QTS Reports Second Quarter 2017 Operating Results
OVERLAND PARK, Kan., July 25, 2017 /PRNewswire/ -- QTS Realty Trust, Inc. ("QTS" or the "Company") (NYSE: QTS) today announced operating results for the second quarter ended June 30, 2017.
Second Quarter Highlights
-- Reported net income of $4.6 million in the second quarter of 2017, a
decrease of 20.6% compared to the second quarter of 2016. Net income was
$0.08 per basic and diluted share for the second quarter of 2017,
compared to net income per basic and diluted share of $0.11 and $0.10,
respectively, for the second quarter of 2016.
-- Reported Operating FFO of $35.0 million in the second quarter of 2017,
an increase of 0.5% compared to Operating FFO of $34.9 million in the
second quarter of 2016. Operating FFO in the second quarter of 2017 and
2016 included a non-cash deferred tax benefit of $1.4 million and $1.3
million, respectively. Operating FFO for the second quarter of 2017 on a
fully diluted per share basis was $0.63 per share, consistent with
Operating FFO per fully diluted share in the second quarter of 2016 of
$0.63.
-- Reported FFO of $34.9 million in the second quarter of 2017, an increase
of 8.3% compared to FFO of $32.2 million in the second quarter of 2016.
On a fully diluted per share basis, FFO was $0.63 per share for the
second quarter of 2017 compared to $0.58 per share for the second
quarter of 2016, an increase of 8.5%.
-- Reported Adjusted EBITDA of $49.2 million in the second quarter of 2017,
an increase of 8.0% compared to the second quarter of 2016.
-- Reported NOI of $68.1 million in the second quarter of 2017, an increase
of 6.3% compared to the second quarter of 2016.
-- Reported total revenues of $107.9 million recognized in the second
quarter of 2017, an increase of 9.3% compared to the second quarter of
2016.
-- Signed new and modified renewal leases aggregating to $13.3 million of
incremental annualized rent, net of downgrades, during the second
quarter of 2017, an increase of 21.7% compared to the prior four quarter
average.
"The second quarter represents another strong performance from QTS and we are encouraged by the trends we are seeing in our business across leasing volume, financial performance and pricing on new leases and renewals," said Chad Williams, Chairman and CEO of QTS.
Williams added, "We remain focused on building strength and capacity within QTS to continue to deliver valuable solutions for larger C1-hyperscale customers while executing on the strong growth opportunity with our C2 and C3 customers enabling their diverse hybrid IT strategies."
Financial Results
Net income in the second quarter of 2017 was $4.6 million ($0.08 per basic and diluted share), which included approximately $0.2 million of transaction and integration costs and $1.4 million of income tax benefit, compared to net income of $5.8 million ($0.11 and $0.10 per basic and diluted share, respectively) recognized in the second quarter of 2016, which included approximately $3.8 million of transaction and integration costs and $2.5 million of income tax benefit.
QTS generated Operating FFO of $35.0 million, or $0.63 per fully diluted share, in the second quarter of 2017, which includes a non-cash tax benefit of approximately $1.4 million, compared to Operating FFO of $34.9 million, or $0.63 per fully diluted share, for the second quarter of 2016, which included a non-cash tax benefit of approximately $1.3 million. Operating FFO for the second quarter of 2017 represents an increase of approximately 0.5% compared to the prior year.
Additionally, QTS generated $49.2 million of Adjusted EBITDA in the second quarter of 2017, an increase of 8.0% compared to $45.6 million for the second quarter of 2016.
QTS generated total revenues of $107.9 million in the second quarter of 2017, an increase of 9.3% compared to $98.7 million in the second quarter of 2016. MRR as of June 30, 2017 was $31.7 million, an increase of 9.8% compared to MRR as of June 30, 2016 of $28.9 million.
Leasing Activity
During the second quarter of 2017, QTS entered into new and modified customer leases representing approximately $13.3 million of incremental annualized rent, net of downgrades, which was 22% higher than the prior four quarter average. Pricing on new and modified leases signed during the quarter of $1,018 per square foot was 45% higher than the prior four quarter average of $704 per square foot, primarily driven by strong C2/C3 leasing volume and higher pricing across both C1 and C2/C3 categories, which increased by 17% and 33%, respectively, compared to their respective prior four quarter averages.
