QTS Realty Trust, Inc. Investor Presentation Second Quarter 2017

Transcription

1 QTS Realty Trust, Inc. Investor Presentation Second Quarter 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, 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 2 QTS at a Glance (NYSE: QTS) FULLY-INTEGRATED SERVICE PLATFORM FLEXIBILTY De-risking enterprises cloud journey through integrated Hybrid IT data center solutions WORLD-CLASS INFRASTRUCTURE & MEGA DATA CENTERS SCALABITY 25 data centers globally spanning 5.7M square feet with 600+ MW of power capacity INDUSTRY-LEADING SECURITY & COMPLIANCE PROTECTION Trusted partners in security and compliance UNIVERSAL CONNECTIVITY PERFORMANCE Robust carrier-neutral access to 500+ networks and cloud service providers EMPOWERED PEOPLE & EXPERTISE PEACE OF MIND 750+ employees dedicated to premium 24x7x365 support and 100% uptime guarantee 2016 QTS. All Rights Reserved.

4 3 Industry-leading Combination of Growth and ROIC QTS Strategy & Business Model Services Platform Provides Flexibility to Deliver Hybrid IT Data Center Solutions Able To Drive Higher Utilization of Real Estate by Selling Services On Top of Space and Power Drives Higher Revenue Per SF and Ultimately Higher ROIC Differentiated Approach to Infrastructure Provides Low Basis Enables Permanent Below Market Cost to Build Advantage Significant Growth Capacity with Ability to Nearly Double Footprint Within Existing Powered Shell QTS strategy of offering an integrated technology services platform across world-class, mega scale data center infrastructure enables the opportunity to drive an industryleading combination of growth and ROIC.

5 4 Growth Story Consistent with Strategic Objectives Formally established first mega data center with acquisition of Atlanta-Suwanee 2005 General Atlantic, LLC invests in QTS 2009 Acquisition of Sacramento and Irving facilities Expanded mega data center footprint with acquisition of Chicago and Princeton 2014 Acquisition of third NY/NJ data center and second Texas facility in Fort Worth Company purchases first data center in Overland Park, KS Acquired four facilities: Atlanta-Metro, Jersey City, Santa Clara and Miami 2009 Richmond facility acquired; Cloud product introduced commercially 2013 Launched IPO; Publicly traded on NYSE: QTS Expansions of four facilities: Atlanta- Metro, Santa Clara, Jersey City and Richmond 2015 QTS enhances Integrated Service Platform with acquisition of Carpathia 2016 QTS. All Rights Reserved.

6 World-Class Mega Scale Infrastructure 2016 QTS. All Rights Reserved.

7 6 Broad Footprint in Top Data Center Markets 2.5 million SF of raised floor capacity 1 and 600MW of available utility power 2 25 DATA CENTERS 13 MARKETS 92% WHOLLY-OWNED QTS. All Rights Reserved. 1. Represents basis-of-design floor space. The Company defines basis-of-design floor space as the total data center raised floor potential of its existing data center facilities. 2. Represents installed utility power and transformation capacity that is available for use by the facility as of March 31, Based on data center raised floor. Does not include data centers subject to capital lease obligations. Includes Santa Clara which is subject to a long-term ground lease. 4. Data center market ranking based on 451 Research

8 (Raised Floor NRSF in 000s) 7 Capacity Within Powered Shell Represents 5+ Years of Growth >1.1M SF Additional Capacity in Existing Powered Shell 2,493 2,493 2,493 55% ~10% currently built out 1,377 Increase from current raised floor 1, Full Capacity Capacity to nearly double raised floor in existing powered shell Able to expand raised floor capacity to ~5M SF through development on 275+ acres of adjacent, owned land and real estate As of Q1 17 Expected by Q4 17 Full Buildout 1 De-risks future growth path at known build costs and higher incremental returns 1. Full Buildout reflects our Basis of Design NRSF at full buildout; does not include additional development which could take place on 275 acres of adjacent, owned land. 2. Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use, and the property is expected to be ready on or before December 31, There can be no assurance as to actual cost and timing of completion. 3. Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use after December 31, There can be no assurance as to actual cost and timing of future redevelopments, or that such redevelopments will be pursued.

