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Exhibit 99.2

 

 

 

 

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Table of Contents

 

 

Overview
Company Profile			3
Financial Statements
Summary of Financial Data			4
Reconciliations of Return on Invested Capital (ROIC)			5
Implied Enterprise Value and Equity Breakdown			6
Operating Portfolio
Data Center Properties			7
Change in Operating NRSF			8
Redevelopment Costs Summary			9
Redevelopment Summary			10
NOI by Facility and Capital Expenditure Summary			11
Leasing Statistics – Signed Leases			12
Leasing Statistics – Renewed Leases and Rental Churn			13
Leasing Statistics – Commenced Leases			14
Lease Expirations			15
Largest Customers			16
Industry Segmentation			17
Product Diversification			18
Capital Structure
Debt Summary and Debt Maturities			19
Interest Summary			20
Appendix			21

 

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Forward Looking Statements

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

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

While forward-looking statements reflect the Company’s good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the Company’s final prospectus related to its IPO filed with the Securities and Exchange Commission on October 10, 2013.

 

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Company Profile

 

 

 

 

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Summary of Financial Data

 

 

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

Our financial and operating data for the three months ended December 31, 2013, and as of December 31, 2013, includes results on a consolidated basis for the Predecessor and the Company:

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
Summary of Results		2013				2013				2012				2013				2012
Total revenue		$	47,429			$	46,020			$	38,173			$	177,887			$	145,759
Net income (loss)			4,447				2,709				(1,608	)			3,850				(9,767	)
Other Data
FFO		$	16,213			$	13,440			$	6,364			$	45,964			$	20,253
Operating FFO			16,432				13,440				6,857				49,512				25,568
Adjusted Operating FFO			16,292				12,932				6,917				47,408				25,067
Recognized MRR in the period			41,881				39,914				33,009				155,579				128,533
MRR (at period end)			14,138				13,799				11,857				14,138				11,857
EBITDA			20,354				19,184				14,122				69,914				50,244
Adjusted EBITDA			21,228				19,694				14,686				75,422				55,330
NOI			30,421				29,281				24,742				112,645				90,904
NOI as a % of revenue			64.1	%			63.6	%			64.8	%			63.3	%			62.4	%
Adjusted EBITDA as a % of revenue			44.8	%			42.8	%			38.5	%			42.4	%			38.0	%
Annualized ROIC			15.7	%			15.6	%			15.6	%			15.5	%			15.7	%
General and administrative expenses as a % of revenue			20.8	%			21.9	%			26.5	%			22.0	%			24.7	%

 

Balance Sheet Data		December 31, 2013				December 31, 2012
Real estate at cost		$	905,735			$	734,829
Net investment in real estate			768,010				631,928
Total assets			831,356				685,443
Credit facilities, mortgages payables, and capital leases			347,877				490,282
Debt to last quarter annualized Adjusted EBITDA			4.1x
Debt to Undepreciated real estate assets			38.4	%
Debt to Implied Enterprise Value			27.6	%

 

Operating Portfolio Statistics		December 31, 2013				December 31, 2012
Built out square footage:
Raised floor			689,587				651,236
Leasable raised floor (1)			485,546				483,871
Leased raised floor			446,353				418,204
Total Raw Shell:
Total			3,779,519				3,054,049
Basis-of-design raised floor space (1)			1,804,777				1,519,086
Data center properties			10				9
Basis of design raised floor capacity			38.2	%			42.9	%
Data center % occupied			91.9	%			86.4	%

 

(1)	See definition in Appendix.

 

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Reconciliations of Return on Invested Capital (ROIC)

 

 

(in thousands)

 

Return on Invested Capital (ROIC)		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2013				2013				2012				2013				2012
NOI		$	30,421			$	29,281			$	24,742			$	112,645			$	90,904
Annualized NOI			121,684				117,124				98,968				112,645				90,904
Average Undepreciated Real Estate Assets and other Net Fixed Assets Placed in Service			776,729				748,490				633,111				726,616				578,254
Annualized ROIC			15.7	%			15.6	%			15.6	%			15.5	%			15.7	%
Calculation of Average Undepreciated Real Estate Assets and other Net Fixed Assets  Placed in Service		As of												As of
Undepreciated Real Estate Assets and other Net Fixed Assets Placed in  Service		December 31, 2013				September 30, 2013				December 31, 2012				December 31, 2013				December 31, 2012
Real Estate Assets, net		$	768,011			$	719,683			$	631,927			$	768,011			$	631,927
Less: Construction in progress			(146,905	)			(106,630	)			(87,609	)			(146,905	)			(87,609	)
Plus: Accumulated depreciation			137,725				128,703				102,901				137,725				102,901
Plus: Other fixed assets, net			7,292				10,211				5,153				7,292				5,153
Plus: Acquired intangibles, net			5,397				6,850				9,276				5,397				9,276
Plus: Leasing Commissions, net			11,858				11,262				8,206				11,858				8,206
Total as of period end		$	783,378			$	770,079			$	669,854			$	783,378			$	669,854
Average undepreciated real estate assets and other net fixed assets as of reporting period (1)		$	776,729			$	748,490			$	633,111			$	726,616			$	578,254

 

(1)	Calculated by using quarterly balance of each account.

