Exhibit 99.2

 

  

 

 

 

Table of Contents

 

 

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

 

 

 

 

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, revaluations for tax purposes and increases in real property tax rates.

 

While forward-looking statements reflect the Company’s good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and other periodic reports the Company files with the Securities and Exchange Commission.

 

 

 

 

Company Profile

  

 

 

 

 

 

Combined Consolidated Balance Sheets  

 

 

(in thousands) 

 

		December 31,				December 31,
		2015				2014
ASSETS
Real Estate Assets
Land		$	57,112			$	48,577
Buildings and improvements			1,180,386				914,286
Less: Accumulated depreciation			(239,936	)			(180,167	)
			997,562				782,696
Construction in progress			345,655				214,719
Real Estate Assets, net			1,343,217				997,415
Cash and cash equivalents			8,804				10,788
Rents and other receivables, net			28,233				15,579
Acquired intangibles, net			115,702				18,000
Deferred costs, net (1)			40,212				37,058
Prepaid expenses			6,502				3,079
Goodwill			181,738				-
Other assets, net (2)			33,101				24,640
TOTAL ASSETS		$	1,757,509			$	1,106,559
LIABILITIES
Unsecured credit facility		$	524,002			$	239,838
Senior notes, net of discount			297,976				297,729
Mortgage notes payable			-				86,600
Capital lease and lease financing obligations			49,761				13,062
Accounts payable and accrued liabilities			95,924				64,607
Dividends and distributions payable			15,378				10,705
Advance rents, security deposits and other liabilities			18,798				3,302
Deferred income taxes			18,813				-
Deferred income			16,991				10,531
TOTAL LIABILITIES			1,037,643				726,374
EQUITY
Common stock, $0.01 par value, 450,133,000 shares authorized, 41,225,784 and 29,408,138 shares issued and outstanding as of December 31, 2015 and 2014, respectively			412				294
Additional paid-in capital			670,275				324,917
Accumulated dividends in excess of earnings			(52,732	)			(22,503	)
Total stockholders’ equity			617,955				302,708
Noncontrolling interests			101,911				77,477
TOTAL EQUITY			719,866				380,185
TOTAL LIABILITIES AND EQUITY		$	1,757,509			$	1,106,559

 

(1)

As of December 31, 2015 and 2014, deferred costs, net, included $16.4 million and $16.5 million of deferred financing costs net of amortization, respectively, $21.0 million and $17.4 million of deferred leasing costs net of amortization, respectively, and $2.8 million and $3.2 million, net of amortization, related to a leasing arrangement at the Company’s Princeton facility, respectively.

(2)

As of December 31, 2015 and 2014, other assets, net, primarily included $25.9 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 year ended December 31, 2015 includes the operating results of Carpathia Hosting, Inc. (“Carpathia”) for the period June 16, 2015 (the date the Company acquired Carpathia) through December 31, 2015.

 

		Three Months Ended (unaudited)												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2015				2015				2014				2015				2014
Revenues:
Rental		$	66,240			$	62,744			$	47,656			$	230,510			$	175,649
Recoveries from customers			5,177				6,158				5,520				22,581				19,194
Cloud and managed services			19,406				18,573				5,788				51,994				20,231
Other (1)			1,867				1,415				599				5,998				2,715
Total revenues			92,690				88,890				59,563				311,083				217,789
Operating expenses:
Property operating costs			32,063				30,925				18,397				104,355				71,518
Real estate taxes and insurance			1,448				1,462				1,403				5,869				5,116
Depreciation and amortization			27,020				24,486				16,008				85,811				58,282
General and administrative (2)			19,890				19,440				11,987				67,783				45,283
Restructuring (3)			-				-				26				-				1,298
Transaction and integration costs (4)			5,026				1,482				60				11,282				1,018
Total operating expenses			85,447				77,795				47,881				275,100				182,515
Operating income			7,243				11,095				11,682				35,983				35,274
Other income and expense:
Interest income			-				1				-				2				8
Interest expense			(5,730	)			(5,418	)			(5,625	)			(21,289	)			(15,308	)
Other expense, net (5)			(385	)			-				(291	)			(468	)			(871	)
Income before taxes and loss on sale of real estate			1,128				5,678				5,766				14,228				19,103
Tax benefit of taxable REIT subsidiaries (6)			4,370				2,560				82				10,065				-
Loss on sale of real estate			(164	)			-				-				(164	)			-
Net income			5,334				8,238				5,848				24,129				19,103
Net income attributable to noncontrolling interests (7)			(731	)			(1,229	)			(1,221	)			(3,803	)			(4,031	)
Net income attributable to QTS Realty Trust, Inc.		$	4,603			$	7,009			$	4,627			$	20,326			$	15,072

 

(1)

Other revenue - Includes straight line rent, sales of scrap metals and other unused materials and various other income items. Straight line rent was $1.8 million, $1.0 million and $0.4 million for the three months ended December 31, 2015, September 30, 2015, and December 31, 2014, respectively. Straight line rent was $5.1 million and $1.7 million for the year ended December 31, 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%, 21.9%, and 20.1% of total revenues for the three month periods ended December 31, 2015, September 30, 2015, and December 31, 2014, respectively. General and administrative expenses were 21.8% and 20.8% of total revenues for the year ended December 31, 2015 and 2014, respectively.

