QTS Realty Trust, Inc. - FORM 8-K - EX-99.2

Attached files

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EX-99.1 - EX-99.1 - QTS Realty Trust, Inc.	ex-99d1.htm
8-K - 8-K - QTS Realty Trust, Inc.	f8-k.htm

Exhibit 99.2

Table of Contents


Overview
Company Profile	3

Financial Statements
Consolidated Balance Sheets	4
Consolidated Statements of Operations	5
Consolidated Statements of Comprehensive Income	6
Summary of Financial Data	7
Reconciliations of Return on Invested Capital (ROIC)	9
Implied Enterprise Value and Weighted Average Shares	10

Operating Portfolio
Data Center Properties	11
Redevelopment Costs Summary	12
Redevelopment Summary	13
NOI by Facility and Capital Expenditure Summary	14
Leasing Statistics – Signed Leases	15
Leasing Statistics – Renewed Leases and Rental Churn	17
Leasing Statistics – Commenced Leases	18
Lease Expirations	19
Largest Customers	20
Industry Segmentation	21
Product Diversification	22

Capital Structure
Debt Summary and Debt Maturities	23
Interest Summary	24

Appendix	25


1 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

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, results of operations, anticipated growth in our funds from operations and anticipated market conditions contain 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 also can 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; obsolescence or reduction in marketability of our infrastructure due to changing industry demands; global, national and local economic conditions; risks related to our international operations; difficulties in identifying properties to acquire and completing acquisitions; the Company’s failure to successfully develop, redevelop and operate acquired properties or lines of business; 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; decreased rental rates or increased vacancy rates; increased interest rates and operating costs, including increased energy costs; financing risks, including the Company’s failure to obtain necessary outside financing; 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. Any forward-looking statement speaks only as of the date on which it was made. 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, 2016 and other periodic reports the Company files with the Securities and Exchange Commission.


2 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Company Profile


3 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Consolidated Balance Sheets

(in thousands except share data)


	December 31,		December 31,
	2017 (1)		2016 (1)
ASSETS
Real Estate Assets
Land	$	88,216	$	74,130
Buildings, improvements and equipment		1,701,287		1,524,767
Less: Accumulated depreciation		(394,823)		(317,834)
		1,394,680		1,281,063
Construction in progress (2)		567,819		365,960
Real Estate Assets, net		1,962,499		1,647,023
Cash and cash equivalents		8,243		9,580
Rents and other receivables, net		47,046		41,540
Acquired intangibles, net		109,451		129,754
Deferred costs, net (3) (4)		41,545		38,507
Prepaid expenses		6,163		6,918
Goodwill		173,843		173,843
Other assets, net (5)		64,817		39,305
TOTAL ASSETS	$	2,413,607	$	2,086,470

LIABILITIES
Unsecured credit facility, net (4)	$	825,186	$	634,939
Senior notes, net of discount and debt issuance costs (4)		394,178		292,179
Capital lease, lease financing obligations and mortgage notes payable		10,565		38,708
Accounts payable and accrued liabilities		113,430		86,129
Dividends and distributions payable		22,222		19,634
Advance rents, security deposits and other liabilities		27,454		24,893
Deferred income taxes		4,611		15,185
Deferred income		25,305		21,993
TOTAL LIABILITIES		1,422,951		1,133,660

EQUITY
Common stock, $0.01 par value, 450,133,000 shares authorized, 50,701,795 and 47,831,250 shares issued and outstanding as of December 31, 2017 and December 31, 2016, respectively		507		478
Additional paid-in capital		1,051,742		931,783
Accumulated other comprehensive loss		(1,283)		-
Accumulated dividends in excess of earnings		(173,552)		(97,793)
Total stockholders’ equity		877,414		834,468
Noncontrolling interests		113,242		118,342
TOTAL EQUITY		990,656		952,810
TOTAL LIABILITIES AND EQUITY	$	2,413,607	$	2,086,470

(1)

The balance sheet at December 31, 2017 and December 31, 2016, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

(2)

As of December 31, 2017, construction in progress included $163.6 million related to land acquisitions, including cost of subsequent development of that land, completed during the year ended December 31, 2017.

(3)

As of December 31, 2017 and December 31, 2016, deferred costs, net included $7.9 million and $7.0 million of deferred financing costs net of amortization, respectively, and $33.7 million and $31.5 million of deferred leasing costs net of amortization, respectively.

(4)

Debt issuance costs, net related to the Senior Notes and term loan portion of the Company’s unsecured credit facility aggregating $11.6 million and $10.1 million at December 31, 2017 and December 31, 2016, respectively, have been netted against the related debt liability line items for both periods presented.

(5)

As of December 31, 2017 and December 31, 2016, other assets, net included $57.4 million and $31.7 million of corporate fixed assets, respectively, primarily relating to construction of corporate offices, leasehold improvements and product related assets. During the quarter ended June 30, 2017, fixed assets and the associated accumulated depreciation related to the Duluth, GA facility aggregating to $10.6 million were moved from Real Estate Assets, net to Other assets, net as the facility was transitioned to corporate office space.


4 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Consolidated Statements of Operations

(in thousands except share and per share data)


	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,
	2017		2017		2016		2017		2016
Revenues:
Rental	$	90,078	$	85,831	$	78,622	$	335,819	$	295,723
Recoveries from customers		11,053		9,698		8,965		37,886		29,271
Cloud and managed services		15,421		16,224		16,340		65,466		68,488
Other (1)		2,359		2,014		1,516		7,339		8,881
Total revenues		118,911		113,767		105,443		446,510		402,363
Operating expenses:
Property operating costs		41,199		39,743		35,773		153,209		136,488
Real estate taxes and insurance		2,750		3,116		2,514		11,959		8,840
Depreciation and amortization		37,140		35,309		33,093		140,924		124,786
General and administrative (2)		20,820		21,652		21,450		87,231		83,286
Transaction, integration and impairment costs (3)		9,449		1,114		1,521		11,060		10,906
Total operating expenses		111,358		100,934		94,351		404,383		364,306

Operating income		7,553		12,833		11,092		42,127		38,057

Other income and expense:
Interest income		1		65		-		67		3
Interest expense		(8,049)		(7,958)		(6,125)		(30,523)		(23,159)
Debt restructuring costs (4)		(19,992)		-		(193)		(19,992)		(192)
Income (loss) before taxes		(20,487)		4,940		4,774		(8,321)		14,709
Tax benefit of taxable REIT subsidiaries (5)		4,374		2,454		707		9,778		9,976
Net income (loss)		(16,113)		7,394		5,481		1,457		24,685
Net (income) loss attributable to noncontrolling interests (6)		1,971		(887)		(675)		(175)		(3,160)
Net income (loss) attributable to QTS Realty Trust, Inc.	$	(14,142)	$	6,507	$	4,806	$	1,282	$	21,525