 

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Implied Enterprise Value and Equity Breakdown

 

 

 

Implied Enterprise Value as of December 31, 2013:
Total Shares Outstanding:
Class A Common Stock			28,731,145
Class B Common Stock			133,000
Total Shares Outstanding			28,864,145
Units of Limited Partnership (1)			7,930,843
Options to purchase Class A Common Stock (2)			56,503
Fully Diluted Total Shares and Units of Limited Partnership outstanding			36,851,491
Share price as of December 31, 2013		$	24.78
Market equity capitalization (in thousands)		$	913,180
Debt (in thousands)			347,877
Implied Enterprise Value (in thousands)		$	1,261,057

 

(1)	Includes 25,214 of operating partnership units representing the “in the money” value of Class O LTIP units on an “as if” converted basis

(2)	Includes 56,503 options to purchase Class A Common Stock in QTS Realty Trust Inc. options representing the “in the money” value options on an “as if” converted basis.

 

Equity Breakdown as of December 31, 2013 ($ in thousands):
Members equity on Oct 14, 2013		$	125,483
Net proceeds from IPO			279,090
Total equity at IPO			404,573
Net income from Oct 15 – Dec 31, 2013			4,002
Other comprehensive income from Oct 15 – Dec 31, 2013			94
Dividend to common shareholders			(6,953	)
Distribution to noncontrolling interest holders			(2,012	)
Total equity		$	399,704
Common stock		$	289
Additional paid-in capital			318,834
Accumulated other comprehensive loss			(357	)
Retained earnings			3,154
Dividend to common shareholders			(6,953	)
Total stockholders’ equity			314,967
Noncontrolling interests (1)			84,737
Total equity		$	399,704

 

(1)	Concurrently with the completion of the IPO, QTS Realty Trust, Inc. became the sole general partner and majority owner of QualityTech, LP, which then became its operating partnership. The previous owners of QualityTech, LP retained 21.2% of ownership in operating partnership.

 

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Data Center Properties

 

 

(in thousands, except NRSF data)

The following table presents an overview of the portfolio of data center properties that the Company owns or leases, referred to herein as our data center properties, based on information as of December 31, 2013:

 

										Operating Net Rentable Square Feet (Operating NRSF) (3)																								Available
																																		Utility				Basis of				%
Property		Year Acquired (1)				Square Feet (2)				Raised Floor (4)				Office & Other (5)				Supporting Infrastructure (6)				Total				% Leased (7)				Annualized Rent (8)				Power (MW) (9)				Design NRSF				Raised Floor
Richmond, VA			2010				1,318,353				84,511				27,214				113,091				224,816				80.2	%		$	14,860,819				110				556,595				15.2
Atlanta, GA (Metro)			2006				968,695				292,070				24,851				308,527				625,448				99.8	%		$	66,350,200				72				527,216				55.4
Dallas, TX			2013				698,000				—				—				—				—				N/A	%		$	—				140				292,000				—
Suwanee, GA			2005				367,322				155,422				5,981				99,760				261,163				87.4	%		$	41,968,647				36				214,422				72.5
Santa Clara, CA**			2007				135,322				55,494				1,146				45,721				102,361				89.6	%		$	19,322,590				11				80,548				68.9
Jersey City, NJ*			2006				122,448				31,503				14,220				35,387				81,110				75.6	%		$	10,518,580				7				52,744				59.8
Sacramento, CA			2012				92,644				45,595				3,592				27,100				76,287				90.7	%		$	11,815,827				8				56,260				81.0
Overland Park, KS*			2003				32,706				2,493				—				5,338				7,831				71.2	%		$	611,025				1				2,493				100
Miami, FL			2008				30,029				19,887				—				6,592				26,479				55.6	%		$	3,990,391				4				19,887				100
Wichita, KS			2005				14,000				2,612				2,854				8,534				14,000				100.0	%		$	222,120				1				2,612				100
Total							3,779,519				689,587				79,858				650,050				1,419,495				91.9	%		$	169,660,199				390				1,804,777				38.2

 

(1)	Represents the year a property was acquired or, in the case of a property under lease, the year our initial lease commenced for the property.

(2)

With respect to our 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 171,755 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 our own office space.

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

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

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

(7)	Calculated as data center raised floor that is subject to a signed lease for which billing has commenced as of December 31, 2013 divided by leasable raised floor based on the current configuration of the properties (485,546 square feet as of December 31, 2013), expressed as a percentage.

