Exhibit 99.2

 

 

  

 

Table of Contents

  

 

Overview
Company Profile	3
Financial Statements
Combined Consolidated Balance Sheets	4
Combined Consolidated Statements of Operations and Comprehensive Income (Loss)	5
Summary of Financial Data	6
Reconciliations of Return on Invested Capital (ROIC)	8
Implied Enterprise Value	9
Operating Portfolio
Data Center Properties	10
Redevelopment Costs Summary	12
Redevelopment Summary	13
NOI by Facility and Capital Expenditure Summary	14
Leasing Statistics – Signed Leases	15
Leasing Statistics – Renewed Leases and Rental Churn	17
Leasing Statistics – Commenced Leases	18
Lease Expirations	19
Largest Customers	20
Industry Segmentation	21
Product Diversification	22
Capital Structure
Debt Summary and Debt Maturities	23
Interest Summary	24
Appendix	25

 

 

 

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; 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 Annual Report on Form 10-K for the year ended December 31, 2014.

 

  

 

Company Profile

 

 

  

 

Combined Consolidated Balance Sheets  

 

(in thousands)

 

The following financial data as of December 31, 2014 and 2013 is that of the Company.

 

		December 31,				December 31,
		2014				2013
ASSETS
Real Estate Assets
Land		$	48,577			$	30,601
Buildings and improvements			914,286				728,230
Less: Accumulated depreciation			(180,167	)			(137,725	)
			782,696				621,106
Construction in progress			214,719				146,904
Real Estate Assets, net			997,415				768,010
Cash and cash equivalents			10,788				5,210
Rents and other receivables, net			15,579				14,434
Acquired intangibles, net			18,000				5,396
Deferred costs, net (1)			37,058				19,150
Prepaid expenses			3,079				1,797
Other assets, net (2)			24,640				17,359
TOTAL ASSETS		$	1,106,559			$	831,356
LIABILITIES
Mortgage notes payable		$	86,600			$	88,839
Unsecured credit facility			239,838				256,500
Senior notes			297,729				-
Capital lease obligations			13,062				2,538
Accounts payable and accrued liabilities			64,607				63,204
Dividends payable			10,705				8,965
Advance rents, security deposits and other liabilities			3,302				3,261
Deferred income			10,531				7,892
Derivative liability			-				453
TOTAL LIABILITIES			726,374				431,652
EQUITY
Common stock, $0.01 par value, 450,133,000 shares authorized, 29,408,138 and 28,972,774 shares issued and outstanding as of December 31, 2014 and 2013, respectively			294				289
Additional paid-in capital			324,917				318,834
Accumulated other comprehensive loss			-				(357	)
Accumulated dividends in excess of earnings			(22,503	)			(3,799	)
Total stockholders’ equity			302,708				314,967
Noncontrolling interests			77,477				84,737
TOTAL EQUITY			380,185				399,704
TOTAL LIABILITIES AND EQUITY		$	1,106,559			$	831,356

 

(1)

As of December 31, 2014 and 2013, deferred costs, net, included $16.5 million and $7.3 million of deferred financing costs, respectively, $17.4 million and $11.9 million of deferred leasing costs, respectively, and $3.2 million related to a leasing arrangement at our Princeton facility at December 31, 2014.

(2)

As of December 31, 2014 and 2013, other assets, net, primarily included $21.4 million and $14.2 million of corporate fixed assets, respectively, primarily relating to construction of corporate offices, leasehold improvements and corporate software related assets.

 

  

 

Combined Consolidated Statements of Operations and Comprehensive Income

 

(in thousands)

 

The following financial data for the three months and year ended December 31, 2014 and three months ended September 30, 2014 is that of the Company. The following financial data for the three months and year ended December 31, 2013 is presented on a consolidated basis for the Company and its Historical Predecessor.

 

		Three Months Ended (unaudited)												Year Ended
		December 31,				September 30,				December 31,				December 31,
Revenues:		2014				2014				2013				2014				2013
Rental		$	47,656			$	45,448			$	39,122			$	175,649			$	145,306
Recoveries from customers			5,520				6,131				3,173				19,194				13,098
Cloud and managed services			5,788				5,242				4,703				20,231				17,531
Other (1)			599				1,124				431				2,715				1,952
Total revenues			59,563				57,945				47,429				217,789				177,887
Operating expenses:
Property operating costs			18,397				20,369				15,820				71,518				60,750
Real estate taxes and insurance			1,403				1,377				1,188				5,116				4,492
Depreciation and amortization			16,008				15,210				13,161				58,282				47,358
General and administrative (2)			11,987				11,045				9,848				45,283				39,183
Restructuring (3)			26				226				-				1,298				-
Transaction costs (4)			60				(195	)			66				1,018				118
Total operating expenses			47,881				48,032				40,083				182,515				151,901
Operating income			11,682				9,913				7,346				35,274				25,986
Other income and expense:
Interest income			-				-				1				8				18
Interest expense			(5,625	)			(5,410	)			(2,747	)			(15,308	)			(18,724	)
Other expense, net (5)			(291	)			(470	)			(153	)			(871	)			(3,430	)
Income before taxes			5,766				4,033				4,447				19,103				3,850
Tax benefit (expense) of taxable REIT subsidiaries			82				(27	)			-				-				-
Net income			5,848				4,006				4,447				19,103				3,850
Net income attributable to noncontrolling interests (6)			(1,221	)			(849	)			(848	)			(4,031	)			(848	)
Net income attributable to QTS Realty Trust, Inc			4,627				3,157				3,599				15,072				3,002
Unrealized gain on swap (7)			-				-				74				-				294
Comprehensive income		$	4,627			$	3,157			$	3,673			$	15,072			$	3,296

 

(1)

Other revenue - Includes straight line rent, sales of scrap metals and other unused materials and various other income items. Straight line rent was $0.4 million, $1.0 million and $0.2 million for the three months ended December 31, 2014, September 30, 2014, and December 31, 2013, respectively. Straight line rent was $1.7 million and $0.6 million for the year ended December 31, 2014 and 2013, 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 including $0.4 million of severance costs in the fourth quarter of 2014 unrelated to the remote employees severance costs discussed below. General and administrative expenses were 20.1%, 19.1%, and 20.8% of total revenues for the three month periods ended December 31, 2014, September 30, 2014, and December 31, 2013, respectively. General and administrative expenses were 20.8% and 22.0% of total revenues for the years ended December 31, 2014 and 2013, respectively.

