QTS Reports Second Quarter 2019 Operating Results
OVERLAND PARK, Kan., July 29, 2019 /PRNewswire/ -- QTS Realty Trust, Inc. ("QTS" or the "Company") (NYSE: QTS) today announced operating results for the second quarter ended June 30, 2019.
Second Quarter GAAP Highlights
---
Three Months Ended Six Months Ended
June 30,
June 30,
2019 2018 % Change 2019 2018 % Change
Total revenue $
119,167 $
112,277 6.1 $
231,856 $
225,974 2.6
% %
Net income (loss) $
7,535 $
(6,433) 217.1 $
28,683 $
(6,685) 529.1
% %
Net income (loss) attributable to common stockholders $
438 $
(7,679) 105.7 $
12,951 $
(8,230) 257.4
% %
Fully diluted weighted average shares outstanding 63,094 58,080 8.6 61,388 58,013 5.8
% %
Net income (loss) per share attributable to basic common shares $
(0.03) $
(0.16) 83.2 $
0.17 $
(0.17) 200.8
% %
Net income (loss) per share attributable to diluted common shares $
(0.03) $
(0.16) 83.3 $
0.17 $
(0.17) 200.0
% %
FFO available to common stockholders & OP unit holders $
39,779 (1) $
25,162 58.1 $
76,716 (1) $
56,639 35.4
% %
(1) Includes QTS's pro
rata share of
results from the
unconsolidated
entity.
Additional Second Quarter Highlights
-- Recognized total consolidated revenues of $119.2 million for the quarter
ended June 30, 2019, an increase of 6.1% compared to total consolidated
revenue of $112.3 million for the same period in 2018. The Company
recognized total consolidated revenues of $119.2 million for the quarter
ended June 30, 2019 compared to total consolidated Core revenue of
$102.5 million for the same period in 2018, an increase of 16.2%. This
does not include QTS' pro rata share of revenue attributable to the
unconsolidated joint venture of $1.3 million for the quarter ended June
30, 2019.
-- Reported Adjusted EBITDA of $62.2 million for the quarter ended June 30,
2019, an increase of 16.0% compared to Core Adjusted EBITDA for the same
period in 2018.
-- Reported Operating FFO available to common stockholders and OP unit
holders for the quarter ended June 30, 2019 of $40.8 million, an
increase of 10.6% compared to Core Operating FFO available to common
stockholders and OP unit holders of $36.9 million for the same period in
2018.
-- Reported Operating FFO per fully diluted share of $0.65 for the quarter
ended June 30, 2019, compared to Core Operating FFO per fully diluted
share of $0.64 in the same period of 2018.
-- Signed new and modified renewal leases during the second quarter of 2019
aggregating to $19.6 million of incremental annualized rent, net of
downgrades.
-- Reported annualized booked-not-billed monthly recurring revenue ("MRR")
of $68.1 million as of June 30, 2019 compared to $54.8 million as of
March 31, 2019.
-- Completed the acquisition of two data centers in the Netherlands for
approximately $44 million in cash consideration, including closing costs
on April 23, 2019. The two facilities, in Groningen and Eemshaven,
currently have approximately 160,000 square feet of raised floor
capacity and 30 megawatts of combined gross power capacity built out and
fully available.
"QTS continued to capitalize on our strategic differentiators in the market during the second quarter, resulting in one of our strongest leasing quarters as a public company at attractive returns on invested capital," said Chad Williams, Chairman and CEO of QTS.
Williams added, "Strong execution combined with a go-to-market approach that balances the steady performance of a diversified hybrid colocation business, and select growth acceleration opportunities with strategic hyperscale customers, continues to support consistent growth and financial performance."
Financial Results
Net income recognized in the second quarter of 2019 was $7.5 million ($0.03 net loss per basic and diluted common share), compared to net loss of $6.4 million ($0.16 net loss per basic and diluted common share) recognized in the second quarter of 2018. The increase in net income was primarily driven by a reduction in restructuring expenses of approximately $11.4 million related to costs incurred in the prior year associated with the Company's strategic growth plan.
QTS generated total revenues of $119.2 million in the second quarter of 2019, an increase of 16.2% compared to total Core revenue of $102.5 million in the second quarter of 2018. MRR as of June 30, 2019 was $32.8 million compared to Core MRR as of June 30, 2018 of $29.5 million.
QTS generated $62.2 million of Adjusted EBITDA in the second quarter of 2019, an increase of 16.0% compared to Core Adjusted EBITDA of $53.6 million for the second quarter of 2018.
Additionally, QTS generated Operating FFO available to common stockholders and OP unit holders of $40.8 million in the second quarter of 2019, an increase of 10.6% compared to Core Operating FFO available to common stockholders and OP unit holders of $36.9 million in the second quarter of 2018. Excluding the effects of the Company's primarily non-cash deferred tax benefit/(expense), Operating FFO available to common stockholders and OP unit holders was $41.0 million in the second quarter of 2019, an increase of 10.6% compared to Core Operating FFO available to common stockholders and OP unit holders of $37.1 million in the second quarter of 2018.
Operating FFO per fully diluted share was $0.65 in the second quarter of 2019, compared to Core Operating FFO per fully diluted share of $0.64 in the second quarter of 2018. Excluding the effects of the Company's primarily non-cash deferred tax benefit/(expense), Operating FFO per fully diluted share was $0.65 in the second quarter of 2019, an increase of 1.8% compared to Core Operating FFO per fully diluted share of $0.64 in the second quarter of 2018.
