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Q4 2019 Earnings Presentation

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QTS' Q4 and Year-End Earnings Presentation

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Q4 2019 Earnings Presentation

  1. 1. © QTS. All Rights Reserved. QTS Realty Trust, Inc. Fourth Quarter 2019 Earnings Presentation
  2. 2. © QTS. All Rights Reserved. 1 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, 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. 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. 2 Fourth Quarter and Year-End 2019 Review
  4. 4. © QTS. All Rights Reserved. 3 Consistent Performance Enabled by Differentiated Platform Software-defined data center: • First of its kind monitoring and orchestration platform • Fully integrated and hybrid enabled • SDN-enabled universal connectivity • Premium customer experience Significant powered shell capacity: • Cost advantage • Ability to deliver quickly • Growth capacity • Strategically located in Tier 1 markets • High-end security & compliance platform • Operational capability • Demonstrated track record Leading provider with established expertise:
  5. 5. © QTS. All Rights Reserved. 4 2019 Year in Review $422.8 $480.8 2018 2019 $218.1 $250.4 2018 2019 51.6% 52.1% 2018 2019 Adjusted EBITDA ($M)1 Adj. EBITDA Margin1Revenue ($M)1 2019 Highlights 1.2018 reflects results for the Core business only Completed first international mega scale acquisition in the Netherlands Accelerated momentum with QTS’ software- defined data center platform (SDP) Ranked #1 data center co. globally in sustainability by GRESB Signed industry-first JV agreement with Alinda Capital Partners to support hyperscale growth strategy 4th consecutive year QTS has led data center industry in customer satisfaction QTS Eemshaven
  6. 6. © QTS. All Rights Reserved. 5 • Signed new and modified leases totaling $76M of incremental annualized rent in 2019, +18% Y/Y • Supported by significant contributions across all three primary customer verticals • Key Hyperscale wins included: • Majority of hyperscale wins came in at higher end of 9-11% target ROIC range reflecting differentiated platform and cost-advantaged powered shell capacity • Demonstrated strong momentum in Federal vertical including the signing of a 5+ MW, multi-site deployment for a strategic hyperscale customer supporting a large Federal program • Hybrid Colocation remains the engine of QTS’ growth strategy providing consistency, diversification and enhanced ROIC profile • Strength in enterprise demand in Atlanta, Ashburn, Piscataway and Chicago • Signed 158 new logos in 2019, reflecting an increase in avg. deal size of more than 40% Y/Y 2019 Leasing Activity Review 2019 Highlights 10MWQ3 ‘19 Q3 ‘19 Q4 ‘19 4MW 12MW Ashburn Manassas Atlanta New logo Existing SaaS customer Existing Social Media customer $3.7 $11.7 $17.1 $8.6 $21.0 $13.1 $18.1 $12.2 $11.3 $19.6 $17.4 $27.7 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 $16.1M Avg. $10.2M Avg. $19.0M Avg. *2017 and 2018 reflect results for the Core business only Incremental Annualized Rent Signed by Quarter ($M)*
  7. 7. © QTS. All Rights Reserved. 6 NetLeasing($M)1 • Q4 leasing driven by ongoing hyperscale strength combined with steady enterprise demand • +83% above prior four quarter average leasing • Strongest quarterly leasing performance in Company history • Hyperscale contributed approximately two-thirds of quarterly leasing performance • Includes 12MW hyperscale anchor tenant signed in Atlanta and multi-site lease with a new hyperscale logo, a global cloud services provider • Leasing activity includes a number of smaller 1-2MW leases across QTS’ footprint reflecting the value of incumbency as hyperscale customers continue to expand with existing vendors • Hyperscale momentum has carried over into 2020; based on strong interest and visibility into pre- leasing, QTS has commenced development of the first data center on its Hillsboro, Oregon campus • Strong leasing activity resulted in record booked-not-billed backlog of $93M2 as of the end of Q4 ’19 Signed new and modified leases totaling $27.7M of incremental annualized rent Backlog($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. Q4 2019 Leasing Review $12.2 $11.3 $19.6 $17.4 $27.7 4Q18 1Q19 2Q19 3Q19 4Q19 $15.1M Prior 4 Quarter Avg. $62.6 $54.8 $68.1 $79.8 $93.1 4Q18 1Q19 2Q19 3Q19 4Q19
  8. 8. © QTS. All Rights Reserved. 7 Financial Update