(3)

Restructuring costs - For the year ended December 31, 2014 the Company incurred $1.3 million in restructuring costs related to severance costs associated with various remote employees. No restructuring costs were incurred in the three months ended December 31, 2014.

(4)

Transaction costs - For the three month periods ended December 31, 2014, September 30, 2014, and December 31, 2013, the Company recognized $0.1 million, $(0.2) million and $0.1 million, respectively, in costs related to the examination of actual and potential acquisitions. The Company received a refund for previously recognized costs during the three months ended September 30, 2014, which is reflected within transaction costs above. For the years ended December 31, 2014 and 2013, the Company recognized $1.0 million and $0.1 million, respectively, in transaction costs.

(5)

Other expense, net - Generally includes write offs of unamortized deferred financing costs associated with the early extinguishment of certain debt instruments.

(6)

Noncontrolling interest - Concurrently with the completion of the initial public offering, the Company consummated a series of transactions pursuant to which the Company became the sole general partner and majority owner of QualityTech, LP, which then became its operating partnership. Certain prior owners of QualityTech, LP retained 21.2% of ownership in the operating partnership. As of December 31, 2014, the noncontrolling ownership interest of QualityTech, LP was 20.4%.

(7)

Unrealized gain (loss) on swap - For derivative instruments that are accounted for as hedges, or for the effective portions of qualifying hedges, the change in fair value is recorded as unrealized gains (losses) on swap and is included in other comprehensive income . The swaps we previously held matured in September 2014, therefore, all gains were realized within the period and no unrealized gain or loss was recognized in the Combined Consolidated Statements of Operations and Comprehensive Income for the three months and year ended December 31, 2014.

 

  

 

Summary of Financial Data

  

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

 

Our financial and operating data for the three months and year ended December 31, 2014, the three months ended September 30, 2014, and as of December 31, 2014 and 2013 is that of the Company. The financial data for the three months and year ended December 31, 2013 includes results on a consolidated basis for the Company and its Historical Predecessor.

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
Summary of Results		2014				2014				2013				2014				2013
Total revenue		$	59,563			$	57,945			$	47,429			$	217,789			$	177,887
Net income			5,848				4,006				4,447				19,103				3,850
Other Data
FFO		$	20,040			$	17,602			$	16,213			$	70,958			$	45,964
Operating FFO			20,417				18,103				16,432				74,145				49,512
Operating FFO per share			0.55				0.49				0.45				2.00				1.35
Adjusted Operating FFO			19,703				13,087				16,292				69,236				47,408
Recognized MRR in the period			50,861				48,963				41,881				188,194				155,579
MRR (at period end)			17,141				16,521				14,138				17,141				14,138
EBITDA			27,399				24,653				20,354				92,685				69,914
Adjusted EBITDA			29,028				26,079				21,228				100,025				75,422
NOI			39,763				36,199				30,421				141,155				112,645
NOI as a % of revenue			66.8	%			62.5	%			64.1	%			64.8	%			63.3	%
Adjusted EBITDA as a % of revenue			48.7	%			45.0	%			44.8	%			45.9	%			42.4	%
Annualized ROIC			15.7	%			15.0	%			15.7	%			15.5	%			15.5	%
General and administrative expenses as a % of revenue			20.1	%			19.1	%			20.8	%			20.8	%			22.0	%

 

		December 31,				December 31,
Balance Sheet Data		2014				2013
Real estate at cost		$	1,177,582			$	905,735
Net investment in real estate			997,415				768,010
Total assets			1,106,559				831,356
Credit facilities, senior notes, mortgages payables, and capital leases			637,229				347,877
Debt to last quarter annualized Adjusted EBITDA **			5.5	x			4.1	x
Debt to Undepreciated real estate assets			54.1	%			38.4	%
Debt to Implied Enterprise Value			33.4	%			27.6	%

 

**

The ratio was impacted by various portions of the Company’s portfolio that were recently placed in service and had not yet produced a stabilized Adjusted EBITDA. In addition, the Company has incurred costs included in construction in progress related to revenue which will begin to ramp in 2015 and 2016 associated with the Company’s booked-not-billed backlog of $57.8 million in annual monthly recurring revenue. As the revenues associated with this backlog commence, the Company expects its long term debt to Adjusted EBITDA ratio to improve.

 

  

 

		December 31,				December 31,
Operating Portfolio Statistics		2014				2013
Built out square footage:
Raised floor			927,075				689,587
Leasable raised floor (1)			698,232				485,546
Leased raised floor			593,610				446,353
Total Raw Shell:
Total			4,688,164				3,779,519
Basis-of-design raised floor space (1)			2,090,959				1,804,777
Data center properties			12				10
Basis of design raised floor % developed			44.3	%			38.2	%
Data center % occupied			85.0	%			91.9	%

 

(1)

See definition in Appendix.