Leasing Activity
During the quarter ended June 30, 2019, QTS entered into new and modified renewal leases aggregating to $19.6 million of incremental annualized rent. The Company's second quarter leasing performance was driven by continued strong performance in its hybrid colocation product offering and continued expansions by strategic hyperscale customers including the signing of a 5+ megawatt, multi-site lease with a hyperscale customer supporting a large federal program.
During the quarter ended June 30, 2019, QTS renewed leases with total annualized rent of $13.9 million at an average rent per square foot of $732, which was 1.2% higher than the annualized rent prior to their respective renewals. There is variability in the Company's renewal rates based on the mix of product types renewed, and renewal rates are generally expected to increase in the low to mid-single digits as compared to pre-renewal pricing. 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 three months ended June 30, 2019. Rental Churn was 2.3% for the six months ended June 30, 2019.
As of June 30, 2019, 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, 2019) was approximately $5.7 million, or $68.1 million of annualized rent, and compares to $4.6 million, or $54.8 million of annualized rent at March 31, 2019. The booked-not-billed balance is expected to contribute an incremental $6.7 million to revenue in 2019 (representing $22.0 million in annualized revenues), an incremental $10.3 million in 2020 (representing $16.9 million in annualized revenues), and an incremental $29.2 million in annualized revenues thereafter.
Development
During the quarter ended June 30, 2019, the Company brought online approximately three megawatts of gross power and approximately 19,000 net rentable square feet ("NRSF") of raised floor and customer specific capital at its Fort Worth facility at an aggregate cost of approximately $25 million. In addition, during the second quarter of 2019, the Company's significant development activity continued at the Fort Worth, Ashburn, Irving, Chicago, Atlanta-Metro, Santa Clara and Piscataway facilities to have space ready for customers in 2019 and forward. The Company expects to bring an additional 101,000 raised floor NRSF into service in 2019 at an aggregate cost of approximately $148 million, of which $125 million has already been spent as of June 30, 2019.
Additionally, the joint venture brought online the second phase at the Manassas facility in the second quarter of 2019, representing approximately four megawatts of gross power and approximately 11,000 NRSF of raised floor at an aggregate cost of approximately $23 million at the joint venture's 100% share, of which the Company's pro rata share was approximately $11 million. The joint venture intends to bring additional space and power into service as incremental development at the Manassas facility takes place and future phases are delivered to the customer.
Acquisitions
During the second quarter of 2019, QTS completed the acquisition of two data centers in the Netherlands for approximately $44 million in cash, including closing costs. The data centers represent QTS' first mega scale expansion outside the U.S. and were opportunistically acquired from TCN SIG Telehousing B.V. The two facilities, in Groningen and Eemshaven currently have approximately 160,000 square feet of raised floor capacity and 30 megawatts of combined gross power capacity built out and fully available. QTS currently anticipates approximately $15 million of additional capital investments required for recommissioning of the two facilities. This investment, in addition to the initial purchase price, represents an upfront cost per megawatt of approximately $2 million, which is materially below the average cost to build in the Netherlands market.
The Groningen facility currently has built-out capacity representing approximately 10 gross megawatts of power and 45,000 square feet of raised floor data center space. The Groningen data center is more than 50% leased to approximately 20 colocation tenants and a weighted average remaining lease term of approximately 3.5 years.
The Eemshaven facility, which is currently vacant, was originally constructed to support a single hyperscale tenant and has built-out capacity representing approximately 20 gross megawatts of power and 113,000 square feet of raised floor data center space. The facility is strategically located adjacent to multiple hyperscale customer-owned data center deployments, including a 500+ megawatt data center campus operated by one of the largest hyperscale cloud providers in the world. In addition, the facility is located in close proximity to multiple transatlantic fiber cable landings providing access to multiple markets within Europe and North America. QTS anticipates investing incremental capital over the next several quarters to recommission the facility.
Balance Sheet and Liquidity
As of June 30, 2019, the Company's total indebtedness, inclusive of its pro rata share of joint venture debt, was approximately $1.4 billion, resulting in a net debt to annualized Adjusted EBITDA of 5.7x. The Company's leverage ratio pro forma for the effects of cash expected to be received at or before March 1, 2020 upon the full physical settlement of, and issuance of, 3,762,500 shares of common stock pursuant to the forward equity sale agreement entered into during the first quarter of 2019, assuming such proceeds were used to repay a portion of the Company's outstanding debt, is approximately 5.1x.
In February 2019, QTS conducted an underwritten offering of 7,762,500 shares of its Class A common stock, consisting of 4,000,000 shares issued by the Company during the first quarter of 2019 and 3,762,500 shares which will be issued on a forward basis, in each case at a price of $41.50 per share. The Company received net proceeds of approximately $159 million from the issuance of 4,000,000 shares during the first quarter, which it used to repay amounts outstanding under its unsecured revolving credit facility. The Company expects to physically settle the forward sale (by the delivery of shares of common stock) and receive proceeds of approximately $147 million from the sale of the 3,762,500 shares of common stock by March 1, 2020, although the Company has the right to elect settlement prior to that time.