9 8 Best-in-Class Mega Data Centers Atlanta Suwanee, GA (36MW) Atlanta Metro, GA (120MW) 1 Richmond, VA (110MW) 205,608 SF 205,608 SF 100% Built Out ROIC: 27.3% 2 Occupied: 84.9% 452,986 SF 86% Built Out 527,186 SF 167,309 SF 557,309 SF 30% 22% Built BUILT Out OUT ROIC: 18.2% 2 Occupied: 95.8% ROIC: 13.7% 2 Occupied: 88.8% Irving, TX (140MW) Piscataway, NJ (111MW) Chicago, IL (55MW) 3 134,360 SF 275,701 SF 49% Built Out ROIC: 11.7% 2 Occupied: 96.8% 88,820 SF 176,000 SF 28,000 SF 208,000 SF 51% Built Out 14% Built Out ROIC: 8.9% 2 Occupied: 83.2% Occupied: 71.2% Note: Square footage reflects current Raised Floor Operating Net Rentable Square Feet ( NRSF ) as of March 31, 2017 (red shaded bars) and Basis of Design Raised Floor NRSF at full buildout. MW denotes available utility power as of March 31, Occupied percentage as of March 31, Atlanta -Metro currently has 72 MW of available utility power based on current agreements with its utility provider but has transformer capacity for 120 MW. 2. ROIC calculated as of March 31, 2017, by dividing annualized Q1 17 NOI by the avg. total cost, less construction in progress as of December 31, 2016 and March 31, MW available utility power as of March 31, 2017, with an additional 47 MW available upon QTS request.

10 9 Mega Scale & Services Platform Enable Premium ROIC Potential Mega Data Center Lifecycle ROIC 27.3% ROIC 8.9% More C1 Weighted ROIC 11.7% ROIC 13.7% ROIC 18.2% Back-Fill with C2/C3 Over Time TARGET*: 15.0% Combination of increasing operating leverage + higher C2/C3 penetration over the life of a mega scale data center drives higher ROIC Piscataway 1 Year Irving 2 Years Richmond 6 Years Atlanta-Metro 10 Years Atlanta-Suwanee 11 Years Years in Operation * Fully-stabilized

11 10 QTS Fort Worth, Texas Acquired 53 acre data center campus in Fort Worth, TX from HCSC for $50 million Gross SF: 260,000 Current built out capacity: 40,000 raised floor SF and 8MW of gross power Signed 1MW lease with HCSC to remain the anchor tenant in the facility, commencing April 1, 2017 Mega scale capacity to double raised floor SF and gross MW within powered shell Ultimately able to expand to 300,000+ raised floor SF and 60MW of gross power, including adjacent land Low basis provides cost to build advantage Purchase price represents ~$6 million per MW, below average market cost to build Incremental capacity in one of the fastest growing Tier 1 data center markets in the US Establishes strategic relationship with a new logo Provides potential opportunity to expand relationship across QTS broader footprint over time 2016 QTS. All Rights Reserved.

12 Integrated Technology Services Platform 2016 QTS. All Rights Reserved. 11

13 12 Strong Long-term Growth Drivers for Demand Rapid increase in data requirements combined with continued IT outsourcing growth provides strong long-term demand opportunity 73 22% CAGR 89 Global IP Traffic 1 (Exabytes Per Month) Location of Application Workloads (% of Total Workloads) 3 39% 33% % 67% 171 Global Data Stored in Data Centers 2 40% CAGR (Exabytes) Today 2020 On Premise (Insourced) Outsourced Source: Cisco Visual Networking Index: Forecast and Methodology, Source: Cisco Global Cloud Index: Forecast and Methodology, Morgan Stanley CIO Survey January 18, 2017

14 13 Hybrid Has Become the Standard Data Center IT Environment as Traditional IT Collides With Cloud Traditional Colocation IT QTS data center model is built on Hybrid IT Cloud

