Exhibit 99.2

 

 

 

 

Table of Contents

 

 

Overview
Company Profile			3
Financial Statements
Combined Consolidated Balance Sheets			4
Combined Consolidated Statements of Operations and Comprehensive Income (Loss)			5
Summary of Financial Data			6
Reconciliations of Return on Invested Capital (ROIC)			8
Implied Enterprise Value			9
Operating Portfolio
Data Center Properties			10
Redevelopment Costs Summary			11
Redevelopment Summary			12
NOI by Facility and Capital Expenditure Summary			13
Leasing Statistics – Signed Leases			14
Leasing Statistics – Renewed Leases and Rental Churn			16
Leasing Statistics – Commenced Leases			17
Lease Expirations			18
Largest Customers			19
Industry Segmentation			20
Product Diversification			21
Capital Structure
Debt Summary and Debt Maturities			22
Interest Summary			23
Appendix			24

 

 

 

Forward Looking Statements

 

Some of the statements contained in this document constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In particular, statements pertaining to the Company’s capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, all of the statements regarding anticipated growth in funds from operations and anticipated market conditions are forward-looking statements. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

 

The forward-looking statements contained in this document reflect the Company’s current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed in any forward-looking statement. The Company does not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: adverse economic or real estate developments in the Company’s markets or the technology industry; global, national and local economic conditions; risks related to our international operations; difficulties in identifying properties to acquire and completing acquisitions; the Company’s failure to successfully develop, redevelop and operate acquired properties, including data centers acquired in our acquisition of Carpathia Hosting, Inc.; significant increases in construction and development costs; the increasingly competitive environment in which the Company operates; defaults on, or termination or non-renewal of, leases by customers; increased interest rates and operating costs, including increased energy costs; financing risks, including the Company’s failure to obtain necessary outside financing; decreased rental rates or increased vacancy rates; dependence on third parties to provide Internet, telecommunications and network connectivity to the Company’s data centers; the Company’s failure to qualify and maintain its qualification as a real estate investment trust; environmental uncertainties and risks related to natural disasters; financial market fluctuations; and changes in real estate and zoning laws and increases in real property tax rates.

 

While forward-looking statements reflect the Company’s good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and other periodic reports the Company files with the Securities and Exchange Commission.

 

 

Company Profile

 

 

  

 

Combined Consolidated Balance Sheets

(in thousands)

 

		June 30,				December 31,
		2015				2014
ASSETS		(unaudited)
Real Estate Assets
Land		$	52,430			$	48,577
Buildings and improvements			1,073,120				914,286
Less: Accumulated depreciation			(205,284	)			(180,167	)
			920,266				782,696
Construction in progress			320,885				214,719
Real Estate Assets, net			1,241,151				997,415
Cash and cash equivalents			10,744				10,788
Rents and other receivables, net			30,548				15,579
Acquired intangibles, net			122,005				18,000
Deferred costs, net (1)			38,013				37,058
Prepaid expenses			7,132				3,079
Goodwill			173,237				-
Other assets, net (2)			29,198				24,640
TOTAL ASSETS		$	1,652,028			$	1,106,559
LIABILITIES
Mortgage notes payable		$	70,000			$	86,600
Unsecured credit facility			330,000				239,838
Senior notes, net of discount			297,852				297,729
Capital lease and lease financing obligations			56,211				13,062
Accounts payable and accrued liabilities			92,708				64,607
Dividends and distributions payable			15,322				10,705
Advance rents, security deposits and other liabilities			19,444				3,302
Deferred income taxes			16,449				-
Deferred income			19,557				10,531
TOTAL LIABILITIES			917,543				726,374
EQUITY
Common stock, $0.01 par value, 450,133,000 shares authorized, 40,881,002 and 29,408,138 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively			409				294
Additional paid-in capital			664,751				324,917
Accumulated dividends in excess of earnings			(38,014	)			(22,503	)
Total stockholders’ equity			627,146				302,708
Noncontrolling interests			107,339				77,477
TOTAL EQUITY			734,485				380,185
TOTAL LIABILITIES AND EQUITY		$	1,652,028			$	1,106,559

 

(1)

As of June 30, 2015 and December 31, 2014, deferred costs, net, included $15.3 million and $16.5 million of deferred financing costs net of amortization, respectively, $19.8 million and $17.4 million of deferred leasing costs net of amortization, respectively, and $2.9 million and $3.2 million, net of amortization, related to a leasing arrangement at the Company’s Princeton facility, respectively.

(2)

As of June 30, 2015 and December 31, 2014, other assets, net, primarily included $26.3 million and $21.4 million of corporate fixed assets, respectively, primarily relating to construction of corporate offices, leasehold improvements and product related assets.

 

 

 

Combined Consolidated Statements of Operations and Comprehensive Income

(in thousands)

 

The following financial data for the three and six months ended June 30, 2015 includes the operating results of Carpathia Hosting, Inc. (“Carpathia”) for the period June 16, 2015 (the date the Company acquired Carpathia) through June 30, 2015.

 

		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,
Revenues:		2015				2015				2014				2015				2014
Rental		$	52,193			$	49,333			$	41,966			$	101,526			$	82,545
Recoveries from customers			5,582				5,664				3,852				11,246				7,543
Cloud and managed services			8,220				5,795				4,970				14,015				9,201
Other (1)			2,122				594				550				2,716				992
Total revenues			68,117				61,386				51,338				129,503				100,281
Operating expenses:
Property operating costs			22,031				19,336				16,529				41,367				32,752
Real estate taxes and insurance			1,474				1,485				1,118				2,959				2,336
Depreciation and amortization			18,062				16,243				13,817				34,305				27,064
General and administrative (2)			14,615				13,838				11,473				28,453				22,251
Restructuring (3)			-				-				1,046				-				1,046
Transaction and integration costs (4)			4,669				105				1,089				4,774				1,153
Total operating expenses			60,851				51,007				45,072				111,858				86,602
Operating income			7,266				10,379				6,266				17,645				13,679
Other income and expense:
Interest income			1				-				-				1				8
Interest expense			(4,799	)			(5,342	)			(2,208	)			(10,141	)			(4,273	)
Other expense, net (5)			(83	)			-				(110	)			(83	)			(110	)
Income before taxes			2,385				5,037				3,948				7,422				9,304
Tax benefit (expense) of taxable REIT subsidiaries (6)			3,135				-				(27	)			3,135				(55	)
Net income			5,520				5,037				3,921				10,557				9,249
Net income attributable to noncontrolling interests (7)			(888	)			(955	)			(831	)			(1,843	)			(1,961	)
Net income attributable to QTS Realty Trust, Inc.			4,632				4,082				3,090				8,714				7,288
Unrealized gain on swap			-				-				127				-				232
Comprehensive income		$	4,632			$	4,082			$	3,217			$	8,714			$	7,520

 

(1)

Other revenue - Includes straight line rent, sales of scrap metals and other unused materials and various other income items. Straight line rent was $1.4 million, $0.4 million and $0.1 million for the three month periods ended June 30, 2015, December 31, 2014, and June 30, 2014, respectively. Straight line rent was $1.8 million and $0.3 million for the six month periods ended June 30, 2015 and 2014, respectively.