Net income (loss) per share attributable to common shares:
Basic (7)	$	(0.29)	$	0.13	$	0.10	$	0.01	$	0.47
Diluted (7)		(0.29)		0.13		0.10		0.01		0.46

(1)

Other revenue - Includes straight line rent, sales of scrap metals and other unused materials and various other revenue items. Straight line rent was $2.3 million, $1.4 million and $1.5 million for the three months ended December 31, 2017, September 30, 2017 and December 31, 2016, respectively. Straight line rent was $6.1 million and $8.4 million for the year ended December 31, 2017 and 2016, 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 17.5%, 19.0%, and 20.3% of total revenues for the three month periods ended December 31, 2017, September 30, 2017 and December 31, 2016, respectively. General and administrative expenses were 19.5% and 20.7% of total revenues for the year ended December 31, 2017 and 2016, respectively.

(3)

Transaction, integration and impairment costs - For the three months ended December 31, 2017, September 30, 2017, and December 31, 2016, the Company recognized $0.3 million, $0.1 million and $1.5 million, respectively, in transaction and integration costs. Transaction and integration costs were $0.9 million and $10.9 million for the years ended December 31, 2017 and 2016, respectively. The Company also recognized $9.1 million in other non-routine costs for the three months ended December 31, 2017, consisting of $6.5 million related to the write-off of customer specific assets/equipment, $1.8 million related to the impairment of certain product related assets and $0.8 million in other miscellaneous charges. The Company recognized $1.0 million in other non-routine costs for the three months ended September 30, 2017 related to the reassessment of prior years’ personal property taxes at its Sacramento, CA facility. No other non-routine costs were incurred in the year ended December 31, 2016.

(4)

Debt restructuring costs – Primarily includes prepayment fees and write offs of unamortized deferred financing costs associated with the early extinguishment and/or restructuring of certain debt instruments. The current year amounts primarily relate to a prepayment penalty as well as write off of existing unamortized deferred financing costs and debt discount associated with the replacement of the $300 million 5.875% senior notes with the $400 million 4.750% senior notes.

(5)

Tax benefit of taxable REIT subsidiaries - The Company’s non-cash deferred tax benefit, in both the current year and the prior year, relate to recorded operating losses which include certain transaction and integration costs. In addition, during the fourth quarter of 2017, the Company recorded a one-time non-cash tax benefit of $3.4 million attributable to the re-measurement of deferred tax assets (liabilities) as a result of a reduction in the U.S. corporate tax rate from 35% as of December 31, 2016 to 21% as of December 31, 2017 due to new tax legislation effective January 1, 2018.

(6)

Noncontrolling interest - The noncontrolling ownership interest of QualityTech, LP was 11.4% and 12.4% as of December 31, 2017 and 2016, respectively.

(7)

The calculation of net income per share excludes the effects of participating securities.


5 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Consolidated Statements of Comprehensive Income

(in thousands)


	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,
	2017		2017		2016		2017		2016
Net income (loss)	$	(16,113)	$	7,394	$	5,481	$	1,457	$	24,685
Other comprehensive income (loss):
Increase (decrease) in fair value of interest rate swaps		336		(286)		—		(1,449)		—
Comprehensive income (loss):		(15,777)		7,108		5,481		8		24,685
Comprehensive (income) loss attributable to noncontrolling interests		1,925		(850)		(675)		(1)		(3,160)
Comprehensive income (loss) attributable to QTS Realty Trust, Inc.	$	(13,852)	$	6,258	$	4,806	$	7	$	21,525


6 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Summary of Financial Data

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

This summary includes certain non-GAAP financial measures that management believes are helpful in understanding the Company’s business, as further described in the Appendix. The Company does not, nor does it suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. The Company believes that the presentation of non-GAAP financial measures provide meaningful supplemental information to both management and investors that is indicative of the Company’s operations. The Company has included a reconciliation of this additional information to the most comparable GAAP measure in the selected financial information below.



	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,
Summary of Results	2017		2017		2016		2017		2016
Total revenue	$	118,911	$	113,767	$	105,443	$	446,510	$	402,363
Net income (loss)	$	(16,113)	$	7,394	$	5,481	$	1,457	$	24,685
Fully diluted weighted average shares outstanding		57,784		56,833		55,572		56,546		53,962
Net income (loss) per basic share	$	(0.29)	$	0.13	$	0.10	$	0.01	$	0.47
Net income (loss) per diluted share	$	(0.29)	$	0.13	$	0.10	$	0.01	$	0.46

Other Data
FFO	$	16,426	$	38,631	$	34,184	$	125,012	$	133,159
Operating FFO	$	45,867	$	39,745	$	35,373	$	156,064	$	140,666
Operating FFO per diluted share	$	0.79	$	0.70	$	0.64	$	2.76	$	2.61
Recognized MRR in the period	$	95,437	$	94,428	$	90,975	$	375,086	$	347,331
MRR (at period end)	$	31,708	$	31,627	$	30,890	$	31,708	$	30,890
EBITDA	$	24,701	$	48,142	$	43,992	$	163,059	$	162,651
Adjusted EBITDA	$	57,498	$	52,949	$	48,404	$	207,974	$	184,334
NOI	$	74,962	$	70,908	$	67,157	$	281,342	$	257,036
NOI as a % of revenue		63.0%		62.3%		63.7%		63.0%		63.9%
Adjusted EBITDA as a % of revenue		48.4%		46.5%		45.9%		46.6%		45.8%
General and administrative expenses as a % of revenue		17.5%		19.0%		20.3%		19.5%		20.7%
Annualized ROIC		14.3%		13.8%		14.2%		13.9%		14.8%


		December 31,		December 31,
Balance Sheet Data		2017		2016
Real estate at cost	$	2,357,322		$	1,964,857
Net investment in real estate		1,962,499			1,647,023
Total assets		2,413,607			2,086,470
Total debt, net of cash and cash equivalents		1,233,322	(1)		968,128	(1)
Debt to last quarter annualized Adjusted EBITDA		5.4x	(2)		5.0x	(2)
Debt to undepreciated real estate assets		52.3%	(2)		49.3%	(2)
Debt to Implied Enterprise Value		28.2%	(2)		26.0%	(2)

(1)

The Company has excluded the Senior Note discount and associated debt issuance costs from the Total Debt line item for both periods presented. As a result, the amounts referenced above represent the full amount of debt that will be repaid less the amount of cash and cash equivalents on hand.

