© 2016 QTS. All Rights Reserved.© 2016 QTS. All Rights Reserved.
QTS REALTY TRUST, INC.Fourth Quarter and Year-End 2016 Earnings Presentation
February 22, 2017
© 2016 QTS. All Rights Reserved.
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Some of the statements contained in this presentation constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions are forward-looking statements. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.The forward-looking statements contained in this presentation reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: § adverse economic or real estate developments in our markets or the technology industry;;
§ global, national and local economic conditions;;
§ risks related to our international operations;;§ difficulties in identifying properties to acquire and completing acquisitions;;
§ our 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 we operate;;
§ defaults on, or termination or non-renewal of, leases by customers;; § increased interest rates and operating costs, including increased energy costs;;
§ financing risks, including our failure to obtain necessary outside financing;;
§ decreased rental rates or increased vacancy rates;;
§ dependence on third parties to provide Internet, telecommunications and network connectivity to our data centers;;
§ our failure to qualify and maintain our qualification as a REIT;; § 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 our good faith beliefs, they are not guarantees of future performance. Any forward-looking statement speaks only as of the date on which it was made. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 (“10-K”) and in the other periodic reports we file with the Securities and Exchange Commission. This presentation includes measures not derived in accordance with generally accepted accounting principles (“GAAP”), such as FFO, operating FFO, adjusted Operating FFO, EBITDA, adjusted EBITDA, NOI, ROIC and MRR. These measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP, and may also be inconsistent with similar measures presented by other companies. Reconciliation of these measures to the most closely comparable GAAP measures are presented in the attached pages. We refer you to the appendix of this presentation for reconciliations of these measures and to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations--Non-GAAP Financial Measures" in our 10-K for further information regarding these measures.
FORWARD LOOKING STATEMENTS
© 2016 QTS. All Rights Reserved.
Chad WilliamsChairman & Chief Executive Officer
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Integrated Services Platform Places QTS in the Middle of the Shift to Hybrid IT
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Hybrid Solutions
Multi-Tenant Data Center
Private Cloud & Managed Services
Managed Support of PublicCloud
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$200.9
$257.0
2015 2016
$311.1
$402.4
2015 2016
$140.0
$184.3
2015 2016
$103.9
$140.7
2015 2016
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2016 Year in Review
Revenue ($M) NOI ($M)
Adjusted EBITDA ($M) Operating FFO ($M)
§ Strong Y/Y growth on all key financial metrics
§ 14.8% unlevered return on invested capital for 2016
§ Significant booked-not-billed backlog of $43M as of year-end
§ Added 114 new customer logos (+28% Y/Y)
§ Signed $48M of net incremental annualized rent (+21% Y/Y)
§ Deepened presence in existing markets – Atlanta, Dallas & Richmond
§ Successful launch of new site in Chicago
§ Opportunistically expanded via acquisitions in Piscataway, NJ and Fort Worth, TX
§ Enhanced our product portfolio
2016 Highlights
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QTS Fort Worth, Texas
Transaction Benefits
Transaction Summary
§ Acquired 53 acre data center campus in Fort Worth, TX from HCSC for $50 million
§ Gross square feet: 260,000§ Current built out capacity: 40,000 raised floor SF and 8MW of gross power
§ Signed 1MW lease with HCSC to remain the anchor tenant in the facility, commencing April 1, 2017
§ Mega scale: capacity to double raised floor SF and gross MW within powered shell;; ultimately, including adjacent land, able to expand to 300,000+ raised floor SF and 60MW of gross power
§ Low basis: purchase price ~$6 million per MW, below average market cost to build
§ Incremental capacity: provides immediate sellable capacity in one of the most attractive Tier 1 data center markets in the U.S.
