QTS Realty Trust, Inc.

Transcription

1 QTS Realty Trust, Inc. Second Quarter 2018 Earnings Presentation

2 QTS Realty Trust, Inc. 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, 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; our ability to successfully execute our strategic growth plan and realize its expected benefits; 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; and changes in real estate and zoning laws, revaluations for tax purposes and increases in real property tax rates. 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, 2017 ( 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, EBITDA, 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 Second Quarter 2018 Review

4 QTS Realty Trust, Inc. 3 Strategic Growth Plan Execution Summary Q2 18 Accelerate Growth and Leasing 16% Revenue Growth Y/Y* 15% OFFO Per Share Growth Y/Y* $34M Annualized Rent Signed YTD* Increase Profitability $ 52.3% Adj. EBITDA Margin* Highest adjusted EBITDA margin achieved in QTS history Represents 500+ basis points of margin expansion Y/Y Enhance Predictability 0.8% Rental Churn* Among the lowest churn rates in data center industry Churn on track to be approximately half the churn QTS experienced in consolidated business in churn guidance reduced to 3-5% from 3-6% * Reflects results for Core business only

5 QTS Realty Trust, Inc. 4 GDT Integration Tracking Ahead of Expectations Status Update Next Steps Systems Migration of systems/services to GDT 75% complete Migration of remaining systems and services by end of 2018 Customers Positive response from customers Customer retention expected to be above plan Fully transition non-core customers, support and assets to GDT by end of 2018 Personnel GDT expected to hire 60+ former QTS employees to support non-core business Former QTS employees formally join GDT Financial Limited financial impact on core business from non-core customer migration in 2018 $8M+ revenue contribution to core business in 2019, up from prior expectation of $5M+ Ahead of schedule for migration of non-core customers and services to GDT by YE 2018

6 QTS Realty Trust, Inc. 5 Q Operating Performance Review Signed new/modified leases totaling $13.1M of core incremental annualized rent In line with prior four quarter average leasing Strongest first half of year leasing volume since IPO in 2013 Booked-not-billed backlog steady at $51M of core annualized rent as of Q2 18 Renewal rates up 5.6%, representing back-to-back quarters of 5%+ renewal price increases Hybrid Colocation: Hybrid colocation business contributed majority of net leasing volume in the second quarter Completed sales force realignment around hyperscale and hybrid colocation with addition of Clint Heiden as new Chief Revenue Officer, leading hybrid colocation sales and marketing Colocation strength enabled by industry s first software-defined data center platform Growing pipeline of larger footprint opportunities (500kW 2MW) Signed 4 leases between 500kW 2MW in Q2 18 vs. only 2 signed during all of 2017 Hyperscale: In advanced conversations with a number of hyperscale customers across QTS footprint Pleased with hyperscale pipeline and expect to sign at least one additional larger hyperscale deal by the end of the year Hyperscale remains attractive opportunity as strategic growth accelerant Longer-term financial guidance factors in approximately 1 to 3 larger hyperscale deals signed each year

7 QTS Realty Trust, Inc. 6 QTS Software Defined Data Center Platform Service Delivery Platform provides QTS the first true Software Defined Data Center QTS building with our partners, taking neutral approach Over 15,000 SDP Users 15+ Integrated Partners 90M Data Points Collected Per Day

8 QTS Realty Trust, Inc. 7 QTS Service Delivery Platform - Third Party Feedback On how they leverage SDP Today: SDP allowed us to review over and under-subscribed cabinets in real-time, enabling us to shift infrastructure or increase our density. VP of IT (Multi-National Bank) Customers and Partners On using SDP for their Customers: The Power Analytics App is a game-changer. Most of your competitors take 3 weeks to provide this data to our Customers. On how SDP drove the selection of QTS: There was not a close 2 nd in our evaluation. The innovation of SDP combined with Solution Portability and NPS made this an easy decision. IT Director (Clean Energy Automotive Manufacturer) Product Manager (Communications Service Provider Partner) Industry Analysts On QTS Power & Sensor Real-Time Analytics You are showing things that have been on my clients wish list for quite some time.mostly what they get from your competitors is a really limited subset of what you ve just shown Research Vice President, Infrastructure Strategies Group Industry Leading Research & Advisory Firm On QTS vision for Hybrid Colocation On how QTS SDP Platform Interacts with Customers You have cemented yourselves as the provider that is pushing the boundaries in development and service delivery. It s clear you are more than just a colo provider Research Vice President, Technology Service Provider Group Industry Leading Research & Advisory Firm The API and programmatic approach, being able to bridge into the physical world is very attractive. I see differentiation here Research Director, Cloud Service Provider Group Industry Leading Research & Advisory Firm