(3)

Restructuring costs – The Company did not incur any restructuring costs during 2015. For the year ended December 31, 2014, the Company incurred $1.3 million in restructuring costs related to severance costs associated with various remote employees.

(4)

Transaction and integration costs - For the three month periods ended December 31, 2015, September 30, 2015, and December 31, 2014, the Company recognized $0.5 million, $0.1 million and $0.1 million, respectively, in transaction costs related to the examination of actual and potential acquisitions. Transaction costs were $4.9 million and $1.0 million for the years ended December 31, 2015 and 2014, respectively. The Company also recognized $4.6 million and $1.4 million in integration costs for the three months ended December 31, 2015 and September 30, 2015, respectively, and $6.3 million for the year ended December 31, 2015, which include various costs to integrate QTS and Carpathia, including consulting fees, costs to consolidate office space and costs which are currently duplicated but will be eliminated in the near future. Integration costs for the three months and year ended December 31, 2015 includes $3.1 million in non-cash charges related to QTS’ decision to transfer QTS’ Federal Cloud customers to Carpathia’s existing Federal Cloud platform.

(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 of taxable REIT subsidiaries – For the three 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. For the three months ended December 31, 2015 and September 30, 2015, the Company recorded an additional $4.4 million and $2.6 million tax benefit, respectively, aggregating to $10.1 million in deferred income tax benefit for the year ended December 31, 2015.

(7)

Noncontrolling interest - The noncontrolling ownership interest of QualityTech, LP was 14.2% and 20.4% as of December 31, 2015 and 2014, respectively, with the decrease primarily attributable to equity issuances in March and June 2015.

 

 

 

 

Summary of Financial Data

 

(in thousands, except per share and operating portfolio statistics data)

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2015				2015				2014				2015				2014
Summary of Results
Total revenue		$	92,690			$	88,890			$	59,563			$	311,083			$	217,789
Net income			5,334				8,238				5,848				24,129				19,103
Other Data
FFO		$	28,073			$	29,260			$	20,040			$	98,517			$	70,958
Operating FFO		$	31,514			$	29,536			$	20,417			$	103,916			$	74,145
Operating FFO per share		$	0.65			$	0.61			$	0.55			$	2.29			$	2.00
Fully diluted weighted average shares			48,830				48,733				37,412				45,353				37,134
Recognized MRR in the period		$	81,150			$	78,296			$	50,861			$	269,783			$	188,194
MRR (at period end)		$	27,489			$	26,214			$	17,141			$	27,489			$	17,141
EBITDA		$	33,714			$	35,581			$	27,399			$	121,162			$	92,685
Adjusted EBITDA		$	41,047			$	39,131			$	29,028			$	140,040			$	100,025
NOI		$	59,179			$	56,503			$	39,763			$	200,859			$	141,155
NOI as a % of revenue			63.8	%			63.6	%			66.8	%			64.6	%			64.8	%
Adjusted EBITDA as a % of revenue			44.3	%			44.0	%			48.7	%			45.0	%			45.9	%
General and administrative expenses as a % of revenue			21.5	%			21.9	%			20.1	%			21.8	%			20.8	%
Annualized ROIC			15.8	%			15.7	%			15.7	%			15.8	%			15.5	%

 

		December 31,				December 31,
Balance Sheet Data		2015				2014
Real estate at cost		$	1,583,153			$	1,177,582
Net investment in real estate			1,343,217				997,415
Total assets			1,757,509				1,106,559
Total debt (1)			871,739				637,229
Debt to last quarter annualized Adjusted EBITDA			5.3	x			5.5	x
Debt to undepreciated real estate assets			55.1	%			54.1	%
Debt to Implied Enterprise Value			28.3	%			33.4	%

 

(1)

Excludes the cash and cash equivalent offset and includes capital leases and lease financing obligations.

 

 

 

 

		December 31,				December 31,
Operating Portfolio Statistics		2015				2014
Built out square footage:
Raised floor			1,118,506				927,075
Leasable raised floor (1)			839,356				698,232
Leased raised floor			761,166				593,610
Total Raw Shell:
Total			4,878,342				4,688,164
Basis-of-design raised floor space (1)			2,184,631				2,090,959
Data center properties			24				12
Basis of design raised floor % developed			51.2	%			44.3	%
Data center % occupied			90.7	%			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												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2015				2015				2014				2015				2014
NOI (1)		$	59,179			$	56,503			$	39,763			$	205,359			$	141,155
Annualized NOI			236,716				226,012				159,052				205,359				141,155
Average undepreciated real estate assets and other net fixed assets placed in service (2)			1,498,674				1,441,297				1,013,331				1,301,551				910,883
Annualized ROIC			15.8	%			15.7	%			15.7	%			15.8	%			15.5	%

 

(1)

Includes facility level G&A allocation charges of 4% of cash revenue for all facilities, with the exception of the leased facilities acquired in 2015, which include general and administrative expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.2 million, $4.9 million and $2.4 million for the three month periods ended December 31, 2015, September 30, 2015, and December 31, 2014, respectively, and $15.2 million and $8.7 million for the year ended December 31, 2015 and 2014, respectively.

