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$: QTS Realty Trust, Inc.filecache.drivetheweb.com/mr5ir_qualitytech/148/downl… · · 2013-11-06CAGE2012\Presentations\2013-10 3Q13 Earnings\Q3 2013 Earnings Presentation v14.pptx$
CAGE2012\Presentations\2013-10 3Q13 Earnings\Q3 2013 Earnings Presentation v14.pptx

QTS Realty Trust, Inc.

Q3 EARNINGS PRESENTATION

NOVEMBER 2013


Forward Looking Statements

QTS Company Confidential 1 |

Some of the statements contained in this earnings release and accompanying supplemental information 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 supplement 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;

national and local economic conditions;

difficulties in identifying properties to acquire and completing acquisitions;

our failure to successfully develop, redevelop and operate acquired properties and operations;

significant increases in construction and development costs;

the increasingly competitive environment in which we operate;

defaults on 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 and increases in real property tax rates.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. 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 the S-11/A filed on October 10th, 2013. We refer you to our press release and periodic reports furnished or filed with the SEC posted to our website for

further information regarding our usage of these non-GAAP financial measures and reconciliation of them to our GAAP results.


Agenda


Chad Williams

Jim Reinhart

Dan Bennewitz

Chief Operations Officer – Operations and Development

Development Progress and Capital Plan

Chief Operations Officer – Sales and Marketing

Third Quarter Sales Results

Bill Schafer Chief Financial Officer

Third Quarter Financial Results and Fourth Quarter 2013 Guidance

Chairman and Chief Executive Officer

Business Review and Overview of Quarter

Jeff Berson Chief Investment Officer and Head of Investor Relations

Introduction


QTS at a Glance


Custom Data Center

Colocation

Cloud & Managed Services

Differentiated

Platform

High Quality

Customers

Highly Connected,

“Mega” Data

Centers

Strong focus on Fortune 1000-type enterprise customers

39% of annualized rent from customers that use more than one 3C product

Product breadth and connectivity supports customer retention and expansion

10 “best-in-class”, carrier-neutral data centers including two of the largest in the world

3.8 million gross square feet (92% owned) with over 500MW of gross utility power

National platform with 81% of revenue from top tier data center markets¹

Powered by

People

Product and industry-focused sales, development and operations expertise

Culture of providing superior customer service

Management team with significant experience in real estate, technology and operations

Only national data center provider

offering full 3C platform

C1

C2

C3

Note: Data provided as of September 30, 2013.

¹ Top 10 North American Multi-Tenant Data Center Markets as defined by 451 Research LLC.


C2

52%

C3

8%

C1

40%

Only National Fully-Integrated 3C Platform

4 |

QTS crossConnect

QTS metroConnect QTS data centerConnect

QTS internetConnect

QTS netConnect

QTS ecoConnect

QTS Company Confidential

¹ As of September 30, 2013.

C1 C2 C3 Custom Data Center Colocation Cloud and

Managed Services

Description Private turn-key data center

space (“wholesale”)

Cabinets, cages, and suites Virtual private cloud

Managed services

- Network management,

security, data back-up

Lease Size 500 kW to 20MW+

Median customer 3,000 sq. ft.

< 3,000 sq. ft. of raised floor Managed virtual servers

- Small physical space

Lease Term 5 to 10 years

Separately-metered power

Up to 3 years

Non-metered power

Up to 3 years

Example

Customers

Global Internet and cloud

companies

Large enterprises

Government agencies

Large enterprises

Small and medium businesses

Telecommunications carriers

Government agencies

Large enterprises

Small and medium

businesses

Government agencies


Best-In-Class “Mega” Data Centers

Capacity to more than double in size

within existing facilities

Carrier-neutral and highly connected

Engineered to among the highest

specifications commercially

available

More efficient design

Higher operating margins

Flexibility to optimize product

offerings in response to demand

Lower redevelopment cost

– Phased expansion

– Large, efficient footprint

– < $7 million per MW on average


Atlanta - Metro (72MW)1 Richmond (110MW)

