FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20202021
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from___________to___________
Commission File Number 001-36109
QTS Realty Trust, Inc.
QualityTech, LP
(Exact name of registrant as specified in its charter)
Maryland (QTS Realty Trust, Inc.)
Delaware (QualityTech, LP)
(State or other jurisdiction of
incorporation or organization)
12851 Foster Street, Overland Park, Kansas
(Address of principal executive offices)
46-2809094
27-070728846-2809094
(I.R.S. Employer
Identification No.)
66213
(Zip Code)
(913) 312-5503
(Registrant’s telephone number, including area code) (913) 312-5503
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class: | | Trading Symbol | | Name of each exchange on which registered: |
| Class A common stock, $0.01 par value | | QTS | | New York Stock Exchange |
| Preferred Stock, 7.125% Series A Cumulative Redeemable Perpetual, $0.01 par value | | QTS PR APRA | | New York Stock Exchange |
| Preferred Stock, 6.50% Series B Cumulative Convertible Perpetual, $0.01 par value | | QTS PR BPRB | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
QTS Realty Trust, Inc. Yes x No o
QualityTech, LP Yes o No o(1)
(1)QualityTech, LP is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, but has filed all such reports during the preceding 12 months.
Indicate by check mark whether the registrant has submitted electronically every interactiveInteractive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
QTS Realty Trust, Inc. Yes x No o
QualityTech, LP Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
QTS Realty Trust, Inc.
| | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
QualityTech, LP
| | | | | | | | | | | | | | |
Large accelerated filer | ☐ | | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
QTS Realty Trust, Inc. Yes ☐ No x
QualityTech, LP Yes ☐ No x
There were 64,307,09676,972,731 shares of Class A common stock, $0.01 par value per share, and 128,408124,481 shares of Class B common stock, $0.01 par value per share, of QTS Realty Trust, Inc. outstanding on October 28, 2020.July 30, 2021.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q of QTS Realty Trust, Inc. (“QTS”), a Maryland corporation and QualityTech, LP, a Delaware limited partnership, which is our operating partnership (the “Operating Partnership”). This report also includes the financial statements of QTS and those of the Operating Partnership, although it presents only one set of combined notes for QTS’ financial statements and those of the Operating Partnership.
Substantially all of QTS’ assets are held by, and its operations are conducted through, the Operating Partnership. QTS is the sole general partner of the Operating Partnership, and, as of September 30, 2020, its only material asset consisted of its ownership of approximately 90.6% of the Operating Partnership. Management operates QTS and the Operating Partnership as one business. The management of QTS consists of the same employees as the management of the Operating Partnership. QTS does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity from time to time. QTS has not issued or guaranteed any indebtedness. Except for net proceeds from public equity issuances by QTS, which are contributed to the Operating Partnership in exchange for units of limited partnership interest of the Operating Partnership, the Operating Partnership generates all remaining capital required by our business through its operations, the direct or indirect incurrence of indebtedness, and the issuance of partnership units. Therefore, as general partner with voting control of the Operating Partnership, QTS consolidates the Operating Partnership for financial reporting purposes.
We believe, therefore, that a combined presentation with respect to QTS and the Operating Partnership, including providing one set of notes for the financial statements of QTS and the Operating Partnership, provides the following benefits:
•enhances investors’ understanding of QTS and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
•eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this report applies to both QTS and the Operating Partnership; and
•creates time and cost efficiencies through the preparation of one presentation instead of two separate presentations.
In addition, in light of these combined disclosures, we believe it is important for investors to understand the few differences between QTS and the Operating Partnership in the context of how QTS and the Operating Partnership operate as a consolidated company. With respect to balance sheets, the presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated balance sheets of QTS and those of the Operating Partnership. On the Operating Partnership’s consolidated balance sheets, partners’ capital includes preferred partnership units and common partnership units as well as accumulated other comprehensive income (loss) that are owned by or attributable to QTS and other partners. On QTS’ consolidated balance sheets, stockholders’ equity includes preferred stock, common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated dividends in excess of earnings. The remaining equity reflected on QTS’ consolidated balance sheet is the portion of net assets that are retained by partners other than QTS, referred to as noncontrolling interests. With respect to statements of operations, the primary difference in QTS’ Statements of Operations and Statements of Comprehensive Income (Loss) is that for net income (loss), QTS retains its proportionate share of the net income (loss) based on its ownership of the Operating Partnership, with the remaining balance being retained by the Operating Partnership.
In order to highlight the few differences between QTS and the Operating Partnership, there are sections and disclosure in this report that discuss QTS and the Operating Partnership separately, including separate financial statements, separate controls and procedures sections, separate Exhibit 31 and 32 certifications, and separate presentation of certain accompanying notes to the financial statements, including Note 9 – Partners’ Capital, Equity and Incentive Compensation Plans. In the sections that combine disclosure for QTS and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of “we,” “our,” “us,” “our company” and “the Company.” Although the Operating Partnership is generally the entity that enters into contracts, holds assets and issues debt, we believe that these general references to “we,” “our,” “us,” “our company” and “the Company” in this context are appropriate because the business is one enterprise operated through the Operating Partnership.
QTS Realty Trust, Inc.
QualityTech, LP
Form 10-Q
For the Quarterly Period Ended SeptemberJune 30, 20202021
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| | (unaudited) | | | | (unaudited) | | |
| ASSETS | ASSETS | | ASSETS | |
| Real Estate Assets | Real Estate Assets | | Real Estate Assets | |
| Land | Land | $ | 164,816 | | | $ | 130,605 | | Land | $ | 175,348 | | | $ | 165,109 | |
| Buildings, improvements and equipment | Buildings, improvements and equipment | 2,681,827 | | | 2,178,901 | | Buildings, improvements and equipment | 3,138,583 | | | 2,839,261 | |
| Less: Accumulated depreciation | Less: Accumulated depreciation | (662,454) | | | (558,560) | | Less: Accumulated depreciation | (789,192) | | | (702,944) | |
| | 2,184,189 | | | 1,750,946 | | | 2,524,739 | | | 2,301,426 | |
| Construction in progress | Construction in progress | 957,592 | | | 920,922 | | Construction in progress | 1,214,794 | | | 1,028,765 | |
| Real Estate Assets, net | Real Estate Assets, net | 3,141,781 | | | 2,671,868 | | Real Estate Assets, net | 3,739,533 | | | 3,330,191 | |
| Investments in unconsolidated entity | Investments in unconsolidated entity | 22,883 | | | 30,218 | | Investments in unconsolidated entity | 12,430 | | | 22,608 | |
| Operating lease right-of-use assets, net | Operating lease right-of-use assets, net | 52,816 | | | 57,141 | | Operating lease right-of-use assets, net | 48,342 | | | 51,342 | |
| Cash and cash equivalents | Cash and cash equivalents | 21,998 | | | 15,653 | | Cash and cash equivalents | 28,068 | | | 22,775 | |
| Rents and other receivables, net | Rents and other receivables, net | 87,479 | | | 81,181 | | Rents and other receivables, net | 134,870 | | | 107,563 | |
| Acquired intangibles, net | Acquired intangibles, net | 71,367 | | | 81,679 | | Acquired intangibles, net | 62,093 | | | 68,090 | |
| Deferred costs, net | Deferred costs, net | 57,058 | | | 52,363 | | Deferred costs, net | 69,133 | | | 63,689 | |
| Prepaid expenses | Prepaid expenses | 11,281 | | | 10,586 | | Prepaid expenses | 12,310 | | | 10,253 | |
| Goodwill | Goodwill | 173,843 | | | 173,843 | | Goodwill | 173,843 | | | 173,843 | |
| Other assets, net | Other assets, net | 49,046 | | | 49,001 | | Other assets, net | 53,967 | | | 48,218 | |
| TOTAL ASSETS | TOTAL ASSETS | $ | 3,689,552 | | | $ | 3,223,533 | | TOTAL ASSETS | $ | 4,334,589 | | | $ | 3,898,572 | |
| | LIABILITIES | LIABILITIES | | LIABILITIES | |
| Unsecured credit facility, net | $ | 1,217,356 | | | $ | 1,010,640 | | |
| Unsecured term loans and revolver, net | | Unsecured term loans and revolver, net | $ | 1,038,833 | | | $ | 1,335,241 | |
| Senior notes, net of debt issuance costs | Senior notes, net of debt issuance costs | 396,121 | | | 395,549 | | Senior notes, net of debt issuance costs | 493,016 | | | 492,534 | |
| Finance leases and mortgage notes payable | 44,911 | | | 46,876 | | |
| Finance leases | | Finance leases | 42,395 | | | 41,718 | |
| Operating lease liabilities | Operating lease liabilities | 59,642 | | | 64,416 | | Operating lease liabilities | 54,629 | | | 58,005 | |
| Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | 173,793 | | | 142,547 | | Accounts payable and accrued liabilities | 240,738 | | | 187,270 | |
| Dividends and distributions payable | Dividends and distributions payable | 37,969 | | | 34,500 | | Dividends and distributions payable | 45,248 | | | 39,373 | |
| Advance rents, security deposits and other liabilities | Advance rents, security deposits and other liabilities | 21,833 | | | 18,027 | | Advance rents, security deposits and other liabilities | 19,818 | | | 19,850 | |
| Derivative liabilities | Derivative liabilities | 60,032 | | | 26,609 | | Derivative liabilities | 35,173 | | | 53,722 | |
| Deferred income taxes | Deferred income taxes | 637 | | | 749 | | Deferred income taxes | 948 | | | 810 | |
| Deferred income | Deferred income | 55,422 | | | 39,169 | | Deferred income | 114,978 | | | 85,351 | |
| TOTAL LIABILITIES | TOTAL LIABILITIES | 2,067,716 | | | 1,779,082 | | TOTAL LIABILITIES | 2,085,776 | | | 2,313,874 | |
| | EQUITY | EQUITY | | 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 September 30, 2020 and December 31, 2019, respectively | 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 September 30, 2020 and December 31, 2019, respectively | 304,223 | | | 304,223 | | |
| Common stock: $0.01 par value, 450,133,000 shares authorized, 64,442,343 and 58,227,523 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 644 | | | 582 | | |
| 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, 2021 and December 31, 2020, respectively | | 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, 2021 and December 31, 2020, respectively | 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, 2021 and December 31, 2020, respectively | | 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, 2021 and December 31, 2020, respectively | 304,223 | | | 304,223 | |
| Common stock: $0.01 par value, 450,133,000 shares authorized, 77,030,269 and 64,580,118 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | | Common stock: $0.01 par value, 450,133,000 shares authorized, 77,030,269 and 64,580,118 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | 770 | | | 646 | |
| Additional paid-in capital | Additional paid-in capital | 1,614,508 | | | 1,330,444 | | Additional paid-in capital | 2,305,032 | | | 1,622,857 | |
| Accumulated other comprehensive income (loss) | (56,480) | | | (24,642) | | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (31,638) | | | (50,451) | |
| Accumulated dividends in excess of earnings | Accumulated dividends in excess of earnings | (457,993) | | | (376,002) | | Accumulated dividends in excess of earnings | (574,756) | | | (504,313) | |
| Total stockholders’ equity | Total stockholders’ equity | 1,508,114 | | | 1,337,817 | | Total stockholders’ equity | 2,106,843 | | | 1,476,174 | |
| Noncontrolling interests | Noncontrolling interests | 113,722 | | | 106,634 | | Noncontrolling interests | 141,970 | | | 108,524 | |
| TOTAL EQUITY | TOTAL EQUITY | 1,621,836 | | | 1,444,451 | | TOTAL EQUITY | 2,248,813 | | | 1,584,698 | |
| TOTAL LIABILITIES AND EQUITY | TOTAL LIABILITIES AND EQUITY | $ | 3,689,552 | | | $ | 3,223,533 | | TOTAL LIABILITIES AND EQUITY | $ | 4,334,589 | | | $ | 3,898,572 | |
See accompanying notes to financial statements.
QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands except share and per share data)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Revenues: | Revenues: | | | | | | | | Revenues: | | | | | | | |
| Rental | Rental | $ | 133,782 | | | $ | 121,475 | | | $ | 379,860 | | | $ | 345,841 | | Rental | $ | 150,807 | | | $ | 125,996 | | | $ | 295,115 | | | $ | 246,077 | |
| Other | Other | 3,756 | | | 3,780 | | | 15,611 | | | 11,270 | | Other | 4,413 | | | 5,644 | | | 8,837 | | | 11,855 | |
| Total revenues | Total revenues | 137,538 | | | 125,255 | | | 395,471 | | | 357,111 | | Total revenues | 155,220 | | | 131,640 | | | 303,952 | | | 257,932 | |
| Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | | | | | |
| Property operating costs | Property operating costs | 43,979 | | | 44,730 | | | 125,109 | | | 117,403 | | Property operating costs | 45,704 | | | 40,349 | | | 91,988 | | | 81,130 | |
| Real estate taxes and insurance | Real estate taxes and insurance | 4,005 | | | 3,713 | | | 12,023 | | | 10,435 | | Real estate taxes and insurance | 5,788 | | | 4,106 | | | 10,810 | | | 8,017 | |
| Depreciation and amortization | Depreciation and amortization | 51,378 | | | 42,875 | | | 144,002 | | | 123,144 | | Depreciation and amortization | 58,255 | | | 47,554 | | | 113,761 | | | 92,624 | |
| General and administrative | General and administrative | 22,082 | | | 19,504 | | | 64,156 | | | 59,519 | | General and administrative | 24,476 | | | 21,391 | | | 48,117 | | | 42,074 | |
| Transaction, integration, and impairment costs | 1,078 | | | 827 | | | 1,675 | | | 3,080 | | |
| Transaction and integration costs | | Transaction and integration costs | 8,391 | | | 381 | | | 9,907 | | | 597 | |
| Total operating expenses | Total operating expenses | 122,522 | | | 111,649 | | | 346,965 | | | 313,581 | | Total operating expenses | 142,614 | | | 113,781 | | | 274,583 | | | 224,442 | |
| Gain on sale of real estate, net | 0 | | | 0 | | | 0 | | | 13,408 | | |
| Operating income | Operating income | 15,016 | | | 13,606 | | | 48,506 | | | 56,938 | | Operating income | 12,606 | | | 17,859 | | | 29,369 | | | 33,490 | |
| Other income and expense: | Other income and expense: | | Other income and expense: | |
| Interest income | Interest income | 0 | | | 22 | | | 2 | | | 103 | | Interest income | 1 | | | 2 | | | 1 | | | 2 | |
| Interest expense | Interest expense | (7,516) | | | (6,724) | | | (21,602) | | | (20,329) | | Interest expense | (7,452) | | | (6,924) | | | (15,600) | | | (14,086) | |
| Other income | Other income | 0 | | | 370 | | | 159 | | | 330 | | Other income | 0 | | | 0 | | | 0 | | | 159 | |
| Equity in net loss of unconsolidated entity | Equity in net loss of unconsolidated entity | (366) | | | (317) | | | (1,633) | | | (992) | | Equity in net loss of unconsolidated entity | (705) | | | (590) | | | (1,264) | | | (1,267) | |
| Income before taxes | Income before taxes | 7,134 | | | 6,957 | | | 25,432 | | | 36,050 | | Income before taxes | 4,450 | | | 10,347 | | | 12,506 | | | 18,298 | |
| Tax expense | (227) | | | (369) | | | (196) | | | (779) | | |
| Tax benefit (expense) | | Tax benefit (expense) | (251) | | | (138) | | | (389) | | | 31 | |
| Net income | Net income | 6,907 | | | 6,588 | | | 25,236 | | | 35,271 | | Net income | 4,199 | | | 10,209 | | | 12,117 | | | 18,329 | |
| Net (income) loss attributable to noncontrolling interests | Net (income) loss attributable to noncontrolling interests | 18 | | | 49 | | | (408) | | | (1,593) | | Net (income) loss attributable to noncontrolling interests | 251 | | | (317) | | | 172 | | | (427) | |
| Net income attributable to QTS Realty Trust, Inc. | Net income attributable to QTS Realty Trust, Inc. | $ | 6,925 | | | $ | 6,637 | | | $ | 24,828 | | | $ | 33,678 | | Net income attributable to QTS Realty Trust, Inc. | $ | 4,450 | | | $ | 9,892 | | | $ | 12,289 | | | $ | 17,902 | |
| Preferred stock dividends | Preferred stock dividends | (7,045) | | | (7,045) | | | (21,135) | | | (21,135) | | Preferred stock dividends | (7,045) | | | (7,045) | | | (14,090) | | | (14,090) | |
| Net income (loss) attributable to common stockholders | Net income (loss) attributable to common stockholders | $ | (120) | | | $ | (408) | | | $ | 3,693 | | | $ | 12,543 | | Net income (loss) attributable to common stockholders | $ | (2,595) | | | $ | 2,847 | | | $ | (1,801) | | | $ | 3,812 | |
| | Net income (loss) per share attributable to common shares: | | |
| Net loss per share attributable to common shares | | Net loss per share attributable to common shares | |
| Basic | Basic | $ | (0.07) | | | $ | (0.05) | | | $ | (0.13) | | | $ | 0.12 | | Basic | $ | (0.08) | | | $ | (0.05) | | | $ | (0.15) | | | $ | (0.06) | |
| Diluted | Diluted | $ | (0.07) | | | $ | (0.05) | | | $ | (0.13) | | | $ | 0.12 | | Diluted | $ | (0.08) | | | $ | (0.05) | | | $ | (0.15) | | | $ | (0.06) | |
See accompanying notes to financial statements.
QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited and in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Net income | Net income | $ | 6,907 | | | $ | 6,588 | | | $ | 25,236 | | | $ | 35,271 | | Net income | $ | 4,199 | | | $ | 10,209 | | | $ | 12,117 | | | $ | 18,329 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| Foreign currency translation adjustment gain (loss) | Foreign currency translation adjustment gain (loss) | 166 | | | (426) | | | 7 | | | (360) | | Foreign currency translation adjustment gain (loss) | 54 | | | 64 | | | (104) | | | (159) | |
| Increase (decrease) in fair value of derivative contracts | Increase (decrease) in fair value of derivative contracts | 5,500 | | | (5,733) | | | (34,856) | | | (34,192) | | Increase (decrease) in fair value of derivative contracts | 4,145 | | | (3,641) | | | 21,398 | | | (40,356) | |
| Reclassification of other comprehensive income to utilities expense | Reclassification of other comprehensive income to utilities expense | 197 | | | 0 | | | 961 | | | 0 | | Reclassification of other comprehensive income to utilities expense | 160 | | | 410 | | | 94 | | | 764 | |
| Reclassification of other comprehensive income to interest expense | Reclassification of other comprehensive income to interest expense | 3,352 | | | (235) | | | 6,813 | | | (1,200) | | Reclassification of other comprehensive income to interest expense | 3,414 | | | 2,703 | | | 6,789 | | | 3,461 | |
| Comprehensive income (loss) | Comprehensive income (loss) | 16,122 | | | 194 | | | (1,839) | | | (481) | | Comprehensive income (loss) | 11,972 | | | 9,745 | | | 40,294 | | | (17,961) | |
| Comprehensive (income) loss attributable to noncontrolling interests | Comprehensive (income) loss attributable to noncontrolling interests | (1,626) | | | (22) | | | 183 | | | 52 | | Comprehensive (income) loss attributable to noncontrolling interests | (956) | | | (1,022) | | | (3,514) | | | 1,809 | |
| Comprehensive income (loss) attributable to QTS Realty Trust, Inc. | Comprehensive income (loss) attributable to QTS Realty Trust, Inc. | $ | 14,496 | | | $ | 172 | | | $ | (1,656) | | | $ | (429) | | Comprehensive income (loss) attributable to QTS Realty Trust, Inc. | $ | 11,016 | | | $ | 8,723 | | | $ | 36,780 | | | $ | (16,152) | |
See accompanying notes to financial statements.
QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF EQUITY
(unaudited and in thousands)
The consolidated statement of equity for the three and ninesix months ended SeptemberJune 30, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common stock | | Additional
paid-in capital | | Accumulated other
comprehensive
income (loss) | | Accumulated
dividends in
excess of earnings | | Total
stockholders'
equity | | Noncontrolling
interests | | Total |
| Shares | | Amount | | Shares | | Amount | | | | | | |
| Balance January 1, 2020 | 7,443 | | | $ | 407,435 | | | 58,228 | | | $ | 582 | | | $ | 1,330,444 | | | $ | (24,642) | | | $ | (376,002) | | | $ | 1,337,817 | | | $ | 106,634 | | | $ | 1,444,451 | |
| Net share activity through equity award plan | — | | | — | | | 240 | | | 3 | | | (1,312) | | | — | | | — | | | (1,309) | | | (149) | | | (1,458) | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | (33,155) | | | — | | | (33,155) | | | (3,560) | | | (36,715) | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | (201) | | | — | | | (201) | | | (22) | | | (223) | |
| Equity-based compensation expense | — | | | — | | | — | | | — | | | 4,377 | | | — | | | — | | | 4,377 | | | 498 | | | 4,875 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 1,930 | | | 19 | | | 78,516 | | | — | | | — | | | 78,535 | | | 4,682 | | | 83,217 | |
| Dividends declared on Series A Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (1,906) | | | (1,906) | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (5,139) | | | (5,139) | | | — | | | (5,139) | |
| Dividends declared to common stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (28,393) | | | (28,393) | | | — | | | (28,393) | |
| Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (3,133) | | | (3,133) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 8,010 | | | 8,010 | | | 110 | | | 8,120 | |
| Balance March 31, 2020 | 7,443 | | | $ | 407,435 | | | 60,398 | | | $ | 604 | | | $ | 1,412,025 | | | $ | (57,998) | | | $ | (403,430) | | | $ | 1,358,636 | | | $ | 105,060 | | | $ | 1,463,696 | |
| Net share activity through equity award plan | — | | | — | | | 1 | | | — | | | (1,225) | | | — | | | — | | | (1,225) | | | (135) | | | (1,360) | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | (3,382) | | | — | | | (3,382) | | | (259) | | | (3,641) | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | 58 | | | — | | | 58 | | | 6 | | | 64 | |
| Equity-based compensation expense | — | | | — | | | — | | | — | | | 5,477 | | | — | | | — | | | 5,477 | | | 604 | | | 6,081 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 1,033 | | | 10 | | | 47,168 | | | — | | | — | | | 47,178 | | | 3,277 | | | 50,455 | |
| Dividends declared on Series A Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (1,906) | | | (1,906) | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (5,139) | | | (5,139) | | | — | | | (5,139) | |
| Dividends declared to common stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (28,389) | | | (28,389) | | | — | | | (28,389) | |
| Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (3,134) | | | (3,134) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 9,892 | | | 9,892 | | | 317 | | | 10,209 | |
| Balance June 30, 2020 | 7,443 | | | $ | 407,435 | | | 61,432 | | | $ | 614 | | | $ | 1,463,445 | | | $ | (61,322) | | | $ | (428,972) | | | $ | 1,381,200 | | | $ | 105,736 | | | $ | 1,486,936 | |
| Net share activity through equity award plan | — | | | — | | | 62 | | | 1 | | | 1,260 | | | — | | | — | | | 1,261 | | | 136 | | | 1,397 | |
| Increase in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | 4,692 | | | — | | | 4,692 | | | 808 | | | 5,500 | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | 150 | | | — | | | 150 | | | 16 | | | 166 | |
| Equity-based compensation expense | — | | | — | | | — | | | — | | | 7,443 | | | — | | | — | | | 7,443 | | | 804 | | | 8,247 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 2,948 | | | 29 | | | 142,360 | | | — | | | — | | | 142,389 | | | 9,369 | | | 151,758 | |
| Dividends declared on Series A Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (1,906) | | | (1,906) | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (5,139) | | | (5,139) | | | — | | | (5,139) | |
| Dividends declared to common stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (28,901) | | | (28,901) | | | — | | | (28,901) | |
| Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (3,129) | | | (3,129) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 6,925 | | | 6,925 | | | (18) | | | 6,907 | |
| Balance September 30, 2020 | 7,443 | | | $ | 407,435 | | | 64,442 | | | $ | 644 | | | $ | 1,614,508 | | | $ | (56,480) | | | $ | (457,993) | | | $ | 1,508,114 | | | $ | 113,722 | | | $ | 1,621,836 | |
See accompanying notes to financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common stock | | Additional
paid-in capital | | Accumulated other
comprehensive
income (loss) | | Accumulated
dividends in
excess of earnings | | Total
Stockholders'
equity | | Noncontrolling
interests | | Total |
| Shares | | Amount | | Shares | | Amount | | | | | | |
| Balance January 1, 2021 | 7,443 | | | $ | 407,435 | | | 64,580 | | | $ | 646 | | | $ | 1,622,857 | | | $ | (50,451) | | | $ | (504,313) | | | $ | 1,476,174 | | | $ | 108,524 | | | $ | 1,584,698 | |
| Net share activity through equity award plan | — | | | — | | | 426 | | | 4 | | | 50 | | | — | | | — | | | 54 | | | 5 | | | 59 | |
| Conversion of Class A Partnership units to Class A common stock | — | | | — | | | 92 | | | 1 | | | 2,040 | | | — | | | — | | | 2,041 | | | (2,041) | | | 0 | |
| Increase in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | 15,414 | | | — | | | 15,414 | | | 1,839 | | | 17,253 | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | (144) | | | — | | | (144) | | | (14) | | | (158) | |
| Equity-based compensation expense | — | | | — | | | — | | | — | | | 6,237 | | | — | | | — | | | 6,237 | | | 619 | | | 6,856 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 3,865 | | | 39 | | | 203,125 | | | — | | | — | | | 203,164 | | | 12,682 | | | 215,846 | |
| Dividends declared on Series A Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (1,906) | | | (1,906) | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (5,139) | | | (5,139) | | | — | | | (5,139) | |
| Dividends declared to common stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (32,512) | | | (32,512) | | | — | | | (32,512) | |
| Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (3,235) | | | (3,235) | |
| Net Income | — | | | — | | | — | | | — | | | — | | | — | | | 7,839 | | | 7,839 | | | 79 | | | 7,918 | |
| Balance March 31, 2021 | 7,443 | | $ | 407,435 | | | 68,963 | | $ | 690 | | | $ | 1,834,309 | | | $ | (35,181) | | | $ | (536,031) | | | $ | 1,671,222 | | | $ | 118,458 | | | $ | 1,789,680 | |
| Net share activity through equity award plan | — | | — | | (132) | | (1) | | (986) | | — | | — | | (987) | | (91) | | (1,078) |
| Conversion of Class A Partnership units to Class A common stock | — | | — | | 26 | | — | | 629 | | — | | — | | 629 | | (629) | | 0 |
| Increase in fair value of derivative contracts | — | | — | | — | | — | | — | | 3,494 | | — | | 3,494 | | 651 | | 4,145 |
| Foreign currency translation adjustments | — | | — | | — | | — | | — | | 49 | | — | | 49 | | 5 | | 54 |
| Equity-based compensation expense | — | | — | | — | | — | | 6,695 | | — | | — | | 6,695 | | 616 | | 7,311 |
| Proceeds net of fees from settlement of forward shares | — | | — | | 8,173 | | 81 | | 464,385 | | — | | — | | 464,466 | | 26,431 | | 490,897 |
| Dividends declared on Series A Preferred Stock | — | | — | | — | | — | | — | | — | | (1,906) | | (1,906) | | — | | (1,906) |
| Dividends declared on Series B Convertible Preferred Stock | — | | — | | — | | — | | — | | — | | (5,139) | | (5,139) | | — | | (5,139) |
| Dividends declared to common stockholders | — | | — | | — | | — | | — | | — | | (36,130) | | (36,130) | | — | | (36,130) |
| Dividends declared to noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | 0 | | (3,220) | | (3,220) |
| Net Income | — | | — | | — | | — | | — | | — | | 4,450 | | 4,450 | | (251) | | 4,199 |
| Balance June 30, 2021 | 7,443 | | $ | 407,435 | | | 77,030 | | $ | 770 | | | $ | 2,305,032 | | | $ | (31,638) | | | $ | (574,756) | | | $ | 2,106,843 | | | $ | 141,970 | | | $ | 2,248,813 | |
The consolidated statement of equity for the three and ninesix months ended SeptemberJune 30, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common stock | | Additional
paid-in capital | | Accumulated other
comprehensive
income (loss) | | Accumulated
dividends in
excess of earnings | | Total Stockholders' equity | | Noncontrolling
interests | | Total |
| Shares | | Amount | | Shares | | Amount | | | | | | |
| Balance January 1, 2020 | 7,443 | | | $ | 407,435 | | | 58,228 | | | $ | 582 | | | $ | 1,330,444 | | | $ | (24,642) | | | $ | (376,002) | | | $ | 1,337,817 | | | $ | 106,634 | | | $ | 1,444,451 | |
| Net share activity through equity award plan | — | | | — | | | 240 | | | 3 | | | (1,312) | | | — | | | — | | | (1,309) | | | (149) | | | (1,458) | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | (33,155) | | | — | | | (33,155) | | | (3,560) | | | (36,715) | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | (201) | | | — | | | (201) | | | (22) | | | (223) | |
| Equity-based compensation expense | — | | | — | | | — | | | — | | | 4,377 | | | — | | | — | | | 4,377 | | | 498 | | | 4,875 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 1,930 | | | 19 | | | 78,516 | | | — | | | — | | | 78,535 | | | 4,682 | | | 83,217 | |
| Dividends declared on Series A Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (1,906) | | | (1,906) | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (5,139) | | | (5,139) | | | — | | | (5,139) | |
| Dividends declared to common stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (28,393) | | | (28,393) | | | — | | | (28,393) | |
| Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (3,133) | | | (3,133) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 8,010 | | | 8,010 | | | 110 | | | 8,120 | |
| Balance March 31, 2020 | 7,443 | | | $ | 407,435 | | | 60,398 | | | $ | 604 | | | $ | 1,412,025 | | | $ | (57,998) | | | $ | (403,430) | | | $ | 1,358,636 | | | $ | 105,060 | | | $ | 1,463,696 | |
| Net share activity through equity award plan | — | | | — | | | 1 | | | 0 | | | (1,225) | | | — | | | — | | | (1,225) | | | (135) | | | (1,360) | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | (3,382) | | | — | | | (3,382) | | | (259) | | | (3,641) | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | 58 | | | — | | | 58 | | | 6 | | | 64 | |
| Equity-based compensation expense | — | | | — | | | — | | | — | | | 5,477 | | | — | | | — | | | 5,477 | | | 604 | | | 6,081 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 1,033 | | | 10 | | | 47,168 | | | — | | | — | | | 47,178 | | | 3,277 | | | 50,455 | |
| Dividends declared on Series A Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (1,906) | | | (1,906) | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (5,139) | | | (5,139) | | | — | | | (5,139) | |
| Dividends declared to common stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (28,389) | | | (28,389) | | | — | | | (28,389) | |
| Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (3,134) | | | (3,134) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 9,892 | | 9,892 | | 317 | | 10,209 |
| Balance June 30, 2020 | 7,443 | | | $ | 407,435 | | | 61,432 | | | $ | 614 | | | $ | 1,463,445 | | | $ | (61,322) | | | $ | (428,972) | | | $ | 1,381,200 | | | $ | 105,736 | | | $ | 1,486,936 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common stock | | Additional
paid-in capital | | Accumulated other
comprehensive
income (loss) | | Accumulated
dividends in
excess of earnings | | Total
stockholders'
equity | | Noncontrolling
interests | | Total |
| Shares | | Amount | | Shares | | Amount | | | | | | |