During the second quarter of 2017, QTS renewed leases with a total annualized rent of $18.8 million at an average rent per square foot of $1,077, which was 1.0% 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 in the period to a customer intending to fully exit the QTS platform in the near term compared to total MRR at the beginning of the period) was 1.0% for the second quarter of 2017. Rental churn was 4.3% for the six months ended June 30, 2017, the majority of which was the result of a single customer termination in the first quarter of 2017 at one of the Company's leased facilities in Northern Virginia which was disclosed in prior quarters. Excluding this customer termination, rental churn for the six months ended June 30, 2017 would be 1.7%.
During the second quarter of 2017, QTS commenced customer leases (which includes new customers and also existing customers that renewed their lease term) representing approximately $34.8 million of annualized rent at $778 per square foot. Average pricing on QTS commenced leases during the second quarter of 2017 increased 51% compared to the prior four quarter average primarily due to a larger mix of C2/C3 commencements which tend to have a higher rate per square foot in comparison to C1 deals.
As of June 30, 2017, the booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of June 30, 2017) was approximately $3.3 million, or $39.7 million of annualized rent, and compares to $41.9 million of annualized rent at March 31, 2017. The booked-not-billed balance is expected to contribute an incremental $8.3 million to revenue in 2017 (representing $23.7 million in annualized revenues), an incremental $3.9 million in 2018 (representing $6.1 million in annualized revenues), and an incremental $9.8 million in annualized revenues thereafter.
Development, Redevelopment, and Acquisitions
During the second quarter of 2017, the Company brought online approximately 6 megawatts of gross power and approximately 19,000 net rentable square feet ("NRSF") of raised floor and various portions of customer specific capital at an aggregate cost of approximately $55 million. In addition, during the second quarter of 2017, the Company continued redevelopment of the Atlanta-Metro, Irving, Chicago, Piscataway, Fort Worth, Santa Clara and certain Leased Facilities to have space ready for customers later in 2017 and forward. The Company expects to bring an additional 103,000 raised floor NRSF into service in the remaining quarters of 2017 at an aggregate cost of approximately $153 million.
Balance Sheet and Liquidity
As of June 30, 2017, the Company's total debt balance net of cash and cash equivalents was $1,039.5 million, resulting in a net debt to last quarter annualized Adjusted EBITDA of 5.3x. This ratio is consistent with the 5.3x net debt to annualized Adjusted EBITDA reported in the first quarter of 2017 and remains in line with company expectations. The Company's booked-not-billed backlog of $39.7 million in annualized rent will continue to provide enhanced visibility in 2017 and beyond.
In March 2017, the Company established an "at-the-market" ("ATM") equity offering program pursuant to which the Company may issue, from time to time, up to $300 million of its Class A common stock. Pursuant to this ATM program, during the three months ended June 30, 2017, the Company issued approximately 746,000 shares of QTS' Class A common stock at a weighted average price of $53.60 per share which generated net proceeds of approximately $39.4 million.
On April 5, 2017, QTS entered into interest rate swaps relating to $400 million of the Company's term loan borrowings. These swaps will effectively convert floating rate debt to fixed rate debt with an interest rate of approximately 3.5% starting on January 2, 2018 through the maturity of their respective term loans. Due to the effect of these swaps, as of June 30, 2017 approximately 68% of the Company's outstanding debt will carry a fixed interest rate beginning in 2018.
As of June 30, 2017, the Company had total available liquidity of approximately $495 million which was comprised of $452 million of available capacity under the Company's unsecured revolving credit facility and approximately $43 million of cash and cash equivalents.
2017 Guidance
The Company is expecting 2017 year-over-year revenue growth to be at the low end of its previously provided range of 11 - 13%, due to lower than expected utility recovery revenue, which passes through directly to lower operating costs, as well as lighter leasing volume earlier in the year. However, given that utility recovery revenue correlates directly to cost savings, as well as continued cost efficiencies in the business, the Company is reaffirming its 2017 adjusted EBITDA guidance of $203.0 million to $211.0 million. In addition, the Company is raising its guidance for Operating FFO and Operating FFO per share. The Company now expects Operating FFO of $152.0 million to $158.0 million and Operating FFO per share of $2.66 to $2.78, which reflects an estimated non-cash tax benefit in excess of $4 million recognized in 2017. The Company is maintaining its guidance for expected churn at the high end of its historical average of 5-8%. The Company is maintaining its guidance for Capital Expenditures, excluding acquisitions, of approximately $325.0 million to $375.0 million.