 

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		December 31,				September 30,				December 31,				December 31,				December 31,
Net Fixed Assets Placed in Service		2015				2015				2014				2015				2014
Real Estate Assets, net		$	1,343,217			$	1,292,597			$	997,415			$	1,343,217			$	997,415
Less: Construction in progress			(345,655	)			(353,782	)			(214,719	)			(345,655	)			(214,719	)
Plus: Accumulated depreciation			239,936				222,373				180,167				239,936				180,167
Plus: Goodwill			181,738				174,697				-				181,738				-
Plus: Other fixed assets, net			12,815				11,007				21,387				12,815				21,387
Plus: Acquired intangibles, net			82,020	*			88,642	*			18,000				82,020	*			18,000
Plus: Leasing Commissions, net			23,778				23,966				20,589				23,778				20,589
Total as of period end		$	1,537,849			$	1,459,500			$	1,022,839			$	1,537,849			$	1,022,839
Average undepreciated real estate assets and other net fixed assets as of reporting period (2)		$	1,498,674			$	1,441,297			$	1,013,331			$	1,301,551			$	910,883

 

(2)

Calculated by using average quarterly balance of each account.

 

*

Net of acquired intangible liabilities and deferred tax liabilities.

 

 

 

 

Implied Enterprise Value and

Weighted Average Shares

 

 

Implied Enterprise Value as of December 31, 2015:
Total Shares Outstanding:
Class A Common Stock			41,092,784
Class B Common Stock			133,000
Total Shares Outstanding			41,225,784
Units of Limited Partnership (1)			7,370,794
Options to purchase Class A Common Stock (2)			329,531
Fully Diluted Total Shares and Units of Limited Partnership outstanding as of December 31, 2015			48,926,109
Share price as of December 31, 2015		$	45.11
Market equity capitalization (in thousands)		$	2,207,057
Debt  (in thousands)			871,739
Implied Enterprise Value (in thousands)		$	3,078,796

 

(1)

Includes 572,001 of operating partnership units representing the “in the money” value of Class O LTIP units on an “as if” converted basis as of December 31, 2015.

(2)

Represents options to purchase 329,531 shares of Class A Common Stock of QTS Realty Trust Inc. representing the “in the money” value options on an “as if” converted basis as of December 31, 2015.

 

The following table presents the weighted average fully diluted shares for the three months and year ended December 31, 2015:

 

		Three Months Ended				Year Ended
		December 31, 2015				December 31, 2015
Weighted average shares outstanding - basic			41,168,656				37,568,109
Effect of Class A and Class RS partnership units (1)			6,810,749				7,029,205
Effect of Class O units on as "as if" converted basis (1)			543,163				500,982
Effect of options to purchase Class A common stock on an "as if" converted basis (1)(2)			307,158				254,874
Weighted average shares outstanding - diluted			48,829,726				45,353,170

 

(1)

The Class A units, Class RS units and Class O units represent limited partnership interest in the Operating Partnership.

(2)

The weighted average share price for the three months and year ended December 31, 2015 was $43.27 and $39.37, 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 December 31, 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				151,623				51,093				162,717				365,433				88.7	%		$	32,742,001				110				556,623				27.2	%
Atlanta, GA (Metro)		2006			968,695				432,986				36,953				322,426				792,365				95.8	%		$	82,563,392				72				527,186				82.1	%
Dallas-Fort Worth, TX		2013			698,000				54,014				2,321				35,825				92,160				89.9	%		$	9,133,696				140				292,000				18.5	%
Princeton, NJ		2014			553,930				58,157				2,229				111,405				171,791				100.0	%		$	9,665,340				22				158,157				36.8	%
Suwanee, GA		2005			369,822				185,422				8,697				108,266				302,385				84.3	%		$	56,769,086				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				97.5	%		$	24,822,368				11				80,347				69.1	%
Jersey City, NJ*		2006			122,448				31,503				14,208				41,901				87,612				96.7	%		$	12,124,791				7				52,744				59.7	%
Sacramento, CA		2012			92,644				54,595				2,794				23,916				81,305				46.1	%		$	11,711,752				8				57,906				94.3	%
Miami, FL		2008			30,029				19,887				-				6,592				26,479				67.7	%		$	5,081,638				4				19,887				100.0	%
Leased facilities acquired in 2015 ***		2015			154,693				72,332				5,242				14,169				91,743				94.7	%(10)		$	84,557,585				20				96,280				75.1	%
Other ****		Misc			117,406				2,493				49,337				29,290				81,120				62.0	%		$	692,402				1				2,493				100.0	%
Total					4,878,342				1,118,506				173,818				902,194				2,194,518				90.7	%		$	329,864,051				439				2,184,631				51.2	%

 

(1)

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

(2)

With respect to the Company’s owned properties, gross square feet represents the entire building area. With respect to leased properties, gross square feet represents that portion of the gross square feet subject to our lease. This includes 252,041 square feet of QTS office and support space, which is not included in operating NRSF.