(2)

General and administrative expenses - Includes personnel costs, sales and marketing costs, professional fees, travel costs, product investment costs and other corporate general and administrative expenses. General and administrative expenses were 21.5%, 22.5%, and 22.3% of total revenues for the three month periods ended June 30, 2015, March 31, 2015, and June 30, 2014, respectively. General and administrative expenses were 22.0% and 22.2% of total revenues for the six month periods ended June 30, 2015 and 2014, respectively.

(3)

Restructuring costs – For the three and six months ended June 30, 2014, the Company incurred $1.0 million in restructuring costs related to severance costs associated with various remote employees.

(4)

Transaction and integration costs - For the three month periods ended June 30, 2015, March 31, 2015, and June 30, 2014, the Company recognized $4.3 million, $0.1 million and $1.1 million, respectively, in transaction costs related to the examination of actual and potential acquisitions. Transaction costs were $4.4 million and $1.2 million for the six month periods ended June 30, 2015 and 2014, respectively. The Company also recognized $0.4 million in integration costs for the three month and six month periods ended June 30, 2015 related to the acquisition of Carpathia Hosting, Inc. on June 16, 2015.

(5)

Other expense, net - Generally includes write offs of unamortized deferred financing costs associated with the early extinguishment of certain debt instruments.

(6)

Tax benefit (expense) of taxable REIT subsidiaries – For the three and six months ended June 30, 2015, the Company recorded an approximate $3.1 million non-cash tax benefit related to the reversal of valuation allowances of deferred tax assets which was a result of the purchase of Carpathia.

(7)

Noncontrolling interest - As of June 30, 2015, the noncontrolling ownership interest of QualityTech, LP was 14.6%, which is related to approximately 7.0 million Operating Partnership units outstanding at June 30, 2015 which are convertible into common shares on a one-for-one basis.

 

 

 

Summary of Financial Data

(in thousands, except operating portfolio statistics data)

 

		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,
Summary of Results		2015				2015				2014				2015				2014
Total revenue *		$	68,117			$	61,386			$	51,338			$	129,503			$	100,281
Net income			5,520				5,037				3,921				10,557				9,249
Other Data
FFO		$	21,845			$	19,339			$	16,124			$	41,184			$	33,316
Operating FFO			23,422				19,444				18,369				42,866				35,625
Operating FFO per share			0.53				0.50				0.50				1.02				0.96
Adjusted Operating FFO			22,238				20,075				18,714				42,313				36,446
Recognized MRR in the period			57,953				52,464				45,215				110,417				88,370
MRR (at period end)			25,473				17,827				16,035				25,473				16,035
EBITDA			25,245				26,622				19,973				51,867				40,633
Adjusted EBITDA *			31,828				28,034				23,283				59,862				44,918
NOI *			44,612				40,565				33,691				85,177				65,193
NOI as a % of revenue			65.5	%			66.1	%			65.6	%			65.8	%			65.0	%
Adjusted EBITDA as a % of revenue			46.7	%			45.7	%			45.4	%			46.2	%			44.8	%
General and administrative expenses as a % of revenue			21.5	%			22.5	%			22.3	%			22.0	%			22.2	%
Annualized ROIC			15.8	%			15.5	%			15.5	%			15.3	%			15.2	%

 

*

The Carpathia acquisition, which closed on June 16, 2015, contributed $3.7 million of total revenues, $2.3 million of NOI and $1.4 million of Adjusted EBITDA for the quarter ended June 30, 2015.

 

		June 30,				December 31,
Balance Sheet Data		2015				2014
Real estate at cost		$	1,446,435			$	1,177,582
Net investment in real estate			1,241,151				997,415
Total assets			1,652,028				1,106,559
Total debt			754,063				637,229
Debt to last quarter annualized Adjusted EBITDA			4.8	x*			5.5	x
Debt to Undepreciated real estate assets			52.1	%			54.1	%
Debt to Implied Enterprise Value			29.8	%			33.4	%

 

*

Assumes Carpathia’s Adjusted EBITDA for the period June 16, 2015 through June 30, 2015 was outstanding for the entire quarter.

 

 

  

			June 30,			December 31,
Operating Portfolio Statistics			2015			2014
Built out square footage:
Raised floor			1,053,817			927,075
Leasable raised floor (1)			823,526			698,232
Leased raised floor			693,246			593,610
Total Raw Shell:
Total			4,842,532			4,688,164
Basis-of-design raised floor space (1)			2,193,496			2,090,959
Data center properties			25			12
Basis of design raised floor % developed			48.0%			44.3%
Data center % occupied			84.2%			85.0%

 

(1)

See definition in Appendix.

 

 

 

Reconciliations of Return on Invested Capital (ROIC)

(unaudited and in thousands)

 

Return on Invested Capital (ROIC)		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,
		2015				2015				2014				2015				2014
NOI (1) (2)		$	49,112			$	40,565			$	33,691			$	89,677			$	65,193
Annualized NOI			196,448				162,260				134,764				179,354				130,386
Average Undepreciated Real Estate Assets and other Net Fixed Assets Placed in Service			1,243,782				1,043,654				868,746				1,170,135				860,141
Annualized ROIC			15.8	%			15.5	%			15.5	%			15.3	%			15.2	%

 

(1)

Includes facility level G&A allocation charges of 4% of revenue which aggregated to $2.7 million, $2.5 million and $2.0 million for the three month periods ended June 30, 2015, March 31, 2015, and June 30, 2014, respectively, and $5.2 million and $4.0 million for the six month periods ended June 30, 2015 and 2014, respectively.

(2)

NOI for the three and six month periods ended June 30, 2015 assumes Carpathia’s NOI for the period June 16, 2015 through June 30, 2015 was present for half the three months ended June 30, 2015. This matches the pro forma NOI with the concept that NOI and capital come online ratably throughout the quarter.

 

Calculation of Average Undepreciated Real Estate Assets and other Net Fixed Assets Placed in Service		As of												As of
Undepreciated Real Estate Assets and other		June 30,				March 31,				June 30,				June 30,				June 30,
Net Fixed Assets Placed in Service		2015				2015				2014				2015				2014
Real Estate Assets, net		$	1,241,151			$	1,077,619			$	903,947			$	1,241,151			$	903,947
Less: Construction in progress			(320,885	)			(266,234	)			(183,516	)			(320,885	)			(183,516	)
Plus: Accumulated depreciation			205,284				192,107				157,202				205,284				157,202
Plus: Goodwill			173,237				-				-				173,237				-
Plus: Other fixed assets, net			11,400				21,843				16,663				11,400				16,663
Plus: Acquired intangibles, net			90,173	*			17,262				19,554				90,173	*			19,554
Plus: Leasing Commissions, net			22,735				21,872				16,174				22,735				16,174
Total as of period end		$	1,423,095			$	1,064,469			$	930,024			$	1,423,095			$	930,024
Average undepreciated real estate assets and other net fixed assets as of reporting period (3)		$	1,243,782			$	1,043,654			$	868,746			$	1,170,135			$	860,141

 

(3)

Calculated by using average quarterly balance of each account.

