QTS Realty Trust, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - QTS Realty Trust, Inc.	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - QTS Realty Trust, Inc.	v390806_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - QTS Realty Trust, Inc.	v390806_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - QTS Realty Trust, Inc.	v390806_ex31-1.htm

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36109

QTS Realty Trust, Inc.

(Exact name of registrant as specified in its charter)

Maryland	46-2809094
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

12851 Foster Street, Overland Park, Kansas	66213
(Address of principal executive offices)	(Zip Code)

(Registrant’s telephone number, including area code) (913) 312-5503

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

There were 28,989,678 shares of Class A common stock, $0.01 par value per share, and 133,000 shares of Class B common stock, $0.01 par value per share, of the registrant outstanding on November 3, 2014.

EXPLANATORY NOTE

QTS Realty Trust, Inc. (the “Company”) has elected to be taxed as a real estate investment trust, whose only material asset is its ownership of Class A units of limited partnership (“OP units”) of QualityTech, LP (the “Operating Partnership”). The Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity from time to time. The Company has not issued or guaranteed any indebtedness. Through its subsidiaries, the Operating Partnership holds all the real estate assets of the Company. Except for net proceeds from public equity issuances by the Company, which are contributed to the Operating Partnership in exchange for OP units or preferred units of the Operating Partnership, the Operating Partnership generates all remaining capital required by our business. These sources include the Operating Partnership’s operations, its direct or indirect incurrence of indebtedness, and the issuance of partnership units.

As general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes. The presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated balance sheets of the Company and those of the Operating Partnership. The Operating Partnership’s capital includes general and limited common units that are owned by the Company and the other partners. The Company's stockholders’ equity includes common stock, additional paid in capital, accumulated other comprehensive income (loss) and accumulated dividends in excess of earnings. The remaining equity is the portion of net assets that are retained by partners other than the Company, referred to as noncontrolling interests. The primary difference in the Company's Statements of Operations and Comprehensive Income (Loss) is that for net income (loss), the Company retains its proportionate portion of the net income (loss) based on its ownership of the Operating Partnership, with the remaining balance being retained by the Operating Partnership.

QTS Realty Trust, Inc.

Form 10-Q

For the Quarterly Period Ended September 30, 2014

INDEX

		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements	4

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	46

ITEM 4.	Controls and Procedures	47

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	47

ITEM 1A.	Risk Factors	47

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

ITEM 3.	Defaults Upon Senior Securities	47

ITEM 4.	Mine Safety Disclosures	47

ITEM 5.	Other Information	47

ITEM 6.	Exhibits	48

	Signatures	49

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

QTS REALTY TRUST, INC.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEETS

(in thousands except share data)

	September 30, 2014			December 31, 2013
	(unaudited)
ASSETS
Real Estate Assets
Land	$	48,576		$	30,601
Buildings and improvements		894,014			728,230
Less: Accumulated depreciation		(168,210	)		(137,725	)

		774,380			621,106
Construction in progress		174,470			146,904

Real Estate Assets, net		948,850			768,010

Cash and cash equivalents		5,045			5,210
Rents and other receivables, net		13,928			14,434
Acquired intangibles, net		18,745			5,396
Deferred costs, net		33,686			19,150
Prepaid expenses		4,042			1,797
Other assets, net		25,853			17,359

TOTAL ASSETS	$	1,050,149		$	831,356

LIABILITIES
Mortgage notes payable	$	87,175		$	88,839
Unsecured credit facility		197,000			256,500
Senior notes		297,671			-
Capital lease obligations		9,042			2,538
Accounts payable and accrued liabilities		52,094			63,204
Dividends payable		10,541			8,965
Advance rents, security deposits and other liabilities		3,217			3,261
Deferred income		9,529			7,892
Derivative liability		-			453

TOTAL LIABILITIES		666,269			431,652
EQUITY
Common stock, $0.01 par value, 450,133,000 shares authorized, 29,016,774 and 28,972,774 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively		290			289
Additional paid-in capital		321,119			318,834
Accumulated other comprehensive income (loss)		-			(357	)
Accumulated dividends in excess of earnings		(18,599	)		(3,799	)

Total stockholders’ equity		302,810			314,967
Noncontrolling interests		81,070			84,737

TOTAL EQUITY		383,880			399,704

TOTAL LIABILITIES AND EQUITY	$	1,050,149		$	831,356

See accompanying notes to financial statements.

QTS REALTY TRUST, INC.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	The Company			Historical Predecessor			The Company			Historical Predecessor
	2014			2013			2014			2013
Revenues:
Rental	$	45,448		$	37,595		$	127,993		$	106,184
Recoveries from customers		6,131			3,603			13,674			9,925
Cloud and managed services		5,242			4,393			14,443			12,828
Other		1,124			429			2,116			1,521
Total revenues		57,945			46,020			158,226			130,458
Operating Expenses:
Property operating costs		20,369			15,638			53,121			44,930
Real estate taxes and insurance		1,377			1,101			3,713			3,304
Depreciation and amortization		15,210			12,136			42,274			34,197
General and administrative		11,045			10,097			33,296			29,387
Restructuring		226			-			1,272			-
Transaction costs		(195	)		-			958			-
Total operating expenses		48,032			38,972			134,634			111,818
Operating income		9,913			7,048			23,592			18,640

Other income and expenses:
Interest income		-			4			8			17
Interest expense		(5,410	)		(4,343	)		(9,683	)		(15,977	)
Other (expense) income, net		(470	)		-			(580	)		(3,277	)
Income (loss) before taxes		4,033			2,709			13,337			(597	)
Tax expense of taxable REIT subsidiaries		(27	)		-			(82	)		-
Net income (loss)		4,006			2,709			13,255			(597	)
Net income attributable to noncontrolling interests		(849	)		-			(2,810	)		-
Net income (loss) attributable to QTS Realty Trust, Inc		3,157			2,709			10,445			(597	)
Unrealized gain on swap		-			8			-			220
Comprehensive income (loss)	$	3,157		$	2,717		$	10,445		$	(377	)

Net income per share attributable to common shares:
Basic	$	0.11			N/A		$	0.36			N/A
Diluted		0.11			N/A			0.36			N/A

Weighted average common shares outstanding:
Basic		29,016,774			N/A			29,006,620			N/A
Diluted		37,251,769			N/A			37,039,603			N/A

See accompanying notes to financial statements.

QTS REALTY TRUST, INC.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited and in thousands)

								Accumulated			Accumulated			Total
	Common stock				Additional			other comprehensive			dividends in			stockholders'			Noncontrolling
	Shares		Amount		paid-in capital			income (loss)			excess of earnings			equity			interest			Total
Balance January 1, 2014		28,973	$	289	$	318,834		$	(357	)	$	(3,799	)	$	314,967		$	84,737		$	399,704
Issuance of shares through equity award plan		44		1		(1	)								-						-
Equity-based compensation expense						2,286									2,286			615			2,901
Other comprehensive gain									357						357			96			453
Dividend to shareholders												(25,245	)		(25,245	)					(25,245	)
Distribution to noncontrolling interests															-			(7,188	)		(7,188	)
Net income												10,445			10,445			2,810			13,255
Balance September 30, 2014		29,017	$	290	$	321,119		$	-		$	(18,599	)	$	302,810		$	81,070		$	383,880

See accompanying notes to financial statements.

QTS REALTY TRUST, INC.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOW

(unaudited and in thousands)

For the nine months ended September 30, 2014 and 2013

	The Company			Historical Predecessor
	2014			2013
Cash flow from operating activities:
Net income (loss)	$	13,255		$	(597	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization		40,070			32,701
Amortization of deferred loan costs		1,894			2,193
Amortization of bond discount		38			-
Equity-based compensation expense		2,901			1,305
Bad debt expense		402			169
Write off of deferred loan costs		580			2,031
Changes in operating assets and liabilities
Rents and other receivables, net		104			(756	)
Prepaid expenses		(2,245	)		(1,510	)
Restricted cash		-			146
Other assets		596			291
Accounts payable and accrued liabilities		(7,833	)		(4,888	)
Advance rents, security deposits and other liabilities		(44	)		244
Deferred income		1,637			816
Net cash provided by operating activities		51,355			32,145

Cash flow from investing activities:
Acquisition of real estate		(91,064	)		(21,174	)
Additions to property and equipment		(156,008	)		(102,924	)
Cash used in investing activities		(247,072	)		(124,098	)

Cash flow from financing activities:
Credit facility proceeds		230,500			563,500
Senior Notes proceeds		297,633			-
Debt repayment		(290,000	)		(456,994	)
Payment of deferred financing costs		(9,648	)		(4,483	)
Payment of cash dividend		(23,783	)		-
Distribution to noncontrolling interest		(6,932	)		-
Partnership distributions		-			(7,633	)
Repurchase of equity awards		-			(13	)
Principal payments on capital lease obligation		(553	)		(496	)
Scheduled mortgage principal debt repayments		(1,665	)		(1,880	)
Equity issuance costs		-			(1,776	)
Net cash provided by financing activities		195,552			90,225

Net increase (decrease) in cash and cash equivalents		(165	)		(1,728	)
Cash and cash equivalents, beginning of period		5,210			8,232
Cash and cash equivalents, end of period	$	5,045		$	6,504

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (excluding deferred financing costs and amounts capitalized)	$	4,599		$	14,265
Noncash investing and financing activities:
Accrued capital additions	$	36,381		$	20,939
Accrued deferred financing costs	$	-		$	990
Accrued initial public offering costs	$	-		$	447
Member advances exchanged for LP units	$	-		$	10,000

See accompanying notes to financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business

QTS Realty Trust, Inc. (the “Company”) through its controlling interest in QualityTech, LP (the “Operating Partnership”) and the subsidiaries of the Operating Partnership, is engaged in the business of owning, acquiring, redeveloping and managing multi-tenant data centers. The Company’s portfolio consists of 12 properties with data centers located throughout the continental United States.

The Company was formed as a Maryland corporation on May 17, 2013. On October 15, 2013, the Company completed its initial public offering of 14,087,500 shares of Class A common stock, $0.01 par value per share (the “IPO”), including shares issued pursuant to the underwriters’ option to purchase additional shares, which was exercised in full, and received net proceeds of approximately $279 million. The Company has elected to be taxed as a real estate investment trust (“REIT”), for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2013.

Concurrently with the completion of the IPO, the Company consummated a series of transactions, including the merger of General Atlantic REIT, Inc. with the Company, pursuant to which it became the sole general partner and majority owner of Quality Tech, LP, a Delaware limited partnership (the “Operating Partnership”). The Company contributed the net proceeds received from the IPO to the Operating Partnership in exchange for partnership units therein. As of September 30, 2014, the Company owned approximately 78.8% of the interests in the Operating Partnership. Substantially all of the Company’s assets are held by, and the Company’s operations are conducted through, the Operating Partnership. The Company’s interest in the Operating Partnership entitles the Company to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to the Company’s percentage ownership. As the sole general partner of the Operating Partnership, the Company generally has the exclusive power under the partnership agreement to manage and conduct the Operating Partnership’s business and affairs, subject to certain limited approval and voting rights of the limited partners. The Company’s board of directors manages the Company’s business and affairs.

2. Summary of Significant Accounting Policies

Basis of Presentation – The accompanying financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

The Interim Condensed Consolidated Statements of Operations and Comprehensive Income and the Statements of Cash Flows of the Company for the three and nine months ended September 30, 2014 and the Balance Sheets as of September 30, 2014 and December 31, 2013 present the accounts of QTS Realty Trust, Inc. and its majority owned subsidiaries. The Interim Condensed Consolidated Statement of Operations and Comprehensive Income and the Statement of Cash Flows for the three and nine months ended September 30, 2013 present the accounts of QualityTech, LP and its majority owned subsidiaries (the “Historical Predecessor”).

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets, allowances for doubtful accounts and deferred tax assets and the valuation of derivatives, real estate assets, acquired intangible assets and certain accruals.

Principles of Consolidation – The consolidated financial statements include the accounts of QTS Realty Trust, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the financial statements.

Real Estate Assets – Real estate assets are reported at cost. All capital improvements for the income-producing properties that extend their useful lives are capitalized to individual property improvements and depreciated over their estimated useful lives. Depreciation is generally provided on a straight-line basis over 40 years from the date the property was placed in service. Property improvements are depreciated on a straight-line basis over the life of the respective improvement ranging from 20 to 40 years from the date the components were placed in service. Leasehold improvements are depreciated over the lesser of 20 years or through the end of the respective life of the lease. Repairs and maintenance costs are expensed as incurred. Depreciation expense was $11.9 million and $9.7 million for the three months ended September 30, 2014 and 2013, respectively, and $32.8 million and $27.2 million for the nine months ended September 30, 2014 and 2013, respectively. The Company capitalizes certain development costs, including internal costs incurred in connection with development. The capitalization of costs during the construction period (including interest and related loan fees, property taxes and other direct and indirect costs) begins when development efforts commence and ends when the asset is ready for its intended use. Capitalization of such costs, excluding interest, aggregated to $2.9 million and $2.4 million for the three months ended September 30, 2014 and 2013, respectively, and $7.5 million and $6.3 million for the nine months ended September 30, 2014 and 2013, respectively. Interest is capitalized during the period of development by first applying the Company’s actual borrowing rate on the related asset and second, to the extent necessary, by applying the Company’s weighted average effective borrowing rate to the actual development and other costs expended during the construction period. Interest is capitalized until the property is ready for its intended use. Interest costs capitalized totaled $1.3 million and $0.9 million for the three months ended September 30, 2014 and 2013, respectively, and $4.7 million and $3.0 million for the nine months ended September 30, 2014 and 2013, respectively.