(8)

Annualized rent is presented for leases commenced as of December 31, 2013. The Company define annualized rent as MRR multiplied by 12. The Company calculates MRR as monthly contractual revenue under executed contracts as of a particular date, which includes revenue from our C1, C2 and C3 rental activities and cloud and managed services, but excludes customer recoveries, deferred set up fees and other one-time and variable revenues. MRR does not include the impact from booked not billed contracts as of a particular date, unless otherwise specifically noted.

(9)	Represents installed utility power and transformation capacity that is available for use by the facility as of December 31, 2013.

 

*

Represents facilities that we lease.

**

Subject to long term ground lease.

NOTE: Excludes our facility at Lenexa, Kansas, which is not an operating data center.

 

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Change in Operating NRSF

 

 

During the quarter, QTS had a net reduction of approximately 51,000 of net rentable square feet (“NRSF”). QTS obtained approximately 66,000 NRSF from a prior C1 tenant in the Atlanta-Metro facility which is currently being redeveloped for another C1 tenant and additional C2 rental space. During the fourth quarter of 2013, QTS placed 15,000 NRSF into service in the Atlanta-Suwanee facility and placed capital of $12 million into service on its platform. For the year ended December 31, 2013, QTS brought a net amount of approximately 112,000 NRSF of Raised Floor Capacity into service at an aggregate cost of $112 million.

The table below sets forth the changes in each category of operating NRSF during the fourth quarter of 2013 and for the year ended December 31, 2013.

 

		Change in Raised Floor NRSF
Property		Three Months Ended December 31, 2013 (1)				Year Ended December 31, 2013
Richmond, VA			—				24,581
Atlanta, GA (Atlanta – Metro)			(65,946	)			(30,946	)
Suwanee, GA (Atlanta – Suwanee)			15,000				50,000
Jersey City, NJ(1)			—				(5,480	)
Total			(50,946	)			38,155

 

(1)	Represents facility that QTS leases.

 

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Redevelopment Costs Summary

 

 

(in thousands, except NRSF data)

The under construction table below summarizes our outlook for development projects which we expect to complete by December 31, 2014 (in millions). The majority of capital in this plan is discretionary. In addition to the projects completed in the fourth quarter of 2013, this table reflects modifications to our capital plan as of December 31, 2013, relating to our plan to operate our facilities at higher efficiency levels and to better match new capacity with lease-up at each facility.

 

		Under Construction Costs (3)
Property		Actual (1)				Estimated Cost to Completion (2)				Total				Expected Completion date
Atlanta Metro		$	30			$	32			$	62				Q2 2014
Dallas			25				31				56				Q3 2014
Richmond			26				3				29				Q2 2014
Sacramento			4				4				8				Q2 2014
Atlanta Suwanee			—				2				2				Q2 2014
Totals		$	85			$	72			$	157

 

(1)

Actual for NRSF under construction through December 31, 2013. In addition to the $85 million of construction costs incurred through December 31, 2013 for redevelopment expected to be completed by December 31, 2014, as of December 31, 2013 we had incurred $62 million of additional costs (including acquisition costs and other capitalized costs) for other redevelopment projects that are expected to be completed after December 31, 2014.

(2)	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 our current basis of design.

(3)

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

 

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Redevelopment Summary

 

 

(in thousands, except NRSF data)

The following redevelopment table presents an overview of our redevelopment pipeline, based on information as of December 31, 2013. This table shows our ability to increase our raised floor of 689,587 square feet by more than 2.5 times to over 1,800,000 square feet:

 

		Raised Floor NRSF Overview as of December 31, 2013
Property		Current NRSF in Service				Under Construction (1)				Future Available (2)				Basis of Design NRSF
Richmond			84,511				22,084				450,000				556,595
Atlanta Metro			292,070				100,946				134,200				527,216
Dallas			—				26,000				266,000				292,000
Suwanee			155,422				30,000				29,000				214,422
Santa Clara			55,494				—				25,054				80,548
Jersey City			31,503				—				21,241				52,744
Sacramento			45,595				9,000				1,665				56,260
Overland Park			2,493				—				—				2,493
Wichita			2,612				—				—				2,612
Miami			19,887				—				—				19,887
Totals			689,587				188,030				927,160				1,804,777

 

(1)	Reflects NRSF at a facility for which the initiation of substantial activities to prepare the property for its intended use is available on or before December 31, 2014.

(2)	Reflects NRSF at a facility for which the initiation of substantial activities to prepare the property for its intended use is available after December 31, 2014.

 

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NOI by Facility and Capital Expenditure Summary

 

 

(in thousands, except NRSF data)

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

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2013				2013				2012				2013				2012
Breakdown of NOI by facility:
Atlanta-Metro data center		$	13,654			$	13,740			$	11,967			$	52,393			$	42,787
Atlanta-Suwanee data center			8,210				7,517				6,853				29,155				30,471
Santa Clara data center			2,640				2,801				3,131				10,939				11,183
Richmond data center			2,780				2,859				2,180				10,318				6,094
Sacramento data center (1)			2,061				1,752				240				7,699				240
Other data centers			1,076				612				371				2,141				129
NOI		$	30,421			$	29,281			$	24,742			$	112,645			$	90,904

 

(1)	Facility was acquired in December 2012.

