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Q1 2021 Earnings Presentation

QTS Realty Trust First Quarter 2021 Earnings Presentation

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Q1 2021 Earnings Presentation

  1. 1. © QTS. All Rights Reserved. QTS Realty Trust, Inc. First Quarter 2021 Earnings Presentation
  2. 2. © QTS. All Rights Reserved. 1 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 COVID-19 pandemic, its impact on the Company and the Company’s response thereto and to the Company’s strategy, plans, intentions, capital resources, liquidity, portfolio performance, results of operations, anticipated growth in our funds from operations and anticipated market conditions contain forward-looking statements. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. The forward-looking statements contained in this document reflect the Company’s current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed in any forward-looking statement. The Company does not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: • adverse economic or real estate developments in the Company’s markets or the technology industry; • obsolescence or reduction in marketability of our infrastructure due to changing industry demands; • global, national and local economic conditions; • risks related to the COVID-19 pandemic, including, but not limited to, the risk of business and/or operational disruptions, disruption of the Company’s customers’ businesses that could affect their ability to make rental payments to the Company, supply chain disruptions and delays in the construction or development of the Company’s data centers; • risks related to the Company’s international operations; • difficulties in identifying properties to acquire and completing acquisitions; • the Company’s failure to successfully develop, redevelop and operate acquired properties or lines of business; • significant increases in construction and development costs; • the increasingly competitive environment in which the Company operates; • defaults on, or termination or non-renewal of, leases by customers; • decreased rental rates or increased vacancy rates; • increased interest rates and operating costs, including increased energy costs; • financing risks, including the Company’s failure to obtain necessary outside financing; • dependence on third parties to provide Internet, telecommunications and network connectivity to the Company’s data centers; • the Company’s failure to qualify and maintain its qualification as a real estate investment trust; • environmental uncertainties and risks related to natural disasters; • financial market fluctuations; • changes in real estate and zoning laws, revaluations for tax purposes and increases in real property tax rates; • and limitations inherent in our current and any future joint venture investments, such as lack of sole decision-making authority and reliance on our partners’ financial condition. While forward-looking statements reflect the Company’s good faith beliefs, they are not guarantees of future performance. Any forward-looking statement speaks only as of the date on which it was made. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as well as other periodic reports the Company files with the Securities and Exchange Commission, many of which should be interpreted as being heightened as a result of the ongoing COVID-19 pandemic and the actions taken to contain the pandemic or mitigate its impact. This presentation includes measures not derived in accordance with generally accepted accounting principles (“GAAP”), such as FFO, operating FFO, adjusted Operating FFO, EBITDAre, adjusted EBITDA, NOI, ROIC and MRR. These measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP, and may also be inconsistent with similar measures presented by other companies. Reconciliation of these measures to the most closely comparable GAAP measures are presented in the attached pages. We refer you to the appendix of this presentation for reconciliations of these measures and to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations--Non-GAAP Financial Measures" in our 10-K for further information regarding these measures.