Acquisition of Real Estate – Acquisitions of real estate are either accounted for as asset acquisitions or business combinations depending on facts and circumstances. Purchase accounting is applied to the assets and liabilities related to all real estate investments acquired in accordance with the accounting requirements of ASC 805, Business Combinations, which requires the recording of net assets of acquired businesses at fair value. The fair value of the real estate acquired is allocated to the acquired tangible assets, consisting primarily of land, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-place leases and value of customer relationships.

In developing estimates of fair value of acquired assets and assumed liabilities, management analyzed a variety of factors including market data, estimated future cash flows of the acquired operations, industry growth rates, current replacement cost for fixed assets and market rate assumptions for contractual obligations. Such a valuation requires management to make significant estimates and assumptions, particularly with respect to the intangible assets.

Acquired in-place leases are amortized as amortization expense on a straight-line basis over the remaining life of the underlying leases. Amortization of acquired in place lease costs totaled $0.5 million and $0.5 million for the three months ended September 30, 2014 and 2013, respectively, and $1.8 million and $1.5 million for the nine months ended September 30, 2014 and 2013, respectively.

Acquired customer relationships are amortized as amortization expense on a straight-line basis over the expected life of the customer relationship. Amortization of acquired customer relationships totaled $0.3 million and $0.4 million for the three months ended September 30, 2014 and 2013, respectively, and $1.0 million and $1.2 million for the nine months ended September 30, 2014 and 2013, respectively.

See Note 3 for discussion of the preliminary purchase price allocation for the Princeton facility that the Company acquired on June 30, 2014.

Impairment of Long-Lived and Intangible Assets – The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of assets to be held and used is generally measured by comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset group. If the net carrying value of the asset exceeds the value of the undiscounted cash flows, the fair value of the asset is assessed and may be considered impaired. An impairment loss is recognized based on the excess of the carrying amount of the impaired asset over its fair value. No impairment losses were recorded for the three and nine months ended September 30, 2014 and 2013, respectively.

Cash and Cash Equivalents – The Company considers all demand deposits and money market accounts purchased with a maturity date of three months or less at the date of purchase to be cash equivalents. The Company’s account balances at one or more institutions periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is concentration of credit risk related to amounts on deposit in excess of FDIC coverage. The Company mitigates this risk by depositing a majority of its funds with several major financial institutions. The Company also has not experienced any losses and, therefore, does not believe that the risk is significant.

Deferred Costs – Deferred costs, net, on the Company’s balance sheets include both financing costs and leasing costs.

Deferred financing costs represent fees and other costs incurred in connection with obtaining debt and are amortized over the term of the loan and are included in interest expense. Amortization of the deferred financing costs was $0.5 million and $0.6 million for the three months ended September 30, 2014 and 2013, respectively, and $1.7 million and $2.2 million for the nine months ended September 30, 2014 and 2013, respectively. During the three months ended September 30, 2014, the Company wrote off unamortized financing costs of $0.5 million primarily in connection with paying down $75 million of its unsecured credit facility. During the three months ended September 30, 2013, the Company had no unamortized financing cost write offs. During the nine months ended September 30, 2014, in addition to the aforementioned $0.5 million write off, the Company wrote off unamortized financing costs of $0.1 million in connection with the modification of its credit facility that is secured by the Richmond data center. During the nine months ended September 30, 2013, the Company wrote off unamortized financing costs of $3.3 million in connection with both the restructuring of its unsecured credit facility and an asset securitization which the Company did not pursue. Deferred financing costs, net of accumulated amortization are as follows:

	September 30,			December 31,
(dollars in thousands)	2014			2013
	(unaudited)

Deferred financing costs	$	18,226		$	9,159
Accumulated amortization		(3,761	)		(1,867	)
Deferred financing costs, net	$	14,465		$	7,292

Deferred leasing costs consist of external fees and internal costs incurred in the successful negotiations of leases and are deferred and amortized over the terms of the related leases on a straight-line basis. If an applicable lease terminates prior to the expiration of its initial term, the carrying amount of the costs are written off to amortization expense. Amortization of deferred leasing costs totaled $1.8 million and $1.1 million for the three months ended September 30, 2014 and 2013, respectively, and $4.6 million and $3.2 million for the nine months ended September 30, 2014 and 2013, respectively. Deferred leasing costs, net of accumulated amortization are as follows:

	September 30,			December 31,
(dollars in thousands)	2014			2013
	(unaudited)

Deferred leasing costs	$	24,348		$	17,374
Accumulated amortization		(8,379	)		(5,516	)
Deferred leasing costs, net	$	15,969		$	11,858

Advance Rents and Security Deposits – Advance rents, typically prepayment of the following month’s rent, consist of payments received from customers prior to the time they are earned and are recognized as revenue in subsequent periods when earned. Security deposits are collected from customers at the lease origination and are generally refunded to customers upon lease expiration.

Deferred Income – Deferred income generally results from non-refundable charges paid by the customer at lease inception to prepare their space for occupancy. The Company records this initial payment, commonly referred to as set-up fees, as a deferred income liability which amortizes into rental revenue over the term of the related lease on a straight-line basis. Deferred income was $9.5 million and $7.9 million as of September 30, 2014 and December 31, 2013, respectively. Additionally, $1.1 million and $1.3 million of deferred income were amortized into revenue for the three months ended September 30, 2014 and 2013, respectively, and $3.5 million and $3.5 million for the nine months ended September 30, 2014 and 2013, respectively.

Interest Rate Derivative Instruments – The Company utilizes derivatives to manage its interest rate exposure. During February 2012, the Company entered into interest rate swaps with a notional amount of $150 million which were cash flow hedges and qualified for hedge accounting. For these hedges, the effective portion of the change in fair value was recognized through other comprehensive income or loss. Amounts were reclassified out of other comprehensive income (loss) as the hedged item was recognized in earnings, either for ineffectiveness or for amounts paid relating to the hedge. The Company reflected all changes in the fair value of the swaps in other comprehensive income (loss) during the nine months ended September 30, 2014, as there was no ineffectiveness recorded in that period. The Company’s interest rate swaps matured on September 28, 2014, and as such, there are no amounts outstanding on the consolidated balance sheet at September 30, 2014 relating to these swaps.

Equity-based Compensation – All equity-based compensation is measured at fair value on the grant date or date of modification, as applicable, and recognized in earnings over the requisite service period. Depending upon the settlement terms of the awards, all or a portion of the fair value of equity-based awards may be presented as a liability or as equity in the consolidated balance sheets. Equity-based compensation costs are measured based upon their estimated fair value on the date of grant or modification. Equity-based compensation expense net of forfeited and repurchased awards was $0.9 million and $0.5 million for the three months ended September 30, 2014 and 2013, respectively, and $2.9 million and $1.3 million for the nine months ended September 30, 2014 and 2013, respectively.

Rental Revenue – The Company, as a lessor, has retained substantially all of the risks and benefits of ownership and accounts for its leases as operating leases. For lease agreements that provide for scheduled rent increases, rental income is recognized on a straight-line basis over the non-cancellable term of the leases, which commences when control of the space has been provided to the customer. The amount of the straight-line rent receivable on the balance sheets included in rents and other receivables, net was $4.2 million and $2.9 million as of September 30, 2014 and December 31, 2013, respectively. Rental revenue also includes amortization of set-up fees which are amortized over the term of the respective lease as discussed above.

Allowance for Uncollectible Accounts Receivable – Rents receivable are recognized when due and are carried at cost, less an allowance for doubtful accounts. The Company records a provision for losses on rents receivable equal to the estimated uncollectible accounts, which is based on management’s historical experience and a review of the current status of the Company’s receivables. As necessary, the Company also establishes an appropriate allowance for doubtful accounts for receivables arising from the straight-lining of rents. The aggregate allowance for doubtful accounts was $0.9 million as of September 30, 2014 and December 31, 2013.

Capital Leases – The Company evaluates leased real estate to determine whether the lease should be classified as a capital or operating lease in accordance with U.S GAAP.

The Company periodically enters into capital leases for certain equipment. The outstanding liabilities for the capital leases were $9.0 million and $2.5 million as of September 30, 2014 and December 31, 2013, respectively. Depreciation related to the associated assets is included in depreciation and amortization expense in the Statements of Operations and Comprehensive Income (Loss).

Recoveries from Customers – Certain customer leases contain provisions under which the customers reimburse the Company for a portion of the property’s real estate taxes, insurance and other operating expenses, which include certain power and cooling-related charges. The reimbursements are included in revenue as recoveries from customers in the Statements of Operations and Comprehensive Income (Loss) in the period the applicable expenditures are incurred. Certain customer leases are structured to provide a fixed monthly billing amount that includes an estimate of various operating expenses, with all revenue from such leases included in rental revenues.

Cloud and Managed Services Revenue – The Company may provide both its cloud product and use of its managed services to its customers on an individual or combined basis. Service fee revenue is recognized as the revenue is earned, which generally coincides with the services being provided.

Segment Information – The Company manages its business as one operating segment and thus one reportable segment consisting of a portfolio of investments in data centers located in the United States.

Customer Concentrations – As of September 30, 2014, one of the Company’s customers represented 8.4% of its total monthly rental revenue. No other customers exceeded 5% of total monthly rental revenue.

As of September 30, 2014, eight of the Company’s customers exceeded 5% of total accounts receivable. In aggregate, these eight customers accounted for 58% of total accounts receivable. One of these eight customers individually exceeded 10% of total accounts receivable.

Income Taxes – The Company elected for one of its existing subsidiaries to be taxed as a taxable REIT subsidiary under the Internal Revenue Service real estate investment trust (the “IRS REIT”) tax regulations. The taxable REIT subsidiary is allocated income and expense based on IRS REIT tax regulations.

For the taxable REIT subsidiary, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company’s tax provision has not changed materially subsequent to December 31, 2013. The Company is not currently under examination by the Internal Revenue Service.

Fair Value Measurements – ASC Topic 820, Fair Value Measurements and Disclosures, emphasizes that fair-value is a market-based measurement, not an entity-specific measurement. Therefore, a fair-value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair-value measurements, a fair-value hierarchy is established that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair-value measurement is based on inputs from different levels of the fair-value hierarchy, the level in the fair-value hierarchy within which the entire fair-value measurement falls is based on the lowest level input that is significant to the fair-value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair-value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Financial assets and liabilities measured at fair value in the financial statements on a recurring basis consist of the Company’s derivatives. The fair values of the derivatives are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. The analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves (“significant other observable inputs”). The fair value calculation also includes an amount for risk of non-performance using “significant unobservable inputs” such as estimates of current credit spreads to evaluate the likelihood of default. The Company has concluded as of September 30, 2014 and December 31, 2013 that the fair value associated to “significant unobservable inputs” for risk of non-performance was insignificant to the overall fair value of the derivative agreements and, as a result, have determined that the relevant inputs for purposes of calculating the fair value of the derivative agreements, in their entirety, were based upon “significant other observable inputs.” The Company determined the fair value of derivatives using Level 2 inputs. These methods of assessing fair value result in a general approximation of value, and such value may never be realized.

The Company’s financial instruments held at fair value are presented below as of September 30, 2014 and December 31, 2013 (dollars in thousands):

			Fair Value Measurements
	Carrying Value		Level 1		Level 2		Level 3
September 30, 2014
Financial Liabilities:
Interest rate swap liability⁽¹⁾	$	-	$	-	$	-	$	-
December 31, 2013
Financial Liabilities:
Interest rate swap liability⁽¹⁾	$	453	$	-	$	453	$	-

(1)

The Company used inputs from quoted prices for similar assets and liabilities in active markets that are directly or indirectly observable relating to the measurement of the interest rate swaps at December 31, 2013. The fair value measurement of the interest rate swaps have been classified as Level 2. The swaps matured on September 28, 2014, and as such, there were no amounts outstanding on the consolidated balance sheet as of September 30, 2014 related to interest rate swaps.

New Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. The new guidance narrows the definition of discontinued operations to disposals that represent a strategic shift in operations and requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective for annual and interim reporting periods beginning on and after December 15, 2014. Early adoption is permitted. Adoption of this standard will currently have no effect on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the current revenue recognition requirements in ASC 606, Revenue Recognition. Under this new guidance, entities should recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. This ASU also requires enhanced disclosures. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. Retrospective and modified retrospective application is allowed. The Company is currently assessing the impact of this amendment on its Consolidated Financial Statements.