(3)

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

(4)

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

(5)

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

(6)

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

(7)

Calculated as data center raised floor that is subject to a signed lease for which billing has commenced (761,166 square feet as of December 31, 2015 divided by leasable raised floor based on the current configuration of the properties (839,356 square feet as of December 31, 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 December 31, 2015.

(10)

During the fourth quarter of 2015, the Company conformed the leased facilities acquired in 2015 to its definition of leasable raised floor, which does not include common spaces or walkways. As such, the percentage occupied and billing for these leased facilities has increased from prior quarters.

 

*

Represents facilities that we lease.

**

Subject to long term ground lease.

***

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

****

On December 31, 2015, the Company sold its Wichita facility.

 

 

 

 

Redevelopment Costs Summary

 

(in thousands, except NRSF data)

 

During the fourth quarter of 2015, the Company brought online approximately 10 megawatts of gross power and approximately 45,000 NRSF of raised floor and customer specific capital at its Atlanta-Metro and Richmond data centers at an aggregate cost of approximately $64 million. The under construction table below summarizes the Company’s outlook for development projects which it expects to complete by December 31, 2016 (in millions).

 

		Under Construction Costs (1)
Property		Actual (2)				Estimated Cost to Completion (3)				Total				Expected Completion date
Richmond		$	13			$	10			$	23			Q3 2016
Atlanta-Metro			20				14				34			Q2 2016
Atlanta-Suwanee			12				3				15			Q3 2016
Chicago			15				30				45			Q3 2016
Dallas-Fort Worth			60				17				77			Q4 2016
Jersey City			2				10				12			Q3 2016
Santa Clara			-				6				6			Q2 2016
Totals		$	122			$	90			$	212

 

(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 December 31, 2015. In addition to the $122 million of construction costs incurred through December 31, 2015 for redevelopment expected to be completed by December 31, 2016, as of December 31, 2015 the Company had incurred $224 million of additional costs (including acquisition costs and other capitalized costs) for other redevelopment projects that are expected to be completed after December 31, 2016.

(3)

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

 

 

 

 

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 December 31, 2015. This table shows the Company’s ability to increase its raised floor of 1,118,506 square feet by approximately 2.0 times to 2.2 million square feet as of December 31, 2015.

 

Raised Floor NRSF
Overview as of December 31, 2015
Property		Current NRSF in Service				Under Construction (1)				Future Available (2)				Basis of Design NRSF				Approximate Adjacent Acreage of Land (3)
Richmond			151,623				15,000				390,000				556,623				111.1
Atlanta-Metro			432,986				20,000				74,200				527,186				6.0
Dallas-Fort Worth			54,014				38,500				199,486				292,000				29.4
Princeton			58,157				-				100,000				158,157				65.0
Atlanta-Suwanee			185,422				19,000				3,586				208,008				15.4
Santa Clara			55,494				3,250				21,603				80,347				-
Sacramento			54,595				-				3,311				57,906				-
Jersey City			31,503				15,000				6,241				52,744				-
Chicago			-				14,000				119,000				133,000				23.0
Miami			19,887				-				-				19,887				-
Leased facilities acquired in 2015			72,332				-				23,948				96,280				-
Other			2,493				-				-				2,493				-
Totals as of December 31, 2015			1,118,506				124,750				941,375				2,184,631				249.9

 

(1)

Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use on or before December 31, 2016.

(2)

Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use after December 31, 2016.

(3)

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

 

 

 

 

NOI by Facility and Capital Expenditure Summary

 

(unaudited and in thousands, except NRSF data)

 

The Company calculates net operating income, or NOI, as net income (loss), excluding: interest expense, interest income, depreciation and amortization, write-off of unamortized deferred financing costs, tax expense (benefit) of taxable REIT subsidiaries, gain (loss) on extinguishment of debt, transaction and integration costs, gain (loss) on legal settlement, gain (loss) 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												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2015				2015				2014				2015				2014
Breakdown of NOI by facility:
Atlanta-Metro data center		$	18,256			$	17,964			$	16,386			$	69,861			$	60,734
Atlanta-Suwanee data center			10,488				10,376				9,711				41,088				35,509
Santa Clara data center			3,786				3,615				3,390				14,352				12,739
Richmond data center			6,431				5,340				4,208				20,959				14,366
Sacramento data center			1,875				1,870				1,869				7,516				8,470
Princeton data center			2,471				2,331				2,739				9,461				4,828
Dallas-Fort Worth data center			1,804				1,532				395				5,547				815
Leased data centers acquired in 2015			12,885				12,460				-				27,595				-
Other facilities			1,183				1,015				1,065				4,480				3,694
NOI (1)		$	59,179			$	56,503			$	39,763			$	200,859			$	141,155

 

(1)

Includes facility level G&A allocation charges of 4% of cash revenue for all facilities, with the exception of the leased facilities acquired in 2015, which include general and administrative expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.2 million, $4.9 million and $2.4 million, for the three month periods ended December 31, 2015,  September 30, 2015, and December 31, 2014, respectively, and $15.2 million and $8.7 million for the years December 31, 2015 and 2014, respectively.