| Balance January 1, 2019 | 7,443 | | | $ | 407,477 | | | 51,123 | | | $ | 511 | | | $ | 1,062,473 | | | $ | 2,073 | | | $ | (278,548) | | | $ | 1,193,986 | | | $ | 102,701 | | | $ | 1,296,687 | |
Net cumulative effect upon ASC Topic 842 adoption | — | | | — | | | — | | | — | | | — | | | — | | | (1,813) | | | (1,813) | | | — | | | (1,813) | |
| Net share activity through equity award plan | — | | | — | | | 231 | | | 3 | | | 660 | | | — | | | — | | | 663 | | | 78 | | | 741 | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | (8,775) | | | — | | | (8,775) | | | (1,078) | | | (9,853) | |
| Equity-based compensation expense | — | | | — | | | — | | | — | | | 2,928 | | | — | | | — | | | 2,928 | | | 372 | | | 3,300 | |
| Adjustment to expenses net from Series B Convertible Preferred stock offering | — | | | (42) | | | — | | | — | | | — | | | — | | | — | | | (42) | | | — | | | (42) | |
| Proceeds net of fees from common equity offering | — | | | — | | | 4,000 | | | 40 | | | 148,650 | | | — | | | — | | | 148,690 | | | 9,973 | | | 158,663 | |
| Dividends declared on Series A Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (1,906) | | | (1,906) | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (5,139) | | | (5,139) | | | — | | | (5,139) | |
| Dividends declared to common stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (24,371) | | | (24,371) | | | — | | | (24,371) | |
| Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (2,935) | | | (2,935) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 19,558 | | | 19,558 | | | 1,590 | | | 21,148 | |
| Balance March 31, 2019 | 7,443 | | | $ | 407,435 | | | 55,354 | | | $ | 554 | | | $ | 1,214,711 | | | $ | (6,702) | | | $ | (292,219) | | | $ | 1,323,779 | | | $ | 110,701 | | | $ | 1,434,480 | |
| Net share activity through equity award plan | — | | | — | | | 37 | | | — | | | 505 | | | — | | | — | | | 505 | | | (326) | | | 179 | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | (16,608) | | | — | | | (16,608) | | | (1,998) | | | (18,606) | |
| Equity-based compensation expense | — | | | — | | | — | | | — | | | 3,832 | | | — | | | — | | | 3,832 | | | 464 | | | 4,296 | |
| Dividends declared on Series A Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (1,906) | | | (1,906) | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Stock | ��� | | | — | | | — | | | — | | | — | | | — | | | (5,139) | | | (5,139) | | | — | | | (5,139) | |
| Dividends declared to common stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (24,377) | | | (24,377) | | | — | | | (24,377) | |
| Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (2,932) | | | (2,932) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 7,483 | | | 7,483 | | | 52 | | | 7,535 | |
| Balance June 30, 2019 | 7,443 | | | $ | 407,435 | | | 55,391 | | | $ | 554 | | | $ | 1,219,048 | | | $ | (23,310) | | | $ | (316,158) | | | $ | 1,287,569 | | | $ | 105,961 | | | $ | 1,393,530 | |
| Net share activity through equity award plan | — | | | — | | | 15 | | | — | | | 239 | | | 0 | | | — | | | 239 | | | 21 | | | 260 | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | 0 | | | (5,207) | | | — | | | (5,207) | | | (526) | | | (5,733) | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | (383) | | | 0 | | | (383) | | | (43) | | | (426) | |
| Equity-based compensation expense | — | | | — | | | — | | | — | | | 3,979 | | | — | | | 0 | | | 3,979 | | | 478 | | | 4,457 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 2,832 | | | 28 | | | 102,821 | | | — | | | 0 | | | 102,849 | | | 6,641 | | | 109,490 | |
| Dividends declared on Series A Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (1,906) | | | (1,906) | | | 0 | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Stock | — | | | — | | | — | | | — | | | — | | | — | | | (5,139) | | | (5,139) | | | — | | | (5,139) | |
| Dividends declared to common stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (24,377) | | | (24,377) | | | 0 | | | (24,377) | |
| Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (2,932) | | | (2,932) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 6,637 | | | 6,637 | | | (49) | | | 6,588 | |
| Balance September 30, 2019 | 7,443 | | | $ | 407,435 | | | 58,238 | | | $ | 582 | | | $ | 1,326,087 | | | $ | (28,900) | | | $ | (340,943) | | | $ | 1,364,261 | | | $ | 109,551 | | | $ | 1,473,812 | |
See accompanying notes to financial statements.
QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited and in thousands)
For the nine months ended September 30, 2020 and 2019 | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
| Cash flow from operating activities: | | | |
| Net income | $ | 12,117 | | | $ | 18,329 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 110,616 | | | 89,183 | |
| Amortization of above and below market leases | (9) | | | 180 | |
| Amortization of deferred loan costs | 2,259 | | | 1,978 | |
| Distributions from unconsolidated entity | 1,381 | | | 600 | |
| Equity in net loss of unconsolidated entity | 1,264 | | | 1,267 | |
| Equity-based compensation expense | 14,167 | | | 10,956 | |
| Bad debt expense | 455 | | | 5,072 | |
| Deferred tax expense (benefit) | 141 | | | (238) | |
| Foreign currency remeasurement (income) loss | 0 | | | (159) | |
| Changes in operating assets and liabilities | | | |
| Rents and other receivables, net | (27,845) | | | (536) | |
| Prepaid expenses | (2,066) | | | (1,259) | |
| Due to/from affiliates, net | (3,865) | | | (1,085) | |
| Other assets | (822) | | | (127) | |
| Accounts payable and accrued liabilities | 10,763 | | | 2,548 | |
| Advance rents, security deposits and other liabilities | 140 | | | 2,374 | |
| Deferred income | 29,679 | | | 4,283 | |
| Net cash provided by operating activities | 148,375 | | | 133,366 | |
| | | |
| Cash flow from investing activities: | | | |
| Distribution of capital from unconsolidated entity | 11,910 | | | 0 | |
| Acquisitions, net of cash acquired | (27,154) | | | (1,797) | |
| Additions to property and equipment | (453,401) | | | (377,655) | |
| Net cash used in investing activities | (468,645) | | | (379,452) | |
| | | |
| Cash flow from financing activities: | | | |
| Credit facility proceeds | 580,528 | | | 298,405 | |
| Credit facility repayments | (874,000) | | | (108,000) | |
| Payment of deferred financing costs | 0 | | | (101) | |
| Payment of preferred stock dividends | (14,090) | | | (14,090) | |
| Payment of common stock dividends | (62,865) | | | (54,020) | |
| Distribution to noncontrolling interests | (6,317) | | | (6,068) | |
| Proceeds from exercise of stock options | 1,979 | | | 882 | |
| Payment of tax withholdings related to equity-based awards | (2,485) | | | (3,327) | |
| Principal payments on finance lease obligations | (1,349) | | | (1,275) | |
| Mortgage principal debt repayments | 0 | | | (29) | |
| Common stock issuance proceeds, net of costs | 706,863 | | | 134,077 | |
| Net cash provided by financing activities | 328,264 | | | 246,454 | |
| Effect of foreign currency exchange rates on cash and cash equivalents | (2,701) | | | 453 | |
| Net change in cash and cash equivalents | 5,293 | | | 821 | |
| Cash and cash equivalents, beginning of period | 22,775 | | | 15,653 | |
| Cash and cash equivalents, end of period | $ | 28,068 | | | $ | 16,474 | |
| | | | | | | | | | | |
| 2020 | | 2019 |
| Cash flow from operating activities: | | | |
| Net income | $ | 25,236 | | | $ | 35,271 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 138,770 | | | 117,448 | |
| Amortization of above and below market leases | 330 | | | 126 | |
| Amortization of deferred loan costs | 2,968 | | | 2,935 | |
| Distributions from unconsolidated entity | 1,600 | | | 0 | |
| Equity in net loss of unconsolidated entity | 1,633 | | | 992 | |
| Equity-based compensation expense | 19,203 | | | 12,052 | |
| Bad debt expense | 4,599 | | | 740 | |
| Gain on sale of real estate, net | 0 | | | (13,408) | |
| Deferred tax expense (benefit) | (115) | | | 466 | |
| Foreign currency remeasurement (income) loss | (159) | | | (330) | |
| Changes in operating assets and liabilities | | | |
| Rents and other receivables, net | (10,685) | | | (20,606) | |
| Prepaid expenses | (681) | | | (1,318) | |
| Due to/from affiliates, net | 2,669 | | | 8,378 | |
| Other assets | (1,941) | | | (1,544) | |
| Accounts payable and accrued liabilities | 16,298 | | | 3,587 | |
| Advance rents, security deposits and other liabilities | 4,201 | | | (3,719) | |
| Deferred income | 16,194 | | | 8,163 | |
| Net cash provided by operating activities | 220,120 | | | 149,233 | |
| | | |
| Cash flow from investing activities: | | | |
| Proceeds from sale of property, net | 0 | | | 52,722 | |
| Acquisitions, net of cash acquired | (12,628) | | | (69,355) | |
| Additions to property and equipment | (574,539) | | | (270,879) | |
| Net cash used in investing activities | (587,167) | | | (287,512) | |
| | | |
| Cash flow from financing activities: | | | |
| Credit facility proceeds | 491,610 | | | 306,149 | |
| Credit facility repayments | (289,000) | | | (334,000) | |
| Payment of deferred financing costs | (101) | | | (182) | |
| Payment of preferred stock dividends | (21,135) | | | (21,135) | |
| Payment of common stock dividends | (82,410) | | | (69,709) | |
| Distribution to noncontrolling interests | (9,201) | | | (8,601) | |
| Proceeds from exercise of stock options | 2,524 | | | 3,594 | |
| Payment of tax withholdings related to equity-based awards | (4,242) | | | (3,143) | |
| Principal payments on finance lease obligations | (1,919) | | | (2,243) | |
| Mortgage principal debt repayments | (46) | | | (43) | |
| Common stock issuance proceeds, net of costs | 285,480 | | | 268,392 | |
| Net cash provided by financing activities | 371,560 | | | 139,079 | |
| Effect of foreign currency exchange rates on cash and cash equivalents | 1,832 | | | 959 | |
| Net change in cash and cash equivalents | 6,345 | | | 1,759 | |
| Cash and cash equivalents, beginning of period | 15,653 | | | 11,759 | |
| Cash and cash equivalents, end of period | $ | 21,998 | | | $ | 13,518 | |
See accompanying notes to financial statements.
QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(unaudited and in thousands)
For the nine months ended September 30, 2020 and 2019
| | | | | | | | | | | | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
| Cash paid for interest | Cash paid for interest | $ | 37,008 | | | $ | 37,735 | | Cash paid for interest | $ | 27,987 | | | $ | 28,059 | |
| Noncash investing and financing activities: | Noncash investing and financing activities: | | Noncash investing and financing activities: | |
| Accrued capital additions | Accrued capital additions | $ | 110,656 | | | $ | 41,013 | | Accrued capital additions | $ | 168,699 | | | $ | 118,627 | |
| Net decrease in other assets/liabilities related to change in fair value of derivative contracts | $ | (33,423) | | | $ | (34,192) | | |
| Equity received in unconsolidated entity in exchange for real estate assets | $ | 0 | | | $ | 25,280 | | |
| Increase in assets in exchange for finance lease obligation | $ | 0 | | | $ | 45,024 | | |
| Net increase (decrease) in other assets/liabilities related to change in fair value of derivative contracts | | Net increase (decrease) in other assets/liabilities related to change in fair value of derivative contracts | $ | 21,398 | | | $ | (38,688) | |
| Accrued equity issuance costs | Accrued equity issuance costs | $ | 48 | | | $ | 197 | | Accrued equity issuance costs | $ | 0 | | | $ | 405 | |
| Accrued preferred stock dividend | Accrued preferred stock dividend | $ | 5,938 | | | $ | 5,938 | | Accrued preferred stock dividend | $ | 5,938 | | | $ | 5,938 | |
See accompanying notes to financial statements.
QUALITYTECH, LP
INTERIM CONSOLIDATED BALANCE SHEETS
(in thousandsexcept share and per share data)
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| (unaudited) | | |
| ASSETS | | | |
| Real Estate Assets | | | |
| Land | $ | 164,816 | | | $ | 130,605 | |
| Buildings, improvements and equipment | 2,681,827 | | | 2,178,901 | |
| Less: Accumulated depreciation | (662,454) | | | (558,560) | |
| 2,184,189 | | | 1,750,946 | |
| Construction in progress | 957,592 | | | 920,922 | |
| Real Estate Assets, net | 3,141,781 | | | 2,671,868 | |
| Investments in unconsolidated entity | 22,883 | | | 30,218 | |
| Operating lease right-of-use assets, net | 52,816 | | | 57,141 | |
| Cash and cash equivalents | 21,998 | | | 15,653 | |
| Rents and other receivables, net | 87,479 | | | 81,181 | |
| Acquired intangibles, net | 71,367 | | | 81,679 | |
| Deferred costs, net | 57,058 | | | 52,363 | |
| Prepaid expenses | 11,281 | | | 10,586 | |
| Goodwill | 173,843 | | | 173,843 | |
| Other assets, net | 49,046 | | | 49,001 | |
| TOTAL ASSETS | $ | 3,689,552 | | | $ | 3,223,533 | |
| | | |
| LIABILITIES | | | |
| Unsecured credit facility, net | $ | 1,217,356 | | | $ | 1,010,640 | |
| Senior notes, net of debt issuance costs | 396,121 | | | 395,549 | |
| Finance leases and mortgage notes payable | 44,911 | | | 46,876 | |
| Operating lease liabilities | 59,642 | | | 64,416 | |
| Accounts payable and accrued liabilities | 173,793 | | | 142,547 | |
| Dividends and distributions payable | 37,969 | | | 34,500 | |
| Advance rents, security deposits and other liabilities | 21,833 | | | 18,027 | |
| Derivative liabilities | 60,032 | | | 26,609 | |
| Deferred income taxes | 637 | | | 749 | |
| Deferred income | 55,422 | | | 39,169 | |
| TOTAL LIABILITIES | 2,067,716 | | | 1,779,082 | |
| | | |
| PARTNERS' CAPITAL | | | |
| 7.125% Series A cumulative redeemable perpetual preferred units: $0.01 par value (liquidation preference $25.00 per unit), 4,600,000 units authorized, 4,280,000 units issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 103,212 | | | 103,212 | |
| 6.50% Series B cumulative convertible perpetual preferred units: $0.01 par value (liquidation preference $100.00 per unit), 3,162,500 units authorized, issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 304,223 | | | 304,223 | |
| Common units: $0.01 par value, 450,133,000 units authorized, 71,100,542 and 64,901,157 units issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 1,276,715 | | | 1,064,481 | |
| Accumulated other comprehensive income (loss) | (62,314) | | | (27,465) | |
| TOTAL PARTNERS' CAPITAL | 1,621,836 | | | 1,444,451 | |
| TOTAL LIABILITIES AND PARTNERS' CAPITAL | $ | 3,689,552 | | | $ | 3,223,533 | |
See accompanying notes to financial statements.