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

 

		Real Estate Capital Expenditures (1)
		Three Months Ended December 31,								Year Ended December 31,
		2013				2012				2013				2012
Redevelopment		$	53,280			$	26,534			$	132,755			$	102,330
Acquisitions			—				53,920				21,173				56,544
Dispositions			—				—				—				(601	)
Maintenance capital expenditures			298				1,011				2,538				1,725
Other capitalized costs			3,771				2,874				14,441				11,093
Total capital expenditures		$	57,349			$	84,339			$	170,907			$	171,091

 

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

 

11    QTS Q4 Earnings 2013		Contact: IR@qtsdatacenters.com

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Leasing Statistics – Signed Leases

 

 

(in thousands)

The mix of sales has significant impact on quarterly rates, both within major product segments and for overall blended leasing rates. QTS rate performance will vary quarter to quarter based on the mix of deals sold – C1 Custom Data Center, C2 Colocation (Cabinet, Cage and Suite), and C3 Cloud and Managed Services categories all vary on rate per square foot basis. The amounts below include renewals when there was a change in square footage rented, but not renewals where square footage remained consistent before and after renewal (See renewal table on page 14 for such renewals).

During the fourth quarter of 2013, the Company signed 285 new and modified leases aggregating to $14.2 million of annualized rent which includes new leased revenue plus revenue from modified renewals. Removing annualized modified renewal MRR and deducting period downgrades results in $9.3 million in incremental annualized rent. The average rent per square foot was approximately $351 per square foot which compares to a trailing four quarter average rate per square foot of approximately $353. Overall fourth quarter 2013 new/modified lease rates are slightly below the trailing four quarter average due to higher mix of C1 business in the quarter.

The prior four quarter average of $353 per square foot is below overall installed base rates as a function of mega-C1 customer upgrades in first quarter of 2013. As these C1 customers ramp their deployment over 2013 and 2014, we expect marginal pressure on overall blended C1 rates. A mega-C1 customer returned a significant amount of space in the fourth quarter of 2013 with a smaller reduction in MRR, resulting in higher effective rates per square foot, which will help overall blended C1 rates moving forward. The fourth quarter 2013 C1 rates reflect the discounts we have provided to our largest customers and are not indicative of the rest of our C1 business which typically purchases much smaller power increments (500KW-1MW versus multiple MW contracts reflected in the second half of 2013).

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

 

		Period				Number of Leases				Total Leased sq ft				Annualized Rent per Leased sq ft				Annualized Rent of New and Modified Leases				Incremental Annualized Rent, Net of Downgrades
New/modified leases signed – Total			Q4 2013				285				40,632			$	351			$	14,241,606			$	9,252,764
			P4QA	*			320				40,339				353				14,237,430				9,689,243
			Q3 2013				351				23,138				566				13,086,021				8,230,201
			Q2 2013				355				17,151				748				12,822,584				8,324,853
			Q1 2013				334				110,298				209				23,023,046				17,233,394
			Q4 2012				238				10,770				744				8,018,068				4,968,522
New/modified leases signed – C1			Q4 2013				15				34,354			$	187			$	6,434,898
			P4QA	*			14				32,700				185				6,053,968
			Q3 2013				11				11,446				235				2,695,290
			Q2 2013				11				7,920				291				2,301,818
			Q1 2013				10				106,085				162				17,168,784
			Q4 2012				23				5,349				383				2,049,979
New/modified leases signed – C2/C3			Q4 2013				270				6,278			$	1,244			$	7,806,708
			P4QA	*			306				7,639				1,071				8,183,462
			Q3 2013				340				11,692				889				10,390,731
			Q2 2013				344				9,231				1,140				10,520,766
			Q1 2013				324				4,213				1,390				5,854,262
			Q4 2012				215				5,421				1,101				5,968,088

 

*	Average of prior 4 quarters

Note: Figures above do not include cost recoveries. In general, C1 customers reimburse QTS for certain operating costs wheras C2/C3 customers are on a gross lease basis. As a result, pricing and resulting per square foot rates for the C2/C3 customers includes the recovery of such operating costs.

The following table outlines the Booked-not-billed (“BNB”) balance as of December 31, 2013 and how that will affect revenue in subsequent years:

 

Booked-not-billed (“BNB”)		2014				2015				Thereafter				Total
MRR		$	1,118,498			$	702,962			$	524,671			$	2,346,131
Incremental revenue			9,537,918				3,598,581				6,296,052
Annualized revenue			13,421,982				8,435,538				6,296,052				28,153,572

 

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Leasing Statistics – Renewed Leases and Rental Churn

 

 

(in thousands)

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

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

The overall blended rate for renewals signed in the fourth quarter was 1.1% lower than the rates for those customers immediately prior to renewal, which reflects the impact of a C2 customer which changed its product mix, resulting in a lower rate per square foot. This renewal represents 1 of our 50 renewed leases in the fourth quarter and the renewal rates in the fourth quarter of 2013 would have increased 3.3% without the impact of this renewal. The actual change in fourth quarter renewal rates compares to a prior four quarter average increase of 1.6%, which reflects the impact of 3 significant C2/C3 renewals signed in the first 2 quarters of 2013. These leases were extended at lower total effective rates as a function of services changes associated with the customer deployments. Overall renewal rate increases in the preceding four quarters would have been 4.1% without the impact of these first half 2013 lease renewals.