 

Capital expenditures related to real estate assets are summarized as follows:

 

		Capital Expenditures (1)
		Three Months Ended December 31,								Year Ended December 31,
		2015				2014				2015				2014
Redevelopment		$	56,909			$	53,491			$	282,737			$	178,146
Acquisitions (2)			3,820				-				336,517				91,064
Maintenance capital expenditures			2,711				712				4,745				2,684
Other capitalized costs			6,153				6,319				24,253				19,702
Total capital expenditures		$	69,593			$	60,522			$	648,252			$	291,596

 

(1)

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

(2)

The year ended December 31, 2015 reflects the total consideration transferred for the Carpathia acquisition on June 16, 2015 (excluding the assumption of $29.9 million in deferred tax liabilities assumed). The three months and year ended December 31, 2015 reflects the total consideration transferred for the purchase of the Duluth, Georgia office building on December 30, 2015. The year ended December 31, 2014 reflects the total consideration transferred for the acquisition of the Princeton facility on June 30, 2014 and the acquisition of the Chicago facility on July 8, 2014.

 

 

 

 

Leasing Statistics – Signed Leases

 

 

The mix of leasing activity has significant impact on quarterly rates, both within major product segments and for overall blended leasing rates. The Company’s rate performance will vary quarter to quarter based on the mix of deals leased – C1 Custom Data Center, C2 Colocation (Cabinet, Cage and Suite), and C3 Cloud and Managed Services categories all vary on a rate per square foot basis. The amounts below include renewals when there was a change in square footage rented, and renewals where C3 dedicated server cloud customers had shifts in their MRR related to their use of fully depreciated equipment. The amounts below exclude renewals where square footage remained consistent before and after renewal. (See renewal table on page 16 for such renewals).

 

During the quarter and year ended December 31, 2015, the Company signed 357 and 1,510 new and modified leases aggregating to $17.5 million and $74.7 million of annualized rent, respectively, which includes new leased revenue plus revenue from modified renewals. Removing annualized modified renewal MRR and deducting period downgrades results in $9.8 million and $39.6 million in incremental annualized rent for the quarter and year ended December 31, 2015, respectively. This number was impacted by a C3 customer that had a dedicated cloud environment which renewed its contract but chose not to undergo a technology refresh. As a result, this customer retained the use of its depreciated equipment at a lower price point which resulted in an approximate $2.0 million downgrade. Excluding this downgrade, the net leasing activity would have been approximately $11.8 million, representing a 40% increase over the prior four quarter average. Pricing for the Company’s products was in line with the prior four quarter average.

 

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		Q4 2015		357				21,801			$	801			$	17,471,080			$	9,849,694
		P4QA*		375				19,757				859				16,974,931				8,475,887
		Q3 2015		448				7,513				1,686				12,669,407				5,582,511
		Q2 2015		365				13,867				1,207				16,734,571				10,585,921
		Q1 2015		340				47,052				590				27,778,291				13,618,400
		Q4 2014		347				10,596				1,011				10,717,456				4,116,717
New/modified leases signed - C1		Q4 2015		20				10,476			$	373			$	3,910,932
		P4QA*		20				7,868				367				2,890,289
		Q3 2015		20				128				3,983				509,776
		Q2 2015		22				644				831				535,306
		Q1 2015		18				30,386				340				10,333,301
		Q4 2014		21				315				580				182,772
New/modified leases signed - C2/C3		Q4 2015		337				11,325			$	1,197			$	13,560,148
		P4QA*		355				11,889				1,185				14,084,642
		Q3 2015		428				7,385				1,647				12,159,631
		Q2 2015		343				13,223				1,225				16,199,265
		Q1 2015		322				16,666				1,047				17,444,990
		Q4 2014		326				10,281				1,025				10,534,684

 

*

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 December 31, 2015 and how that will affect revenue in 2016 and subsequent years:

 

Booked-not-billed ("BNB")		2016				2017				Thereafter				Total
MRR		$	2,230,266			$	640,969			$	1,099,816			$	3,971,051
Incremental revenue			18,857,398				3,978,722				13,197,798
Annualized revenue			26,763,188				7,691,630				13,197,798				47,652,616

 

The Company estimates the cost to provide the space, power, connectivity and other services to the customer contracts which had not billed as of December 31, 2015 to be approximately $30 million. This estimate generally includes C1 customers with newly contracted space of more than 3,300 square feet. The space, power, connectivity and other services provided to customers that contract for smaller amounts of space is generally provided by existing space which was previously developed.

 

 

 

 

Leasing Statistics – Renewed Leases and Rental Churn

 

 

The mix of leasing activity has 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 and excludes C3 dedicated server cloud customers who had shifts in their MRR related to their use of fully depreciated equipment. All customers with space changes are incorporated into new/modified leasing statistics and rates.

 

The overall blended rate for renewals signed in the quarter and year ended December 31, 2015 was 2.3% higher for each period than the rates for those customers immediately prior to renewal, 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 2.2% for the fourth quarter of 2015 and 4.0% for the year ended December 31, 2015.