  9. 9. © QTS. All Rights Reserved. 8 QTS Hillsboro, OR • Initial development will feature construction of a new data center totaling 85,000 square feet of leasable capacity and 27MW of gross power capacity • Expect to deliver first phase of new development in mid-2020 with additional power capacity available for customers in the second half of 2020 • The entire first phase of development, representing approximately 4.5MW has been pre- leased to an existing SaaS customer • Significant pre-leasing is consistent with QTS’ de-risked approach to overall capital allocation • At full stabilization, QTS believes the site can ultimately support 1M+ SF of leasable capacity and 250MW+ of gross power capacity across 92 acres of owned land in Hillsboro • Hillsboro has emerged as one of the fastest growing data center markets on the west coast • Low cost market with strong access to power and a multitude of connectivity options including subsea cable landings • Broad availability of renewable power; QTS expects to open the Hillsboro site with 100% renewable power available to customers, consistent with long-term sustainability goals QTS has commenced construction on a 250+ megawatt data center campus
  10. 10. © QTS. All Rights Reserved. 9 2020 Capital Plan and Development Summary Q4 2019 Raised Floor Additional Raised Floor (expected to come online through 12/31/20) Existing Property Development Ashburn, VA 68,487 74,000 Irving, TX 187,742 20,000 Fort Worth, TX 37,960 14,405 Piscataway, NJ 103,820 5,000 Chicago, IL 70,000 4,960 Total 118,365 New Property Development Atlanta, VA (DC - 2) 36,132 Hillsboro, OR 7,000 Total 43,132 Unconsolidated JV Properties1 Manassas, VA 22,400 5,600 Total 167,097 Full-year 2020 cash capital expenditure guidance of $550M - $600M • Supports record booked-not-billed backlog and particularly strong momentum exiting the fourth quarter of 2019 • More than 70% of current development capital plan for 2020 is directly tied to signed leases Atlanta DC - 2 (opening mid-2020) Hillsboro (opening mid-2020) 1. Represents the Company’s unconsolidated joint venture at the JV’s 100% share. QTS’ pro rata share of the JV is 50%.
  11. 11. © QTS. All Rights Reserved. 10 • Reported net debt to LQA adjusted EBITDA of 5.6x; pro forma leverage of 4.8x3, including forward equity proceeds • $220M4 of undrawn forward equity proceeds available as of February 18, 2020 • Available undrawn forward equity proceeds represent more than two thirds of QTS’ expected equity funding requirement for ‘20 • During Q4 ‘19, extended credit facility with improved pricing and increased capacity to $1.7B • No significant debt maturities until beyond 2022 • 70%+ of debt is subject to a fixed rate, including interest rate swap agreements 1. Includes three term loans ($700 million in aggregate) and $317 million of borrowings on revolving credit facility as of December 31, 2019 2. Market Cap calculated as: Class A and Class B common stock and OP units of 66 million incl. common stock sold in forward structure using treasury stock method, multiplied by 12/31/2019 stock price of $54.27 per share. 3. Pro forma for the effects of cash expected to be received upon the full physical settlement of, and issuance of, 4.6 million shares of common stock pursuant to forward equity sales through the date of this report, assuming such proceeds were used to repay a portion of the Company’s outstanding debt. The company expects to use the proceeds from these forward equity agreements to fund future capital expenditures. 4. Reflects net proceeds available at the Company’s election to physically settle the forward equity sales 5. Includes QTS’ pro rata share of debt at the joint venture Capital Structure ($M) Highlights Debt Maturities ($M)5 Balance Sheet and Liquidity Summary Market Cap, $3,592 2Senior Notes, $400 Pro Rata Share of Unconsol. JV Debt, $35 Series B Convertible Preferred Stock, $316 Series A Preferred Stock, $107 Finance Leases & Other, $47 Unsecured Credit Facility, $1,017 1 $5.5B Enterprise Value $3 $3 $5 $355 $229 $905 2020 2021 2022 2023 2024 2025+
  12. 12. © QTS. All Rights Reserved. 11 Full Year 2020 Guidance Summary 2019 2020 Guidance Midpoint $M except per share values Reported Low Midpoint High Growth Y/Y Revenue1 $481 $523 $530 $537 10% Adjusted EBITDA2 $250 $275 $280 $285 12% Operating FFO per Share3 $2.63 $2.69 $2.76 $2.83 5% Annual Rental Churn 5.2% 3.0% 4.5% 6.0% Capital Expenditures4 $348 $550 $575 $600 1. Consistent with GAAP accounting standards, revenue from the unconsolidated joint venture is not included in 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.
