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 – Core Signed Leases	16
Leasing Statistics – Core Renewed and Commenced Leases and Core Rental Churn	18
Core Lease Expirations	20
Largest Core Customers	21
Core Industry Segmentation	22
Core Product Diversification	23

Capital Structure
Debt Summary and Debt Maturities	24
Interest Summary	25

Appendix	26


1 QTS Q3 Earnings 2018	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; our ability to successfully execute our strategic growth plan and realize its expected benefits; 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 statements speak only as of the date on which they were 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, 2017 and other periodic reports the Company files with the Securities and Exchange Commission.


2 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Company Profile


3 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Consolidated Balance Sheets

(unaudited and in thousands except share data)


	September 30,		December 31,
	2018 (1)		2017 (1)
ASSETS
Real Estate Assets
Land	$	105,541	$	88,216
Buildings, improvements and equipment		1,882,610		1,701,287
Less: Accumulated depreciation		(451,649)		(394,823)
		1,536,502		1,394,680
Construction in progress (2)		731,660		567,819
Real Estate Assets, net		2,268,162		1,962,499
Cash and cash equivalents		13,879		8,243
Rents and other receivables, net		51,719		47,046
Acquired intangibles, net		96,622		109,451
Deferred costs, net (3) (4)		42,735		41,545
Prepaid expenses		7,223		6,163
Goodwill		173,843		173,843
Other assets, net (5)		64,675		66,266
TOTAL ASSETS	$	2,718,858	$	2,415,056

LIABILITIES
Unsecured credit facility, net (4)	$	776,052	$	825,186
Senior notes, net of debt issuance costs (4)		394,595		394,178
Capital lease, lease financing obligations and mortgage notes payable		6,180		10,565
Accounts payable and accrued liabilities		122,292		113,430
Dividends and distributions payable		30,782		22,222
Advance rents, security deposits and other liabilities		29,001		28,903
Deferred income taxes		1,212		4,611
Deferred income		31,517		25,305
TOTAL LIABILITIES		1,391,631		1,424,400

EQUITY
7.125% Series A cumulative redeemable perpetual preferred stock: $0.01 par value (liquidation preference $25.00 per share), 4,600,000 shares authorized, 4,280,000 shares issued and outstanding as of September 30, 2018; zero shares authorized, issued and outstanding as of December 31, 2017 (6)		103,212		—
6.50% Series B cumulative convertible perpetual preferred stock: $0.01 par value (liquidation preference $100.00 per share), 3,162,500 shares authorized, issued and outstanding as of September 30, 2018; zero shares authorized, issued and outstanding as of December 31, 2017 (7)		304,265		—
Common stock: $0.01 par value, 450,133,000 shares authorized, 51,124,091 and 50,701,795 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively		511		507
Additional paid-in capital		1,059,914		1,049,176
Accumulated other comprehensive income		10,103		1,283
Accumulated dividends in excess of earnings		(257,019)		(173,552)
Total stockholders’ equity		1,220,986		877,414
Noncontrolling interests		106,241		113,242
TOTAL EQUITY		1,327,227		990,656
TOTAL LIABILITIES AND EQUITY	$	2,718,858	$	2,415,056

(1)

The balance sheet at September 30, 2018 and December 31, 2017, has been derived from the 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 September 30, 2018, construction in progress included $125.3 million related to land acquisitions whereby the initiation of development activities has begun to prepare the property for its intended use.

(3)

As of September 30, 2018 and December 31, 2017, deferred costs, net included $6.4 million and $7.9 million of deferred financing costs net of amortization, respectively, and $36.4 million and $33.7 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 $10.4 million and $11.6 million at September 30, 2018 and December 31, 2017, respectively, have been netted against the related debt liability line items for both periods presented.

(5)

As of September 30, 2018 and December 31, 2017, other assets, net included $48.9 million and $57.4 million of corporate fixed assets, respectively, primarily relating to construction of corporate offices, leasehold improvements and product related assets.

(6)

As of September 30, 2018, the total liquidation preference of the Series A Preferred Stock was $107.0 million, calculated as $25.00 liquidation preference per share times 4,280,000 shares outstanding.

(7)

As of September 30, 2018, the total liquidation preference of the Series B Preferred Stock was $316.3 million, calculated as $100.00 liquidation preference per share times 3,162,500 shares outstanding.


4 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Consolidated Statements of Operations

(unaudited and in thousands except share and per share data)


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
	2018		2018		2017		2018		2017
Revenues:
Rental	$	91,733	$	89,232	$	85,831	$	266,678	$	245,741
Recoveries from customers		11,800		10,444		9,698		33,757		26,833
Cloud and managed services		7,537		10,974		16,224		31,692		50,045
Other (1)		1,143		1,627		2,014		6,060		4,980
Total revenues		112,213		112,277		113,767		338,187		327,599
Operating expenses:
Property operating costs		38,217		36,558		39,743		112,515		112,010
Real estate taxes and insurance		3,088		2,903		3,116		8,896		9,209
Depreciation and amortization		37,900		37,820		35,309		111,633		103,784
General and administrative (2)		19,922		21,031		21,652		63,187		66,411
Transaction, integration and impairment costs		901		653		1,114		2,474		1,611
Restructuring (3)		13,737		11,430		—		33,697		—
Total operating expenses		113,765		110,395		100,934		332,402		293,025

Operating income (loss)		(1,552)		1,882		12,833		5,785		34,574

Other income and expense:
Interest income		66		25		65		92		66
Interest expense		(6,386)		(8,203)		(7,958)		(22,699)		(22,474)
Income (loss) before taxes		(7,872)		(6,296)		4,940		(16,822)		12,166
Tax benefit (expense) of taxable REIT subsidiaries (4)		980		(137)		2,454		3,245		5,404
Net income (loss)		(6,892)		(6,433)		7,394		(13,577)		17,570
Net (income) loss attributable to noncontrolling interests (5)		1,610		1,002		(887)		2,641		(2,146)
Net income (loss) attributable to QTS Realty Trust, Inc.	$	(5,282)	$	(5,431)	$	6,507	$	(10,936)	$	15,424
Preferred stock dividends		(7,045)		(2,248)		—		(9,621)		—
Net income (loss) attributable to common stockholders	$	(12,327)	$	(7,679)	$	6,507	$	(20,557)	$	15,424

Net income (loss) per share attributable to common shares:
Basic (6)	$	(0.25)	$	(0.16)	$	0.13	$	(0.42)	$	0.31
Diluted (6)		(0.25)		(0.16)		0.13		(0.42)		0.31

(1)

Other revenue - Includes straight line rent, sales of scrap metals and other unused materials and various other revenue items. Straight line rent was $1.2 million, $1.4 million and $1.4 million for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively. Straight line rent was $5.3 million and $3.8 million for the nine months ended September 30, 2018 and 2017, 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 17.8%, 18.7%, and 19.0% of total revenues for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively. General and administrative expenses were 18.7% and 20.3% of total revenues for the nine months ended September 30, 2018 and 2017, respectively.

(3)

Restructuring Costs –The Company incurred $13.7 million of restructuring expenses for the three months ended September 30, 2018 associated with its strategic growth plan, of which $11.5 million related to product and other expenses, $1.5 million related to severance expenses, and $0.7 million related to equity-based compensation and professional fees. The Company incurred $33.7 million of restructuring expenses for the nine months ended September 30, 2018 associated with its strategic growth plan, of which $19.1 million related to product and other expenses, $7.8 million related to equity-based compensation and professional fees, and $6.8 million related to severance expenses.

(4)

Tax benefit (expense) 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 restructuring, transaction and integration costs.

(5)

Noncontrolling interest - The weighted average noncontrolling ownership interest of QualityTech, LP was 11.5%, 11.5% and 11.9% for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively, and 11.5% and 12.2% for the nine months ended September 30, 2018 and 2017, respectively.

(6)

Basic and diluted net income (loss) per share were calculated using the two-class method.


