QTS REALTY TRUST, INC. OVERLAND PARK, Kan., Oct. 25, 2016 /PRNewswire/ -- QTS Realty Trust, Inc. ("QTS" or the "Company") (NYSE: QTS) today announced operating results for the third quarter ended September 30, 2016.
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Third Quarter Highlights
-- Reported net income of $6.5 million in the third quarter of 2016, a
decrease of 20.6% compared to the third quarter of 2015. Net income was
$0.12 per basic and diluted share for the third quarter of 2016,
compared to net income per basic and diluted share of $0.17 for the
third quarter of 2015.
-- Reported Operating FFO of $37.4 million in the third quarter of 2016, an
increase of 26.5% compared to Operating FFO of $29.5 million in the
third quarter of 2015. Operating FFO in the third quarter of 2016 and
2015 included a tax benefit of $3.1 million and $1.4 million,
respectively. Operating FFO for the third quarter of 2016 on a fully
diluted per share basis was $0.67 per share, an increase of 10.0%
compared to Operating FFO per share of $0.61 for the third quarter of
2015. Reported FFO of $35.0 million in the third quarter of 2016, an
increase of 19.7% compared to FFO of $29.3 million in the third quarter
of 2015. On a fully diluted per share basis, FFO was $0.63 for the third
quarter of 2016 compared to $0.60 in 2015, an increase of 4.8%.
-- Reported Adjusted EBITDA of $47.3 million in the third quarter of 2016,
an increase of 20.9% compared to the third quarter of 2015.
-- Reported NOI of $64.6 million in the third quarter of 2016, an increase
of 14.4% compared to the third quarter of 2015.
-- Reported total revenues of $103.5 million recognized in the third
quarter of 2016, an increase of 16.4% compared to the third quarter of
2015.
"We are pleased that our integrated technology services platform continues to differentiate QTS in the market and drive our success, as our mega-scale facilities enable our customers flexibility and scalability supporting attractive returns on capital," said Chad Williams, Chairman and CEO of QTS.
Williams added, "We are also excited about the expansion of our footprint, with our first full quarter of our newest Chicago and Piscataway facilities already contributing to our strong leasing results."
Financial Results
Net income recognized in the third quarter of 2016 was $6.5 million ($0.12 per basic and diluted share), which included approximately $3.5 million of transaction and integration costs and $4.2 million of income tax benefit, compared to net income of $8.2 million ($0.17 per basic and diluted share) recognized in the third quarter of 2015, which also included approximately $1.5 million of transaction and integration costs and $2.6 million of income tax benefit.
QTS generated Operating FFO of $37.4 million, or $0.67 per fully diluted share, in the third quarter of 2016, which includes a tax benefit of approximately $3.1 million, and compares to Operating FFO of $29.5 million, or $0.61 per share, for the third quarter of 2015, which included a tax benefit of approximately $1.4 million. The current quarter's Operating FFO represents an increase of approximately 26.5% compared to the prior year, and a 10.0% increase on a per share basis.
Additionally, QTS generated $47.3 million of Adjusted EBITDA in the third quarter of 2016, an increase of 20.9% compared to $39.1 million for the third quarter of 2015.
QTS generated total revenues of $103.5 million in the third quarter of 2016, an increase of 16.4% compared to $88.9 million in the third quarter of 2015. MRR as of September 30, 2016 was $29.8 million, an increase of 13.6% compared to MRR as of September 30, 2015 of $26.2 million.
Leasing Activity
During the third quarter of 2016, QTS entered into customer leases representing approximately $14.5 million of incremental annualized rent, net of downgrades, which is a 55% increase over the prior four quarter average net leasing activity. This growth was driven by the C1 and C2/C3 aspects of the QTS platform. Pricing of deals signed during the quarter was slightly above the prior four quarter average primarily due to higher C1 pricing and a larger mix of C2/C3 deals during the quarter.
During the third quarter of 2016, QTS renewed leases with a total annualized rent of $10.7 million at an average rent per square foot of $1,204, which was 0.8% higher than the annualized rent prior to their respective renewals. The Company defines renewals as leases for which the customer retains the same amount of space before and after renewal. There is variability in the Company's renewal rates based on the mix of product types renewed, and renewal rates are expected to increase in the low to mid-single digits. Rental churn (which the Company defines as MRR lost to a customer intending to fully exit the platform compared to total MRR at the beginning of the period) was 1.1% for the third quarter of 2016 and 4.8% for the nine months ended September 30, 2016.