0 SF 292,000 SF

358,000 SF 527,000 SF

140,000 SF 214,000 SF

85,000 SF 555,000 SF

Atlanta - Suwanee (36MW) Dallas (140MW)

68% Built out 15% Built out

65% Built out

Note: Square footage reflects our current Raised Floor Operating Net Rentable Square Feet (“NRSF”) as of September 30, 2013 (blue shaded bars) and our “Basis of Design”

Raised Floor NRSF at full buildout. MW denotes available utility power as of September 30, 2013.

¹ Atlanta - Metro currently has 72 MW of available utility power based on current agreements with its utility provider but has transformer capacity for 120 MW.


Integrated Solutions For Enterprise Customers

Expands addressable market and

customer base

Further enhances growth

Creates cross-sell and up-sell

opportunities

Drives customer retention with high

customer satisfaction

Floorplan flexibility improves capital

efficiency

Higher rents per square foot


Cloud

Managed Services

+12,000 interconnections

+500 networks interconnected

Fully meshed QTS network

Communications / Network

Space and Power Security

Physical

Logical

(firewall, etc.)

Private Cloud

Storage NetworkDevices

Virtualization Hosts orHost Cluster


C3: Cloud and Managed Services


Cloud Infrastructure Managed Services

Private Cloud

Storage NetworkDevices

Virtualization Hosts orHost Cluster

QTS Cloud solution addresses private cloud segments

Customized to unique enterprise needs

High-performance and scalable Cloud

Highly secure and compliant with options to dedicate

infrastructure

Meets compliance standards (e.g. HIPAA, PCI)

Complements C1, C2 and Cloud Infrastructure products

Services include:

- Computer, storage, networks, systems and database

management

- Disaster recovery and data backup

- System security monitoring and testing

C3


QTS Connectivity


6 core network products

12,000+ interconnections

500+ networks interconnected

Fully meshed QTS network

Drives network owned / controlled customer solutions

Enhances customer ecosystem

Provides low latency access across entire network

Across QTS Facilities Within QTS Facilities

¹ Source: 451 Research; North American Multi-Tenant Datacenter Supply: Top 10 Markets. Map only shows markets where QTS has a presence.

Top Data Center Market1

Major Telecom Hub

Customer 1 Customer 2

Customer 3 Customer 4

Carrier

QTS Product Delivery

Network

netConnect

(QTS Network

Connect)

ecoConnect

(Customer

Cross-Connect)

crossConnect

(Carrier Cross-

Connect)

Miami, FL

Dallas

Richmond

InternetinternetConnect

(QTS Internet) metroConnect

(QTS Carrier Hotel)

data centerConnect

(QTS QTS)

Silicon Valley

Sacramento

New York / New Jersey

Atlanta, GA


$42.5

$3.5 $36.3

$46.0

3Q 2012 3Q 2013

$27.5

$1.8 $21.9

$29.3

3Q 2012 3Q 2013

Q3 2013 Strong Momentum


Operating FFO Adjusted EBITDA

NOI Revenue

Q3 2013 Highlights

$8.2 million in annualized incremental revenue net of downgrades: 4% above trailing 4 quarter average

Commenced leases at 8% higher rates than prior 4 quarter average

Churn of 1.3% for the quarter, 3.0% year to date

Utilization rate at 89.6% of 548,500 leasable raised floor

Ability to more than double raised floor space to over 1.8 million square feet

ROIC on relatively underutilized assets of 15.6%

$11.6

$1.8

$5.4

$13.4

3Q 2012 3Q 2013

$17.9

$1.8

$13.4

$19.7

3Q 2012 3Q 2013

Sacramento

Rest of QTS


Dan Bennewitz COO – Sales and Marketing

Third Quarter Sales Results



Strong Third Quarter Leasing Performance


New and

Modified

Leases

Commenced

Leases

Renewal

Leases

417 new and expansion leases commenced across C1, C2, and C3 portfolio

$23.5 million of annualized rent, representing 72,516 sq. ft.