 

  

 

Reconciliations of Return on Invested Capital (ROIC)

  

(unaudited and in thousands)

 

Our financial data for the three months and year ended December 31, 2014, three months ended September 30, 2014, and as of December 31, 2014 and 2013 is that of the Company. The financial data for the three months and year ended December 31, 2013 includes results on a consolidated basis for the Company and its Historical Predecessor.

 

Return on Invested Capital (ROIC)		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2014				2014				2013				2014				2013
NOI (1)		$	39,763			$	36,199			$	30,421			$	141,155			$	112,645
Annualized NOI			159,052				144,796				121,684				141,155				112,645
Average Undepreciated Real Estate Assets and other Net Fixed Assets Placed in Service			1,013,331				966,924				776,729				910,883				726,616
Annualized ROIC			15.7	%			15.0	%			15.7	%			15.5	%			15.5	%

 

(1)

Includes facility level G&A allocation charges of 4% of revenue which aggregated to $2.4 million, $2.3 million and $1.9 million for the three month periods ended December 31, 2014, September 30, 2014, and December 31, 2013, respectively, and $8.7 million and $7.1 million for the years ended December 31, 2014 and 2013, respectively.

 

Calculation of Average Undepreciated Real Estate Assets and other Net Fixed Assets Placed in Service		As of												As of
Undepreciated Real Estate Assets and other		December 31,				September 30,				December 31,				December 31,				December 31,
Net Fixed Assets Placed in Service		2014				2014				2013				2014				2013
Real Estate Assets, net		$	997,415			$	948,850			$	768,011			$	997,415			$	768,011
Less: Construction in progress			(214,719	)			(174,470	)			(146,905	)			(214,719	)			(146,905	)
Plus: Accumulated depreciation			180,167				168,210				137,725				180,167				137,725
Plus: Other fixed assets, net			21,387				23,268				7,292				21,387				7,292
Plus: Acquired intangibles, net			18,000				18,745				5,397				18,000				5,397
Plus: Leasing Commissions, net			20,589				19,221				11,858				20,589				11,858
Total as of period end		$	1,022,839			$	1,003,824			$	783,378			$	1,022,839			$	783,378
Average undepreciated real estate assets and other net fixed assets as of reporting period (2)		$	1,013,331			$	966,924			$	776,729			$	910,883			$	726,616

 

(2)

Calculated by using average quarterly balance of each account.

 

  

 

Implied Enterprise Value

 

 

Implied Enterprise Value as of December 31, 2014:
Total Shares Outstanding:
Class A Common Stock			29,275,138
Class B Common Stock			133,000
Total Shares Outstanding			29,408,138
Units of Limited Partnership (1)			7,948,749
Options to purchase Class A Common Stock (2)			191,034
Fully Diluted Total Shares and Units of Limited Partnership outstanding as of December 31, 2014 (3)			37,547,921
Share price as of December 31, 2014		$	33.84
Market equity capitalization (in thousands)		$	1,270,622
Debt  (in thousands)			637,229
Implied Enterprise Value (in thousands)		$	1,907,851

 

(1)

Includes 421,749 of operating partnership units representing the “in the money” value of Class O LTIP units on an “as if” converted basis.

(2)

Represents options to purchase 191,034 shares of Class A Common Stock of QTS Realty Trust Inc. representing the “in the money” value options on an “as if” converted basis.

(3)

Weighted average fully diluted shares and units for the three months and year ended December 31, 2014 were 37,412,465 and 37,133,584, respectively.

 

  

 

Data Center Properties

 

(in thousands, except NRSF data)

 

The following table presents an overview of the portfolio of data center properties that the Company owns or leases, referred to herein as our data center properties, based on information as of December 31, 2014:

  

										Operating Net Rentable Square Feet (Operating NRSF) (3)
Property		Year Acquired (1)				Gross Square Feet (2)				Raised Floor (4)				Office & Other (5)				Supporting Infrastructure (6)				Total				% Occupied and Billing (7)				Annualized Rent (8)				Available Utility Power (MW) (9)				Basis of Design NRSF				% Raised Floor
Richmond, VA			2010				1,318,353				95,581				24,678				115,627				235,886				88.8	%		$	19,901,771				110				556,595				17.2	%
Atlanta, GA (Metro)			2006				968,695				392,986				36,953				315,676				745,615				86.3	%		$	72,920,037				72				527,186				74.5	%
Dallas-Fort Worth, TX			2013				698,000				28,321				2,321				28,825				59,467				98.6	%		$	2,578,332				140				292,000				9.7	%
Princeton, NJ			2014				553,930				58,157				2,229				111,405				171,791				100.0	%		$	9,540,973				22				158,157				36.8	%
Suwanee, GA			2005				369,822				185,422				8,697				108,266				302,385				77.5	%		$	49,061,619				36				208,008				89.1	%
Chicago, IL			2014				317,000				-				-				-				-				-	%		$	-				8				133,000				-	%
Santa Clara, CA**			2007				135,322				55,494				944				45,687				102,125				93.3	%		$	22,308,448				11				80,347				69.1	%
Jersey City, NJ*			2006				122,448				31,503				14,208				41,901				87,612				95.1	%		$	11,427,640				7				52,744				59.7	%
Sacramento, CA			2012				92,644				54,595				2,794				23,916				81,305				52.2	%		$	12,029,330				8				57,906				94.3	%
Miami, FL			2008				30,029				19,887				-				6,592				26,479				66.5	%		$	5,004,610				4				19,887				100.0	%
Other			Various				81,921				5,129				37,854				38,723				81,706				22.2	%		$	924,960				1				5,129				100.0	%
Total							4,688,164				927,075				130,678				836,618				1,894,371				85.0	%		$	205,697,720				419				2,090,959				44.3	%

 

(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 181,478 square feet of QTS office and support space, which is not included in operating NRSF.