(2)

Calculated using total debt, which excludes the Senior Note discount and associated debt issuance costs, less the amount of cash and cash equivalents on hand.


7 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com


	December 31,	December 31,
Operating Portfolio Statistics	2017	2016
Built out square footage:
Raised floor	1,403,516	1,345,680
Leasable raised floor (1)	1,116,584	1,083,708
Leased raised floor	969,777	955,844

Total Raw Shell:
Total	6,119,806	5,662,087
Basis-of-design raised floor space (1)	2,677,693	2,496,106

Data center properties	25	25
Basis of design raised floor % developed	52.4%	53.9%
Data center % occupied	86.9%	88.2%

Data center raised floor % wholly-owned (2)	90.4%	88.1%

(1)

See definition in Appendix.

(2)

Wholly owned data centers do not include those subject to capital lease obligations or the Santa Clara facility which is subject to a long-term ground lease. Had the Santa Clara facility been included as a wholly owned facility, the wholly owned data center raised floor percentage would be 94.4% and 92.2% at December 31, 2017 and December 31, 2016, respectively.

2018 Guidance

References to QTS’ “Core” business in the guidance below includes Hyperscale and Hybrid Colocation verticals, which generally includes QTS’s C1 and C2 business. References to QTS’ “Non-Core” business in the guidance below includes specific products within its C3 – Cloud and Managed Services business, as well as colocation revenue attached to specific C3 customers, which QTS plans to exit over the course of 2018 as part of its restructuring plan.


	2018 (1)
($ in millions except per share amounts)	Low		High
Core Revenue	$	408	$	422
Core Adjusted EBITDA	$	218	$	228
Core Operating FFO per fully diluted share	$	2.55	$	2.65
Capital Expenditures (2)	$	425	$	475

(1)

Guidance for the year ended December 31, 2018 excludes results from the Non-Core business unit.

(2)

Reflects cash capital expenditures and excludes expenditures from acquisitions.

The Company expects annual rental churn for the Core business of 3% to 6%, compared to its historical range of 5% to 8%. The Company expects capital expenditures of $425 million to $475 million, front end loaded in 2018 related to new development in Ashburn, VA and excluding additional success based development in Hillsboro, OR and Phoenix, AZ. The Company expects to maintain leverage in the mid-5x range over the course of 2018.


8 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Reconciliations of Return on Invested Capital (ROIC)

(unaudited and in thousands)

Return on Invested Capital (“ROIC”) is a non-GAAP measure that provides additional information to users of the financial statements. Management believes ROIC is a helpful metric for users of the financial statements to gauge the Company's performance against the capital it has invested.


Return on Invested Capital (ROIC)	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,
	2017		2017		2016		2017		2016
NOI (1)	$	74,962	$	70,908	$	67,157	$	281,342	$	257,036
Annualized NOI		299,848		283,632		268,628		281,342		257,036
Average undepreciated real estate assets and other net fixed assets placed in service (2)		2,102,190		2,059,454		1,885,162		2,028,404		1,738,655
Annualized ROIC		14.3%		13.8%		14.2%		13.9%		14.8%

(1)

Includes facility level G&A expense allocation charges of 4% of cash revenue for all facilities, with the exception of the leased facilities acquired in 2015, which include G&A expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.6 million, $5.5 million and $5.3 million for the three month periods ended December 31, 2017, September 30, 2017 and December 31, 2016, respectively, and $21.6 million and $20.6 million for the years ended December 31, 2017 and 2016, respectively.

(2)

Calculated by using average quarterly balance of each account.


Calculation of Average Undepreciated Real Estate Assets and other Net Fixed Assets Placed in Service	As of						As of
Undepreciated Real Estate Assets and other	December 31,		September 30,		December 31,		December 31,
Net Fixed Assets Placed in Service	2017		2017		2016		2017		2016
Real Estate Assets, net	$	1,962,499	$	1,805,202	$	1,647,023	$	1,962,499	$	1,647,023
Less: Construction in progress		(567,819)		(429,390)		(365,960)		(567,819)		(365,960)
Plus: Accumulated depreciation		394,823		378,883		317,834		394,823		317,834
Plus: Goodwill		173,843		173,843		173,843		173,843		173,843
Plus: Other fixed assets, net		35,853		27,983		16,189		35,853		16,189
Plus: Acquired intangibles, net (1)		91,586		90,903		100,053		91,586		100,053
Plus: Leasing Commissions, net		33,678		32,493		31,524		33,678		31,524
Total as of period end	$	2,124,463	$	2,079,917	$	1,920,506	$	2,124,463	$	1,920,506

Average undepreciated real estate assets and other net fixed assets as of reporting period (2)	$	2,102,190	$	2,059,454	$	1,885,162	$	2,028,404	$	1,738,655

(1)

Net of acquired intangible liabilities and deferred tax liabilities.

(2)

Calculated by using average quarterly balance of each account.


9 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Implied Enterprise Value and

Weighted Average Shares


Implied Enterprise Value as of December 31, 2017:
Total Shares Outstanding:
Class A Common Stock		50,573,387
Class B Common Stock		128,408
Total Shares Outstanding		50,701,795
Units of Limited Partnership (1)		6,858,838
Options to purchase Class A Common Stock (2)		401,668
Fully Diluted Total Shares and Units of Limited Partnership outstanding as of December 31, 2017		57,962,301
Share price as of December 31, 2017	$	54.16
Market equity capitalization (in thousands)	$	3,139,238
Debt (in thousands)		1,233,322	(3)
Implied Enterprise Value (in thousands)	$	4,372,560

(1)

Includes 315,109 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, 2017.

(2)

Represents options to purchase shares of Class A Common Stock of QTS Realty Trust, Inc. representing the “in the money” value of options on an “as if” converted basis as of December 31, 2017.

(3)

Excludes all debt issuance costs reflected as a reduction to liabilities at December 31, 2017 representing the full amount of debt that will be repaid, less the amount of cash and cash equivalents on hand.

The following table presents the weighted average fully diluted shares for the three months and year ended December 31, 2017:


	Three Months Ended	Year Ended
	December 31, 2017	December 31, 2017
Weighted average shares outstanding - basic	50,492,924	48,984,930
Effect of Class A partnership units (1)	6,552,137	6,695,975
Effect of Class O units on an "as if" converted basis (1)	315,109	467,009
Effect of options to purchase Class A common stock and restricted Class A common stock on an "as if" converted basis (2)	424,118	398,336
Weighted average shares outstanding - diluted	57,784,288	56,546,250

(1)

The Class A units and Class O units represent limited partnership interests in the Operating Partnership.

(2)

The average share price for the three months and year ended December 31, 2017 was $55.48 and $53.88, respectively.