 

		Period			Number of renewed leases			Total Leased sq ft				Annualized rent per leased sq ft				Annualized Rent				Rent Change(1)
Renewed Leases - Total		Q4 2015			71				9,306			$	1,002			$	9,329,194				2.3	%
		P4QA*			74				8,622				812				7,004,512				2.6	%
		Q3 2015			89				12,338				742				9,157,450				0.9	%
		Q2 2015			76				9,540				785				7,492,287				5.1	%
		Q1 2015			65				6,291				863				5,427,185				1.2	%
		Q4 2014			64				6,317				940				5,941,125				3.4	%
Renewed Leases - C1		Q4 2015			1				4,200			$	241			$	1,013,852				3.0	%
		P4QA*			1				800				297				237,795				17.9	%
		Q3 2015			3				3,200				297				951,180				17.9	%
		Q2 2015			-				-				-				-				0.0	%
		Q1 2015			-				-				-				-				0.0	%
		Q4 2014			-				-				-				-				0.0	%
Renewed Leases - C2/C3		Q4 2015			70				5,106			$	1,629			$	8,315,343				2.2	%
		P4QA*			73				7,822				865				6,766,717				2.1	%
		Q3 2015			86				9,138				898				8,206,270				-0.7	%
		Q2 2015			76				9,540				785				7,492,287				5.1	%
		Q1 2015			65				6,291				863				5,427,185				1.2	%
		Q4 2014			64				6,317				940				5,941,125				3.4	%

 

*

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.

 

During the quarter and year ended December 31, 2015, the Company commenced customer leases (which includes both new customers and existing customers that modified their lease terms) representing approximately $38.7 million and $121.3 million of annualized rent at $733 and $597 per square foot, respectively. This compares to customer leases representing an aggregate trailing four quarter average of approximately $25.4 million of annualized rent at $511 per square foot.

The C2/C3 average commencement rate for the quarter and year ended December 31, 2015 was $2,401 and $1,208 per square foot, respectively. This pricing increase was driven by several customers who ramped their C3 services with minimal square footage needed to supply those services.

 

		Period			Number of leases			Total Leased sq ft				Annualized rent per leased sq ft				Annualized Rent
Leases commenced - Total		Q4 2015			446				52,783			$	733			$	38,669,556
		P4QA*			470				49,604				511				25,354,278
		Q3 2015			651				77,273				490				37,887,304
		Q2 2015			459				51,248				525				26,884,427
		Q1 2015			369				21,813				817				17,829,577
		Q4 2014			401				48,080				391				18,815,804
Leases commenced - C1		Q4 2015			21				40,618			$	233			$	9,457,608
		P4QA*			30				28,942				179				5,169,315
		Q3 2015			33				43,199				181				7,822,312
		Q2 2015			37				29,622				168				4,961,821
		Q1 2015			21				8,289				215				1,780,368
		Q4 2014			30				34,657				176				6,112,759
Leases commenced - C2/C3		Q4 2015			425				12,165			$	2,401			$	29,211,948
		P4QA*			440				20,662				990				20,444,981
		Q3 2015			618				34,074				882				30,064,992
		Q2 2015			422				21,626				1,014				21,922,606
		Q1 2015			348				13,524				1,264				17,089,279
		Q4 2014			371				13,423				946				12,703,045

 

*

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 December 31, 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)			320				6,053				1	%		$	8,912,990				3	%			0	%			2	%			1	%
2016			1,788				91,792				12	%			97,392,440				29	%			3	%			15	%			11	%
2017 (4)			1,044				128,016				17	%			78,446,683				24	%			5	%			15	%			4	%
2018			745				264,082				35	%			78,053,728				23	%			11	%			8	%			4	%
2019			130				19,019				2	%			11,706,267				4	%			1	%			2	%			1	%
2020			75				37,823				5	%			15,495,785				5	%			2	%			2	%			1	%
After 2020			58				214,381				28	%			39,856,158				12	%			12	%			0	%			0	%
Portfolio Total			4,160				761,166				100	%		$	329,864,051				100	%			34	%			44	%			22	%

 

(1)

Represents each agreement with a customer signed as of December 31, 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 December 31, 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 December 31, 2015 and have continued on a month-to-month basis.

(4)

Subsequent to December 31, 2015, the Company and a customer finalized a renegotiation whereby the customer’s lease is scheduled to expire in February 2017. As such, the relevant information related to this lease is being presented as expiring in 2017.

 

 

 

 

Largest Customers

 

 

As of December 31, 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 December 31, 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			$	34,504,610				10.5	%			55
Technology		C2, C3			5				12,549,692				3.8	%			15
Government (3)		C2, C3			2				10,183,285				3.1	%			13
Information Technology		C1, C3			3				9,995,687				3.0	%			100
Internet		C1			1				9,644,400				2.9	%			34
Information Technology		C1			2				9,186,314				2.8	%			99
Technology		C2, C3			5				6,487,557				2.0	%			12
Technology		C2, C3			2				6,472,121				2.0	%			7
Information Technology		C2, C3			6				6,076,482				1.8	%			16
Retail		C3			2				5,907,126				1.8	%			28
Total / Weighted Average								$	111,007,274				33.7	%			44

  

(1)

Annualized rent is presented for leases commenced as of December 31, 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 December 31, 2015.

(3)

Subsequent to December 31, 2015, the Company and the customer finalized a renegotiation whereby the customer’s lease is scheduled to expire in February 2017.

