Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Q2 2019 Earnings Presentation

928 views

Published on

QTS Realty Trust, Inc. Second Quarter 2019 Earnings Presentation

Published in: Investor Relations
  • Be the first to comment

  • Be the first to like this

Q2 2019 Earnings Presentation

  1. 1. © QTS. All Rights Reserved. 1 QTS Realty Trust, Inc. Second Quarter 2019 Earnings Presentation July 30, 2019
  2. 2. © QTS. All Rights Reserved. 2 Forward Looking Statements Some of the statements contained in this presentation constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In particular, statements pertaining to our capital resources, portfolio performance results of operations, anticipated growth in our funds from operations and anticipated market conditions contain forward-looking statements. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. The forward-looking statements contained in this presentation reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: • adverse economic or real estate developments in our markets or the technology industry; • obsolescence or reduction in marketability of our infrastructure due to changing industry demands; • global, national and local economic conditions; • risks related to our international operations; • difficulties in identifying properties to acquire and completing acquisitions; • our failure to successfully develop, redevelop and operate acquired properties or lines of business; • significant increases in construction and development costs; • the increasingly competitive environment in which we operate; • defaults on, or termination or non-renewal of, leases by customers; • decreased rental rates or increased vacancy rates; • increased interest rates and operating costs, including increased energy costs; • financing risks, including our failure to obtain necessary outside financing; • dependence on third parties to provide Internet, telecommunications and network connectivity to our data centers; • our failure to qualify and maintain our qualification as a REIT; • environmental uncertainties and risks related to natural disasters; • financial market fluctuations; • 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 our good faith beliefs, they are not guarantees of future performance. Any forward-looking statement speaks only as of the date on which it was made. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 (“10-K”) and in the other periodic reports we file with the Securities and Exchange Commission. This presentation includes measures not derived in accordance with generally accepted accounting principles (“GAAP”), such as FFO, operating FFO, adjusted Operating FFO, 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. As used herein, “Core” refers to our business that primarily consists of our hyperscale and hybrid colocation leases. 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. 3 Second Quarter 2019 Review
  4. 4. © QTS. All Rights Reserved. 4 Q2 2019 Leasing Review • One of the strongest leasing quarters in QTS history and +40% above prior four quarter average • Net leasing results over last 6 quarters up 41% vs. prior 6 quarter period, with hybrid colocation representing more than two thirds of that volume • Reflects healthy mix of demand across target customer verticals • Leasing results include the signing of a 5+ MW multi-site deployment for a strategic hyperscale customer supporting a large federal program • Strong leasing activity resulted in near record booked-not-billed backlog of $68M as of Q2 ’19 • Same space renewal rates +1.2%, consistent w/ expectation of low-mid single digit price increase Signed new/modified leases totaling $19.6M of incremental annualized rent $13.1 $18.1 $12.2 $11.3 $19.6 2Q18 3Q18 4Q18 1Q19 2Q19 $13.7 Prior 4 Quarter Avg. $51.3 $59.0 $62.6 $54.8 $68.1 2Q18 3Q18 4Q18 1Q19 2Q19 NetLeasing($M)1 Backlog($M)2 1. Incremental annualized revenue from new and modified renewal leases, net of downgrades. Reflects results for Core business only in 2018. 2. Backlog of signed but not yet commenced annualized monthly recurring revenue. Reflects results for Core business only in 2018.