5 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Consolidated Statements of Comprehensive Income

(unaudited and in thousands)


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
	2018		2018		2017		2018		2017
Net income (loss)	$	(6,892)	$	(6,433)	$	7,394	$	(13,577)	$	17,570
Other comprehensive income (loss):
Increase (decrease) in fair value of interest rate swaps		1,429		2,563		(286)		9,974		(1,785)
Reclassification of other comprehensive income to interest expense		(83)		91		—		410		—
Comprehensive income (loss)		(5,546)		(3,779)		7,108		(3,193)		15,785
Comprehensive (income) loss attributable to noncontrolling interests		639		431		(850)		368		(1,926)
Comprehensive income (loss) attributable to QTS Realty Trust, Inc.	$	(4,907)	$	(3,348)	$	6,258	$	(2,825)	$	13,859


6 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Summary of Financial Data

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

In conjunction with its strategic growth plan announced in the first quarter of 2018, QTS is realigning its product offerings around Hyperscale and Hybrid Colocation, while exiting certain of its Cloud and Managed Services offerings, as well as colocation revenue attached to certain customers in the Cloud and Managed Services business that we expect will not remain with QTS post transition (collectively “Non-Core” operations). QTS has realigned information included in this supplement to focus its guidance and key performance metrics around its core business, which primarily consists of its Hyperscale and Hybrid Colocation businesses, along with technology and services from its Cloud and Managed Services business that support Hyperscale and Hybrid Colocation customers (collectively, the “Core” business), which together will be the Company’s primary business following the completion of the strategic growth plan expected to be completed by the end of 2018. For informational purposes, QTS has excluded its estimated Non-Core business from certain financial and operating statistics below. A more detailed allocation of Core and Non-Core financial information is presented in the Appendix.

This summary includes certain non-GAAP financial measures that management believes are helpful in understanding the Company’s business, including its Core 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 or as an expectation of future performance of the Company’s Core business. 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 current operations and its Core business. 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						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
Summary of Consolidated Results (includes Core and Non-Core)	2018		2018		2017		2018		2017
Total revenues	$	112,213	$	112,277	$	113,767	$	338,187	$	327,599
Net income (loss)	$	(6,892)	$	(6,433)	$	7,394	$	(13,577)	$	17,570
Fully diluted weighted average shares outstanding		58,251		58,080		56,833		58,093		56,129
Net income (loss) per basic share	$	(0.25)	$	(0.16)	$	0.13	$	(0.42)	$	0.31
Net income (loss) per diluted share	$	(0.25)	$	(0.16)	$	0.13	$	(0.42)	$	0.31
FFO available to common shareholders & OP unit holders	$	20,642	$	25,162	$	38,631	$	77,281	$	108,586


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
Core Financial Summary (1)	2018			2018			2017			2018			2017
Core Operating FFO available to common shareholders & OP unit holders	$	35,455	(2)	$	36,895	(3)	$	35,289	(4)	$	109,217	(5)	$	96,521	(6)
Core Operating FFO per diluted share	$	0.61	(2)	$	0.64	(3)	$	0.62	(4)	$	1.88	(5)	$	1.72	(6)
Core MRR (at period end)	$	30,100		$	29,522		$	26,591		$	30,100		$	26,591
Core Revenue	$	107,513		$	102,549		$	94,159		$	310,452		$	269,775
Core Adjusted EBITDA	$	55,040		$	53,634		$	45,875		$	158,833		$	128,449
Core NOI	$	68,811		$	67,639		$	58,706		$	201,242		$	170,169
Core NOI as a % of Core revenue		64.0	%		66.0	%		62.3	%		64.8	%		63.1	%
Core Adjusted EBITDA as a % of Core revenue		51.2	%		52.3	%		48.7	%		51.2	%		47.6	%
Core General and administrative expenses as a % of Core revenue		16.5	%		17.6	%		17.1	%		17.3	%		18.9	%
Annualized Core ROIC		12.0	%		12.3	%		11.6	%		12.2	%		11.5	%

(1)

Represents Core results only. See Appendix for additional information regarding Non-Core reconciliations.

(2)

For the three months ended September 30, 2018, excluding the effects of the Company’s deferred tax benefit, Core Operating FFO available to common shareholders & OP unit holders would be $35,046 and Core Operating FFO per diluted share would be $0.60.

(3)

For the three months ended June 30, 2018, excluding the effects of the Company’s deferred tax expense, Core Operating FFO available to common shareholders & OP unit holders would be $37,073 and Core Operating FFO per diluted share would be $0.64.

(4)

For the three months ended September 30, 2017, excluding the effects of the Company’s deferred tax benefit, Core Operating FFO available to common shareholders & OP unit holders would be $32,835 and Core Operating FFO per diluted share would be $0.58.

(5)

For the nine months ended September 30, 2018, excluding the effects of the Company’s deferred tax benefit, Core Operating FFO available to common shareholders & OP unit holders would be $108,219 and Core Operating FFO per diluted share would be $1.86.

(6)

For the nine months ended September 30, 2017, excluding the effects of the Company’s deferred tax benefit, Core Operating FFO available to common shareholders & OP unit holders would be $90,745 and Core Operating FFO per diluted share would be $1.62.


7 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com


	September 30,			December 31,
Balance Sheet Data - Consolidated Results (includes Core and Non-Core) (1)	2018			2017
Total debt, net of cash and cash equivalents		1,173,301	(2)		1,233,322	(2)
Debt to last quarter annualized Adjusted EBITDA		5.3x	(3)		5.4x	(3)
Debt to undepreciated real estate assets		43.1%	(3)		52.3%	(3)
Debt to Implied Enterprise Value		28.8%	(3)		28.2%	(3)

(1)

Disclosed on a consolidated basis to conform with debt covenant calculations in accordance with lender requirements.

(2)

The Company has excluded 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.

(3)

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


	September 30,	December 31,
Operating Portfolio Statistics	2018	2017
Built out square footage:
Raised floor	1,475,746	1,403,516
Core leasable raised floor (1)	1,194,631	1,112,350
Core leased raised floor (1)	1,055,411	964,951
Core data center % occupied (1)	88.3%	86.7%

Total Raw Shell:
Total	6,237,837	6,119,806
Basis-of-design raised floor space (2)	2,744,017	2,677,693

Data center properties	26	25
Basis of design raised floor % developed	53.8%	52.4%

Data center raised floor % wholly-owned (3)	90.9%	90.4%

(1)

Leasable and leased raised floor includes Core only. Had Non-Core been included consolidated leasable raised floor would be 1,195,014 square feet and 1,116,584 square feet at September 30, 2018 and December 31, 2017, respectively. Had Non-Core been included consolidated leased raised floor would be 1,055,794 square feet and 969,777 square feet at September 30, 2018 and December 31, 2017, respectively.

(2)

See definition in Appendix.

(3)

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 94.7% and 94.4% at September 30, 2018 and December 31, 2017, respectively.

2018 Core Guidance

References to QTS’ “Core” business refers to the Company’s business expected to be retained following the completion of the previously announced strategic growth plan, as further described in the Appendix. The Company is reaffirming its 2018 guidance, as outlined below.


	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 consolidated cash capital expenditures and excludes expenditures from acquisitions.

The Company is reaffirming its Core Adjusted EBITDA guidance range for 2018 of $218 million to $228 million and its Core OFFO per share guidance range for 2018 of $2.55 per share to $2.65 per share. The Company expects Core Revenue to be at the high end of the provided range due primarily to higher than anticipated utility recovery revenue which passes through directly to higher operating costs. As the visibility and confidence in lease expirations through the end of the year remains strong, the Company is reaffirming its previously announced annual rental churn guidance for the Core business of 3% to 5%. The Company is also reaffirming its previously announced cash capital expenditure guidance range for 2018 of $425 million to $475 million, excluding capital expenditures for acquisitions.

QTS does not provide reconciliations for the non-GAAP financial measures included in its guidance provided above due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including net income (loss) and adjustments that could be made for restructuring costs, transaction costs, lease exit costs, asset impairments and loss on disposals and other charges as those amounts are subject to significant variability based on future transactions that are not yet known, the amount of which, based on historical experience, could be significant.


8 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Reconciliations of Core Return on Invested Capital (ROIC)

(unaudited and in thousands)

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


Core Return on Invested Capital (ROIC)	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
	2018		2018		2017		2018		2017
Core NOI (1)	$	68,811	$	67,639	$	58,706	$	201,242	$	170,169
Annualized Core NOI		275,244		270,556		234,824		268,323		226,892
Average Core undepreciated real estate assets and other Core net fixed assets placed in service (2)		2,284,210		2,202,032		2,026,023		2,198,999		1,967,073
Annualized Core ROIC (2)		12.0%		12.3%		11.6%		12.2%		11.5%

(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, with respect to Core operations, aggregated to $4.6 million, $4.6 million and $4.1 million for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017 respectively, and $13.4 million and $11.7 million for the nine months ended September 30, 2018 and 2017, respectively.

(2)

Calculated using Core amounts only. Had the amounts included Non-Core assets and Non-Core NOI, consolidated annualized ROIC for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017 would be 12.4%, 13.0% and 13.8%, respectively, and 13.0% and 13.7% for the nine months ended September 30, 2018 and 2017, respectively.