Above average performance based on mix of large and successful C1 and C2/C3 customer commencements during the quarter

Average price of $324 per sq. ft., compared to trailing four quarter average of $300 per sq. ft.

Renewed 47 leases representing 6,812 sq. ft.

Average price of $783 per sq. ft., up 8% over prior period

Rental churn was 1.3% for the quarter, 3% on a year-to-date basis

351 new and modified leases across C1 – Custom Data Center, C2 - Colocation, and C3 – Cloud and Managed Services portfolio

$8.2 million incremental annualized revenue net of downgrades, up 4% over trailing four quarter average

New leasing activity that has surpassed 2012 full-year leasing performance

Average price of $566 per sq. ft., well above trailing four quarter average

Adjusted for product mix, deal size, and market, pricing was consistent with trailing four quarter average


QTS 3C Platform: Delivering Differentiated Customer Value


Q3 2013 Revenues by Market 33 new customers signed in third quarter 2013

Compliance capability driving expansion in financial services, card processing, and healthcare

Big Data Analytics demand growth

Success in Cloud and Managed Services (C3), including expansions for email archiving solutions for the federal government

Number of customers taking advantage of more than one of our 3C product offerings has grown by 31 to 218 since Q3 2012, and represents 39% of Q3 2013 MRR

Number of customers in more than one data center has grown by 19 to 82 since Q3 2012, and represents 20% of Q3 2013 MRR

Launched QTS Disaster Recovery (DR) service to support customer backup and recovery plans across QTS data centers

Sequential

Growth

Revenue 7%

Richmond 11%

Atlanta 8%

West Coast 2.5%

Other Markets1 11%

¹ Dallas did not yet contribute to rent based on its stage of redevelopment.


Jim Reinhart COO – Operations and Development

Development Progress and Pipeline



Success Based Development


Q3 2013 Highlights

$52mm of development capital placed in service at average cost less than $7 million per MW

Increased raised floor NRSF by 62,020 sq. ft. and gross power capacity by 10.15 MW

Expect to spend $169 million through the end of 2014 to increase capacity in Richmond, Atlanta, Dallas, at a cost of less than $7 million per MW

Q3 2013 Raised Floor Development

Q3 2013

Expansion

Q3 2013

Raised Floor

Under

Construction

(12/31/14)

Future

Available Total

Richmond 24,581 84,511 22,084 450,000 556,595

Atlanta Metro 35,000 358,016 35,000 134,200 527,216

Dallas - - 26,000 266,000 292,000

Atlanta Suwanee - 140,422 45,000 29,000 214,422

West Coast1 - 101,089 9,000 26,719 136,808

Jersey City 2,439 31,503 - 21,241 52,744

Other2 - 24,992 - - 24,992

Total Portfolio 62,020 740,533 137,084 927,160 1,804,777

1 West Coast includes Santa Clara and Sacramento facilities. 2 Other includes Miami, Overland Park and Wichita facilities.


3,780

1,804

741

Gross Square Feet Basis of DesignRaised Floor

Developed RaisedFloor

High Utilization with Capacity for Growth


Q3 2013 Raised Floor Capacity (000’s sq. ft.)

Q3 2013 Highlights

Positive lease-up, increasing occupancy to 89.6% of leasable raised floor

41% utilization of 1.8 million NRSF basis of design total capacity, including powered shell

Q3 2013 Total Capacity (000’s sq. ft.)