3. Acquisition of Real Estate

On July 8, 2014, the Company completed the acquisition of the former Sun Times Press facility in downtown Chicago, Illinois, for approximately $18 million. The facility is approximately 317,000 gross square feet with capacity for approximately 133,000 square feet of raised floor and 24 megawatts (“MW”) of power. The Company intends to redevelop the facility which will increase its size to approximately 400,000 gross square feet with raised floor capacity of approximately 215,000 square feet and 37MW of power. The facility also has access to long haul fiber and is situated on 30 acres of developable land. This acquisition was funded with a draw on the unsecured revolving credit facility. In accordance with ASC 805, Business Combinations, the Company accounted for this acquisition as an asset acquisition.

On June 30, 2014 the Company completed the acquisition of a data center facility in New Jersey (the “Princeton facility”), from McGraw Hill Financial, Inc., for an aggregate cost of approximately $73.3 million. This facility is located on approximately 194 acres and consists of approximately 560,000 gross square feet, including approximately 58,000 square feet of raised floor, and 12 MW of gross power. This acquisition was funded with a draw on the unsecured revolving credit facility. Concurrently with acquiring this data center the Company entered into a 10 year lease for the facility’s 58,000 square feet of raised floor with Atos, an international information technology services company headquartered in Bezos, France. The lease includes a 15 year renewal at the option of Atos.

The Company accounted for this acquisition in accordance with ASC 805, Business Combinations as a business combination. The preliminary purchase price allocation was based on an assessment of the fair value of the assets acquired, and excludes acquisition-related costs which in accordance with ASC 805 were expensed as incurred. The Company acquired the Princeton facility on June 30, 2014. The Company is valuing the assets acquired using Level 3 inputs.

The following table summarizes the consideration for the Princeton facility and the preliminary allocation of the fair value of assets acquired as of September 30, 2014 (in thousands):

	Princeton facility as of September 30, 2014		Weighted average useful life
Buildings	$	35,574		40
Land		17,976		N/A
Acquired Intangibles		16,114		10
Deferred Costs		3,335		10
Other		301		10
Total purchase price	$	73,300

The purchase price allocation remains provisional pending completion of further valuation analysis. Any further revisions will be recorded as adjustments to the final purchase price allocation.

4. Real Estate Assets and Construction in Progress

The following is a summary of properties owned or leased by the Company as of September 30, 2014 and December 31, 2013 (in thousands):

As of September 30, 2014:

Property Location	Land		Buildings and Improvements		Construction in Progress		Total Cost

Owned Properties
Suwanee, Georgia (Atlanta-Suwanee)	$	3,521	$	134,931		3,799	$	142,251
Atlanta, Georgia (Atlanta-Metro)		15,397		350,728		13,770		379,895
Santa Clara, California*		-		88,891		662		89,553
Richmond, Virginia		2,180		126,659		62,301		191,140
Sacramento, California		1,481		57,892		1,362		60,735
Princeton, New Jersey		17,975		36,346		43		54,364
Dallas-Fort Worth, Texas		5,808		42,121		69,909		117,838
Chicago, Illinois		-		-		18,605		18,605
Miami, Florida		1,777		27,818		5		29,600
Lenexa, Kansas		437		24		3,108		3,569
Wichita, Kansas		-		1,409		-		1,409

		48,576		866,819		173,564		1,088,959

Leased Properties
Jersey City, New Jersey		-		26,406		885		27,291
Overland Park, Kansas		-		789		21		810

		-		27,195		906		28,101

	$	48,576	$	894,014	$	174,470	$	1,117,060

* Owned facility subject to long-term ground sublease.

As of December 31, 2013:

Property Location	Land		Buildings and Improvements		Construction in Progress		Total Cost

Owned Properties
Suwanee, Georgia (Atlanta-Suwanee)	$	3,521	$	126,486		3,270	$	133,277
Atlanta, Georgia (Atlanta-Metro)		15,397		296,547		32,456		344,400
Santa Clara, California*		-		86,544		1,249		87,793
Richmond, Virginia		2,180		108,979		67,155		178,314
Sacramento, California		1,481		52,841		4,273		58,595
Dallas-Fort Worth, Texas		5,808		-		38,501		44,309
Miami, Florida		1,777		27,553		-		29,330
Lenexa, Kansas		437		3,298		-		3,735
Wichita, Kansas		-		1,409		-		1,409

		30,601		703,657		146,904		881,162

Leased Properties
Jersey City, New Jersey		-		23,811		-		23,811
Overland Park, Kansas		-		762				762

		-		24,573		-		24,573

	$	30,601	$	728,230	$	146,904	$	905,735

* Owned facility subject to long-term ground sublease.

5. Credit Facilities and Mortgage Notes Payable

Below is a listing of our outstanding debt, excluding capital leases, as of September 30, 2014 and December 31, 2013 (in thousands):

	September 30,		December 31,
	2014		2013
	(Unaudited)

Unsecured Credit Facility	$	197,000	$	256,500
Senior Notes, net of discount		297,671		-
Richmond Credit Facility		70,000		70,000
Atlanta-Metro Equipment Loan		17,175		18,839
Total	$	581,846	$	345,339

(a) Unsecured Credit Facility – On May 1, 2013, the Company entered into an unsecured credit facility agreement with a syndicate of financial institutions in which KeyBank National Association serves as administrative agent (the “Unsecured Credit Facility”). The Unsecured Credit Facility consists of a term loan of $150 million, with a term of five years, and an unsecured revolving credit facility of $410 million, with a term of four years, for aggregate capacity of the Unsecured Credit Facility of $560 million. On July 23, 2014, the Company repaid $75 million of the term loan portion of the Unsecured Credit Facility and repaid a portion of the outstanding balance of the revolving portion of the Unsecured Credit Facility with proceeds from the issuance of its 5.875% Senior Notes due 2022, reducing the balance to the amounts described above. The Unsecured Credit Facility may be increased to up to $600 million, subject to certain conditions, including the consent of the administrative agent and obtaining necessary commitments.

The Unsecured Credit Facility requires monthly interest payments and requires the Company to comply with various quarterly covenant requirements relating to debt service coverage ratio, fixed charge ratio, leverage ratio and tangible net worth and various other operational requirements. In connection with the Unsecured Credit Facility, as of September 30, 2014, the Company had an additional $3.0 million letter of credit outstanding. The letter of credit was reduced to $2.5 million on October 1, 2014.

Amounts outstanding under the Unsecured Credit Facility bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will range, depending upon the Company’s leverage ratio, from 2.10% to 2.85% for LIBOR loans or 1.10% to 1.85% for base rate loans. As of September 30, 2014, the interest rate for amounts outstanding under the Unsecured Credit Facility was 2.26%.

(b) Senior Notes – On July 23, 2014, the Operating Partnership and QTS Finance Corporation, a subsidiary of the Operating Partnership formed solely for the purpose of facilitating the offering of the notes described below (collectively, the “Issuers”), issued $300 million aggregate principal amount of 5.875% Senior Notes due 2022 (the “Senior Notes”). The Senior Notes have an interest rate of 5.875% per annum, were issued at a price equal to 99.211% of their face value and mature on August 1, 2022. The proceeds from the offering were used to repay amounts outstanding under the Unsecured Credit Facility, including $75 million outstanding under the term loan. The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Operating Partnership’s existing and future subsidiaries (other than foreign subsidiaries and receivables entities) that guarantee any indebtedness of QTS Realty Trust, Inc., the Issuers or any other subsidiary guarantor. The Company will not initially guarantee the Senior Notes and will not be required to guarantee the Senior Notes except under certain circumstances. The offering was conducted pursuant to Rule 144A of the Securities Act of 1933, as amended, and the Senior Notes were issued pursuant to an indenture, dated as of July 23, 2014, among the Operating Partnership, QTS Finance Corporation, the Company, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (the “Indenture”).

(c) Richmond Credit Facility – In December 2012, the Company entered into a credit facility secured by the Company’s Richmond data center (the “Richmond Credit Facility”). As of September 30, 2014, the Richmond Credit Facility had capacity of $120 million, as amended, and includes an accordion feature that allows the Company to increase the size of the credit facility up to $200 million. The Richmond Credit Facility matures June 30, 2019. The Richmond Credit Facility requires the Company to comply with covenants similar to the Unsecured Credit Facility.

Amounts outstanding under the Richmond Credit Facility bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will range, depending upon the Company’s leverage ratio, from 2.10% to 2.85% for LIBOR loans or 1.10% to 1.85% for base rate loans. As of September 30, 2014, the interest rate for amounts outstanding under the Richmond Credit Facility was 2.25%.

(d) Atlanta-Metro Equipment Loan – On April 9, 2010, the Company entered into a $25 million loan to finance equipment related to an expansion project at the Company’s Atlanta-Metro data center (the “Atlanta-Metro Equipment Loan”). The loan originally featured monthly interest-only payments but now requires monthly interest and principal payments. The loan bears interest at 6.85%, amortizes over ten years and matures on June 1, 2020.

The annual remaining principal payment requirements as of September 30, 2014 per the contractual maturities and excluding extension options are as follows (in thousands):

2014	$	574
2015		2,397
2016		2,567
2017		49,748
2018		152,943
Thereafter		375,945
Total	$	584,175

As of September 30, 2014, the Company was in compliance with all of its covenants.

6. Interest Rate Derivative Instruments

The Company entered into interest rate swap agreements with a notional amount of $150 million on February 8, 2012, which were designated as cash flow hedges for hedge accounting, and matured on September 28, 2014. For derivative instruments that are accounted for as hedges, the change in fair value for the effective portions of qualifying hedges is recorded through other comprehensive income (loss). The total amount of unrealized gains recorded in other comprehensive income (loss) for the nine months ended September 30, 2013 was $0.2 million, with no unrealized gains or losses recorded for the nine months ended September 30, 2014. Interest expense related to payments on interest rate swaps for the three and nine months ended September 30, 2014 was $0.2 million and $0.5 million, respectively, and $0.1 million and $0.4 million for the three and nine months ended September 30, 2013, respectively.

As the interest rate swaps matured in September 2014, there were no amounts outstanding on the consolidated balance sheet relating to interest rate swaps as of September 30, 2014. At December 31, 2013 the value of the interest rate swaps was a liability of $0.5 million. This value was determined using Level 2 inputs within the valuation hierarchy.

7. Commitments and Contingencies

The Company is subject to various routine legal proceedings and other matters in the ordinary course of business. While resolution of these matters cannot be predicted with certainty, management believes, based upon information currently available, that the final outcome will not have a material adverse impact on the Company’s financial statements. The Company previously entered into a master service agreement with a third party Internet service provider. The Company was not receiving industry-standard quality of Internet and connectivity services and terminated the contract. The third party Internet service provider challenged the grounds for the Company’s termination and sued the Company in Georgia state court seeking a termination fee equal to the amount the Company would have paid had it not terminated the agreement. The Georgia state court ruled to limit damages, if any, to six months of unpaid fees. Additional claims related to a prior settlement agreement between the parties and the enforceability of an early termination clause in a separate agreement have been raised and are being litigated. Various issues are on appeal. The Company has established an accrual associated with this matter which is recorded as a component of accrued liabilities.

8. Partners’ Capital, Equity and Incentive Compensation Plans

As of September 30, 2014, the Operating Partnership had three classes of limited partnership units outstanding: Class A units of limited partnership interest (“Class A units”), Class RS LTIP units of limited partnership interest (“Class RS units”) and Class O LTIP units of limited partnership units (“Class O Units”). The Class A Units are redeemable at any time on or after one year following the later of November 1, 2013 (which is the beginning of the first full calendar month following the completion of the IPO) or the date of initial issuance. The Company may in its sole discretion elect to assume and satisfy the redemption amount with cash or its shares. Class RS units or Class O units were issued upon grants made under the QualityTech, LP 2010 Equity Incentive Plan (the “2010 Equity Plan”). Class RS units and Class O units may be subject to vesting and are pari passu with Class A units. Vested Class RS units and Class O units are convertible into Class A units based on formulas contained in the partnership agreement of the Operating Partnership.

In connection with its IPO, the Company issued Class A common stock and Class B common stock. Class B common stock entitles the holder to 50 votes per share and was issued to enable the Company’s Chief Executive Officer to exchange 2% of his Operating Partnership units so he may have a vote proportionate to his economic interest in the Company. Also in connection with its IPO, the Company adopted the QTS Realty Trust, Inc. 2013 Equity Incentive plan (the “2013 Equity Incentive Plan”), which authorized 1.75 million shares to be issued under the plan, including options to purchase Class A common stock, restricted Class A common stock, Class O units, and Class RS units.