 

 

 

 

Industry Segmentation

 

 

The following table sets forth information relating to the industry segmentation as of December 31, 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 December 31, 2015:

 

 

 

(1)

As of December 31, 2015, C1 customers renting at least 6,600 square feet represented $72.5 million of annualized C1 MRR, C1 customers renting 3,300 square feet to 6,599 square feet represented $17.9 million of annualized C1 MRR, and C1 customers renting below 3,300 square feet represented $22.9 million of annualized C1 MRR. As of December 31, 2015, C1 customers’ median used square footage was 3,876 square feet.

 

The following table sets forth information relating to the distribution of leases at the properties, by type of product offering, as of December 31, 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 6,600 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)

 

		Weighted Average
		Coupon Interest Rate at						December 31,				December 31,
		December 31, 2015				Maturities		2015				2014
Unsecured Credit Facility
Revolving Credit Facility			1.82%			December 17, 2019		$	224,002			$	139,838
Term Loan I			1.78%			December 17, 2020			150,000				100,000
Term Loan II			1.92%			April 27, 2021			150,000				-
Senior Notes, net of discount			5.88%			August 1, 2022			297,976				297,729
Richmond Credit Facility			N/A			N/A			-				70,000
Atlanta-Metro Equipment Loan			N/A			N/A			-				16,600
Capital Lease and Lease Financing Obligations			3.35%			2016 - 2025			49,761				13,062
Total			3.31%					$	871,739			$	637,229

 

As of December 31, 2015:

 

Debt instruments		2016				2017				2018				2019				2020				Thereafter				Total
Unsecured Credit Facility		$	-			$	-			$	-			$	224,002			$	150,000			$	150,000			$	524,002
Senior Notes (1)			-				-				-				-				-				300,000				300,000
Capital Lease and Lease Financing Obligations			12,558				12,388				8,804				2,461				2,190				11,360				49,761
Total		$	12,558			$	12,388			$	8,804			$	226,463			$	152,190			$	461,360			$	873,763

 

(1)

Excludes discount reflected at December 31, 2015.

 

 

 

 

Interest Summary

 

(in thousands)

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,				December 31,
		2015				2015				2014				2015				2014
Interest expense and fees		$	7,514			$	7,279			$	6,566			$	27,632			$	18,578
Swap interest			-				-				-				-				482
Amortization of deferred financing costs and bond discount			872				849				842				3,424				2,774
Capitalized interest (1)			(2,656	)			(2,710	)			(1,783	)			(9,767	)			(6,526	)
Total interest expense		$	5,730			$	5,418			$	5,625			$	21,289			$	15,308

 

(1)

The weighted average interest rate for the three months ended December 31, 2015, September 30, 2015, and December 31, 2014 was 3.88%, 4.04%, and 4.74%, respectively. The weighted average interest rate for the years ended December 31, 2015 and 2014 was 4.24% and 4.23%, respectively. As of December 31, 2015 and 2014 our weighted average coupon interest rate was 3.31% 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-routine charges and gains and losses that management believes are not indicative of the results of the Company’s operating real estate portfolio. The Company believes that Operating FFO provides investors with another financial measure that may facilitate comparisons of operating performance and liquidity between periods and, to the extent they calculate Operating FFO on a comparable basis, between REITs.

 

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

 

 

 

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2015				2015				2014				2015				2014
FFO
Net income		$	5,334			$	8,238			$	5,848			$	24,129			$	19,103
Real estate depreciation and amortization			22,575				21,022				14,192				74,224				51,855
Loss on sale of real estate			164				-				-				164				-
FFO			28,073				29,260				20,040				98,517				70,958
Write off of unamortized deferred finance costs			385				-				291				468				871
Restructuring costs			-				-				26				-				1,298
Integration costs			4,552				1,360				-				6,334				-
Transaction costs			474				122				60				4,948				1,018
Deferred tax benefit associated with transaction and integration costs			(1,970	)			(1,206	)			-				(3,176	)			-
Non-cash reversal of deferred tax asset valuation allowance			-				-				-				(3,175	)			-
Operating FFO  *			31,514				29,536				20,417				103,916				74,145
Maintenance Capex			(2,711	)			(1,408	)			(712	)			(4,745	)			(2,684	)
Leasing commissions paid			(3,237	)			(3,005	)			(3,615	)			(13,108	)			(14,219	)
Amortization of deferred financing costs and bond discount			872				849				842				3,424				2,774
Non real estate depreciation and amortization			4,445				3,463				1,817				11,531				6,427
Straight line rent revenue and expense			(2,398	)			(479	)			(298	)			(4,402	)			(1,360	)
Non-cash deferred tax benefit from operating results			(2,400	)			(1,354	)			-				(3,754	)			-
Equity-based compensation expense			1,758				2,068				1,252				6,964				4,153
Adjusted Operating FFO *		$	27,843			$	29,670			$	19,703			$	99,826			$	69,236

 