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. The Company does not, nor does it suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. The Company believes that the presentation of non-GAAP financial measures provide meaningful supplemental information to both management and investors that is indicative of the Company's operations. The Company has included a reconciliation of this additional information to the most comparable GAAP measure in the selected financial information below.
Conference Call Details
The Company will host a conference call and webcast on July 26, 2017, at 8:30 a.m. Eastern time (7:30 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 6442668# 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 25 data centers and supports more than 1,100 customers in North America, Europe and Asia.
QTS Investor Relations Contact
Stephen Douglas - Vice President - Investor Relations and Strategic Planning
Jeff Berson - Chief Financial Officer
William Schafer - Executive Vice President - Finance and Accounting
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 also can 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; 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. Any forward-looking statement speaks only as of the date on which it was made. 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, 2016 and other periodic reports the Company files with the Securities and Exchange Commission.
Consolidated Balance Sheets
(in thousands except share data)
June 30, December 31,
2017 2016 (1)
---- -------
(unaudited)
ASSETS
------
Real Estate Assets
Land $86,192 $74,130
Buildings,
improvements and
equipment 1,625,254 1,524,767
Less: Accumulated
depreciation (354,522) (317,834)
-------- --------
1,356,924 1,281,063
Construction in
progress 363,449 365,960
------- -------
Real Estate Assets,
net 1,720,373 1,647,023
--------- ---------
Cash and cash
equivalents 42,604 9,580
Rents and other
receivables, net 44,033 41,540
Acquired intangibles,
net 119,384 129,754
Deferred costs, net
(2) (3) 38,152 38,507
Prepaid expenses 8,875 6,918
Goodwill 173,843 173,843
Other assets, net (4) 59,119 39,305
------ ------
TOTAL ASSETS $2,206,383 $2,086,470
========== ==========
LIABILITIES
-----------
Unsecured credit
facility, net (3) $744,307 $634,939
Senior notes, net of
discount and debt
issuance costs (3) 292,858 292,179
Capital lease, lease
financing
obligations and
mortgage notes
payable 34,059 38,708
Accounts payable and
accrued liabilities 84,052 86,129
Dividends and
distributions
payable 21,606 19,634
Advance rents,
security deposits
and other
liabilities 31,505 24,893
Deferred income taxes 12,207 15,185
Deferred income 23,433 21,993
------ ------
TOTAL LIABILITIES 1,244,027 1,133,660
--------- ---------
EQUITY
------
Common stock, $0.01
par value,
450,133,000 shares
authorized,
48,812,009 and
47,831,250 shares
issued and
outstanding as of
June 30, 2017 and
December 31, 2016,
respectively 488 478
Additional paid-in
capital 970,811 931,783
Accumulated dividends
in excess of
earnings (126,331) (97,793)
-------- -------
Total stockholders'
equity 844,968 834,468
Noncontrolling
interests 117,388 118,342
------- -------
TOTAL EQUITY 962,356 952,810
------- -------
TOTAL LIABILITIES AND
EQUITY $2,206,383 $2,086,470
========== ==========
(1) The balance
sheet at
December 31,
2016, has
been derived
from the
audited
consolidated
financial
statements at
that date,
but does not
include all
of the
information
and footnotes
required by
United States
generally
accepted
accounting
principles
for complete
financial
statements.
(2) As of June 30,
2017 and
December 31,
2016,
deferred
costs, net
included $6.1
million and
$7.0 million
of net
deferred
financing
costs related
to the
revolving
portion of
the Company's
unsecured
credit
facility,
respectively,
and $32.0
million and
$31.5 million
of deferred
leasing costs
net of
amortization,
respectively.
(3) Debt issuance
costs, net
related to
the Senior
Notes and
term loan
portion of
the Company's
unsecured
credit
facility
aggregating
$9.2 million
and $10.1
million at
June 30, 2017
and December
31, 2016,
respectively,
have been
netted
against the
related debt
liability
line items
for both
periods
presented.
(4) As of June 30,
2017 and
December 31,
2016, other
assets, net
included
$50.9 million
and $31.7
million of
corporate
fixed assets,
respectively,
primarily
relating to
construction
of corporate
offices,
leasehold
improvements
and product
related
assets.