The following is a summary of award activity under the 2010 Equity Incentive Plan and 2013 Equity Incentive Plan and related information for the nine months ended September 30, 2014:

	2010 Equity Incentive Plan												2013 Equity Incentive Plan
	Number of Class O units			Weighted average exercise price		Weighted average fair value		Number of Class RS units			Weighted average price		Options			Weighted average exercise price		Weighted average fair value		Restricted Stock		Weighted average price

Outstanding at December 31, 2013		1,622,747		$	23.44	$	3.84		173,750		$	21.86		367,910		$	21.00	$	3.50		108,629	$	21.00
Granted		—			—		—		—			—		238,039			25.59		4.96		44,000		25.51
Exercised		—			—		—		—			—		—			—		—		—		—
Released from restriction (1)		—			—		—		(90,437	)		24.93		—			—		—		—		—
Cancelled/Expired		(75,454	)		23.21		5.48		—			—		(14,000	)		21.00		3.52		—		—
Outstanding at September 30, 2014		1,547,293		$	23.45	$	3.76		83,313		$	23.65		591,949		$	22.85	$	4.25		152,629	$	22.30

(1)

This represents Class RS units that upon vesting have converted to Operating Partnership units.

The assumptions and fair values for restricted stock and options to purchase shares of Class A common stock granted for the nine months ended September 30, 2014 is included in the following table on a per unit basis. Class O units and options to purchase shares of Class A common stock were valued using the Black-Scholes model.

	Three and Nine Months Ended September 30, 2014
Fair value of restricted stock granted		$25.51-$28.82
Fair value of options granted		$4.94-$5.98
Expected term (years)		5.5-6.1
Expected volatility		33	%
Expected dividend yield		4.02-4.55	%
Expected risk-free interest rates		1.7-1.9	%

The following table summarizes information about awards outstanding as of September 30, 2014.

	Operating Partnership Awards Outstanding
	Exercise prices		Awards outstanding		Weighted average remaining vesting period (years)
Class RS Units	$	-		83,313	2
Class O Units	$	20-25		1,547,293	2

Total Operating Partnership awards outstanding				1,630,606

	QTS Realty Trust, Inc. Awards Outstanding
	Exercise prices		Awards outstanding		Weighted average remaining vesting period (years)
Restricted stock	$	-		152,629	3
Options to purchase Class A common stock	$	21-28.82		591,949	1
Total QTS Realty Trust, Inc awards outstanding				744,578

All nonvested LTIP unit awards are valued as of the grant date and generally vest ratably over a defined service period. Certain nonvested LTIP unit awards vest on the earlier of achievement by the Company of various performance goals or specified dates in 2015 and 2016. As of September 30, 2014 there were 0.8 million, 0.1 million, 0.2 million and 0.6 million nonvested Class O units, Class RS units, restricted Class A common stock and options to purchase Class A common stock outstanding, respectively. As of September 30, 2014 the Company had $7.3 million of unrecognized equity-based compensation expense which will be recognized over the remaining vesting period of up to 4 years. The total intrinsic value of the awards outstanding at September 30, 2014 was $20.9 million.

On January 7, 2014 the Company paid a dividend to common stockholders of $0.24 per common share and the Operating Partnership made a distribution to its partners of $0.24 per unit in an aggregate amount of $9.0 million. On April 8, July 8 and October 7, 2014, the Company paid its regular quarterly cash dividend of $0.29 per common share and the Operating Partnership made a distribution to its partners of $0.29 per unit in an aggregate amount of $10.7 million, $10.7 million and $10.5 million, respectively. Additionally, a distribution of approximately $200,000 was made to Class O LTIP holders during the three months ended June 30, 2014 to cover federal, state and local taxes on the allocated taxable income of the O LTIPs.

9. Related Party Transactions

The Company periodically executes transactions with entities affiliated with its Chairman and Chief Executive Officer. Such transactions include automobile, furniture and equipment purchases as well as building operating lease payments and an allocation of insurance expense and reimbursement at the related party’s cost for the use of a private aircraft service by our officers and directors.

The transactions which occurred during the three and nine months ended September 30, 2014 and 2013 are outlined below (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)	2014		2013		2014		2013

Tax, utility, insurance and other reimbursement	$	296	$	18	$	464	$	121
Rent expense		253		264		772		712
Capital assets acquired		86		126		160		141
Total	$	635	$	408	$	1,396	$	974

Certain employees of the Company provided services to companies outside the consolidated group for which the Company is not reimbursed. These amounts were not material for the nine months ended September 30, 2013. This activity was discontinued by the Company during the second quarter of 2013.

10. Noncontrolling Interest

Concurrently with the completion of the IPO, the Company consummated a series of transactions pursuant to which the Company became the sole general partner and majority owner of QualityTech, LP, which then became its operating partnership. The previous owners of QualityTech, LP retained 21.2% ownership of the Operating Partnership.

Commencing at any time beginning one year following the later of November 1, 2013 (which is the beginning of the first full calendar month following the completion of the IPO) or the date of initial issuance, at the election of the holders of the noncontrolling interest, the Class A units will be redeemable for cash or, at the election of the Company common stock of the Company on a one-for-one basis.

11. Earnings per share

Basic income (loss) per share is calculated by dividing the net income (loss) attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share adjusts basic income (loss) per share for the effects of potentially dilutive common shares.

	Three Months Ended		Nine Months Ended
(in thousands, except per share data)	September 30, 2014		September 30, 2014
Net income available to common stockholders	$	3,157	$	10,445
Weighted average shares outstanding—basic		29,017		29,007
Net income per share—basic	$	0.11	$	0.36

Net income	$	4,006	$	13,255
Weighted average shares outstanding—diluted (1)		37,252		37,040
Net income per share—diluted	$	0.11	$	0.36

(1) Includes 8,104 and 7,939 units of the Operating Partnership as of the three and nine months ended September 30, 2014, respectively.

12. Customer Leases, as Lessor

Future minimum lease payments to be received under non-cancelable operating customer leases (exclusive of recoveries of operating costs from customers) are as follows for the years ending December 31 (in thousands):

Period Ending December 31,
	2014 (October - December)	$	50,029
	2015		186,248
	2016		166,060
	2017		130,052
	2018		104,754
	Thereafter		278,147
	Total	$	915,290

13. Fair Value of Financial Instruments

ASC Topic 825 requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based upon the application of discount rates to estimated future cash flows based upon market yields or by using other valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, fair values are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.

Short-term instruments: The carrying amounts of cash and cash equivalents, restricted cash approximate fair value.

Credit facilities, Senior Notes and mortgage notes payable: The fair value of the Company’s floating rate mortgage loans was estimated using Level 2 “significant other observable inputs” such as available market information based on borrowing rates that the Company believes it could obtain with similar terms and maturities. At September 30, 2014, the fair value of Atlanta-Metro Equipment Loan, based on current market rates, was approximately $17.2 million. The Company’s Unsecured Credit Facility and Richmond Credit Facility did not have interest rates which were materially different than current market conditions and therefore, the fair value of each of the credit facilities approximated the carrying value of each note. The fair value of the Company’s Senior Notes was estimated using Level 2 “significant other observable inputs,” primarily based on quoted market prices for the same or similar issuances. At September 30, 2014, the fair value of the Senior Notes was approximately $290.2 million.

Other debt instruments: The fair value of the Company’s other debt instruments (including capital leases) were estimated in the same manner as the credit facilities and mortgage notes payable above. Similarly, because each of these instruments did not have interest rates which were materially different than current market conditions and therefore, the fair value of each instrument approximated the respective carrying values.

14. Subsequent Events

On October 7, 2014, the Company paid its regular quarterly cash dividend of $0.29 per common share to stockholders and operating partnership unit holders of record as of the close of business on September 19, 2014.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis presents the financial condition and results of operations of QTS Realty Trust, Inc. for the three and nine months ended September 30, 2014 and QualityTech, LP, our predecessor and operating partnership, for the three and nine months ended September 30, 2013. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements and related notes contained elsewhere in this Form 10-Q.

Forward-Looking Statements

Some of the statements contained in this Form 10-Q 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 our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our 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 Form 10-Q reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. We do 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 our markets or the technology industry;

	·	national and local economic conditions;

	·	difficulties in identifying properties to acquire and completing acquisitions;

	·	our failure to successfully develop, redevelop and operate acquired properties and operations;

	·	significant increases in construction and development costs;

	·	the increasingly competitive environment in which we operate;

	·	defaults on or non-renewal of leases by customers;

	·	increased interest rates and operating costs, including increased energy costs;

	·	financing risks, including our failure to obtain necessary outside financing;

	·	decreased rental rates or increased vacancy rates;

	·	dependencies on third parties to provide Internet, telecommunications and network connectivity to our data centers;

	·	our failure to qualify and maintain our qualification as a real estate investment trust (“REIT”);

environmental uncertainties and risks related to natural disasters;

financial market fluctuations; and

changes in real estate and zoning laws and increases in real property tax rates.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim 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 our future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013 and Item 1A. “Risk Factors” of this Form 10-Q.

Overview

We are a leading owner, developer and operator of state-of-the-art, carrier-neutral, multi-tenant data centers. Our data centers are facilities that house the network and computer equipment of multiple customers and provide access to a range of communications carriers. We have a fully integrated platform through which we own and operate our data centers and provide a broad range of IT infrastructure solutions. We refer to our spectrum of core data center products as our “3Cs,” which consists of Custom Data Center, Colocation and Cloud and Managed Services. We believe that we own and operate one of the largest portfolios of multi-tenant data centers in the United States, as measured by gross square footage, and have the capacity to more than double our leased raised floor without constructing or acquiring any new buildings.

Inclusive of the recently acquired Chicago facility, we operate a portfolio of 12 data centers across eight states, located in some of the top U.S. data center markets plus other high-growth markets. Our data centers are highly specialized, full-service, mission-critical facilities used by our customers to house, power and cool the networking equipment and computer systems that support their most critical business processes. We believe that our data centers are best-in-class and engineered to among the highest specifications commercially available to customers, providing fully redundant, high-density power and cooling sufficient to meet the needs of major national and international companies and organizations. This is in part reflected by our operating track record of “five-nines” (99.999%) reliability and by our diverse customer base of more than 850 customers, including financial institutions, healthcare companies, government agencies, communications service providers, software companies and global Internet companies.

As of September 30, 2014, we owned an approximate 78.8% ownership interest in the operating partnership. Substantially all of our assets are held by, and our operations are conducted through, the operating partnership.

We believe that we have operated and are organized in conformity with the requirements for qualification and taxation as a REIT commencing with our taxable year ended December 31, 2013. Our qualification as a REIT, and maintenance of such qualification, depends upon our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code of 1986, as amended (the “Code”) relating to, among other things, the sources of our gross income, the composition and values of our assets, our distributions to our stockholders and the concentration of ownership of our equity shares.

Our Customer Base

We provide data center solutions to a diverse set of customers. Our customer base is comprised of companies of all sizes representing an array of industries, each with unique and varied business models and needs. We serve Fortune 1000 companies as well as small and medium-sized businesses, or SMBs, including financial institutions, healthcare companies, government agencies, communications service providers, software companies and global Internet companies.

Our Custom Data Center, or C1, customers typically are large enterprises with significant IT expertise and specific IT requirements, including financial institutions, “Big Four” accounting firms and the world’s largest global Internet companies. Our Colocation, or C2, customers consist of a wide range of organizations, including major healthcare, telecommunications and software and web-based companies. Our C3 Cloud customers include both large organizations and SMBs seeking to reduce their capital expenditures and outsource their IT infrastructure on a flexible basis. Examples of current C3 Cloud customers include a global financial processing company and a U.S. government agency.

As a result of our diverse customer base, customer concentration in our portfolio is limited. As of September 30, 2014, only three of our more than 850 customers individually accounted for more than 3% of our monthly recurring revenue (“MRR”) (as defined below), with the largest customer accounting for approximately 8% of our MRR. In addition, greater than 40% of our MRR was attributable to customers who use more than one of our 3Cs products.

Our Portfolio

We develop and operate 12 data centers located in eight states, containing an aggregate of approximately 4.7 million gross square feet of space (approximately 94% of which is wholly owned by us), including approximately 2.1 million “basis-of-design” raised floor square feet, which represents the total data center raised floor potential of our existing data center facilities. This represents the maximum amount of space in our existing buildings that could be leased following full build-out, depending on the configuration that we deploy. As of September 30, 2014 (including the recently acquired Chicago facility), this space included approximately 927,000 raised floor operating net rentable square feet, or NRSF, plus approximately 1.2 million square feet of additional raised floor in our development pipeline. Our facilities collectively have access to over 500 megawatts (“MW”) of gross utility power with 419 MW of available utility power. We believe such access to power gives us a competitive advantage in redeveloping data center space, since access to power is usually the most limiting and expensive component in data center redevelopment.

During 2014 we acquired two additional data center properties. On June 30, 2014 we completed the acquisition of a data center facility in New Jersey (the “Princeton facility”), from McGraw Hill Financial, Inc., located on approximately 194 acres and consists of approximately 560,000 gross square feet, including approximately 58,000 square feet of raised floor, and 12 MW of gross power. Additionally, on July 8, 2014, we completed the acquisition of the former Sun Times Press facility in downtown Chicago, Illinois, which is approximately 317,000 gross square feet with capacity for approximately 133,000 square feet of raised floor and 24 MW of power. We intend to redevelop the facility which will increase its size to approximately 400,000 gross square feet with raised floor capacity of approximately 215,000 square feet and 37 MW of power.