During the third quarter of 2016, average pricing on QTS commenced customer leases (which includes new customers and also existing customers that renewed their lease term) increased to $746 per square foot compared to the prior four quarter average of $611 per square foot due. The increase was attributable to a mix of slightly smaller C1 customers and more cloud and managed services being attached to C2/C3 commencements.
As of September 30, 2016, the booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of September 30, 2016) was approximately $4.2 million, or $50.8 million of annualized rent, and compares to $49.1 million at June 30, 2016. The booked-not-billed balance is expected to contribute an incremental $2.5 million to revenue in 2016 (representing $14.1 million in annualized revenues), an incremental $12.1 million in 2017 (representing $20.3 million in annualized revenues), and an incremental $16.5 million in annualized revenues thereafter.
Development, Redevelopment, and Acquisitions
During the third quarter of 2016, the Company brought online approximately 3 megawatts of gross power and approximately 14,000 net rentable square feet ("NRSF") of raised floor and various portions of customer specific capital at an aggregate cost of approximately $56 million which was largely driven by early investment in our newest Chicago facility. In addition, during the third quarter of 2016, the Company continued redevelopment of the Dallas-Fort Worth, Atlanta-Metro, Richmond and Chicago facilities to have space ready for customers later in 2016 and forward. The Company expects to bring approximately 32,000 raised floor NRSF into service in the fourth quarter of 2016 at an aggregate cost of approximately $58 million.
Balance Sheet and Liquidity
As of September 30, 2016, the Company's total debt balance net of cash and cash equivalents was $862.1 million, resulting in a debt to annualized Adjusted EBITDA of 4.6x. This ratio continues to be impacted by various portions of the Company's portfolio that were placed into service in the third quarter of 2016 which have not yet produced a stabilized Adjusted EBITDA. In addition, the Company incurred costs included in construction in progress related to revenue which will begin to ramp in the remainder of 2016 and into 2017 associated with the Company's booked-not-billed backlog of $50.8 million in annualized rent.
As of September 30, 2016, the Company had total available liquidity of approximately $380 million which was comprised of $368 million of available capacity under the Company's unsecured revolving credit facility and approximately $12 million of cash and cash equivalents.
2016 Guidance
The Company is raising its 2016 guidance for Adjusted EBITDA, Operating FFO and Operating FFO per share. The Company now expects Adjusted EBITDA of $181 million to $187 million, Operating FFO of $139 million to $143 million, and Operating FFO per share of $2.57 to $2.65. The Company now expects Capital Expenditures, excluding acquisitions, of approximately $300 million for 2016 and continues to anticipate Adjusted EBITDA margin to approach 47.0% over the next few years. The Company is also lowering its churn guidance from 5-8% to 5-7% for 2016.
This guidance does not contemplate any acquisitions or dispositions, other than those which have already been disclosed. The guidance also incorporates approximately $7 million of estimated Operating FFO affecting tax benefit recognized in 2016.
Non-GAAP Financial Measures
This release includes certain non-GAAP financial measures that management believes are helpful in understanding the Company's business, as further described below.
Conference Call Details
The Company will host a conference call and webcast on October 26, 2016, at 10:00 a.m. Eastern time (9:00 a.m. Central time) to discuss its financial results, current business trends and market conditions.
The dial-in number for the conference call is (877) 883-0383 (U.S.) or (412) 902-6506 (International). The participant entry number is 6876189# and callers are asked to dial in ten minutes prior to start time. A link to the live broadcast and the replay will be available on the Company's website (www.qtsdatacenters.com) under the Investors tab.
About QTS
QTS Realty Trust, Inc. (NYSE: QTS) is a leading provider of secure, compliant data center solutions, hybrid cloud and fully managed services. QTS' integrated technology service platform of custom data center (C1), colocation (C2) and cloud and managed services (C3) provides flexible, scalable, secure IT solutions for web and IT applications. QTS' Critical Facilities Management (CFM) provides increased efficiency and greater performance for third-party data center owners and operators. QTS owns, operates or manages 24 data centers and supports more than 1,000 customers in North America, Europe and Asia Pacific.
QTS Investor Relations Contact
Stephen Douglas - Vice President - Investor Relations and Strategic Planning
Jeff Berson - Chief Investment Officer
William Schafer - Chief Financial Officer
ir@qtsdatacenters.com
Forward Looking Statements
Some of the statements contained in this release 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 release 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; global, national and local economic conditions; 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, including data centers acquired in the Company's acquisition of Carpathia Hosting, Inc.; 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; 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, revaluations for tax purposes 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, 2015 and other periodic reports the Company files with the Securities and Exchange Commission.