15 14 Uniquely Equipped to Deliver Solutions to Complex Hybrid IT Requirements Increased complexity in Enterprise IT stacks is driven by: 1) rapid adoption of cloud computing, 2) innovation in data and application development and delivery, and 3) concerns around security and compliance Managing Complex IT Environments Which of the following are among the most significant drivers of excess IT complexity within your organization?* QTS is able to solve Enterprises top IT needs #1 #2 #3 Managing cloud, on premises and hybrid environments Fast growing volumes of data and multiple data types Increasing security requirements FULLY-INTEGRATED SERVICES PLATFORM delivers flexibility and product capability to provide Hybrid IT data center solutions WORLD-CLASS MEGA DATA CENTERS provide visibility into significant future growth capacity INDUSTRY-LEADING SECURITY & COMPLIANCE capabilities enable QTS to be customers trusted partner to help manage risk *Reflects results from Sharp Demand for Managing IT Complexity Survey 2015, a worldwide study by SAP in association with CIO Insight, based on responses of more than 339 Enterprise IT professionals representing companies with mean annual revenue of $3.27 billion. Respondents could select up to four challenges.

16 15 Services Platform Allows QTS to Deliver Incremental Revenue and ROIC on top of Space and Power 60% of recurring revenue generated from customers using more than one C product, up from 40% at IPO 50% of C1/C2 recurring revenue generated from customers also using C3, up from 30% at IPO For our C1/C2 customers that are using C3: C3 increases overall customer data center spend with QTS by 35% Generating $170k of annualized C3 revenue per customer, more than double vs. contribution at IPO

17 16 Diversified Revenue Mix Lowers Risk Profile and Enables Higher ROIC Potential C1 - Custom Data Center C2 - Colocation C3 - Cloud & Managed Services Description Private turn-key data center space ( wholesale ) Cabinets, cages and suites Virtual private cloud and managed services (network, security, data backup, hardware break/fix, etc.) % of MRR: 42% 41% 17% Contract length 5-10 years, separately metered power Up to 3 years, typically non-metered power Up to 3 years Lease Size Median C1 customer 4,600 SF and ~0.5MW <0.5MW Managed virtual servers (small physical space) Adjusted EBITDA Margin Mid to High 50% range Mid to High 40% range Mid 30% range ROIC 10-12% 14-16% 18%+ Example Customers Global Internet and cloud companies Large enterprises Government agencies Large enterprises Small and medium businesses Telecom carriers Government agencies Large enterprises Small and medium businesses Government agencies More Capex Intensive More Opex Intensive

18 17 Robust Carrier-Neutral Connectivity 10,000+ customer cross connects, +50% vs. IPO Access to 500+ networks and cloud service providers through QTS data centers Connectivity represents 6% of total MRR and growing at 15%+ Supports hybrid IT use cases Enhances customer ecosystems Provides low latency access across entire network Represents additional lever to drive higher revenue and ROIC per SF Across QTS Facilities Public cloud cloudconnect (QTS public cloud) Within QTS Facilities QTS Product Delivery Network (internetconnect, datacenterconnect, metroconnect) internet Chicago Richmond Customer 1 Customer 2 Customer 3 Dallas Atlanta ethernetconnect (QTS Customer premise) Carrier datacenterconnect (QTS QTS) metroconnect (QTS Carrier Hotel) Meet Me Room (ethernetconnect, cloudconnect, carrier services)

19 18 Market-leading Security & Compliance Capabilities The cyber threat landscape continues to grow with an increasing number and severity of attacks 24% INCREASE INFORMATION SECURITY BUDGETS Differentiated QTS Approach is an Advantage LOGICAL SECURITY Data: Encryption, policy enforcement and security intelligence. Network: Best-of-breed network infrastructure. Host: Strict security policies, cuttingedge technology and premium support. 38% INCREASE DETECTION OF SECURITY INCIDENTS (Percentage increases in FY2015 as compared to FY2014) 24% INCREASE THEFT OF HARD INTELLECTUAL PROPERTY PHYSICAL SECURITY Site access and monitoring systems. 24x7x365 on-site security professionals Premium, state-of-the-art owned and operated data centers. Industry-leading breadth of compliance certifications & security capabilities enables QTS to be a trusted partner to Enterprises looking to manage increasing cyber risks against their critical systems and data Integrated compliance coverage over a breadth of regulations 1. Reflects results from The Global State of Information Security Survey 2016, a worldwide study by PwC, CIO and CSO, based on responses of more than 10,000 CEOs, CFOs, CIOs, CISOs, CSOs, VPs and directors of IT and security practices from more than 127 countries.