10 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Data Center Properties

The table below 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, 2017. The table excludes data center development associated with land acquired in Phoenix, AZ which was finalized in the third quarter of 2017, as well as data center development associated with land acquisitions that occurred in the fourth quarter of 2017 in Ashburn, VA and Hillsboro, OR.


			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 (7)		Annualized Rent (8)		Available Utility Power (MW) (9)	Basis of Design ("BOD") NRSF	Current Raised Floor as a % of BOD
Richmond, VA	2010	1,318,353	167,309	51,093	178,854	397,256	78.3	%	$	41,729,775	110	557,309	30.0	%
Atlanta, GA (Metro)	2006	968,695	456,986	36,953	333,186	827,125	96.1	%	$	96,559,779	72	527,186	86.7	%
Irving, TX	2013	698,000	148,160	6,981	141,123	296,264	96.0	%	$	43,876,400	140	275,701	53.7	%
Princeton, NJ	2014	553,930	58,157	2,229	111,405	171,791	100.0	%	$	9,995,818	22	158,157	36.8	%
Chicago, IL	2014	474,979	28,000	-	30,452	58,452	74.3	%	$	8,423,811	8	215,855	13.0	%
Ashburn, VA	2017	445,000	-	-	-	-	0.0	%	$	-	50	178,000	-	%
Suwanee, GA	2005	369,822	205,608	8,697	107,128	321,433	91.6	%	$	56,998,497	36	205,608	100.0	%
Piscataway, NJ	2016	360,000	88,820	14,311	91,851	194,982	84.2	%	$	13,868,798	111	176,000	50.5	%
Fort Worth, TX	2016	261,836	10,600	-	19,438	30,038	100.0	%	$	1,777,200	50	80,000	13.3	%
Santa Clara, CA*	2007	135,322	55,905	944	45,094	101,943	72.4	%	$	20,053,506	11	80,940	69.1	%
Sacramento, CA	2012	92,644	54,595	2,794	23,916	81,305	45.0	%	$	11,488,839	8	54,595	100.0	%
Dulles, VA	2017	87,159	30,545	5,997	32,892	69,434	48.4	%	$	31,247,755	13	48,270	63.3	%
Leased facilities **	2006 & 2015	206,631	76,451	19,450	42,001	137,902	39.9	%	$	38,346,225	14	97,692	78.3	%
Other ***	Misc.	147,435	22,380	49,337	30,074	101,791	65.8	%	$	6,128,016	5	22,380	100.0	%
Total		6,119,806	1,403,516	198,786	1,187,414	2,789,716	86.9	%	$	380,494,419	650	2,677,693	52.4	%

(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 347,261 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 space is occupied (969,777 square feet as of December 31, 2017), divided by leasable raised floor based on the

current configuration of the properties (1,116,584 square feet as of December 31, 2017), 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 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 contracts 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.

(9)

Represents installed utility power and transformation capacity that is available for use by the facility as of December 31, 2017.

* Subject to long-term ground lease.

** Includes 11 facilities. All facilities are leased, including those subject to capital leases. In October 2017, the Company finalized the buyout of the Vault facility in Dulles, VA that was previously subject to a capital lease agreement, and as such, has moved it from the “Leased facilities” line item to a separate “Dulles, VA” line item.

*** Consists of Miami, FL; Lenexa, KS; Overland Park, KS; and Duluth, GA facilities.


11 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Redevelopment Costs Summary

(in millions, except NRSF data)

During the fourth quarter of 2017, the Company did not bring online any space or power. For the year ended December 31, 2017, the Company brought online approximately 13 megawatts of gross power and approximately 58,000 NRSF of raised floor and customer specific capital at its Atlanta-Metro, Chicago, Irving, Fort Worth and Northern Virginia facilities at an aggregate cost of approximately $122 million.

Relative to the redevelopment plan disclosed in the prior quarter, and as a result of the capital investments made in new markets during the second half of 2017, the Company has pushed out a portion of development space in Atlanta-Metro, Irving, Chicago and Piscataway that was previously scheduled to come online in the fourth quarter of 2017. The Company now expects this development space to be brought online during 2018 as part of its overall focus on capital efficiency and discipline.

The under construction table below summarizes the Company’s outlook for development projects which it expects to complete by December 31, 2018 (in millions).


	Under Construction Costs (1)
Property	Actual (2)		Estimated Cost to Completion (3)		Total		Expected Completion date
Atlanta-Metro	$	7	$	38	$	45	Q1, Q2, Q3 & Q4 2018
Irving		60		23		83	Q1, Q2, Q3 & Q4 2018
Chicago		20		20		40	Q1, Q3 & Q4 2018
Ashburn		17		49		66	Q2 & Q4 2018
Piscataway		10		5		15	Q2 & Q3 2018
Fort Worth		7		9		16	Q4 2018
Totals	$	121	$	144	$	265

(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)

Represents actual costs under construction through December 31, 2017. In addition to the $121 million of construction costs incurred through December 31, 2017 for redevelopment expected to be completed by December 31, 2018, as of December 31, 2017 the Company had incurred $447 million of additional costs (including acquisition costs and other capitalized costs) for other redevelopment projects that are expected to be completed after December 31, 2018.

(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.


12 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Redevelopment Summary

(in millions, except NRSF data)

The following redevelopment table presents an overview of the Company’s redevelopment pipeline, based on information as of December 31, 2017. This table shows the Company’s ability to increase its raised floor of 1,403,516 square feet as of December 31, 2017 by approximately 1.9 times to 2.7 million square feet, exclusive of recently acquired land parcels in Phoenix, AZ; Ashburn, VA; and Hillsboro, OR.


	Raised Floor NRSF
	Overview as of December 31, 2017
Property	Current NRSF in Service	Under Construction (1)	Future Available (2)	Basis of Design NRSF	Approximate Adjacent Acreage of Land (3)
Richmond	167,309	-	390,000	557,309	111.1
Atlanta-Metro	456,986	28,000	42,200	527,186	16.7
Irving	148,160	35,000	92,541	275,701	29.4
Princeton	58,157	-	100,000	158,157	65.0
Chicago	28,000	21,000	166,855	215,855	23.0
Ashburn	-	19,530	158,470	178,000	35.3
Atlanta-Suwanee	205,608	-	-	205,608	15.4
Piscataway	88,820	10,000	77,180	176,000	-
Fort Worth	10,600	10,000	59,400	80,000	26.5
Santa Clara	55,905	-	25,035	80,940	-
Sacramento	54,595	-	-	54,595	-
Dulles	30,545	-	17,725	48,270	-
Leased facilities (4)	76,451	-	21,241	97,692	-
Phoenix	-	-	-	-	84.2
Hillsboro	-	-	-	-	92.0
Other (5)	22,380	-	-	22,380	-
Totals as of December 31, 2017	1,403,516	123,530	1,150,647	2,677,693	498.6

(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, 2018.