  5. 5. © QTS. All Rights Reserved. 5 Federal Vertical Remains a Core Focus Area for QTS • Unique security, personnel and operational requirements • Incumbency and industry expertise are powerful differentiators for QTS • Higher barriers to entry create opportunity to achieve premium ROIC Higher barriers to entry targeting the Federal vertical • Seeing a growing number of sizable Federal deals in the market similar to 5+ MW lease signed with hyperscale customer in Q2 ‘19 • Increasing pressure on Federal Government to find outsourced solutions Growing opportunity set • QTS has made strategic investments in the necessary processes, operational capability and talent required to meet Federal needs • Track record of success in Federal vertical with strategically located powered shell footprint further supporting enhanced returns on capital Uniquely positioned to succeed in Federal vertical
  6. 6. © QTS. All Rights Reserved. 6 • Contributed 24 MW Manassas hyperscale development into JV in 2019 • Reduced QTS’ overall capital requirement by approximately $120 million • Enhanced stabilized return profile by ~300 basis points to ~12% Differentiated Approach to Hyperscale Value Creation Hyperscale strategy prioritizes capital efficiency and returns Enhanced return profile utilizing JV structure with Alinda • 3 MW lease with new hyperscale logo signed in Q1 ’19 deploys into existing powered shell capacity with significant scalability • Limited incremental capital requirement supports enhanced capital efficiency and ROIC above typical hyperscale ROIC profile of 9-11% Leveraging low basis powered shell capacity in Ft. Worth • 5+ MW lease supporting a large Federal program with hyperscale customer signed in Q2 ’19 across two facilities with powered shell capacity • Higher barriers to entry and unique security requirements of Federal customers create opportunity to generate above-average ROIC Capitalizing on established capabilities in Federal vertical
  7. 7. © QTS. All Rights Reserved. 7 QTS Publishes First Ever ESG Initiatives Report Procure 100% of power from renewable sources by 2025 (32% today) Key Sustainability Goals Achieve LEED certification at 90% of QTS properties by 2025 (60% today) Recycle 600 million pounds of material by 2025 Conserve at least 10 million gallons of water per year by 2025
  8. 8. © QTS. All Rights Reserved. 8 Financial Update
  9. 9. © QTS. All Rights Reserved. 9 QTS Netherlands Integration Update • Strategically located adjacent to multiple undersea fiber cable landings, renewable power resources and existing hyperscale data center deployments • Opportunity to acquire large infrastructure at ~$2M / MW2, along with an embedded customer base that supports breakeven initial OFFO/sh contribution, matched with strong upside on future leasing • Groningen - 10 gross MWs, more than 50% leased to more than 20 colocation tenants • Eemshaven - 20 gross MWs fully built and available capacity supporting hyperscale growth strategy • Initially generating annualized $3M of revenue and $1M of adj. EBITDA with no new leasing • Signed four new/expansion customers representing $100k+ of incremental annualized revenue • Currently in the process of renewing several existing customers with additional upside potential • Continue to expect to position Eemshaven facility with potential sellable capacity in late 2019 • Recent limitations placed on incremental data center development in Amsterdam by local Dutch governmental authorities enhances strategic positioning of QTS Netherlands sites QTS Groningen QTS Eemshaven Acquired two strategically located facilities in the Netherlands in April for $44M1 Completed integration into QTS platform 1. Including closing costs 2. Assuming approximately $15M of additional capital spend related to recommissioning of the sites