Combined Consolidated Balance Sheets
(in thousands)
September 30, December 31,
2016 2015
---- ----
(unaudited)
ASSETS
------
Real Estate Assets
Land $73,968 $57,112
Buildings, improvements and equipment 1,449,376 1,180,386
Less: Accumulated depreciation (295,879) (239,936)
-------- --------
1,227,465 997,562
Construction in progress 320,650 345,655
------- -------
Real Estate Assets, net 1,548,115 1,343,217
--------- ---------
Cash and cash equivalents 11,769 8,804
Rents and other receivables, net 34,192 28,233
Acquired intangibles, net (1) (2) 135,306 115,702
Deferred costs, net (3) (4) 35,714 30,042
Prepaid expenses 9,835 6,502
Goodwill (1) 173,843 181,738
Other assets, net (5) 37,813 33,101
------ ------
TOTAL ASSETS $1,986,587 $1,747,339
========== ==========
LIABILITIES
-----------
Unsecured credit facility, net (4) $529,395 $520,956
Senior notes, net of discount and debt issuance costs (4) 291,842 290,852
Capital lease and lease financing obligations 41,825 49,761
Accounts payable and accrued liabilities 84,053 95,924
Dividends and distributions payable 19,653 15,378
Advance rents, security deposits and other liabilities 20,655 18,798
Deferred income taxes (1) 16,018 18,813
Deferred income 18,403 16,991
------ ------
TOTAL LIABILITIES 1,021,844 1,027,473
--------- ---------
EQUITY
------
Common stock, $0.01 par value, 450,133,000 shares authorized, 47,857,646 and 41,225,784 shares issued and
outstanding as of September 30, 2016 and December 31, 2015, respectively 479 412
Additional paid-in capital 930,128 670,275
Accumulated dividends in excess of earnings (85,378) (52,732)
------- -------
Total stockholders' equity 845,229 617,955
Noncontrolling interests 119,514 101,911
------- -------
TOTAL EQUITY 964,743 719,866
------- -------
TOTAL LIABILITIES AND EQUITY $1,986,587 $1,747,339
========== ==========
(1) During the second quarter of 2016,
the purchase price allocation
associated with the acquisition
of Carpathia Hosting, Inc.
("Carpathia") was finalized. The
primary adjustments to the
purchase price allocation made
during the first and second
quarters of 2016 consisted of a
$14.7 million increase in
intangible assets, a $6.0 million
increase in deferred tax
liability and a reduction in
goodwill of $7.9 million.
(2) The 2016 acquisition of the
Piscataway, NJ facility
contributed $17.3 million to net
acquired intangibles as of
September 30, 2016.
(3) As of September 30, 2016 and
December 31, 2015, deferred
costs, net included $5.1 million
and $6.3 million of deferred
financing costs net of
amortization, respectively, and
$30.6 million and $23.8 million
of deferred leasing costs net of
amortization, respectively.
(4) Debt issuance costs, net related
to the Senior Notes and term loan
portion of the Company's
unsecured credit facility
aggregating $8.9 million and
$10.2 million at September 30,
2016 and December 31, 2015,
respectively, have been netted
against the related debt
liability line items for both
periods presented, as required by
recently issued accounting
guidance.
(5) As of September 30, 2016 and
December 31, 2015, other assets,
net included $29.8 million and
$25.9 million of corporate fixed
assets, respectively, primarily
relating to construction of
corporate offices, leasehold
improvements and product related
assets.
Combined Consolidated Statements of
Operations and Comprehensive Income
(unaudited and in thousands except
share and per share data)
The following financial data for the
three and nine months ended
September 30, 2016 includes the
operating results of the Piscataway
facility for the period June 6, 2016
(the date the Company acquired the
facility) through September 30,
2016.