As of June 30, 2019, the Company had total available liquidity of approximately $718 million which was comprised of $560 million of available capacity under the Company's unsecured revolving credit facility, approximately $147 million available proceeds at the Company's election to physically settle the aforementioned forward equity sale, and approximately $11 million of cash and cash equivalents.
2019 Guidance
---
2019 Guidance
($ in millions except per share amounts) Low High
---
Revenue $
461 $
475
Adjusted EBITDA $
243.5 $
253.5
Operating FFO per fully diluted share $
2.61 $
2.71
The Company is reaffirming its Revenue guidance range for 2019 of $461 million to $475 million which assumes annual rental churn as previously announced of between 3% and 6%. The Company is also reaffirming its Adjusted EBITDA guidance range for 2019 of $243.5 million to $253.5 million and reaffirming its Operating FFO per fully diluted share guidance range for 2019 of $2.61 per share to $2.71 per share.
The Company's 2019 guidance includes the effects of the joint venture, which is reflected as an unconsolidated joint venture on QTS' reported financial statements. Consistent with GAAP accounting standards, revenue from the unconsolidated joint venture is removed from QTS' reported GAAP financial statements. Also consistent with GAAP accounting and NAREIT-defined standards, QTS includes its proportionate ownership of EBITDAre and Funds from Operations from the joint venture in its reported EBITDAre and Funds from Operations results, respectively.
QTS does not provide reconciliations for the non-GAAP financial measures included in its guidance provided above due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including net income (loss) and adjustments that could be made for restructuring costs, transaction costs, lease exit costs, asset impairments and loss on disposals and other charges as those amounts are subject to significant variability based on future transactions that are not yet known, the amount of which, based on historical experience, could be significant.
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.
Definitions
Core. The Core business consists primarily of the Company's hyperscale and hybrid colocation business, along with technology and services revenue from the Company's cloud and managed services business that supports hyperscale and hybrid colocation customers. Core financial measures and operating statistics represent the financial results or operating statistics, as applicable, of the Company's Core business. The Company transitioned its "Non-Core" business (i.e., business other than the Core business) over the course of 2018, ending in the fourth quarter of 2018, following the Company's announcement of its strategic growth plan in the first quarter of 2018.
Non-Core. Non-Core represents the portion of the Company's business that the Company exited in accordance with its strategic growth plan announced in the first quarter of 2018 and completed in the fourth quarter of 2018. The Non-Core business consisted of certain products and services within the Company's cloud and managed services business, primarily managed hosting, as well as colocation revenue attached to certain customers in the managed services business. Non-Core financial measures and operating statistics represent the financial results or operating statistics, as applicable, of the Company's Non-Core business for the applicable period.
Conference Call Details
The Company will host a conference call and webcast on July 30, 2019, 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 6511151# 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 data center solutions across a diverse footprint spanning more than 6 million square feet of owned mega scale data center space throughout primarily North America and Europe. Through its software-defined technology platform, QTS is able to deliver secure, compliant infrastructure solutions, robust connectivity and premium customer service to leading hyperscale technology companies, enterprises, and government entities. QTS owns, operates or manages 26 data centers and supports more than 1,100 customers primarily in North America and Europe.
QTS Investor Relations Contact
Stephen Douglas - EVP - Finance
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, 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 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; obsolescence or reduction in marketability of our infrastructure due to changing industry demands; 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; decreased rental rates or increased vacancy rates; increased interest rates and operating costs, including increased energy costs; financing risks, including the Company's failure to obtain necessary outside financing; 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; changes in real estate and zoning laws, revaluations for tax purposes and increases in real property tax rates; and limitations inherent in our current and any future joint venture investments, such as lack of sole decision-making authority and reliance on our partners' financial condition.
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, 2018 and other periodic reports the Company files with the Securities and Exchange Commission.
Consolidated Balance Sheets
---
(unaudited and in thousands except shares data)
June 30, December 31,
2019 (1) 2018 (1)
ASSETS
---
Real Estate Assets
Land $
107,307 $
105,541
Buildings, improvements and
equipment 2,087,374 1,917,251
Less: Accumulated depreciation (523,040) (467,644)
1,671,641 1,555,148
Construction in progress (2) 856,005 790,064
Real Estate Assets, net 2,527,646 2,345,212
Investments in unconsolidated
entity 32,797
Operating lease right-of-use
assets, net 59,946
Cash and cash equivalents 10,638 11,759
Rents and other receivables, net 60,754 55,093
Acquired intangibles, net 89,226 95,451
Deferred costs, net (3) (4) 46,662 45,096
Prepaid expenses 8,224 6,822
Goodwill 173,843 173,843
Assets held for sale 71,800
Other assets, net (5) 57,217 56,893
TOTAL ASSETS $
3,066,953 $
2,861,969
LIABILITIES
---
Unsecured credit facility, net (4) $
949,816 $
945,657
Senior notes, net of debt issuance
costs (4) 395,167 394,786
Finance leases and mortgage notes
payable 48,211 4,674
Operating lease liabilities 67,457
Accounts payable and accrued
liabilities 90,211 99,166
Dividends and distributions payable 33,247 29,633
Advance rents, security deposits
and other liabilities 47,987 32,679
Liabilities held for sale 24,349
Deferred income taxes 1,294 1,097
Deferred income 40,033 33,241
TOTAL LIABILITIES 1,673,423 1,565,282
EQUITY
---
7.125% Series A cumulative
redeemable perpetual preferred
stock: $0.01 par value
(liquidation preference $25.00 per
share), 4,600,000 shares
authorized, 4,280,000 shares
issued and outstanding as of June
30, 2019 and December 31, 2018,
respectively (6) 103,212 103,212
6.50% Series B cumulative
convertible perpetual preferred
stock: $0.01 par value
(liquidation preference $100.00
per share), 3,162,500 shares
authorized, issued and outstanding
as of June 30, 2019 and December
31, 2018, respectively (7) 304,223 304,265
Common stock: $0.01 par value,
450,133,000 shares authorized,
55,390,521 and 51,123,417 shares
issued and outstanding as of June
30, 2019 and December 31, 2018,
respectively 554 511
Additional paid-in capital 1,219,048 1,062,473
Accumulated other comprehensive
income (loss) (23,310) 2,073
Accumulated dividends in excess of
earnings (316,158) (278,548)
Total stockholders' equity 1,287,569 1,193,986
Noncontrolling interests 105,961 102,701
TOTAL EQUITY 1,393,530 1,296,687
TOTAL LIABILITIES AND EQUITY $
3,066,953 $
2,861,969
(1) The balance sheet
at June 30, 2019
and December 31,
2018, has been
derived from the
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,
2019,
construction in
progress included
$200.3 million
related to land
acquisitions
whereby the
initiation of
development
activities has
begun to prepare
the property for
its intended use.