  10. 10. © QTS. All Rights Reserved. 10 Balance Sheet and Liquidity Summary • Net debt to LQA adjusted EBITDA of 5.1x4, including forward equity proceeds • $147M5 of undrawn forward equity proceeds remaining as of Q2 ‘19 • 2019 capital plan fully funded • $68M booked-not-billed backlog of annualized revenue • No significant debt maturities until beyond 2021 • 75%+ of debt is subject to a fixed rate, including interest rate swap agreements Market Cap $2,918M2 Series A Preferred Stock $107M Series B Convertible Preferred Stock $316M Senior Notes $400M Unsecured Credit Facility $956M1 Finance Leases and Other $48M Pro Rata Share of Unconsolidated JV Debt $34M 1. Includes two term loans ($700 million in aggregate) and $256 million of borrowings on revolving credit facility as of June 30, 2019, net of cash and cash equivalents 2. Market Cap calculated as: Class A and Class B common stock and OP units of 63.2 million incl. common stock sold in forward structure using treasury stock method, multiplied by 6/30/2019 stock price of $46.18 per share. 3. May not sum due to rounding 4. Pro forma for the effects of approximately $147 million in cash (which is subject to certain adjustments) expected to be received at or before March 1, 2020 upon the full physical settlement of, and issuance of 3,762,500 shares of common stock pursuant to the forward equity sale agreement entered into during the first quarter of 2019, assuming such proceeds were used to repay a portion of the Company’s outstanding debt. 5. Reflects net proceeds available at the Company’s election to physically settle the forward equity sale at or before March 1, 2020 $4.8B Enterprise Value $1 $3 $3 $260 $387 $784 2019 2020 2021 2022 2023 2024+ Capital Structure Highlights Debt Maturities ($M)3
  11. 11. © QTS. All Rights Reserved. 11 Full Year 2019 Guidance Summary • Annual rental churn guidance: 3% - 6% • 2019 capital expenditure guidance: $450 - $500M4, excluding acquisitions Full-Year 2019 Guidance Low High Revenue1 $461 $475 Adjusted EBITDA2 $243.5 $253.5 Operating FFO per Share3 $2.61 $2.71 1. Consistent with GAAP accounting standards, revenue from the unconsolidated joint venture has been removed from QTS’ reported GAAP financial statements as of the closing date of the JV. 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.
  12. 12. © QTS. All Rights Reserved. 12 Closing Remarks
  13. 13. © QTS. All Rights Reserved. 13 Differentiated Capability to Drive Success Across Three Primary Customer Verticals HYPERSCALEHYBRID COLOCATION FEDERAL Significant powered shell capacity: • Cost advantage • Ability to deliver quickly • Growth capacity Leading provider with established expertise: • High-end security & compliance platform • Operational capability • Demonstrated track record Software-defined data center: • First of its kind monitoring and orchestration platform • Fully integrated and hybrid enabled
  14. 14. © QTS. All Rights Reserved. 14 Thank You! ir@qtsdatacenters.com
  15. 15. © QTS. All Rights Reserved. 15 Appendix
  16. 16. © QTS. All Rights Reserved. 16 NOI Reconciliation $ in thousands Net Operating Income (NOI) Net income (loss) $ 7,535 $ 21,148 $ 5,397 $ (11,830) $ (6,433) Equity in net (income) loss of unconsolidated entity 401 274 — — — Interest income (36) (45) (25) — (25) Interest expense 6,459 7,146 8,199 4 8,203 Depreciation and amortization 41,481 38,788 35,233 2,586 37,819 Other (income) expense 40 — — — — Tax expense (benefit) of taxable REIT subsidiaries 199 211 178 (41) 137 Transaction and integration costs 1,039 1,214 653 — 653 General and administrative expenses 20,124 19,891 18,004 3,028 21,032 Gain on sale of real estate, net — (13,408) — — — Restructuring — — — 11,430 11,430 NOI from consolidated operations $ 77,242 $ 75,219 $ 67,639 $ 5,177 $ 72,816 Pro rata share of NOI from unconsolidated entity 842 234 — — — Total NOI $ 78,084 $ 75,453 $ 67,639 $ 5,177 $ 72,816 March 31, 2019 TotalNon-Core Three Months Ended CoreTotal Total June 30, 2019 June 30, 2018