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, June 30, September 30, September 30,
------------- -------- ------------- -------------
2016 2016 2015 2016 2015
---- ---- ---- ---- ----
Revenues:
Rental $77,005 $71,670 $62,744 $217,101 $164,270
Recoveries from customers 8,703 6,168 6,158 20,306 17,404
Cloud and managed
services 16,243 17,015 18,573 52,148 32,588
Other (1) 1,514 3,834 1,415 7,365 4,131
----- ----- ----- ----- -----
Total revenues 103,465 98,687 88,890 296,920 218,393
------- ------ ------ ------- -------
Operating expenses:
Property operating costs 36,288 32,646 30,925 100,715 72,292
Real estate taxes and
insurance 2,566 2,020 1,462 6,326 4,421
Depreciation and
amortization 32,699 30,355 24,486 91,693 58,791
General and
administrative (2) 19,942 21,608 19,440 61,836 47,893
Transaction and
integration costs (3) 3,465 3,833 1,482 9,385 6,256
----- ----- ----- ----- -----
Total operating expenses 94,960 90,462 77,795 269,955 189,653
------ ------ ------ ------- -------
Operating income 8,505 8,225 11,095 26,965 28,740
Other income and expense:
Interest income 1 2 1 3 2
Interest expense (6,179) (4,874) (5,418) (17,034) (15,559)
Other income/(expense),
net (4) 1 - - 1 (83)
--- --- --- --- ---
Income before taxes 2,328 3,353 5,678 9,935 13,100
Tax benefit of taxable
REIT subsidiaries (5) 4,210 2,454 2,560 9,269 5,695
----- ----- ----- ----- -----
Net income 6,538 5,807 8,238 19,204 18,795
Net income attributable
to noncontrolling
interests (6) (808) (707) (1,229) (2,485) (3,072)
---- ---- ------ ------ ------
Net income attributable
to QTS Realty Trust,
Inc. $5,730 $5,100 $7,009 $16,719 $15,723
====== ====== ====== ======= =======
Net income per share
attributable to common
shares:
Basic $0.12 $0.11 $0.17 $0.37 $0.43
Diluted 0.12 0.10 0.17 0.36 0.43
Weighted average common
shares outstanding:
Basic 47,854,516 47,783,093 40,994,387 45,651,421 36,354,738
Diluted 55,687,665 55,574,545 48,733,417 53,420,326 44,181,583
(1) Other revenue - Includes straight
line rent, sales of scrap metals
and other unused materials and
various other income items.
Straight line rent was $1.5
million, $3.5 million and $1.5
million for the three months ended
September 30, 2016, June 30, 2016
and September 30, 2015,
respectively. Straight line rent
was $6.9 million and $3.3 million
for the nine months ended September
30, 2016 and 2015, 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. General
and administrative expenses were
19.3%, 21.9%, and 21.9% of total
revenues for the three month
periods ended September 30, 2016,
June 30, 2016 and September 30,
2015, respectively. General and
administrative expenses were 20.8%
and 21.9% of total revenues for the
nine month periods ended month
periods ended September 30, 2016
and 2015, respectively.
(3) Transaction and integration costs -
For the three month periods ended
September 30, 2016 and September
30, 2015, the Company recognized
$0.1 million and $0.1 million,
respectively, in transaction costs
related to the examination of
actual and potential acquisitions.
Transaction costs were $1.0 million
and $4.5 million for the nine
months ended September 30, 2016 and
2015, respectively. The Company
also recognized $3.4 million, $3.0
million and $1.4 million in
integration costs for the three
month periods ended September 30,
2016, June 30, 2016 and September
30, 2015. These costs include
various costs to integrate QTS and
Carpathia, including consulting
fees, costs to consolidate office
space and costs which are currently
duplicated but will be eliminated
in the near future. Integration
costs were $8.4 million and $1.8
million for the nine months ended
September 30, 2016 and 2015,
respectively.
(4) Other expense, net - Generally
includes write offs of unamortized
deferred financing costs associated
with the early extinguishment of
certain debt instruments.
(5) Tax benefit of taxable REIT
subsidiaries - For the three months
ended September 30, 2016, June 30,
2016 and September 30, 2015, the
Company recorded a tax benefit of
$4.2 million, $2.5 million and $2.6
million, respectively. The current
year amounts related to recorded
operating losses which include
certain transaction and integration
costs. The prior year amount
related to the reversal of
valuation allowances of deferred
tax assets, aggregating
approximately $3.2 million, which
was a result of the purchase of
Carpathia. The Company recorded
$9.3 million and $5.7 million in
tax benefits for the nine months
ended September 30, 2016 and 2015,
respectively.
(6) Noncontrolling interest - The
noncontrolling ownership interest
of QualityTech, LP was 12.4% and
14.3% as of September 30, 2016 and
2015, respectively, with the
decrease primarily attributable to
the equity issuance in April 2016.