(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, 2018.

(3)

The total cost basis of adjacent land, which is land available for the future development, is approximately $139 million. This is included in land and construction in progress on the Consolidated Balance Sheets. The Basis of Design NRSF does not include any build-out on the available land.

(4)

Includes 11 facilities. All facilities are leased, including those subject to capital leases. In October 2017, the Company finalized the buyout of the Vault facility in Dulles, VA that was previously subject to a capital lease agreement, and as such, has moved it from the “Leased facilities” line item to a separate “Dulles, VA” line item.

(5)

Consists of Miami, FL; Lenexa, KS; and Overland Park, KS facilities.


13 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

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


	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,
	2017		2017		2016		2017		2016
Breakdown of NOI by facility:
Atlanta-Metro data center	$	20,845	$	18,588	$	20,187	$	80,648	$	81,074
Atlanta-Suwanee data center		12,778		12,206		11,937		48,365		45,760
Richmond data center		12,613		11,687		8,324		40,919		30,752
Irving data center		9,666		8,707		4,952		32,870		16,608
Dulles data center		5,744		5,630		4,877		21,672		19,384
Leased data centers (1)		2,238		2,648		5,504		12,006		24,131
Santa Clara data center		2,653		2,741		3,325		11,378		13,703
Piscataway data center		2,286		2,427		2,871		9,395		5,627
Princeton data center		2,391		2,415		2,364		9,598		9,544
Sacramento data center		1,664		1,525		1,892		6,804		7,734
Chicago data center		1,445		1,285		324		4,652		167
Fort Worth data center		(7)		94		3		268		3
Other facilities (2)		646		955		597		2,767		2,549
NOI (3)	$	74,962	$	70,908	$	67,157	$	281,342	$	257,036

(1)

Includes 11 facilities. All facilities are leased, including those subject to capital leases. During the quarter ended March 31, 2017, the Company moved its Jersey City, NJ facility to the “Leased data centers” line item. In October 2017, the Company finalized the buyout of the Vault facility in Dulles, VA that was previously subject to a capital lease agreement and as such, has moved it to a separate “Dulles data center” line item.

(2)

Consists of Miami, FL; Lenexa, KS; Overland Park, KS; and Duluth, GA facilities. During the quarter ended March 31, 2017, the Company moved its Miami, FL facility to the “Other facilities” line item.

(3)

Our cash paid for capital expenditures is summarized as follows:


	Capital Expenditures (1)
	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,
	2017		2017		2016		2017		2016
Development	$	45,346	$	68,179	$	60,636	$	213,632	$	203,984
Acquisitions		80,025		41,994		50,086		127,038		173,067
Maintenance capital expenditures		848		2,193		2,613		5,009		5,059
Other capital expenditures (2)		24,149		26,781		18,011		88,673		69,968
Total capital expenditures	$	150,368	$	139,147	$	131,346	$	434,352	$	452,078

(1)

During the year ended December 31, 2017, the Company transitioned presentation of capital expenditures to a cash basis. Previously, capital expenditure disclosures reflected an incurred basis. The prior year comparative periods have been conformed to cash basis presentation as well.

(2)

Represents capital expenditures for capitalized interest, commissions, personal property, overhead costs and corporate fixed assets. Corporate fixed assets primarily relate to construction of corporate offices, leasehold improvements and product related assets.


14 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Leasing Statistics – Signed Leases

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

During the fourth quarter of 2017, the Company entered into 436 new and modified leases aggregating to $18.1 million of annualized rent which includes new leased revenue plus revenue from modified renewals. Removing non-incremental annualized MRR from modified renewals and deducting downgrades during the period resulted in $8.7 million in incremental annualized rent for the quarter ended December 31, 2017. Subsequent to December 31, 2017, the Company signed a lease to refill the previously vacated space in one of its leased facilities in Northern Virginia. Had the lease closed in the fourth quarter of 2017, as previously expected, fourth quarter 2017 net leasing would have exceeded $14 million. Blended pricing on new and modified leases signed during the fourth quarter was higher than the prior four quarter average, which was driven by a higher proportion of C2/C3 deals signed in the fourth quarter of 2017. Pricing of C2/C3 new and modified leases signed during the fourth quarter decreased compared to the prior four quarter average due primarily to several larger footprint C2 deals which tend to have a lower price per square foot compared to C3 deals.

Annualized Rent of New and Modified Leases represents total MRR associated with all new and modified leases for the respective periods for 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 2017	436	25,697	$	703	$	18,052,597	$	8,719,465
	P4QA*	447	37,464		650		24,360,553		11,145,808
	Q3 2017	488	79,662		485		38,596,383		15,329,139
	Q2 2017	475	20,799		1,018		21,177,858		13,314,696
	Q1 2017	411	17,631		849		14,962,595		4,333,697
	Q4 2016	415	31,762		715		22,705,378		11,605,699

New/modified leases signed - C1	Q4 2017	33	14,500	$	257	$	3,729,369
	P4QA*	34	28,752		245		7,038,256
	Q3 2017	46	70,026		210		14,700,946
	Q2 2017	36	11,895		363		4,314,426
	Q1 2017	30	10,000		155		1,551,888
	Q4 2016	25	23,088		329		7,585,764

New/modified leases signed - C2/C3	Q4 2017	403	11,197	$	1,279	$	14,323,228
	P4QA*	413	8,711		1,988		17,322,297
	Q3 2017	442	9,636		2,480		23,895,437
	Q2 2017	439	8,904		1,894		16,863,432
	Q1 2017	381	7,631		1,757		13,410,707
	Q4 2016	390	8,674		1,743		15,119,614

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.


15 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

The following table outlines the booked-not-billed (“BNB”) balance as of December 31, 2017 and how that will affect revenue in 2018 and subsequent years:


Booked-not-billed ("BNB")	2018		2019		Thereafter		Total
MRR	$	2,546,563	$	580,413	$	772,026	$	3,899,002
Incremental revenue (1)		21,713,039		4,540,248		9,264,312
Annualized revenue (2)		30,558,756		6,964,956		9,264,312		46,788,024

(1)

Incremental revenue represents the expected amount of recognized MRR in the period based on when the booked-not-billed leases commence throughout the period.

(2)

Annualized revenue represents the booked-not-billed MRR multiplied by 12, demonstrating how much recognized MRR might have been recognized if the booked-not-billed leases commencing in the period were in place for an entire year.