  17. 17. © QTS. All Rights Reserved. 17 EBITDAre & Adjusted EBITDA Reconciliation $ in thousands EBITDAre and Adjusted EBITDA Net income (loss) $ 7,535 $ 21,148 $ 5,397 $ (11,830) $ (6,433) Equity in net (income) loss of unconsolidated entity 401 274 — — — Interest income (36) (45) (25) — (25) Interest expense 6,459 7,146 8,199 4 8,203 Tax expense (benefit) of taxable REIT subsidiaries 199 211 178 (41) 137 Depreciation and amortization 41,481 38,788 35,233 2,586 37,819 (Gain) loss on disposition of depreciated property and impairment write-downs of depreciated property — (13,408) — 3,122 3,122 Pro rata share of EBITDAre from unconsolidated entity 863 215 — — — EBITDAre $ 56,902 $ 54,329 $ 48,982 $ (6,159) $ 42,823 Equity-based compensation expense 4,296 3,300 3,999 — 3,999 Restructuring costs — — — 8,308 8,308 Transaction and integration costs 1,039 1,214 653 — 653 Adjusted EBITDA $ 62,237 $ 58,843 $ 53,634 $ 2,149 $ 55,783 March 31, 2019 TotalNon-Core Three Months Ended June 30, 2018June 30, 2019 Total Total Core
  18. 18. © QTS. All Rights Reserved. 18 FFO, Operating FFO and Adjusted Operating FFO Reconciliation *The company’s calculations of Operating FFO and Adjusted Operating FFO may not be comparable to Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not use the same definition $ in thousands FFO Net income (loss) $ 7,535 $ 21,148 $ 5,397 $ (11,830) $ (6,433) Equity in net (income) loss of unconsolidated entity 401 274 — — — Real estate depreciation and amortization 38,544 35,927 33,093 750 33,843 Gain on sale of real estate, net — (13,408) — — — Pro rata share of FFO from unconsolidated entity 344 41 — — — FFO 46,824 43,982 38,490 (11,080) 27,410 Preferred stock dividends (7,045) (7,045) (2,248) — (2,248) FFO available to common stockholders & OP unit holders 39,779 36,937 36,242 (11,080) 25,162 Restructuring costs — — — 11,430 11,430 Transaction and integration costs 1,039 1,214 653 — 653 Tax benefit associated with restructuring, transaction and integration costs — — — (41) (41) Operating FFO available to common stockholders & OP unit holders* 40,818 38,151 36,895 309 37,204 Maintenance Capex (2,233) (709) (2,612) — (2,612) Leasing commissions paid (6,528) (6,515) (7,600) (71) (7,671) Amortization of deferred financing costs and bond discount 979 978 961 — 961 Non real estate depreciation and amortization 2,937 2,861 2,140 1,836 3,976 Straight line rent revenue and expense and other (979) (1,422) (1,300) 67 (1,233) Tax expense (benefit) from operating results 199 211 178 — 178 Equity-based compensation expense 4,296 3,300 3,999 — 3,999 Adjustments for unconsolidated entity (42) 22 — — — Adjusted Operating FFO available to common stockholders & OP unit holders* $ 39,447 $ 36,877 $ 32,661 $ 2,141 $ 34,802 March 31, 2019 Three Months Ended Core June 30, 2019 Total Total TotalNon-Core June 30, 2018
  19. 19. © QTS. All Rights Reserved. 19 MRR Reconciliation $ in thousands Recognized MRR in the period Total period revenues (GAAP basis) $ 119,167 $ 112,689 $ 102,549 $ 9,728 $ 112,277 Less: Total period variable lease revenue from recoveries (12,672) (10,793) (10,444) — (10,444) Total period deferred setup fees (3,822) (3,232) (3,073) (130) (3,203) Total period straight line rent and other (5,485) (3,942) (2,022) (2,304) (4,326) Recognized MRR in the period 97,188 94,722 87,010 7,294 94,304 MRR at period end Total period revenues (GAAP basis) $ 119,167 $ 112,689 $ 102,549 $ 9,728 $ 112,277 Less: Total revenues excluding last month (77,863) (73,809) (67,701) (6,861) (74,562) Total revenues for last month of period 41,304 38,880 34,848 2,867 37,715 Less: Last month variable lease revenue from recoveries (4,222) (3,871) (3,597) — (3,597) Last month deferred setup fees (1,322) (1,242) (984) (99) (1,083) Last month straight line rent and other (3,349) (2,068) (745) (1,139) (1,884) Add: Pro rata share of MRR at period end of unconsolidated entity 369 253 — — — MRR at period end $ 32,780 $ 31,952 $ 29,522 $ 1,629 $ 31,151 Non-Core June 30, 2018 Total Three Months Ended March 31, 2019June 30, 2019 Total Total Core

×