q1 2016 earnings presentation v5[2]...

QTS REALTY TRUST, INC.First Quarter 2016 Earnings PresentationApril 26, 2016

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, including data centers acquired in our acquisition of Carpathia Hosting, Inc.;;§ 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, 2015 (“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.

FORWARD LOOKING STATEMENTS

INVESTOR PRESENTATION 1

MORE THAN DATA SOLUTIONS. DATA SOLVED.

Chad Williams –Chairman & Chief Executive Officer

2INVESTOR PRESENTATION

QTS Strategy & Business Model


Best-in-Class Mega Scale Infrastructure§ Low Basis§ Owned Facilities§ Significant Capacity§ Below Market Cost to

Build

Integrated Services Platform

§ 3C Service Offering§ Leading Security &

Compliance§ Ability to Upsell

Customers§ Higher Rent per Square

Foot

QTS’ strategy of offering an integrated technology services product across world-class, mega scale data center infrastructure enables the opportunity to drive industry-leading growth while generating industry-leading ROIC

© 2016 QTS. All Rights Reserved

Industry-Leading ROIC


Q1 2016 Performance


Revenue ($M) NOI ($M)

Adjusted EBITDA ($M) Operating FFO ($M)

§ Strong year-over-yeargrowth on all key financialmetrics

§ Booked-not-billed backlogincreased to $52M as ofquarter end, up from $48Mlast quarter

§ 15.6% Unlevered Return onInvested Capital for Q1 2016

§ Brought 34k raised floorNRSF online in Dallas andAtlanta-Metro

§ Continued development ofChicago site;; on schedule toopen in Q3 2016

§ OFFO/share growth of 35%year-over-year

Q1 2016 Highlights


Chicago Market Launch


§ QTS Chicago on schedule for early 3Q launch§ 30 acre campus in downtown Chicago§ Will be able to initially support 133k squarefeet of raised floor

§ Able to more than double capacity throughdevelopment of adjacent owned land

§ Healthy pipeline of demand§ Chicago sales team is in place and buildingfunnel

§ Expect bulk of financial benefit from Chicagolease signings to accrue in 2017 and beyond§ Expect aggregate ROIC to fall modestly in2H16, consistent with bringing on the initialphase of a major new development


Richmond case study – the power of QTS model


§ Opportunistically acquired Richmond site, aformer semiconductor manufacturing facility, outof bankruptcy for $12m

§ Cumulative cost to build at Richmond of ~$7mper MW

§ Richmond is currently generating an ROIC of12.2%, up from 9.9% as of our IPO driven by:

§ Increasing C2/C3 services penetration

§ Attractive operating leverage due to megascale

§ Have brought over 150k NRSF of raised floor inservice in four years since opening the facility

§ Still have over 400k NRSF of raised floordevelopment capacity in the existing poweredshell, at incremental returns above current ROIC

Rising services revenue penetration and over 400k of incremental capacity drives positive ROIC outlook

Richmond Historical ROIC


Customer Highlights


§ One of the world’s largest defense contractors selected C3 services§ Selected QTS Vault Campus (Dulles, VA) and Phoenix, AZ§ Assisting customer with FedRAMP-compliant cloud solution§ Selected based on expertise around protecting data and compliance

§ New C1 lease with global hybrid cloud provider in Dallas-Fort Worth§ Signed 8MW lease (4MW in 1Q and additional 4MW signed subsequent to 1Q)§ Evidence of the continued momentum we are seeing in the Dallas market§ Evidence of growing cloud vertical, on top of the recent Virtustream win plustwo of the largest public cloud providers already in our portfolio

§ Existing C2 customer adding C3 services in 2 locations§ Multi-billion dollar global software company§ Were able to work with customer as their IT stack shifted to a SaaS model§ Shift from a pure C2 to C2/C3 combined product increased our annual revenuewith a 3-year contract term


Leasing and Pricing Trends


§ Leasing Activity§ Signed new and modified leases resulting in $8.6 million of net incremental MRR in the

quarter§ Slightly below prior four quarter average; one customer who shifted product mix from

C3 to blend of C2/C3 resulted in downgrade that impacted results by approximately$2.4 million

§ Including incremental 4MW lease expansion signed subsequent to quarter end in ourDallas mega facility, would have nearly doubled net leasing for the quarter

§ Churn in Q1 2016 of 2.3% which includes one customer that accounted for approx. 1%

§ Pricing Activity§ Pricing from new and modified leases up approximately 10% across C2/C3 vs. prior four

quarter average§ C1 & overall pricing down compared to prior four quarter average due to larger volume and

scale of leases signed in Q1§ Renewal rates consistent with pre-‐renewal rates, excluding two customers who shifted their

services; -‐3.7% reported§ Continue to expect renewal increases in the low-‐to-‐mid single digits§ Lease commencement pricing up 30% compared to the prior four quarter average, driven

by C1 pricing strength and a higher mix of C2/C3


Bill Schafer –Chief Financial Officer



Continued growth across our portfolio


§ Q1 Key Metrics§ Operating FFO per share: $0.68 I Operating FFO: $33.1M I Adjusted EBITDA: $43.0M I NOI: $61.2M I