  3. 3. © QTS. All Rights Reserved. 2 First Quarter 2021 Review
  4. 4. © QTS. All Rights Reserved. 3 $0.66 $0.76 1Q '20 1Q '21 52.9% 55.0% 1Q '20 1Q '21 $67 $82 1Q '20 1Q '21 $126 $149 1Q '20 1Q '21 Q1 2021 Financial Highlights Adjusted EBITDA ($M) Operating FFO per Share Revenue ($M) Adj. EBITDA Margin (%)
  5. 5. © QTS. All Rights Reserved. 4 Q1 2021 Leasing Review 1. Incremental annualized revenue from new and modified renewal leases, net of downgrades. 2. Backlog of signed but not yet commenced annualized GAAP rent as of 3/31/21. 3. Backlog of signed but not yet commenced annualized cash rent as of 3/31/21. Strong start to 2021 • Compares favorably to average quarterly net leasing expectation of $17 – $20 million1 • Strong Q1 leasing performance follows record leasing performance in Q4 2020 which further de-risks financial growth expectations in 2021 Ended Q1 with backlog of signed but not yet commenced annualized GAAP rent of ~$81M2 • Represents increase of nearly 50% year-over-year • Backlog is down approx. 7% sequentially as a result of robust lease commencements and associated in-servicing of more than $112 million of development capital during Q1 2021 • On a cash basis, QTS’ backlog of ~$152M3 represents an increase of approximately 51% year-over- year • Significant backlog materially de-risks development activity for 2021, more than 80% of which is directly tied to signed leases Healthy underlying trends within installed customer base • Same space renewal rates were +2.2% during Q1 ’21, consistent with historical range of price increases in the low to mid-single digit percent range • Churn during Q1 ’21 of 0.7% was consistent with expectations and full-year guidance of 3 – 6% Signed new and modified leases totaling $21M of incremental annualized rent1
  6. 6. © QTS. All Rights Reserved. 5 Maintaining Momentum in Hyperscale 5 Hyperscale represented approximately 50% of signed leasing performance in Q1 • Since implementing strategic plan to more intentionally target hyperscale growth opportunities, QTS has experienced significant growth in hyperscale deal funnel and signed leasing activity • Established QTS as an incumbent provider with many of the largest and fastest growing technology companies in the world • Tracking well against annual hyperscale leasing volume target of 2 – 4 larger, 5+ megawatt signed leases in 2021 Signed 8MW anchor tenant lease with hyperscale cloud provider in Q1 • Anchors new 42MW Ashburn DC-2 development, currently scheduled to open in mid-2021 • New 42MW development will extend strong momentum in Ashburn market after largely leasing up entire 32MW existing facility in Ashburn over the past 2+ years • Ashburn DC-2 site supports breadth of QTS’ target customer verticals • Including 8MW lease signed during Q1 2021, QTS has currently pre-leased approximately 10MW of capacity in new Ashburn DC-2 development, representing nearly 25% of stabilized capacity of the site
  7. 7. © QTS. All Rights Reserved. 6 Accelerating Hybrid Colocation Demand Enterprise new logo activity returning to more normalized levels • Resurgence in new enterprise logo activity includes opportunities that temporarily stalled in 2020 as well as new requirements largely concentrated in the financial, healthcare and technology verticals • New logos contributed approximately 37% of total hybrid colocation leasing in Q1, consistent with historical range of 30-50% • QTS signed 34 new enterprise logos during Q1 ’21, nearly 50% higher than average quarterly new logo activity during the height of the pandemic in Q2/Q3 of 2020 Increasing size of enterprise deployments • Year-to-date, QTS has signed seven hybrid colocation leases of 250kW or greater, with an average deal size of nearly 1MW • Includes two 1MW leases signed subsequent to the end of the first quarter, positioning QTS well for continued strong hybrid colocation leasing in the second quarter of 2021 • Year-to-date hybrid colocation leasing includes 1) a 2MW lease with one of the largest commercial banks in the US, 2) a 1.8MW lease for a Fortune 500 diversified financial services company and 3) a 1MW lease with a large independent advertising firm • Compares to 14 hybrid colocation leases of 250kW or greater signed during full-year 2020 with an average deal size of approximately 650kW QTS Piscataway QTS Chicago Hybrid Colocation represented approximately 50% of signed leasing performance in Q1 21% Year-Over-Year Growth Year-Over-Year Growth Q1 ’21 Annualized Rent 43% Q1 ’21 NOI 36% Q1 ’21 Annualized Rent 25% Q1 ’21 NOI