The following table presents an overview of the portfolio of operating properties that we own or lease, based on information as of September 30, 2014:

					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 Billed ⁽⁷⁾			Annualized Rent ⁽⁸⁾		Available Utility Power (MW) ⁽⁹⁾		Basis of Design NRSF		% Raised Floor
Richmond, VA		2010		1,318,353		95,581		24,678		115,627		235,886		86.3	%	$	18,703,685		110		556,595		17.2	%

Atlanta, GA (Metro)		2006		968,695		392,986		36,953		315,676		745,615		89.5	%	$	72,047,982		72		527,186		74.5	%

Dallas-Fort Worth		2013		698,000		28,321		-		28,825		57,146		6.5	%	$	386,280		140		292,000		9.7	%

Princeton		2014		553,930		58,157		12,073		111,405		181,635		100.0	%	$	8,290,975		22		158,157		36.8	%

Suwanee, GA		2005		369,822		185,422		8,697		108,266		302,385		72.3	%	$	47,199,081		36		214,422		86.5	%

Chicago, IL		2014		317,000		-		-		-		-		-		$	-		8		133,000		-	%

Santa Clara, CA**		2007		135,322		55,494		944		45,687		102,125		92.9	%	$	22,268,523		11		80,347		69.1	%

Jersey City, NJ*		2006		122,448		31,503		14,208		41,901		87,612		92.9	%	$	11,246,267		7		52,744		59.7	%

Sacramento, CA		2012		92,644		54,595		2,794		23,916		81,305		60.8	%	$	12,449,538		8		57,906		94.3	%

Miami, FL		2008		30,029		19,887		-		6,592		26,479		65.3	%	$	4,908,856		4		19,887		100.0	%

Other		Misc		46,706		5,129		2,854		44,061		52,044		22.4	%	$	747,517		1		5,129		100.0	%
Total as of September 30, 2014				4,652,949		927,075		103,201		841,956		1,872,232		83.9	%	$	198,248,704		419		2,097,373		44.2	%

(1)

Represents the year a property was acquired or, in the case of a property under lease, the year our initial lease commenced for the property.

(2)

With respect to our 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 171,060 square feet of our 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 our 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 (576,196 square feet as of September 30, 2014) divided by leasable raised floor based on the current configuration of the properties (686,862 square feet as of September 30, 2014), expressed as a percentage. The Dallas-Fort Worth, TX facility occupancy does not include a significant customer which was previously signed and commenced billing on October 1, 2014. Inclusion of this customer would have increased the Dallas-Fort Worth occupancy percentage to more than 68%.

(8)

We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under executed contracts as of a particular date, which includes revenue from our 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 September 30, 2014.

Represents facilities that we lease.

Subject to long term ground lease

NOTE: Excludes our facility at Lenexa, Kansas, which is not an operating data center.

Key Operating Metrics

The following sets forth definitions for our key operating metrics. These metrics may differ from similar definitions used by other companies.

Monthly Recurring Revenue (“MRR”). 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, unless otherwise specifically noted.

Annualized Rent. We define annualized rent as MRR multiplied by 12.

Rental Churn. We define rental churn as the MRR impact from a customer completely departing our platform in a given period compared to the total MRR at the beginning of the period.

Leasable Raised Floor. We define leasable raised floor as the amount of raised floor square footage that we have 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 our leasable raised floor may change even without completion of new redevelopment projects due to changes in our configuration of C1, C2 and C3 product space.

Percentage (%) Leased Raised Floor. We define percentage leased raised floor as the square footage that is subject to a signed lease for which billing has commenced as of a particular date compared to leasable raised floor as of that date, expressed as a percentage.

Booked-not-Billed. We define booked-not -billed as our customer leases that have been signed, but for which lease payments have not yet commenced.

Factors That May Influence Future Results of Operations and Cash Flows

Revenue. Our revenue growth will depend on our ability to maintain the historical occupancy rates of leasable raised floor, lease currently available space, lease new capacity that becomes available as a result of our development and redevelopment activities, attract new customers and continue to meet the ongoing technological requirements of our customers. As of September 30, 2014, we had in place customer leases generating revenue for approximately 84% of our leasable raised floor. Our ability to grow revenue also will be affected by our ability to maintain or increase rental, cloud and managed services rates at our properties. Future economic downturns, regional downturns or downturns in the technology industry could impair our ability to attract new customers or renew existing customers’ leases on favorable terms, or at all, and could adversely affect our customers’ ability to meet their obligations to us. Negative trends in one or more of these factors could adversely affect our revenue in future periods, which would impact our results of operations and cash flows. We also at times may elect to reclaim space from customers in a negotiated transaction where we believe that we can redevelop and/or re-lease that space at higher rates, which may cause a decrease in revenue until the space is re-leased.

Leasing Arrangements. As of September 30, 2014, 24% of our MRR came from customers which individually occupied greater than or equal to 6,600 square feet of space (or approximately 1 MW of power) and which had metered power. As of September 30, 2014, approximately 44% of our MRR came from C1 customers that are subject to the metered power model. Under the metered power model, the customer pays us a fixed monthly rent amount, plus reimbursement of certain other operating costs, including actual costs of sub-metered electricity used to power its data center equipment and an estimate of costs for electricity used to power supporting infrastructure for the data center, expressed as a factor of the customer’s actual electricity usage. Fluctuations in our customers’ utilization of power and the supplier pricing of power do not significantly impact our results of operations or cash flows under the metered power model. These leases generally have a minimum term of five years. As of September 30, 2014, 76% of our MRR was leased to customers which individually occupied less than 6,600 square feet of space, many of whom are billed on a gross lease basis. Our C2/C3 customers are billed under a gross lease model and as of September 30, 2014, represented 56% of our MRR. Under a gross lease, the customer pays us a fixed rent on a monthly basis, and does not separately reimburse us for operating costs, including utilities, maintenance, repair, property taxes and insurance, as reimbursement for these costs is factored into MRR. However, if customers access more utility costs than their leases permit, we are able to charge these customers for overages. For leases under the gross lease model, fluctuations in our customers’ utilization of power and the prices our utility providers charge us will impact our results of operations and cash flows. Our leases on a gross lease basis generally have a term of three years or less.

Scheduled Lease Expirations. Our ability to minimize rental churn and customer downgrades at renewal and renew, lease and re-lease expiring space will impact our results of operations and cash flows. Leases representing approximately 4% and 9% of our total leased raised floor are scheduled to expire during the years ending December 31, 2014 (including all month-to-month leases) and 2015, respectively. These leases also represented approximately 9% and 21%, respectively, of our annualized rent as of September 30, 2014. At expiration, as a general matter, based on current market conditions, we expect that expiring rents will be at or below the then-current market rents.

Acquisitions, Redevelopment and Financing. Our revenue growth also will depend on our ability to acquire and redevelop and subsequently lease data center space at favorable rates. We generally fund the cost of data center acquisition and redevelopment from our net cash provided by operations, credit facilities, other unsecured and secured borrowings or the issuance of additional equity. We believe that we have sufficient access to capital from our current cash and cash equivalents, and borrowings under our credit facilities to fund our redevelopment projects.

Operating Expenses. Our operating expenses generally consist of direct personnel costs, utilities, property and ad valorem taxes, insurance and site maintenance costs and rental expenses on our ground and building leases. In particular, our buildings require significant power to support the data center operations conducted in them. Although substantially all of our long-term leases—leases with a term greater than three years—contain reimbursements for certain operating expenses, we will not in all instances be reimbursed for all of the property operating expenses we incur. We also incur general and administrative expenses, including expenses relating to senior management, our in-house sales and marketing organization, cloud and managed services support personnel and legal, human resources, accounting and other expenses related to professional services. We also will incur additional expenses arising from being a publicly traded company, including employee equity-based compensation. Increases or decreases in our operating expenses will impact our results of operations and cash flows. We expect to incur additional operating expenses as we continue to expand.

General Leasing Activity

During the three and nine months ended September 30, 2014, we entered into customer leases representing approximately $2.1 million and $4.5 million of incremental MRR, net of downgrades (and representing approximately $25.6 million and $53.9 million of annualized rent) at $248 and $323 per square foot, respectively. In addition, we incurred $3.6 million and $11.5 million of leasing commissions related to new leasing activity for the three and nine months ended September 30, 2014, respectively.

During the three and nine months ended September 30, 2014, we renewed leases with a total annualized rent of $5.2 million and $17.7 million at an average rent per square foot of $669 and $724, respectively, which was 2.9% lower and 2.4% higher than the annualized rent prior to their respective renewals. Customers that renew with adjustments to square feet are reflected in the net leasing activity discussed above. The rental churn rate for the three and nine months ended September 30, 2014 was 1.1% and 4.7%, respectively.

During the three and nine months ended September 30, 2014, we commenced customer leases representing approximately $1.6 million and $4.2 million of incremental MRR (and representing approximately $18.7 million and $50.2 million of annualized rent) at $520 and $552 per square foot, respectively.

As of September 30, 2014, our booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of September 30, 2014) was approximately $5.2 million, or $62.6 million of annualized rent. Of this booked-not-billed balance, approximately $0.6 million of MRR was attributable to new customers and approximately $4.6 million of MRR was attributable to existing customers. Of this booked-not-billed MRR balance, leases representing approximately $10.5 million of annualized MRR are scheduled to commence in 2014, which is expected to contribute approximately $2.2 million of incremental revenue in 2014.

Results of Operations

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

The following changes in revenues and expenses for the three months ended September 30, 2014 are that of the Company, while the changes in revenues and expenses for the three months ended September 30, 2013 are that of the Historical Predecessor (in thousands):

	Three Months Ended September 30,
	(unaudited)
	The Company			Historical Predecessor
	2014			2013			$ Change			% Change
Revenues:
Rental	$	45,448		$	37,595		$	7,853			21	%
Recoveries from customers		6,131			3,603			2,528			70	%
Cloud and managed services		5,242			4,393			849			19	%
Other		1,124			429			695			162	%
Total revenues		57,945			46,020			11,925			26	%

Operating expenses:
Property operating costs		20,369			15,638			4,731			30	%
Real estate taxes and insurance		1,377			1,101			276			25	%
Depreciation and amortization		15,210			12,136			3,074			25	%
General and administrative		11,045			10,097			948			9	%
Restructuring		226			-			226			*
Transaction costs		(195	)		-			(195	)		*
Total operating expenses		48,032			38,972			9,060			23	%
Operating income		9,913			7,048			2,865			41	%
Other income and expense:
Interest income		-			4			(4	)		*
Interest expense		(5,410	)		(4,343	)		(1,067	)		-25	%
Other expense		(470	)		-			(470	)		*
Income (loss) before taxes		4,033			2,709			1,324			-49	%
Tax expense of taxable REIT subsidiaries		(27	)		-			(27	)		*
Net income (loss)	$	4,006		$	2,709		$	1,297			-48	%

* not applicable for comparison

Revenues. Total revenues for the three months ended September 30, 2014 months were $57.9 million compared to $46.0 million for the three months ended September 30, 2013. The increase of $11.9 million, or 26%, was primarily due to organic growth in our customer base as well as the addition of the Princeton facility which contributed $3.9 million of revenue. The increase of $8.7 million, or 21%, in combined rental and cloud and managed services revenue was primarily due to newly leased space as well as increases in rents from previously leased space, net of downgrades at renewal and rental churn.

As of September 30, 2014, our data centers were 84% occupied and billed based on leasable raised floor of approximately 687,000 square feet, with an average annualized rent of $344 per leased raised floor square foot including cloud and managed services revenue, or $308 per leased raised floor square foot excluding cloud and managed services revenue. As of September 30, 2014, the average annualized rent for our C1 product, including managed services for our C1 product, was $185 per leased raised floor square foot, and the average annualized rent for our C2 product, including Cloud and managed services combined was $1,057 per leased raised floor square foot. As of September 30, 2013, our data centers were 90% leased based on leasable raised floor of approximately 549,000 square feet, with an average annualized rent of $337 per leased raised floor square foot including cloud and managed services revenue, or $303 per leased raised floor square foot excluding cloud and managed services revenue.

Higher recoveries from customers for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 were primarily due to utility costs associated with the acquisition of the Princeton facility as well as increased utility costs at our Atlanta-Metro facility which contributed $1.7 million and $0.7 million to the increase, respectively. The $0.7 million increase in other revenue for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 was primarily due to a one-time revenue item related to a customer option to utilize space and higher straight line rent, partially offset by lower sales of scrap metals and other unused materials.