	As of						As of
Calculation of Average Core Undepreciated Real Estate	September 30,		June 30,		September 30,		September 30,
Assets and other Core Net Fixed Assets Placed in Service (1)	2018		2018		2017		2018		2017
Core Real Estate Assets, net	$	2,265,923	$	2,148,849	$	1,785,760	$	2,265,923	$	1,785,760
Less: Core Construction in progress		(731,660)		(649,766)		(425,251)		(731,660)		(425,251)
Plus: Core Accumulated depreciation		451,649		422,346		363,732		451,649		363,732
Plus: Goodwill		173,843		173,843		173,843		173,843		173,843
Plus: Core Other fixed assets, net		37,858		35,423		26,112		37,858		26,112
Plus: Core Acquired intangibles, net (2)		83,103		85,511		90,903		83,103		90,903
Plus: Core Leasing Commissions, net		34,874		36,624		29,767		34,874		29,767
Total as of period end	$	2,315,590	$	2,252,830	$	2,044,866	$	2,315,590	$	2,044,866

Average undepreciated real estate assets and other net fixed assets as of reporting period (3)	$	2,284,210	$	2,202,032	$	2,026,023	$	2,198,999	$	1,967,073

(1)

Calculated using Core amounts only, which excludes Non-Core product related assets. Had the amounts included Non-Core assets, consolidated average undepreciated real estate assets and other net fixed assets would be $2,295,654, $2,236,778 and $2,059,454 for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively, and $2,229,332 and $2,004,389 for the nine months ended September 30, 2018 and 2017, respectively.

(2)

Net of acquired intangible liabilities and deferred tax liabilities.

(3)

Calculated by using average quarterly balance of each account.


9 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Implied Enterprise Value and

Weighted Average Shares


	Shares or	Market Price or		Market
	Equivalents	Liquidation Value as of		capitalization
Implied Enterprise Value as of September 30, 2018:	Outstanding	September 30, 2018		(in thousands)
Class A Common Stock	50,995,683	$	42.67	$	2,175,986
Class B Common Stock	128,408		42.67		5,479
Total Shares Outstanding	51,124,091
Units of Limited Partnership (1)	6,716,312		42.67		286,585
Options to purchase Class A Common Stock (2)	380,146		42.67		16,221
Fully Diluted Total Shares and Units of Limited Partnership outstanding as of September 30, 2018	58,220,549
Liquidation value of Series A Preferred Stock	4,280,000		25.00		107,000
Liquidation value of Series B Preferred Stock	3,162,500		100.00		316,250
Total Equity				$	2,907,521
Total Debt					1,173,301	(3)
Implied Enterprise Value				$	4,080,822

(1)

Includes 39,694 of operating partnership units representing the “in the money” value of Class O LTIP units on an “as if” converted basis as of September 30, 2018.

(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 September 30, 2018.

(3)

Excludes all debt issuance costs reflected as a reduction to liabilities at September 30, 2018 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 and nine months ended September 30, 2018:


	Three Months Ended	Nine Months Ended
	September 30, 2018	September 30, 2018
Weighted average shares outstanding - basic	51,140,616	51,056,525
Effect of Class A partnership units (1)	6,676,618	6,645,044
Effect of Class O units on an "as if" converted basis (1)	39,694	104,482
Effect of options to purchase Class A common stock and restricted Class A common stock on an "as if" converted basis (2)	394,115	287,421
Weighted average shares outstanding - diluted (3)	58,251,043	58,093,472

(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 and nine months ended September 30, 2018 was $43.28 and $40.75, respectively.

(3)

Series B Convertible Preferred stock was not incorporated on an “as if” converted basis as the conversion would have been antidilutive for both periods presented.


10 QTS Q3 Earnings 2018	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 September 30, 2018. The table excludes data center development associated with land acquired in Phoenix, AZ which was acquired in the third quarter of 2017, as well as data center development associated with land acquired in the fourth quarter of 2017 in Ashburn, VA and Hillsboro, OR.


			Net Rentable Square Feet (Operating NRSF) (3)
											Available	Basis of	Current
		Gross					%				Utility	Design	Raised
	Year	Square	Raised	Office &	Supporting		Occupied		Annualized		Power	("BOD")	Floor as a
Property	Acquired (1)	Feet (2)	Floor (4)	Other (5)	Infrastructure (6)	Total	(Core) (7)		Core Rent (8)		(MW) (9)	NRSF	% of BOD
Richmond, VA	2010	1,318,353	167,309	51,093	178,854	397,256	72.4	%	$	39,801,690	110	557,309	30.0	%
Atlanta, GA (Metro)	2006	968,695	477,986	36,953	342,426	857,365	97.6	%	$	98,559,668	72	527,186	90.7	%
Irving, TX	2013	698,000	168,160	6,981	170,323	345,464	97.4	%	$	49,581,809	140	275,701	61.0	%
Princeton, NJ	2014	553,930	58,157	2,229	111,405	171,791	100.0	%	$	10,165,648	22	158,157	36.8	%
Chicago, IL	2014	474,979	40,000	—	41,822	81,822	64.0	%	$	10,402,171	8	215,855	18.5	%
Ashburn, VA	2017	445,000	14,230	—	23,240	37,470	100.0	%	$	2,139,300	50	178,000	8.0	%
Manassas, VA	2018	118,031	—	—	—	—	—	%	$	—	24	66,324	—	%
Suwanee, GA	2005	369,822	205,608	8,697	107,128	321,433	94.1	%	$	54,630,786	36	205,608	100.0	%
Piscataway, NJ	2016	360,000	93,820	14,311	96,001	204,132	83.2	%	$	15,777,555	111	176,000	53.3	%
Fort Worth, TX	2016	261,836	10,600	—	19,438	30,038	100.0	%	$	2,080,316	50	80,000	13.3	%
Santa Clara, CA*	2007	135,322	55,905	944	45,094	101,943	74.1	%	$	17,215,051	11	80,940	69.1	%
Sacramento, CA	2012	92,644	54,595	2,794	23,916	81,305	46.7	%	$	11,809,046	8	54,595	100.0	%
Dulles, VA	2017	87,159	30,545	5,997	32,892	69,434	37.6	%	$	15,701,284	13	48,270	63.3	%
Leased facilities **	2006 & 2015	206,631	76,451	19,450	42,001	137,902	79.3	%	$	26,773,232	14	97,692	78.3	%
Other ***	Misc.	147,435	22,380	49,337	30,074	101,791	68.4	%	$	6,566,374	5	22,380	100.0	%
Total		6,237,837	1,475,746	198,786	1,264,614	2,939,146	88.3	%	$	361,203,930	674	2,744,017	53.8	%

(1)

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

(2)

With respect to the Company’s owned properties, gross square feet represents the entire building area. With respect to leased properties, gross square feet represents that portion of the gross square feet subject to our lease. This includes 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 Core data center raised floor that is subject to a signed lease for which space is occupied (1,055,411 square feet as of September 30, 2018), divided by Core leasable raised floor based on the current configuration of the properties (1,194,631 square feet as of September 30, 2018), expressed as a percentage. Inclusive of Non-Core space, as of September 30, 2018 consolidated data center raised floor that is subject to a signed lease for which space is occupied was 1,055,794 square feet and consolidated leasable raised floor based on the current configuration of the properties was 1,195,014 square feet, for an occupancy percentage of 88.3%.

(8)

Includes annualized Core rent only. Had the amounts included Non-Core annualized rent, consolidated annualized rent would be $368.9 million as of September 30, 2018. 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, 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 September 30, 2018.

* Subject to long-term ground lease.

** Includes 11 facilities. All facilities are leased, including those subject to capital leases.

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


11 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Redevelopment Costs Summary

(in millions, except NRSF data)

During the third quarter of 2018, the Company brought online approximately four megawatts of gross power and approximately 26,000 net rentable square feet (“NRSF”) of raised floor and customer specific capital at its Atlanta-Metro, Chicago and Piscataway facilities at an aggregate cost of approximately $31 million. For the nine months ended September 30, 2018, the Company brought online approximately 17 megawatts of gross power and approximately 72,000 NRSF of raised floor and customer specific capital at its Atlanta-Metro, Chicago, Irving, Ashburn and Piscataway facilities at an aggregate cost of approximately $169 million, which includes $17 million related to the underlying land at the Company’s Ashburn facility.

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)
			Estimated Cost to				Expected
Property	Actual (2)		Completion (3)		Total		Completion date
Irving, TX	$	9	$	3	$	12	Q4 2018
Ashburn, VA		14		3		17	Q4 2018
Piscataway, NJ		4		1		5	Q4 2018
Fort Worth, TX		20		5		25	Q4 2018
Totals	$	47	$	12	$	59

(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 September 30, 2018. In addition to the $47 million of construction costs incurred through September 30, 2018 for redevelopment expected to be completed by December 31, 2018, as of September 30, 2018 the Company had incurred $685 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 Q3 Earnings 2018	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 September 30, 2018. This table shows the Company’s ability to increase its raised floor of 1,475,746 square feet as of September 30, 2018 by approximately 1.9 times to 2.7 million square feet, exclusive of acquired land parcels in Phoenix, AZ; Ashburn, VA; and Hillsboro, OR.