(3) As of June 30,
2019 and December
31, 2018,
deferred costs,
net included $6.7
million and $7.7
million of
deferred
financing costs
net of
amortization,
respectively, and
$40.0 million and
$37.4 million of
deferred leasing
costs net of
amortization,
respectively.
(4) Debt issuance
costs, net
related to the
Senior Notes and
term loan portion
of the Company's
unsecured credit
facility
aggregating $10.7
million and $11.6
million at June
30, 2019 and
December 31,
2018,
respectively,
have been netted
against the
related debt
liability line
items for both
periods
presented.
(5) As of June 30,
2019 and December
31, 2018, other
assets, net
included $54.0
million and $48.8
million of
corporate fixed
assets,
respectively,
primarily
relating to
construction of
corporate
offices,
leasehold
improvements and
product related
assets.
(6) As of June 30,
2019, the total
liquidation
preference of the
Series A
Preferred Stock
was $107.0
million,
calculated as
$25.00
liquidation
preference per
share times
4,280,000 shares
outstanding.
(7) As of June 30,
2019, the total
liquidation
preference of the
Series B
Preferred Stock
was $316.3
million,
calculated as
$100.00
liquidation
preference per
share times
3,162,500 shares
outstanding.
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,
2019 2019 2018 2019 2018
(1) (1) (1)
Revenues:
Rental (2) $
114,977 $
109,389 $
101,086 $
224,366 $
201,014
Other (3) 4,190 3,300 11,191 7,490 24,960
Total revenues 119,167 112,689 112,277 231,856 225,974
Operating expenses:
Property operating costs 38,570 34,103 36,558 72,673 74,298
Real estate taxes and insurance 3,355 3,367 2,903 6,722 5,808
Depreciation and amortization 41,481 38,788 37,820 80,269 73,733
General and administrative (4) 20,124 19,891 21,031 40,015 43,265
Transaction and integration costs 1,039 1,214 653 2,253 1,573
Restructuring 11,430 19,960
Total operating expenses 104,569 97,363 110,395 201,932 218,637
Gain on sale of real estate, net 13,408 13,408
Operating income 14,598 28,734 1,882 43,332 7,337
Other income and expense:
Interest income 36 45 25 81 26
Interest expense (6,459) (7,146) (8,203) (13,605) (16,313)
Other income (expense) (40) (40)
Equity in earnings (loss) of
unconsolidated entity (401) (274) (675)
Income (loss) before taxes 7,734 21,359 (6,296) 29,093 (8,950)
Tax benefit (expense) of taxable REIT
subsidiaries (199) (211) (137) (410) 2,265
Net income (loss) 7,535 21,148 (6,433) 28,683 (6,685)
Net (income) loss attributable to
noncontrolling interests (5) (52) (1,590) 1,002 (1,642) 1,031
Net income (loss) attributable to QTS
Realty Trust, Inc. $
7,483 $
19,558 $
(5,431) $
27,041 $
(5,654)
Preferred stock dividends (7,045) (7,045) (2,248) (14,090) (2,576)
Net income (loss) attributable to
common stockholders $
438 $
12,513 $
(7,679) $
12,951 $
(8,230)
Net income (loss) per share
attributable to common shares:
Basic (6) $
(0.03) $
0.20 $
(0.16) $
0.17 $
(0.17)
Diluted (6) (0.03) 0.20 (0.16) 0.17 (0.17)
(1) Pursuant to the
Company's
adoption of ASC
842 "Leases" on
January 1, 2019
and to remain
consistent with
revenue
presentation
across the
industry,
historical
revenue
categories have
been reclassified
to conform to
current
presentation of
two categories.
The new
categories
incorporate a
reclassification
of straight line
rent from the
"Other" line item
into the "Rental"
line item, a
reclassification
of "Recoveries
from Customers"
from its own line
item into the
"Rental" line
item and a
combination of
the "Cloud and
managed services"
and "Other" line
items into a
single "Other"
line item.