9 QTS Realty Trust, Inc. 8 Customer Win Highlights New 600kW customer in Piscataway, NJ Global Investment Bank 10-year contract Service Delivery Platform and ability to integrate their API s in real-time to QTS was identified as a unique differentiator In discussions on expanding their footprint both in Piscataway and into other QTS locations Continued value creation in acquired Piscataway site Renewal and expansion in Santa Clara, CA Leading Silicon Valley-based clean energy automotive manufacturing company Multi-year renewal and 500kW expansion Expands customer s total deployment with QTS up to 1.5MW and over $4M of annualized recurring revenue SDP aligns well with this customer s need for infrastructure visibility, speed and agility, enabling them to more accurately forecast future capacity requirements Currently discussing expansion options to take footprint to ~2MW

10 QTS Realty Trust, Inc. 9 QTS Strong Competitive Positioning in Atlanta Atlanta market strengthening Atlanta continues to build momentum as Tier 1 market based on low power cost, low natural disaster risk, fiber availability and concentration of corporate HQ s New legislation outlining tax incentives for data centers Georgia House Bill Culmination of four years of work by QTS, in coordination with Technology Association of Georgia - Further establishes Atlanta as destination for data center deployment - Will provide incremental economic incentives to QTS as well as existing and new customers 25% of QTS new logos YTD generated in Atlanta footprint Incumbent competitive advantage with significant growth opportunity 670k sq. ft. of raised floor capacity built enables significant operating leverage Atlanta generating 20%+ average ROIC 540+ embedded customer base 120MW owned substation enables QTS to offer the lowest cost of power in Atlanta 2,000+ cross connects Capacity to expand to 733k sq. ft. of raised floor under existing powered shell 32 acres of adjacent owned land enables future growth capacity Atlanta-Metro site is one of the most strategic, interconnected in Southeast

11 Second Quarter 2018 Financial Overview

12 QTS Realty Trust, Inc. 11 Q Core Financial Performance Core Revenue ($M) 1 Core Adjusted EBITDA ($M) 1 $102.5 $53.6 $88.7 $41.9 Q2 '17 Q2 '18 Q2 '17 Q2 '18 Core Operating FFO ($M) 1 Core Operating FFO per Share 1 $36.9 $0.64 $30.6 $0.55 Q2 '17 Q2 '18 Q2 '17 Q2 '18 1.QTS has realigned various information included in this presentation to focus its guidance and key performance metrics around its Core business, which primarily consists of its Hyperscale and Hybrid Colocation businesses, along with technology and services from its Cloud and Managed Services business that support Hyperscale and Hybrid Colocation customers, which together will be the Company s primary business following the completion of the strategic growth plan.

13 QTS Realty Trust, Inc. 12 Continue to Benefit from Core Operating Leverage Adjusted EBITDA Margin 1 G&A Expense Margin Basis Point Increase Y/Y -220 Basis Point Reduction Y/Y 47.2% 50.0% 52.3% 19.8% 18.0% 17.6% Q2 '17 Q1 '18 Q2 '18 Q2 '17 Q1 '18 Q2 '18 1.QTS has realigned various information included in this presentation to focus its guidance and key performance metrics around its Core business, which primarily consists of its Hyperscale and Hybrid Colocation businesses, along with technology and services from its Cloud and Managed Services business that support Hyperscale and Hybrid Colocation customers, which together will be the Company s primary business following the completion of the strategic growth plan.