	Raised Floor NRSF
	Overview as of September 30, 2018
	Current				Approximate
	NRSF in	Under	Future	Basis of	Adjacent Acreage
Property	Service	Construction (1)	Available (2)	Design NRSF	of Land (3)
Richmond, VA	167,309	—	390,000	557,309	111.1
Atlanta, GA (Metro)	477,986	—	49,200	527,186	16.7
Irving, TX	168,160	7,000	100,541	275,701	29.4
Princeton, NJ	58,157	—	100,000	158,157	65.0
Chicago, IL	40,000	—	175,855	215,855	23.0
Ashburn, VA	14,230	5,300	158,470	178,000	35.3
Manassas, VA	—	—	66,324	66,324	102.4
Suwanee, GA	205,608	—	—	205,608	15.4
Piscataway, NJ	93,820	5,000	77,180	176,000	—
Fort Worth, TX	10,600	10,000	59,400	80,000	26.5
Santa Clara, CA	55,905	—	25,035	80,940	—
Sacramento, CA	54,595	—	—	54,595	—
Dulles, VA	30,545	—	17,725	48,270	—
Leased facilities (4)	76,451	—	21,241	97,692	—
Phoenix, AZ	—	—	—	—	84.2
Hillsboro, OR	—	—	—	—	92.0
Other (5)	22,380	—	—	22,380	—
Totals as of September 30, 2018	1,475,746	27,300	1,240,971	2,744,017	601.0

(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 $157.5 million, of which $125.3 million is included in Construction in Progress on the consolidated balance sheet. 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.

(5)

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


13 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Core NOI by Facility and Consolidated Capital Expenditure Summary

(unaudited and in thousands)

The Company calculates Core net operating income, or Core 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, in each case attributable to the Company’s Core business. The Company believes that Core 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.

Core NOI was calculated in the following manner: For revenue, QTS identified the specific products that it expects to divest of in 2018 and allocated the specific revenue to Non-Core operations. For customers that had Non-Core managed service revenue and also had colocation revenue, the Company performed an analysis on a customer-by-customer basis to determine colocation revenue attached to certain customers in the Cloud and Managed Services business that we expect will not remain with QTS post transition. For operating costs, the Company identified costs such as rent expense and repairs and maintenance costs associated with servicing the aforementioned Non-Core revenue and classified those costs as Non-Core. The breakdown of Core NOI by facility is shown below:


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2018		2018		2017		2018		2017
Breakdown of Core NOI by facility:
Atlanta-Metro data center	$	21,283	$	21,093	$	17,640	$	62,780	$	56,825
Atlanta-Suwanee data center		11,631		11,611		10,038		34,649		29,642
Richmond data center		7,802		7,070		10,622		22,242		25,351
Irving data center		10,700		10,917		8,710		31,454		23,257
Dulles data center		3,075		2,480		1,977		7,507		5,174
Leased data centers (1)		1,756		1,470		(507)		4,638		(404)
Santa Clara data center		1,770		2,089		1,338		5,982		4,750
Piscataway data center		2,945		3,051		2,464		8,947		7,193
Princeton data center		2,441		2,411		2,420		7,268		7,219
Sacramento data center		1,875		1,839		1,563		5,609		5,263
Chicago data center		2,224		2,339		1,317		6,557		3,300
Ashburn data center		427		259		—		690		—
Fort Worth data center		283		180		141		734		382
Other facilities (2)		599		830		983		2,185		2,217
Core NOI (3) (4)	$	68,811	$	67,639	$	58,706	$	201,242	$	170,169

(1)

Includes 11 facilities. All facilities are leased, including those subject to capital leases.

(2)

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

(3)

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, with respect to Core operations, aggregated to $4.6 million, $4.6 million and $4.1 million for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively, and $13.4 million and $11.7 million for the nine months ended September 30, 2018 and 2017, respectively.

(4)

Represents Core amounts only, which excludes Non-Core NOI. Non-Core definition is presented in the Appendix. Had the amounts included Non-Core NOI, consolidated NOI would be $70,908, $72,816, and $70,908 for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively, and $216,776 and $206,380 for the nine months ended September 30, 2018 and 2017, respectively.


14 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Our cash paid for capital expenditures is summarized as follows:


	Capital Expenditures
	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
	2018		2018		2017		2018		2017
Development	$	112,479	$	117,009	$	68,179	$	313,651	$	168,286
Acquisitions		12,330		—		41,994		36,956		47,013
Maintenance capital expenditures		1,660		2,612		2,193		5,202		4,161
Other capital expenditures (1)		19,230		25,295		26,781		63,368		64,524
Total capital expenditures	$	145,699	$	144,916	$	139,147	$	419,177	$	283,984

(1)

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.


15 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Leasing Statistics – Core 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 pricing on new and modified leases signed varies quarter to quarter based on the mix of Core deals leased, as Hyperscale and Hybrid Colocation vary on a rate per square foot basis. The amounts below include renewals when there was a change in square footage rented, but exclude renewals where square footage remained consistent before and after renewal. (See renewal table on page 18 for such renewals). The amounts below also exclude leases signed related to Non-Core products and services.

During the third quarter of 2018, the Company entered into 398 new and modified Core leases aggregating to $24.3 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 $18.1 million in Core incremental annualized rent for the quarter ended September 30, 2018, which is higher than the prior four quarter average and representative of the expanding pipeline of opportunity in the market. The Company’s Core incremental annualized rent for the third quarter reflects a mix of customers and locations across different markets and strength in the Hyperscale product offering. Pricing on new and modified leases signed during the third quarter was higher than the prior four quarter average, primarily driven by additional power sales to existing Hyperscale tenants as well as favorable pricing on Hybrid Colocation deals.

Annualized rent per leased square foot is computed using the total rent associated with all new and modified Core leases for the respective periods. Incremental Annualized Rent, Net of Downgrades reflects net incremental MRR signed during the period for purposes of tracking incremental revenue contribution.


							Annualized		Incremental
					Annualized		Rent of New		Annualized
		Number of	Total Leased		rent per		and Modified		Rent, Net of
	Period	Leases	sq ft		leased sq ft (1)		Lease		Downgrades (2)
New/modified leases signed - Core (3)	Q3 2018	398	43,127	$	564	$	24,316,638	$	18,143,436
	P4QA*	398	58,684		512		30,056,871		14,951,327
	Q2 2018	447	39,082		801		31,322,076		13,092,298
	Q1 2018	413	90,294		399		35,982,816		21,039,069
	Q4 2017	357	25,697		657		16,879,032		8,573,152
	Q3 2017	376	79,662		452		36,043,560		17,100,790

Average of prior 4 quarters

(1)

Calculated using all Core revenue including new lease MRR and modified renewal MRR.

(2)

Amounts include Core incremental MRR only, net of downgrades.

(3)

Includes leases of Core products only. Had the incremental annualized rent, net of downgrades included Non-Core leases, consolidated incremental annualized rent net of downgrades would be $14,477,264, $9,323,040, $16,735,105, $8,719,465, and $15,329,139 for the three months ended September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively, and the prior four quarter average would be $12,526,687.

NOTE: Figures above do not include cost recoveries.


16 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

The following table outlines the Core booked-not-billed (“BNB”) balance as of September 30, 2018 and how that will affect revenue in 2018 and subsequent years:


Core Booked-not-billed ("BNB")	2018		2019		Thereafter		Total
Core MRR	$	861,974	$	2,631,860	$	1,419,913	$	4,913,747
Core incremental revenue (1)		1,691,298		21,908,944		17,038,956
Core annualized revenue (2)		10,343,688		31,582,320		17,038,956		58,964,964

(1)

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

(2)

Core annualized revenue represents the Core booked-not-billed MRR multiplied by 12, demonstrating how much recognized MRR for the Core business might have been recognized if the Core booked-not-billed leases commencing in the period were in place for an entire year. Had the BNB annualized revenue included Non-Core leases, consolidated annualized BNB revenue would be $59,984,412.

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 September 30, 2018 to be approximately $107 million. This estimate generally includes 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.


17 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Leasing Statistics – Core Renewed and Commenced Leases and Core 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 Core deals leased as Hyperscale and Hybrid Colocation vary on a rate per square foot basis.

Consistent with the Company’s strategy and business model, the renewal rates below reflect total Core MRR per square foot including all subscribed services. The amounts below exclude leases of Non-Core products. 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 Core renewals signed in the third quarter of 2018 was 2.1% 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.