QUALITYTECH, LP
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Revenues: | | | | | | | |
| Rental | $ | 133,782 | | | $ | 121,475 | | | $ | 379,860 | | | $ | 345,841 | |
| Other | 3,756 | | | 3,780 | | | 15,611 | | | 11,270 | |
| Total revenues | 137,538 | | | 125,255 | | | 395,471 | | | 357,111 | |
| Operating expenses: | | | | | | | |
| Property operating costs | 43,979 | | | 44,730 | | | 125,109 | | | 117,403 | |
| Real estate taxes and insurance | 4,005 | | | 3,713 | | | 12,023 | | | 10,435 | |
| Depreciation and amortization | 51,378 | | | 42,875 | | | 144,002 | | | 123,144 | |
| General and administrative | 22,082 | | | 19,504 | | | 64,156 | | | 59,519 | |
| Transaction and integration costs | 1,078 | | | 827 | | | 1,675 | | | 3,080 | |
| Total operating expenses | 122,522 | | | 111,649 | | | 346,965 | | | 313,581 | |
| Gain on sale of real estate, net | 0 | | | 0 | | | 0 | | | 13,408 | |
| Operating income | 15,016 | | | 13,606 | | | 48,506 | | | 56,938 | |
| Other income and expense: | | | | | | | |
| Interest income | 0 | | | 22 | | | 2 | | | 103 | |
| Interest expense | (7,516) | | | (6,724) | | | (21,602) | | | (20,329) | |
| Other income | 0 | | | 370 | | | 159 | | | 330 | |
| Equity in net loss of unconsolidated entity | (366) | | | (317) | | | (1,633) | | | (992) | |
| Income before taxes | 7,134 | | | 6,957 | | | 25,432 | | | 36,050 | |
| Tax expense | (227) | | | (369) | | | (196) | | | (779) | |
| Net income | $ | 6,907 | | | $ | 6,588 | | | $ | 25,236 | | | $ | 35,271 | |
| Preferred unit distributions | (7,045) | | | (7,045) | | | (21,135) | | | (21,135) | |
| Net income (loss) attributable to common unitholders | $ | (138) | | | $ | (457) | | | $ | 4,101 | | | $ | 14,136 | |
See accompanying notes to financial statements.
QUALITYTECH, LP
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited and in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Net income | $ | 6,907 | | | $ | 6,588 | | | $ | 25,236 | | | $ | 35,271 | |
| Other comprehensive income (loss): | | | | | | | |
| Foreign currency translation adjustment gain (loss) | 166 | | | (426) | | | 7 | | | (360) | |
| Increase (decrease) in fair value of derivative contracts | 5,500 | | | (5,733) | | | (34,856) | | | (34,192) | |
| Reclassification of other comprehensive income to utilities expense | 197 | | | 0 | | | 961 | | | 0 | |
| Reclassification of other comprehensive income to interest expense | 3,352 | | | (235) | | | 6,813 | | | (1,200) | |
| Comprehensive income (loss) | $ | 16,122 | | | $ | 194 | | | $ | (1,839) | | | $ | (481) | |
See accompanying notes to financial statements.
QUALITYTECH, LP
INTERIM CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
(unaudited and in thousands)
The consolidated statement of partners’ capital for the three and nine months ended September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Limited Partners' Capital | | General Partner's Capital | | Accumulated other
comprehensive income (loss) | | |
| Preferred Units | | Common Units | | Common Units | | | |
| Units | | Amount | | Units | | Amount | | Units | | Amount | | Amount | | Total |
| Balance January 1, 2020 | 7,443 | | | $ | 407,435 | | | 64,901 | | | $ | 1,064,481 | | | 1 | | | $ | 0 | | | $ | (27,465) | | | $ | 1,444,451 | |
| Net share activity through equity award plan | — | | | — | | | 238 | | | (1,458) | | | — | | | — | | | — | | | (1,458) | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | — | | | (36,715) | | | (36,715) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | (223) | | | (223) | |
| Equity-based compensation expense | — | | | — | | | — | | | 4,875 | | | — | | | — | | | — | | | 4,875 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 1,930 | | | 83,217 | | | — | | | — | | | — | | | 83,217 | |
| Dividends declared on Series A Preferred Units | — | | | — | | | — | | | (1,906) | | | — | | | — | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Units | — | | | — | | | — | | | (5,139) | | | — | | | — | | | — | | | (5,139) | |
| Common dividends declared to QTS Realty Trust, Inc. | — | | | — | | | — | | | (28,393) | | | — | | | — | | | — | | | (28,393) | |
| Partnership distributions | — | | | — | | | — | | | (3,133) | | | — | | | — | | | — | | | (3,133) | |
| Net income | — | | | — | | | — | | | 8,120 | | | — | | | — | | | — | | | 8,120 | |
| Balance March 31,2020 | 7,443 | | | $ | 407,435 | | | 67,069 | | | $ | 1,120,664 | | | 1 | | | $ | 0 | | | $ | (64,403) | | | $ | 1,463,696 | |
| Net share activity through equity award plan | — | | | — | | | 1 | | | (1,360) | | | — | | | — | | | — | | | (1,360) | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | — | | | (3,641) | | | (3,641) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | 64 | | | 64 | |
| Equity-based compensation expense | — | | | — | | | — | | | 6,081 | | | — | | | — | | | — | | | 6,081 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 1,032 | | | 50,455 | | | — | | | — | | | — | | | 50,455 | |
| Dividends declared on Series A Preferred Units | — | | | — | | | — | | | (1,906) | | | — | | | — | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Units | — | | | — | | | — | | | (5,139) | | | — | | | — | | | — | | | (5,139) | |
| Common dividends declared to QTS Realty Trust, Inc. | — | | | — | | | — | | | (28,389) | | | — | | | — | | | — | | | (28,389) | |
| Partnership distributions | — | | | — | | | — | | | (3,134) | | | — | | | — | | | — | | | (3,134) | |
| Net income | — | | | — | | | — | | | 10,209 | | | — | | | — | | | — | | | 10,209 | |
| Balance June 30, 2020 | 7,443 | | | $ | 407,435 | | | 68,102 | | | $ | 1,147,481 | | | 1 | | | $ | 0 | | | $ | (67,980) | | | $ | 1,486,936 | |
| Net share activity through equity award plan | — | | | — | | | 51 | | | 1,397 | | | — | | | — | | | — | | | 1,397 | |
| Increase in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | — | | | 5,500 | | | 5,500 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | 166 | | | 166 | |
| Equity-based compensation expense | — | | | — | | | — | | | 8,247 | | | — | | | — | | | — | | | 8,247 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 2,948 | | | 151,758 | | | — | | | — | | | — | | | 151,758 | |
| Dividends declared on Series A Preferred Units | — | | | — | | | — | | | (1,906) | | | — | | | — | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Units | — | | | — | | | — | | | (5,139) | | | — | | | — | | | — | | | (5,139) | |
| Common dividends declared to QTS Realty Trust, Inc. | — | | | — | | | — | | | (28,901) | | | — | | | — | | | — | | | (28,901) | |
| Partnership distributions | — | | | — | | | — | | | (3,129) | | | — | | | — | | | — | | | (3,129) | |
| Net income | — | | | — | | | — | | | 6,907 | | | — | | | — | | | — | | | 6,907 | |
| Balance September 30, 2020 | 7,443 | | | $ | 407,435 | | | 71,101 | | | $ | 1,276,715 | | | 1 | | | $ | 0 | | | $ | (62,314) | | | $ | 1,621,836 | |
See accompanying notes to financial statements.
The consolidated statement of partners’ capital for the three and nine months ended September 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Limited Partners' Capital | | General Partner's Capital | | Accumulated other
comprehensive income (loss) | | |
| Preferred Units | | Common Units | | Common Units | | | |
| Units | | Amount | | Units | | Amount | | Units | | Amount | | Amount | | Total |
| Balance January 1, 2019 | 7,443 | | | $ | 407,477 | | | 57,799 | | | $ | 886,866 | | | 1 | | | $ | 0 | | | $ | 2,344 | | | $ | 1,296,687 | |
Net cumulative effect upon ASC Topic 842 adoption | — | | | — | | | — | | | (1,813) | | | — | | | — | | | — | | | (1,813) | |
| Net share activity through equity award plan | — | | | — | | | 229 | | | 741 | | | — | | | — | | | — | | | 741 | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | — | | | (9,853) | | | (9,853) | |
| Equity-based compensation expense | — | | | — | | | — | | | 3,300 | | | — | | | — | | | — | | | 3,300 | |
| Adjustment to expenses net from Series B Convertible Preferred equity offering | — | | | (42) | | | — | | | — | | | — | | | — | | | — | | | (42) | |
| Proceeds net of fees from equity offering | — | | | — | | | 4,000 | | | 158,663 | | | — | | | — | | | — | | | 158,663 | |
| Dividends declared on Series A Preferred Units | — | | | — | | | — | | | (1,906) | | | — | | | — | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Units | — | | | — | | | — | | | (5,139) | | | — | | | — | | | — | | | (5,139) | |
| Common dividends declared to QTS Realty Trust, Inc. | — | | | — | | | — | | | (24,371) | | | — | | | — | | | — | | | (24,371) | |
| Partnership distributions | — | | | — | | | — | | | (2,935) | | | — | | | — | | | — | | | (2,935) | |
| Net income | — | | | — | | | — | | | 21,148 | | | — | | | — | | | — | | | 21,148 | |
| Balance March 31, 2019 | 7,443 | | | $ | 407,435 | | | 62,028 | | | $ | 1,034,554 | | | 1 | | | $ | 0 | | | $ | (7,509) | | | $ | 1,434,480 | |
| Net share activity through equity award plan | — | | | — | | | 31 | | | 179 | | | — | | | — | | | — | | | 179 | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | — | | | (18,606) | | | (18,606) | |
| Equity-based compensation expense | — | | | — | | | — | | | 4,296 | | | — | | | — | | | — | | | 4,296 | |
| Dividends declared on Series A Preferred Units | — | | | — | | | — | | | (1,906) | | | — | | | — | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Units | — | | | — | | | — | | | (5,139) | | | — | | | — | | | — | | | (5,139) | |
| Common dividends declared to QTS Realty Trust, Inc. | — | | | — | | | — | | | (24,377) | | | — | | | — | | | — | | | (24,377) | |
| Partnership distributions | — | | | — | | | — | | | (2,932) | | | — | | | — | | | — | | | (2,932) | |
| Net income | — | | | — | | | — | | | 7,535 | | | — | | | — | | | — | | | 7,535 | |
| Balance June 30, 2019 | 7,443 | | | $ | 407,435 | | | 62,059 | | | $ | 1,012,210 | | | 1 | | | $ | 0 | | | $ | (26,115) | | | $ | 1,393,530 | |
| Net share activity through equity award plan | — | | | — | | | 15 | | | 260 | | | — | | | — | | | — | | | 260 | |
| Decrease in fair value of derivative contracts | — | | | — | | | — | | | — | | | — | | | — | | | (5,733) | | | (5,733) | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | (426) | | | (426) | |
| Balance Equity-based compensation expense | — | | | — | | | — | | | 4,457 | | | — | | | — | | | — | | | 4,457 | |
| Proceeds net of fees from settlement of forward shares | — | | | — | | | 2,832 | | | 109,490 | | | — | | | — | | | — | | | 109,490 | |
| Dividends declared on Series A Preferred Units | — | | | — | | | — | | | (1,906) | | | — | | | — | | | — | | | (1,906) | |
| Dividends declared on Series B Convertible Preferred Units | — | | | — | | | — | | | (5,139) | | | — | | | — | | | — | | | (5,139) | |
| Common dividends declared to QTS Realty Trust, Inc. | — | | | — | | | — | | | (24,377) | | | — | | | — | | | — | | | (24,377) | |
| Partnership distributions | — | | | — | | | — | | | (2,932) | | | — | | | — | | | — | | | (2,932) | |
| Net income | — | | | — | | | — | | | 6,588 | | | — | | | — | | | — | | | 6,588 | |
| Balance September 30, 2019 | 7,443 | | | $ | 407,435 | | | 64,906 | | | $ | 1,098,651 | | | 1 | | | $ | 0 | | | $ | (32,274) | | | $ | 1,473,812 | |
See accompanying notes to financial statements.
QUALITYTECH, LP
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited and in thousands)
For the nine months ended September 30, 2020 and 2019
| | | | | | | | | | | |
| 2020 | | 2019 |
| Cash flow from operating activities: | | | |
| Net income | $ | 25,236 | | | $ | 35,271 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 138,770 | | | 117,448 | |
| Amortization of above and below market leases | 330 | | | 126 | |
| Amortization of deferred loan costs | 2,968 | | | 2,935 | |
| Distributions from unconsolidated entity | 1,600 | | | 0 | |
| Equity in net loss of unconsolidated entity | 1,633 | | | 992 | |
| Equity-based compensation expense | 19,203 | | | 12,052 | |
| Bad debt expense | 4,599 | | | 740 | |
| Gain on sale of real estate, net | 0 | | | (13,408) | |
| Deferred tax expense (benefit) | (115) | | | 466 | |
| Foreign currency remeasurement (income) loss | (159) | | | (330) | |
| Changes in operating assets and liabilities | | | |
| Rents and other receivables, net | (10,685) | | | (20,606) | |
| Prepaid expenses | (681) | | | (1,318) | |
| Due to/from affiliates, net | 2,669 | | | 8,378 | |
| Other assets | (1,941) | | | (1,544) | |
| Accounts payable and accrued liabilities | 16,298 | | | 3,587 | |
| Advance rents, security deposits and other liabilities | 4,201 | | | (3,719) | |
| Deferred income | 16,194 | | | 8,163 | |
| Net cash provided by operating activities | 220,120 | | | 149,233 | |
| | | |
| Cash flow from investing activities: | | | |
| Proceeds from sale of property, net | 0 | | | 52,722 | |
| Acquisitions, net of cash acquired | (12,628) | | | (69,355) | |
| Additions to property and equipment | (574,539) | | | (270,879) | |
| Net cash used in investing activities | (587,167) | | | (287,512) | |
| | | |
| Cash flow from financing activities: | | | |
| Credit facility proceeds | 491,610 | | | 306,149 | |
| Credit facility repayments | (289,000) | | | (334,000) | |
| Payment of deferred financing costs | (101) | | | (182) | |
| Payment of preferred unit dividends | (21,135) | | | (21,135) | |
| Payment of dividends to QTS Realty Trust, Inc. | (82,410) | | | (69,709) | |
| Partnership distributions | (9,201) | | | (8,601) | |
| Proceeds from exercise of stock options | 2,524 | | | 3,594 | |
| Payment of tax withholdings related to equity-based awards | (4,242) | | | (3,143) | |
| Principal payments on finance lease obligations | (1,919) | | | (2,243) | |
| Mortgage principal debt repayments | (46) | | | (43) | |
| Common unit issuance proceeds, net of costs | 285,480 | | | 268,392 | |
| Net cash provided by financing activities | 371,560 | | | 139,079 | |
| Effect of foreign currency exchange rates on cash and cash equivalents | 1,832 | | | 959 | |
| Net change in cash and cash equivalents | 6,345 | | | 1,759 | |
| Cash and cash equivalents, beginning of period | 15,653 | | | 11,759 | |
| Cash and cash equivalents, end of period | $ | 21,998 | | | $ | 13,518 | |
See accompanying notes to financial statements.