Reconciliations of Net Income to FFO,
Operating FFO & Adjusted Operating
FFO
(unaudited and in thousands except per
share data)
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
generally calculates Operating FFO
as FFO excluding certain non-
routine 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 between
periods and, to the extent other
REITs calculate Operating FFO on a
comparable basis, between the
Company and these other REITs. 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 and bond
discount, non-real estate
depreciation, straight line rent
adjustments, taxes and non-cash
compensation. Adjusted Operating FFO
is a non-GAAP measure that is used
as a supplemental performance
measure and to provide additional
information to users of the
financial statements.
A reconciliation of net income to
FFO, Operating FFO and Adjusted
Operating FFO is presented below:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, June 30, September 30, September 30,
------------- -------- ------------- -------------
2016 2016 2015 2016 2015
---- ---- ---- ---- ----
FFO
Net income $6,538 $5,807 $8,238 $19,204 $18,795
Real estate depreciation and amortization 28,493 26,409 21,022 79,771 51,649
------ ------ ------ ------ ------
FFO 35,031 32,216 29,260 98,975 70,444
------ ------ ------ ------ ------
Write off of unamortized deferred finance costs - - - - 83
Integration costs 3,355 3,026 1,360 8,434 1,783
Transaction costs 110 807 122 951 4,473
Tax benefit associated with transaction and integration costs (1,136) (1,183) (1,206) (3,067) (1,206)
Non-cash reversal of deferred tax asset valuation allowance - - - - (3,175)
--- --- --- --- ------
Operating FFO * 37,360 34,866 29,536 105,293 72,402
------ ------ ------ ------- ------
Maintenance Capex (1,731) (380) (1,408) (2,446) (2,034)
Leasing commissions paid (4,402) (3,388) (3,005) (13,597) (9,871)
Amortization of deferred financing costs and bond discount 879 877 849 2,633 2,552
Non real estate depreciation and amortization 4,207 3,946 3,463 11,923 7,086
Straight line rent revenue and expense and other (957) (3,243) (479) (5,810) (2,004)
Tax benefit from operating results (3,075) (1,271) (1,354) (6,203) (1,354)
Equity-based compensation expense 2,637 3,200 2,068 7,887 5,206
----- ----- ----- ----- -----
Adjusted Operating FFO * $34,918 $34,607 $29,670 $99,680 $71,983
======= ======= ======= ======= =======
Fully diluted weighted average shares 55,688 55,575 48,733 53,420 44,182
Operating FFO per share $0.67 $0.63 $0.61 $1.97 $1.64
* 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.
Reconciliations of Net Income to EBITDA
and Adjusted EBITDA
(unaudited and in thousands)
The Company calculates EBITDA as net
income (loss) adjusted to exclude
interest expense and interest income,
provision (benefit) for income taxes
(including income taxes applicable to
sale of assets) and depreciation and
amortization. The Company believes that
EBITDA is another metric that is often
utilized to evaluate and compare the
Company's ongoing operating results
between periods and between REITs. In
addition to EBITDA, the Company
calculates an adjusted measure of
EBITDA, which the Company refers to as
Adjusted EBITDA, as EBITDA excluding
write off of unamortized deferred
financing costs, gain (loss) on
extinguishment of debt, transaction and
integration costs, equity-based
compensation expense, restructuring
costs and gain (loss) 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.
A reconciliation of net income to EBITDA
and Adjusted EBITDA is presented below:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, June 30, September 30, September 30,
------------- -------- ------------- -------------
2016 2016 2015 2016 2015
---- ---- ---- ---- ----
EBITDA and Adjusted EBITDA
Net income $6,538 $5,807 $8,238 $19,204 $18,795
Interest expense 6,179 4,874 5,418 17,034 15,559
Interest income (1) (2) (1) (3) (2)
Tax benefit of taxable REIT subsidiaries (4,210) (2,454) (2,560) (9,269) (5,695)
Depreciation and amortization 32,699 30,355 24,486 91,693 58,791
------ ------ ------ ------ ------
EBITDA 41,205 38,580 35,581 118,659 87,448
------ ------ ------ ------- ------
Write off of unamortized deferred finance costs - - - - 83
Equity-based compensation expense 2,637 3,200 2,068 7,887 5,206
Integration costs 3,355 3,026 1,360 8,434 1,783
Transaction costs 110 807 122 951 4,473
--- --- --- --- -----
Adjusted EBITDA $47,307 $45,613 $39,131 $135,931 $98,993
======= ======= ======= ======== =======
Reconciliations of Net Income to Net
Operating Income (NOI)