  13. 13. © QTS. All Rights Reserved. 12 Closing Remarks
  14. 14. © QTS. All Rights Reserved. 13 Thank You! ir@qtsdatacenters.com
  15. 15. © QTS. All Rights Reserved. 14 Appendix
  16. 16. © QTS. All Rights Reserved. 15 NOI Reconciliation $ in thousands Net Operating Income (NOI) Net income (loss) $ 29,169 $ 28,530 $ (35,705) $ (7,175) Equity in net (income) loss of unconsolidated entity 1,473 — — — Interest income (111) (150) — (150) Interest expense 26,593 28,736 13 28,749 Depreciation and amortization 168,305 143,525 6,366 149,891 Debt restructuring costs 1,523 605 — 605 Other (income) expense 50 — — — Tax expense (benefit) of taxable REIT subsidiaries (37) (960) (2,408) (3,368) Transaction, integration and impairment costs 17,686 2,743 — 2,743 General and administrative expenses 80,385 71,401 9,456 80,857 Gain on sale of real estate, net (14,769) — — — Restructuring — 138 37,805 37,943 NOI from consolidated operations $ 310,267 $ 274,568 $ 15,527 $ 290,095 Pro rata share of NOI from unconsolidated entity 2,789 — — — Total NOI $ 313,056 $ 274,568 $ 15,527 $ 290,095 Non-Core TotalTotal Core Year Ended December 31, 2019 December 31, 2018 $ in thousands Net Operating Income (NOI) Net income (loss) $ (6,102) $ 6,588 $ 10,474 $ (4,072) $ 6,402 Equity in net (income) loss of unconsolidated entity 481 317 — — — Interest income (8) (22) (58) — (58) Interest expense 6,264 6,724 6,050 — 6,050 Depreciation and amortization 45,161 42,875 38,259 — 38,259 Debt restructuring costs 1,523 — 605 — 605 Other (income) expense 380 (370) — — — Tax expense (benefit) of taxable REIT subsidiaries (816) 369 38 (161) (123) Transaction, integration and impairment costs 14,606 827 269 — 269 General and administrative expenses 20,866 19,504 17,551 118 17,669 Gain on sale of real estate, net (1,361) — — — — Restructuring — — 138 4,108 4,246 NOI from consolidated operations $ 80,994 $ 76,812 $ 73,326 $ (7) $ 73,319 Pro rata share of NOI from unconsolidated entity 841 872 — — — Total NOI $ 81,835 $ 77,684 $ 73,326 $ (7) $ 73,319 CoreTotal Total December 31, 2019 December 31, 2018 TotalNon-Core Three Months Ended September 30, 2019
  17. 17. © QTS. All Rights Reserved. 16 EBITDAre & Adjusted EBITDA Reconciliation $ in thousands EBITDAre and Adjusted EBITDA Net income (loss) $ (6,102) $ 6,588 $ 10,474 $ (4,072) $ 6,402 Equity in net (income) loss of unconsolidated entity 481 317 — — — Interest income (8) (22) (58) — (58) Interest expense 6,264 6,724 6,050 — 6,050 Tax expense (benefit) of taxable REIT subsidiaries (816) 369 38 (161) (123) Depreciation and amortization 45,161 42,875 38,259 — 38,259 (Gain) loss on disposition of depreciated property — — — (135) (135) Impairments of depreciated property 13,957 — — 1,423 1,423 Pro rata share of EBITDAre from unconsolidated entity 830 867 — — — EBITDAre $ 59,767 $ 57,718 $ 54,763 $ (2,945) $ 51,818 Debt restructuring costs 1,523 — 605 — 605 Equity-based compensation expense 4,360 4,456 3,531 — 3,531 Restructuring costs — — 138 2,820 2,958 Transaction and integration costs 649 827 269 — 269 Adjusted EBITDA $ 66,299 $ 63,001 $ 59,306 $ (125) $ 59,181 September 30, 2019 TotalNon-Core Three Months Ended December 31, 2018December 31, 2019 Total Total Core $ in thousands EBITDAre and Adjusted EBITDA Net income (loss) $ 29,169 $ 28,530 $ (35,705) $ (7,175) Equity in net (income) loss of unconsolidated entity 1,473 — — — Interest income (111) (150) — (150) Interest expense 26,593 28,736 13 28,749 Tax expense (benefit) of taxable REIT subsidiaries (37) (960) (2,408) (3,368) Depreciation and amortization 168,305 143,525 6,366 149,891 (Gain) loss on disposition of depreciated property (13,408) — 6,994 6,994 Impairments of depreciated property 13,957 — 8,842 8,842 Pro rata share of EBITDAre from unconsolidated entity 2,775 — — — EBITDAre $ 228,716 $ 199,681 $ (15,898) $ 183,783 Debt restructuring costs 1,523 605 — 605 Equity-based compensation expense 16,412 14,972 — 14,972 Restructuring costs — 138 21,969 22,107 Transaction and integration costs 3,729 2,743 — 2,743 Adjusted EBITDA $ 250,380 $ 218,139 $ 6,071 $ 224,210 December 31, 2018 Non-Core TotalTotal Core December 31, 2019
  18. 18. © QTS. All Rights Reserved. 17 FFO, Operating FFO and Adjusted Operating FFO Reconciliation $ in thousands FFO Net income (loss) $ (6,102) $ 6,588 $ 10,474 $ (4,072) $ 6,402 Equity in net (income) loss of unconsolidated entity 481 317 — — — Real estate depreciation and amortization 41,947 39,969 35,640 — 35,640 Impairments of depreciated property 13,957 — — — — Pro rata share of FFO from unconsolidated entity 324 369 — — — FFO 50,607 47,243 46,114 (4,072) 42,042 Preferred stock dividends (7,045) (7,045) (7,045) — (7,045) FFO available to common stockholders & OP unit holders 43,562 40,198 39,069 (4,072) 34,997 Debt restructuring costs 1,523 — 605 — 605 Restructuring costs — — 138 4,108 4,246 Transaction and integration costs 649 827 269 — 269 Tax benefit associated with restructuring, transaction and integration costs — — — (161) (161) Operating FFO available to common stockholders & OP unit holders* 45,734 41,025 40,081 (125) 39,956 Maintenance capital expenditures (910) (381) (1,460) — (1,460) Leasing commissions paid (10,757) (7,302) (5,204) — (5,204) Amortization of deferred financing costs and bond discount 982 978 974 — 974 Non real estate depreciation and amortization 3,214 2,906 2,619 — 2,619 Straight line rent revenue and expense and other (3,243) (2,278) (1,958) 6 (1,952) Tax expense (benefit) from operating results (816) 369 38 — 38 Equity-based compensation expense 4,360 4,456 3,531 — 3,531 Similar adjustments for unconsolidated entity 75 63 — — — Adjusted Operating FFO available to common stockholders & OP unit holders* $ 38,639 $ 39,836 $ 38,621 $ (119) $ 38,502 TotalNon-Core December 31, 2018September 30, 2019 Three Months Ended Core December 31, 2019 Total Total $ in thousands FFO Net income (loss) $ 29,169 $ 28,530 $ (35,705) $ (7,175) Equity in net (income) loss of unconsolidated entity 1,473 — — — Real estate depreciation and amortization 156,387 133,948 2,171 136,119 Gain on sale of real estate, net (13,408) — — — Impairments of depreciated property 13,957 — — — Pro rata share of FFO from unconsolidated entity 1,078 — — — FFO 188,656 162,478 (33,534) 128,944 Preferred stock dividends (28,180) (16,666) — (16,666) FFO available to common stockholders & OP unit holders 160,476 145,812 (33,534) 112,278 Debt restructuring costs 1,523 605 — 605 Restructuring costs — 138 37,805 37,943 Transaction and integration costs 3,729 2,743 — 2,743 Tax benefit associated with restructuring, transaction and integration costs — — (2,408) (2,408) Operating FFO available to common stockholders & OP unit holders* 165,728 149,298 1,863 151,161 Maintenance capital expenditures (4,233) (6,662) — (6,662) Leasing commissions paid (31,102) (23,855) (391) (24,246) Amortization of deferred financing costs and bond discount 3,917 3,856 — 3,856 Non real estate depreciation and amortization 11,918 9,577 4,195 13,772 Straight line rent revenue and expense and other (7,922) (6,780) 10 (6,770) Tax expense (benefit) from operating results (37) (960) — (960) Equity-based compensation expense 16,412 14,972 — 14,972 Similar adjustments for unconsolidated entity 118 — — — Adjusted Operating FFO available to common stockholders & OP unit holders* $ 154,799 $ 139,446 $ 5,677 $ 145,123 December 31, 2019 Total December 31, 2018 Year Ended Non-CoreTotal Core *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
  19. 19. © QTS. All Rights Reserved. 18 MRR Reconciliation $ in thousands Recognized MRR in the period Total period revenues (GAAP basis) $ 123,707 $ 125,255 $ 112,334 $ 3 $ 112,337 Less: Total period variable lease revenue from recoveries (14,018) (17,563) (11,629) — (11,629) Total period deferred setup fees (4,062) (4,041) (3,104) — (3,104) Total period straight line rent and other (5,156) (4,768) (4,465) (34) (4,499) Recognized MRR in the period 100,471 98,883 93,136 (31) 93,105 MRR at period end Total period revenues (GAAP basis) $ 123,707 $ 125,255 $ 112,334 $ 3 $ 112,337 Less: Total revenues excluding last month (81,699) (81,114) (73,852) (2) (73,854) Total revenues for last month of period 42,008 44,141 38,482 1 38,483 Less: Last month variable lease revenue from recoveries (4,578) (6,369) (3,822) — (3,822) Last month deferred setup fees (1,333) (1,684) (1,015) — (1,015) Last month straight line rent and other (2,413) (3,452) (2,504) (1) (2,505) Add: Pro rata share of MRR at period end of unconsolidated entity 350 343 — — — MRR at period end $ 34,034 $ 32,979 $ 31,141 $ — $ 31,141 Non-Core December 31, 2018 Total Three Months Ended September 30, 2019December 31, 2019 Total Total Core $ in thousands Recognized MRR in the period Total period revenues (GAAP basis) $ 480,818 $ 422,786 $ 27,738 $ 450,524 Less: Total period variable lease revenue from recoveries (55,046) (45,386) — (45,386) Total period deferred setup fees (15,156) (12,239) (236) (12,475) Total period straight line rent and other (20,349) (12,087) (5,061) (17,148) Recognized MRR in the period 390,267 353,074 22,441 375,515 MRR at period end Total period revenues (GAAP basis) $ 480,818 $ 422,786 $ 27,738 $ 450,524 Less: Total revenues excluding last month (438,810) (384,304) (27,737) (412,041) Total revenues for last month of period 42,008 38,482 1 38,483 Less: Last month variable lease revenue from recoveries (4,578) (3,822) — (3,822) Last month deferred setup fees (1,333) (1,015) — (1,015) Last month straight line rent and other (2,413) (2,504) (1) (2,505) Add: Pro rata share of MRR at period end of unconsolidated entity 350 — — — MRR at period end $ 34,034 $ 31,141 $ — $ 31,141 Year Ended December 31, 2018December 31, 2019 Non-Core TotalTotal Core

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