QUALITYTECH, LP
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(unaudited and in thousands)
For the nine months ended September 30, 2020 and 2019
| | | | | | | | | | | |
| 2020 | | 2019 |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
| Cash paid for interest | $ | 37,008 | | | $ | 37,735 | |
| Noncash investing and financing activities: | | | |
| Accrued capital additions | $ | 110,656 | | | $ | 41,013 | |
| Net decrease in other assets/liabilities related to change in fair value of derivative contracts | $ | (33,423) | | | $ | (34,192) | |
| Equity received in unconsolidated entity in exchange for real estate assets | $ | 0 | | | $ | 25,280 | |
| Increase in assets in exchange for finance lease obligation | $ | 0 | | | $ | 45,024 | |
| Accrued equity issuance costs | $ | 48 | | | $ | 197 | |
| Accrued preferred unit distribution | $ | 5,938 | | | $ | 5,938 | |
See accompanying notes to financial statements.
QTS REALTY TRUST, INC.
QUALITYTECH, LP
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
QTS Realty Trust, Inc., (“QTS”), through its controlling interest in QualityTech, LP (the “Operating Partnership” and collectively with QTS and its subsidiaries, the “Company,” “we,” “us,” or “our”) and the subsidiaries of the Operating Partnership, is engaged in the business of owning, acquiring, constructing, redeveloping and managing multi-tenant data centers. As of SeptemberJune 30, 20202021, our portfolio consisted of 2728 owned and leased properties, including a property owned by an unconsolidated entity, with data centers located throughout the United States, Canada and Europe.
QTS elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2013. As a REIT, QTS generally is not required to pay federal corporate income taxes on its taxable income to the extent it is currently distributed to its stockholders.
As of SeptemberJune 30, 2020,2021, QTS owned approximately 90.6%92.3% of the interests in the Operating Partnership. Substantially all of QTS’ assets are held by, and all of QTS’ operations are conducted through, the Operating Partnership. QTS’ interest in the Operating Partnership entitles QTS to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to QTS’ percentage ownership. As the sole general partner of the Operating Partnership, QTS generally has the exclusive power under the partnership agreement of the Operating Partnership to manage and conduct the Operating Partnership’s business and affairs. QTS’ board of directors manages the Operating Partnership and the Company’s business and affairs.
Pending Acquisition by Blackstone – As previously announced, on June 7, 2021, the Company and the Operating Partnership entered into an agreement and plan of merger (“Merger Agreement”) with Volt Upper Holdings LLC, a Delaware limited liability company (“Parent”), Volt Lower Holdings LLC, a Delaware limited liability company (“Merger Sub I”), and Volt Acquisition LP, a Delaware limited partnership (“Merger Sub II”). Parent, Merger Sub I and Merger Sub II are affiliates of The Blackstone Group Inc. Pursuant to the Merger Agreement (i) Merger Sub II shall merge with and into the Operating Partnership (the “partnership merger”), with the Operating Partnership being the surviving entity, and immediately following the consummation of the partnership merger, (ii) the Company shall merge with and into Merger Sub I (the “Company merger”), with Merger Sub I being the surviving entity. Pursuant to the Merger Agreement the outstanding shares of common stock of the Company will be acquired for $78 per share in an all-cash transaction. In addition, (i) the outstanding shares of Series A Preferred Stock (other than shares owned by Parent, Merger Sub I or any subsidiary of Parent, the Company or Merger Sub I (such shares, “Excluded Shares”)) shall be automatically converted into the right to receive an amount in cash equal to $25.00 plus any accrued and unpaid dividends, without interest and (ii) the outstanding shares of Series B Preferred Stock (other than Excluded Shares) shall be automatically converted into one Series A preferred unit of Merger Sub I, which shall have terms materially the same as the Series B Preferred Stock.
The Company merger, partnership merger and the other transactions contemplated by the Merger Agreement (the “Merger Transactions”) are subject to customary closing conditions, including approval by the Company’s common stockholders at a special meeting to be held on August 26, 2021. The Merger Transactions are expected to close on the third business day after the conditions to closing are satisfied or waived, including approval of the Company’s stockholders of the merger and other transactions contemplated by the Merger Agreement. The Company can provide no assurances regarding whether the Merger Transactions will close as expected during the third quarter of 2021, or at all. The board of directors of the Company has unanimously approved the Merger Agreement, and has recommended approval of the merger, and the other transactions contemplated by the Merger Agreement, by the Company’s stockholders.
2. Summary of Significant Accounting Policies
Basis of Presentation – The accompanying financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in compliance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes and management’s discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the SEC on February 28, 2020.26, 2021. The consolidated balance sheet data included herein as of December 31, 20192020 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
The accompanying financial statements are presented
As outlined in our Annual Report on Form 10-K for both QTS Realty Trust, Inc. and QualityTech, LP. References to “QTS” mean QTS Realty Trust, Inc. and its controlled subsidiaries and references to the “Operating Partnership” mean QualityTech, LP and its controlled subsidiaries.
Theyear ended December 31, 2020, the Operating Partnership meets the definition and criteria of a variable interest entity (“VIE”) in accordance with Accounting Standards Codification (“ASC”) Topic 810 Consolidation, and the Company is the primary beneficiary of the VIE. As discussed below, theThe Company’s only material asset is its ownership interest in the Operating Partnership, and consequently, all of its assets and liabilities represent those assets and liabilities of the Operating Partnership. The Company’s debt is an obligation of the Operating Partnership where the creditors may have recourse, under certain circumstances, against the credit of the Company.
QTS is the sole general partner of the Operating Partnership, and its only material asset consists of its ownership interest in the Operating Partnership. Management operates QTS and the Operating Partnership as one business. The management of QTS consists of the same employees as the management of the Operating Partnership. QTS does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity from time to time. QTS has not issued or guaranteed any indebtedness. Except for net proceeds from public equity issuances by QTS, which are contributed to the Operating Partnership in exchange for units of limited partnership interest of the Operating Partnership, the Operating Partnership generates all remaining capital required by the business through its operations, the direct or indirect incurrence of indebtedness, and the issuance of partnership units. Therefore, as general partner with control of the Operating Partnership, QTS consolidates the Operating Partnership for financial reporting purposes.
The Company presents one set of notes for the consolidated financial statements of QTS and the Operating Partnership.
As discussed above, QTS owns 0 operating assets and has no operations independent of the Operating Partnership and its subsidiaries. Also, the Operating Partnership owns 0 operating assets and has no operations independent of its subsidiaries. Obligations under the 4.750% Senior Notes due 2025 and the unsecured credit facility, both discussed in Note 6, are fully, unconditionally, and jointly and severally guaranteed by the Operating Partnership’s existing subsidiaries (other than certain foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any indebtedness of QTS Realty Trust, Inc., the Operating Partnership, QTS Finance Corporation (the co-issuer of the 4.750% Senior Notes due 2025) or any subsidiary guarantor. The indenture governing the 4.750% Senior Notes due 2025 restricts the ability of the Operating Partnership to make distributions to QTS, subject to certain exceptions, including distributions required in order for QTS to maintain its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”). See Note 15 for information related to our satisfaction and discharge of the indenture governing the 4.750% Senior Notes due 2025.
The interim consolidated financial statements of QTS Realty Trust, Inc. include the accounts of QTS Realty Trust, Inc. and its majority owned controlled subsidiaries including the Operating Partnership as well as unconsolidated entities accounted for using equity method accounting. This includes the operating results of the Operating Partnership for all periods presented.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets, allowances for doubtful accounts and deferred tax assets and the valuation of derivatives, real estate assets, acquired intangible assets and certain accruals. The impacts of the COVID-19 pandemic increases uncertainty, which has reduced our ability to use past results to estimate future performance. Accordingly, our estimates and judgments may be subject to greater volatility than has been the case in the past.
Principles of Consolidation – The consolidated financial statements of QTS Realty Trust, Inc. include the accounts of QTS Realty Trust, Inc. and its controlled subsidiaries. The consolidated financial statements of QualityTech, LP include the accounts of QualityTech, LP and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in the financial statements.
We evaluate our investments in less than wholly owned entities to determine whether they should be recorded on a consolidated basis. The percentage of ownership interest in the entity, an evaluation of control and whether a VIE exists are all considered in our consolidation assessment. Investments in real estate entities which we have the ability to exercise significant influence, but do not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, our share of the earnings or losses of these entities is included in consolidated net income (loss).
Variable Interest Entities (VIEs) – We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. The determination of whether an entity in which we hold a direct or indirect variable interest is a VIE is based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.
We analyze any investments in VIEs to determine if we are the primary beneficiary. In evaluating whether we are the primary beneficiary, we evaluate our direct and indirect economic interests in the entity. Determining which reporting entity, if any, is the primary beneficiary of a VIE is primarily a qualitative approach focused on identifying which reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgment.
We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct financing, leasing, construction and other operating decisions and activities. In addition, we consider the rights of other investors to participate in those decisions, to replace the manager and to sell or liquidate the entity. We determine whether we are the primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that conclusion upon a reconsideration event. As of SeptemberJune 30, 2020,2021, we had 1one unconsolidated entity that was considered a VIE for which we are not the primary beneficiary. Our maximum exposure to losses associated with this VIE is limited to our net investment, which was approximately $22.9$12.4 million as of SeptemberJune 30, 2020.2021.
Real Estate Assets – Real estate assets are reported at cost. All capital improvements for the income-producing properties that extend their useful lives are capitalized to individual property improvements and depreciated over their estimated useful lives. Depreciation for real estate assets is generally provided on a straight-line basis over 40 years from the date the property was placed in service. Property improvements are depreciated on a straight-line basis over the life of the respective improvement ranging from 20 to 40 years from the date the components were placed in service. Leasehold improvements are depreciated over the lesser of 20 years or through the end of the respective life of the lease. Repairs and maintenance costs are expensed as incurred. For the three months ended SeptemberJune 30, 2021, depreciation expense related to real estate assets and non-real estate assets was $45.4 million and $3.2 million, respectively, for a total of $48.7 million. For the three months ended June 30, 2020, depreciation expense related to real estate assets and non-real estate assets was $37.9$34.7 million and $3.5$3.4 million, respectively, for a total of $41.4$38.0 million. For the threesix months ended SeptemberJune 30, 2019,2021, depreciation expense related to real estate assets and non-real estate assets was $29.8$88.1 million and $2.9$6.1 million, respectively, for a total of $32.7$94.2 million. For the ninesix months ended SeptemberJune 30, 2020, depreciation expense related to real estate assets and non-real estate assets was $104.9$67.0 million and $10.2$6.7 million, respectively, for a total of $115.1 million. For the nine months ended September 30, 2019, depreciation expense related to real estate assets and non-real estate assets was $86.8 million and $8.7 million, respectively, for a total of $95.5$73.7 million. We capitalize certain real estate development costs, including internal costs incurred in connection with development. The capitalization of costs during the construction period (including interest and related loan fees, property taxes and other direct and indirect project costs) begins when development efforts commence and ends when the asset is ready for its intended use. The capitalization of internal costs increases construction in progress recognized during development of the related property and the cost of the real estate asset when placed into service and such costs are depreciated over its estimated useful life. Capitalization of such costs, excluding interest, aggregated to $4.5$7.0 million and $4.8 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $13.8$12.5 million and $13.1$9.3 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. Interest is capitalized during the period of development by applying our weighted average effective borrowing rate to the actual development and other capitalized costs paid during the construction period. Interest is capitalized until the property is ready for its intended use. Interest costs capitalized totaled $7.1$7.8 million and $8.7$7.7 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $22.9$14.8 million and $24.9$15.8 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
Acquisitions and Sales – Acquisitions of real estate and other entities are either accounted for as asset acquisitions or business combinations depending on facts and circumstances. When substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the transaction is accounted for as an asset acquisition. In an asset acquisition, the purchase price paid for assets acquired is allocated between identified tangible and intangible assets acquired based on relative fair value. Transaction costs associated with asset acquisitions are capitalized. When substantially all of the fair value of assets acquired is not concentrated in a group of similar identifiable assets, the set of assets will generally be considered a business. When accounting for business combinations, purchase accounting is applied to the assets and liabilities related to all real estate investments acquired in accordance with the accounting requirements of ASC Topic 805, Business Combinations, which requires the recording of net assets of acquired businesses at fair value. The fair value of the consideration transferred is assigned to the acquired tangible assets, consisting primarily of land, construction in progress, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-place leases, value of customer relationships and finance leases. The excess of the fair value of liabilities assumed, common stock issued and cash paid over the fair value of identifiable assets acquired is allocated to goodwill, which is not amortized. Transaction costs associated with business combinations are expensed as incurred.
In developing estimates of fair value of acquired assets and assumed liabilities, management analyzes a variety of factors including market data, estimated future cash flows of the acquired operations, industry growth rates, current replacement cost for fixed assets and market rate assumptions for contractual obligations. Such a valuation requires management to make significant estimates and assumptions, particularly with respect to the intangible assets.
Acquired in-place leases are amortized as amortization expense on a straight-line basis over the remaining life of the underlying leases.
Acquired customer relationships are amortized as amortization expense on a straight-line basis over the expected life of the customer relationship. These amortization expenses are accounted for as real estate amortization expense.
Above or below market leases are amortized on a straight-line basis over their expected lives and are recorded as a reduction to or increase in rental revenue when we are the lessor as well as a reduction to or increase in rent expense over the remaining lease terms when we are the lessee.
During the nine months ended September 30, 2020, we completed multiple acquisitions of land totaling 25.6 acres for an aggregate purchase price of approximately $12.6 million to be used for future development. These acquisitions were accounted
for as asset acquisitions and were included within the “Construction in Progress” line item of the consolidated balance sheets at the time of acquisition.
During the nine months ended September 30, 2019, we sold our Manassas facility to an unconsolidated entity in exchange for cash consideration and noncash consideration in the form of an equity interest in the unconsolidated entity. After measuring the consideration received at fair value, we recognized a $13.4 million gain on sale of real estate, net of approximately $5.8 million of transaction costs, associated with our contribution of certain assets in our Manassas facility to the unconsolidated entity. Substantially all of the fair value of the assets contributed to the entity was concentrated in a group of similar identifiable assets and the sale of the assets were not to a customer, therefore the transaction was accounted for as an asset sale. The gain on sale of real estate was included within the “Gain on sale of real estate, net” line item of the consolidated statements of operations.
Impairment of Long-Lived Assets, Intangible Assets and Goodwill – We review our long-lived assets, intangible assets and equity method investments for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset group. If the net carrying value of the asset group exceeds the value of the undiscounted cash flows, the fair value of the asset group is assessed and may be considered impaired. An impairment loss is recognized based on the excess of the carrying amount of the impaired asset over its fair value. NaN impairment losses were recorded for the three and ninesix months ended SeptemberJune 30, 20202021 and SeptemberJune 30, 2019.2020.
The fair value of goodwill is the consideration transferred in a business combination which is not allocable to identifiable intangible and tangible assets. Goodwill is subject to at least an annual assessment for impairment. In connection with the goodwill impairment evaluation that we performed as of October 1, 2019,2020, we determined qualitatively that it is not more likely than not that the fair value of our 1 reporting unit was less than the carrying amount, thus we did not perform a quantitative analysis. As we continue to operate and assess our goodwill at the consolidated level for our single reporting unit and our market capitalization significantly exceeds our net asset value, further analysis was not deemed necessary as of SeptemberJune 30, 2020.2021.
Cash and Cash Equivalents – We consider all demand deposits and money market accounts purchased with a maturity date of three months or less at the date of purchase to be cash equivalents. Our account balances at one or more institutions periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is concentration of credit risk related to amounts on deposit in excess of FDIC coverage. We mitigate this risk by depositing a majority of our funds with several major financial institutions. We also have not experienced any losses and do not believe that the risk is significant.