41% of

Basis of

Design

741 549

492

Raised FloorOperating

NRSF

LeasableRaised Floor

LeasedRaised Floor

89.6%

Occupancy


Bill Schafer Chief Financial Officer

Third Quarter Financial Results



Continued Growth Across Our Franchise


64%

22%

43%

60%

24%

37%

NOI G&A Adjusted EBITDA

Q3 2013 Q3 2012

151%

47% 34% 27%¹ 29%¹

OperatingFFO

AdjustedEBITDA

NOI Revenue MRR

Sequential Q3 Growth (Q2 2013 – Q3 2013) Year to Date Q3 Growth (Q3 2012 – Q3 2013)

Q3 Margins Q3 2013 Highlights

¹ Revenue growth from Q3 2012 to Q3 2013 would have been 17% and MRR growth would have been 14% without the impact of the Sacramento acquisition.

Strong and accelerating growth

Operating leverage has driven increasing margins,

translating strong top line momentum to even

stronger growth in operating profit

Improving margins as we realize efficiencies of

scale

22%

11% 9%

7% 8%

OperatingFFO

AdjustedEBITDA

NOI Revenue MRR


$27

$114

$36

Q3 2013 YTD Q3 2012

Annualized booked-not-billed MRR from signed but

not yet commenced leases was $23.5 million as of

September 30, 2013

Contracts are explicit regarding start date and

revenue recognition

Real estate related capital expenditures were $27

million during the quarter and $114 million year to date

– Includes maintenance capex of $0.5 million

during the quarter and $2.2 million year to date

Continued Growth and Capital Efficiency


Annualized Booked-Not-Billed MRR – Schedule ($mm)

Real Estate Capital Expenditures ($mm) Annualized ROICs

$6.1

$10.4

$7.0

$23.5 $23.5 $23.5

2013 2014 2015+

15.6%

15.1% 15.0%

Q3 2013 Q2 2013 Q3 2012


$331 million total debt pro forma for the offering

– Pro forma debt to LQA Adjusted EBITDA of

4.2x

Targeting a long term stabilized debt-to-EBITDA

ratio of between 4.0x and 5.0x

Total available liquidity of approximately $350

million

– $340 million available under existing credit

facilities

– $6.5 million cash on hand

Expected dividend distribution of $0.29/share for a

full quarter ($0.24 per share pro rata for fourth

quarter 2013), or $1.16/share on an annualized

basis

Well-Capitalized Balance Sheet to Support Growth


Limited Near-Term Debt Maturities ($mm)

$ 1 $ 2

$ 72

$ 3 $ 18

$ 234

2013 2014 2015 2016 2017 2018+

Mortgage Debt Credit Facility

Note: All Information is pro forma for $280 million IPO net proceeds & reflects a post-IPO revolver balance of $240 million (pro forma September 30, 2013 balance) unless

otherwise noted. 1 Includes a $225 million term loan and $15 million of borrowings on the company’s $350 million revolving credit facility. 2 Additional $30 million of capacity exists and will be available for future borrowings as Richmond’s NOI continues to grow. 3 Market Cap calculated as follows: total common shares and OP units of 36.8 million * IPO price of $21 per share.

Pro Forma Capital Structure (as of Sep. 30, 2013)

Capital Leases $2mm

Market Cap $773mm

Mortgage Debt

$89mm2

Unsecured

Credit

Facility

$240mm1 3


2013 Guidance


Q4 2013

High Low

Adjusted EBITDA $21.5 million $20.5 million

Operating FFO $16.2 million $15.2 million

2014 Guidance will be provided on our year end earnings call in February 2014


Non-GAAP Reconciliations



Adjusted EBITDA Reconciliation

Three Months Ended Nine Months Ended

($ in thousands) September 30,

2013

June 30,

2013

September 30,

2012

September 30,

2013

September 30,

2012

EBITDA and Adjusted EBITDA

Net income (loss) 2,709 (1,232) (1,757) (597) (8,159)

Interest expense 4,343 5,084 6,646 15,977 19,039

Interest income (4) (7) (8) (17) (54)