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 December 31, 2017 to be approximately $27 million. This estimate generally includes C1 customers with newly contracted space of more than 3,300 square feet of raised floor space. 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.


16 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Leasing Statistics – Renewed Leases and Rental Churn

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

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

The overall blended rate for renewals signed in the fourth quarter of 2017 was 1.2% higher than the rates for those customers immediately prior to renewal. The Company expects renewal rates will generally increase in the low to mid-single digits.

Rental Churn (which the Company defines as MRR lost in the period to a customer intending to fully exit the QTS platform in the near term compared to total MRR at the beginning of the period) was 2.8% for the fourth quarter of 2017, of which 1.2% related to a C3 customer who terminated due to liquidation. Rental Churn was 8.4% for the year ended December 31, 2017, a significant portion of which was the result of a single customer termination in the first quarter of 2017 at one of the Company’s leased facilities in Northern Virginia, for which space was subsequently re-leased by the Company in the first quarter of 2018. Excluding this customer termination as well as the C3 customer churn due to liquidation in the fourth quarter of 2017, rental churn for the year ended December 31, 2017 would have been 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	Q4 2017	76	16,601	$	923	$	15,322,476	1.2	%
	P4QA*	90	22,351		592		13,236,403	2.5	%
	Q3 2017	88	17,257		660		11,392,275	2.1	%
	Q2 2017	111	17,491		1,077		18,831,663	1.0	%
	Q1 2017	77	11,808		661		7,802,039	2.6	%
	Q4 2016	84	42,849		348		14,919,636	4.7	%


Renewed Leases - C1	Q4 2017	1	6,250	$	210	$	1,311,360	2.8	%
	P4QA*	3	12,332		237		2,922,269	2.9	%
	Q3 2017	3	5,008		286		1,431,982	-3.2	%
	Q2 2017	1	3,000		433		1,300,200	4.3	%
	Q1 2017	1	6,007		179		1,073,888	0.6	%
	Q4 2016	5	35,311		223		7,883,004	4.1	%


Renewed Leases - C2/C3	Q4 2017	75	10,351	$	1,354	$	14,011,116	1.0	%
	P4QA*	88	10,020		1,029		10,314,134	2.4	%
	Q3 2017	85	12,249		813		9,960,292	2.9	%
	Q2 2017	110	14,491		1,210		17,531,463	0.7	%
	Q1 2017	76	5,801		1,160		6,728,151	3.0	%
	Q4 2016	79	7,538		933		7,036,632	5.4	%

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.


17 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

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 fourth quarter of 2017, the Company commenced customer leases (which includes both new customers and existing customers that renewed their lease terms) representing approximately $26.9 million of annualized rent at $718 per square foot. This compares to customer leases representing an aggregate trailing four quarter average of approximately $31.3 million of annualized rent at $549 per square foot. Average pricing on commenced leases during the fourth quarter of 2017 increased compared to the prior four quarter average primarily due to a larger mix of C2/C3 commencements which tend to have a higher rate per square foot in comparison to C1 deals.


	Period	Number of leases	Total Leased sq ft	Annualized rent per leased sq ft		Annualized Rent

Leases commenced - Total	Q4 2017	539	37,521	$	718	$	26,943,658
	P4QA*	502	57,057		549		31,308,754
	Q3 2017	568	52,833		617		32,585,052
	Q2 2017	526	44,743		778		34,787,704
	Q1 2017	448	59,253		418		24,743,966
	Q4 2016	467	71,399		464		33,118,296

Leases commenced - C1	Q4 2017	42	26,380	$	158	$	4,170,793
	P4QA*	37	37,254		194		7,219,435
	Q3 2017	49	23,710		183		4,342,383
	Q2 2017	42	25,527		192		4,895,828
	Q1 2017	36	47,531		203		9,642,316
	Q4 2016	20	52,247		191		9,997,212

Leases commenced - C2/C3	Q4 2017	497	11,141	$	2,044	$	22,772,865
	P4QA*	466	19,803		1,216		24,089,320
	Q3 2017	519	29,123		970		28,242,669
	Q2 2017	484	19,216		1,556		29,891,876
	Q1 2017	412	11,722		1,288		15,101,650
	Q4 2016	447	19,152		1,207		23,121,084

Average of prior 4 quarters


18 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Lease Expirations

C1 leases are typically 5-10 years with the majority of C1 lease expirations occurring in 2018 and beyond. C2/C3 leases are typically 3 years in duration, with the majority of C2/C3 lease expirations occurring in 2018 and 2019. The following table sets forth a summary schedule of the lease expirations as of December 31, 2017 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)	527	27,847	3	%	$	26,976,695	7	%	1	%	3	%	3	%
2018	1,653	303,228	31	%		126,472,277	34	%	11	%	17	%	6	%
2019	1,020	127,214	13	%		74,486,267	19	%	5	%	12	%	2	%
2020	763	81,291	8	%		50,106,357	13	%	3	%	8	%	2	%
2021	155	77,574	8	%		23,227,289	6	%	4	%	2	%	-	%
2022	125	167,645	17	%		42,100,874	11	%	10	%	1	%	-	%
After 2022	89	184,978	20	%		37,124,660	10	%	9	%	-	%	1	%
Portfolio Total	4,332	969,777	100	%	$	380,494,419	100	%	43	%	43	%	14	%

(1)

Represents each agreement with a customer signed as of December 31, 2017 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, 2017. 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 both customer leases whose original contract terms ended on December 31, 2017 and have yet to commence signed renewals as well as customers whose leases expired prior to December 31, 2017 and have continued on a month-to-month basis.


19 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Largest Customers

As of December 31, 2017, the Company’s portfolio was leased to over 1,100 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, 2017 (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	Number of Locations	Annualized Rent (1)		% of Portfolio Annualized Rent	Weighted Average Remaining Lease Term (Months) (2)
Content & Digital Media	2	$	44,930,942	11.8%	28
Cloud & IT Services	2		17,116,243	4.5%	75
Cloud & IT Services	1		15,051,235	4.0%	51
Cloud & IT Services	3		12,933,895	3.4%	74
Cloud & IT Services	6		12,135,360	3.2%	31
Content & Digital Media	1		9,644,400	2.5%	10
Content & Digital Media	4		7,395,094	1.9%	10
Cloud & IT Services	7		6,640,508	1.7%	13
Content & Digital Media	2		5,006,367	1.3%	14
Financial Services	1		4,775,268	1.3%	24
Total / Weighted Average		$	135,629,312	35.6%	38

(1)

Annualized rent is presented for leases commenced as of December 31, 2017. 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 (which represent customer leases that have been executed but for which lease payments have not commenced) 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, 2017.