C2/C3 rates were down 1.1% in the fourth quarter and up 1.9% over preceding four quarters. Without the impact of the three leases noted above, C2/C3 renewal rates would have increased 4.3% in the preceding four quarters. In the fourth quarter of 2013, there was a single renewed lease that reflected a change in core power service that negatively impacted rates. Excluding the impact of this renewal in fourth quarter renewal performance would have increased 3.3%.

Rental Churn (which we define as MRR lost to complete termination of customer services in a given period compared to total MRR at the beginning of the period) for the fourth quarter of 2013 was 2.3% and 5.7% for the year ended December 31, 2013. This compares to rental churn for the fourth quarter of 2012 of 1.0%. and rental churn of 8.0% for the year ended December 31, 2012.

 

		Period				Number of renewed leases				Total Leased sq ft				Annualized rent per leased sq ft				Annualized Rent				Rent Change (1)
Renewed Leases – Total			Q4 2013				50				3,795			$	922			$	3,497,992				-1.1	%(2)
			P4QA	*			51				5,526			$	985			$	4,990,334				1.6	%
			Q3 2013				47				6,812			$	783			$	5,335,293				8.0	%
			Q2 2013				68				7,713			$	795			$	6,128,460				-1.8	%
			Q1 2013				53				5,548			$	1,051			$	5,833,380				-4.5	%
			Q4 2012				34				2,032			$	1,311			$	2,664,204				5.4	%
Renewed Leases – C1			Q4 2013				0				—			$	—			$	—				0.0	%
			P4QA	*			3				3,119			$	476			$	748,377				8.4	%
			Q3 2013				2				3,119			$	476			$	1,484,166				8.3	%
			Q2 2013				0				—			$	—			$	—				0.0	%
			Q1 2013				0				—			$	—			$	—				0.0	%
			Q4 2012				4				—			$	—			$	12,588				0.0	%
Renewed Leases – C2/C3			Q4 2013				50				3,795			$	922			$	3,497,992				-1.1	%
			P4QA	*			49				4,747			$	1,048			$	4,616,146				1.9	%
			Q3 2013				45				3,693			$	1,043			$	3,851,127				8.0	%
			Q2 2013				68				7,713			$	795			$	6,128,460				-1.8	%
			Q1 2013				53				5,548			$	1,051			$	5,833,380				-4.5	%
			Q4 2012				30				2,032			$	1,305			$	2,651,616				5.4	%

 

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

(2)	This decrease includes the impact of a C2 customer which changed its product mix resulting in a lower rate per square foot. The renewal rates in the fourth quarter of 2013 would have increased 3.3% without the impact of that renewal.

 

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Leasing Statistics – Commenced Leases

 

 

(in thousands)

The mix of sales across C1, C2 and C3 has significant impact on quarterly rates, both within major product segments and for overall blended commencement rates. QTS rate performance will vary quarter to quarter based on the mix of deals sold. C1 Custom Data Center, C2 Colocation , and C3 Cloud and Managed Services categories all vary on rate per sq ft basis.

During the fourth quarter of 2013, we commenced customer leases (which includes both new customers and existing customers that extended their lease terms) representing approximately $2.3 million of MRR and representing approximately $27.7 million of annualized rent at $280 per square foot. This compares to customer leases representing an aggregate trailing four quarter average of approximately $1.3 million of MRR (representing approximately $16.1 million of annualized rent) at $436 per square foot. Both the fourth quarter of 2013 and the trailing four quarter average rates reflect the impact of significant C1 lease commencements.

Initial commencements from a large C1 deal booked in the first quarter of 2013 impacted C1 commencement rates in the fourth quarter of 2013. Pricing for this strategic deal reflects the unique power commitment and lease size. The effects of the largest QTS C1 clients can also be seen in the fourth quarter of 2012, where new business and renewed leases for these two strategic customers also draw down average C1 rates.

C2/C3 average commencement rate for the fourth quarter of 2013 was $1,043.2 versus the trailing four quarter average of $1,075.2 and reflect the impact of several large C2 customers on overall rates. Related metrics reflect the presence of these large commencements and their larger footprint pricing economics – new MRR totaled $1.2 million ($14.2 million annualized) versus trailing average of $1.1 million ($11.5 million annualized) and space leased of 13,590, nearly 27% higher than the trailing average of 10,732 square feet.

