Worth data center | 2,624 | 1,804 | 749 | |||||||||
| Leased data centers acquired in 2015 | 11,415 | 12,885 | - | |||||||||
| Other facilities | 1,092 | 1,183 | 1,068 | |||||||||
| NOI (1) | $ | 61,247 | $ | 59,179 | $ | 40,565 | ||||||
| (1) | Includes facility level G&A allocation charges of 4% of cash revenue for all entities, with the exception of the leased facilities acquired in 2015, which include G&A expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.0 million, $5.2 million and $2.5 million for the three month periods ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively. |
29 QTS Q1 Earnings 2016 | Contact: [email protected] |
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