(unaudited and in thousands)
The Company calculates net operating
income ("NOI") as net income
(loss), excluding: interest
expense, interest income, tax
expense (benefit) of taxable REIT
subsidiaries, depreciation and
amortization, write off of
unamortized deferred financing
costs, gain (loss) on
extinguishment of debt, transaction
and integration costs, gain (loss)
on sale of real estate,
restructuring costs 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 to NOI is presented
below:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, June 30, September 30, September 30,
------------- -------- ------------- -------------
2016 2016 2015 2016 2015
---- ---- ---- ---- ----
Net Operating Income (NOI)
Net income $6,538 $5,807 $8,238 $19,204 $18,795
Interest expense 6,179 4,874 5,418 17,034 15,559
Interest income (1) (2) (1) (3) (2)
Depreciation and amortization 32,699 30,355 24,486 91,693 58,791
Write off of unamortized deferred finance costs - - - - - 83
Tax benefit of taxable REIT subsidiaries (4,210) (2,454) (2,560) (9,269) (5,695)
Integration costs 3,355 3,026 1,360 8,434 1,783
Transaction costs 110 807 122 951 4,473
General and administrative expenses 19,942 21,608 19,440 61,836 47,893
------ ------ ------ ------ ------
NOI (1) $64,612 $64,021 $56,503 $189,880 $141,680
======= ======= ======= ======== ========
Breakdown of NOI by facility:
Atlanta-Metro data center $20,030 $20,885 $17,964 $60,887 $51,605
Atlanta-Suwanee data center 11,051 11,272 10,376 33,823 30,600
Santa Clara data center 2,961 3,653 3,615 10,378 10,566
Richmond data center 7,850 7,976 5,340 22,428 14,528
Sacramento data center 1,780 2,140 1,870 5,842 5,641
Princeton data center 2,468 2,356 2,331 7,180 6,990
Dallas-Fort Worth data center 5,118 3,914 1,532 11,656 3,743
Leased data centers acquired in 2015 10,487 10,035 12,460 31,937 14,710
Piscataway data center (2) 2,086 670 - 2,756 -
Other facilities 781 1,120 1,015 2,993 3,297
--- ----- ----- ----- -----
NOI (1) $64,612 $64,021 $56,503 $189,880 $141,680
======= ======= ======= ======== ========
(1) Includes facility level G&A
expense allocation charges of
4% of cash revenue for all
entities, with the exception of
the leased facilities acquired
in 2015, which include G&A
expense allocation charges of
10% of cash revenue. These
allocated charges aggregated to
$5.2 million, $5.1 million and
$4.9 million for the three
month periods ended September
30, 2016, June 30, 2016 and
September 30, 2015,
respectively, and $15.3 million
and $10.0 million for the nine
month periods ended September
30, 2016 and 2015,
respectively.
(2) Includes results of the
Piscataway facility for the
period June 6, 2016 through
September 30, 2016.
Reconciliations of Total Revenues to
Recognized MRR in the period and
MRR at period end
(unaudited and in thousands)
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 (which represent customer
leases that have been executed but
for which lease payments have not
commenced) as of a particular date,
unless otherwise specifically
noted. 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 customer leases. A
reconciliation of total revenues to
recognized MRR in the period and
MRR at period-end is presented
below:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, June 30, September 30, September 30,
------------- -------- ------------- -------------
2016 2016 2015 2016 2015
---- ---- ---- ---- ----
Recognized MRR in the period
Total period revenues (GAAP basis) $103,465 $98,687 $88,890 $296,920 $218,393
Less: Total period recoveries (8,703) (6,168) (6,158) (20,306) (17,404)
Total period deferred setup fees (2,377) (2,256) (1,477) (6,536) (4,135)
Total period straight line rent and other (3,697) (5,757) (2,959) (13,722) (8,221)
------ ------ ------ ------- ------
Recognized MRR in the period 88,688 84,506 78,296 256,356 188,633
------ ------ ------ ------- -------
MRR at period end
Total period revenues (GAAP basis) $103,465 $98,687 $88,890 $296,920 $218,393
Less: Total revenues excluding last month (69,427) (64,520) (59,455) (262,882) (188,958)
------- ------- ------- -------- --------
Total revenues for last month of period 34,038 34,167 29,435 34,038 29,435
Less: Last month recoveries (2,398) (2,805) (1,661) (2,398) (1,661)
Last month deferred setup fees (828) (756) (269) (828) (269)
Last month straight line rent and other (1,034) (1,734) (1,291) (1,034) (1,291)
------ ------ ------ ------ ------
MRR at period end $29,778 $28,872 $26,214 $29,778 $26,214
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SOURCE QTS Realty Trust, Inc.