§ Establishes strategic relationship with new logo: provides potential opportunity to expand relationship across QTS’ broader footprint over time
Growth Strategy: opportunistically acquire and manage enterprise-owned data center infrastructure that is underutilized by current owners
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Customer Win Highlights§ Lease expansion in Piscataway with an existing tenant
- C1 lease expansion with 5-year term that increases MRR from customer by 35%
- Demonstrates value that customers see in QTS’ high-end customer service, customized solutions and premium security & compliance
- Continued successful execution since acquiring property in June ‘16
§ C1 expansion for one of QTS’ largest customers- Leading SaaS cloud provider in multiple QTS data centers
expanding in QTS Suwanee- When ramped, customer will expand footprint by 1.2MW, increasing
total footprint by approximately 10%- Expanding based on our long standing relationship and premium
customer service
§ New logo signs contract for C2/C3 services in 2 locations- Fortune 1000 digital media company- Selected QTS Vault Campus (Dulles, VA) and Irving, TX- Selected based on QTS’ ability to deliver a hybrid IT solution
including on-ramp to public cloud
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§ Signed new and modified leases representing $11.6M of net incremental annualized rent in Q4 ‘16- In line with prior four-quarter average (P4QA)
§ Q4 churn of 0.7%;; full-year 2016 churn of 5.6%
Leasing and Pricing Trends
§ New & Modified Leases- Pricing up 16% compared to P4QA
- C1 pricing 9% above P4QA due to mix of smaller C1 deals signed and continued positive pricing trends across our markets
- C2/C3 pricing ~40% above P4QA due to several large C3 deals signed in Q4
Annualized Rent Signed ($M)*
* Reflects incremental annualized rent signed from new and modified leases
Leasing Highlights
§ Renewal Leases- Renewal rates up 4.7% compared to pre-renewal rates
- Continue to expect renewal increases in the low-to-mid single digits
§ Commenced Leases- C1 pricing declined due to higher mix of larger C1 commencements which also drove increased volume
- C2/C3 pricing also down due to higher mix of relatively larger footprint C2 deals
Pricing Highlights
$9.8$8.6
$13.3$14.5
$11.6
Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16
Avg. $11.6M
© 2016 QTS. All Rights Reserved.
Bill Schafer Chief Financial Officer
© 2016 QTS. All Rights Reserved.
Development Summary
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§ Operating at 88.2% utilization on space built out and available for sale§ Total raised floor of 1,345,680 square feet, representing approximately half of ~2.5 million square feet of total powered shell capacity
§ Forecast bringing additional 151,359 square feet online in 2017
Raised Floor Development
Richmond 167,309 - 390,000 557,309
Atlanta-Metro 452,986 30,000 44,200 527,186
Irving 27,634 123,248 51,359 101,094 275,701
Princeton 58,157 - 100,000 158,157
Atlanta-Suwanee 20,186 205,608 - - 205,608
Piscataway 88,820 10,000 77,180 176,000
Chicago 14,000 28,000 166,000 208,000
Fort Worth 600 16,000 63,400 80,000
Leased facilities acquired in 2015 70,569 12,000 11,606 94,175
Santa Clara 55,905 4,000 21,035 80,940
Jersey City 31,503 - 21,241 52,744
Sacramento 54,595 - 3,311 57,906
Miami 19,887 - - 19,887
Other 2,493 - - 2,493
Total 47,820 1,345,680 151,359 999,067 2,496,106
TotalQ4 2016 Expansion
Future Available
Q4 2016 Raised Floor
Under Construction (through 12/31/17)
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$13 $9 $3
$141
$302
$509
2017 2018 2019 2020 2021 2022+
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Balance Sheet Update
§ $978 million total debt as of quarter-end
§ Net Debt to LQA adj. EBITDA of 5.0x
§ No significant maturities until 2020
§ Significant booked-not-billed backlog provides visibility into future growth and cash flow
§ Total available liquidity of approximately $571 million as of December 31, 2016
Highlights$3.7 Billion
12/31/16 Capital Structure2
Debt Maturities ($M)
1. Includes two term loans ($200 million and $300 million) and $139 million of borrowings on the Company’s revolving credit facility as of December 31, 20162. Market Cap calculated as follows: total Class A and Class B common stock and OP units of 55.5 million, multiplied by the December 31, 2016 stock price of $49.65 per share.