14 QTS Realty Trust, Inc. 13 Balance Sheet and Liquidity Summary Capital Structure Highlights Series B Preferred Stock $316M Series A Preferred Stock $107M Market Cap $2,297M 2 $3 $1 $0 $3.8B Enterprise Value Senior Notes $400M Debt Maturities ($M) 3 $0 Unsecured Credit Facility $700M 1 Capital Leases and Other $6M $350 $ Net Debt to LQA consolidated adjusted EBITDA of 4.7x Approximately $870 million of liquidity, including cash and availability under credit facility $51M booked-not-billed backlog of annualized core revenue More than 80% of capital stack subject to a fixed rate 4 Launched a Series B Perpetual Convertible Preferred Stock offering, which resulted in gross proceeds of $316M (net proceeds of $304M) Continue to evaluate a range of financing options including structured financing, JV partnerships, and potential asset divestitures 1. Includes two term loans ($700 million in aggregate) as of June 30, Market Cap calculated as follows: total Class A and Class B common stock and OP units of 58.2 million, multiplied by the June 30, 2018 stock price of $39.50 per share. 3. May not sum due to rounding 4. Including Series A and Series B Preferred Stock

15 QTS Realty Trust, Inc. 14 Capital Plan and Development Summary Full-year 2018 cash capital expenditure guidance of $425M - $475M is unchanged During Q2, completed soft opening of Ashburn, VA site to accommodate installation of anchor tenant Forecast bringing additional 67,300 square feet of raised floor online during remainder of 2018 in Atlanta, Dallas-Ft. Worth, Chicago, Ashburn and Piscataway Continue to deploy capital in 2018 related to 24MW hyperscale lease in Manassas, VA that is scheduled to commence in early 2019 Q Expansion Q Raised Floor Under Construction (through 12/31/18) Future Available Total Richmond, VA 167, , ,309 Atlanta-Metro, GA 463,986 14,000 49, ,186 Irving, TX 168,160 14,000 93, ,701 Princeton, NJ 58, , ,157 Chicago, IL 33,000 14, , ,855 Ashburn, VA 14,230 14,230 5, , ,000 Manassas, VA ,324 66,324 Atlanta-Suwanee, GA 205, ,608 Piscataway, NJ 88,820 10,000 77, ,000 Fort Worth, TX 10,600 10,000 59,400 80,000 Santa Clara, CA 55,905-25,035 80,940 Sacramento, CA 54, ,595 Dulles, VA 30,545-17,725 48,270 Leased facilities* 76,451-21,241 97,692 Other** 22, ,380 Total 14,230 1,449,746 67,300 1,226,971 2,744,017

16 QTS Realty Trust, Inc. 15 Full Year 2018 Core Guidance Summary 2018 Core Guidance 1 Low Mid High Core Revenue $408m $415m $422m Core Adjusted EBITDA $218m $223m $228m Core Operating FFO per diluted share $2.55 $2.60 $2.65 Capital Expenditures 2 $425m $450m $475m Q3 18 detail: Anticipate Q3 core adjusted EBITDA margin to decline sequentially reflecting seasonally higher utility costs, partially offset by continued operating leverage Expect OFFO and OFFO per share to decline sequentially due to a full quarter impact from dividends associated with 6.5% Series B Perpetual Convertible Preferred Stock offering Annual core rental churn: 3% - 5%, representing a reduction from prior guidance of 3% - 6%, reflecting year-to-date outperformance and visibility into customer activity through remainder of 18 1.Guidance and various key performance metrics included in this presentation reflect QTS Core business, which primarily consists of its Hyperscale and Hybrid Colocation businesses, along with technology and services from its Cloud and Managed Services business that support Hyperscale and Hybrid Colocation customers, which together will be the Company s primary business following the completion of the strategic growth plan. 2.Reflects cash capital expenditures and excludes capital expenditures from acquisitions

17 Closing Remarks

18 QTS Realty Trust, Inc. 17 Strategic Growth Plan Execution Summary Core year-over-year revenue growth of 16% Lowered churn guidance on outperformance YTD and visibility into customer activity Core year-over-year OFFO/sh growth of 15% 500+ basis point core adjusted EBITDA margin improvement year-over-year Strongest 1H leasing results in QTS history ($34M of core annualized rent signed YTD) Strategic partnership with GDT tracking ahead of expectations Nearly 300 basis point sequential increase in occupancy Funded 2018 capital plan in shareholderfriendly manner, while minimizing near-term equity dilution Strong booked-not-billed backlog of $51M of annualized core revenue Consecutive quarters of 5%+ renewal rate increases

