QTS Realty Trust, Inc. Third Quarter 2017 Earnings Presentation

Transcription

1 QTS Realty Trust, Inc. Third Quarter 2017 Earnings Presentation 2016 QTS. All Rights Reserved.

2 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 and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our 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 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; 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; increased interest rates and operating costs, including increased energy costs; financing risks, including our 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 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, 2016 ( 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 QTS. All Rights Reserved.

3 Third Quarter 2017 Overview 2016 QTS. All Rights Reserved.

4 3 Twin Growth Engines of Demand C2/C3 Enterprise Outsourcing C1 Hyperscale Customer Needs: Integrated Hybrid IT Secure & Compliant Premium Customer Service Customer Needs: Scale Speed Economics QTS Solution: 3C services platform enables hybrid solutions Ability to attach services on top of space and power QTS Solution: Significant growth capacity within powered shell footprint Incremental growth capacity on adjacent owned land Fully-Integrated Services Platform Fully-integrated across platform High-end security and compliance World-Class Infrastructure & Mega Data Centers Operating and build cost advantage De-risked development approach

5 4 Disciplined Approach to Development Capital discipline and de-risked entry point Continued focus on capital discipline to balance long-term growth with near-term results De-risked approach to new market entry Infrastructure designed to support multi-tenant environments to enable increased flexibility and drive valuable diversification of product and customer mix Examples Low-Basis, Infrastructure-Rich Development Repurposing Existing Assets Data Center Re-Focus Richmond, VA Irving, TX Chicago, IL Atlanta, GA Suwanee, GA Piscataway, NJ Greenfield Development with Visibility on Anchor Tenant Enterprise Sale-Leaseback Princeton, NJ Fort Worth, TX Pre-Lease Greenfield Ashburn, VA Hillsboro, OR Phoenix, AZ

6 5 Enhanced Growth Capacity Through Footprint Expansion 52 acres in Ashburn, Virginia acquired for $53M 24 acres 28 acres QTS Vault Facility Expect more than 700,000 sq. ft. of potential raised floor capacity and 140MW of gross power Near-adjacent to existing QTS Vault Facility 1 Enhances future growth opportunity in largest and fastest growing Tier 1 U.S. data center market Expect to deliver Phase 1 of development (4 critical MW s) by mid-2018; more than 50% of phase 1 development pre-leased Additional land acquisitions in Tier 1 markets enable delivery of future data center capacity upon customer pre-leasing visibility Market Phoenix, AZ Hillsboro, OR Acres 84 acres 92 acres Cost $25M $26M 1. Land and building shell was previously subject to a capital lease; subsequently purchased by QTS in Q4 17 Note. Land overhead image from Google Earth

7 6 Q Leasing Review Signed new and modified leases representing $15.3M of incremental annualized rent 40%+ above prior four quarter average Reflects strong pipeline of demand across product mix and footprint Includes 46 new logos, up approximately 65% vs. Q3 16 Momentum in Piscataway continues In each successive quarter since Piscataway acquisition in Q2 16, QTS has either expanded existing customers or signed new logos 8 new logos signed since acquisition, including 4 in Q3 17 Annualized NOI as of Q3 17 up approximately 35% since acquisition 1 Quarter reflected particular strength in C1 across both Hyperscale and Enterprise Demand across multiple regions including Atlanta, Dallas, Chicago, and Northern Virginia Strength spread across numerous deals with largest lease signed in Q3 17 representing 2.2MW Booked-not-billed backlog of $57M, up from $40M as of Q Adjusted for impact of one customer ($1.8M of MRR) that had previously notified prior landlord of their intent to not renew prior to QTS acquisition Note: C1 Custom Data Center, C2 Colocation (Cabinet, Cage, Suite), and C3 Cloud and Managed Services 2016 QTS. All Rights Reserved.

8 7 Customer Win Highlights Hyperblock expansion with global search engine Signed two Hyperblock leases in Atlanta, GA and Irving, TX, aggregating to 2.8MW, with expansion options Customer supported by QTS platform for over 10 years Continued traction with Hyperblock solution and commitment to speed to deliver New C1 Enterprise logo in Chicago, IL Large U.S.-based hospital chain 500kW deal with 10-year term Part of customer s multi-phased data center insourced to outsourced migration process C3 expansion with existing C2 customer Fully managed private cloud solution in Suwanee, GA International diversified industrial company 5-year contract with total annualized MRR of >$600k Selected based on breadth of product solutions and focus on high-end security Note: C1 Custom Data Center, C2 Colocation (Cabinet, Cage, Suite), and C3 Cloud and Managed Services

9 Third Quarter 2017 Financial Overview 2016 QTS. All Rights Reserved.

10 9 Q Financial Performance Revenue NOI Adjusted EBITDA Operating FFO Per Share $103.5 $107.9 $113.8 $64.6 $68.1 $70.9 $47.3 $49.2 $52.9 $0.67 $0.63 $0.70 Q3 16 Q2 17 Q3 17 Q3 16 Q2 17 Q3 17 Q3 16 Q2 17 Q3 17 Q3 16 Q2 17 Q3 17