(3)

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

(4)

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

(5)

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

(6)

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

  

  

(7)

Calculated as data center raised floor that is subject to a signed lease for which billing has commenced (593,610 square feet as of December 31, 2014 divided by leasable raised floor based on the current configuration of the properties (698,232 square feet as of December 31, 2014), expressed as a percentage.

(8)

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

(9)

Represents installed utility power and transformation capacity that is available for use by the facility as of December 31, 2014.

 

*

Represents facilities that we lease.

**

Subject to long term ground lease.

 

 

   

Redevelopment Costs Summary

  

(in thousands, except NRSF data)

 

The under construction table below summarizes the Company’s outlook for development projects which we expect to complete by December 31, 2015 (in millions). The majority of capital in this plan is related to signed leases. This table reflects modifications to the Company’s capital plan as of December 31, 2014, relating to its plan to operate its facilities at higher efficiency levels and to better match new capacity with lease-up at each facility. Additional capital will be invested in our recently acquired Chicago facility, which we will open in phases.

 

		Under Construction Costs (1)
Property		Actual (2)				Estimated Cost  to Completion (3)				Total				Expected Completion date
Richmond		$	37			$	30			$	67			Q2-Q4 2015
Atlanta Metro			13				23				36			Q2-Q4 2015
Dallas-Fort Worth			25				15				40			Q1-Q3 2015
Jersey City			-				3				3			Q4 2015
Totals		$	75			$	71			$	146

 

(1)

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

(2)

Actual costs under construction through December 31, 2014. In addition to the $75 million of construction costs incurred through December 31, 2014 for redevelopment expected to be completed by December 31, 2015, as of December 31, 2014 the Company had incurred $140 million of additional costs (including acquisition costs and other capitalized costs) for other redevelopment projects that are expected to be completed after December 31, 2015.

(3)

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

 

 

   

Redevelopment Summary

  

(in thousands, except NRSF data)

 

The following redevelopment table presents an overview of the Company’s redevelopment pipeline, based on information as of December 31, 2014. This table shows the Company’s ability to increase its raised floor of 927,075 square feet by approximately 2.3 times to 2.1 million square feet as of December 31, 2014.

 

Raised Floor NRSF
Overview as of December 31, 2014
Property		Current NRSF in Service				Under Construction (1)				Future Available (2)				Basis of Design NRSF				Approximate Adjacent Acreage of Land (3)
Richmond			95,581				41,014				420,000				556,595				111.1
Atlanta Metro			392,986				25,000				109,200				527,186				6.0
Dallas-Fort Worth			28,321				31,000				232,679				292,000				15.0
Princeton			58,157				-				100,000				158,157				65.0
Atlanta Suwanee			185,422				-				22,586				208,008				15.4
Santa Clara			55,494				-				24,853				80,347				-
Sacramento			54,595				-				3,311				57,906				-
Jersey City			31,503				-				21,241				52,744				-
Chicago			-				-				133,000				133,000				23.0
Miami			19,887				-				-				19,887				-
Other			5,129				-				-				5,129				-
Totals as of December 31, 2014			927,075				97,014				1,066,870				2,090,959				235.5

 

(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, 2015.

(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, 2015.

(3)

The total cost basis of adjacent land, which is land available for the future development, is approximately $10 million. This is included in land on the Combined Consolidated Balance Sheets. The Basis of Design NRSF does not include any build-out on the adjacent land.

 

 

   

NOI by Facility and Capital Expenditure Summary

 

(unaudited and in thousands, except NRSF data)

 

The Company calculates net operating income, or NOI, as net income (loss), excluding: interest expense, interest income, depreciation and amortization, write-off of unamortized deferred financing costs, tax expense of taxable REIT subsidiaries, 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,
		2014				2014				2013				2014				2013
Breakdown of NOI by facility:
Atlanta-Metro data center		$	16,386			$	14,752			$	13,654			$	60,734			$	52,393
Atlanta-Suwanee data center			9,711				9,046				8,210				35,509				29,155
Santa Clara data center			3,390				3,301				2,640				12,739				10,939
Richmond data center			4,208				3,772				2,780				14,366				10,318
Sacramento data center			1,869				1,938				2,061				8,470				7,699
Princeton data center			2,739				2,066				-				4,828				-
Dallas-Fort Worth data center			395				420				-				815				-
Other facilities			1,065				904				1,076				3,694				2,141
NOI (1)		$	39,763			$	36,199			$	30,421			$	141,155			$	112,645

 

(1)

Includes facility level G&A allocation charges of 4% of revenue which aggregated to $2.4 million, $2.3 million and $1.9 million, for the three month periods ended December 31, 2014,  September 30, 2014, and December 31, 2013, respectively, and $8.7 million and $7.1 million for the years ended December 31, 2014 and 2013, respectively.

 

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,
		2014				2013				2014				2013
Redevelopment		$	53,491			$	53,280			$	178,146			$	132,755
Acquisitions (2)			-				-				71,314				21,173
Maintenance capital expenditures			712				298				2,684				2,538
Other capitalized costs			6,319				3,771				19,702				14,441
Total capital expenditures		$	60,522			$	57,349			$	271,846			$	170,907

 

(1)

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

(2)

Does not include $19.8 million of intangible assets associated with the acquisition of the Princeton facility in 2014.

 

  

Leasing Statistics – Signed Leases

(in thousands)

 

The mix of leasing activity has significant impact on quarterly rates, both within major product segments and for overall blended leasing rates. The Company’s rate performance will vary quarter to quarter based on the mix of deals leased – C1 Custom Data Center, C2 Colocation (Cabinet, Cage and Suite), and C3 Cloud and Managed Services categories all vary on a rate per square foot basis. The amounts below include renewals when there was a change in square footage rented, but not renewals where square footage remained consistent before and after renewal (See renewal table on page 19 for such renewals).