Revenue: $94.8M I MRR (at period end): $27.5M

§ Continued strong growth across key financial metrics when compared to prior year§ NOI by market continues to grow year-‐over-‐year:

§ Atlanta: +17% I California +8% I Richmond: +55% I Dallas: +250%§ Richmond and Dallas continue to generate outsized growth§ NOI in leased facilities declined year-‐over-‐year

Year-over-Year (Q1 2016 vs. Q1 2015)


Strong Booked-Not-Billed Pipeline


Annualized Booked-Not-Billed MRR ($M)

§ Annualized booked-not-billed MRR from signed but not yet commenced leases was $51.6 million as of March 31, 2016, up from $47.7 million last quarter

Of the $26.3 million in 2016, approx. $15.5 million is expected to be recognized in 2016 revenue

Of the $11.4 million in 2017, approx. $6.8 million is expected to be recognized in 2017 revenue

Highlights

Contracted MRR through booked-not-billed pipeline enhances visibility into cash flow growth

Note: May not sum due to rounding


Capital Spend


§ Capital efficient, success-‐based CapExdriven by real-‐time market demand andsuccessful leasing activity

§ Capital expenditures incurred were $61million during Q1 2016

§ $30 million of incremental planneddevelopment cost relating to $51.6million of booked-‐not-‐billed backlog

§ Focus on capital efficiency drivingannualized return on invested capital of15.6% for Q1 2016

Capital Expenditures ($M)

**

* Excludes capital expenditure from acquisitions


Success-Based Development


§ Operating at 87.6% utilization on space built out and available for sale§ Total raised floor of 1,152,506 square feet, representing approximately half of ~2.2

million square feet of total powered shell§ Forecast bringing additional 106,000 square feet online in 2016

*

*

Raised Floor Development

Richmond 151,623 15,000 390,000 556,623

Atlanta-Metro 10,000 442,986 10,000 74,200 527,186

Dallas-Fort Worth 24,000 78,014 30,100 183,886 292,000

Princeton 58,157 - 100,000 158,157

Atlanta-Suwanee 185,422 19,000 3,586 208,008

Chicago - 14,000 119,000 133,000

Santa Clara 55,494 3,250 21,603 80,347

Sacramento 54,595 - 3,311 57,906

Jersey City 31,503 15,000 6,241 52,744

Miami 19,887 - - 19,887

Leased facilities acquired in 2015 72,332 - 23,948 96,280

Other 2,493 - - 2,493

Total 34,000 1,152,506 106,350 925,775 2,184,631

TotalQ1 2016 Expansion

Future Available

Q1 2016 Raised Floor

Under Construction (through 12/31/16)

Well-Capitalized Balance Sheet

§ $681 million total debt pro forma for theequity offering

Pro Forma Debt to LQA adj. EBITDA of 4.0x

§ Targeting a long-term stabilized debt-to-EBITDA ratio of less than 5.0x

§ No significant maturities until 2020

§ Significant booked-not-billed backlogprovides high visibility into future growthand cash flow

§ Completed 6.3 million share follow-onequity offering on April 1st, with netproceeds of $276 million

§ Total available liquidity of approximately$576 million pro forma for the equityoffering


Highlights$3.3 Billion

3/31/16 Capital Structure1,2

Pro Forma Debt Maturities ($M)

Capital Leases $47m

Unsecured Credit Facility $610m1

Senior Notes $300m

Market Cap $2,329m2

Note: Pro forma figures assume $276 million net proceeds from issuance of 6.3 million shares.1. Includes two $150 million term loans and $310 million of borrowings on the Company’s revolving credit facility as of March 31, 20162. Market Cap calculated as follows: total Class A and Class B common stock and OP units of 49.2 million, multiplied by the March 31, 2016 price of $47.38 per share.

$276M repayment of revolving credit facility with proceeds from

the equity offering

Note: May not sum due to rounding


Full Year 2016 Guidance


*

*

2015 Results2016 Guidance

Low High

Adjusted EBITDA $140m $177m $185m

Operating FFO $104m $135m $140m

Operating FFO per share $2.29 $2.54 $2.64

Rental Churn 4.0% 5.0% 8.0%

Capital Expenditures(1) $312m $300m $350m

1. Excludes Capital Expenditures from acquisitions.

§ OFFO guidance for 2016 raised to $135-‐140 million from $125-‐130 million previously

§ Core organic revenue growth for 2016 in the mid-‐teens

§ Expect revenue growth to be back-‐end loaded, ramping during the year

§ Anticipating adjusted EBITDA margin expansion of approx. 300bp over next few years from 2H15levels

§ Higher share count and lower interest expense are the only changes that have been madeaffecting 2016 guidance

§ ’16 OFFO and OFFO per share guidance includes a non-‐cash tax benefit of approx. $4-‐5 million


Appendix


NOI Reconciliation


1. 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 $5.0 million, $5.2 million and $2.5 million for the three month periods ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively.