11 10 Development Summary Operating at 87.4% utilization on space built out and available for sale Total raised floor of 1,403,212 sq. ft., representing just over half of ~2.7 million sq. ft. of total powered shell capacity Forecast bringing additional 44,000 sq. ft. online in 2017 Q Expansion Q Raised Floor Under Construction (through 12/31/17) Future Available Total Richmond 167, , ,309 Atlanta-Metro 4, ,986 7,000 63, ,186 Irving 5, ,160 20, , ,701 Princeton 58, , ,157 Chicago 28,000 7, , ,855 Ashburn , ,000 Atlanta-Suwanee 205, ,608 Piscataway 88,820 10,000 77, ,000 Fort Worth 10,600-69,400 80,000 Santa Clara 55,905-25,035 80,940 Sacramento 54, ,595 Leased facilities* 106,692-38, ,539 Other** 22, ,380 Total 9,000 1,403,212 44,000 1,230,058 2,677,270 *Includes 13 facilities. All facilities are leased, including those subject to capital leases. **Consists of Miami, FL; Lenexa, KS; Overland Park, KS; and Duluth, GA facilities.

12 11 Balanced Approach to Capital Allocation Land acquisitions since Q2 17: - 24-acres in Ashburn, VA for $17 million closed during Q acres in Ashburn, VA for $36 million closed during Q acres in Phoenix, AZ for $25 million closed during Q acres in Hillsboro, OR for $26 million closed during Q4 17 Commenced development in Ashburn, VA in Q Approximately $20 million in development cash capital expenditures in Ashburn in Q4 17 Acquired full ownership of Vault facility in Dulles, VA for $34 million subsequent to the end of Q Transaction is neutral to OFFO/share - De-risks long-term future and enhances value creation opportunity in strategic facility generating $22.5 million of annualized NOI in Q3 17 Expect 2017 capital expenditures within $ million guidance range - Pushed back a portion of development spend in Fort Worth, the Vault, and Santa Clara - Balanced capital allocation strategy to deliver near-term financial results while investing for future growth Expect 18 capital expenditures to scale at a rate consistent with growth in the business, plus approx. $50 million, reflecting Ashburn development

13 12 Balance Sheet Update $4.1 Billion 9/30/17 Capital Structure 2 Senior Notes $300m Unsecured Credit Facility $779m 1 Highlights Net Debt to LQA adj. EBITDA of 5.2x Market Cap $3,020m 2 Debt Maturities ($M) 4 Capital Leases and Other $31m $511 66% of total debt outstanding subject to a fixed rate 3 During Q3 17, QTS issued approximately 1 million common shares through ATM program, raising $54 million of net equity proceeds $281 $302 Current development plan fully funded through end of 2017 $3 $9 $ Includes two term loans ($500 million in aggregate) and $279 million of borrowings on revolving credit facility as of September 30, Market Cap calculated as follows: total Class A and Class B common stock and OP units of 57.7 million, multiplied by the September 30, 2017 stock price of $52.36 per share. 3. Pro forma for forward interest rate swap agreements which become effective January 2, May not sum due to rounding

14 13 Full Year 2017 Guidance Summary 2016 Results Continue to expect 2017 year-over-year revenue growth at the low end of 11-13% guidance Raised 17 OFFO guidance by $0.02 at the midpoint reflecting an increase of $1 million in the non-cash tax benefit assumption recognized in 2017 to approximately $6.5 million and capital efficiency reducing the need for additional equity in Q4 17 Annual rental churn: high end of 5% - 8% historical guidance 2017 Guidance Low Mid High Adjusted EBITDA $184m $203m $207m $211m Operating FFO $141m $152m $155m $158m Operating FFO per diluted share $2.61 $2.68 $2.74 $2.80 Capital Expenditures 1 $280m $325m $350m $375m 1. Reflects cash capital expenditures and excludes capital expenditures from acquisitions