(2) Represents lease
revenue,
inclusive of
recoveries from
customers as well
as straight line
rent. Recoveries
from customers
was $12.7
million, $10.8
million, and
$10.4 million for
the three months
ended June 30,
2019, March 31,
2019, and June
30, 2018,
respectively, and
$23.5 million and
$22.0 million for
the six months
ended June 30,
2019 and 2018,
respectively.
Straight line
rent was $1.0
million, $1.5
million and $1.4
million for the
three months
ended June 30,
2019, March 31,
2019 and June 30,
2018,
respectively, and
$2.5 million and
$4.1 million for
the six months
ended June 30,
2019 and 2018,
respectively.
(3) Includes revenue
from managed
services, sales
of scrap metals
and other unused
materials and
various other
revenue items.
(4) 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
16.9%, 17.7%, and
18.7% of total
revenues for the
three months
ended June 30,
2019, March 31,
2019 and June 30,
2018,
respectively, and
17.3% million and
19.1% million for
the six months
ended June 30,
2019 and 2018,
respectively.
(5) The weighted
average
noncontrolling
ownership
interest of
QualityTech, LP
was 10.7%, 11.3%
and 11.5% for the
three months
ended June 30,
2019, March 31,
2019 and June 30,
2018,
respectively, and
11.0% and 11.5%
for the six
months ended June
30, 2019 and 2018
months ended 2019
and 2018,
respectively.
(6) Basic and diluted
net income (loss)
per share were
calculated using
the two-class
method.
Consolidated Statements of Comprehensive Income
---
(unaudited and in thousands)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2019 2019 2018 2019 2018
Net income (loss) $
7,535 $
21,148 $
(6,433) $
28,683 $
(6,685)
Other comprehensive income (loss):
Foreign currency translation
adjustment gain 66 66
Increase (decrease) in fair value
of derivative contracts (18,606) (9,853) 2,563 (28,459) 8,545
Reclassification of other
comprehensive income to interest
expense (income) (471) (494) 91 (965) 493
Comprehensive income (loss) (11,476) 10,801 (3,779) (675) 2,353
Comprehensive (income) loss
attributable to noncontrolling
interests 1,291 (1,217) 431 74 (271)
Comprehensive income (loss)
attributable to QTS Realty Trust,
Inc. $
(10,185) $
9,584 $
(3,348) $
(601) $
2,082
FFO, Operating FFO, and Adjusted Operating FFO
The Company considers funds from operations ("FFO"), to be a supplemental measure of its performance which should be considered along with, but not as an alternative to, net income (loss) and cash provided by operating activities as a measure of operating performance. 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 depreciable real estate and land related to its primary business, impairment write-downs of depreciable real estate and land related to its primary business, real estate-related depreciation and amortization and similar adjustments for unconsolidated entities. To the extent the Company incurs gains or losses from the sale of assets that are incidental to its primary business, or incurs impairment write-downs associated with assets that are incidental to its primary business, it includes such charges in its calculation of FFO. The Company's 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.
Due to the volatility and nature of certain significant charges and gains recorded in the Company's operating results that management believes are not reflective of its operating performance, management computes an adjusted measure of FFO, which the Company refers to as Operating funds from operations ("Operating FFO"). Operating FFO is a non-GAAP measure that is used as a supplemental operating measure and to provide additional information to users of the financial statements. 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 they calculate Operating FFO on a comparable basis, between REITs.
Adjusted Operating Funds From Operations ("Adjusted Operating FFO") is a non-GAAP measure that is used as a supplemental operating measure and to provide additional information to users of the financial statements. 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, non-real estate depreciation and amortization, straight line rent adjustments, income taxes, non-cash compensation and similar adjustments for unconsolidated entities.
The Company offers these measures because it recognizes that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare its operating performance with that of other REITs. However, because FFO, Operating FFO and Adjusted Operating FFO exclude real estate depreciation and amortization and capture neither the changes in the value of the Company's properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of its properties, all of which have real economic effect and could materially impact its financial condition, cash flows and results of operations, the utility of FFO, Operating FFO and Adjusted Operating FFO as measures of its operating performance is limited. The Company's calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO in accordance with NAREIT guidance. In addition, the Company's calculations of FFO, Operating FFO and Adjusted Operating FFO are not necessarily comparable to FFO, Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. FFO, Operating FFO and Adjusted Operating FFO are non-GAAP measures and should not be considered a measure of the Company's results of operations or liquidity or as a substitute for, or an alternative to, net income (loss), cash provided by operating activities or any other performance measure determined in accordance with GAAP, nor is it indicative of funds available to fund its cash needs, including its ability to make distributions to its stockholders.
For periods in 2018, Core Operating FFO and Adjusted Core Operating FFO represent Operating FFO and Adjusted Operating FFO of the Company's Core business, respectively, and are used as supplemental performance measures because they reflect results of the portion of the business the Company retained following completion of the strategic growth plan.