Property Operating Costs. Property operating costs for the three months ended September 30, 2014 were $20.4 million compared to property operating costs of $15.6 million for the three months ended September 30, 2013, an increase of $4.7 million, or 30%. The breakdown of our property operating costs is summarized in the table below (in thousands):

	Three Months Ended September 30,
	(unaudited)
	The Company		Historical Predecessor
	2014		2013		$ Change		% Change
Property operating costs:
Direct payroll	$	2,826	$	2,643	$	183		7	%
Rent		1,226		1,112		114		10	%
Repairs and maintenance		1,897		907		990		109	%
Utilities		8,834		6,996		1,838		26	%
Management fee allocation		2,279		1,837		442		24	%
Other		3,307		2,143		1,164		54	%
Total property operating costs	$	20,369	$	15,638	$	4,731		30	%

The acquisition of the Princeton facility contributed $1.6 million to the total increase in property operating costs, of which $0.4 million related to repairs and maintenance, $0.3 million related to utilities, $0.1 million related to management fee allocation and $0.8 million related to other property operating costs. The remaining $3.1 million increase in total property operating costs was attributable to a $1.5 million increase in utilities expense primarily related to increased utility rates in the Atlanta-Metro and Atlanta-Suwanee facilities. Repairs and maintenance expense tends to fluctuate from period to period and increase with the expansion and lease-up of our facilities, contributing $0.6 million to the remaining increase in operating costs. The management fee allocation is based on 4% of cash rental revenues for each facility and reflects an allocation of internal charges to cover back-office and service-related costs associated with the day-to-day operations of our data center facilities, with a corresponding offset to general and administrative expenses. The remaining increase in other property operating expenses of $0.4 million was primarily due to increased outsourcing of our facility security personnel, which resulted in lower direct payroll costs.

Real Estate Taxes and Insurance. Real estate taxes and insurance for the three months ended September 30, 2014 were $1.4 million compared to $1.1 million for the three months ended September 30, 2013. The increase of $0.3 million, or 25%, was primarily attributable to the acquisition of our Princeton data center.

Depreciation and Amortization. Depreciation and amortization for the three months ended September 30, 2014 was $15.2 million compared to $12.1 million for the three months ended September 30, 2013. The increase of $3.1 million, or 25%, was primarily due to additional depreciation of $2.2 million associated with the Princeton and Dallas-Fort Worth data centers, as well as expansion of the Atlanta-Metro, Atlanta-Suwanee and Richmond data centers, and higher amortization expense of $0.9 million primarily related to a higher level of leasing commissions.

General and Administrative Expenses. General and administrative expenses were $11.0 million for the three months ended September 30, 2014 compared to general and administrative expenses of $10.1 million for the three months ended September 30, 2013, an increase of $0.9 million, or 9%. Approximately $2.8 million of the total general and administrative expenses for the three months ended September 30, 2014 resulted from sales and marketing expenses, compared to $2.1 million for the three months ended September 30, 2013. The remaining increase in general and administrative expenses was primarily attributable to higher software license costs of $0.3 million, higher temporary and consulting expenses of $0.3 million and higher professional fees of $0.3 million. Total equity-based compensation expense was $0.9 million and $0.5 million for the three months ended September 30, 2014 and 2013, respectively. These increases were partially offset by an increase in direct payroll allocation of $0.5 million as well as an increase in management fee allocation of $0.4 million. Our general and administrative expenses represented 19.1% of total revenues for the three months ended September 30, 2014 compared to 21.9% for the three months ended September 30, 2013.

Restructuring Costs. For the three months ended September 30, 2014 we incurred $0.2 million in restructuring costs related to severance for various remote employees.

Transaction Costs. For the three months ended September 30, 2014, we recovered $0.2 million due to a refund of previously expensed transaction costs. Acquisition-related costs for acquisitions accounted for as a business combination in accordance with ASC 805, Business Combinations, are expensed in the periods in which the costs are incurred and the services are received.

Interest Expense. Interest expense for the three months ended September 30, 2014 was $5.4 million compared to $4.3 million for the three months ended September 30, 2013. The increase of $1.1 million, or 25%, was due primarily to an increase in the weighted average interest rate on our borrowings as a result of our $300 million aggregate principal amount of 5.875% Senior Notes Due 2022 (the “Senior Notes”) issuance in July 2014, partially offset by a decrease in the average debt balance of $2.7 million and higher capitalized interest during the period. The average debt balance for the three months ended September 30, 2014 was $583.1 million, with a weighted average interest rate, including the effect of interest rate swaps and amortization of deferred financing costs, of 4.62%. This compared to an average debt balance of $585.8 million for the three months ended September 30, 2013, with a weighted average interest rate, including the effect of interest rate swaps and amortization of deferred financing costs, of 3.58%. Interest capitalized in connection with our redevelopment activities during the three months ended September 30, 2014 and September 30, 2013 was $1.3 million and $0.9 million, respectively.

Other Expense. Other expense for the three months ended September 30, 2014 was $0.5 million. We had no other expense/income for the three months ended September 30, 2013. During the three months ended September 30, 2014, we wrote off unamortized financing costs of $0.5 million primarily in connection with repaying $75 million of our term loan under our unsecured credit facility.

Net Income (Loss). A summary of the components of the increase in net income of $1.3 million for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 is as follows (in millions):

	$ Change
Increase in revenues, net of property operating costs, real estate taxes and insurance	$	6.9
Increase in general and administrative expense		(0.9	)
Increase in depreciation and amortization		(3.1	)
Increase in restructuring charges		(0.2	)
Decrease in transaction costs		0.2
Increase in interest expense net of interest income		(1.1	)
Increase in other expense		(0.5	)
Increase in net income	$	1.3

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

The following changes in revenues and expenses for the nine months ended September 30, 2014 are that of the Company, while the changes in revenues and expenses for the nine months ended September 30, 2013 are that of the Historical Predecessor (in thousands):

	Nine Months Ended September 30,
	(unaudited)
	The Company			Historical Predecessor
	2014			2013			$ Change			% Change
Revenues:
Rental	$	127,993		$	106,184		$	21,809			21	%
Recoveries from customers		13,674			9,925			3,749			38	%
Cloud and managed services		14,443			12,828			1,615			13	%
Other		2,116			1,521			595			39	%
Total revenues		158,226			130,458			27,768			21	%

Operating expenses:
Property operating costs		53,121			44,930			8,191			18	%
Real estate taxes and insurance		3,713			3,304			409			12	%
Depreciation and amortization		42,274			34,197			8,077			24	%
General and administrative		33,296			29,387			3,909			13	%
Restructuring		1,272			-			1,272			*
Transaction costs		958			-			958			*
Total operating expenses		134,634			111,818			22,816			20	%
Operating income		23,592			18,640			4,952			27	%

Other income and expense:
Interest income		8			17			(9	)		-53	%
Interest expense		(9,683	)		(15,977	)		6,294			39	%
Other expense		(580	)		(3,277	)		2,697			*
Income (loss) before taxes		13,337			(597	)		13,934			2334	%
Tax expense of taxable REIT subsidiaries		(82	)		-			(82	)		*
Net income (loss)	$	13,255		$	(597	)	$	13,852			2320	%

* not applicable for comparison

Revenues. Total revenues for the nine months ended September 30, 2014 were $158.2 million compared to $130.5 million for the nine months ended September 30, 2013. The increase of $27.8 million, or 21%, was primarily due to organic growth in our customer base and $3.9 million of revenue associated with the addition of the Princeton facility. The increase of $23.4 million, or 20%, in combined rental and cloud and managed services revenue was primarily due to newly leased space as well as increases in rents from previously leased space, net of downgrades at renewal and rental churn.

Higher recoveries from customers for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 were primarily due to utility costs associated with the acquisition of the Princeton facility which contributed $1.7 million to the increase as well as increased utility costs generally related to an increase in customers operating under our metered power model at our Atlanta-Metro and Richmond data centers, which contributed $1.1 million and $0.6 million to the increase, respectively. The $0.6 million increase in other revenue for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was primarily due to higher straight line rent.

Property Operating Costs. Property operating costs for the nine months ended September 30, 2014 were $53.1 million compared to property operating costs of $44.9 million for the nine months ended September 30, 2013, an increase of $8.2 million, or 18%. The breakdown of our property operating costs is summarized in the table below (in thousands):

	Nine Months Ended September 30,
	(unaudited)
	The Company		Historical Predecessor
	2014		2013		$ Change		% Change
Property operating costs:
Direct payroll	$	8,616	$	8,414	$	202		2	%
Rent		3,670		3,324		346		10	%
Repairs and maintenance		4,228		3,051		1,177		39	%
Utilities		22,528		18,791		3,737		20	%
Management fee allocation		6,275		5,206		1,069		21	%
Other		7,804		6,144		1,660		27	%
Total property operating costs	$	53,121	$	44,930	$	8,191		18	%

The acquisition of the Princeton facility contributed $1.6 million to the total increase in property operating costs, of which $0.4 million related to repairs and maintenance, $0.3 million related to utilities, $0.1 million related to management fee allocation and $0.8 million related to other property operating costs. The remaining $6.6 million increase in total property operating costs was attributable to a $3.4 million increase in utilities expense primarily attributable to increased utilities rates in the Atlanta-Metro and Atlanta-Suwanee facilities. Repairs and maintenance expense tends to fluctuate from period to period and increase with the expansion and lease-up of our facilities, contributing $0.8 million to the remaining increase in operating costs. The management fee allocation is based on 4% of cash rental revenues for each facility and reflects an allocation of internal charges to cover back-office and service-related costs associated with the day-to-day operations of our data center facilities, with a corresponding offset to general and administrative expenses. The remaining increase in other property operating expenses of $0.9 million was primarily due to increased outsourcing of our facility security personnel, which resulted in lower direct payroll costs.

Real Estate Taxes and Insurance. Real estate taxes and insurance for the nine months ended September 30, 2014 were $3.7 million compared to $3.3 million for the nine months ended September 30, 2013. The increase of $0.4 million, or 12%, was primarily attributable to the acquisition of our Princeton data center as well as the expansion of our Richmond data center.

Depreciation and Amortization. Depreciation and amortization for the nine months ended September 30, 2014 was $42.3 million compared to $34.2 million for the nine months ended September 30, 2013. The increase of $8.1 million, or 24%, was primarily due to additional depreciation of $5.6 million associated with the Princeton and Dallas-Fort Worth data centers, as well as expansion of our Atlanta-Metro, Atlanta-Suwanee and Richmond data centers, and higher amortization expense of $2.5 million primarily related to a higher level of leasing commissions.

General and Administrative Expenses. General and administrative expenses were $33.3 million for the nine months ended September 30, 2014 compared to general and administrative expenses of $29.4 million for the nine months ended September 30, 2013, an increase of $3.9 million, or 13%. Approximately $8.5 million of the total general and administrative expenses for the nine months ended September 30, 2014 resulted from sales and marketing expenses, compared to $6.9 million for the nine months ended September 30, 2013. The remaining increase in general and administrative expenses was primarily attributable to higher professional fees of $1.4 million, higher personnel costs of $1.2 million, higher software license costs of $0.6 million and higher temporary and consulting expenses of $0.5 million. Total equity-based compensation expense was $2.9 million and $1.3 million for the nine months ended September 30, 2014 and 2013, respectively. These increases were partially offset by an increase in management fee allocation of $1.1 million, an increase in direct payroll allocation of $0.8 million, decreased rent expense of $0.3 million and reduced office supplies expense of $0.1 million. Our general and administrative expenses represented 21.0% of total revenues for the nine months ended September 30, 2014 compared to 22.5% for the nine months ended September 30, 2013.

Restructuring Costs. For the nine months ended September 30, 2014 we incurred $1.3 million in restructuring costs related to severance for various remote employees.

Transaction Costs. For the nine months ended September 30, 2014 we incurred $1.0 million in costs primarily related to the acquisition of the Princeton facility. Acquisition-related costs for acquisitions accounted for as a business combination in accordance with ASC 805, Business Combinations, are expensed in the periods in which the costs are incurred and the services are received.

Interest Expense. Interest expense for the nine months ended September 30, 2014 was $9.7 million compared to $16.0 million for the nine months ended September 30, 2013. The decrease of $6.3 million, or 39%, was due to a decrease in our average debt balance of $88.3 million primarily as a result of our IPO in October 2013, a reduction in the weighted average interest rate on our borrowings and higher capitalized interest during the period. During the second quarter of 2013, we replaced our $440 million secured credit facility with a $575 million unsecured credit facility. In addition, the interest rate spread over LIBOR on the unsecured credit facility was 165 basis points lower than our former secured credit facility. The average debt balance for the nine months ended September 30, 2014 was $479.0 million, with a weighted average interest rate, including the effect of interest rate swaps and amortization of deferred financing costs, of 4.02%. This compared to an average debt balance of $567.3 million for the nine months ended September 30, 2013, with a weighted average interest rate, including the effect of interest rate swaps and amortization of deferred financing costs, of 4.45%. Interest capitalized in connection with our redevelopment activities during the nine months ended September 30, 2014 and 2013 was $4.7 million and $3.0 million, respectively.

Other Expense. Other expense for the nine months ended September 30, 2014 and 2013 was $0.6 million and $3.3 million, respectively. The decrease in other expense of $2.7 million was due to higher write-offs of unamortized deferred financing costs in connection with the replacement of our secured credit facility with an unsecured credit facility during the three months ended September 30, 2013 and an asset securitization which we decided not to pursue following the expansion of our credit facility.