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Industry Segmentation

The following table sets forth information relating to the industry segmentation of customers as of December 31, 2017:

The following table sets forth information relating to the industry segmentation of customers as of December 31, 2016:


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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, 2017:

(1)

As of December 31, 2017, C1 customers renting at least 6,600 square feet represented $145.8 million of annualized C1 MRR, C1 customers renting between 3,300 and 6,599 square feet represented $8.3 million of annualized C1 MRR, and C1 customers renting below 3,300 square feet represented $10.3 million of annualized C1 MRR. As of December 31, 2017, C1 customers’ median used square footage was 6,600 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, 2016:

(1)

As of December 31, 2016, C1 customers renting at least 6,600 square feet represented $124.6 million of annualized C1 MRR, C1 customers renting between 3,300 and 6,599 square feet represented $13.0 million of annualized C1 MRR, and C1 customers renting below 3,300 square feet represented $11.9 million of annualized C1 MRR. As of December 31, 2016, C1 customers’ median used square footage was 4,600 square feet.


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Debt Summary and Debt Maturities

(unaudited and in thousands)

The following tables set forth a summary of the Company’s debt instruments:


	Weighted Average
	Coupon Interest Rate at	Maturities at	Outstanding Balance as of:
	December 31, 2017	December 31, 2017	December 31, 2017			December 31, 2016
Unsecured Credit Facility (1)
Revolving Credit Facility	2.85%	December 17, 2021	$	131,000		$	139,000
Term Loan I	2.88%	December 17, 2022		350,000			300,000
Term Loan II	2.91%	April 27, 2023		350,000			200,000
Senior Notes (2)	4.75%	November 15, 2025		400,000			300,000
Lenexa Mortgage	4.10%	May 1, 2022		1,866			-
Capital Lease and Lease Financing Obligations	2.01%	2018 - 2019		8,699	(3)		38,708
Total	3.48%		$	1,241,565		$	977,708

(1)

Balances exclude debt issuance costs reflected as an offset to liabilities aggregating $5.8 million and $4.1 million at December 31, 2017 and December 31, 2016, respectively.

(2)

Balance excludes the Senior Note discount and debt issuance costs reflected as offsets to liabilities aggregating $5.8 million and $7.8 million at December 31, 2017 and December 31, 2016, respectively.

(3)

In October 2017, the Company finalized the buyout of the Vault facility in Dulles, VA that was previously subject to a capital lease agreement. The facility was purchased for approximately $34 million which was funded from a draw on the Company’s unsecured revolving credit facility.


	Outstanding Balance as of:		% of	Outstanding Balance as of:		% of
	December 31, 2017 (1)		total	December 31, 2016		total
Fixed Rate Debt	$	810,565	65.3%	$	338,708	34.6%
Floating Rate Debt		431,000	34.7%		639,000	65.4%
	$	1,241,565	100.0%	$	977,708	100.0%

(1)

Includes all debt that is currently at a fixed rate and pro forma for $400 million of debt that was swapped to a fixed rate that will become effective January 2, 2018.

Scheduled debt maturities as of December 31, 2017:


Debt instruments	2018		2019		2020		2021		2022		Thereafter		Total
Unsecured Credit Facility (1)	$	-	$	-	$	-	$	131,000	$	350,000	$	350,000	$	831,000
Senior Notes (2)		-		-		-		-		-		400,000		400,000
Lenexa Mortgage		65		68		71		74		77		1,511		1,866
Capital Lease and Lease Financing Obligations		7,760		939		-		-		-		-		8,699
Total	$	7,825	$	1,007	$	71	$	131,074	$	350,077	$	751,511	$	1,241,565

(1)

Balances exclude debt issuance costs reflected as liabilities aggregating $5.8 million at December 31, 2017.

(2)

Balance excludes the Senior Note discount and debt issuance costs reflected as liabilities aggregating $5.8 million at December 31, 2017.


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Interest Summary

(unaudited and in thousands)


	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,		December 31,
	2017		2017		2016		2017		2016
Interest expense and fees	$	11,471	$	10,602	$	8,171	$	40,932	$	30,986
Amortization of deferred financing costs and bond discount		926		992		911		3,868		3,545
Capitalized interest (1)		(4,348)		(3,636)		(2,957)		(14,277)		(11,372)
Total interest expense	$	8,049	$	7,958	$	6,125	$	30,523	$	23,159

(1)

The weighted average interest rate for the three months ended December 31, 2017, September 30, 2017, and December 31, 2016 was 4.03%, 4.13%, and 3.90%, respectively. As of December 31, 2017 and December 31, 2016 our weighted average coupon interest rate was 3.48% and 3.39%, respectively.


24 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

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. 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.


25 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

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. 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, 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 between periods and, to the extent other REITs calculate Operating FFO on a comparable basis, between REITs.

Operating FFO and Adjusted Operating Funds From Operations (“Adjusted Operating FFO”) are non-GAAP measures that are used as supplemental operating measures and to provide additional information to users of the financial statements. The Company calculates Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment, paid leasing commissions, amortization of deferred financing costs and bond discount, non-real estate depreciation, straight line rent adjustments, deferred taxes and non-cash compensation.

The Company offers these measures because it recognizes that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare its operating performance 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 is limited. The Company’s calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO in accordance with NAREIT guidance. In addition, 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.


26 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

A reconciliation of net income to FFO, Operating FFO and Adjusted Operating FFO is presented below:


	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,
	2017		2017		2016		2017		2016
FFO
Net income (loss)	$	(16,113)	$	7,394	$	5,481	$	1,457	$	24,685
Real estate depreciation and amortization		32,539		31,237		28,703		123,555		108,474
FFO		16,426		38,631		34,184		125,012		133,159

Debt restructuring costs		19,992		-		193		19,992		193
Transaction, integration and impairment costs		9,449		1,114		1,521		11,060		10,906
Tax benefit associated with transaction and integration costs		-		-		(525)		-		(3,592)
Operating FFO *		45,867		39,745		35,373		156,064		140,666

Maintenance Capex		(848)		(2,193)		(2,613)		(5,009)		(5,059)
Leasing commissions paid		(6,299)		(5,592)		(5,154)		(20,115)		(18,751)
Amortization of deferred financing costs and bond discount		925		992		912		3,868		3,545
Non real estate depreciation and amortization		4,601		4,071		4,390		17,369		16,313
Straight line rent revenue and expense and other		(2,054)		(1,149)		(984)		(4,967)		(6,794)
Tax benefit from operating results		(4,374)		(2,454)		(181)		(9,778)		(6,384)
Equity-based compensation expense		3,356		3,693		2,697		13,863		10,584
Adjusted Operating FFO *	$	41,174	$	37,113	$	34,440	$	151,295	$	134,120

Fully diluted weighted average shares		57,784		56,833		55,572		56,546		53,962
Operating FFO per diluted share	$	0.79	$	0.70	$	0.64	$	2.76	$	2.61

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.