Capital Leases $39m
Unsecured Credit Facility $639m1
Senior Notes $300m
Market Cap $2,758m2
Note: May not sum due to rounding
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Full Year 2017 Guidance
*
*
1. Reflects cash capital expenditures and excluding capital expenditures from acquisitions
§ Revenue growth of 11% - 13%§ Expect revenue growth to be back-end loaded, ramping during the year§ NOI margin down approximately 100 basis points relative to 2016§ Adjusted EBITDA margin in line with 2016§ ’17 OFFO and OFFO per share guidance includes a non-cash tax benefit of
approximately $3 million (vs. $6.4 million recognized in 2016)§ Annual rental churn: high end of 5% – 8% historical guidance
Low Mid HighAdjusted EBITDA $184m $203m $207m $211mOperating FFO $141m $151m $154m $157mOperating FFO per share $2.61 $2.64 $2.70 $2.76
Capital Expenditures1 $279m $325m $350m $375m
2016 Results
2017 Guidance
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Thank You
© 2016 QTS. All Rights Reserved.
Appendix
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NOI Reconciliation
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1. Includes facility level general and administrative expense allocation charges of 4% of cash revenue for all facilities, with the exception of the leased facilities acquired in 2015, which include general and administrative expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.3 million, $5.2 million and $5.2 million for the three month periods ended December 31, 2016, September 30, 2016, and December 31, 2015, respectively, and $20.6 million and $15.2 million for the years ended December 31, 2016 and 2015, respectively.
2. Includes results of the Piscataway facility for the period June 6, 2016 through December 31, 2016
$ in thousandsNet Operating Income (NOI)Net income $ 5,481 $ 6,538 $ 5,334 $ 24,685 $ 24,129 Interest expense 6,125 6,179 5,730 23,159 21,289 Interest income - (1) - (3) (2) Depreciation and amortization 33,093 32,699 27,020 124,786 85,811 Write off of unamortized deferred finance costs 194 - 385 193 468 Tax benefit of taxable REIT subsidiaries (707) (4,210) (4,370) (9,976) (10,065) Integration costs 1,134 3,355 4,552 9,568 6,334 Transaction costs 387 110 474 1,338 4,948 Loss on sale of real estate - - 164 - 164 General and administrative expenses 21,450 19,942 19,890 83,286 67,783 NOI (1) $ 67,157 $ 64,612 $ 59,179 $ 257,036 $ 200,859 Breakdown of NOI by facility:Atlanta-Metro data center $ 20,187 $ 20,030 $ 18,256 $ 81,074 $ 69,861 Atlanta-Suwanee data center 11,937 11,051 10,488 45,760 41,088 Santa Clara data center 3,325 2,961 3,786 13,703 14,352 Richmond data center 8,324 7,850 6,431 30,752 20,959 Sacramento data center 1,892 1,780 1,875 7,734 7,516 Princeton data center 2,364 2,468 2,471 9,544 9,461 Irving data center 4,952 5,118 1,804 16,608 5,547 Leased data centers acquired in 2015 9,848 10,487 12,885 41,785 27,595 Piscataway data center (2) 2,871 2,086 - 5,627 - Other facilities 1,457 781 1,183 4,449 4,480 NOI (1) $ 67,157 $ 64,612 $ 59,179 $ 257,036 $ 200,859
Three Months Ended Year EndedDecember 31, September 30, December 31, December 31,
2016 2016 2015 2016 2015
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EBITDA & Adjusted EBITDA Reconciliation