 

2014 leasing activity represented the largest year in the Company’s history. During the quarter and year ended December 31, 2014, the Company signed 347 and 1,344 new and modified leases aggregating to $10.7 million and $78.3 million of annualized rent, respectively, which includes new leased revenue plus revenue from modified renewals. Removing annualized modified renewal MRR and deducting period downgrades results in $4.1 million and $58.0 million in incremental annualized rent for the quarter and year ended December 31, 2014, respectively. As the Company has previously stated, its C1 leasing activity can be uneven, and the Company saw a significant increase in C1 leasing in the third quarter with minimal C1 leasing in the fourth quarter. The Company’s C2/C3 leasing activity was greater than its prior four quarter average, which aligns with its expectation that C2/C3 sales will provide more consistent results than C1 sales. Additionally, in the fourth quarter, the incremental MRR, net of downgrades, was affected by a large lease modification signed with a customer. The Company renegotiated a lease with an existing customer whereby that customer returned approximately 5,800 square feet to the Company, and the Company received a net fee of approximately $0.7 million to allow this modification. In addition, the space that the customer retained was renegotiated at a higher rate per square foot. Through this renegotiation, the Company received valuable space in its Atlanta-Metro facility which is expected to be re-leased at higher market rates with minimal cost.

 

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

 

 

		Period		Number of Leases				Total Leased sq ft				Annualized Rent per Leased sq ft				Annualized Rent of New and Modified Leases				Incremental Annualized Rent, Net of Downgrades
New/modified leases signed - Total		Q4 2014			347				10,596			$	1,011			$	10,717,456			$	4,116,717
		P4QA*			321				62,513				327				20,460,060				15,778,555
		Q3 2014			361				130,617				248				32,417,738				25,629,407
		Q2 2014			335				66,009				329				21,688,736				17,717,391
		Q1 2014			301				12,793				1,055				13,492,159				10,514,660
		Q4 2013			285				40,632				351				14,241,606				9,252,764
New/modified leases signed - C1		Q4 2014			21				315			$	580			$	182,772
		P4QA*			13				54,056				203				10,972,809
		Q3 2014			15				121,658				190				23,165,719
		Q2 2014			7				59,340				230				13,633,836
		Q1 2014			14				872				753				656,784
		Q4 2013			15				34,354				187				6,434,898
New/modified leases signed - C2/C3		Q4 2014			326				10,281			$	1,025			$	10,534,684
		P4QA*			308				8,457				1,122				9,487,242
		Q3 2014			346				8,959				1,033				9,252,019
		Q2 2014			328				6,669				1,208				8,054,900
		Q1 2014			287				11,921				1,077				12,835,341
		Q4 2013			270				6,278				1,244				7,806,708

 

*

Average of prior 4 quarters

 

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

 

 

 

The following table outlines the booked-not-billed (“BNB”) balance as of December 31, 2014 and how that will affect revenue in 2015 and subsequent years:

 

 

Booked-not-billed ("BNB")		2015				2016				Thereafter				Total
MRR		$	1,812,308				1,759,118				1,245,546			$	4,816,972
Incremental revenue			12,381,694				15,270,576				14,946,549
Annualized revenue			21,747,700				21,109,415				14,946,549				57,803,664

 

The Company estimates the cost to provide the space, power, connectivity and other services to the customer contracts which had not billed as of December 31, 2014 to be approximately $140 million. This estimate generally includes C1 customers with newly contracted space of more than 3,300 square feet. The space, power, connectivity and other services provided to customers that contract for smaller amounts of space is generally provided by existing space which was previously developed.

 

  

Leasing Statistics – Renewed Leases and Rental Churn

(in thousands)

 

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

 

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

 

The overall blended rate for renewals signed in the quarter and year ended December 31, 2014 was 3.4% and 2.3% higher, respectively, than the rates for those customers immediately prior to renewal. The actual change in the fourth quarter of 2014 renewal rates compares to a prior four quarter average increase of 1.3%.

 

Rental Churn (which the Company defines as MRR lost to complete termination of customer services in a given period compared to total MRR at the beginning of the period) was 1.3% for the fourth quarter of 2014 and 6.2% for the year ended December 31, 2014.

 

 

		Period		Number of renewed leases				Total Leased sq  ft				Annualized rent per leased sq ft				Annualized Rent				Rent Change(1)
Renewed Leases - Total		Q4 2014			64				6,317			$	940			$	5,941,125				3.4	%
		P4QA*			60				7,073				774				5,306,180				1.3	%
		Q3 2014			59				7,740				669				5,181,226				-2.9	%
		Q2 2014			74				10,199				735				7,495,879				1.0	%
		Q1 2014			56				6,558				770				5,049,624				8.9	%
		Q4 2013			50				3,795				922				3,497,992				-1.1	%
Renewed Leases - C1		Q4 2014			0				-			$	-			$	-				0.0	%
		P4QA*			0				625				75				188,310				0.0	%
		Q3 2014			0				-				-				-				0.0	%
		Q2 2014			0				-				-				-				0.0	%
		Q1 2014			1				2,500				301				753,240				0.0	%
		Q4 2013			0				-				-				-				0.0	%
Renewed Leases - C2/C3		Q4 2014			64				6,317			$	940			$	5,941,125				3.4	%
		P4QA*			60				6,448				846				5,117,870				2.4	%
		Q3 2014			59				7,740				669				5,181,226				-2.9	%
		Q2 2014			74				10,199				735				7,495,879				1.0	%
		Q1 2014			55				4,058				1,059				4,296,384				10.6	%
		Q4 2013			50				3,795				922				3,497,992				-1.1	%

 

*

Average of prior 4 quarters

(1)

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

 

  

Leasing Statistics – Commenced Leases

(in thousands)

 

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

 

During the quarter and year ended December 31, 2014, the Company commenced customer leases (which includes both new customers and existing customers that modified their lease terms) representing approximately $18.8 million and $69.0 million of annualized rent at $391 and $497 per square foot, respectively. This compares to customer leases representing an aggregate trailing four quarter average of approximately $19.5 million of annualized rent at $410 per square foot. The trailing four-quarter average rates reflect the impact of significant C1 lease commencements (higher volume at lower rates, with those rates excluding recoveries).