  8. 8. © QTS. All Rights Reserved. 7 Balance Sheet Review and Outlook
  9. 9. © QTS. All Rights Reserved. 8 • Leverage of 4.3x3 net debt to LQA adj. EBITDA, including forward equity proceeds; net debt to LQA adj. EBITDA of 5.8x at the end of Q1 2021 • More than $1.1B of available liquidity, including undrawn forward equity proceeds • Undrawn forward equity proceeds of $493M4 support strategy of pre- funding capital needs 3-4 quarters in advance • No significant debt maturities until 2023 and beyond • ~70% of indebtedness is subject to a fixed rate, including interest rate swap agreements • In April 2021, S&P upgraded its issue-level credit rating on QTS to BB+ Highlights Balance Sheet and Liquidity Summary Capital Structure ($M) Debt Maturities ($M)5 1. Includes three term loans ($700 million in aggregate) and approximately $362 million of borrowings on revolving credit facility as of March 31, 2021 2. Market Cap calculated as: Class A and Class B common stock and OP units of 76.9 million incl. common stock sold in forward structure using treasury stock method, multiplied by 3/31/2021 stock price of $62.04 per share. 3. Adjusted for the effects of cash expected to be received upon the full physical settlement of, and issuance of 8.2 million shares of common stock pursuant to forward equity sales through the date of this report, assuming such proceeds were used to repay a portion of the Company’s outstanding debt. The company expects to use the proceeds from these forward equity agreements to fund future capital expenditures. 4. Reflects net proceeds available at the Company’s election to physically settle the forward equity sales 5. Includes QTS’ pro rata share of debt at the joint venture 6. Net of cash and cash equivalents $7.1B Enterprise Value6 $2 $3 $412 $229 $229 $1,027 2021 2022 2023 2024 2025 2026+
  10. 10. © QTS. All Rights Reserved. 9 Full Year 2021 Guidance Summary 1. Consistent with GAAP accounting standards, revenue from the unconsolidated joint venture is not included in QTS’ reported GAAP financial statements. 2. Consistent with NAREIT-defined standards, QTS has included its proportionate ownership of EBITDAre from the unconsolidated JV in its reported EBITDAre and adjusted EBITDA results. 3. Consistent with NAREIT-defined standards, QTS has included its proportionate ownership of Funds from Operations from the unconsolidated JV in its reported Funds from Operations, Operating Funds from Operations and Operating Funds from Operations per diluted share results. Reflects fully diluted share count. 4. Reflects cash capital expenditures and excludes acquisitions. Includes QTS’ proportionate share of cash capital expenditures in the unconsolidated Manassas joint venture. Note: The Company’s 2021 guidance assumes, among other things, that its facilities continue to operate and it does not experience significant work stoppages or closures, it is able to mitigate any supply chain disruptions for its development activities, and it is able to collect revenues in line with current expectations. Midpoint $M except per share values Low Midpoint High Low Midpoint High Growth Y/Y Revenue 1 $599.0 $606.0 $613.0 $602.0 $609.0 $616.0 12.9% Adjusted EBITDA 2 $330.0 $335.0 $340.0 $332.0 $336.5 $341.0 12.4% Operating FFO per Share3 $2.92 $2.98 $3.04 $2.94 $2.99 $3.04 5.3% Annual Rental Churn 3.0% 4.5% 6.0% 3.0% 4.5% 6.0% Capital Expenditures4 $800.0 $850.0 $900.0 $875.0 $925.0 $975.0 Current 2021 Guidance Initial 2021 Guidance
  11. 11. © QTS. All Rights Reserved. 10 Closing Remarks
  12. 12. © QTS. All Rights Reserved. 11 Thank You!