Net Income (Loss). A summary of the components of the increase in net income of $13.9 million for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 is as follows (in millions):

	$ Change
Increase in revenues, net of property operating costs, real estate taxes and insurance	$	19.2
Increase in general and administrative expense		(3.9	)
Increase in depreciation and amortization		(8.1	)
Increase in restructuring charges		(1.3	)
Increase in transaction costs		(1.0	)
Decrease in interest expense net of interest income		6.3
Decrease in other expense		2.7
Increase in net income	$	13.9

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures to be useful to investors as key supplemental measures of our performance: (1) FFO; (2) Operating FFO; (3) MRR; (4) NOI; (5) EBITDA; and (6) 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 our operating performance and liquidity. FFO, Operating FFO, MRR, NOI, EBITDA and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, 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.

FFO and Operating FFO

We consider funds from operations or (“FFO”) to be a supplemental measure of our 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. We calculate 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. Our 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 our operating results that management believes are not reflective of our core operating performance and liquidity, management computes an adjusted measure of FFO, which we refer to as Operating FFO. We generally calculate Operating FFO as FFO excluding certain non-recurring and primarily non-cash charges and gains and losses that management believes are not indicative of the results of our operating real estate portfolio. We believe 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.

We offer these measures because we recognize that FFO and Operating FFO will be used by investors as a basis to compare our operating performance and liquidity with that of other REITs. However, because FFO and Operating FFO exclude real estate depreciation and amortization and capture neither the changes in the value of our 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 our properties, all of which have real economic effect and could materially impact our financial condition, cash flows and results of operations, the utility of FFO and Operating FFO as measures of our operating performance and liquidity is limited. Our calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO in accordance with NAREIT guidance. In addition, our calculations of FFO and Operating FFO are not necessarily comparable to FFO and 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 and Operating FFO are non-GAAP measures and should not be considered a measure of our 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 our cash needs, including our ability to make distributions to our stockholders.

A reconciliation of net income (loss) to FFO and Operating FFO is presented below:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2014			2013		2014		2013
FFO
Net income (loss)	$	4,006		$	2,709	$	13,255	$	(597	)
Real estate depreciation and amortization		13,596			10,731		37,663		30,348
FFO		17,602			13,440		50,918		29,751

Operating FFO
Write off of unamortized deferred finance costs		470			-		580		3,277
Restructuring costs		226			-		1,272		-
Transaction costs		(195	)		-		958		-
Operating FFO	$	18,103		$	13,440	$	53,728	$	33,028

Monthly Recurring Revenue (MRR) and Recognized MRR

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, unless otherwise specifically noted.

Separately, we calculate recognized MRR as the recurring revenue recognized during a given period, 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.

Management uses MRR and recognized MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from our 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, our 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 our performance. MRR and recognized MRR should not be used as measures of our results of operations or liquidity, nor is it indicative of funds available to meet our cash needs, including our ability to make distributions to our stockholders.

A reconciliation of total revenues to recognized MRR in the period and MRR at period end is presented below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Recognized MRR
Total period revenues (GAAP basis)	$	57,945		$	46,020		$	158,226		$	130,458
Less: Total period recoveries		(6,131	)		(3,603	)		(13,674	)		(9,925	)
Total period deferred setup fees		(1,125	)		(1,263	)		(3,508	)		(3,450	)
Total period straight line rent and other		(1,726	)		(1,240	)		(3,711	)		(3,385	)
Recognized MRR (in the period)		48,963			39,914			137,333			113,698

MRR
Total period revenues (GAAP basis)	$	57,945		$	46,020		$	158,226		$	130,458
Less: Total revenues excluding last month		(38,439	)		(30,448	)		(138,720	)		(114,886	)
Total revenues for last month of period		19,506			15,572			19,506			15,572
Less: Last month recoveries		(1,771	)		(1,219	)		(1,771	)		(1,219	)
Last month deferred setup fees		(391	)		(427	)		(391	)		(427	)
Last month straight line rent and other		(823	)		(127	)		(823	)		(127	)
MRR (at period end) *	$	16,521		$	13,799		$	16,521		$	13,799

* Does not include our booked-not-billed MRR balance, which was $5.2 million and $2.0 million as of September 30, 2014 and 2013, respectively.

Net Operating Income (NOI)

We calculate net operating income (“NOI”), as net income (loss), excluding interest expense, interest income, tax expense of taxable REIT subsidiaries, depreciation and amortization, write off of unamortized deferred financing costs, gain on extinguishment of debt, transaction costs, gain on legal settlement, gain (loss) on sale of real estate, restructuring charge and general and administrative expenses. We allocate a management fee charge of 4% of cash rental revenues as a property operating cost and a corresponding reduction to general and administrative expense to cover the day-to-day administrative costs to operate our data centers. The management fee charge of 4% is reflected as a reduction to net operating income.

Management uses NOI as a supplemental performance measure because it provides a useful measure of the operating results from our customer leases. In addition, we believe it is useful to investors in evaluating and comparing the operating performance of our properties and to compute the fair value of our properties. Our NOI may not be comparable to other REITs’ NOI as other REITs may not calculate NOI in the same manner. NOI should be considered only as a supplement to net income as a measure of our performance and should not be used as a measure of our results of operations or liquidity or as an indication of funds available to meet our cash needs, including our ability to make distributions to our stockholders. NOI is a measure of the operating performance of our properties and not of our performance as a whole. NOI is therefore not a substitute for net income as computed in accordance with GAAP.

A reconciliation of net income (loss) to NOI is presented below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Net Operating Income (NOI)
Net income (loss)	$	4,006		$	2,709		$	13,255		$	(597	)
Interest expense		5,410			4,343			9,683			15,977
Interest income		-			(4	)		(8	)		(17	)
Depreciation and amortization		15,210			12,136			42,274			34,197
Write off of unamortized deferred finance costs		470			-			580			3,277
Tax expense of taxable REIT subsidiaries		27			-			82			-
Restructuring costs		226			-			1,272			-
Transaction costs		(195	)		-			958			-
General and administrative expenses		11,045			10,097			33,296			29,387
NOI (1)	$	36,199		$	29,281		$	101,392		$	82,224
Breakdown of NOI by facility:
Atlanta-Metro data center	$	14,752		$	13,740		$	44,348		$	38,739
Atlanta-Suwanee data center		9,046			7,517			25,798			20,945
Santa Clara data center		3,301			2,801			9,349			8,299
Richmond data center		3,772			2,859			10,158			7,538
Sacramento data center		1,938			1,752			6,601			5,638
Princeton data center		2,066			-			2,089			-
Dallas-Fort Worth data center		420			-			420			-
Other data centers		904			612			2,629			1,065
NOI (1)	$	36,199		$	29,281		$	101,392		$	82,224

(1)

Includes facility level General and administrative allocation charges of 4% of revenue which aggregated to $2.3 million and $1.8 million for the three month periods ended September 30, 2014 and 2013, respectively, and $6.3 million and $5.2 million for the nine month periods ended September 30, 2014 and 2013, respectively.

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA

We calculate EBITDA as net income (loss) adjusted to exclude interest expense and interest income, provision 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 our operating performance between periods and between REITs by removing the impact of our capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from our operating results.

In addition to EBITDA, we calculate an adjusted measure of EBITDA, which we refer to as Adjusted EBITDA, as EBITDA excluding unamortized deferred financing costs, gains on extinguishment of debt, transaction costs, equity-based compensation expense, restructuring charge, gain (loss) on legal settlement and gain on sale of real estate. We believe 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 our operating results. Other companies may not calculate EBITDA or Adjusted EBITDA in the same manner. Accordingly, our 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 our performance and should not be used as substitutes for net income (loss), as measures of our results of operations or liquidity or as indications of funds available to meet our cash needs, including our ability to make distributions to our stockholders.

A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA is presented below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
EBITDA and adjusted EBITDA
Net income (loss)	$	4,006		$	2,709		$	13,255		$	(597	)
Interest expense		5,410			4,343			9,683			15,977
Interest income		-			(4	)		(8	)		(17	)
Tax expense of taxable REIT subsidiaries		27			-			82			-
Depreciation and amortization		15,210			12,136			42,274			34,197
EBITDA		24,653			19,184			65,286			49,560

Write off of unamortized deferred finance costs		470			-			580			3,277
Equity-based compensation expense		925			510			2,901			1,305
Restructuring costs		226			-			1,272			-
Transaction costs		(195	)		-			958			-
Adjusted EBITDA	$	26,079		$	19,694		$	70,997		$	54,142

Liquidity and Capital Resources

Short-Term Liquidity

Our short-term liquidity needs include funding capital expenditures for the redevelopment of data center space (a significant portion of which is discretionary), meeting debt service and debt maturity obligations, including interest payments on our Senior Notes, funding distributions to our stockholders and unit holders, utility costs, site maintenance costs, real estate and personal property taxes, insurance, rental expenses, general and administrative expenses and certain recurring and non-recurring capital expenditures.

In addition to the $156.0 million of capital expenditures, excluding acquisitions, incurred in the nine months ended September 30, 2014, we expect that we will incur approximately $40 million additional capital expenditures through December 31, 2014 in connection with the redevelopment of our data center facilities. We expect to spend approximately $35 million of capital expenditures on redevelopment, and the remainder on recurring capital expenditures and capitalized overhead costs (including capitalized interest, commissions, payroll and other similar costs), personal property and other less material capital projects. We expect to fund these costs using operating cash flows and draws on our credit facilities, which were substantially paid down with the net proceeds from the Senior Notes offering that closed in July 2014 as discussed below. A significant portion of these expenditures are discretionary in nature and we may ultimately determine not to make these expenditures or the timing of such expenditures may vary. We continue to evaluate acquisition opportunities, but none are considered probable at this time and therefore the related expenditures are not currently included in these future estimates.

We expect to meet our short-term liquidity needs through operating cash flow, cash and cash equivalents and borrowings under our credit facilities.

Our cash paid for capital expenditures, excluding acquisitions, for the nine months ended September 30, 2014 and 2013 are summarized in the table below (in thousands):

	Nine Months Ended September 30,
	2014		2013
Redevelopment	$	124,912	$	78,084
Personal property		6,321		5,694
Maintenance capital expenditures		1,972		2,240
Capitalized interest, commissions and other overhead costs		22,803		16,906
Total capital expenditures	$	156,008	$	102,924

Long-Term Liquidity

Our long-term liquidity needs primarily consist of funds for property acquisitions, scheduled debt maturities, payment of principal of our Senior Notes, and recurring and non-recurring capital expenditures. We may also pursue additional redevelopment of our Atlanta-Metro, Dallas-Fort Worth, Richmond, and Chicago data centers and future redevelopment of other space in our portfolio. The redevelopment of this space, including timing, is at our discretion and will depend on a number of factors, including availability of capital and our estimate of the demand for data center space in the applicable market. We expect to meet our long-term liquidity needs with net cash provided by operations, incurrence of additional long-term indebtedness, borrowings under our credit facilities and issuance of additional equity or debt securities, subject to prevailing market conditions, as discussed below.

Cash

As of September 30, 2014, we had $5.0 million of unrestricted cash and cash equivalents.

On January 7, 2014, we paid our first and prorated dividend to our stockholders in the amount of $7.0 million. In addition, on January 7, 2014, we made a distribution to the holders of Class A units of limited partnership of our operating partnership in an aggregate amount of approximately $2.0 million in connection with the quarterly dividend on our common stock.

On April 8, July 8, and October 7, 2014, we paid our regular quarterly cash dividends of $0.29 per common share to stockholders and operating partnership unit holders of record as of the close of business on March 20, June 20, and September 19, 2014, respectively.

Indebtedness

As of September 30, 2014, we had approximately $590.9 million of indebtedness, including capital lease obligations.

Unsecured Credit Facility. In May 2013, we entered into an unsecured credit facility comprised of a five-year $225 million term loan and a four-year $350 million revolving credit facility with a one year extension, subject to satisfaction of certain conditions, and had the ability to expand the total credit facility by an additional $100 million subject to certain conditions set forth in the credit agreement. As of September 30, 2014, the total unsecured credit facility capacity was $410 million, and as discussed in more detail below, in July 2014 our term loan was reduced by $75 million to $150 million in connection with the issuance of the Senior Notes.

The total credit facility may be increased from the current capacity of $560 million to $600 million subject to certain conditions set forth in the credit agreement, including the consent of the administrative agent and obtaining necessary commitments, either through an increase to the term loan or revolving credit facility, or a combination of both. Amounts outstanding under the unsecured credit facility bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will range, depending upon our leverage ratio, from 2.10% to 2.85% for LIBOR loans or 1.10% to 1.85% for base rate loans. As of September 30, 2014, the interest rate for amounts outstanding under our credit facility was 2.26%. The unsecured credit facility includes certain financial covenants, including a leverage ratio of total indebtedness to gross asset value not in excess of 55%. The interest rate applied to the outstanding balance of the unsecured credit facility decreases incrementally for every 5% below the maximum leverage ratio. The availability under the revolving credit facility is the lesser of (i) $410 million, (ii) 55% of unencumbered asset pool capitalized value, (iii) the amount resulting in an unencumbered asset pool debt service ratio of 1.75 to 1.00, as defined, or (iv) the amount resulting in an unencumbered asset pool debt yield of 15%, less, in the case of (ii), (iii) and (iv), unsecured debt as defined in the revolving credit facility. The availability of funds under our unsecured credit facility depends on compliance with our covenants. As of September 30, 2014, we had outstanding $197.0 million of indebtedness out of a total of $560 million of available capacity under our unsecured credit facility.