Deferred Costs – Deferred costs, net, on our balance sheets include both deferred financing costs and deferred leasing costs.Table of ContentsDeferred financing costs represent fees and other costs incurred in connection with obtaining debt and are amortized over the term of the loan and are included in interest expense. Debt issuance costs related to revolving debt arrangements are deferred and presented as assets on the balance sheet; however, all other debt issuance costs are recorded as a direct offset to the associated liability. Amortization of debt issuance costs, including those costs presented as offsets to the associated liability in the consolidated balance sheet, was $1.0 million for each of the three months ended September 30, 2020 and 2019, and $3.0 million and $2.9 million the nine months ended September 30, 2020 and 2019, respectively.
Initial direct costs, or deferred leasing costs, include commissions paid to third parties, including brokers, leasing and referral agents, and internal sales commissions paid to employees for successful execution of lease agreements and are accounted for pursuant to ASC Topic 842, Leases. These costs are incurred when we execute lease agreements and represent only incremental costs that would not have been incurred if the lease agreement had not been executed. To a lesser extent, we incur the same incremental costs to obtain managed services and cloud contracts with customers that are accounted for pursuant to ASC Topic 606, Revenue from Contracts with Customers. Because the framework of accounting for these costs and the underlying nature of the costs are the same for our revenue and lease contracts, the costs are presented on a combined basis within our financial statements. Both revenue and leasing commissions are capitalized and generally amortized over the term of the related leases or the expected term of the contract using the straight-line method. If a customer lease terminates prior to the expiration of its initial term, any unamortized initial direct costs related to the lease are written off to amortization expense. Amortization of deferred leasing costs totaled $6.8 million and $6.7 million for the three months ended September 30, 2020 and 2019, respectively, and $19.3 million and $17.7 million for the nine months ended September 30, 2020 and 2019, respectively.
Revenue Recognition – We derive our revenues from leases with customers for data center space which include lease components and nonlease revenue components, such as power, tenant recoveries, cloud and managed services. We have elected
the available practical expedient under ASC Topic 842, Leases, to combine our nonlease revenue components that have the same pattern of transfer as the related operating lease component into a single combined lease component. The single combined component is accounted for under ASC Topic 842 if the lease component is the predominant component and is accounted for under ASC Topic 606 if the nonlease components are the predominant components. In our contracts, the single combined component is accounted for under ASC Topic 842 as the lease component is the predominant component.
A description of each of our disaggregated revenue streams is as follows:
Rental Revenue
Our leases with customers are classified as operating leases and rental revenue is recognized on a straight-line basis over the customer lease term. Occasionally, customer leases include options to extend or terminate the lease agreements. We do not include any of these extension or termination options in a customer’s lease term for lease classification purposes or recognizing rental revenue unless it is reasonably certain the customer will exercise these extension or termination options.
Rental revenue also includes revenue from power delivery on fixed power arrangements, whereby customers are billed and pay a fixed monthly fee per committed available amount of connected power. These fixed power arrangements require us to provide a series of distinct services and to stand ready to deliver the power over the contracted term which is co-terminus with the lease. Customer fixed power arrangements have the same pattern of transfer over the lease term as the lease component and are therefore combined with the lease component to form a single lease component that is recognized over the term of the lease on a straight linestraight-line basis.
In addition, rental revenue includes straight linestraight-line rent. Straight lineStraight-line rent represents the difference in rents recognized during the period versus amounts contractually due pursuant to the underlying leases and is recorded as deferred rent receivable/payable in the consolidated balance sheets. For lease agreements that provide for scheduled rent increases, rental income is recognized on a straight-line basis over the non-cancellable term of the leases, which commences when control of the space has been provided to the customer. The amount of the straight-line rent receivable on the balance sheetssheet included in rents and other receivables, net was $54.3$78.9 million and $38.7$63.6 million as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
Rental revenue also includes amortization of set-up fees which are amortized over the term of the respective lease as discussed below.below in the "Deferred Income" section.
Variable Lease Revenue from Recoveries
Certain customer leases contain provisions under which customers reimburse us for power and cooling-related charges as well as a portion of the property’s real estate taxes, insurance and other operating expenses. Recoveries of power and cooling-related expenses relate specifically to our variable power arrangements, whereby customers pay variable monthly fees for the specific amount of power utilized at the current utility rates. Our performance obligation is to stand ready to deliver power over the life of the customer contract up to a contracted power capacity. Customers have the flexibility to increase or decrease the amount of power consumed, and therefore sub-metered power revenue is constrained at contract inception. The reimbursements are included in revenue as recoveries from customers and are recognized each month as the uncertainty related to the consideration is resolved (i.e. we provide power to our customers) and customers utilize the power. Reimbursement of real estate taxes, insurance, common area maintenance, or other operating expenses are accounted for as variable payments under lease guidance pursuant to the practical expedient and are recognized as revenue in the period that the expenses are recognized. Variable lease revenue from recoveries discussed above, including power, common area maintenance or other operating costs, have the same pattern of transfer over the lease term as the lease component and are therefore combined with the lease component to form a single lease component. Variable lease revenue from recoveries is included within the “rental” line item on the statements of operations.
Other Revenue
Other revenue primarily consists of revenue from our cloud and managed service offerings, as well as revenue earned from partner channel fees, management fees and development fees. We, through our Taxabletaxable REIT Subsidiariessubsidiaries (“TRS”), may provide both our cloud product and use of our managed services to our customers on an individual or combined basis. In both our cloud and managed services offeringsoffering, the TRS’s performance obligation is to provide services (e.g. cloud hosting, data backup, data storage or data center personnel labor hours) to facilitate a fully integrated information technology (“IT”) outsourcing environment over a contracted term. Although underlying services may vary, over the contracted term monthly service offerings are substantially the same and we account for the services as a series of distinct services in accordance with ASC
Topic 606. Service fee revenue is recognized as the revenue is earned, which generally coincides with the services being provided. As we have the right to consideration from customers in an amount that corresponds directly with the value to the customer of the TRS’s performance of providing continuous services, we recognize monthly revenue for the amount invoiced.
With respect to the transaction price allocated to remaining performance obligations within our cloud and managed service contracts, we have elected to use the optional exemption provided by ASC Topic 606 whereby we are not required to estimate the total transaction price allocated to remaining performance obligations as we apply the “right-to-invoice” practical expedient. As described above, the nature of our performance obligation in these contracts is to provide monthly services that are substantially the same and accounted for as a series of distinct services. These contracts generally have a remaining term ranging from month-to-month to three years.
Management fees and other revenues are generally received from our unconsolidated entity properties as well as third parties. Management fee revenue is earned based on a contractual percentage of unconsolidated entity property revenue. Development fee revenue is earned on a contractual percentage of hard costs to develop a property. We recognize revenue for these services provided when earned based on the performance criteria in ASC Topic 606, with such revenue recorded in “Other” revenue on the consolidated statements of operations.
Leases as Lessee – We determine if an arrangement is a lease at inception. If the contract is considered a lease, we evaluate leased property to determine whether the lease should be classified as a finance or operating lease in accordance with U.S. GAAP. We periodically enter into finance leases for certain data center facilities, equipment, and fiber optic transmission cabling. Finance lease assets are included within the “Buildings, improvements and equipment” line item of the consolidated balance sheets and finance lease liabilities are included within “Finance leases and mortgage notes payable”leases” line item of the consolidated balance sheets. In addition, we lease certain real estate (primarily land or real estate space) under operating lease agreements with such assets included within the “Operating lease right of use assets, net” line item of the consolidated balance sheets and the associated lease liabilities included within the “Operating lease liabilities” line item on the consolidated balance sheets.
Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As our leases as lessee typically do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We assess multiple variables when determining the incremental borrowing rate, such as lease term, payment terms, collateral, economic conditions, and creditworthiness. ROU assets also include any lease payments made and exclude lease incentives. Many of our lease agreements include options to extend the lease, which we do not include in our expected lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.
Allowance for Uncollectible Accounts Receivable – We record a provision for uncollectible accounts if a receivable balance relating to lease components from an individual contract is considered by management not to be not probable of collection, and this provision is recorded as a reduction to leasing revenues. We also record a general provision of estimated uncollectible tenant receivables based on general probability of collection in accordance with ASC 450-20 Loss Contingencies. This provision is recorded as bad debt expense and recorded within the “Property Operating Costs” line item of the consolidated statements of operations. The aggregate allowance for doubtful accounts on the consolidated balance sheets was $5.6$4.6 million and $2.3$5.4 million as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
Deferred Income – Deferred income generally results from non-refundable charges paid by the customer at lease inception to prepare their space for occupancy. We record this initial payment, commonly referred to as set-up fees, as a deferred income liability which amortizes into rental revenue over the term of the related lease on a straight-line basis. Deferred income was $55.4$115.0 million and $39.2$85.4 million as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. Additionally, $5.3$7.2 million and
$4.0 $4.5 million of deferred income was amortized into revenue for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $13.7 million and $11.1$8.4 million for the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively.
Foreign Currency - The financial position of foreign subsidiaries is translated at the exchange rates in effect at the end of the period, while revenues and expenses are translated at average exchange rates during the period. Gains or losses from translation of foreign operations where the local currency is the functional currency are included as components of other comprehensive income (loss). Prior to February 2020, gains or losses from foreign currency transactions were included in determining net income (loss). In February 2020, we entered into a net investment hedge which resulted in gains or losses subsequently being recognized in Other Comprehensive Income (Loss).
Equity-based Compensation – Equity-based compensation costs are measured based upon their estimated fair value on the date of grant or modification and amortized ratably over their respective service periods. We have elected to account for forfeitures as they occur. Equity-based compensation expense was $8.2$7.3 million and $4.5$6.1 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $19.2$14.2 million and $12.1$11.0 million for the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively. Equity based compensation expense for the three and nine months ended September 30, 2020 includes $0.9 million of equity-based compensation expense associated with the revaluation and acceleration of equity awards related to an executive officer's retirement which is included within the "Transaction, integration, and impairment costs" line item of the consolidated statements of operations.
Segment Information – We manage our business as 1 operating segment and thus 1 reportable segment consisting of a portfolio of investments in multiple data centers.
Customer Concentrations – During the ninesix months ended SeptemberJune 30, 2020,2021, 1 of our customers exceeded 10% of total revenues, representing approximately 11.3%15% of total revenues for the ninesix months ended SeptemberJune 30, 2020.2021.
As of SeptemberJune 30, 2020, three2021, four of our customers exceeded 5% of trade accounts receivable.receivable (which excludes straight-line rent receivables). In aggregate, these threefour customers accounted for approximately 23%56% of trade accounts receivable. NaN customerof these customers individually exceeded 10% of total trade accounts receivable representing 10.8%44% of total trade accounts receivable.
Income Taxes – We have elected for 2 of our existing subsidiaries to be taxed as taxable REIT subsidiaries pursuant to the REIT rules of the U.S. Internal Revenue Code. We also have subsidiaries subject to tax in non-US jurisdictions.
For the taxable REIT subsidiaries, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
An income tax expense has been recognized in the nine months ended September 30, 2020, in connection with recorded operating activity. As of September 30, 2020, 1 of our taxable REIT subsidiaries is in a net deferred tax liability position primarily due to a valuation allowance against certain deferred tax assets. In considering whether it is more likely than not that some portion or all of the deferred tax assets will be realized, it has been determined that it is possible that some or all of our deferred tax assets could ultimately expire unused. We establish valuation allowances against deferred tax assets when the ability to fully utilize these benefits is determined to be uncertain.
We provide a valuation allowance against deferred tax assets if, based on management’s assessment of operating results and other available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The evidence contemplated by management at September 30, 2020 consists of current and prior operating results, available tax planning strategies, and the scheduled reversal of existing taxable temporary differences. Evidence from the scheduled reversal of taxable temporary differences relies on management judgements based on the accumulation of available evidence. Those judgements may be subject to change in the future as evidence available to management changes. Management’s assessment of our valuation allowance may further change based on our generation of or ability to project future operating income, and changes in tax policy or tax planning strategies.
We provide for income taxes during interim periods based on the estimated effective tax rate for the year.year and any discrete adjustments. The effective tax rate is subject to change in the future due to various factors such as the operating performance of the taxable REIT subsidiaries, tax
law changes, and future business acquisitions or divestitures. The taxable subsidiaries’ effective tax rates were (5.70)(16.2)% and (8.5)%1.2% for the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The CARES Act is an emergency economic stimulus package that includes measures and tax provisions to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act provides tax changes in response to the COVID-19 pandemic. Some of the provisions which may impact our financial statements include the removal of certain limitations on utilization of net operating losses, increasing the ability to deduct interest expense, and amending certain provisions of the previously enacted Tax Cuts and Jobs Act. Due to the recent enactment of the CARES Act, we are currently evaluating the impact, if any that the CARES Act will have on our consolidated financial statements. We have not yet identified any material impacts that may result from the CARES Act.
Fair Value Measurements – ASC Topic 820, Fair Value Measurement, emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is established that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
As of SeptemberJune 30, 2020,2021, we valued our derivative instruments primarily utilizing Level 2 inputs. See Note 14 – ‘Fair Value of Financial Instruments’ for additional details.
COVID-19 – We continue to actively monitor developments with respect to COVID-19 and have taken numerous actions based on corporate policies specifically focusing on the safety and wellnessTable of our customers, partners, and employees, as well as providing continuous and resilient services. Although the COVID-19 pandemic has caused significant disruptions to the United States and global economy and has contributed to significant volatility and negative pressure in financial markets, as of September 30, 2020, these developments have not had a known material adverse effect on our business. As of September 30, 2020, each of our data centers in North America and Europe are fully operational and operating in accordance with our business continuity plans. Across each of the respective jurisdictions in which we operate, our business has been deemed essential operations, which has allowed us to remain fully staffed with critical personnel in place to continue to provide service and support for our customers.ContentsThe extent to which the COVID-19 pandemic impacts our business and operations remains largely uncertain and will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the duration and scope of the pandemic, new information that may emerge concerning the severity of COVID-19, the response of the overall economy and financial markets and the actions taken to contain COVID-19 or treat its impact, such as government actions, laws or orders or any changes or amendments thereto and the success of any lifting or easing of, or the risk of any premature lifting or easing of, any such restrictions, among others. Due to uncertainties regarding COVID-19, any estimates of the effects of COVID-19 as reflected and/or discussed in these financial statements are based upon our best estimates using information known to us at this time, and such estimates may change in the near term, the effects of which could be material.
New Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in ASU 2018-13 eliminate the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, valuation processes for
Level 3 fair value measurements, and policy for timing of transfers between levels. ASU 2018-13 also provides clarification in the measurement uncertainty disclosure by explaining that the disclosure is to communicate information about the uncertainty in measurement as of the reporting date. In addition, ASU 2018-13 added the following requirements: changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and range and weighted average of significant unobservable inputs used in Level 3 fair value measurements. Finally, ASU 2018-13 updated language to further encourage entities to apply materiality when considering de minimus determination for disclosure requirements. The guidance will be applied retrospectively for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with the exception of amendments to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used for Level 3 fair value measurements, and the narrative description of measurement uncertainty which will be applied prospectively. We adopted this ASU effective January 1, 2020, and the provisions of this standard did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The amendments in ASU 2018-15 clarifies that implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in the software licensing arrangements under the internal-use software guidance. ASU 2018-15 also clarifies that any amortization of capitalized costs should not be recorded to “Depreciation and amortization” in the Consolidated Statements of Operations for costs after adoption. ASU 2018-15 is effective for us beginning January 1, 2020 and provides for the alternative to adopt the ASU (a) prospectively only for new costs incurred after the adoption date or (b) by adjusting existing costs to comply with this standard, including the requirement to present the amortization of costs outside “Depreciation and amortization”. We adopted this ASU effective January 1, 2020 using the prospective transition approach to all new implementation costs incurred after adoption. Beginning in the first quarter of 2020, this standard results in expenses previously recognized as non-real estate depreciation being recognized as general and administrative or operating expense. During the three and nine months ended September 30, 2020, we recorded less than $0.1 million of amortization expense related to capitalized software implementation costs associated with cloud computing arrangements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-4 in April 2019, ASU 2019-5 in May 2019, ASUs 2019-10 & 2019-11 in November 2019, and ASU 2020-2 in February 2020. The standard, as amended, requires entities to use a new impairment model based on current expected credit losses (“CECL”) rather than incurred losses. The CECL model is designed to capture expected credit losses through the establishment of an allowance account, which will be presented as an offset to the amortized cost basis of the related financial asset. The guidance is effective for interim and annual periods beginning after December 15, 2019. We adopted this ASU effective January 1, 2020. As the majority of our revenue is generated from operating leases which are governed under ASC Topic 842, the provisions of this standard did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions and adding some requirements regarding franchise (or similar) tax, step-ups in a business combination, treatment of entities not subject to tax and when to apply enacted changes in tax laws. This ASU is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. Early adoption is permitted. We are currently assessing the impact of this standard on our consolidated financial statements.