Core Rental Churn (which the Company defines as Core MRR lost in the period to a customer intending to fully exit the QTS platform in the near term compared to total Core MRR at the beginning of the period) was 1.1% for the third quarter of 2018. Core Rental Churn was 3.0% for the nine months ended September 30, 2018. (1)


				Annualized
		Number of	Total Leased	rent per		Annualized		Rent
	Period	renewed leases	sq ft	leased sq ft		Rent		Change (3)
Renewed Leases - Core (2)	Q3 2018	72	15,788	$	717	$	11,315,916	2.1	%
	P4QA*	60	58,869		306		18,003,834	4.0	%
	Q2 2018	24	101,902		219		22,269,960	5.6	%
	Q1 2018	65	99,716		234		23,365,848	5.4	%
	Q4 2017	71	16,601		911		15,126,576	1.1	%
	Q3 2017	81	17,257		652		11,252,952	2.2	%

Average of prior 4 quarters

(1)

Consolidated Rental Churn (which the Company defines as consolidated MRR lost in the period to a customer intending to fully exit the QTS platform in the near term compared to consolidated MRR at the beginning of the period) was 1.5% for the third quarter of 2018. Consolidated Rental Churn was 5.0% for the nine months ended September 30, 2018.

(2)

Includes leases of Core products only. Had the rent change percentage included Non-Core leases, consolidated rent changes would be 2.1%, 4.9%, 5.3%, 1.2%, and 2.1% for the three months ended September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively, and 3.8% for the prior four quarter average.

(3)

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.

The mix of leasing activity has a 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 Core deals leased as Hyperscale and Hybrid Colocation vary on a rate per square foot basis.

During the third quarter of 2018, the Company commenced customer leases (which includes both new customers and existing customers that renewed their lease terms) representing approximately $28.8 million of annualized Core rent at $512 per square foot. This compares to customer leases representing an aggregate trailing four quarter average of approximately $26.7 million of annualized Core rent at $550 per square foot.


18 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com


				Annualized
		Number of	Total Leased	rent per		Annualized
	Period	leases	sq ft	leased sq ft		Rent
Leases commenced - Core (1)	Q3 2018	402	56,282	$	512	$	28,814,784
	P4QA*	440	48,597		550		26,705,066
	Q2 2018	472	48,259		593		28,619,928
	Q1 2018	402	56,366		529		29,824,080
	Q4 2017	424	37,251		570		21,240,814
	Q3 2017	463	52,513		517		27,135,444

Average of prior 4 quarters

(1)

Leases commenced include all Core commenced monthly recurring rent, inclusive of both incremental rent as well as existing rent that was renewed. Includes leases of Core products only. Had the annualized rent per leased square foot included Non-Core leases, consolidated annualized rent per leased square foot would be $549, $637, $691, $718, and $617 for the three months ended September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively, and the prior four quarter average would be $663. Had the annualized rent included Non-Core leases, consolidated annualized rent would be $30,883,884; $30,766,296; $39,508,860; $26,943,658; and $32,585,052; for the three months ended September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively, and the prior four quarter average would be $32,450,966.


19 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Core Lease Expirations

Lease expirations information is presented below for the Core business, which primarily consists of the Company’s Hyperscale and Hybrid Colocation businesses, along with technology and services from its Cloud and Managed Services business that support Hyperscale and Hybrid Colocation customers. Hyperscale leases are typically 5-10 years with the majority of Hyperscale lease expirations occurring in 2022 and beyond. Hybrid Colocation leases are typically 3 years in duration, with the majority of Hybrid Colocation lease expirations occurring in 2018 and 2019. The following table sets forth a summary schedule of the Core lease expirations as of September 30, 2018. 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.

Note: The lease expirations table below has been calculated proforma for the effects of two Hyperscale anchor tenants’ leases that were signed but not yet commenced as of September 30, 2018. As such, the annualized rent does not reconcile to reported annualized MRR in other locations of this document.


											Hybrid
		Total Raised							Hyperscale as		Colocation as
	Number of	Floor of	% of Portfolio				% of Portfolio		% of Portfolio		% of Portfolio
Year of Lease	Leases	Expiring	Leased Raised		Annualized		Annualized		Annualized		Annualized
Expiration	Expiring (1)	Leases	Floor		Core Rent (2)		Rent		Rent		Rent
Month-to-Month (3)	671	29,227	3	%	$	20,854,488	6	%	1	%	5	%
2018	347	31,608	3	%		15,955,318	4	%	—	%	4	%
2019	1,337	142,581	14	%		86,479,474	24	%	4	%	20	%
2020	1,082	98,693	9	%		56,729,556	15	%	1	%	14	%
2021	596	155,980	15	%		46,818,806	13	%	3	%	10	%
2022	233	342,455	32	%		79,889,188	22	%	17	%	5	%
After 2022	184	254,867	24	%		60,346,039	16	%	10	%	6	%
Portfolio Total	4,450	1,055,411	100	%	$	367,072,869	100	%	36	%	64	%

(1)

Represents each agreement with a customer signed as of September 30, 2018 for which billing has commenced; a lease agreement could include multiple spaces and a customer could have multiple leases.

(2)

Includes annualized Core rent only. Had the amounts included Non-Core annualized rent, consolidated annualized rent expiring month to month, in 2018, 2019, 2020, 2021, 2022, and thereafter would have been $23.3 million, $17.9 million, $89.7 million, $56.8 million, $46.8 million, $79.9 million and $60.4 million, respectively. Had the amounts included Non-Core annualized rent, consolidated % of Portfolio Annualized Rent expiring month to month, in 2018, 2019, 2020, 2021, 2022, and thereafter would have been 6%, 5%, 24%, 15%, 13%, 21% and 16%, respectively. 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, 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.

(3)

Consists of both customer leases whose original contract terms ended on September 30, 2018 and have yet to commence signed renewals, as well as customers whose leases expired prior to September 30, 2018 and have continued on a month-to-month basis.


20 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Largest Core Customers

As of September 30, 2018, the Company’s portfolio was leased to over 1,000 Core 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 Core customers in the portfolio based on Core annualized rent as of September 30, 2018 (does not include rents or maturities associated with booked-not-billed customers or ramps for existing customers which have not yet commenced billing).

Note: The largest core customers table below has been calculated proforma for the effects of two Hyperscale anchor tenants’ leases that were signed but not yet commenced as of September 30, 2018.


					Weighted
					Average
				% of Portfolio	Remaining
	Number of	Annualized		Annualized	Lease Term
Principal Customer Industry	Locations	Rent (1)		Rent	(Months) (2)
Content & Digital Media	2	$	52,164,896	14.2%	42
Cloud & IT Services	1		18,218,555	5.0%	42
Cloud & IT Services	3		18,082,358	4.9%	66
Cloud & IT Services	3		13,475,266	3.7%	65
Content & Digital Media	3		11,570,124	3.2%	44
Cloud & IT Services	5		9,405,234	2.6%	28
Government & Security	1		6,657,752	1.8%	54
Cloud & IT Services	1		5,610,214	1.5%	35
Financial Services	1		4,797,912	1.3%	70
Financial Services	1		4,775,268	1.3%	15
Total / Weighted Average		$	144,757,579	39.5%	47

(1)

Annualized rent is presented for leases commenced as of September 30, 2018. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, 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 Core annualized rent expiring and is as of September 30, 2018.


21 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Core Industry Segmentation

The following table sets forth information relating to the Core industry segmentation of customers as of September 30, 2018:

(1)

Portfolio Total used for pie chart does not include $7.7 million of annualized Non-Core MRR.

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

(1)

Portfolio Total used for pie chart does not include $54.4 million of annualized Non-Core MRR.


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Core Product Diversification

The following table sets forth information relating to the distribution of leases at the properties, by type of Core product offering, as of September 30, 2018:

(1)

Portfolio Total used for pie chart does not include $7.7 million of annualized Non-Core MRR.

The following table sets forth information relating to the distribution of leases at the properties, by type of Core product offering, as of December 31, 2017:

(1)

Portfolio Total used for pie chart does not include $54.4 million of annualized Non-Core MRR.

(2)

Previously reported allocations for Hybrid Colocation and Hyperscale at December 31, 2017 have been updated for refined Hyperscale designations in the product pie chart herein.


23 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

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:
	September 30, 2018	September 30, 2018	September 30, 2018		December 31, 2017
Unsecured Credit Facility (1)
Revolving Credit Facility	3.70%	December 17, 2021	$	81,000	$	131,000
Term Loan I	3.54%	December 17, 2022		350,000		350,000
Term Loan II	3.56%	April 27, 2023		350,000		350,000
Senior Notes (2)	4.75%	November 15, 2025		400,000		400,000
Lenexa Mortgage	4.10%	May 1, 2022		1,823		1,866
Capital Lease and Lease Financing Obligations	3.53%	2018 - 2038		4,357		8,699
Total	3.97%		$	1,187,180	$	1,241,565

(1)

Balances exclude debt issuance costs reflected as offsets to liabilities aggregating $4.9 million and $5.8 million at September 30, 2018 and December 31, 2017, respectively.