 

		Period				Number of leases				Total Leased sq ft				Annualized rent per leased sq ft				Annualized Rent
Leases commenced – Total			Q4 2013				356				99,123			$	280			$	27,714,462
			P4QA	*			324				36,957				436				16,128,542
			Q3 2013				417				72,516				324				23,524,566
			Q2 2013				387				16,891				792				13,372,729
			Q1 2013				283				45,373				430				19,526,631
			Q4 2012				210				13,047				620				8,090,243
Leases commenced – C1			Q4 2013				25				85,533			$	158			$	13,536,139
			P4QA	*			26				26,225				175				4,589,050
			Q3 2013				31				56,878				152				8,635,316
			Q2 2013				29				6,775				198				1,343,731
			Q1 2013				25				34,801				202				7,025,724
			Q4 2012				20				6,444				210				1,351,431
Leases commenced – C2/C3			Q4 2013				331				13,590			$	1,043			$	14,178,324
			P4QA	*			298				10,732				1,075				11,539,492
			Q3 2013				386				15,638				952				14,889,250
			Q2 2013				358				10,116				1,189				12,028,998
			Q1 2013				258				10,572				1,182				12,500,907
			Q4 2012				190				6,603				1,021				6,738,812

 

*	Average of prior 4 quarters

 

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Lease Expirations

 

 

C1 leases are typically 5-7 years with the majority of C1 lease expirations occurring in 2016 and beyond. C2/C3 leases are typically 3 years in duration, thus the majority of C2/C3 lease expirations are in 2014 and 2015. The following table sets forth a summary schedule of the lease expirations as of December 31, 2013 at the properties in the Company’s portfolio. Unless otherwise stated in the footnotes, the information set forth in the table assumes that customers exercise no renewal options and all early termination rights are exercised:

 

Year of Lease Expiration (1)		Number of Leases Expiring (2)				Total Raised Floor of Expiring Leases				% of Portfolio Leased Raised Floor				Annualized Rent (3)				% of Portfolio Annualized Rent				C1 as % of Portfolio Annualized Rent				C2 as % of Portfolio Annualized Rent				C3 as % of Portfolio Annualized Rent
Month-to- Month (4)			313				16,915				4	%			12,189,321				7	%			1	%			6	%			1	%
2014			967				49,830				11	%			39,610,112				23	%			3	%			17	%			3	%
2015			685				44,761				10	%			33,402,815				20	%			2	%			16	%			1	%
2016			509				54,845				12	%			27,140,158				16	%			4	%			11	%			1	%
2017			76				52,771				12	%			14,336,154				8	%			7	%			1	%			0	%
2018			75				183,985				41	%			31,307,727				18	%			17	%			1	%			1	%
After 2018			50				42,654				10	%			11,673,912				7	%			6	%			0	%			1	%
Portfolio Total			2,675				445,761				100	%		$	169,660,199				100	%			40	%			52	%			8	%

 

(1)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement customers with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(2)	Represents each agreement with a customer signed as of December 31, 2013 for which billing has commenced; a lease agreement could include multiple spaces and a customer could have multiple leases.

(3)

Annualized rent is presented for leases commenced as of December 31, 2013. The Company defines annualized rent as MRR multiplied by 12. The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect the accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.

(4)	Consists of customers whose leases expired prior to December 31, 2013 and have continued on a month-to-month basis.

 

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Largest Customers

 

 

As of December 31, 2013, the Company’s portfolio was leased to over 880 customers comprised of companies of all sizes representing an array of industries, each with unique and varied business models and needs. The following table sets forth information regarding the ten largest customers in the portfolio based on annualized rent as of December 31, 2013:

 

Principal Customer Industry		Number of Locations				Annualized Rent (1)				% of Portfolio Annualized Rent				Weighted Average Remaining Lease Term (Months) (2)
Internet			1			$	12,652,580				7.5	%			57
Internet			1				9,644,400				5.7	%			58
Information Technology			3				4,758,047				2.8	%			19
Financial Services			1				4,318,740				2.5	%			37
Financial Services			1				3,640,053				2.1	%			19
Financial Services			2				3,244,109				1.9	%			48
Information Technology			1				3,174,000				1.9	%			114
Professional Services			1				3,134,220				1.8	%			17
Internet (3)			2				3,115,417				1.8	%			1
Information Technology			2				2,768,334				1.6	%			10
Total / Weighted Average						$	50,449,900				29.8	%			44

 

(1)

Annualized rent is presented for leases commenced as of December 31, 2013. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date. This amount reflects the annualized cash rental payments. It does not reflect any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.

(2)	Weighted average based on customer’s percentage of total annualized rent expiring and is as of December 31, 2013.

(3)	This customer is deployed across two QTS data centers; the Company and the customer are jointly working on finalizing their renewal requirements for a balanced product mix and returns across the two deployments.