During the
quarter ended
June 30,
2017, fixed
assets and
the
associated
accumulated
depreciation
related to
the Duluth,
GA facility
aggregating
to $10.6
million were
moved from
Real Estate
Assets, net
to Other
assets, net
as the
facility was
transitioned
to corporate
office space.
Consolidated Statements of Operations
(unaudited and in thousands except share and per share data)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, March 31, June 30, June 30,
-------- --------- -------- --------
2017 2017 2016 2017 2016
---- ---- ---- ---- ----
Revenues:
Rental $80,793 $79,117 $71,670 $159,910 $140,096
Recoveries from customers 8,774 8,361 6,168 17,135 11,603
Cloud and managed services 16,856 16,965 17,015 33,821 35,905
Other (1) 1,445 1,521 3,834 2,966 5,851
----- ----- ----- ----- -----
Total revenues 107,868 105,964 98,687 213,832 193,455
------- ------- ------ ------- -------
Operating expenses:
Property operating costs 36,846 35,421 32,646 72,267 64,427
Real estate taxes and insurance 2,946 3,147 2,020 6,093 3,760
Depreciation and amortization 34,527 33,948 30,355 68,475 58,994
General and administrative (2) 22,562 22,197 21,608 44,759 41,894
Transaction and integration costs
(3) 161 336 3,833 497 5,920
--- --- ----- --- -----
Total operating expenses 97,042 95,049 90,462 192,091 174,995
------ ------ ------ ------- -------
Operating income 10,826 10,915 8,225 21,741 18,460
Other income and expense:
Interest income - 1 2 1 2
Interest expense (7,647) (6,869) (4,874) (14,516) (10,855)
------ ------ ------ ------- -------
Income before taxes 3,179 4,047 3,353 7,226 7,607
Tax benefit of taxable REIT
subsidiaries (4) 1,429 1,521 2,454 2,950 5,059
----- ----- ----- ----- -----
Net income 4,608 5,568 5,807 10,176 12,666
Net income attributable to
noncontrolling interests (5) (568) (691) (707) (1,259) (1,677)
---- ---- ---- ------ ------
Net income attributable to QTS
Realty Trust, Inc. $4,040 $4,877 $5,100 $8,917 $10,989
====== ====== ====== ====== =======
Net income per share attributable
to common shares:
Basic $0.08 $0.10 $0.11 $0.18 $0.25
Diluted 0.08 0.10 0.10 0.17 0.24
Weighted average common shares
outstanding:
Basic 47,666,086 47,908,709 47,783,093 47,561,507 44,537,769
Diluted 55,458,429 55,620,260 55,574,545 55,336,062 52,274,198
(1) Other revenue
- Includes
straight line
rent, sales
of scrap
metals and
other unused
materials and
various other
revenue
items.
Straight line
rent was $0.9
million, $1.5
million and
$3.5 million
for the three
months ended
June 30,
2017, March
31, 2017 and
June 30,
2016,
respectively.
Straight line
rent was $2.4
million and
$5.4 million
for the six
months ended
June 30, 2017
and 2016,
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
20.9%, 20.9%,
and 21.9% of
total
revenues for
the three
month periods
ended June
30, 2017,
March 31,
2017 and June
30, 2016,
respectively.
General and
administrative
expenses were
20.9% and
21.7% of
total
revenues for
the six
months ended
June 30, 2017
and 2016,
respectively.
(3) Transaction
and
integration
costs - For
the three
month periods
ended June
30, 2017,
March 31,
2017 and June
30, 2016, the
Company
recognized
$0.1 million,
$0.1 million
and $0.8
million,
respectively,
in
transaction
costs related
to the
examination
of actual and
potential
acquisitions.
Transaction
costs were
$0.2 million
and $0.8
million for
the six
months ended
June 30, 2017
and 2016,
respectively.
The Company
also
recognized
less than
$0.1 million,
$0.3 million
and $3.0
million in
integration
costs for the
three month
periods ended
June 30,
2017, March
31, 2017 and
June 30,
2016,
respectively.
Integration
costs include
various costs
to integrate
QTS and
acquired
businesses
(including
consulting
fees, costs
to
consolidate
office space
and costs
which were
previously
duplicated)
as well as
accelerated
depreciation
of certain
software
following
acquisition.
Integration
costs were
$0.3 million
and $5.1
million for
the six
months ended
June 30, 2017
and 2016,
respectively.