(2)

Balance excludes debt issuance costs reflected as offsets to liabilities aggregating $5.4 million and $5.8 million at September 30, 2018 and December 31, 2017, respectively.


	Outstanding Balance as of:		% of	Outstanding Balance as of:		% of
	September 30, 2018		total	December 31, 2017		total
Fixed Rate Debt	$	806,180	67.9%	$	810,565	65.3%
Floating Rate Debt		381,000	32.1%		431,000	34.7%
	$	1,187,180	100.0%	$	1,241,565	100.0%

Scheduled debt maturities as of September 30, 2018:


Debt instruments	2018		2019		2020		2021		2022		Thereafter		Total
Unsecured Credit Facility (1)	$	—	$	—	$	—	$	81,000	$	350,000	$	350,000	$	781,000
Senior Notes (2)		—		—		—		—		—		400,000		400,000
Lenexa Mortgage		17		68		71		74		77		1,516		1,823
Capital Lease and Lease Financing Obligations		1,493		985		151		48		44		1,636		4,357
Total	$	1,510	$	1,053	$	222	$	81,122	$	350,121	$	753,152	$	1,187,180

(1)

Balance excludes debt issuance costs reflected as offsets to liabilities aggregating $4.9 million at September 30, 2018.

(2)

Balance excludes debt issuance costs reflected as offsets to liabilities aggregating $5.4 million at September 30, 2018.


24 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Interest Summary

(unaudited and in thousands)


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2018		2018		2017		2018		2017
Interest expense and fees	$	12,114	$	13,257	$	10,602	$	37,886	$	29,460
Amortization of deferred financing costs and bond discount		959		961		992		2,882		2,943
Capitalized interest (1)		(6,687)		(6,015)		(3,636)		(18,069)		(9,929)
Total interest expense	$	6,386	$	8,203	$	7,958	$	22,699	$	22,474

(1)

The weighted average interest rate for the three months ended September 30, 2018, June 30, 2018, and September 30, 2017 was 4.53%, 4.52%, and 4.13%, respectively. As of September 30, 2018 and December 31, 2017 our weighted average coupon interest rate was 3.97% and 3.48%, respectively.


25 QTS Q3 Earnings 2018	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) Core Revenue; (2) FFO, Operating FFO, Adjusted Operating FFO, Core Operating FFO and Adjusted Core Operating FFO (3) MRR, Recognized MRR and Core MMR; (4) NOI and Core NOI; and (5) EBITDAre, Adjusted EBITDA, Core 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. Core Revenue, FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDA and Adjusted EBITDA, as calculated by us, including on a Core and Non-Core basis, 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

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.

Core. Core represents the Company’s business expected to remain following disposition of the Company’s “Non-Core” business in accordance with its previously announced strategic growth plan. The Core business consists primarily of the Company’s Hyperscale and Hybrid Colocation business, along with technology and services from the Company’s Cloud and Managed Services business that support Hyperscale and Hybrid Colocation customers. Core financial measures and operating statistics represent the financial results or operating statistics, as applicable, of the Company’s Core business.

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 product space.

Non-Core. Non-Core represents the portion of the Company’s business that the Company expects to exit in accordance with its previously announced strategic growth plan. The Non-Core business consists of the products of services within the Company’s Cloud and Managed Services business, as well as colocation revenue attached to certain customers in the Cloud and Managed Services business. Non-Core financial measures and operating statistics represent the financial results or operating statistics, as applicable, of the Company’s Non-Core business.

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 (the “Operating Partnership” or “OP”).


26 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

FFO, Operating FFO, Adjusted Operating FFO, Core Operating FFO and Adjusted Core 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.

Core Operating FFO and Adjusted Core Operating FFO represent Operating FFO and Adjusted Operating FFO of the Company’s Core business, respectively, and are used as supplemental performance measures because they reflect results of the portion of the business the Company expects to retain following completion of the strategic growth plan.


27 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

A reconciliation of net income (loss) to FFO, Operating FFO and Adjusted Operating FFO on a Core and Non-Core basis is presented below (unaudited and in thousands):


	Three Months Ended
	September 30, 2018						June 30, 2018						September 30, 2017
	Core		Non-Core		Total		Core		Non-Core		Total		Core		Non-Core		Total
FFO
Net income (loss)	$	7,576	$	(14,468)	$	(6,892)	$	5,397	$	(11,830)	$	(6,433)	$	3,790	$	3,604	$	7,394
Real estate depreciation and amortization		34,023		556		34,579		33,093		750		33,843		30,385		852		31,237
FFO		41,599		(13,912)		27,687		38,490		(11,080)		27,410		34,175		4,456		38,631
Preferred stock dividends		(7,045)		—		(7,045)		(2,248)		—		(2,248)		—		—		—
FFO available to common shareholders & OP unit holders		34,554		(13,912)		20,642		36,242		(11,080)		25,162		34,175		4,456		38,631

Restructuring costs		—		13,737		13,737		—		11,430		11,430		—		—		—
Transaction, integration and impairment costs		901		—		901		653		—		653		1,114		—		1,114
Tax benefit associated with restructuring, transaction and integration costs		—		(571)		(571)		—		(41)		(41)		—		—		—
Operating FFO available to common shareholders & OP unit holders*		35,455		(746)		34,709		36,895		309		37,204		35,289		4,456		39,745

Maintenance Capex		(1,660)		—		(1,660)		(2,612)		—		(2,612)		(2,194)		—		(2,194)
Leasing commissions paid		(5,212)		(249)		(5,461)		(7,600)		(71)		(7,671)		(1,726)		(3,866)		(5,592)
Amortization of deferred financing costs and bond discount		959		—		959		961		—		961		992		—		992
Non real estate depreciation and amortization		2,670		650		3,320		2,140		1,836		3,976		1,914		2,158		4,072
Straight line rent revenue and expense and other		(1,013)		(54)		(1,067)		(1,300)		67		(1,233)		(695)		(454)		(1,149)
Tax expense (benefit) from operating results		(409)		—		(409)		178		—		178		(2,454)		—		(2,454)
Equity-based compensation expense		3,961		—		3,961		3,999		—		3,999		3,245		448		3,693
Adjusted Operating FFO available to common shareholders & OP unit holders*	$	34,751	$	(399)	$	34,352	$	32,661	$	2,141	$	34,802	$	34,371	$	2,742	$	37,113

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.


	Nine Months Ended
	September 30, 2018						September 30, 2017
	Core		Non-Core		Total		Core		Non-Core		Total
FFO
Net income (loss)	$	18,056	$	(31,633)	$	(13,577)	$	6,398	$	11,172	$	17,570
Real estate depreciation and amortization		98,308		2,171		100,479		88,512		2,504		91,016
FFO		116,364		(29,462)		86,902		94,910		13,676		108,586
Preferred stock dividends		(9,621)		—		(9,621)		—		—		—
FFO available to common shareholders & OP unit holders		106,743		(29,462)		77,281		94,910		13,676		108,586

Restructuring costs		—		33,697		33,697		—		—		—
Transaction, integration and impairment costs		2,474		—		2,474		1,611		—		1,611
Tax benefit associated with restructuring, transaction and integration costs		—		(2,247)		(2,247)		—		—		—
Operating FFO available to common shareholders & OP unit holders*		109,217		1,988		111,205		96,521		13,676		110,197

Maintenance Capex		(5,202)		—		(5,202)		(4,161)		—		(4,161)
Leasing commissions paid		(18,651)		(391)		(19,042)		(8,892)		(4,924)		(13,816)
Amortization of deferred financing costs and bond discount		2,882		—		2,882		2,943		—		2,943
Non real estate depreciation and amortization		6,958		4,195		11,153		6,064		6,704		12,768
Straight line rent revenue and expense and other		(4,822)		4		(4,818)		(2,388)		(525)		(2,913)
Tax expense (benefit) from operating results		(998)		—		(998)		(5,776)		372		(5,404)
Equity-based compensation expense		11,441		—		11,441		9,258		1,249		10,507
Adjusted Operating FFO available to common shareholders & OP unit holders*	$	100,825	$	5,796	$	106,621	$	93,569	$	16,552	$	110,121


28 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Monthly Recurring Revenue (MRR), Recognized MRR and Core MRR

The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from its 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 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, recognized MRR and Core MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from the Company’s customer leases and customer leases attributable to the Company’s Core business. MRR, recognized MRR and Core 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, recognized MRR or Core MRR in the same manner. Accordingly, the Company’s MRR, recognized MRR and Core MRR may not be comparable to other companies’ MRR, recognized MRR and Core MRR. MRR, recognized MRR and Core MRR should be considered only as supplements to total revenues as a measure of its performance. MRR, recognized MRR and Core 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 revenues to recognized MRR in the period and MRR and Core MRR at period-end, on a Core and Non-Core basis is presented below (unaudited and in thousands):