A reconciliation of net income (loss) to FFO, Operating FFO and Adjusted Operating FFO is presented below (unaudited and in thousands):
Three Months Ended
---
June 30, 2019 March 31, 2019
June 30, 2018
Total Total Core Non-Core Total
FFO
Net income (loss) $
7,535 $
21,148 $
5,397 $
(11,830) $
(6,433)
Equity in net (income)
loss of
unconsolidated entity 401 274
Real estate
depreciation and
amortization 38,544 35,927 33,093 750 33,843
Gain on sale of real
estate, net (13,408)
Pro rata share of FFO
from unconsolidated
entity 344 41
FFO (1) 46,824 43,982 38,490 (11,080) 27,410
Preferred stock
dividends (7,045) (7,045) (2,248) (2,248)
FFO available to
common stockholders &
OP unit holders 39,779 36,937 36,242 (11,080) 25,162
Restructuring costs 11,430 11,430
Transaction and
integration costs 1,039 1,214 653 653
Tax benefit associated
with restructuring,
transaction and
integration costs (41) (41)
Operating FFO
available to common
stockholders & OP
unit holders* 40,818 38,151 36,895 309 37,204
Maintenance Capex (2,233) (709) (2,612) (2,612)
Leasing commissions
paid (6,528) (6,515) (7,600) (71) (7,671)
Amortization of
deferred financing
costs and bond
discount 979 978 961 961
Non real estate
depreciation and
amortization 2,937 2,861 2,140 1,836 3,976
Straight line rent
revenue and expense
and other (979) (1,422) (1,300) 67 (1,233)
Tax expense (benefit)
from operating
results 199 211 178 178
Equity-based
compensation expense 4,296 3,300 3,999 3,999
Adjustments for
unconsolidated entity (42) 22
Adjusted Operating FFO
available to common
stockholders & OP
unit holders* $
39,447 $
36,877 $
32,661 $
2,141 $
34,802
(1) FFO for the three
months ended June
30, 2018 includes
$3.1 million of
impairment losses
related to
certain non-real
estate product
related assets
that were
considered
incidental to our
primary business
and were included
in the
"Restructuring"
line item of the
consolidated
statement of
operations. No
gains, losses or
impairment write-
downs associated
with assets
incidental to our
primary business
were incurred
during the three
months ended June
30, 2019 and
March 31, 2019.
* 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.
Six Months Ended
---
June 30, 2019
June 30, 2018
Total Core Non-Core Total
FFO
Net income (loss) $
28,683 $
10,480 $
(17,165) $
(6,685)
Equity in net (income)
loss of
unconsolidated entity 675
Real estate
depreciation and
amortization 74,471 64,285 1,615 65,900
Gain on sale of real
estate, net (13,408)
Pro rata share of FFO
from unconsolidated
entity 385
FFO (1) 90,806 74,765 (15,550) 59,215
Preferred stock
dividends (14,090) (2,576) (2,576)
FFO available to
common stockholders &
OP unit holders 76,716 72,189 (15,550) 56,639
Restructuring costs 19,960 19,960
Transaction and
integration costs 2,253 1,573 1,573
Tax benefit associated
with restructuring,
transaction and
integration costs (1,676) (1,676)
Operating FFO
available to common
stockholders & OP
unit holders* 78,969 73,762 2,734 76,496
Maintenance Capex (2,942) (3,542) (3,542)
Leasing commissions
paid (13,043) (13,439) (142) (13,581)
Amortization of
deferred financing
costs and bond
discount 1,957 1,923 1,923
Non real estate
depreciation and
amortization 5,798 4,288 3,545 7,833
Straight line rent
revenue and expense
and other (2,401) (3,809) 58 (3,751)
Tax expense (benefit)
from operating
results 410 (589) (589)
Equity-based
compensation expense 7,596 7,480 7,480
Adjustments for
unconsolidated entity (20)
Adjusted Operating FFO
available to common
stockholders & OP
unit holders* $
76,324 $
66,074 $
6,195 $
72,269
(1) FFO for the six
months ended June
30, 2018 includes
$7.1 million of
impairment losses
related to
certain non-real
estate product
related assets
that were
considered
incidental to our
primary business
and were included
in the
"Restructuring"
line item of the
consolidated
statement of
operations. No
gains, losses or
impairment write-
downs associated
with assets
incidental to our
primary business
were incurred
during the six
months ended June
30, 2019.
* 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.
Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDA
The Company calculates EBITDAre in accordance with ("NAREIT"). EBITDAre represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of depreciated property, income tax expense (or benefit), interest expense, depreciation and amortization, impairments of depreciated property and unconsolidated entities, and similar adjustments for unconsolidated entities. The Company's management uses EBITDAre as a supplemental performance measure because it provides performance measures that, when compared year over year, captures the performance of the Company's operations by removing the impact of capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from its operating results.
Due to the volatility and nature of certain significant charges and gains recorded in the Company's operating results that management believes are not reflective of its operating performance, management computes an adjusted measure of EBITDAre, which the Company refers to as Adjusted EBITDA. The Company generally calculates Adjusted EBITDA excluding certain non-routine charges, write off of unamortized deferred financing costs, gains (losses) on extinguishment of debt, restructuring costs, and transaction and integration costs, as well as the Company's pro-rata share of each of those respective expenses associated with the unconsolidated entity aggregated into one line item categorized as "Adjustments for the unconsolidated entity." In addition, the Company calculates Adjusted EBITDA excluding certain non-cash recurring costs such as equity-based compensation. The Company believes that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent other REITs calculate Adjusted EBITDA on a comparable basis, between REITs.