 

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Industry Segmentation

 

 

The following table sets forth information relating to the industry segmentation as of December 31, 2013:

 

The following table sets forth information relating to the industry segmentation as of December 31, 2012:

 

 

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Product Diversification

 

 

The following table sets forth information relating to the distribution of leases at the properties, by type of product offering, as of December 31, 2013:

 

 

(1)

As of December 31, 2013, C1 customers renting over 6,600 square represented $34.5 million of annualized C1 MRR, C1 customers renting between 3,300 and 6,600 square feet represented $19.4 million of annualized C1 MRR and C1 customers renting below 3,300 square feet represented or $14.3 million of annualized C1 MRR. As of December 31, 2013, C1 customers’ median used square footage was 3,271 square feet.

The following table sets forth information relating to the distribution of leases at the properties, by type of product offering, as of December 31, 2012:

 

 

(1)

As of December 31, 2012, C1 customers renting over 6,600 square represented $24.1 million of annualized C1 MRR, C1 customers renting between 3,300 and 6,600 square feet represented $16.6 million of annualized C1 MRR and C1 customers renting below 3,300 square feet represented or $14.3 million of annualized C1 MRR. As of December 31, 2012, C1 customers’ median used square footage was 3,737 square feet.

 

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Debt Summary and Maturities

 

 

(in thousands)

 

		December 31, 2013				December 31, 2012
Secured Credit Facility		$	—			$	316,500
Unsecured Credit Facility			256,500				—
Richmond Credit Facility			70,000				70,000
Atlanta-Metro Equipment Loan			18,839				20,931
Miami Loan			—				26,048
Suwanee Land Loan			—				1,600
Lenexa Loan			—				2,712
Santa Clara Bridge Loan			—				50,000
Total (1)		$	345,339			$	487,791

 

(1)	Exclusive of capital lease obligations which totaled $2.5 million and $2.5 million as of December 31, 2013 and December 31, 2012, respectively.

As of December 31, 2013

 

Debt instruments		2014				2015				2016				2017				2018				Thereafter				Total
Unsecured Credit Facility (1)		$	—			$	—			$	—			$	31,500			$	225,000			$	—			$	256,500
Richmond Credit Facility (2)			—				70,000				—				—				—				—				70,000
Atlanta-Metro Equipment Loan			2,239				2,397				2,567				2,748				2,943				5,945				18,839
Total		$	2,239			$	72,397			$	2,567			$	34,248			$	227,943			$	5,945			$	345,339

 

(1)	Revolving portion of the Unsecured Credit Facility has a stated maturity of May 1, 2017 with an option to extend for one additional year.

(2)	Richmond Credit Facility has a stated maturity of December 18, 2015 with an option to extend for one additional year.

 

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Interest Summary

 

 

(in thousands)

 

		Three Months Ended
		December 31,				September 30,				December 31,				Years Ended December 31,
		2013				2013				2012				2013				2012
Interest expense and fees		$	3,171			$	4,508			$	5,976			$	19,548			$	23,469
Swap interest			156				146				—				536				493
Amortization of deferred financing costs			582				588				803				2,775				3,370
Capitalized interest (1)			(1,162	)			(899	)			(678	)			(4,135	)			(2,192	)
Total interest expense		$	2,747			$	4,343			$	6,101			$	18,724			$	25,140

 

(1)

The weighted average interest rate for the three months ended December 31, 2013, September 30, 2013, and December 31, 2012 was 4.59%, 3.58%, and 5.64%, respectively. The weighted average interest rate for the years ended December 31, 2013 and 2012 was 4.48% and 5.84%, respectively. As of December 31, 2013 and 2012 our weighted average coupon interest rate was 2.90% and 4.67%, respectively.

 

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Appendix

 

 

Non-GAAP Financial Measures

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

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

Definitions

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

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

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

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

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

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

 

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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.

Historical Predecessor. Refers to QualityTech, LP, our operating partnership.

FFO, Operating FFO and Adjusted Operating FFO

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

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

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

The Company offers these measures because it recognizes that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare its operating performance and liquidity with that of other REITs. However, because FFO, Operating FFO and Adjusted Operating FFO exclude real estate depreciation and amortization and capture neither the changes in the value of the Company’s properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance

 

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of its properties, all of which have real economic effect and could materially impact its financial condition, cash flows and results of operations, the utility of FFO, Operating FFO and Adjusted Operating FFO as measures of its operating performance and liquidity is limited. The Company’s calculation of FFO may not be comparable to measures calculated by other companies 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 our ability to make distributions to our stockholders.