	Three Months Ended
	September 30, 2018						June 30, 2018						September 30, 2017
	Core		Non-Core		Total		Core		Non-Core		Total		Core		Non-Core		Total
Recognized MRR in the period
Total period revenues	$	107,513	$	4,700	$	112,213	$	102,549	$	9,728	$	112,277	$	94,159	$	19,608	$	113,767
Less: Total period recoveries		(11,800)		—		(11,800)		(10,444)		—		(10,444)		(9,690)		(8)		(9,698)
Total period deferred setup fees		(3,174)		(101)		(3,275)		(3,073)		(130)		(3,203)		(2,424)		(235)		(2,659)
Total period straight line rent and other		(1,701)		(2,171)		(3,872)		(2,022)		(2,304)		(4,326)		(5,222)		(1,760)		(6,982)
Recognized MRR in the period		90,838		2,428		93,266		87,010		7,294		94,304		76,823		17,605		94,428

MRR at period end
Total period revenues	$	107,513	$	4,700	$	112,213	$	102,549	$	9,728	$	112,277	$	94,159	$	19,608	$	113,767
Less: Total revenues excluding last month		(71,443)		(4,416)		(75,859)		(67,701)		(6,861)		(74,562)		(63,840)		(13,072)		(76,912)
Total revenues for last month of period		36,070		284		36,354		34,848		2,867		37,715		30,319		6,536		36,855
Less: Last month recoveries		(3,896)		—		(3,896)		(3,597)		—		(3,597)		(2,626)		(5)		(2,631)
Last month deferred setup fees		(1,095)		—		(1,095)		(984)		(99)		(1,083)		(736)		(157)		(893)
Last month straight line rent and other		(979)		356		(623)		(745)		(1,139)		(1,884)		(366)		(1,338)		(1,704)
MRR at period end	$	30,100	$	640	$	30,740	$	29,522	$	1,629	$	31,151	$	26,591	$	5,036	$	31,627


	Nine Months Ended
	September 30, 2018						September 30, 2017
	Core		Non-Core		Total		Core		Non-Core		Total
Recognized MRR in the period
Total period revenues	$	310,452	$	27,735	$	338,187	$	269,775	$	57,824	$	327,599
Less: Total period recoveries		(33,757)		—		(33,757)		(26,744)		(89)		(26,833)
Total period deferred setup fees		(9,135)		(236)		(9,371)		(7,012)		(699)		(7,711)
Total period straight line rent and other		(7,622)		(5,027)		(12,649)		(9,807)		(3,599)		(13,406)
Recognized MRR in the period		259,938		22,472		282,410		226,212		53,437		279,649

MRR at period end
Total period revenues	$	310,452	$	27,735	$	338,187	$	269,775	$	57,824	$	327,599
Less: Total revenues excluding last month		(274,382)		(27,451)		(301,833)		(239,456)		(51,288)		(290,744)
Total revenues for last month of period		36,070		284		36,354		30,319		6,536		36,855
Less: Last month recoveries		(3,896)		—		(3,896)		(2,626)		(5)		(2,631)
Last month deferred setup fees		(1,095)		—		(1,095)		(736)		(157)		(893)
Last month straight line rent and other		(979)		356		(623)		(366)		(1,338)		(1,704)
MRR at period end	$	30,100	$	640	$	30,740	$	26,591	$	5,036	$	31,627


29 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDA

The Company considers earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”), 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 EBITDAre in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). EBITDAre represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of depreciated property, income tax expense (or benefit), interest expense, depreciation and amortization, impairments of depreciated property and unconsolidated partnerships and joint ventures, and similar adjustments for unconsolidated partnerships and joint ventures. The Company’s management uses EBITDAre as a supplemental performance measure because it provides a performance measure that, when compared year over year, captures the performance of the Company’s operations by removing the impact of capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from its operating results.

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 operating performance, management computes an adjusted measure of EBITDAre, which the Company refers to as Adjusted EBITDA. The Company generally calculates Adjusted EBITDA excluding certain non-routine charges, write off of unamortized deferred financing costs, gains (losses) on extinguishment of debt, and transaction and integration costs, in addition to non-cash recurring costs such as equity-based compensation. The Company believes that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent other REITs calculate Adjusted EBITDA on a comparable basis, between REITs.

Management uses EBITDAre and Adjusted EBITDA as supplemental performance measures as they provide useful measures of assessing the Company’s operating results. Other companies may not calculate EBITDAre or Adjusted EBITDA in the same manner. Accordingly, the Company’s EBITDAre and Adjusted EBITDA may not be comparable to others. EBITDAre 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 (loss) to EBITDAre and Adjusted EBITDA on a Core and Non-Core basis is as follows (unaudited and in thousands):


	Three Months Ended
	September 30, 2018						June 30, 2018						September 30, 2017
	Core		Non-Core		Total		Core		Non-Core		Total		Core		Non-Core		Total
EBITDAre and Adjusted EBITDA
Net income (loss)	$	7,576	$	(14,468)	$	(6,892)	$	5,397	$	(11,830)	$	(6,433)	$	3,790	$	3,604	$	7,394
Interest income		(66)		—		(66)		(25)		—		(25)		(65)		—		(65)
Interest expense		6,384		2		6,386		8,199		4		8,203		7,946		12		7,958
Tax expense (benefit) of taxable REIT subsidiaries		(409)		(571)		(980)		178		(41)		137		(2,454)		—		(2,454)
Depreciation and amortization		36,693		1,206		37,899		35,233		2,586		37,819		32,299		3,010		35,309
Loss on disposition of depreciated property and impairment write-downs of depreciated property		—		7,409		7,409		—		3,122		3,122		—		—		—
EBITDAre	$	50,178	$	(6,422)	$	43,756	$	48,982	$	(6,159)	$	42,823	$	41,516	$	6,626	$	48,142

Equity-based compensation expense		3,961		—		3,961		3,999		—		3,999		3,245		448		3,693
Restructuring costs		—		6,328		6,328		—		8,308		8,308		—		—		—
Transaction, integration and impairment costs		901		—		901		653		—		653		1,114		—		1,114
Adjusted EBITDA	$	55,040	$	(94)	$	54,946	$	53,634	$	2,149	$	55,783	$	45,875	$	7,074	$	52,949


	Nine Months Ended
	September 30, 2018						September 30, 2017
	Core		Non-Core		Total		Core		Non-Core		Total
EBITDAre and Adjusted EBITDA
Net income (loss)	$	18,056	$	(31,633)	$	(13,577)	$	6,398	$	11,172	$	17,570
Interest income		(92)		—		(92)		(66)		—		(66)
Interest expense		22,686		13		22,699		22,448		26		22,474
Tax expense (benefit) of taxable REIT subsidiaries		(998)		(2,247)		(3,245)		(5,776)		372		(5,404)
Depreciation and amortization		105,266		6,366		111,632		94,576		9,208		103,784
Loss on disposition of depreciated property and impairment write-downs of depreciated property		—		14,548		14,548		—		—		—
EBITDAre	$	144,918	$	(12,953)	$	131,965	$	117,580	$	20,778	$	138,358

Equity-based compensation expense		11,441		—		11,441		9,258		1,249		10,507
Restructuring costs		—		19,149		19,149		—		—		—
Transaction, integration and impairment costs		2,474		—		2,474		1,611		—		1,611
Adjusted EBITDA	$	158,833	$	6,196	$	165,029	$	128,449	$	22,027	$	150,476


30 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Net Operating Income (NOI) and Core 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 (loss) 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. Core NOI represents NOI of the Company’s Core business and is used as a supplemental performance measure because it reflects results of the portion of the business the Company expects to retain following completion of the strategic growth plan. NOI and Core NOI are therefore not substitutes for net income (loss) as computed in accordance with GAAP.