 

C2/C3 average commencement rate for the quarter and year ended December 31, 2014 was $946 and $1,122 per square foot, respectively, with the rates for commenced leases for the quarter ended December 31, 2014 skewed by large C3 bookings from the first and second quarters of 2014 that commenced billing in the first three quarters of 2014. Related metrics also reflect larger C2 commencements and their large footprint with enhanced pricing.

 

		Period		Number of leases				Total Leased sq ft				Annualized rent per leased sq ft				Annualized Rent
Leases commenced - Total		Q4 2014			401				48,080			$	391			$	18,815,804
		P4QA*			366				47,489				410				19,468,436
		Q3 2014			379				36,054				520				18,739,920
		Q2 2014			421				32,838				584				19,172,568
		Q1 2014			307				21,941				558				12,246,796
		Q4 2013			356				99,123				280				27,714,462
Leases commenced - C1		Q4 2014			30				34,657			$	176			$	6,112,759
		P4QA*			29				35,857				170				6,090,805
		Q3 2014			35				24,480				199				4,866,264
		Q2 2014			33				22,023				203				4,480,666
		Q1 2014			22				11,394				130				1,480,149
		Q4 2013			25				85,533				158				13,536,139
Leases commenced - C2/C3		Q4 2014			371				13,423			$	946			$	12,703,045
		P4QA*			337				11,632				1,150				13,377,632
		Q3 2014			344				11,574				1,199				13,873,656
		Q2 2014			388				10,815				1,358				14,691,902
		Q1 2014			285				10,547				1,043				10,766,647
		Q4 2013			331				13,590				952				14,178,324

 

*

Average of prior 4 quarters

 

  

Lease Expirations

 

C1 leases are typically 5-10 years with the majority of C1 lease expirations occurring in 2017 and beyond. C2/C3 leases are typically 3 years in duration, thus the majority of C2/C3 lease expirations are in 2015 and 2016. The following table sets forth a summary schedule of the lease expirations as of December 31, 2014 at the properties in the Company’s portfolio. Unless otherwise stated in the footnotes, the information set forth in the table assumes that customers exercise no renewal options and all early termination rights are exercised:

 

Year of Lease Expiration		Number of Leases Expiring (1)				Total Raised Floor of Expiring Leases				% of Portfolio Leased Raised Floor				Annualized Rent (2)				% of Portfolio Annualized Rent				C1 as % of Portfolio Annualized Rent				C2 as % of Portfolio Annualized Rent				C3 as % of Portfolio Annualized Rent
Month-to-Month (3)			317				3,279				1	%		$	6,993,741				3	%			0	%			2	%			1	%
2015			972				60,493				10	%			46,938,111				23	%			3	%			19	%			1	%
2016			908				74,041				12	%			42,887,265				21	%			5	%			15	%			1	%
2017			533				75,304				13	%			37,904,053				18	%			7	%			8	%			3	%
2018			167				238,308				40	%			41,505,044				20	%			17	%			3	%			0	%
2019			64				15,299				3	%			7,621,713				4	%			1	%			2	%			1	%
After 2019			66				126,886				21	%			21,847,793				11	%			10	%			0	%			1	%
Portfolio Total			3,027				593,610				100	%		$	205,697,720				100	%			43	%			49	%			8	%

 

(1)

Represents each agreement with a customer signed as of December 31, 2014 for which billing has commenced; a lease agreement could include multiple spaces and a customer could have multiple leases.

(2)

Annualized rent is presented for leases commenced as of December 31, 2014. The Company defines annualized rent as MRR multiplied by 12. The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect the accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.

(3)

Consists of customers whose leases expired prior to December 31, 2014 and have continued on a month-to-month basis.

 

  

Largest Customers

 

As of December 31, 2014, the Company’s portfolio was leased to over 850 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, 2014 (does not include rents or maturities associated with booked-not-billed customers):

 

 

Principal Customer Industry		Number of Locations		Annualized Rent (1)				% of Portfolio Annualized Rent				Weighted Average Remaining Lease Term (Months) (2)
Internet		1		$	18,600,497				9.0	%			46
Internet		1			9,644,400				4.7	%			46
Information Technology		2			9,540,973				4.6	%			114
Information Technology		2			5,397,564				2.6	%			108
Information Technology		2			4,437,678				2.2	%			19
Financial Services		1			4,401,141				2.1	%			7
Financial Services		1			4,318,740				2.1	%			25
Professional Services		1			3,274,860				1.6	%			5
Financial Services		2			3,244,109				1.6	%			36
Information Technology		3			2,816,330				1.4	%			23
Total / Weighted Average				$	65,676,292				31.9	%			52

 

(1)

Annualized rent is presented for leases commenced as of December 31, 2014. 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, 2014.