 

*

Includes $31.8 million of net acquired intangible liabilities and net deferred tax liabilities.

 

 

 

Implied Enterprise Value

 

Implied Enterprise Value as of June 30, 2015:
Total Shares Outstanding:
Class A Common Stock			40,748,002
Class B Common Stock			133,000
Total Shares Outstanding			40,881,002
Units of Limited Partnership (1)			7,532,399
Options to purchase Class A Common Stock (2)			215,250
Fully Diluted Total Shares and Units of Limited Partnership outstanding as of June 30, 2015 (3)			48,628,651
Share price as of June 30, 2015		$	36.45
Market equity capitalization (in thousands)		$	1,772,514
Debt  (in thousands)			754,063
Implied Enterprise Value (in thousands)		$	2,526,577

 

(1)

Includes 535,399 of operating partnership units representing the “in the money” value of Class O LTIP units on an “as if” converted basis.

(2)

Represents options to purchase 215,250 shares of Class A Common Stock of QTS Realty Trust Inc. representing the “in the money” value of options on an “as if” converted basis.

(3)

Weighted average fully diluted shares and units for the three and six month periods ended June 30, 2015 were 44,444,104 and 41,867,944, respectively.

 

 

Data Center Properties

(in thousands, except NRSF data)

 

The following table presents an overview of the portfolio of data center properties that the Company owns or leases, referred to herein as our data center properties, based on information as of June 30, 2015:

 

										Operating Net Rentable Square Feet (Operating NRSF) (3)
Property		Year Acquired (1)				Gross Square Feet (2)				Raised Floor (4)				Office & Other (5)				Supporting Infrastructure (6)				Total				% Occupied and Billing (7)				Annualized Rent (8)				Available Utility Power (MW) (9)				Basis of Design NRSF				% Raised Floor
Richmond, VA			2010				1,318,353				121,623				51,093				131,324				304,040				70.8	%		$	22,827,816				110				556,623				21.9	%
Atlanta, GA (Metro)			2006				968,695				407,986				36,953				315,676				760,615				90.8	%		$	78,020,867				72				527,186				77.4	%
Dallas-Fort Worth, TX			2013				698,000				47,014				2,321				28,825				78,160				88.7	%		$	5,806,604				140				292,000				16.1	%
Princeton, NJ			2014				553,930				58,157				2,229				111,405				171,791				100.0	%		$	9,540,975				22				158,157				36.8	%
Suwanee, GA			2005				369,822				185,422				8,697				108,266				302,385				78.3	%		$	51,820,970				36				208,008				89.1	%
Chicago, IL			2014				317,000				-				-				-				-				-	%		$	-				8				133,000				-	%
Santa Clara, CA**			2007				135,322				55,494				944				45,687				102,125				98.1	%		$	24,312,164				11				80,347				69.1	%
Jersey City, NJ*			2006				122,448				31,503				14,208				41,901				87,612				99.2	%		$	12,157,436				7				52,744				59.7	%
Sacramento, CA			2012				92,644				54,595				2,794				23,916				81,305				46.0	%		$	11,455,653				8				57,906				94.3	%
Miami, FL			2008				30,029				19,887				-				6,592				26,479				69.7	%		$	5,228,967				4				19,887				100.0	%
Carpathia facilities ***			2015				154,368				67,007				5,242				14,169				86,418				79.5	%		$	83,596,528				20				102,509				65.4	%
Other			Misc				81,921				5,129				37,854				38,723				81,706				20.6	%		$	906,650				1				5,129				100.0	%
Total							4,842,532				1,053,817				162,335				866,484				2,082,636				84.2	%		$	305,674,630				439				2,193,496				48.0	%

 

(1)

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

(2)

With respect to the Company’s owned properties, gross square feet represents the entire building area. With respect to leased properties, gross square feet represents that portion of the gross square feet subject to our lease. This includes 218,926 square feet of QTS office and support space, which is not included in operating NRSF.

(3)

Represents the total square feet of a building that is currently leased or available for lease plus developed supporting infrastructure, based on engineering drawings and estimates, but does not include space held for redevelopment or space used for the Company’s own office space.

(4)

Represents management’s estimate of the portion of NRSF of the facility with available power and cooling capacity that is currently leased or readily available to be leased to customers as data center space based on engineering drawings.

(5)

Represents the operating NRSF of the facility other than data center space (typically office and storage space) that is currently leased or available to be leased.

(6)

Represents required data center support space, including mechanical, telecommunications and utility rooms, as well as building common areas.

(7)

Calculated as data center raised floor that is subject to a signed lease for which billing has commenced (693,246 square feet as of June 30, 2015), divided by leasable raised floor based on the current configuration of the properties (823,526 square feet as of June 30, 2015), expressed as a percentage.

(8)

The Company defines annualized rent as MRR multiplied by 12. The Company calculates MRR as monthly contractual revenue under executed contracts as of a particular date, which includes revenue from the Company’s C1, C2 and C3 rental activities and cloud and managed services, but excludes customer recoveries, deferred set up fees and other one-time and variable revenues. MRR does not include the impact from booked-not-billed contracts as of a particular date, unless otherwise specifically noted.

(9)

Represents installed utility power and transformation capacity that is available for use by the facility as of June 30, 2015.

 

*

Represents facilities that we lease.

**

Subject to long term ground lease.

***

Includes 13 facilities. All facilities are leased, including those subject to capital leases.

 

 

 

Redevelopment Costs Summary

(in millions, except NRSF data)

 

During the second quarter of 2015, the Company brought online seven megawatts of gross power and approximately 26,000 NRSF of raised floor at our Richmond data center at an aggregate cost of approximately $42 million. The under construction table below summarizes the Company’s outlook for development projects which it expects to complete by December 31, 2015 (in millions). The majority of capital in this plan is discretionary.

 

		Under Construction Costs (1)
Property		Actual (2)				Estimated Cost  to Completion (3)				Total				Expected Completion date
Richmond		$	19			$	20			$	39			Q4 2015
Atlanta Metro			14				16				30			Q3 2015 - Q4 2015
Dallas-Fort Worth			4				5				9			Q3 2015
Jersey City			1				4				5			Q4 2015
Carpathia			6				1				7			Q3 2015
Totals		$	44			$	46			$	90

 

(1)

In addition to projects currently under construction, the Company’s near-term redevelopment projects are expected to be delivered in a modular manner, and the Company currently expects to invest additional capital to complete these near term projects. The ultimate timing and completion of, and the commitment of capital to, the Company’s future redevelopment projects are within the Company’s discretion and will depend upon a variety of factors, including the actual contracts executed, availability of financing and the Company’s estimation of the future market for data center space in each particular market.