20 19 Platform and Broad Geographic Footprint Supports Diversified Base of 1,100+ Customers Product Diversification (As a % of annualized MRR as of March 31, 2017) Industry & Tenant Diversification (As a % of annualized MRR as of March 31, 2017) Other 8% Healthcare 6% Retail 5% Content & Digital Media 26% Network 9% Government & Security 8% Cloud & IT Services 23% Financial Services 14% Balanced revenue mix across 3C products 60% of revenue derived from customers using more than one C product High credit quality tenant base with over 1,100 customers Top 10 tenants as a percentage of annualized MRR approximate 36% Largest tenant accounts for ~13.0% of annualized MRR; no other customer represents > 4.5% of annualized MRR

21 Financial Overview 2016 QTS. All Rights Reserved.

22 21 QTS Model Driving Strong Historic Growth ($M) Revenue 23% Revenue CAGR * 23% MRR CAGR * $311 $414 $424 29% CAGR * NOI $201 $257 $270 $218 $178 $120 $130 $146 $99 $109 $129 $156 $188 $270 $347 $367 $57 $70 $91 $113 $ Q1'17 Annualized Recognized MRR Other Revenue Q1'17 Annualized Adjusted EBITDA 32% CAGR * $140 $184 $ % CAGR * Operating FFO $104 $141 $142 $35 $42 $55 $75 $100 $2 $14 $26 $50 $ Q1'17 Annualized Q1'17 Annualized * CAGR is calculated for years

23 22 Q Financial Performance Year Over Year Growth ($M) Revenue +12% $106.0 NOI +10% Adjusted EBITDA +12% Operating FFO +7% Q Highlights Strong year-over-year growth on key financial metrics $94.8 $61.2 $67.4 $43.0 $48.3 $33.1 $35.4 Strongest C3 revenue growth over past three years 13.8% unlevered return on invested capital for Q Significant booked-notbilled backlog of $42M as of quarter-end Q Q Q Q Q Q Q Q1 2017

24 23 Strong Visibility Into Future Growth Through Booked-Not-Billed Backlog $42M Annualized Booked-Not-Billed MRR ($M) 1 Highlights $41.9 $41.9 $41.9 $41.9 $9.2 $4.7 $27.9 Q Annualized booked-notbilled MRR from signed but not yet commenced leases was $41.9 million as of March 31, 2017 Of the $27.9 million in 2017, approximately $15.3 million is expected to be recognized in 2017 revenue Of the $4.7 million in 2018, approximately $2.9 million is expected to be recognized in 2018 revenue 1. Represents annualized MRR associated with leases that have been signed but have not yet commenced; may not sum due to rounding

25 24 Well-capitalized Balance Sheet $3.8 Billion 3/31/17 Capital Structure 2 Market Cap $2,718M 2 $10 $9 $3 Debt Maturities ($M) $208 Senior Notes $300M $302 Unsecured Credit Facility $706M 1 Capital Leases and Others $37M $ Highlights Net Debt to LQA adj. EBITDA of 5.3x No significant maturities until 2020 Total available liquidity of approximately $512 million as of March 31, 2017 Announced $300 million At-The-Market ( ATM ) equity shelf registration on March 20, 2017 Entered into $400 million of floating to fixed interest rate swap agreements on April 5, Includes two term loans ($200 million and $300 million) and $206 million of borrowings on the Company s revolving credit facility as of March 31, Market Cap calculated as follows: total Class A and Class B common stock and OP units of 55.7 million, multiplied by the March 31, 2017 stock price of $48.75 per share.