 

  

Industry Segmentation

 

The following table sets forth information relating to the industry segmentation as of December 31, 2014:

 

 

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

 

 

 

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, 2014:

 

 

(1)

As of December 31, 2014, C1 customers renting at least 6,600 square feet represented $52.1 million of annualized C1 MRR, C1 customers renting 3,300 square feet to 6,599 square feet represented $17.9 million of annualized C1 MRR, and C1 customers renting below 3,300 square feet represented $18.0 million of annualized C1 MRR. As of December 31, 2014, C1 customers’ median used square footage was 3,856 square feet.

(2)

C3 - Cloud and Managed Services shown here do not include Managed Services provided to C1 and C2 customers.

 

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 at least 6,600 square feet 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 $14.3 million of annualized C1 MRR. As of December 31, 2013, C1 customers’ median used square footage was 3,271 square feet.

(2)

C3 – Cloud and Managed Services shown here do not include Managed Services provided to C1 and C2 customers.

 

  

Debt Summary and Debt Maturities

(in thousands)

 

		December 31,				December 31,
		2014				2013
Unsecured Credit Facility		$	239,838			$	256,500
Senior Notes, net of discount			297,729				-
Richmond Credit Facility			70,000				70,000
Atlanta-Metro Equipment Loan			16,600				18,839
Total (1)		$	624,167			$	345,339

 

(1)

Exclusive of capital lease obligations which totaled $13.1 million and $2.5 million as of December 31, 2014 and December 31, 2013, respectively

 

As of December 31, 2014:

 

Debt instruments		2015				2016				2017				2018				2019				Thereafter				Total
Unsecured Credit Facility (1)		$	-			$	-			$	-			$	139,838			$	100,000			$	-			$	239,838
Senior Notes (2)			-				-				-				-				-				300,000				300,000
Richmond Credit Facility			-				-				-				-				70,000				-				70,000
Atlanta-Metro Equipment Loan			2,397				2,567				2,748				2,943				3,150				2,795				16,600
Total		$	2,397			$	2,567			$	2,748			$	142,781			$	173,150			$	302,795			$	626,438

  

(1)

Pursuant to a credit agreement amendment that the Company entered into on December 17, 2014, the revolving portion of the Unsecured Credit Facility has a stated maturity of December 17, 2018 with an option to extend for one additional year.

(2)

Excludes discount reflected at December 31, 2014.

 

  

Interest Summary

(unaudited and in thousands)

 

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,				December 31,
		2014				2014				2013				2014				2013
Interest expense and fees		$	6,566			$	5,854			$	3,171			$	18,578			$	19,548
Swap interest			-				158				156				482				536
Amortization of deferred financing costs and bond discount			842				729				582				2,774				2,775
Capitalized interest (1)			(1,783	)			(1,331	)			(1,162	)			(6,526	)			(4,135	)
Total interest expense		$	5,625			$	5,410			$	2,747			$	15,308			$	18,724

 

(1)

The weighted average interest rate for the three months ended December 31, 2014, September 30, 2014, and December 31, 2013 was 4.74%, 4.62%, and 4.59%, respectively. The weighted average interest rate for the years ended December 31, 2014 and 2013 was 4.23% and 4.48%, respectively. As of December 31, 2014 and 2013 our weighted average coupon interest rate was 3.95% and 2.90%, respectively.

 

  

Appendix

  

Non-GAAP Financial Measures

 

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

 

The Company considers the following non-GAAP financial measures to be useful to investors as key supplemental measures of the Company’s performance: (1) FFO; (2) Operating FFO; (3) Adjusted Operating FFO; (4) MRR; (5) NOI; (6) EBITDA; and (7) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss and cash flows from operating activities as a measure of the Company’s operating performance and liquidity. FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDA and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDA and Adjusted EBITDA as reported by other companies that do not use the same definition or implementation guidelines or interpret the standards differently from us.

 

Definitions

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The Company. Refers to QTS Realty Trust, Inc., a Maryland corporation, together with its consolidated subsidiaries, including QualityTech, LP.

 

Historical Predecessor. Refers to QualityTech, LP, the Company’s operating partnership.

 

  

 

FFO, Operating FFO and Adjusted Operating FFO

 

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

 

Due to the volatility and nature of certain significant charges and gains recorded in the Company’s operating results that management believes are not reflective of its core operating performance and liquidity, management computes an adjusted measure of FFO, which the Company refers to as Operating FFO. The Company generally calculates Operating FFO as FFO excluding certain non-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 distributions from operating activities. Adjusted Operating FFO is used by the Company as a basis to address cash flow and its ability to fund its dividend payments. The Company calculates Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment, paid leasing commissions, amortization of deferred financing costs, non- real estate depreciation, straight line rent adjustments, and non-cash compensation.

 

The Company offers these measures because it recognizes that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare its operating performance and liquidity with that of other REITs. However, because FFO, Operating FFO and Adjusted Operating FFO exclude real estate depreciation and amortization and capture neither the changes in the value of the Company’s properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of its properties, all of which have real economic effect and could materially impact its financial condition, cash flows and results of operations, the utility of FFO, Operating FFO and Adjusted Operating FFO as measures of its operating performance and liquidity is limited. The Company’s calculation of FFO may not be comparable to measures calculated by other companies that do not use the NAREIT definition of FFO or do not calculate FFO in accordance with NAREIT guidance. In addition, the Company’s calculations of FFO, Operating FFO and Adjusted Operating FFO are not necessarily comparable to FFO, Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. FFO, Operating FFO and Adjusted Operating FFO are non-GAAP measures and should not be considered a measure of the Company’s results of operations or liquidity or as a substitute for, or an alternative to, net income (loss), cash provided by operating activities or any other performance measure determined in accordance with GAAP, nor is it indicative of funds available to fund its cash needs, including our ability to make distributions to its stockholders.