$ in thousandsNet Operating Income (NOI)Net income $ 6,859 $ 5,334 $ 5,037 Interest expense 5,981 5,730 5,342 Interest income - - - Depreciation and amortization 28,639 27,020 16,243 Write off of unamortized deferred finance costs - 385 - Tax benefit of taxable REIT subsidiaries (2,605) (4,370) - Integration costs 2,053 4,552 - Transaction costs 34 474 105 Loss on sale of real estate - 164 - General and administrative expenses 20,286 19,890 13,838 NOI1 $ 61,247 $ 59,179 $ 40,565 Breakdown of NOI by facility:Atlanta-Metro data center $ 19,972 $ 18,256 $ 16,766 Atlanta-Suwanee data center 11,500 10,488 10,130 Santa Clara data center 3,764 3,786 3,377 Richmond data center 6,602 6,431 4,255 Sacramento data center 1,922 1,875 1,871 Princeton data center 2,356 2,471 2,349 Dallas-Fort Worth data center 2,624 1,804 749 Leased data centers acquired in 2015 11,415 12,885 - Other facilities 1,092 1,183 1,068 NOI1 $ 61,247 $ 59,179 $ 40,565

2016 2015

Three Months Ended

2015March 31, December 31, March 31,

EBITDA & Adjusted EBITDA Reconciliation



$ in thousandsEBITDA and Adjusted EBITDANet income $ 6,859 $ 5,334 $ 5,037 Interest expense 5,981 5,730 5,342 Interest income - - - Tax benefit of taxable REIT subsidiaries (2,605) (4,370) - Depreciation and amortization 28,639 27,020 16,243 EBITDA 38,874 33,714 26,622 Write off of unamortized deferred finance costs - 385 - Equity-based compensation expense 2,050 1,758 1,307 Integration costs 2,053 4,552 - Transaction costs 34 474 105 Loss on sale of real estate - 164 - Adjusted EBITDA $ 43,011 $ 41,047 $ 28,034

Three Months Ended

2016 2015March 31, December 31, March 31,

2015

FFO & Operating FFO Reconciliation


1. The Company’s calculations of Operating FFO and Adjusted Operating FFO may not be comparable to Operating FFO and Adjusted Operating FFO as calculated byother REITs that do not use the same definition.

$ in thousandsFFONet income $ 6,859 $ 5,334 $ 5,037 Real estate depreciation and amortization 24,869 22,575 14,302 Loss on sale of real estate - 164 - FFO 31,728 28,073 19,339

Write off of unamortized deferred finance costs - 385 - Integration costs 2,053 4,552 - Transaction costs 34 474 105 Deferred tax benefit associated with transaction and integration costs (748) (1,970) - Operating FFO1 33,067 31,514 19,444

Maintenance Capex (335) (2,711) (17) Leasing commissions paid (5,807) (3,237) (3,084) Amortization of deferred financing costs and bond discount 877 872 849 Non real estate depreciation and amortization 3,770 4,445 1,941 Straight line rent revenue and expense (1,610) (2,398) (365) Non-cash deferred tax benefit from operating results (1,857) (2,400) - Equity-based compensation expense 2,050 1,758 1,307 Adjusted Operating FFO1 $ 30,155 $ 27,843 $ 20,075

Three Months Ended

2016 2015March 31, December 31,

2015March 31,

MRR Reconciliation


$ in thousandsRecognized MRR in the periodTotal period revenues (GAAP basis) $ 94,768 $ 92,690 $ 61,386 Less: Total period recoveries (5,435) (5,177) (5,664) Total period deferred setup fees (1,903) (1,907) (1,246) Total period straight line rent and other (4,268) (4,456) (2,012)

Recognized MRR in the period 83,162 81,150 52,464 MRR at period endTotal period revenues (GAAP basis) $ 94,768 $ 92,690 $ 61,386 Less: Total revenues excluding last month (63,020) (61,627) (40,100) Total revenues for last month of period 31,748 31,063 21,286 Less: Last month recoveries (1,876) (1,415) (1,749) Last month deferred setup fees (676) (716) (418) Last month straight line rent and other (1,716) (1,443) (1,292)

MRR at period end $ 27,480 $ 27,489 $ 17,827

2016 20152015

Three Months EndedMarch 31, December 31, March 31,

q1 2016 earnings presentation v5[2]...

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