Management uses EBITDAre and Adjusted EBITDA as supplemental performance measures as they provide useful measures of assessing the Company's operating results. Other companies may not calculate EBITDAre or Adjusted EBITDA in the same manner. Accordingly, the Company's EBITDAre and Adjusted EBITDA may not be comparable to others. EBITDAre and Adjusted EBITDA should be considered only as supplements to net income (loss) as measures of the Company's performance and should not be used as substitutes for net income (loss), as measures of its results of operations or liquidity or as an indications of funds available to meet its cash needs, including its ability to make distributions to its stockholders.
For periods in 2018, Core EBITDAre and Adjusted EBITDAre are used as supplemental performance measures because they reflect results of the portion of the business of the Company retained following completion of the strategic growth plan.
A reconciliation of net income (loss) to EBITDAre and Adjusted EBITDA on a consolidated, Core and non-Core basis is presented below (unaudited and in thousands):
Three Months Ended
---
June 30, 2019 March 31, 2019
June 30, 2018
Total Total Core Non-Core Total
EBITDAre and Adjusted
EBITDA
Net income (loss) $
7,535 $
21,148 $
5,397 $
(11,830) $
(6,433)
Equity in net (income)
loss of
unconsolidated entity 401 274
Interest income (36) (45) (25) (25)
Interest expense 6,459 7,146 8,199 4 8,203
Tax expense (benefit)
of taxable REIT
subsidiaries 199 211 178 (41) 137
Depreciation and
amortization 41,481 38,788 35,233 2,586 37,819
(Gain) loss on
disposition of
depreciated property
and impairment write-
downs of depreciated
property (13,408) 3,122 3,122
Pro rata share of
EBITDAre from
unconsolidated entity 863 215
EBITDAre $
56,902 $
54,329 $
48,982 $
(6,159) $
42,823
Equity-based
compensation expense 4,296 3,300 3,999 3,999
Restructuring costs 8,308 8,308
Transaction and
integration costs 1,039 1,214 653 653
Adjusted EBITDA $
62,237 $
58,843 $
53,634 $
2,149 $
55,783
Six Months Ended
---
June 30, 2019
June 30, 2018
Total Core Non-Core Total
EBITDAre and Adjusted
EBITDA
Net income (loss) $
28,683 $
10,480 $
(17,165) $
(6,685)
Equity in net (income)
loss of
unconsolidated entity 675
Interest income (81) (26) (26)
Interest expense 13,605 16,302 11 16,313
Tax expense (benefit)
of taxable REIT
subsidiaries 410 (589) (1,676) (2,265)
Depreciation and
amortization 80,269 68,573 5,160 73,733
(Gain) loss on
disposition of
depreciated property
and impairment write-
downs of depreciated
property (13,408) 7,139 7,139
Pro rata share of
EBITDAre from
unconsolidated entity 1,078
EBITDAre $
111,231 $
94,740 $
(6,531) $
88,209
Equity-based
compensation expense 7,596 7,480 7,480
Restructuring costs 12,821 12,821
Transaction and
integration costs 2,253 1,573 1,573
Adjusted EBITDA $
121,080 $
103,793 $
6,290 $
110,083
Net Operating Income (NOI)
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, other (income) expense, gain (loss) on extinguishment of debt, transaction and integration costs, gain (loss) on sale of real estate, restructuring costs, general and administrative expenses and similar adjustments for unconsolidated entities. The Company allocates a management fee charge of 4% of cash revenues for all facilities as a property operating cost and a corresponding reduction to general and administrative expense to cover the day-to-day administrative costs to operate our data centers. The management fee charge is reflected as a reduction to net operating income.
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.
For periods in 2018, Core NOI is used as a supplemental performance measure because it reflects results of the portion of the business the Company retained following completion of the strategic growth plan.
A reconciliation of net income (loss) to NOI on a consolidated, Core and non-Core basis is presented below (unaudited and in thousands):
Three Months Ended
---
June 30, 2019 March 31, 2019
June 30, 2018
Total Total Core Non-Core Total
Net Operating Income (NOI)
Net income (loss) $
7,535 $
21,148 $
5,397 $
(11,830) $
(6,433)
Equity in net (income)
loss of unconsolidated
entity 401 274
Interest income (36) (45) (25) (25)
Interest expense 6,459 7,146 8,199 4 8,203
Depreciation and
amortization 41,481 38,788 35,233 2,586 37,819
Other (income) expense 40
Tax expense (benefit) of
taxable REIT subsidiaries 199 211 178 (41) 137
Transaction and
integration costs 1,039 1,214 653 653
General and administrative
expenses 20,124 19,891 18,004 3,028 21,032
Gain on sale of real
estate, net (13,408)
Restructuring 11,430 11,430
NOI from consolidated
operations (1) $
77,242 $
75,219 $
67,639 $
5,177 $
72,816
Pro rata share of NOI from
unconsolidated entity 842 234
Total NOI (1) $
78,084 $
75,453 $
67,639 $
5,177 $
72,816
(1) Includes facility
level general and
administrative
allocation
charges of 4% of
cash revenue for
all facilities.
These allocated
charges
aggregated to
$4.6 million,
$4.5 million and
$4.6 million for
the three months
ended June 30,
2019, March 31,
2019 and June 30,
2018,
respectively.