(2)

Actual costs under construction through June 30, 2015. In addition to the $44 million of construction costs incurred through June 30, 2015 for redevelopment expected to be completed by December 31, 2015, as of June 30, 2015 the Company had incurred $277 million of additional costs (including acquisition costs and other capitalized costs) for other redevelopment projects that are expected to be completed after December 31, 2015.

(3)

Represents management’s estimate of the additional costs required to complete the current NRSF under development. There may be an increase in costs if customers’ requirements exceed the Company’s current basis of design.

 

  

 

Redevelopment Summary

(in thousands, except NRSF data)

 

The following redevelopment table presents an overview of the Company’s redevelopment pipeline, based on information as of June 30, 2015. This table shows the Company’s ability to increase its raised floor of 1,053,817 square feet by approximately 2.1 times to 2.2 million square feet as of June 30, 2015.

 

Raised Floor NRSF
Overview as of June 30, 2015
Property		Current NRSF in Service				Under Construction (1)				Future Available (2)				Basis of Design NRSF				Approximate Adjacent Acreage of Land (3)
Richmond			121,623				30,000				405,000				556,623				111.1
Atlanta Metro			407,986				25,000				94,200				527,186				6.0
Dallas-Fort Worth			47,014				7,000				237,986				292,000				15.0
Princeton			58,157				-				100,000				158,157				65.0
Atlanta Suwanee			185,422				-				22,586				208,008				15.4
Santa Clara			55,494				-				24,853				80,347				-
Sacramento			54,595				-				3,311				57,906				-
Jersey City			31,503				-				21,241				52,744				-
Chicago			-				-				133,000				133,000				23.0
Miami			19,887				-				-				19,887				-
Carpathia facilities			67,007				5,000				30,502				102,509				-
Other			5,129				-				-				5,129				-
Totals as of June 30, 2015			1,053,817				67,000				1,072,679				2,193,496				235.5

 

(1)

Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use on or before December 31, 2015.

(2)

Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use after December 31, 2015.

(3)

The total cost basis of adjacent land, which is land available for the future development, is approximately $20 million. This is included in land on the Combined Consolidated Balance Sheets. The Basis of Design NRSF does not include any build-out on the adjacent land.

 

 

 

NOI by Facility and Capital Expenditure Summary

(unaudited and in thousands)

 

The Company calculates net operating income, or NOI, as net income (loss), excluding: interest expense, interest income, depreciation and amortization, write-off of unamortized deferred financing costs, tax expense of taxable REIT subsidiaries, gain on extinguishment of debt, transaction and integration costs, gain on legal settlement, gain on sale of real estate, restructuring charge and general and administrative expenses. The Company believes that NOI is another metric that is often utilized to evaluate returns on operating real estate from period to period and also, in part, to assess the value of the operating real estate. The breakdown of NOI by facility is shown below:

 

		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,
		2015				2015				2014				2015				2014
Breakdown of NOI by facility:
Atlanta-Metro data center		$	16,875			$	16,766			$	15,194			$	33,641			$	29,596
Atlanta-Suwanee data center			10,094				10,130				8,578				20,224				16,752
Santa Clara data center			3,574				3,377				3,318				6,951				6,048
Richmond data center			4,933				4,255				3,339				9,188				6,386
Sacramento data center			1,900				1,871				2,339				3,771				4,663
Princeton data center			2,310				2,349				23				4,659				23
Dallas-Fort Worth data center			1,462				749				-				2,211				-
Carpathia data centers (2)			2,250				-				-				2,250				-
Other facilities			1,214				1,068				900				2,282				1,725
NOI (1)		$	44,612			$	40,565			$	33,691			$	85,177			$	65,193

 

(1)

Includes facility level G&A allocation charges of 4% of revenue which aggregated to $2.7 million, $2.5 million and $2.0 million, for the three month periods ended June 30, 2015,  March 31, 2015, and June 30, 2014, respectively, and $5.2 million and $4.0 million for the six month periods ended June 30, 2015 and 2014, respectively.

(2)

Includes results of Carpathia for the period June 16, 2015 through June 30, 2015.

 

Capital expenditures incurred are summarized as follows:

 

		Capital Expenditures (1)
		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Redevelopment		$	78,416			$	46,195			$	164,483			$	92,519
Acquisitions (2)			326,000				73,300				326,000				73,300
Maintenance capital expenditures			609				22				626				95
Other capitalized costs			5,786				4,981				11,845				9,249
Total capital expenditures		$	410,811			$	124,498			$	502,954			$	175,163

 

(1)

Does not include capitalized leasing commissions included in deferred costs, acquired intangibles or other management-related fixed assets included in other assets.

(2)

The three and six months ended June 30, 2015 reflects preliminary purchase price allocation associated with the Carpathia acquisition on June 16, 2015. The three and six months ended June 30, 2014 reflects the final purchase price allocation for the Princeton acquisition on June 30, 2014.

 

 

Leasing Statistics – Signed Leases

The mix of leasing activity has a significant impact on quarterly rates, both within major product segments and for overall blended leasing rates. The Company’s rate performance will vary quarter to quarter based on the mix of deals leased – C1 Custom Data Center, C2 Colocation (Cabinet, Cage and Suite), and C3 Cloud and Managed Services categories all vary on a rate per square foot basis. The amounts below include renewals when there was a change in square footage rented, but not renewals where square footage remained consistent before and after renewal (See renewal table on page 16 for such renewals).

 

Note: Amounts in the table below include leasing activity for Carpathia for the period June 16, 2015 through June 30, 2015.

 

During the second quarter of 2015, the Company signed 365 new and modified leases aggregating to $16.7 million of annualized rent which includes new leased revenue plus revenue from modified renewals. Removing annualized modified renewal MRR and deducting period downgrades results in $10.6 million in incremental annualized rent for the quarter. While the Company did not sign any significant C1 leases during the second quarter of 2015, it did see significant leasing activity in its C2/C3 categories. This C2/C3 leasing activity continues to support the Company’s belief in its investment in its 3C platform, including its acquisition of Carpathia.

 

Annualized Rent of New and Modified Leases represents total MRR associated with all new and modified leases for the respective periods for the purposes of computing annualized rent rates per square foot during the period. Incremental Annualized Rent, Net of Downgrades reflects net incremental MRR signed during the period for purposes of tracking incremental revenue contribution.