5.875% Senior Notes due 2022. On July 23, 2014, the operating partnership and QTS Finance Corporation, a subsidiary of the operating partnership formed solely for the purpose of facilitating the offering of the Senior Notes described below (collectively, the “Issuers”), issued $300 million aggregate principal amount of 5.875% Senior Notes due 2022. The Senior Notes have an interest rate of 5.875% per annum and were issued at a price equal to 99.211% of their face value. The proceeds from the offering were used to repay amounts outstanding under the unsecured credit facility, including $75 million outstanding under the term loan. The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the operating partnership’s existing and future subsidiaries (other than foreign subsidiaries and receivables entities) that guarantee any indebtedness of QTS Realty Trust, Inc., the Issuers or any other subsidiary guarantor. QTS Realty Trust, Inc. will not initially guarantee the Senior Notes and will not be required to guarantee the Senior Notes except under certain circumstances. The offering was conducted pursuant to Rule 144A of the Securities Act of 1933, as amended, and the Senior Notes were issued pursuant to an indenture, dated as of July 23, 2014, among us, the operating partnership, QTS Finance Corporation, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (the “Indenture”).

The Indenture contains affirmative and negative covenants that, among other things, limit or restrict the operating partnership’s ability and the ability of certain of its subsidiaries (“Restricted Subsidiaries”) to: incur additional indebtedness; pay dividends; make certain investments or other restricted payments; enter into transactions with affiliates; enter into agreements limiting the ability of the operating partnership’s restricted subsidiaries to pay dividends; engage in sales of assets; and engage in mergers, consolidations or sales of substantially all of their assets. However, certain of these covenants will be suspended for so long as the Senior Notes are rated investment grade by specified debt rating services and there is no default under the Indenture. The operating partnership and its Restricted Subsidiaries also are required to maintain total unencumbered assets (as defined in the Indenture) of at least 150% of their unsecured debt on a consolidated basis.

The Senior Notes may be redeemed by the Issuers, in whole or in part, at any time prior to August 1, 2017 at a redemption price equal to (i) 100% of principal amount, plus (ii) accrued and unpaid interest to the redemption date, and (iii) a make-whole premium. Thereafter, the Issuers may redeem the Senior Notes prior to maturity at 104.406% of the principal amount at August 1, 2017 and declining ratably to par at August 1, 2020 and thereafter, in each case plus accrued and unpaid interest to the redemption date. At any time prior to August 1, 2017, the Issuers may, subject to certain conditions, redeem up to 35% of the aggregate principal amount of the Senior Notes at 105.875% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of certain equity offerings consummated by us or the operating partnership. Also, upon the occurrence of a change of control of us or the operating partnership, holders of the Senior Notes may require the Issuers to repurchase all or a portion of the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes to be repurchased plus accrued and unpaid interest to the repurchase date.

Richmond Secured Credit Facility. In December 2012, we entered into a credit facility secured by our Richmond data center (the “Richmond Credit Facility”). The proceeds from our Richmond Credit Facility may be used solely to finance the development of the Richmond property into a data center and to repay indebtedness under our unsecured credit facility. The Richmond Credit Facility requires us to comply with covenants similar to the unsecured credit facility.

As amended on June 30, 2014, the Richmond Credit Facility has a stated maturity of June 30, 2019, capacity of $120 million with an accordion feature to provide for total borrowing capacity of up to $200 million. The interest rate for LIBOR loans ranges from 2.10% to 2.85%, with the rate determined by the overall leverage ratio as defined in the agreement.

Atlanta-Metro Equipment Loan. In April 2010, we entered into a $25 million loan to finance equipment related to an expansion project at our Atlanta-Metro data center. The loan requires monthly interest and principal payments. The loan bears interest at 6.85% per annum, amortizes over ten years and matures on June 1, 2020.

Contingencies

We are subject to various routine legal proceedings and other matters in the ordinary course of business. While resolution of these matters cannot be predicted with certainty, management believes, based upon information currently available, that the final outcome of these proceedings will not have a material adverse effect on our financial condition, liquidity or results of operations.

Contractual Obligations

The following table summarizes our contractual obligations as of September 30, 2014, including the future non-cancellable minimum rental payments required under operating leases and the maturities and scheduled principal repayments of indebtedness and other agreements (in thousands):

Obligations	2014		2015		2016		2017		2018		Thereafter		Total

Operating Leases	$	1,363	$	5,458	$	5,533	$	5,606	$	5,606	$	68,636	$	92,202
Capital Leases		200		3,146		3,014		2,329		330		23		9,042
Future principal payments of Indebtedness (1)		574		2,397		2,567		49,748		152,943		375,946		584,175
Total (2)	$	2,137	$	11,001	$	11,114	$	57,683	$	158,879	$	444,605	$	685,419

(1)

Does not include discount on Senior Notes reflected at September 30, 2014 nor letter of credit of $3.0 million outstanding as of September 30, 2014 under our unsecured credit facility. The letter of credit was reduced to $2.5 million on October 1, 2014.

(2)

Total obligations does not include contractual interest that we are required to pay on our long-term debt obligations. Contractual interest payments on our credit facilities, mortgages, capital leases and other financing arrangements through the scheduled maturity date, assuming no prepayment of debt, are shown below. Interest payments were estimated based on the principal amount of debt outstanding and the applicable interest rate as of September 30, 2014 (in thousands):

2014				2015				2016				2017				2018				Thereafter				Total
$	6,423			$	25,690			$	25,427			$	22,395			$	19,983			$	63,828			$	163,746

Off-Balance Sheet Arrangements

We utilize derivatives to manage our interest rate exposure. During February 2012, we entered into two interest rate swaps with an aggregate notional amount of $150 million which qualified for hedge accounting treatment. These interest rate swaps, which matured on September 28, 2014, were designated as a cash flow hedge of future interest payments. We perform assessments of hedging effectiveness, and any ineffectiveness is recorded in interest expense. There was no ineffectiveness for the periods ended September 30, 2014 or 2013.

Cash Flows

	Nine Months Ended
	September 30,
(in thousands)	2014			2013
Cash Flow Data
Cash flow provided by (used for):
Operating activities	$	51,355		$	32,145
Investing activities		(247,072	)		(124,098	)
Financing activities		195,552			90,225

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Cash flow provided by operating activities was $51.4 million for the nine months ended September 30, 2014, compared to $32.1 million for the nine months ended September 30, 2013. The increased cash flow provided by operating activities of $19.2 million was primarily due to an increase in cash operating income of $21.3 million, partially offset by a decrease in cash flow associated with net changes in working capital of $(2.1) million primarily relating to changes in accounts payable, accrued liabilities, accrued interest on member advances, restricted cash and rent and other receivables.

Cash flow used for investing activities increased by $123.0 million to $247.1 million for the nine months ended September 30, 2014, compared to $124.1 million for the nine months ended September 30, 2013. The increase was primarily due to higher net cash outflow for the acquisitions which was $69.9 million greater in 2014 and higher cash paid for capital expenditures primarily related to redevelopment of our Dallas-Fort Worth, Atlanta-Metro and Richmond data centers of $53.1 million. These expenditures include capitalized soft costs such as interest, payroll and other costs to redevelop properties, which were, in the aggregate, $12.2 million and $9.3 million for the nine months ended September 30, 2014 and 2013, respectively.

Cash flow provided by financing activities was $195.6 million for the nine months ended September 30, 2014, compared to $90.2 million for the nine months ended September 30, 2013. The increase was primarily due to higher net borrowings of $131.6 million under our unsecured credit facility and newly issued Senior Notes in order to redevelop and acquire our data centers, partially offset by the payment of cash dividends to common stockholders of $23.8 million and the distribution to the unit holders of our operating partnership of $6.9 million.

Critical Accounting Policies

The Company applies those accounting policies that management believes best reflect the underlying business and economic events, consistent with accounting principles generally accepted in the United States. Inherent in such policies are certain key assumptions and estimates made by management. Management periodically updates its estimates used in the preparation of the consolidated financial statements based on its latest assessment of the current and projected business and general economic environment. Information regarding the Company’s Critical Accounting Policies and Estimates is included in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Inflation

Substantially all of our long-term leases—leases with a term greater than three years—contain rent increases and reimbursement for certain operating costs. As a result, we believe that we are largely insulated from the effects of inflation over periods greater than three years. Leases with terms of three years or less will be replaced or renegotiated within three years and should adjust to reflect changed conditions, also mitigating the effects of inflation. Moreover, to the extent that there are material increases in utility costs, we generally reserve the right to renegotiate the rate. However, any increases in the costs of redevelopment of our properties will generally result in a higher cost of the property, which will result in increased cash requirements to redevelop our properties and increased depreciation and amortization expense in future periods, and, in some circumstances, we may not be able to directly pass along the increase in these redevelopment costs to our customers in the form of higher rental rates.

Distribution Policy

To satisfy the requirements to qualify as a REIT, and to avoid paying tax on our income, we intend to continue to make regular quarterly distributions of all, or substantially all, of our REIT taxable income (excluding net capital gains) to our stockholders.

All distributions will be made at the discretion of our board of directors and will depend on our historical and projected results of operations, liquidity and financial condition, our REIT qualification, our debt service requirements, operating expenses and capital expenditures, prohibitions and other restrictions under financing arrangements and applicable law and other factors as our board of directors may deem relevant from time to time. We anticipate that our estimated cash available for distribution will exceed the annual distribution requirements applicable to REITs and the amount necessary to avoid the payment of tax on undistributed income. However, under some circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet these distribution requirements and we may need to borrow funds to make certain distributions. If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

Our operating partnership also includes certain partners that are subject to a taxable income allocation, however, not entitled to receive recurring distributions. The partnership agreement does stipulate however, to the extent that taxable income is allocated to these partners that the partnership will make a distribution to these partners equal to the lesser of the actual per unit distributions made to Class A partners or an estimated amount to cover federal, state and local taxes on the allocated taxable income. No distributions were made to these partners for the nine months ended September 30, 2013. However, a distribution of approximately $200,000 was made to Class O LTIP holders during the second quarter of 2014.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control, contribute to interest rate risk.

As of September 30, 2014, we had outstanding $267.0 million of consolidated indebtedness that bore interest at variable rates. An interest rate cap of $50 million was in place as of September 30, 2014 with a capped LIBOR rate of 3% through December 18, 2015.

We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical 1% change in year-end interest rates. LIBOR rates are not currently within 1% of our interest rate caps, therefore a 1% increase in interest rates would increase the interest expense on the $267.0 million of variable indebtedness outstanding as of September 30, 2014 by approximately $2.7 million annually. Conversely, a decrease in the LIBOR rate to 0% would decrease the interest expense on this $267.0 million of variable indebtedness outstanding by approximately $0.4 million annually based on the one month LIBOR rate of approximately 0.2% as of September 30, 2014.

The above analyses do not consider the effect of any change in overall economic activity that could impact interest rates or expected changes associated with future indebtedness. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

Based on an evaluation of disclosure controls and procedures for the period ended September 30, 2014, conducted by the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2014, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

In the ordinary course of our business, we are subject to claims for negligence and other claims and administrative proceedings, none of which we believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on us.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (“SEC”) on March 7, 2014, which is accessible on the SEC’s website at www.sec.gov.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

Exhibit
Number		Exhibit Description

3.1		Articles of Amendment and Restatement of QTS Realty Trust, Inc. (Filed as Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on October 17, 2013)

3.2		Amended and Restated Bylaws of QTS Realty Trust, Inc. (Filed as Exhibit 3.2 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013)

4.1		Form of Specimen Class A Common Stock Certificate (Filed as Exhibit 4.1 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013)

4.2		Indenture, dated July 23, 2014, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., certain subsidiaries of QualityTech, LP and Deutsche Bank Trust Company Americas (Filed as Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on July 25, 2014)

4.3		Registration Rights Agreement, dated July 23, 2014, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., certain subsidiaries of QualityTech, LP and Deutche Bank Securities Inc., KeyBanc Capital Markets Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of the initial purchasers (Filed as Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on July 25, 2014)

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from QTS Realty Trust, Inc.’s Quarterly Report on Form 10-K for the three months ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) condensed consolidated balance sheets of QTS Realty Trust, Inc., (ii) condensed consolidated statements of operations and comprehensive income (loss) of QTS Realty Trust, Inc., (iii) condensed consolidated statements of equity of QTS Realty Trust, Inc, (iv) condensed consolidated statements of cash flow of QTS Realty Trust, Inc. and (v) the notes to the condensed consolidated financial statements of QTS Realty Trust, Inc.*

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections

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 thereunto duly authorized.

		QTS Realty Trust, Inc.

DATE: November 3, 2014		/s/ Chad L. Williams
		Chad L. Williams
		Chairman and Chief Executive Officer

DATE: November 3, 2014		/s/ William Schafer
		William Schafer
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

QTS Realty Trust, Inc. - FORM 10-Q - November 3, 2014

Attached files

QTS Realty Trust, Inc. Reports