27 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

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.

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


	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,
	2017		2017		2016		2017		2016
Recognized MRR in the period
Total period revenues (GAAP basis)	$	118,911	$	113,767	$	105,443	$	446,510	$	402,363
Less: Total period recoveries		(11,053)		(9,698)		(8,965)		(37,886)		(29,271)
Total period deferred setup fees		(2,979)		(2,659)		(2,636)		(10,690)		(9,172)
Total period straight line rent and other		(9,442)		(6,982)		(2,867)		(22,848)		(16,589)
Recognized MRR in the period		95,437		94,428		90,975		375,086		347,331

MRR at period end
Total period revenues (GAAP basis)	$	118,911	$	113,767	$	105,443	$	446,510	$	402,363
Less: Total revenues excluding last month		(78,746)		(76,912)		(69,465)		(406,345)		(366,385)
Total revenues for last month of period		40,165		36,855		35,978		40,165		35,978
Less: Last month recoveries		(3,175)		(2,631)		(3,247)		(3,175)		(3,247)
Last month deferred setup fees		(1,123)		(893)		(968)		(1,123)		(968)
Last month straight line rent and other		(4,159)		(1,704)		(873)		(4,159)		(873)
MRR at period end	$	31,708	$	31,627	$	30,890	$	31,708	$	30,890


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

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

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

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

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


	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,
	2017		2017		2016		2017		2016
EBITDA and Adjusted EBITDA
Net income (loss)	$	(16,113)	$	7,394	$	5,481	$	1,457	$	24,685
Interest expense		8,049		7,958		6,125		30,523		23,159
Interest income		(1)		(65)		-		(67)		(3)
Tax benefit of taxable REIT subsidiaries		(4,374)		(2,454)		(707)		(9,778)		(9,976)
Depreciation and amortization		37,140		35,309		33,093		140,924		124,786
EBITDA		24,701		48,142		43,992		163,059		162,651

Debt restructuring costs		19,992		-		194		19,992		193
Equity-based compensation expense		3,356		3,693		2,697		13,863		10,584
Transaction, integration and impairment costs		9,449		1,114		1,521		11,060		10,906
Adjusted EBITDA	$	57,498	$	52,949	$	48,404	$	207,974	$	184,334


29 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

Net Operating Income (NOI)

The Company calculates net operating income (“NOI”) as net income (loss) (computed in accordance with GAAP), excluding: interest expense, interest income, tax expense (benefit) of taxable REIT subsidiaries, depreciation and amortization, write off of unamortized deferred financing costs, gain (loss) on extinguishment of debt, transaction and integration costs, gain (loss) on sale of real estate, restructuring costs and general and administrative expenses. Management uses NOI as a supplemental performance measure because it provides a useful measure of the operating results from its customer leases. In addition, management believes it is useful to investors in evaluating and comparing the operating performance of its properties and to compute the fair value of its properties. The Company’s NOI may not be comparable to other REITs’ NOI as other REITs may not calculate NOI in the same manner. NOI should be considered only as a supplement to net income as a measure of the Company’s performance and should not be used as a measure of results of operations or liquidity or as an indication of funds available to meet cash needs, including the ability to make distributions to stockholders. NOI is a measure of the operating performance of the Company’s properties and not of the Company’s performance as a whole. NOI is therefore not a substitute for net income as computed in accordance with GAAP. A reconciliation of net income to NOI is presented below:


	Three Months Ended						Year Ended
	December 31,		September 30,		December 31,		December 31,
	2017		2017		2016		2017		2016
Net Operating Income (NOI)
Net income (loss)	$	(16,113)	$	7,394	$	5,481	$	1,457	$	24,685
Interest expense		8,049		7,958		6,125		30,523		23,159
Interest income		(1)		(65)		-		(67)		(3)
Depreciation and amortization		37,140		35,309		33,093		140,924		124,786
Debt restructuring costs		19,992		-		194		19,992		193
Tax benefit of taxable REIT subsidiaries		(4,374)		(2,454)		(707)		(9,778)		(9,976)
Transaction, integration and impairment costs		9,449		1,114		1,521		11,060		10,906
General and administrative expenses		20,820		21,652		21,450		87,231		83,286
NOI (1)	$	74,962	$	70,908	$	67,157	$	281,342	$	257,036
Breakdown of NOI by facility:
Atlanta-Metro data center	$	20,845	$	18,588	$	20,187	$	80,648	$	81,074
Atlanta-Suwanee data center		12,778		12,206		11,937		48,365		45,760
Richmond data center		12,613		11,687		8,324		40,919		30,752
Irving data center		9,666		8,707		4,952		32,870		16,608
Dulles data center		5,744		5,630		4,877		21,672		19,384
Leased data centers (2)		2,238		2,648		5,504		12,006		24,131
Santa Clara data center		2,653		2,741		3,325		11,378		13,703
Piscataway data center		2,286		2,427		2,871		9,395		5,627
Princeton data center		2,391		2,415		2,364		9,598		9,544
Sacramento data center		1,664		1,525		1,892		6,804		7,734
Chicago data center		1,445		1,285		324		4,652		167
Fort Worth data center		(7)		94		3		268		3
Other facilities (3)		646		955		597		2,767		2,549
NOI (1)	$	74,962	$	70,908	$	67,157	$	281,342	$	257,036

(1)

Includes facility level G&A expense allocation charges of 4% of cash revenue for all entities, with the exception of the leased facilities acquired in 2015, which include G&A expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.6 million, $5.5 million and $5.3 million for the three month periods ended December 31, 2017, September 30, 2017 and December 31, 2016, respectively, and $21.6 million and $20.6 million for the years ended December 31, 2017 and 2016, respectively.

(2)

At December 31, 2017 includes 11 facilities. All facilities are leased, including those subject to capital leases. During the quarter ended March 31, 2017, the Company moved its Jersey City, NJ facility to the “Leased data centers” line item. In October 2017, the Company finalized the buyout of the Vault facility in Dulles, VA that was previously subject to a capital lease agreement, and as such, has moved it to a separate “Dulles data center” line item.

(3)


30 QTS Q4 Earnings 2017	Contact: IR@qtsdatacenters.com

QTS Realty Trust, Inc. - FORM 8-K - EX-99.2 - February 20, 2018

Attached files

QTS Realty Trust, Inc. Reports