19 Thank You

20 Appendix

21 QTS Realty Trust, Inc. 20 NOI Reconciliation Three Months Ended June 30, 2018 March 31, 2018 June 30, 2017 $ in thousands Core Non-Core Total Core Non-Core Total Core Non-Core Total Net Operating Income (NOI) Net income (loss) $ 5,397 $ (11,830) $ (6,433) $ 5,083 $ (5,335) $ (252) $ 987 $ 3,621 $ 4,608 Interest income (25) (25) (1) (1) Interest expense 8, ,203 8, ,110 7, ,647 Depreciation and amortization 35,233 2,586 37,819 33,340 2,574 35,914 31,294 3,233 34,527 Tax expense (benefit) of taxable REIT subsidiaries 178 (41) 137 (767) (1,635) (2,402) (1,429) (1,429) Transaction, integration and impairment costs General and administrative expenses 18,004 3,028 21,032 18,114 4,119 22,233 17,586 4,976 22,562 Restructuring 11,430 11,430 8,530 8,530 NOI $ 67,639 $ 5,177 $ 72,816 $ 64,792 $ 8,260 $ 73,052 $ 56,232 $ 11,844 $ 68,076

22 QTS Realty Trust, Inc. 21 EBITDAre & Adjusted EBITDA Reconciliation Three Months Ended June 30, 2018 March 31, 2018 June 30, 2017 $ in thousands Core Non-Core Total Core Non-Core Total Core Non-Core Total EBITDAre and Adjusted EBITDA Net income (loss) $ 5,397 $ (11,830) $ (6,433) $ 5,083 $ (5,335) $ (252) $ 987 $ 3,621 $ 4,608 Interest income (25) (25) (1) (1) Interest expense 8, ,203 8, ,110 7, ,647 Tax expense (benefit) of taxable REIT subsidiaries 178 (41) 137 (767) (1,635) (2,402) (1,429) (1,429) Depreciation and amortization 35,233 2,586 37,819 33,340 2,574 35,914 31,294 3,233 34,527 Loss on disposition of depreciated property and/or impairment write-downs of depreciated property 3,122 3,122 4,017 4,017 EBITDAre $ 48,982 $ (6,159) $ 42,823 $ 45,758 $ (372) $ 45,386 $ 38,485 $ 6,868 $ 45,353 Equity-based compensation expense 3,999 3,999 3,481 3,481 3, ,732 Restructuring costs 8,308 8,308 4,513 4,513 Transaction, integration and impairment costs Adjusted EBITDA $ 53,634 $ 2,149 $ 55,783 $ 50,159 $ 4,141 $ 54,300 $ 41,929 $ 7,317 $ 49,246

23 QTS Realty Trust, Inc. 22 FFO, Operating FFO and Adjusted Operating FFO Reconciliation Three Months Ended June 30, 2018 March 31, 2018 June 30, 2017 $ in thousands Core Non-Core Total Core Non-Core Total Core Non-Core Total FFO Net income (loss) $ 5,397 $ (11,830) $ (6,433) $ 5,083 $ (5,335) $ (252) $ 987 $ 3,621 $ 4,608 Real estate depreciation and amortization 33, ,843 31, ,057 29, ,275 FFO 38,490 (11,080) 27,410 36,275 (4,470) 31,805 30,417 4,466 34,883 Preferred stock dividends (2,248) (2,248) (328) (328) FFO available to common shareholders & OP unit holders 36,242 (11,080) 25,162 35,947 (4,470) 31,477 30,417 4,466 34,883 Restructuring costs 11,430 11,430 8,530 8,530 Transaction, integration and impairment costs Tax expense (benefit) associated with restructuring, transaction and integration costs (41) (41) (1,635) (1,635) Operating FFO available to common shareholders & OP unit holders* 36, ,204 36,867 2,425 39,292 30,578 4,466 35,044 Maintenance Capex (2,612) (2,612) (930) (930) (1,170) (1,170) Leasing commissions paid (7,600) (71) (7,671) (5,839) (71) (5,910) (3,417) (638) (4,055) Amortization of deferred financing costs and bond discount Non real estate depreciation and amortization 2,140 1,836 3,976 2,148 1,709 3,857 1,864 2,388 4,252 Straight line rent revenue and expense and other (1,300) 67 (1,233) (2,509) (9) (2,518) (566) (71) (637) Tax expense (benefit) from operating results (767) (767) (1,429) (1,429) Equity-based compensation expense 3,999 3,999 3,481 3,481 3, ,732 Adjusted Operating FFO available to common shareholders & OP unit holders* $ 32,661 $ 2,141 $ 34,802 $ 33,413 $ 4,054 $ 37,467 $ 30,114 $ 6,594 $ 36,708 *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