15 Thank You 2016 QTS. All Rights Reserved.

16 Appendix 2016 QTS. All Rights Reserved. 15

17 16 NOI Reconciliation $ in thousands Net Operating Income (NOI) Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, Net income $ 7,994 $ 4,608 $ 6,538 $ 18,170 $ 19,204 Interest expense 7,958 7,647 6,179 22,474 17,034 Interest income (65) - (1) (66) (3) Depreciation and amortization 35,309 34,527 32, ,784 91,693 Tax benefit of taxable REIT subsidiaries (3,054) (1,429) (4,210) (6,004) (9,269) Transaction, integration and other costs 1, ,465 1,611 9,385 General and administrative expenses 21,652 22,562 19,942 66,411 61,836 NOI (1) $ 70,908 $ 68,076 $ 64,612 $ 206,380 $ 189,880 Breakdown of NOI by facility: Atlanta-Metro data center $ 18,588 $ 20,704 $ 20,030 $ 59,803 $ 60,887 Atlanta-Suwanee data center 12,206 11,423 11,051 35,587 33,823 Leased data centers (2) 8,278 8,408 10,751 25,696 33,134 Richmond data center 11,687 8,389 7,850 28,306 22,428 Irving data center 8,707 8,057 5,118 23,204 11,656 Santa Clara data center 2,741 2,705 2,961 8,725 10,378 Piscataway data center 2,427 2,279 2,086 7,109 2,756 Princeton data center 2,415 2,393 2,468 7,207 7,180 Sacramento data center 1,525 1,778 1,780 5,140 5,842 Chicago data center 1,285 1,275 (157) 3,207 (157) Fort Worth data center Other facilities (3) ,121 1,953 NOI (1) $ 70,908 $ 68,076 $ 64,612 $ 206,380 $ 189, Includes facility level general and administrative expense allocation charges of 4% of cash revenue for all facilities, with the exception of the leased facilities acquired in 2015, which include general and administrative expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.5 million, $5.3 million and $5.2 million for the three month periods ended September 30, 2017, June 30, 2017, and September 30, 2017, respectively, and $16.0 million and $15.3 million for the nine month periods ended September 30, 2017 and 2016, respectively. 2. Includes 13 facilities. All facilities are leased, including those subject to capital leases. During the quarter ended March 31, 2017, the Company moved its Jersey City, NJ facility to the Leased data centers line item. 3. Consists of Miami, FL; Lenexa, KS; Overland Park, KS; and Duluth, GA facilities. During the quarter ended March 31, 2017, the Company moved its Miami, FL facility to the Other facilities line item

18 17 EBITDA & Adjusted EBITDA Reconciliation $ in thousands EBITDA and Adjusted EBITDA Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, Net income $ 7,994 $ 4,608 $ 6,538 $ 18,170 $ 19,204 Interest expense 7,958 7,647 6,179 22,474 17,034 Interest income (65) - (1) (66) (3) Tax benefit of taxable REIT subsidiaries (3,054) (1,429) (4,210) (6,004) (9,269) Depreciation and amortization 35,309 34,527 32, ,784 91,693 EBITDA 48,142 45,353 41, , ,659 Equity-based compensation expense 3,693 3,732 2,637 10,507 7,887 Transaction, integration and other costs 1, ,465 1,611 9,385 Adjusted EBITDA $ 52,949 $ 49,246 $ 47,307 $ 150,476 $ 135,931

19 18 FFO, Operating FFO and Adjusted Operating FFO Reconciliation Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, $ in thousands FFO Net income $ ,394 $ ,608 $ ,538 $ ,570 $ ,204 Real estate depreciation and amortization 31,237 30,275 28,493 91,016 79,771 FFO 38,631 34,883 35, ,586 98,975 Transaction, integration and other costs 1, ,465 1,611 9,385 Tax benefit associated with transaction and integration costs - - (1,136) - (3,067) Operating FFO * 39,745 35,044 37, , ,293 Maintenance Capex (2,193) (1,172) (1,731) (4,161) (2,446) Leasing commissions paid (5,592) (4,055) (4,402) (13,816) (13,597) Amortization of deferred financing costs and bond discount ,943 2,633 Non real estate depreciation and amortization 4,071 4,254 4,207 12,768 11,923 Straight line rent revenue and expense and other (1,149) (637) (957) (2,913) (5,810) Tax benefit from operating results (2,454) (1,429) (3,075) (5,404) (6,203) Equity-based compensation expense 3,693 3,732 2,637 10,507 7,887 Adjusted Operating FFO * $ 37,113 $ 36,708 $ 34,918 $ 110,121 $ 99,680 *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

20 19 MRR Reconciliation $ in thousands Recognized MRR in the period Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, Total period revenues (GAAP basis) $ 113,767 $ 107,868 $ 103,465 $ 327,599 $ 296,920 Less: Total period recoveries (9,698) (8,774) (8,703) (26,833) (20,306) Total period deferred setup fees (2,659) (2,436) (2,377) (7,711) (6,536) Total period straight line rent and other (6,982) (3,306) (3,697) (13,406) (13,722) Recognized MRR in the period 94,428 93,352 88, , ,356 MRR at period end Total period revenues (GAAP basis) $ 113,767 $ 107,868 $ 103,465 $ 327,599 $ 296,920 Less: Total revenues excluding last month (76,912) (71,262) (69,427) (290,744) (262,882) Total revenues for last month of period 36,855 36,606 34,038 36,855 34,038 Less: Last month recoveries (2,631) (2,872) (2,398) (2,631) (2,398) Last month deferred setup fees (893) (822) (828) (893) (828) Last month straight line rent and other (1,704) (1,221) (1,034) (1,704) (1,034) MRR at period end $ 31,627 $ 31,691 $ 29,778 $ 31,627 $ 29,778