In January 2020, the FASB issued ASU 2020-1, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815, which clarifies the interaction between the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. ASU 2020-1 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The amendments inWe adopted this Update should be applied prospectively. We do not expectASU effective January 1, 2021, and the provisions of the standard willdid not have a material impact on our consolidated financial statements when adopted.
statements.
In March 2020, the FASB issued ASU 2020-4,Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-4 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-4 is optional and may be elected over time as reference rate reform activities occur. The standard is effective for all entities as of March 12, 2020 through December 31, 2022. An entity can elect to apply the amendments as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to that date that the financial statements are available to be issued. In January 2021, the FASB issued ASU 2021-1 Reference Rate Reform (Topic 848): Scope, which updated the standard to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Beginning in the first quarter of 2020, we have elected to applyapplied the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance but we do not expect the provisions of the standard will have a material impact on our consolidated financial statements.
In April 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The guidance requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. Under the guidance, an issuer determines the accounting for the modification or exchange based on whether the transaction was done to issue equity, to issue or modify debt, or for other reasons. The guidance is applied prospectively and is effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. We are currently evaluating the impact of the guidance on our consolidated financial statements.
We determined all other recently issued accounting pronouncements will not have a material impact on our consolidated financial statements or do not materially apply to our operations.
3. Real Estate Assets and Construction in Progress
The following is a summary of our cost of owned or leased properties as of SeptemberJune 30, 20202021 and December 31, 20192020 (in thousands):
As of SeptemberJune 30, 20202021 (unaudited):
| | Property Location | Property Location | | Land | | Buildings, Improvements and Equipment | | Construction in Progress | | Total Cost | Property Location | | Land | | Buildings, Improvements and Equipment | | Construction in Progress | | Total Cost |
Atlanta, Georgia Campus (1) | | $ | 55,157 | | | $ | 637,590 | | | $ | 214,778 | | | $ | 907,525 | | |
Ashburn, Virginia Campus (1) | | Ashburn, Virginia Campus (1) | | $ | 26,927 | | | $ | 428,817 | | | $ | 203,991 | | | $ | 659,735 | |
Atlanta, Georgia Campus (2) | | Atlanta, Georgia Campus (2) | | 55,157 | | | 826,547 | | | 197,173 | | | 1,078,877 | |
| Chicago, Illinois | | Chicago, Illinois | | 9,400 | | | 286,030 | | | 110,378 | | | 405,808 | |
| Dulles, Virginia | | Dulles, Virginia | | 3,154 | | | 55,749 | | | 4,419 | | | 63,322 | |
| Eemshaven, Netherlands | | Eemshaven, Netherlands | | 5,209 | | | 23,317 | | | 48,588 | | | 77,114 | |
| Fort Worth, Texas | | Fort Worth, Texas | | 9,079 | | | 128,910 | | | 6,625 | | | 144,614 | |
| Groningen, Netherlands | | Groningen, Netherlands | | 1,841 | | | 12,000 | | | 3,440 | | | 17,281 | |
| Hillsboro, Oregon | | Hillsboro, Oregon | | 18,414 | | | 60,396 | | | 67,626 | | | 146,436 | |
| Irving, Texas | Irving, Texas | | 8,606 | | | 390,777 | | | 95,957 | | | 495,340 | | Irving, Texas | | 8,606 | | | 409,950 | | | 97,797 | | | 516,353 | |
Ashburn, Virginia Campus (2) | | 16,475 | | | 354,069 | | | 119,378 | | | 489,922 | | |
Leased Facilities (3) | | Leased Facilities (3) | | 0 | | | 83,363 | | | 462 | | | 83,825 | |
Manassas, Virginia Campus (4) | | Manassas, Virginia Campus (4) | | 0 | | | 100 | | | 143,778 | | | 143,878 | |
Phoenix, Arizona (5) | | Phoenix, Arizona (5) | | 0 | | | 0 | | | 49,111 | | | 49,111 | |
| Piscataway, New Jersey | | Piscataway, New Jersey | | 7,466 | | | 124,760 | | | 55,878 | | | 188,104 | |
| Princeton, New Jersey | | Princeton, New Jersey | | 20,700 | | | 35,297 | | | 47 | | | 56,044 | |
| Richmond, Virginia | Richmond, Virginia | | 2,180 | | | 197,573 | | | 149,235 | | | 348,988 | | Richmond, Virginia | | 2,180 | | | 238,323 | | | 133,224 | | | 373,727 | |
| Chicago, Illinois | | 9,400 | | | 238,973 | | | 91,523 | | | 339,896 | | |
| Sacramento, California | | Sacramento, California | | 1,481 | | | 66,756 | | | 87 | | | 68,324 | |
Santa Clara, California (6) | | Santa Clara, California (6) | | 0 | | | 133,418 | | | 7,719 | | | 141,137 | |
| Suwanee, Georgia (Atlanta-Suwanee) | Suwanee, Georgia (Atlanta-Suwanee) | | 3,521 | | | 183,021 | | | 4,565 | | | 191,107 | | Suwanee, Georgia (Atlanta-Suwanee) | | 3,521 | | | 186,378 | | | 9,202 | | | 199,101 | |
| Piscataway, New Jersey | | 7,466 | | | 115,522 | | | 34,372 | | | 157,360 | | |
| Fort Worth, Texas | | 9,079 | | | 120,419 | | | 2,708 | | | 132,206 | | |
| Hillsboro, Oregon | | 18,414 | | | 21,167 | | | 84,009 | | | 123,590 | | |
Santa Clara, California (3) | | 0 | | | 116,829 | | | 1,511 | | | 118,340 | | |
Leased Facilities (4) | | 0 | | | 84,778 | | | 4,090 | | | 88,868 | | |
| Sacramento, California | | 1,481 | | | 65,990 | | | 193 | | | 67,664 | | |
| Eemshaven, Netherlands | | 5,150 | | | 20,826 | | | 40,899 | | | 66,875 | | |
| Dulles, Virginia | | 3,154 | | | 52,283 | | | 5,351 | | | 60,788 | | |
Manassas, Virginia (5) | | 0 | | | 0 | | | 59,645 | | | 59,645 | | |
| Princeton, New Jersey | | 20,700 | | | 35,227 | | | 73 | | | 56,000 | | |
Phoenix, Arizona (5) | | 0 | | | 0 | | | 33,282 | | | 33,282 | | |
| Groningen, Netherlands | | 1,820 | | | 10,290 | | | 3,572 | | | 15,682 | | |
Other (6) | | 2,213 | | | 36,493 | | | 12,451 | | | 51,157 | | |
Other (7) | | Other (7) | | 2,213 | | | 38,472 | | | 75,249 | | | 115,934 | |
| | $ | 164,816 | | | $ | 2,681,827 | | | $ | 957,592 | | | $ | 3,804,235 | | | $ | 175,348 | | | $ | 3,138,583 | | | $ | 1,214,794 | | | $ | 4,528,725 | |
(1)The “Atlanta, Georgia Campus” includes both the existing data center Atlanta (DC-1) as well as the recently developed data center Atlanta, GA (DC-2) on land adjacent to the existing Atlanta, GA (DC-1) facility.
(2)The “Ashburn, Virginia Campus” includes both the existing data center Ashburn, VA (DC-1)(DC - 1) as well as the recently developed data center Ashburn, VA (DC - 2).
(2)The “Atlanta, Georgia Campus” includes both the existing data center Atlanta (DC - 1) as well as the recently developed data center Atlanta, GA (DC - 2).
(3)Includes 6 facilities. All facilities are leased, including 1 subject to a finance lease.
(4)The “Manassas, Virginia Campus” includes new property development associated with the construction of a secondwholly owned data center Ashburn, VA (DC-2).
(3)Owned facility subject to long-term ground sublease.
(4)Includes 7 facilities. All facilities are leased, including one subject to a finance lease.in Manassas, Virginia as well as separate land purchases in Manassas, Virginia.
(5)RepresentRepresents land purchases. Land acquisition costs, as well as subsequent development costs, are included within construction in progress until development on the land has ended and the asset is ready for its intended use.
(6)Owned facility subject to long-term ground sublease.
(7)Consists of Miami, FL; Lenexa, KS; Overland Park, KS and Texas facilities.additional land.
As of December 31, 2019:2020:
| | Property Location | Property Location | | Land | | Buildings, Improvements and Equipment | | Construction in Progress | | Total Cost | Property Location | | Land | | Buildings, Improvements and Equipment | | Construction in Progress | | Total Cost |
Atlanta, Georgia Campus (1) | | $ | 44,588 | | | $ | 525,300 | | | $ | 128,930 | | | $ | 698,818 | | |
| Irving, Texas | | 8,606 | | | 369,727 | | | 98,170 | | | 476,503 | | |
Ashburn, Virginia (2) | | 16,476 | | | 156,396 | | | 189,375 | | | 362,247 | | |
| Richmond, Virginia | | 2,180 | | | 195,684 | | | 139,948 | | | 337,812 | | |
Ashburn, Virginia Campus (1) | | Ashburn, Virginia Campus (1) | | $ | 16,476 | | | $ | 371,725 | | | $ | 185,903 | | | $ | 574,104 | |
Atlanta, Georgia Campus (2) | | Atlanta, Georgia Campus (2) | | 55,157 | | | 700,142 | | | 191,072 | | | 946,371 | |
| Chicago, Illinois | Chicago, Illinois | | 9,400 | | | 205,026 | | | 86,878 | | | 301,304 | | Chicago, Illinois | | 9,400 | | | 250,336 | | | 104,117 | | | 363,853 | |
| Suwanee, Georgia (Atlanta-Suwanee) | | 3,521 | | | 174,124 | | | 5,559 | | | 183,204 | | |
| Piscataway, New Jersey | | 7,466 | | | 103,553 | | | 36,056 | | | 147,075 | | |
Santa Clara, California (3) | | 0 | | | 114,499 | | | 1,238 | | | 115,737 | | |
| Fort Worth, Texas | | 9,079 | | | 55,018 | | | 35,722 | | | 99,819 | | |
Leased Facilities (4)(3) | | 0 | | | 85,225 | | | 1,241 | | | 86,466 | | |
| Sacramento, California | | 1,481 | | | 65,258 | | | 163 | | | 66,902 | | |
Hillsboro, Oregon (2) | | 0 | | | 0 | | | 63,573 | | | 63,573 | | |
Manassas, Virginia (2) | | 0 | | | 0 | | | 57,662 | | | 57,662 | | |
| Princeton, New Jersey | | 20,700 | | | 35,192 | | | 39 | | | 55,931 | | |
| Dulles, Virginia | Dulles, Virginia | | 3,154 | | | 48,651 | | | 4,688 | | | 56,493 | | Dulles, Virginia | | 3,154 | | | 54,323 | | | 4,148 | | | 61,625 | |
| Eemshaven, Netherlands | Eemshaven, Netherlands | | 0 | | | 0 | | | 37,267 | | | 37,267 | | Eemshaven, Netherlands | | 5,366 | | | 21,712 | | | 47,531 | | | 74,609 | |
Phoenix, Arizona (2) | | 0 | | | 0 | | | 31,265 | | | 31,265 | | |
| Fort Worth, Texas | | Fort Worth, Texas | | 9,079 | | | 124,054 | | | 1,064 | | | 134,197 | |
| Groningen, Netherlands | Groningen, Netherlands | | 1,741 | | | 9,085 | | | 3,028 | | | 13,854 | | Groningen, Netherlands | | 1,896 | | | 11,206 | | | 3,730 | | | 16,832 | |
| Hillsboro, Oregon | | Hillsboro, Oregon | | 18,414 | | | 34,594 | | | 78,390 | | | 131,398 | |
| Irving, Texas | | Irving, Texas | | 8,606 | | | 392,275 | | | 99,591 | | | 500,472 | |
Leased Facilities (4)(3) | | Leased Facilities (4)(3) | | 0 | | | 82,759 | | | 225 | | | 82,984 | |
Manassas, Virginia Campus (4) | | Manassas, Virginia Campus (4) | | 0 | | | 25 | | | 67,073 | | | 67,098 | |
Phoenix, Arizona (5) | | Phoenix, Arizona (5) | | 0 | | | 0 | | | 37,729 | | | 37,729 | |
| Piscataway, New Jersey | | Piscataway, New Jersey | | 7,466 | | | 122,176 | | | 30,401 | | | 160,043 | |
| Princeton, New Jersey | | Princeton, New Jersey | | 20,700 | | | 35,261 | | | 5 | | | 55,966 | |
| Richmond, Virginia | | Richmond, Virginia | | 2,180 | | | 233,927 | | | 120,577 | | | 356,684 | |
| Sacramento, California | | Sacramento, California | | 1,481 | | | 66,300 | | | 12 | | | 67,793 | |
Santa Clara, California (6) | | Santa Clara, California (6) | | 0 | | | 117,343 | | | 9,385 | | | 126,728 | |
| Suwanee, Georgia (Atlanta-Suwanee) | | Suwanee, Georgia (Atlanta-Suwanee) | | 3,521 | | | 184,467 | | | 6,718 | | | 194,706 | |
Other (5)(7) | Other (5)(7) | | 2,213 | | | 36,163 | | | 120 | | | 38,496 | | Other (5)(7) | | 2,213 | | | 36,636 | | | 41,094 | | | 79,943 | |
| | $ | 130,605 | | | $ | 2,178,901 | | | $ | 920,922 | | | $ | 3,230,428 | | | | $ | 165,109 | | | $ | 2,839,261 | | | $ | 1,028,765 | | | $ | 4,033,135 | |
(1)The “Ashburn, Virginia Campus” includes both the existing data center Ashburn, VA (DC - 1) as well as the recently developed data center Ashburn, VA (DC - 2).
(2)The “Atlanta, Georgia Campus” includes both the existing data center Atlanta (DC-1)(DC - 1) as well as the recently developed data center Atlanta, GA (DC - 2).
(3)Includes 7 facilities. All facilities are leased, including 1 subject to a finance lease.
(4)The “Manassas, Virginia Campus” includes new property development associated with the construction of a secondwholly owned data center Atlanta (DC-2) onin Manassas, Virginia as well as separate land adjacent to the existing Atlanta DC-1 facilitypurchases in Manassas, Virginia.
(2)(5)RepresentRepresents land purchases. Land acquisition costs, as well as subsequent development costs, are included within construction in progress until development on the land has ended and the asset is ready for its intended use.
(3)(6)Owned facility subject to long-term ground sublease.
(4)Includes 7 facilities. All facilities are leased, including one subject to a finance lease.