24 QTS Realty Trust, Inc. 23 MRR Reconciliation Three Months Ended June 30, 2018 March 31, 2018 June 30, 2017 $ in thousands Core Non-Core Total Core Non-Core Total Core Non-Core Total Recognized MRR in the period Total period revenues $ 102,549 $ 9,728 $ 112,277 $ 100,390 $ 13,307 $ 113,697 $ 88,740 $ 19,128 $ 107,868 Less: Total period recoveries (10,444) (10,444) (11,513) (11,513) (8,693) (81) (8,774) Total period deferred setup fees (3,073) (130) (3,203) (2,888) (5) (2,893) (1,972) (464) (2,436) Total period straight line rent and other (2,022) (2,304) (4,326) (3,899) (552) (4,451) (2,500) (806) (3,306) Recognized MRR in the period 87,010 7,294 94,304 82,090 12,750 94,840 75,575 17,777 93,352 MRR at period end Total period revenues $ 102,549 $ 9,728 $ 112,277 $ 100,390 $ 13,307 $ 113,697 $ 88,740 $ 19,128 $ 107,868 Less: Total revenues excluding last month (67,701) (6,861) (74,562) (66,790) (8,871) (75,661) (58,510) (12,752) (71,262) Total revenues for last month of period 34,848 2,867 37,715 33,600 4,436 38,036 30,230 6,376 36,606 Less: Last month recoveries (3,597) (3,597) (3,107) (3,107) (2,859) (13) (2,872) Last month deferred setup fees (984) (99) (1,083) (962) (2) (964) (742) (80) (822) Last month straight line rent and other (745) (1,139) (1,884) (1,669) (382) (2,051) (487) (734) (1,221) MRR at period end $ 29,522 $ 1,629 $ 31,151 $ 27,862 $ 4,052 $ 31,914 $ 26,142 $ 5,549 $ 31,691

25 QTS Realty Trust, Inc. 24 Core & Non-Core Reconciliation Three Months Ended Three Months Ended Three Months Ended $ in thousands except per share values June 30, 2018 March 31, 2018 June 30, 2017 Selected Income Statement Data Core Non-Core Total Core Non-Core Total Core Non-Core Total Total Revenues $ 102,549 $ 9,728 $ 112,277 $ 100,390 $ 13,307 $ 113,697 $ 88,740 $ 19,128 $ 107,868 Less: Operating costs 34,910 4,551 39,461 35,598 5,047 40,645 32,508 7,284 39,792 Net operating income 67,639 5,177 72,816 64,792 8,260 73,052 56,232 11,844 68,076 Less: General & administrative expenses (excluding equity-based compensation expense) Adjusted EBITDA Less: Equity-based compensation expense Interest income Interest expense Tax expense (benefit) from operating results Non real estate depreciation and amortization Preferred stock dividends Operating FFO available to common shareholders & OP unit holders 14,005 3,028 17,033 14,633 4,119 18,752 14,303 4,527 18,830 53,634 2,149 55,783 50,159 4,141 54,300 41,929 7,317 49,246 3,999 3,999 3,481 3,481 3, ,732 (25) (25) (1) (1) 8, ,203 8, ,110 7, , (767) (767) (1,429) (1,429) 2,140 1,836 3,976 2,148 1,709 3,857 1,864 2,388 4,252 2,248 2, , ,204 36,867 2,425 39,292 30,578 4,466 35,044 OFFO per share $ 0.64 $ 0.01 $ 0.64 $ 0.64 $ 0.04 $ 0.68 $ 0.55 $ 0.08 $ 0.63 Adjustments: Transaction, integration and impairment costs Restructuring costs (653) (653) (920) (920) (161) (161) (11,430) (11,430) (8,530) (8,530) Tax benefit associated with restructuring, transaction and integration costs ,635 1,635 Real estate depreciation and amortization (33,093) (750) (33,843) (31,192) (865) (32,057) (29,430) (845) (30,275) Preferred stock dividends 2,248 2, Net income (loss) $ 5,397 $ (11,830) $ (6,433) $ 5,083 $ (5,335) $ (252) $ 987 $ 3,621 $ 4,608 * Per share values may not sum due to rounding