 

		Period		Number of Leases				Total Leased sq ft				Annualized Rent per Leased sq ft				Annualized Rent of New and Modified Leases				Incremental Annualized Rent, Net of Downgrades
New/modified leases signed - Total		Q2 2015			365				13,867			$	1,207			$	16,734,571			$	10,585,921
		P4QA*			346				63,569				364				23,150,555				15,270,479
		Q1 2015			340				47,052				590				27,778,291				13,618,400
		Q4 2014			347				10,596				1,011				10,717,456				4,116,717
		Q3 2014			361				130,617				248				32,417,738				25,629,407
		Q2 2014			335				66,009				329				21,688,736				17,717,391
New/modified leases signed - C1		Q2 2015			22				644			$	831			$	535,306
		P4QA*			15				52,925				224				11,828,907
		Q1 2015			18				30,386				340				10,333,301
		Q4 2014			21				315				580				182,772
		Q3 2014			15				121,658				190				23,165,719
		Q2 2014			7				59,340				230				13,633,836
New/modified leases signed - C2/C3		Q2 2015			343				13,223			$	1,225			$	16,199,265
		P4QA*			331				10,644				1,064				11,321,648
		Q1 2015			322				16,666				1,047				17,444,990
		Q4 2014			326				10,281				1,025				10,534,684
		Q3 2014			346				8,959				1,033				9,252,019
		Q2 2014			328				6,669				1,208				8,054,900

 

	*	Average of prior 4 quarters
		NOTE: Figures above do not include cost recoveries. In general, C1 customers reimburse the Company for certain operating costs whereas C2/C3 customers are on a gross lease basis. As a result, pricing and resulting per square foot rates for C2/C3 customers includes the recovery of such operating costs.

 

 

  

The following table outlines the booked-not-billed (“BNB”) balance as of June 30, 2015 and how that will affect revenue in 2015 and subsequent years:

 

Booked-not-billed ("BNB")		2015				2016				Thereafter				Total
MRR		$	2,657,289			$	1,617,726			$	1,453,108			$	5,728,123
Incremental revenue			9,664,992				13,901,994				17,437,295
Annualized revenue			31,887,467				19,412,719				17,437,295				68,737,481

 

The Company estimates the remaining cost to provide the space, power, connectivity and other services to the customer contracts which had not billed as of June 30, 2015 to be approximately $75 million. This estimate generally includes C1 customers with newly contracted space of more than 3,300 square feet. The space, power, connectivity and other services provided to customers that contract for smaller amounts of space is generally provided by existing space which was previously developed.

 

 

 

Leasing Statistics – Renewed Leases and Rental Churn

 

The mix of leasing activity has a significant impact on quarterly rates, both within major product segments and for overall blended renewal rates. The Company’s rate performance will vary quarter to quarter based on the mix of deals leased – C1 Custom Data Center, C2 Colocation, and C3 Cloud and Managed Services categories all vary on a rate per square foot basis.

 

Consistent with the Company’s 3C strategy and business model, the renewal rates below reflect total MRR per square foot including all subscribed services. For comparability, the Company includes only those customers that have maintained consistent space footprints in the computations below. All customers with space changes are incorporated into new/modified leasing statistics and rates.

 

Note: Amounts in the table below include leasing activity for Carpathia for the period June 16, 2015 through June 30, 2015.

 

The overall blended rate for renewals signed in the second quarter of 2015 was 5.1% higher than the rates for those customers immediately prior to renewal. The change in the second quarter of 2015 renewal rates compares to a prior four quarter average increase of 0.9%. The renewal rate in the second quarter of 2015 was positively impacted by a renewal involving a change in service level for a Carpathia customer and negatively impacted by three larger QTS customers that changed their product mix. Without the effect of these renewals, QTS’ rates would have increased by 2.0% following renewal in the second quarter of 2015, which aligns with the Company’s expectation of low to mid-single digit increases.

 

Rental Churn (which the Company defines as MRR lost to complete termination of customer services in a given period compared to total MRR at the beginning of the period) was 0.4% for the second quarter of 2015 and 0.8% for the six months ended June 30, 2015. The Company expects churn for the full year 2015 to be 4-7%.

 

		Period		Number of renewed leases		Total Leased sq ft			Annualized rent per leased sq ft			Annualized Rent			Rent Change(1)
Renewed Leases - Total		Q2 2015		76		9,540		$	785		$	7,492,287			5.1%
		P4QA*		66		7,637			802			6,011,354			0.9%
		Q1 2015		65		6,291			863			5,427,185			1.2%
		Q4 2014		64		6,317			940			5,941,125			3.4%
		Q3 2014		59		7,740			669			5,181,226			-2.9%
		Q2 2014		74		10,199			735			7,495,879			1.0%
Renewed Leases - C1		Q2 2015		-		-		$	-		$	-			-%
		P4QA*		-		-			-			-			-%
		Q1 2015		-		-			-			-			-%
		Q4 2014		-		-			-			-			-%
		Q3 2014		-		-			-			-			-%
		Q2 2014		-		-			-			-			-%
Renewed Leases - C2/C3		Q2 2015		76		9,540		$	785		$	7,492,287			5.1%
		P4QA*		66		7,637			802			6,011,354			0.9%
		Q1 2015		65		6,291			863			5,427,185			1.2%
		Q4 2014		64		6,317			940			5,941,125			3.4%
		Q3 2014		59		7,740			669			5,181,226			-2.9%
		Q2 2014		74		10,199			735			7,495,879			1.0%

 

*

Average of prior 4 quarters

(1)

Calculated as the percentage change of the rent per square foot immediately before renewal when compared to the rent per square foot immediately after renewal.

 

 

 

Leasing Statistics – Commenced Leases

 

The mix of leasing activity across C1, C2 and C3 has significant impact on quarterly rates, both within major product segments and for overall blended commencement rates. The Company’s rate performance will vary quarter to quarter based on the mix of deals leased. C1 Custom Data Center, C2 Colocation, and C3 Cloud and Managed Services categories all vary on a rate per square foot basis.

 

Note: Amounts in the table below include leasing activity for Carpathia for the period June 16, 2015 through June 30, 2015.

 

During the second quarter of 2015, the Company commenced customer leases (which includes both new customers and existing customers that modified their lease terms) representing approximately $26.9 million of annualized rent at $525 per square foot. This compares to customer leases representing an aggregate trailing four quarter average of approximately $18.6 million of annualized rent at $537 per square foot. $2.1 million in annualized rent of commenced leases was contributed by Carpathia in the period June 16, 2015 through June 30, 2015.

 

The lower annualized rent per leased square foot for C1 was due to the impact of a large C1 customer ramp in the second quarter of 2015. The C2/C3 average commencement rate for the second quarter of 2015 was $1,014 per square foot with rates negatively impacted by larger C2 customers and a lower level of service related to those customers.