Six Months Ended
---
June 30, 2019
June 30, 2018
Total Core Non-Core Total
Net Operating Income (NOI)
Net income (loss) $
28,683 $
10,480 $
(17,165) $
(6,685)
Equity in net (income)
loss of unconsolidated
entity 675
Interest income (81) (26) (26)
Interest expense 13,605 16,302 11 16,313
Depreciation and
amortization 80,269 68,573 5,160 73,733
Other (income) expense 40
Tax expense (benefit) of
taxable REIT subsidiaries 410 (589) (1,676) (2,265)
Transaction and
integration costs 2,253 1,573 1,573
General and administrative
expenses 40,015 36,118 7,147 43,265
Gain on sale of real
estate, net (13,408)
Restructuring 19,960 19,960
NOI from consolidated
operations (1) $
152,461 $
132,431 $
13,437 $
145,868
Pro rata share of NOI from
unconsolidated entity 1,076
Total NOI (1) $
153,537 $
132,431 $
13,437 $
145,868
(1) Includes facility
level general and
administrative
allocation
charges of 4% of
cash revenue for
all facilities.
These allocated
charges
aggregated to
$9.0 million and
$8.8 million for
the six months
ended June 30,
2019 and 2018,
respectively.
Monthly Recurring Revenue (MRR) and Recognized MRR
The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from its rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR is also calculated to include the Company's pro rata share of monthly contractual revenue under signed leases as of a particular date associated with unconsolidated entities, which includes revenue from the unconsolidated entity's rental and managed services activities, but excludes the unconsolidated entity's customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR reflects the annualized cash rental payments. It does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted.
Separately, the Company calculates recognized MRR as the recurring revenue recognized during a given period, which includes revenue from its rental 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 the Company's customer leases and customer leases attributable to the Company's business. MRR and recognized MRR should not be viewed by investors as alternatives to actual monthly revenue, as determined in accordance with GAAP. Other companies may not calculate MRR or recognized MRR in the same manner. Accordingly, the Company's MRR and recognized MRR may not be comparable to other companies' MRR and recognized MRR. MRR and recognized MRR should be considered only as supplements to total revenues as a measure of its performance. MRR and recognized MRR should not be used as measures of the Company's results of operations or liquidity, nor is it indicative of funds available to meet its cash needs, including its ability to make distributions to its stockholders.
For periods in 2018, Core Recognized MRR and MRR are used as supplemental performance measures because they reflect results of the portion of the business the Company retained following completion of the strategic growth plan.
A reconciliation of total revenues to recognized MRR in the period and MRR at period-end on a consolidated, Core and non-Core basis is presented below (unaudited and in thousands):
Three Months Ended
---
June 30, 2019 March 31, 2019
June 30, 2018
Total Total Core Non-Core Total
Recognized MRR in the
period
Total period revenues
(GAAP basis) $
119,167 $
112,689 $
102,549 $
9,728 $
112,277
Less: Total period
variable lease
revenue from
recoveries (12,672) (10,793) (10,444) (10,444)
Total period deferred
setup fees (3,822) (3,232) (3,073) (130) (3,203)
Total period straight
line rent and other (5,485) (3,942) (2,022) (2,304) (4,326)
Recognized MRR in the
period 97,188 94,722 87,010 7,294 94,304
MRR at period end
Total period revenues
(GAAP basis) $
119,167 $
112,689 $
102,549 $
9,728 $
112,277
Less: Total revenues
excluding last month (77,863) (73,809) (67,701) (6,861) (74,562)
Total revenues for
last month of period 41,304 38,880 34,848 2,867 37,715
Less: Last month
variable lease
revenue from
recoveries (4,222) (3,871) (3,597) (3,597)
Last month deferred
setup fees (1,322) (1,242) (984) (99) (1,083)
Last month straight
line rent and other (3,349) (2,068) (745) (1,139) (1,884)
Add: Pro rata share of
MRR at period end of
unconsolidated entity 369 253
MRR at period end $
32,780 $
31,952 $
29,522 $
1,629 $
31,151
Six Months Ended
---
June 30, 2019
June 30, 2018
Total Core Non-Core Total
Recognized MRR in the
period
Total period revenues
(GAAP basis) $
231,856 $
202,939 $
23,035 $
225,974
Less: Total period
variable lease
revenue from
recoveries (23,465) (21,957) (21,957)
Total period deferred
setup fees (7,053) (5,961) (135) (6,096)
Total period straight
line rent and other (9,428) (5,921) (2,856) (8,777)
Recognized MRR in the
period 191,910 169,100 20,044 189,144
MRR at period end
Total period revenues
(GAAP basis) $
231,856 $
202,939 $
23,035 $
225,974
Less: Total revenues
excluding last month (190,552) (168,091) (20,168) (188,259)
Total revenues for
last month of period 41,304 34,848 2,867 37,715
Less: Last month
variable lease
revenue from
recoveries (4,222) (3,597) (3,597)
Last month deferred
setup fees (1,322) (984) (99) (1,083)
Last month straight
line rent and other (3,349) (745) (1,139) (1,884)
Add: Pro rata share of
MRR at period end of
unconsolidated entity 369
MRR at period end $
32,780 $
29,522 $
1,629 $
31,151
View original content:http://www.prnewswire.com/news-releases/qts-reports-second-quarter-2019-operating-results-300892615.html
SOURCE QTS Realty Trust, Inc.