Depreciation and amortization 12,136 11,246 8,902 34,197 25,296

EBITDA 19,184 15,091 13,783 49,560 36,122

Adjusted EBITDA

Write off of unamortized deferred finance costs - 2,179 - 3,277 1,434

Equity-based compensation expense 510 420 152 1,305 341

Transaction costs - - 404 - 404

Gain on sale of real estate - - (948) - (948)

Restructuring charge - - - - 3,291

Adjusted EBITDA 19,694 17,690 13,391 54,142 40,644



FFO Reconciliation Three Months Ended Nine Months Ended


2013

June 30,

2013

September 30,

2012

September 30,

2013

September 30,

2012

FFO

Net income (loss) 2,709 (1,232) (1,757) (597) (8,159)

Real estate depreciation and amortizaton 10,731 10,110 7,652 30,348 21,942


FFO 13,440 8,878 4,947 29,751 12,835

Operating FFO




Unrealized gain on derivatives - - - - (307)

Operating FFO 13,440 11,057 5,351 33,028 17,657

Adjusted Operating FFO¹

Maintenance Capex (492) (989) (370) (2,240) (714)

Leasing Commissions paid (2,374) (2,544) (1,541) (6,889) (5,277)

Amortization of deferred financing costs 588 693 828 2,193 2,567

Non real estate depreciation and amortizaton 1,406 1,136 1,042 3,849 2,595

Straight line rent revenue (229) (85) (53) (428) (21)

Straight line rent expense 83 85 77 246 242

Equity-based compensation expense 510 420 153 1,305 341

Adjusted Operating FFO 12,932 9,773 5,487 31,064 17,390


1 Our 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.


NOI Reconciliation Three Months Ended Nine Months Ended


2013

June 30,

2013

September 30,

2012

September 30,

2013

September 30,

2012

NOI

Net income (loss) 2,709 (1,232) (1,757) (597) (8,159)

Interest expense 4,343 5,084 6,646 15,977 19,039

Interest income (4) (7) (8) (17) (54)

Depreciation and amortization 12,136 11,246 8,902 34,197 25,296





General and administrative expenses 10,097 9,696 8,672 29,387 25,859

NOI 29,281 26,966 21,911 82,224 66,162

Breakdown of NOI by Facility

Atlanta-Metro data center 13,740 12,815 10,772 38,739 30,820

Atlanta-Suwanee data center 7,517 6,644 6,851 20,945 23,618

Santa Clara data center 2,801 2,751 2,502 8,299 8,052

Richmond data center 2,859 2,413 1,798 7,538 3,914

Sacramento data center¹ 1,752 1,962 - 5,638 -

Other data centers 612 381 (12) 1,065 (242)

NOI 29,281 26,966 21,911 82,224 66,162


1 Facility was acquired in December 2012.


MRR Reconciliation

Three Months Ended Nine Months Ended


2013

June 30,

2013

September 30,

2012

September 30,

2013

September 30,

2012

Recognized MRR in the period

Total period revenues (GAAP basis) 46,020 42,940 36,254 130,458 107,586

Less: Total period recoveries (3,603) (3,456) (2,296) (9,925) (6,785)

Total period deferred setup fees (1,263) (1,125) (1,165) (3,450) (3,027)

Total period other (1,240) (911) (457) (3,385) (2,250)

Recognized MRR in the period 39,914 37,448 32,336 113,698 95,524

MRR at period end

Total period revenues (GAAP basis) 46,020 42,940 36,254 130,458 107,586

Less: Total revenues excluding last month (30,448) (28,304) (24,416) (114,886) (95,748)

Total revenues for last month of period 15,572 14,636 11,838 15,572 11,838

Less: Last month recoveries (1,219) (1,224) (731) (1,219) (731)

Last month deferred setup fees (427) (391) (392) (427) (392)

Last month other (127) (278) (26) (127) (26)

MRR at period end 13,799 12,743 10,689 13,799 10,689


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