 

  

 

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2014				2014				2013				2014				2013
FFO
Net income		$	5,848			$	4,006			$	4,447			$	19,103			$	3,850
Real estate depreciation and amortization			14,192				13,596				11,766				51,855				42,114
FFO			20,040				17,602				16,213				70,958				45,964
Write off of unamortized deferred finance costs			291				470				153				871				3,430
Restructuring costs			26				226				-				1,298				-
Transaction costs			60				(195	)			66				1,018				118
Operating FFO  *			20,417				18,103				16,432				74,145				49,512
Maintenance Capex			(712	)			(1,877	)			(298	)			(2,684	)			(2,538	)
Leasing Commissions paid			(3,615	)			(5,516	)			(2,407	)			(14,219	)			(9,296	)
Amortization of deferred financing costs and bond discount			842				729				582				2,774				2,775
Non real estate depreciation and amortization			1,817				1,612				1,395				6,427				5,244
Straight line rent revenue			(369	)			(961	)			(149	)			(1,652	)			(577	)
Straight line rent expense			71				72				82				292				328
Equity-based compensation expense			1,252				925				655				4,153				1,960
Adjusted Operating FFO *		$	19,703			$	13,087			$	16,292			$	69,236			$	47,408

 

*

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

 

Monthly Recurring Revenue (MRR)

 

The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted.

 

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

 

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

 

  

 

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2014				2014				2013				2014				2013
Recognized MRR in the period
Total period revenues (GAAP basis)		$	59,563			$	57,945			$	47,429			$	217,789			$	177,887
Less: Total  period recoveries			(5,520	)			(6,131	)			(3,173	)			(19,194	)			(13,098	)
Total period deferred setup fees			(1,201	)			(1,125	)			(1,228	)			(4,709	)			(4,678	)
Total period straight line rent and other			(1,981	)			(1,726	)			(1,147	)			(5,692	)			(4,532	)
Recognized MRR in the period			50,861				48,963				41,881				188,194				155,579
MRR at period end
Total period revenues (GAAP basis)		$	59,563			$	57,945			$	47,429			$	217,789			$	177,887
Less: Total revenues excluding last month			(39,605	)			(38,439	)			(31,212	)			(197,831	)			(161,670	)
Total revenues for last month of period			19,958				19,506				16,217				19,958				16,217
Less: Last month recoveries			(1,908	)			(1,771	)			(1,240	)			(1,908	)			(1,240	)
Last month deferred setup fees			(372	)			(391	)			(370	)			(372	)			(370	)
Last month straight line rent and other			(537	)			(823	)			(469	)			(537	)			(469	)
MRR at period end		$	17,141			$	16,521			$	14,138			$	17,141			$	14,138

 

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.

 

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,
		2014				2014				2013				2014				2013
EBITDA and Adjusted EBITDA
Net income		$	5,848			$	4,006			$	4,447			$	19,103			$	3,850
Interest expense			5,625				5,410				2,747				15,308				18,724
Interest income			-				-				(1	)			(8	)			(18	)
Tax (benefit) expense of taxable REIT subsidiaries			(82	)			27				-				-				-
Depreciation and amortization			16,008				15,210				13,161				58,282				47,358
EBITDA			27,399				24,653				20,354				92,685				69,914
Write off of unamortized deferred finance costs			291				470				153				871				3,430
Equity-based compensation expense			1,252				925				655				4,153				1,960
Restructuring costs			26				226				-				1,298				-
Transaction costs			60				(195	)			66				1,018				118
Adjusted EBITDA		$	29,028			$	26,079			$	21,228			$	100,025			$	75,422

 

  

 

Net Operating Income (NOI)

 

The Company calculates net operating income (“NOI”) as net income (loss), excluding: interest expense, interest income, tax expense of taxable REIT subsidiaries, 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. A reconciliation of net income (loss) to NOI is presented below:

 

 

		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2014				2014				2013				2014				2013
Net Operating Income (NOI)
Net income		$	5,848			$	4,006			$	4,447			$	19,103			$	3,850
Interest expense			5,625				5,410				2,747				15,308				18,724
Interest income			-				-				(1	)			(8	)			(18	)
Depreciation and amortization			16,008				15,210				13,161				58,282				47,358
Write off of unamortized deferred finance costs			291				470				153				871				3,430
Tax (benefit) expense of taxable REIT subsidiaries			(82	)			27				-				-				-
Restructuring costs			26				226				-				1,298				-
Transaction costs			60				(195	)			66				1,018				118
General and administrative expenses			11,987				11,045				9,848				45,283				39,183
NOI (1)		$	39,763			$	36,199			$	30,421			$	141,155			$	112,645
Breakdown of NOI by facility:
Atlanta-Metro data center		$	16,386			$	14,752			$	13,654			$	60,734			$	52,393
Atlanta-Suwanee data center			9,711				9,046				8,210				35,509				29,155
Santa Clara data center			3,390				3,301				2,640				12,739				10,939
Richmond data center			4,208				3,772				2,780				14,366				10,318
Sacramento data center			1,869				1,938				2,061				8,470				7,699
Princeton data center			2,739				2,066				-				4,828				-
Dallas-Fort Worth data center			395				420				-				815				-
Other facilities			1,065				904				1,076				3,694				2,141
NOI (1)		$	39,763			$	36,199			$	30,421			$	141,155			$	112,645

 

(1)

Includes facility level G&A allocation charges of 4% of revenue which aggregated to $2.4 million, $2.3 million and $1.9 million for the three month periods ended December 31, 2014, September 30, 2014, and December 31, 2013, respectively, and $8.7 million and $7.1 million for the years ended December 31, 2014 and 2013, respectively.