$ in thousandsEBITDA and Adjusted EBITDANet income $ 5,481 $ 6,538 $ 5,334 $ 24,685 $ 24,129 Interest expense 6,125 6,179 5,730 23,159 21,289 Interest income - (1) - (3) (2) Tax benefit of taxable REIT subsidiaries (707) (4,210) (4,370) (9,976) (10,065) Depreciation and amortization 33,093 32,699 27,020 124,786 85,811 EBITDA 43,992 41,205 33,714 162,651 121,162 Write off of unamortized deferred finance costs 194 - 385 193 468 Equity-based compensation expense 2,697 2,637 1,758 10,584 6,964 Integration costs 1,134 3,355 4,552 9,568 6,334 Transaction costs 387 110 474 1,338 4,948 Loss on sale of real estate - - 164 - 164 Adjusted EBITDA $ 48,404 $ 47,307 $ 41,047 $ 184,334 $ 140,040
Three Months Ended Year EndedDecember 31, September 30, December 31, December 31,
2016 2016 2015 2016 2015
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FFO & Operating FFO Reconciliation
*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
$ in thousandsFFONet income $ 5,481 $ 6,538 $ 5,334 $ 24,685 $ 24,129 Real estate depreciation and amortization 28,703 28,493 22,575 108,474 74,224 Loss on sale of real estate - - 164 - 164 FFO 34,184 35,031 28,073 133,159 98,517
Write off of unamortized deferred finance costs 193 - 385 193 468 Integration costs 1,134 3,355 4,552 9,568 6,334 Transaction costs 387 110 474 1,338 4,948 Tax benefit associated with transaction and integration costs (525) (1,136) (1,970) (3,592) (3,176) Non-cash reversal of deferred tax asset valuation allowance - - - - (3,175) Operating FFO * 35,373 37,360 31,514 140,666 103,916
Maintenance Capex (2,613) (1,731) (2,711) (5,059) (4,745) Leasing commissions paid (5,154) (4,402) (3,237) (18,751) (13,108) Amortization of deferred financing costs and bond discount 912 879 872 3,545 3,424 Non real estate depreciation and amortization 4,390 4,207 4,445 16,313 11,531 Straight line rent revenue and expense and other (984) (957) (2,398) (6,794) (4,402) Tax benefit from operating results (181) (3,075) (2,400) (6,384) (3,754) Equity-based compensation expense 2,697 2,637 1,758 10,584 6,964 Adjusted Operating FFO * $ 34,440 $ 34,918 $ 27,843 $ 134,120 $ 99,826
Three Months Ended Year EndedDecember 31, September 30, December 31, December 31,
2016 2016 2015 2016 2015
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MRR Reconciliation
$ in thousandsRecognized MRR in the periodTotal period revenues (GAAP basis) $ 105,443 $ 103,465 $ 92,690 $ 402,363 $ 311,083 Less: Total period recoveries (8,965) (8,703) (5,177) (29,271) (22,581) Total period deferred setup fees (2,636) (2,377) (1,907) (9,172) (6,042) Total period straight line rent and other (2,867) (3,697) (4,456) (16,589) (12,677)
Recognized MRR in the period 90,975 88,688 81,150 347,331 269,783 MRR at period endTotal period revenues (GAAP basis) $ 105,443 $ 103,465 $ 92,690 $ 402,363 $ 311,083 Less: Total revenues excluding last month (69,465) (69,427) (61,627) (366,385) (280,020) Total revenues for last month of period 35,978 34,038 31,063 35,978 31,063 Less: Last month recoveries (3,247) (2,398) (1,415) (3,247) (1,415) Last month deferred setup fees (968) (828) (716) (968) (716) Last month straight line rent and other (873) (1,034) (1,443) (873) (1,443)
MRR at period end $ 30,890 $ 29,778 $ 27,489 $ 30,890 $ 27,489
Three Months Ended Year EndedDecember 31, September 30, December 31, December 31,
2016 2016 2015 2016 2015