26 Appendix 2016 QTS. All Rights Reserved.

27 26 NOI Reconciliation $ in thousands Net Operating Income (NOI) Three Months Ended March 31, December 31, March 31, Net income $ 5,568 $ 5,481 $ 6,859 Interest expense 6,869 6,125 5,981 Interest income (1) - - Depreciation and amortization 33,948 33,093 28,639 Write off of unamortized deferred finance costs Tax benefit of taxable REIT subsidiaries (1,521) (707) (2,605) Integration costs 272 1,134 2,053 Transaction costs General and administrative expenses 22,197 21,450 20,286 NOI (1) $ 67,396 $ 67,157 $ 61,247 Breakdown of NOI by facility: Atlanta-Metro data center $ 20,511 $ 20,187 $ 19,972 Atlanta-Suwanee data center 11,958 11,937 11,500 Leased data centers (2) 9,010 10,381 11,809 Richmond data center 8,230 8,324 6,602 Irving data center 6,440 4,952 2,624 Santa Clara data center 3,279 3,325 3,764 Piscataway data center 2,403 2,871 - Princeton data center 2,399 2,364 2,356 Sacramento data center 1,837 1,892 1,922 Chicago data center Fort Worth data center Other facilities (3) NOI (1) $ 67,396 $ 67,157 $ 61, 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 $5.2 million, $5.3 million and $5.0 million for the three month periods ended March 31, 2017, December 31, 2016, and March 31, 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

28 27 EBITDA & Adjusted EBITDA Reconciliation $ in thousands EBITDA and Adjusted EBITDA Three Months Ended March 31, December 31, March 31, Net income $ 5,568 $ 5,481 $ 6,859 Interest expense 6,869 6,125 5,981 Interest income (1) - - Tax benefit of taxable REIT subsidiaries (1,521) (707) (2,605) Depreciation and amortization 33,948 33,093 28,639 EBITDA 44,863 43,992 38,874 Write off of unamortized deferred finance costs Equity-based compensation expense 3,082 2,697 2,050 Integration costs 272 1,134 2,053 Transaction costs Adjusted EBITDA $ 48,281 $ 48,404 $ 43,011

29 28 FFO & Operating FFO Reconciliation Three Months Ended March 31, December 31, March 31, $ in thousands FFO Net income $ 5,568 $ 5,481 $ 6,859 Real estate depreciation and amortization 29,504 28,703 24,869 FFO 35,072 34,184 31,728 Write off of unamortized deferred finance costs Integration costs 272 1,134 2,053 Transaction costs Tax benefit associated with transaction and integration costs - (525) (748) Operating FFO * 35,408 35,373 33,067 Maintenance Capex (796) (2,613) (335) Leasing commissions paid (4,169) (5,154) (5,807) Amortization of deferred financing costs and bond discount Non real estate depreciation and amortization 4,443 4,390 3,770 Straight line rent revenue and expense and other (1,127) (984) (1,610) Tax benefit from operating results (1,521) (181) (1,857) Equity-based compensation expense 3,082 2,697 2,050 Adjusted Operating FFO * $ 36,300 $ 34,440 $ 30,155 *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

30 29 MRR Reconciliation $ in thousands Recognized MRR in the period Three Months Ended March 31, December 31, March 31, Total period revenues (GAAP basis) $ 105,964 $ 105,443 $ 94,768 Less: Total period recoveries (8,361) (8,965) (5,435) Total period deferred setup fees (2,616) (2,636) (1,903) Total period straight line rent and other (3,118) (2,867) (4,268) Recognized MRR in the period 91,869 90,975 83,162 MRR at period end Total period revenues (GAAP basis) $ 105,964 $ 105,443 $ 94,768 Less: Total revenues excluding last month (70,939) (69,465) (63,020) Total revenues for last month of period 35,025 35,978 31,748 Less: Last month recoveries (2,760) (3,247) (1,876) Last month deferred setup fees (898) (968) (676) Last month straight line rent and other (933) (873) (1,716) MRR at period end $ 30,434 $ 30,890 $ 27,480