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2013				2013				2012				2013				2012
FFO
Net income (loss)		$	4,447			$	2,709			$	(1,608	)		$	3,850			$	(9,767	)
Real estate depreciation and amortizaton			11,766				10,731				7,972				42,114				30,968
Gain on sale of real estate			—				—				—				—				(948	)
FFO			16,213				13,440				6,364				45,964				20,253
Restructuring charge			—				—				—				—				3,291
Write off of unamortized deferred finance costs			153				—				—				3,430				1,434
Transaction costs			66				—				493				118				897
Unrealized gain on derivatives			—				—				—				—				(307	)
Operating FFO*			16,432				13,440				6,857				49,512				25,568
Maintenance Capex			(298	)			(492	)			(1,011	)			(2,538	)			(1,725	)
Leasing Commissions paid			(2,407	)			(2,374	)			(1,579	)			(9,296	)			(6,856	)
Amortization of deferred financing costs			582				588				803				2,775				3,370
Non real estate depreciation and amortizaton			1,395				1,406				1,664				5,244				3,965
Straight line rent revenue			(149	)			(229	)			35				(577	)			14
Straight line rent expense			82				83				77				328				319
Equity-based compensation expense			655				510				71				1,960				412
Adjusted Operating FFO*		$	16,292			$	12,932			$	6,917			$	47,408			$	25,067

 

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

Monthly Recurring Revenue (MRR)

The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from its C1, C2 and C3 rental and cloud and managed services

 

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activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted.

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

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

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2013				2013				2012				2013				2012
Recognized MRR in the period
Total period revenues (GAAP basis)		$	47,429			$	46,020			$	38,173			$	177,887			$	145,759
Less: Total period recoveries			(3,173	)			(3,603	)			(2,509	)			(13,098	)			(9,294	)
Total period deferred setup fees			(1,228	)			(1,263	)			(1,290	)			(4,678	)			(4,317	)
Total period other			(1,147	)			(1,240	)			(1,365	)			(4,532	)			(3,615	)
Recognized MRR in the period			41,881				39,914				33,009				155,579				128,533
MRR at period end
Total period revenues (GAAP basis)		$	47,429			$	46,020			$	38,173			$	177,887			$	145,759
Less: Total revenues excluding last month			(31,212	)			(30,448	)			(24,752	)			(161,670	)			(132,338	)
Total revenues for last month of period			16,217				15,572				13,421				16,217				13,421
Less: Last month recoveries			(1,240	)			(1,219	)			(879	)			(1,240	)			(879	)
Last month deferred setup fees			(370	)			(427	)			(441	)			(370	)			(441	)
Last month other			(469	)			(127	)			(244	)			(469	)			(244	)
MRR at period end		$	14,138			$	13,799			$	11,857			$	14,138			$	11,857

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

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

 

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

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

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2013				2013				2012				2013				2012
EBITDA and Adjusted EBITDA
Net income (loss)		$	4,447			$	2,709			$	(1,608	)		$	3,850			$	(9,767	)
Interest expense			2,747				4,343				6,101				18,724				25,140
Interest income			(1	)			(4	)			(7	)			(18	)			(61	)
Depreciation and amortization			13,161				12,136				9,636				47,358				34,932
EBITDA			20,354				19,184				14,122				69,914				50,244
Write off of unamortized deferred finance costs			153				—				—				3,430				1,434
Equity-based compensation expense			655				510				71				1,960				412
Transaction costs			66				—				493				118				897
Gain on sale of real estate			—				—				—				—				(948	)
Restructuring charge			—				—				—				—				3,291
Adjusted EBITDA		$	21,228			$	19,694			$	14,686			$	75,422			$	55,330

Net Operating Income (NOI)

The Company calculates net operating income, or NOI, as net income (loss), excluding: interest expense, interest income, depreciation and amortization, write off of unamortized deferred financing costs, gain on extinguishment of debt, transaction costs, gain on legal settlement, gain on sale of real

 

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

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2013				2013				2012				2013				2012
Net Operating Income (NOI)
Net income (loss)		$	4,447			$	2,709			$	(1,608	)		$	3,850			$	(9,767	)
Interest expense			2,747				4,343				6,101				18,724				25,140
Interest income			(1	)			(4	)			(7	)			(18	)			(61	)
Depreciation and amortization			13,161				12,136				9,636				47,358				34,932
Write off of unamortized deferred finance costs			153				—				—				3,430				1,434
Transaction costs			66				—				493				118				897
Gain on sale of real estate			—				—				—				—				(948	)
Restructuring charge			—				—				—				—				3,291
General and administrative expenses			9,848				10,097				10,127				39,183				35,986
NOI		$	30,421			$	29,281			$	24,742			$	112,645			$	90,904
Breakdown of NOI by facility:
Atlanta-Metro data center		$	13,654			$	13,740			$	11,967			$	52,393			$	42,787
Atlanta-Suwanee data center			8,210				7,517				6,853				29,155				30,471
Santa Clara data center			2,640				2,801				3,131				10,939				11,183
Richmond data center			2,780				2,859				2,180				10,318				6,094
Sacramento data center (1)			2,061				1,752				240				7,699				240
Other data centers			1,076				612				371				2,141				129
NOI		$	30,421			$	29,281			$	24,742			$	112,645			$	90,904

 

(1)	Facility was acquired in December 2012.

 

26    QTS Q4 Earnings 2013		Contact: IR@qtsdatacenters.com