(4) Tax benefit of
taxable REIT
subsidiaries
- For the
three months
ended June
30, 2017,
March 31,
2017 and June
30, 2016, the
Company
recorded an
approximate
$1.4 million,
$1.5 million
and $2.5
million non-
cash deferred
tax benefit,
respectively,
related to
operating
losses which
include
certain
transaction
and
integration
costs. The
Company
recorded $3.0
million and
$5.1 million
in non-cash
deferred tax
benefits for
the six
months ended
June 30, 2017
and 2016,
respectively.
(5) Noncontrolling
interest - The
noncontrolling
ownership
interest of
QualityTech,
LP was 12.2%
and 12.4% as
of June 30,
2017 and 2016,
respectively.
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. Management uses FFO as a
supplemental performance measure because, in excluding real estate-related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over
year, captures trends in occupancy rates, rental rates and operating costs. 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,
deferred taxes and non-cash compensation. Operating FFO and Adjusted Operating FFO are non-GAAP measures that are used as supplemental operating measures 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 Six Months Ended
------------------ ----------------
June 30, March 31, June 30, June 30,
-------- --------- -------- --------
2017 2017 2016 2017 2016
---- ---- ---- ---- ----
FFO
Net income $4,608 $5,568 $5,807 $10,176 $12,666
Real estate depreciation and
amortization 30,275 29,504 26,409 59,779 51,278
------ ------ ------ ------ ------
FFO 34,883 35,072 32,216 69,955 63,944
------ ------ ------ ------ ------
Integration costs 18 272 3,026 291 5,079
Transaction costs 143 64 807 206 841
Tax benefit associated with
transaction and integration
costs - - (1,183) - (1,931)
--- --- ------ --- ------
Operating FFO * 35,044 35,408 34,866 70,452 67,933
------ ------ ------ ------ ------
Maintenance Capex (1,172) (796) (380) (1,968) (715)
Leasing commissions paid (4,055) (4,169) (3,388) (8,224) (9,195)
Amortization of deferred
financing costs and bond
discount 971 980 877 1,951 1,754
Non real estate depreciation
and amortization 4,254 4,443 3,946 8,697 7,716
Straight line rent revenue and
expense and other (637) (1,127) (3,243) (1,764) (4,853)
Tax benefit from operating
results (1,429) (1,521) (1,271) (2,950) (3,128)
Equity-based compensation
expense 3,732 3,082 3,200 6,814 5,250
----- ----- ----- ----- -----
Adjusted Operating
FFO * $36,708 $36,300 $34,607 $73,008 $64,762
======= ======= ======= ======= =======
Fully diluted weighted average
shares 55,458 55,620 55,575 55,336 52,274
Operating FFO per
diluted share $0.63 $0.64 $0.63 $1.27 $1.30
* 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) (computed in accordance with GAAP) 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 performance 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, gains
(losses) 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 Six Months Ended
------------------ ----------------
June 30, March 31, June 30, June 30,
-------- --------- -------- --------
2017 2017 2016 2017 2016
---- ---- ---- ---- ----
EBITDA and Adjusted EBITDA
Net income $4,608 $5,568 $5,807 $10,176 $12,666
Interest expense 7,647 6,869 4,874 14,516 10,855
Interest income - (1) (2) (1) (2)
Tax benefit of taxable REIT
subsidiaries (1,429) (1,521) (2,454) (2,950) (5,059)
Depreciation and amortization 34,527 33,948 30,355 68,475 58,994
------ ------ ------ ------ ------
EBITDA 45,353 44,863 38,580 90,216 77,454
------ ------ ------ ------ ------
Equity-based compensation
expense 3,732 3,082 3,200 6,814 5,250
Integration costs 18 272 3,026 291 5,079
Transaction costs 143 64 807 206 841
--- --- --- --- ---
Adjusted EBITDA $49,246 $48,281 $45,613 $97,527 $88,624
======= ======= ======= ======= =======
Reconciliations of Net Income to Net Operating Income (NOI)
(unaudited and in thousands)
The Company calculates net operating income ("NOI") as net income (loss) (computed in accordance with GAAP), 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. Management uses NOI as a supplemental performance measure because it provides a useful measure of the operating results from its customer leases. In addition, management believes it is useful to