 

		Period		Number of leases				Total Leased sq ft				Annualized rent per leased sq ft				Annualized Rent
Leases commenced - Total		Q2 2015			459				51,248			$	525			$	26,884,427
		P4QA*			393				34,696				537				18,639,468
		Q1 2015			369				21,813				817				17,829,577
		Q4 2014			401				48,080				391				18,815,804
		Q3 2014			379				36,054				520				18,739,920
		Q2 2014			421				32,838				584				19,172,568
Leases commenced - C1		Q2 2015			37				29,622			$	168			$	4,961,821
		P4QA*			30				22,362				193				4,310,014
		Q1 2015			21				8,289				215				1,780,368
		Q4 2014			30				34,657				176				6,112,759
		Q3 2014			35				24,480				199				4,866,264
		Q2 2014			33				22,023				203				4,480,666
Leases commenced - C2/C3		Q2 2015			422				21,626			$	1,014			$	21,922,606
		P4QA*			363				12,334				1,183				14,589,471
		Q1 2015			348				13,524				1,264				17,089,279
		Q4 2014			371				13,423				946				12,703,045
		Q3 2014			344				11,574				1,199				13,873,656
		Q2 2014			388				10,815				1,358				14,691,902

 

*

Average of prior 4 quarters

 

 

 

Lease Expirations

C1 leases are typically 5-10 years with the majority of C1 lease expirations occurring in 2017 and beyond. C2/C3 leases are typically 3 years in duration, thus the majority of C2/C3 lease expirations are in 2016 and 2017. The following table sets forth a summary schedule of the lease expirations as of June 30, 2015 at the properties in the Company’s portfolio. Unless otherwise stated in the footnotes, the information set forth in the table assumes that customers exercise no renewal options and all early termination rights are exercised:

 

Year of Lease Expiration		Number of Leases Expiring (1)				Total Raised Floor of Expiring Leases				% of Portfolio Leased Raised Floor				Annualized Rent (2)				% of Portfolio Annualized Rent				C1 as % of Portfolio Annualized Rent				C2 as % of Portfolio Annualized Rent				C3 as % of Portfolio Annualized Rent
Month-to-Month (3)			475				6,353				1	%		$	11,285,061				4	%			0	%			2	%			2	%
2015			676				46,592				7	%			41,881,293				13	%			2	%			7	%			4	%
2016			1,319				85,922				12	%			74,900,406				25	%			3	%			13	%			9	%
2017			867				91,869				13	%			64,333,247				20	%			5	%			10	%			5	%
2018			418				271,129				40	%			70,272,473				23	%			12	%			8	%			3	%
2019			94				16,875				2	%			8,686,460				3	%			1	%			2	%			0	%
After 2019			106				174,506				25	%			34,315,690				12	%			8	%			2	%			2	%
Portfolio Total			3,955				693,246				100	%		$	305,674,630				100	%			31	%			44	%			25	%

 

(1)

Represents each agreement with a customer signed as of June 30, 2015 for which billing has commenced; a lease agreement could include multiple spaces and a customer could have multiple leases.

(2)

Annualized rent is presented for leases commenced as of June 30, 2015. The Company defines annualized rent as MRR multiplied by 12. The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect the accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.

(3)

Consists of customers whose leases expired prior to June 30, 2015 and have continued on a month-to-month basis.

 

 

 

Largest Customers

As of June 30, 2015, the Company’s portfolio was leased to over 1,000 customers comprised of companies of all sizes representing an array of industries, each with unique and varied business models and needs. The following table sets forth information regarding the ten largest customers in the portfolio based on annualized rent as of June 30, 2015 (does not include rents or maturities associated with booked-not-billed customers or ramps for existing customers which have not yet commenced billing):

 

Principal Customer Industry		Product				Number of Locations				Annualized Rent (1)				% of Portfolio Annualized Rent				Weighted Average Remaining Lease Term (Months) (2)
Internet			C1				2			$	22,234,279				7.3	%			47
Technology			C2, C3				6				12,340,529				4.0	%			20
Government			C2, C3				2				10,552,988				3.5	%			31
Internet			C1				1				9,644,400				3.2	%			40
Information Technology			C1, C3				3				9,625,275				3.1	%			107
Information Technology			C1				2				7,469,964				2.4	%			104
Technology			C2, C3				3				6,467,276				2.1	%			13
Financial Services			C2, C3				1				4,885,524				1.6	%			30
Information Technology			C2, C3				2				4,474,807				1.5	%			15
Financial Services			C1				1				4,381,920				1.4	%			19
Total / Weighted Average										$	92,076,962				30.1	%			46

 

(1)

Annualized rent is presented for leases commenced as of June 30, 2015. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date. This amount reflects the annualized cash rental payments. It does not reflect any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.

(2)

Weighted average based on customer’s percentage of total annualized rent expiring and is as of June 30, 2015.

 

  

 

Industry Segmentation

The following table sets forth information relating to the industry segmentation as of June 30, 2015:

 

 

 

The following table sets forth information relating to the industry segmentation as of December 31, 2014:

 

 

 

Product Diversification

 

The following table sets forth information relating to the distribution of leases at the properties, by type of product offering, as of June 30, 2015:

 

 

 

(1)

As of June 30, 2015, C1 customers renting at least 6,600 square feet represented $53.8 million of annualized C1 MRR, C1 customers renting 3,300 square feet to 6,599 square feet represented $19.2 million of annualized C1 MRR, and C1 customers renting below 3,300 square feet represented $21.3 million of annualized C1 MRR. As of June 30, 2015, C1 customers’ median used square footage was 4,000 square feet.

 

The following table sets forth information relating to the distribution of leases at the properties, by type of product offering, as of December 31, 2014:

 

 

(1)

As of December 31, 2014, C1 customers renting at least 6,600 square feet represented $52.0 million of annualized C1 MRR, C1 customers renting between 3,300 and 6,599 square feet represented $17.9 million of annualized C1 MRR, and C1 customers renting below 3,300 square feet represented $16.1 million of annualized C1 MRR. As of December 31, 2014, C1 customers’ median used square footage was 3,856 square feet.

 

 

 

Debt Summary and Debt Maturities

(in thousands)

 

		June 30,				December 31,
		2015				2014
Unsecured Credit Facility		$	330,000			$	239,838
Senior Notes, net of discount			297,852				297,729
Richmond Credit Facility			70,000				70,000
Atlanta-Metro Equipment Loan			-				16,600
Capital Lease and Lease Financing Obligations			56,211				13,062
Total		$	754,063			$	637,229

 

As of June 30, 2015:

 

Debt instruments		2015				2016				2017				2018				2019				Thereafter				Total
Unsecured Credit Facility (1)		$	-			$	-			$	-			$	230,000			$	100,000			$	-			$	330,000
Senior Notes (2)			-				-				-				-				-				300,000				300,000
Richmond Credit Facility			-				-				-				-				70,000				-				70,000
Capital Lease and Lease Financing Obligations			6,450				12,558				12,388				8,804				2,461				13,550				56,211
Total		$	6,450			$	12,558			$	12,388			$	238,804			$	172,461			$	313,550			$	756,211

 

(1)

Pursuant to a credit agreement amendment that the Company entered into on December 17, 2014, the revolving portion of the Unsecured Credit Facility has a stated maturity of December 17, 2018 with an option to extend for one additional year.

(2)

Excludes discount reflected at June 30, 2015.