*

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												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2015				2015				2014				2015				2014
Recognized MRR in the period
Total period revenues (GAAP basis)		$	92,690			$	88,890			$	59,563			$	311,083			$	217,789
Less: Total  period recoveries			(5,177	)			(6,158	)			(5,520	)			(22,581	)			(19,194	)
Total period deferred setup fees			(1,907	)			(1,477	)			(1,201	)			(6,042	)			(4,709	)
Total period straight line rent and other			(4,456	)			(2,959	)			(1,981	)			(12,677	)			(5,692	)
Recognized MRR in the period			81,150				78,296				50,861				269,783				188,194
MRR at period end
Total period revenues (GAAP basis)		$	92,690			$	88,890			$	59,563			$	311,083			$	217,789
Less: Total revenues excluding last month			(61,627	)			(59,455	)			(39,605	)			(280,020	)			(197,831	)
Total revenues for last month of period			31,063				29,435				19,958				31,063				19,958
Less: Last month recoveries			(1,415	)			(1,661	)			(1,908	)			(1,415	)			(1,908	)
Last month deferred setup fees			(716	)			(269	)			(372	)			(716	)			(372	)
Last month straight line rent and other			(1,443	)			(1,291	)			(537	)			(1,443	)			(537	)
MRR at period end		$	27,489			$	26,214			$	17,141			$	27,489			$	17,141

 

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

 

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

 

In addition to EBITDA, the Company calculates an adjusted measure of EBITDA, which it refers to as Adjusted EBITDA, as EBITDA excluding unamortized deferred financing costs, gains (losses) on extinguishment of debt, transaction and integration costs, equity-based compensation expense, restructuring costs, gain (loss) on legal settlement and gain (loss) on sale of real estate. The Company believes that Adjusted EBITDA provides investors with another financial measure that can facilitate comparisons of operating performance between periods and between REITs.

 

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

 

 

 

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2015				2015				2014				2015				2014
EBITDA and Adjusted EBITDA
Net income		$	5,334			$	8,238			$	5,848			$	24,129			$	19,103
Interest expense			5,730				5,418				5,625				21,289				15,308
Interest income			-				(1	)			-				(2	)			(8	)
Tax benefit of taxable REIT subsidiaries			(4,370	)			(2,560	)			(82	)			(10,065	)			-
Depreciation and amortization			27,020				24,486				16,008				85,811				58,282
EBITDA			33,714				35,581				27,399				121,162				92,685
Write off of unamortized deferred finance costs			385				-				291				468				871
Equity-based compensation expense			1,758				2,068				1,252				6,964				4,153
Restructuring costs			-				-				26				-				1,298
Integration costs			4,552				1,360				-				6,334				-
Transaction costs			474				122				60				4,948				1,018
Loss on sale of real estate			164				-				-				164				-
Adjusted EBITDA		$	41,047			$	39,131			$	29,028			$	140,040			$	100,025

 

 

 

 

Net Operating Income (NOI)

 

The Company calculates net operating income (“NOI”) as net income (loss), excluding: interest expense, interest income, tax expense (benefit) of taxable REIT subsidiaries, depreciation and amortization, write off of unamortized deferred financing costs, gain (loss) on extinguishment of debt, transaction and integration costs, gain (loss) on legal settlement, gain (loss) 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												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2015				2015				2014				2015				2014
Net Operating Income (NOI)
Net income		$	5,334			$	8,238			$	5,848			$	24,129			$	19,103
Interest expense			5,730				5,418				5,625				21,289				15,308
Interest income			-				(1	)			-				(2	)			(8	)
Depreciation and amortization			27,020				24,486				16,008				85,811				58,282
Write off of unamortized deferred finance costs			385				-				291				468				871
Tax benefit of taxable REIT subsidiaries			(4,370	)			(2,560	)			(82	)			(10,065	)			-
Restructuring costs			-				-				26				-				1,298
Integration costs			4,552				1,360				-				6,334				-
Transaction costs			474				122				60				4,948				1,018
Loss on sale of real estate			164				-				-				164				-
General and administrative expenses			19,890				19,440				11,987				67,783				45,283
NOI (1)		$	59,179			$	56,503			$	39,763			$	200,859			$	141,155
Breakdown of NOI by facility:
Atlanta-Metro data center		$	18,256			$	17,964			$	16,386			$	69,861			$	60,734
Atlanta-Suwanee data center			10,488				10,376				9,711				41,088				35,509
Santa Clara data center			3,786				3,615				3,390				14,352				12,739
Richmond data center			6,431				5,340				4,208				20,959				14,366
Sacramento data center			1,875				1,870				1,869				7,516				8,470
Princeton data center			2,471				2,331				2,739				9,461				4,828
Dallas-Fort Worth data center			1,804				1,532				395				5,547				815
Leased data centers acquired in 2015			12,885				12,460				-				27,595				-
Other facilities			1,183				1,015				1,065				4,480				3,694
NOI (1)		$	59,179			$	56,503			$	39,763			$	200,859			$	141,155

 

(1)

Includes facility level G&A allocation charges of 4% of cash revenue for all facilities, with the exception of the leased facilities acquired in 2015, which include general and administrative expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.2 million, $4.9 million and $2.4 million for the three month periods ended December 31, 2015, September 30, 2015, and December 31, 2014, respectively, and $15.2 million and $8.7 million for the years December 31, 2015 and 2014, respectively.