  13. 13. © QTS. All Rights Reserved. 12 Appendix
  14. 14. © QTS. All Rights Reserved. 13 NOI Reconciliation March 31, December 31, March 31, $ in millions 2021 2020 2020 Net Operating Income (NOI) Net income (loss) $ 7,918 $ (10,660) $ 8,120 Equity in net loss of unconsolidated entity 559 411 677 Interest expense 8,148 9,122 7,162 Depreciation and amortization 55,506 55,887 45,070 Debt restructuring costs - 18,036 - Other (income) expense - - (159) Tax expense (benefit) 138 242 (169) Transaction and integration costs 1,516 2,665 216 General and administrative expenses 23,641 20,809 20,683 NOI from consolidated operations $ 97,426 $ 96,512 $ 81,600 Pro rata share of NOI from unconsolidated entity 1,133 1,172 844 Total NOI $ 98,559 $ 97,684 $ 82,444 Three Months Ended
  15. 15. © QTS. All Rights Reserved. 14 EBITDAre & Adjusted EBITDA Reconciliation March 31, December 31, March 31, $ in millions 2021 2020 2020 EBITDAre and Adjusted EBITDA Net income (loss) $ 7,918 $ (10,660) $ 8,120 Equity in net loss of unconsolidated entity 559 411 677 Interest expense 8,148 9,122 7,162 Tax expense (benefit) 138 242 (169) Depreciation and amortization 55,506 55,887 45,070 Pro rata share of EBITDAre from unconsolidated entity 1,106 1,167 819 EBITDAre $ 73,375 $ 56,169 $ 61,679 Debt restructuring costs - 18,036 - Equity-based compensation expense 6,856 6,862 4,875 Transaction, integration and implementation costs 1,516 2,665 216 Adjusted EBITDA $ 81,747 $ 83,732 $ 66,770 Three Months Ended
  16. 16. © QTS. All Rights Reserved. 15 FFO, Operating FFO and Adjusted Operating FFO Reconciliation (1) 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. March 31, December 31, March 31, $ in millions 2021 2020 2020 FFO Net income (loss) $ 7,918 $ (10,660) 8,120 Equity in net loss of unconsolidated entity 559 411 677 Real estate depreciation and amortization 52,629 52,763 41,700 Pro rata share of FFO from unconsolidated entity 457 495 278 FFO $ 61,563 $ 43,009 $ 50,775 Preferred stock dividends (7,045) (7,045) (7,045) FFO available to common stockholders & OP unit holders $ 54,518 $ 35,964 $ 43,730 Debt restructuring costs - 18,036 - Transaction and integration costs 1,516 2,665 216 Operating FFO available to common stockholders & OP unit holders (1) $ 56,034 $ 56,665 $ 43,946 Maintenance capital expenditures (1,704) (2,000) (1,662) Leasing commissions paid (9,460) (11,271) (8,998) Amortization of deferred financing costs 1,130 1,180 987 Non real estate depreciation and amortization 2,876 3,124 3,370 Straight line rent revenue and expense and other (7,609) (8,748) (3,755) Tax expense (benefit) from operating results 138 242 (169) Equity-based compensation expense 6,856 6,862 4,875 Adjustments for unconsolidated entity 46 (72) 66 Adjusted Operating FFO available to common stockholders & OP unit holders (1) $ 48,307 $ 45,982 $ 38,660 Three Months Ended
  17. 17. © QTS. All Rights Reserved. 16 MRR Reconciliation March 31, December 31, March 31, $ in millions 2021 2020 2020 Recognized MRR in the period Total period revenues (GAAP basis) $ 148,732 $ 143,897 $ 126,292 Less: Total period variable lease revenue from recoveries (16,128) (14,648) (12,275) Total period deferred setup fees (6,436) (6,585) (3,924) Total period straight line rent and other (11,623) (10,201) (8,032) Recognized MRR in the period $ 114,545 $ 112,463 $ 102,061 MRR at period end Total period revenues (GAAP basis) 148,732 143,897 126,292 Less: Total revenues excluding last month (99,683) (96,260) (82,446) Total revenues for last month of period $ 49,049 $ 47,637 $ 43,846 Less: Last month variable lease revenue from recoveries (5,163) (4,953) (4,156) Last month deferred setup fees (2,179) (2,207) (1,410) Last month straight line rent and other (2,370) (2,349) (3,669) Add: Pro rata share of MRR at period end of unconsolidated entity 472 411 352 MRR at period end $ 39,809 $ 38,539 $ 34,963 Three Months Ended