 

 

 

Interest Summary

(unaudited and in thousands)

 

 

		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,				June 30,
		2015				2015				2014				2015				2014
Interest expense and fees		$	6,367			$	6,471			$	3,247			$	12,838			$	6,158
Swap interest			-				-				163				-				324
Amortization of deferred financing costs and bond discount			854				849				621				1,703				1,203
Capitalized interest (1)			(2,422	)			(1,978	)			(1,823	)			(4,400	)			(3,412	)
Total interest expense		$	4,799			$	5,342			$	2,208			$	10,141			$	4,273

 

(1)

The weighted average interest rate for the three months ended June 30, 2015, March 31, 2015, and June 30, 2014 was 4.60%, 4.71%, and 3.47%, respectively. As of June 30, 2015 and December 31, 2014 our weighted average coupon interest rate was 3.63% and 3.95%, respectively.

 

 

 

Appendix

Non-GAAP Financial Measures

 

This document includes certain non-GAAP financial measures that management believes are helpful in understanding the Company’s business, as further described below.

 

The Company considers the following non-GAAP financial measures to be useful to investors as key supplemental measures of the Company’s performance: (1) FFO; (2) Operating FFO; (3) Adjusted Operating FFO; (4) MRR; (5) NOI; (6) EBITDA; and (7) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss and cash flows from operating activities as a measure of the Company’s operating performance and liquidity. FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDA and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDA and Adjusted EBITDA as reported by other companies that do not use the same definition or implementation guidelines or interpret the standards differently from us.

 

Definitions

 

C1 – Custom Data Center. Power costs are passed on to customers (metered power); generally 3,000 square feet or more of raised floor; lease term of 5 to 10 years; customers are large corporations, government agencies, and global Internet businesses.

 

C2 – Colocation. Power overages charged separately; specified kW included in lease; up to 3,000 square feet of raised floor; lease term of up to 3 years; customers are large corporations, small and medium businesses and government agencies.

 

C3 – Cloud and Managed Services. Power bundled with service; small amounts of space; customers rent managed virtual servers; lease term up to 3 years; customers are large corporations, small and medium businesses and government agencies.

 

Booked-not-billed (“BNB”). The Company defines booked-not-billed as customer leases that have been signed, but for which lease payments have not yet commenced.

 

Leasable raised floor. The Company defines leasable raised floor as the amount of raised floor square footage that the Company has leased plus the available capacity of raised floor square footage that is in a leasable format as of a particular date and according to a particular product configuration. The amount of leasable raised floor may change even without completion of new redevelopment projects due to changes in the Company’s configuration of C1, C2 and C3 product space.

 

Basis-of-design floor space. The Company defines basis-of-design floor space as the total data center raised floor potential of its existing data center facilities.

 

Operating NRSF. Represents the total square feet of a building that is currently leased or available for lease plus developed supporting infrastructure, based on engineering drawings and estimates, but does not include space held for redevelopment or space used for the Company’s own office space.

 

The Company. Refers to QTS Realty Trust, Inc., a Maryland corporation, together with its consolidated subsidiaries, including QualityTech, LP.

 

 

 

FFO, Operating FFO and Adjusted Operating FFO

 

The Company considers funds from operations (“FFO”), to be a supplemental measure of its performance which should be considered along with, but not as an alternative to, net income (loss) and cash provided by operating activities as a measure of operating performance and liquidity. The Company calculates FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of property, real estate related depreciation and amortization and similar adjustments for unconsolidated partnerships and joint ventures. The Company’s management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.

 

Due to the volatility and nature of certain significant charges and gains recorded in the Company’s operating results that management believes are not reflective of its core operating performance and liquidity, management computes an adjusted measure of FFO, which the Company refers to as Operating FFO. The Company generally calculates Operating FFO as FFO excluding certain non-recurring and often non-cash charges and gains and losses that management believes are not indicative of the results of the Company’s operating real estate portfolio. The Company believes that Operating FFO provides investors with another financial measure that may facilitate comparisons of operating performance and liquidity between periods and, to the extent they calculate Operating FFO on a comparable basis, between REITs.

 

Adjusted Operating Funds From Operations (“Adjusted Operating FFO”) is a non-GAAP measure that is used as a supplemental operating measure specifically for comparing year over year ability to fund dividend distributions from operating activities. Adjusted Operating FFO is used by the Company as a basis to address cash flow and its ability to fund its dividend payments. The Company calculates Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment, paid leasing commissions, amortization of deferred financing costs, non-real estate depreciation, straight line rent adjustments, and non-cash compensation.

 

The Company offers these measures because it recognizes that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare its operating performance and liquidity with that of other REITs. However, because FFO, Operating FFO and Adjusted Operating FFO exclude real estate depreciation and amortization and capture neither the changes in the value of the Company’s properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of its properties, all of which have real economic effect and could materially impact its financial condition, cash flows and results of operations, the utility of FFO, Operating FFO and Adjusted Operating FFO as measures of its operating performance and liquidity is limited. The Company’s calculation of FFO may not be comparable to measures calculated by other companies that do not use the NAREIT definition of FFO or do not calculate FFO in accordance with NAREIT guidance. In addition, the Company’s calculations of FFO, Operating FFO and Adjusted Operating FFO are not necessarily comparable to FFO, Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. FFO, Operating FFO and Adjusted Operating FFO are non-GAAP measures and should not be considered a measure of the Company’s results of operations or liquidity or as a substitute for, or an alternative to, net income (loss), cash provided by operating activities or any other performance measure determined in accordance with GAAP, nor is it indicative of funds available to fund its cash needs, including its ability to make distributions to its stockholders.

 

 

 

		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,
		2015				2015				2014				2015				2014
FFO
Net income		$	5,520			$	5,037			$	3,921			$	10,557			$	9,249
Real estate depreciation and amortization			16,325				14,302				12,203				30,627				24,067
FFO			21,845				19,339				16,124				41,184				33,316
Write off of unamortized deferred finance costs			83				-				110				83				110
Restructuring costs			-				-				1,046				-				1,046
Integration costs			422				-				-				422				-
Transaction costs			4,247				105				1,089				4,352				1,153
Non-cash reversal of deferred tax asset valuation allowance			(3,175	)			-				-				(3,175	)			-
Operating FFO  *			23,422				19,444				18,369				42,866				35,625
Maintenance Capex			(609	)			(17	)			(22	)			(626	)			(95	)
Leasing commissions paid			(3,782	)			(3,084	)			(2,839	)			(6,866	)			(5,088	)
Amortization of deferred financing costs and bond discount			854				849				621				1,703				1,203
Non real estate depreciation and amortization			1,682				1,941				1,616				3,623				2,998
Straight line rent revenue			(1,371	)			(436	)			(170	)			(1,807	)			(322	)
Straight line rent expense			211				71				74				282				149
Equity-based compensation expense			1,831				1,307				1,065				3,138				1,976
Adjusted Operating FFO *		$	22,238			$	20,075			$	18,714			$	42,313			$	36,446

 

*

The Company’s calculations of Operating FFO and Adjusted Operating FFO may not be comparable to Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not use the same definition.