investors in evaluating and comparing the operating performance of its properties and to compute the fair value of its properties. The Company's NOI may not be comparable to other REITs' NOI as other REITs may not calculate
NOI in the same manner. NOI should be considered only as a supplement to net income as a measure of the Company's performance and should not be used as a measure of results of operations or liquidity or as an indication of
funds available to meet cash needs, including the ability to make distributions to stockholders. NOI is a measure of the operating performance of the Company's properties and not of the Company's performance as a whole. NOI
is therefore not a substitute for net income as computed in accordance with GAAP. A reconciliation of net income to NOI is presented below:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, March 31, June 30, June 30,
-------- --------- -------- --------
2017 2017 2016 2017 2016
---- ---- ---- ---- ----
Net Operating Income (NOI)
Net income $4,608 $5,568 $5,807 $10,176 $12,666
Interest expense 7,647 6,869 4,874 14,516 10,855
Interest income - (1) (2) (1) (2)
Depreciation and amortization 34,527 33,948 30,355 68,475 58,994
Tax benefit of taxable REIT
subsidiaries (1,429) (1,521) (2,454) (2,950) (5,059)
Integration costs 18 272 3,026 291 5,079
Transaction costs 143 64 807 206 841
General and administrative
expenses 22,562 22,197 21,608 44,759 41,894
------ ------ ------ ------ ------
NOI (1) $68,076 $67,396 $64,021 $135,472 $125,268
======= ======= ======= ======== ========
Breakdown of NOI by facility:
Atlanta-Metro data
center $20,704 $20,511 $20,885 $41,215 $40,857
Atlanta-Suwanee data center 11,423 11,958 11,272 23,381 22,772
Leased data centers (2) 8,408 9,010 10,574 17,418 22,383
Richmond data center 8,389 8,230 7,976 16,619 14,578
Irving data center 8,057 6,440 3,914 14,497 6,538
Santa Clara data center 2,705 3,279 3,653 5,984 7,417
Piscataway data center 2,279 2,403 670 4,682 670
Princeton data center 2,393 2,399 2,356 4,792 4,712
Sacramento data center 1,778 1,837 2,140 3,615 4,062
Chicago data center 1,275 647 - 1,922 -
Fort Worth data center 75 106 181 -
Other facilities (3) 590 576 581 1,166 1,279
--- --- --- ----- -----
NOI (1) $68,076 $67,396 $64,021 $135,472 $125,268
======= ======= ======= ======== ========
(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 $5.3
million,
$5.2 million
and $5.1
million for
the three
month
periods
ended June
30, 2017,
March 31,
2017 and
June 30,
2016,
respectively,
and $10.5
million and
$10.1
million for
the six
month
periods
ended June
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.
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 GAAP revenues to recognized MRR in the period and MRR at period-end is
presented below:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, March 31, June 30, June 30,
-------- --------- -------- --------
2017 2017 2016 2017 2016
---- ---- ---- ---- ----
Recognized MRR in the period
Total period
revenues (GAAP
basis) $107,868 $105,964 $98,687 $213,832 $193,455
Less: Total period
recoveries (8,774) (8,361) (6,168) (17,135) (11,603)
Total period deferred setup
fees (2,436) (2,616) (2,256) (5,052) (4,159)
Total period straight line
rent and other (3,306) (3,118) (5,757) (6,424) (10,025)
------ ------ ------ ------ -------
Recognized MRR in the period 93,352 91,869 84,506 185,221 167,668
------ ------ ------ ------- -------
MRR at period end
Total period
revenues (GAAP
basis) $107,868 $105,964 $98,687 $213,832 $193,455
Less: Total revenues
excluding last month (71,262) (70,939) (64,520) (177,226) (159,288)
------- ------- ------- -------- --------
Total revenues for last
month of period 36,606 35,025 34,167 36,606 34,167
Less: Last month recoveries (2,872) (2,760) (2,805) (2,872) (2,805)
Last month deferred setup
fees (822) (898) (756) (822) (756)
Last month straight line
rent and other (1,221) (933) (1,734) (1,221) (1,734)
------ ---- ------ ------ ------
MRR at period end $31,691 $30,434 $28,872 $31,691 $28,872
======= ======= ======= ======= =======
View original content:http://www.prnewswire.com/news-releases/qts-reports-second-quarter-2017-operating-results-300494039.html
SOURCE QTS Realty Trust, Inc.