A reconciliation of net income (loss) to NOI and Core NOI is presented below (unaudited and in thousands):


	Three Months Ended
	September 30, 2018						June 30, 2018						September 30, 2017
	Core		Non-Core		Total		Core		Non-Core		Total		Core		Non-Core		Total
Net Operating Income (NOI)
Net income (loss)	$	7,576	$	(14,468)	$	(6,892)	$	5,397	$	(11,830)	$	(6,433)	$	3,790	$	3,604	$	7,394
Interest income		(66)		—		(66)		(25)		—		(25)		(65)		—		(65)
Interest expense		6,384		2		6,386		8,199		4		8,203		7,946		12		7,958
Depreciation and amortization		36,693		1,206		37,899		35,233		2,586		37,819		32,299		3,010		35,309
Tax expense (benefit) of taxable REIT subsidiaries		(409)		(571)		(980)		178		(41)		137		(2,454)		—		(2,454)
Transaction, integration and impairment costs		901		—		901		653		—		653		1,114		—		1,114
General and administrative expenses		17,732		2,191		19,923		18,004		3,028		21,032		16,076		5,576		21,652
Restructuring		—		13,737		13,737		—		11,430		11,430		—		—		—
NOI (1)	$	68,811	$	2,097	$	70,908	$	67,639	$	5,177	$	72,816	$	58,706	$	12,202	$	70,908

(1)


	Nine Months Ended
	September 30, 2018						September 30, 2017
	Core		Non-Core		Total		Core		Non-Core		Total
Net Operating Income (NOI)
Net income (loss)	$	18,056	$	(31,633)	$	(13,577)	$	6,398	$	11,172	$	17,570
Interest income		(92)		—		(92)		(66)		—		(66)
Interest expense		22,686		13		22,699		22,448		26		22,474
Depreciation and amortization		105,266		6,366		111,632		94,576		9,208		103,784
Tax expense (benefit) of taxable REIT subsidiaries		(998)		(2,247)		(3,245)		(5,776)		372		(5,404)
Transaction, integration and impairment costs		2,474		—		2,474		1,611		—		1,611
General and administrative expenses		53,850		9,338		63,188		50,978		15,433		66,411
Restructuring		—		33,697		33,697		—		—		—
NOI (1)	$	201,242	$	15,534	$	216,776	$	170,169	$	36,211	$	206,380

(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, with respect to Core operations, aggregated to $13.4 million and $11.7 million for the nine months ended September 30, 2018 and 2017, respectively.


31 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Core/Non-Core Reconciliations

In conjunction with its strategic growth plan announced in the first quarter, QTS is realigning its product offerings around Hyperscale and Hybrid Colocation, while exiting certain of its Cloud and Managed Services offerings, as well as colocation revenue attached to certain customers in the Cloud and Managed Services business that we expect will not remain with QTS post transition (collectively “Non-Core” operations). QTS has realigned information included in this supplement to focus its guidance and key performance metrics around its core business, which primarily consists of its Hyperscale and Hybrid Colocation businesses, along with technology and services from its Cloud and Managed Services business that support Hyperscale and Hybrid Colocation customers (collectively, the “Core” business), which together will be the Company’s primary business following the completion of the strategic growth plan.

The table below includes certain non-GAAP financial measures, separated on a Core / Non-Core basis, which management believes is helpful to understanding the financial results of the Company’s Core business.

In order to bifurcate revenues and costs the Company utilized the following methodology: For managed service revenue, QTS identified the specific products that it expects to divest of in 2018, and allocated their specific revenue to Non-Core operations. For customers that had Non-Core managed service revenue and also had colocation revenue, the Company performed an analysis on a customer-by-customer basis to determine the portion of colocation revenue considered to be Non-Core.

For operating costs, the Company identified costs such as rent expense, software licenses, communications expenses and repairs and maintenance costs associated with servicing the aforementioned Non-Core revenue and classified those costs as Non-Core.

For general and administrative costs, certain personnel costs, including severance benefits and equity-based compensation, that were associated with personnel impacted by the strategic growth plan have been reclassified to restructuring costs. For current and prior periods Non-Core personnel costs associated with wages and salaries were not reclassified to restructuring cost but are shown in their respective line items as Non-Core. QTS identified the software costs, communications expense and other similar general and administrative costs that are utilized to support the aforementioned revenue and reclassified those costs to Non-Core accordingly.

For depreciation costs, the Company identified the equipment that services the impacted customers, which QTS expects to dispose of in the transaction, and reclassified the associated depreciation costs to Non-Core. Write-offs of capitalized equipment or other capitalized costs that QTS has abandoned have been reclassified to restructuring costs.


32 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

Below is selected financial data depicting Core and Non-Core reconciliations (unaudited and in thousands):


	Three Months Ended						Three Months Ended						Three Months Ended
	September 30, 2018						June 30, 2018						September 30, 2017
Selected Income Statement Data	Core		Non-Core		Total		Core		Non-Core		Total		Core		Non-Core		Total
Total Revenues	$	107,513	$	4,700	$	112,213	$	102,549	$	9,728	$	112,277	$	94,159	$	19,608	$	113,767
Less: Operating costs (1)		38,702		2,603		41,305		34,910		4,551		39,461		35,453		7,406		42,859
Net operating income		68,811		2,097		70,908		67,639		5,177		72,816		58,706		12,202		70,908

Less: General & administrative expenses (excluding equity-based compensation expense)		13,771		2,191		15,962		14,005		3,028		17,033		12,831		5,128		17,959
Adjusted EBITDA		55,040		(94)		54,946		53,634		2,149		55,783		45,875		7,074		52,949

Less:
Equity-based compensation expense		3,961		—		3,961		3,999		—		3,999		3,245		448		3,693
Interest income		(66)		—		(66)		(25)		—		(25)		(65)		—		(65)
Interest expense		6,384		2		6,386		8,199		4		8,203		7,946		12		7,958
Tax expense (benefit) from operating results		(409)		—		(409)		178		—		178		(2,454)		—		(2,454)
Non real estate depreciation and amortization		2,670		650		3,320		2,140		1,836		3,976		1,914		2,158		4,072
Preferred stock dividends		7,045		—		7,045		2,248		—		2,248		—		—		—
Operating FFO available to common shareholders & OP unit holders		35,455		(746)		34,709		36,895		309		37,204		35,289		4,456		39,745

OFFO per share		0.61		(0.01)		0.60		0.64		0.01		0.64		0.62		0.08		0.70
Fully diluted weighted average shares outstanding		58,251		58,251		58,251		58,080		58,080		58,080		56,833		56,833		56,833

Adjustments:
Transaction, integration and impairment costs		(901)		—		(901)		(653)		—		(653)		(1,114)		—		(1,114)
Restructuring costs		—		(13,737)		(13,737)		—		(11,430)		(11,430)		—		—		—
Tax benefit associated with restructuring, transaction and integration costs		—		571		571		—		41		41		—		—		—
Real estate depreciation and amortization		(34,023)		(556)		(34,579)		(33,093)		(750)		(33,843)		(30,385)		(852)		(31,237)
Preferred stock dividends		7,045		—		7,045		2,248		—		2,248		—		—		—
Net income (loss)	$	7,576	$	(14,468)	$	(6,892)	$	5,397	$	(11,830)	$	(6,433)	$	3,790	$	3,604	$	7,394

(1)

Consists of property operating costs as well as real estate taxes and insurance.


	Nine Months Ended						Nine Months Ended
	September 30, 2018						September 30, 2017
Selected Income Statement Data	Core		Non-Core		Total		Core		Non-Core		Total
Total Revenues	$	310,452	$	27,735	$	338,187	$	269,775	$	57,824	$	327,599
Less: Operating costs (1)		109,210		12,201		121,411		99,606		21,613		121,219
Net operating income		201,242		15,534		216,776		170,169		36,211		206,380

Less: General & administrative expenses (excluding equity-based compensation expense)		42,409		9,338		51,747		41,720		14,184		55,904
Adjusted EBITDA		158,833		6,196		165,029		128,449		22,027		150,476

Less:
Equity-based compensation expense		11,441		—		11,441		9,258		1,249		10,507
Interest income		(92)		—		(92)		(66)		—		(66)
Interest expense		22,686		13		22,699		22,448		26		22,474
Tax expense (benefit) from operating results		(998)		—		(998)		(5,776)		372		(5,404)
Non real estate depreciation and amortization		6,958		4,195		11,153		6,064		6,704		12,768
Preferred stock dividends		9,621		—		9,621		—		—		—
Operating FFO available to common shareholders & OP unit holders		109,217		1,988		111,205		96,521		13,676		110,197

OFFO per share		1.88		0.03		1.91		1.72		0.24		1.96

Adjustments:
Transaction, integration and impairment costs		(2,474)		—		(2,474)		(1,611)		—		(1,611)
Restructuring costs		—		(33,697)		(33,697)		—		—		—
Tax benefit associated with restructuring, transaction and integration costs		—		2,247		2,247		—		—		—
Real estate depreciation and amortization		(98,308)		(2,171)		(100,479)		(88,512)		(2,504)		(91,016)
Preferred stock dividends		9,621		—		9,621		—		—		—
Net income (loss)	$	18,056	$	(31,633)	$	(13,577)	$	6,398	$	11,172	$	17,570

(1)

Consists of property operating costs as well as real estate taxes and insurance.


33 QTS Q3 Earnings 2018	Contact: IR@qtsdatacenters.com

QTS Realty Trust, Inc. - FORM 8-K - EX-99.2 - October 29, 2018

Attached files

QTS Realty Trust, Inc. Reports