 

Monthly Recurring Revenue (MRR)

 

The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted.

 

Separately, the Company calculates recognized MRR as the recurring revenue recognized during a given period, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues.

 

Management uses MRR and recognized MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from the Company’s customer leases. MRR and recognized MRR should not be viewed by investors as alternatives to actual monthly revenue, as determined in accordance with GAAP. Other companies may not calculate MRR or recognized MRR in the same manner. Accordingly, the Company’s MRR and recognized MRR may not be comparable to other companies’ MRR and recognized MRR. MRR and recognized MRR should be considered only as supplements to total revenues as a measure of its performance. MRR and recognized MRR should not be used as measures of the Company’s results of operations or liquidity, nor is it indicative of funds available to meet its cash needs, including its ability to make distributions to its stockholders.

 

 

 

		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,
		2015				2015				2014				2015				2014
Recognized MRR in the period
Total period revenues (GAAP basis)		$	68,117			$	61,386			$	51,338			$	129,503			$	100,281
Less: Total  period recoveries			(5,582	)			(5,664	)			(3,852	)			(11,246	)			(7,543	)
Total period deferred setup fees			(1,412	)			(1,246	)			(1,164	)			(2,658	)			(2,383	)
Total period straight line rent and other			(3,170	)			(2,012	)			(1,107	)			(5,182	)			(1,985	)
Recognized MRR in the period			57,953				52,464				45,215				110,417				88,370
MRR at period end
Total period revenues (GAAP basis)		$	68,117			$	61,386			$	51,338			$	129,503			$	100,281
Less: Total revenues excluding last month			(41,871	)			(40,100	)			(34,000	)			(103,257	)			(82,943	)
Total revenues for last month of period			26,246				21,286				17,338				26,246				17,338
Less: Last month recoveries			(2,185	)			(1,749	)			(1,464	)			(2,185	)			(1,464	)
Last month deferred setup fees			(513	)			(418	)			(421	)			(513	)			(421	)
Last month straight line rent and other			1,925				(1,292	)			582				1,925				582
MRR at period end		$	25,473			$	17,827			$	16,035			$	25,473			$	16,035

 

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

 

The Company calculates EBITDA as net income (loss) adjusted to exclude interest expense and interest income, provision for income taxes (including income taxes applicable to sale of assets) and depreciation and amortization. Management believes that EBITDA is useful to investors in evaluating and facilitating comparisons of the Company’s operating performance between periods and between REITs by removing the impact of its capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from its operating results.

 

In addition to EBITDA, the Company calculates an adjusted measure of EBITDA, which it refers to as Adjusted EBITDA, as EBITDA excluding 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. The Company believes that Adjusted EBITDA provides investors with another financial measure that can facilitate comparisons of operating performance between periods and between REITs.

 

Management uses EBITDA and Adjusted EBITDA as supplemental performance measures as they provide useful measures of assessing the Company’s operating results. Other companies may not calculate EBITDA or Adjusted EBITDA in the same manner. Accordingly, the Company’s EBITDA and Adjusted EBITDA may not be comparable to others. EBITDA and Adjusted EBITDA should be considered only as supplements to net income (loss) as measures of the Company’s performance and should not be used as substitutes for net income (loss), as measures of its results of operations or liquidity or as an indications of funds available to meet its cash needs, including its ability to make distributions to its stockholders.

 

 

 

		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,
		2015				2015				2014				2015				2014
EBITDA and Adjusted EBITDA
Net income		$	5,520			$	5,037			$	3,921			$	10,557			$	9,249
Interest expense			4,799				5,342				2,208				10,141				4,273
Interest income			(1	)			-				-				(1	)			(8	)
Tax (benefit) expense of taxable REIT subsidiaries			(3,135	)			-				27				(3,135	)			55
Depreciation and amortization			18,062				16,243				13,817				34,305				27,064
EBITDA			25,245				26,622				19,973				51,867				40,633
Write off of unamortized deferred finance costs			83				-				110				83				110
Equity-based compensation expense			1,831				1,307				1,065				3,138				1,976
Restructuring costs			-				-				1,046				-				1,046
Integration costs			422				-				-				422				-
Transaction costs			4,247				105				1,089				4,352				1,153
Adjusted EBITDA		$	31,828			$	28,034			$	23,283			$	59,862			$	44,918

 

 

 

Net Operating Income (NOI)

 

The Company calculates 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 and integration costs, gain on legal settlement, gain on sale of real estate, restructuring charge and general and administrative expenses. The Company believes that NOI is another metric that is often utilized to evaluate returns on operating real estate from period to period and also, in part, to assess the value of the operating real estate. A reconciliation of net income (loss) to NOI is presented below:

 

		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,
		2015				2015				2014				2015				2014
Net Operating Income (NOI)
Net income		$	5,520			$	5,037			$	3,921			$	10,557			$	9,249
Interest expense			4,799				5,342				2,208				10,141				4,273
Interest income			(1	)			-				-				(1	)			(8	)
Depreciation and amortization			18,062				16,243				13,817				34,305				27,064
Write off of unamortized deferred finance costs			83				-				110				83				110
Tax (benefit) expense of taxable REIT subsidiaries			(3,135	)			-				27				(3,135	)			55
Restructuring costs			-				-				1,046				-				1,046
Integration costs			422				-				-				422				-
Transaction costs			4,247				105				1,089				4,352				1,153
General and administrative expenses			14,615				13,838				11,473				28,453				22,251
NOI (1)		$	44,612			$	40,565			$	33,691			$	85,177			$	65,193
Breakdown of NOI by facility:
Atlanta-Metro data center		$	16,875			$	16,766			$	15,194			$	33,641			$	29,596
Atlanta-Suwanee data center			10,094				10,130				8,578				20,224				16,752
Santa Clara data center			3,574				3,377				3,318				6,951				6,048
Richmond data center			4,933				4,255				3,339				9,188				6,386
Sacramento data center			1,900				1,871				2,339				3,771				4,663
Princeton data center			2,310				2,349				23				4,659				23
Dallas-Fort Worth data center			1,462				749				-				2,211				-
Carpathia data centers (2)			2,250				-				-				2,250				-
Other facilities			1,214				1,068				900				2,282				1,725
NOI (1)		$	44,612			$	40,565			$	33,691			$	85,177			$	65,193

 

(1)

Includes facility level G&A allocation charges of 4% of revenue which aggregated to $2.7 million, $2.5 million and $2.0 million for the three month periods ended June 30, 2015, March 31, 2015, and June 30, 2014, respectively, and $5.2 million and $4.0 million for the six month periods ended June 30, 2015 and 2014, respectively.

(2)

Includes results of Carpathia for the period June 16, 2015 through June 30, 2015.