(5)(7)Consists of Miami, FL; Lenexa, KS andKS; Overland Park, KS facilities.and additional land.
4. Leases
Leases as Lessee
We use leasing as a source of financing for certain data center facilities and related equipment. We currently operate 1 data center facility, along with various equipment and fiber optic transmission cabling, that are subject to finance leases. The remaining terms of our finance leases range from less than oneapproximately ten years to eighteentwenty years. Our finance lease associated with the data center includes multiple extension option periods, some of which were included in the lease term as we are reasonably certain to exercise those extension options. Our other finance leases typically do not have options to extend the initial lease term.
We currently lease 6 other facilities under operating lease agreements for various data centers, our corporate headquarters and additional office space. Our leases have remaining lease terms ranging from less than three years to sixapproximately five years. We have options to extend the initial lease term on nearly all of these leases. Additionally, we have 1 ground lease for our Santa Clara property that is an operating lease which is scheduled to expire in 2052.
Components of lease expense were as follows (unaudited and in thousands):
| | | Three months ended September 30, | | Nine Months Ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Finance lease cost: | Finance lease cost: | | | | | | | | Finance lease cost: | | | | | | | |
| Amortization of assets | Amortization of assets | $ | 1,038 | | | $ | 1,091 | | | $ | 3,115 | | | $ | 2,496 | | Amortization of assets | $ | 1,015 | | | $ | 1,039 | | | $ | 2,028 | | | $ | 2,077 | |
| Interest on lease liabilities | Interest on lease liabilities | 475 | | | 505 | | | 1,446 | | | 1,204 | | Interest on lease liabilities | 468 | | 482 | | | 937 | | | 971 | |
| Operating lease expense: | Operating lease expense: | | Operating lease expense: | |
| Operating lease cost | Operating lease cost | 2,266 | | | 2,256 | | | 6,768 | | | 6,849 | | Operating lease cost | 2,265 | | 2,239 | | | 4,497 | | | 4,502 | |
| Variable lease cost | Variable lease cost | 270 | | | 223 | | | 802 | | | 653 | | Variable lease cost | 286 | | 268 | | | 556 | | | 532 | |
| Sublease income | Sublease income | (49) | | | (46) | | | (144) | | | (139) | | Sublease income | (49) | | | (47) | | | (98) | | | (95) | |
| Total lease costs | Total lease costs | $ | 4,000 | | | $ | 4,029 | | | $ | 11,987 | | | $ | 11,063 | | Total lease costs | $ | 3,985 | | | $ | 3,981 | | | $ | 7,920 | | | $ | 7,987 | |
Leases as lessor
Our lease revenue contains both minimum lease payments as well as variable lease payments. See Note 2 – ‘Summary of Significant Accounting Policies’ for further details of our revenue streams and associated accounting treatment. The components of our lease revenue were as follows (unaudited and in thousands):
| | | Three months ended September 30, | | Nine Months Ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Lease revenue: | Lease revenue: | | | | | | | | Lease revenue: | | | | | | | |
| Minimum lease revenue | Minimum lease revenue | $ | 118,458 | | | $ | 103,623 | | | $ | 339,092 | | | $ | 304,166 | | Minimum lease revenue | $ | 132,574 | | | $ | 113,147 | | | $ | 260,280 | | | $ | 220,632 | |
| Variable lease revenue (primarily recoveries from customers) | Variable lease revenue (primarily recoveries from customers) | 15,324 | | | 17,852 | | | 40,768 | | | 41,675 | | Variable lease revenue (primarily recoveries from customers) | 18,233 | | | 12,849 | | | 34,835 | | | 25,445 | |
| Total lease revenue | Total lease revenue | $ | 133,782 | | | $ | 121,475 | | | $ | 379,860 | | | $ | 345,841 | | Total lease revenue | $ | 150,807 | | | $ | 125,996 | | | $ | 295,115 | | | $ | 246,077 | |
5. Investments in Unconsolidated Entity
During the three months ended March 31, 2019, QTSwe formed an unconsolidated entity with Alinda Capital Partners (“Alinda”), an infrastructure investment firm. QTSWe contributed a hyperscale data center under development in Manassas, Virginia to the entity. The facility, and the previously executed 10-year operating lease agreement with a global cloud-based software company, was contributed to the unconsolidated entity in exchange for cash and noncash consideration in the form of equity interest in the entity that was measured at fair value pursuant to Topic 820. The equity interest received and any amounts due from the unconsolidated entity are recorded within our consolidated balance sheets and totaled $22.9$12.4 million and $22.6 million as of SeptemberJune 30, 2020. QTS2021 and December 31, 2020, respectively. We and Alinda each own a 50% interest in the entity. As we are not the primary beneficiary of the arrangement but have the ability to exercise significant influence, we concluded that the investment should be accounted for as an unconsolidated entity using equity method investment accounting. As of SeptemberJune 30, 2021 and December 31, 2020, the total assets of the entity were $141.2$157.3 million and $141.5 million, respectively. As of June 30, 2021 and December 31, 2020, the total debt outstanding, net of deferred financing costs, was $89.0 million.
Under the equity method, our cost of investment is adjusted for additional contributions to$118.0 million and distributions from the unconsolidated entity, as well as our share of equity in the earnings and losses of the unconsolidated entity. Generally, distributions of cash flows from operations and capital events are made to members of the unconsolidated entity in accordance with each member’s ownership percentages and the terms of the agreement, but also provides us with rights to preferential cash distributions as certain phases are completed and leased to the underlying tenant. Our policy is to account for distributions from the unconsolidated entity on the basis of the nature of the activities that generated the distribution. Distributions from the operations of the unconsolidated entity are a return on our investment and we classify these distributions as operating cash flows. Any differences between the cost of our investment in an unconsolidated entity and its underlying equity as reflected in the unconsolidated entity’s financial statements generally result from costs of our investment that are not reflected on the unconsolidated entity’s financial statements.
Under the unconsolidated entity agreement, we serve as the entity’s operating member, subject to authority and oversight of a board appointed by us and Alinda, and separately we serve as manager and developer of the facility in exchange for management and development fees. The entity agreement includes various transfer restrictions and rights of first offer that will allow us to repurchase Alinda’s interest should Alinda wish to exit in the future.$90.1 million, respectively.
6. Debt
Below is a listing of our outstanding debt, including finance leases, as of SeptemberJune 30, 20202021 and December 31, 20192020 (in thousands):
| | | Weighted Average Effective Interest Rate at September 30, 2020 | | Maturity Date | | September 30,
2020 | | December 31,
2019 | | Weighted Average Effective Interest Rate at June 30, 2021 (1) | | Maturity Date | | June 30,
2021 | | December 31,
2020 |
| | (unaudited) | | | | (unaudited) | | | | (unaudited) | | | | (unaudited) | | |
| Unsecured Credit Facility | Unsecured Credit Facility | | Unsecured Credit Facility | |
| Revolving Credit Facility | Revolving Credit Facility | 1.38% | | December 17, 2023 | | $ | 522,951 | | | $ | 317,028 | | Revolving Credit Facility | 1.35% | | December 17, 2023 | | $ | 95,156 | | | $ | 392,337 | |
Term Loan A (1) | Term Loan A (1) | 3.26% | | December 17, 2024 | | 225,000 | | | 225,000 | | Term Loan A (1) | 3.26% | | December 17, 2024 | | 225,000 | | | 225,000 | |
Term Loan B (1) | Term Loan B (1) | 3.30% | | April 27, 2025 | | 225,000 | | | 225,000 | | Term Loan B (1) | 3.30% | | April 27, 2025 | | 225,000 | | | 225,000 | |
Term Loan C (1) | Term Loan C (1) | 3.46% | | October 18, 2026 | | 250,000 | | | 250,000 | | Term Loan C (1) | 3.46% | | October 18, 2026 | | 250,000 | | | 250,000 | |
| Senior Notes | 4.75% | | November 15, 2025 | | 400,000 | | | 400,000 | | |
| Lenexa Mortgage | 4.10% | | May 1, 2022 | | 1,689 | | | 1,736 | | |
| Term Loan D | | Term Loan D | 1.45% | | January 15, 2026 | | 250,000 | | | 250,000 | |
| 3.875% Senior Notes | | 3.875% Senior Notes | 3.88% | | October 1, 2028 | | 500,000 | | | 500,000 | |
| Finance Leases | Finance Leases | 4.36% | | 2021 - 2038 | | 43,222 | | | 45,140 | | Finance Leases | 4.36% | | 2031 - 2041 | | 42,395 | | | 41,718 | |
| | 3.09% | | 1,667,862 | | | 1,463,904 | | | 3.12% | | 1,587,551 | | | 1,884,055 | |
| Less net debt issuance costs | Less net debt issuance costs | | | (9,474) | | | (10,839) | | Less net debt issuance costs | | | (13,307) | | | (14,562) | |
| Total outstanding debt, net | Total outstanding debt, net | | $ | 1,658,388 | | | $ | 1,453,065 | | Total outstanding debt, net | | $ | 1,574,244 | | | $ | 1,869,493 | |
_________________________
(1)The coupon interest rates associated with Term Loan A, Term Loan B, and Term Loan C incorporate the effects of our interest rate swaps in effect as of SeptemberJune 30, 2020.
Credit Facilities, Senior Notes and Mortgage Notes Payable
(a) Unsecured Credit Facility – In October 2019, we amended and restated our unsecured credit facility (the “unsecured credit facility”), which among other things increased the total potential borrowings, extended maturity dates, lowered interest rates, and provided for an additional term loan under the agreement. The unsecured credit facility includes a $225 million term loan which matures on December 17, 2024 (the “Term Loan A”), a $225 million term loan which matures on April 27, 2025 (the “Term Loan B”), an additional term loan of $250 million, maturing on October 18, 2026 (the “Term Loan C”), and a $1.0 billion revolving credit facility which matures on December 17, 2023. The revolving portion of the unsecured facility has a one-year extension option. Amounts outstanding under the unsecured credit facility bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will vary depending upon our leverage ratio. For revolving credit loans, the spread ranges from 1.25% to 1.85% for LIBOR loans and 0.25% to 0.85% for base rate loans. For Term Loan A and Term Loan B, the spread ranges from 1.20% to 1.80% for LIBOR loans and 0.20% to 0.80% for base rate loans. For Term Loan C, the spread ranges from 1.50% to 1.85% for LIBOR loans and 0.50% to 0.85% for base rate loans. The unsecured credit facility also provides for borrowing capacity of up to $300 million in various foreign currencies.
Under the unsecured credit facility, the capacity may be increased from the current capacity of $1.7 billion to $2.2 billion subject to certain conditions set forth in the credit agreement, including the consent of the administrative agent and obtaining necessary commitments. We are also required to pay a commitment fee to the lenders assessed on the unused portion of the unsecured revolving credit facility. At our election, we can prepay amounts outstanding under the unsecured credit facility, in whole or in part, without penalty or premium.
Our ability to borrow under the unsecured credit facility is subject to ongoing compliance with a number of customary affirmative and negative covenants. As of September 30, 2020, we were in compliance with all of our covenants.
As of September 30, 2020, we had outstanding $1,223.0 million of indebtedness under the unsecured credit facility, consisting of $523.0 million of outstanding borrowings under the unsecured revolving credit facility and $700.0 million outstanding under the term loans, exclusive of net debt issuance costs of $5.6 million. In connection with the unsecured credit facility, as of September 30, 2020, we had additional letters of credit outstanding aggregating to $3.5 million.
We have also entered into certain interest rate swap agreements. See Note 7 – ‘Derivative Instruments’ for additional details.
(b) Senior Notes – On November 8, 2017, the Operating Partnership and QTS Finance Corporation, a subsidiary of the Operating Partnership formed solely for the purpose of facilitating the offering of the 5.875% Senior Notes due 2022 (collectively, the “Issuers”), issued $400.0 million aggregate principal amount of 4.750% Senior Notes due November 15, 2025 (the “Senior Notes”) in a private offering. The Senior Notes have an interest rate of 4.750% per annum and were issued at a price equal to 100% of their face value. The net proceeds from the offering were used to fund the redemption of the outstanding 5.875% Senior Notes and to repay a portion of the amount outstanding under our unsecured revolving credit facility. As of September 30, 2020, the outstanding net debt issuance costs associated with the Senior Notes were $3.9 million.
The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Operating Partnership’s existing subsidiaries (other than certain foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any indebtedness of QTS Realty Trust, Inc., the Issuers or any other subsidiary guarantor, other than QTS Finance Corporation, the co-issuer of the Senior Notes. QTS Realty Trust, Inc. does not guarantee the Senior Notes and will not be required to guarantee the Senior Notes except under certain circumstances. The offering was conducted pursuant to Rule 144A of the Securities Act of 1933, as amended, and the Senior Notes were issued pursuant to an indenture, dated as of November 8, 2017, among QTS, the Issuers, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee.
(c) Lenexa Mortgage – On March 8, 2017, we entered into a $1.9 million mortgage loan secured by our Lenexa facility. This mortgage has a fixed rate of 4.1%, with periodic principal payments due monthly and a balloon payment of $1.6 million in May 2022. As of September 30, 2020, the outstanding balance under the Lenexa mortgage was $1.7 million.2021.
The annual remaining principal payment requirements of our debt securities as of SeptemberJune 30, 20202021 per the contractual maturities, excluding extension options and excluding operating and finance leases, are as follows (unaudited and in thousands):
| | 2020 (October - December) | $ | 18 | | |
| 2021 | 73 | | |
| 2021 (July - December) | | 2021 (July - December) | $ | 0 | |
| 2022 | 2022 | 1,599 | | 2022 | 0 | |
| 2023 | 2023 | 522,951 | | 2023 | 95,156 | |
| 2024 | 2024 | 225,000 | | 2024 | 225,000 | |
| 2025 | | 2025 | 225,000 | |
| Thereafter | Thereafter | 875,000 | | Thereafter | 1,000,000 | |
| Total | Total | $ | 1,624,641 | | Total | $ | 1,545,156 | |
As of SeptemberJune 30, 2020,2021, we were in compliance with all of our covenants.covenants of our debt agreements.
7. Derivative Instruments
From time to time, we enter into derivative financial instruments to manage certain cash flow risks.
Derivatives designated and qualifying as a hedge of the exposure to variability in the cash flows of a specific asset or liability that is attributable to a particular risk, such as interest rate risk, are considered cash flow hedges.
Interest Rate Swaps
Our objectives in using interest rate swaps are to reduce variability in interest expense and to manage exposure to adverse interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
As of SeptemberJune 30, 2020,2021, we had interest rate swap agreements in place with an aggregate notional amount of $700 million. The forward swap agreements effectively fix the interest rate on $700 million of term loan borrowings, $225 million of swaps allocated to Term Loan A, $225 million allocated to Term Loan B and $250 million allocated to Term Loan C, through the current maturity dates of the respective term loans.
We reflect our interest rate swap agreements, which are designated as cash flow hedges, at fair value as either assets or liabilities on the consolidated balance sheets within the “Other assets, net” or “Derivative liabilities” line items, as applicable.
As of SeptemberJune 30, 20202021 and December 31, 2019,2020, the fair value of interest rate swaps represented an aggregatea net liability of $55.5$32.2 million and $19.9$49.8 million, respectively.
The forward interest rate swap agreements are derivatives that currently qualify for hedge accounting whereby we record the effective portion of changes in fair value of the interest rate swaps in accumulated other comprehensive income or loss on the consolidated balance sheets and statements of comprehensive income which is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of a derivative's change in fair value is immediately recognized within net income.income (loss). The amount reclassified from other comprehensive income as an increase to interest expense on the consolidated statements of operations was an increase to interest expense of $3.4 million and $6.8$2.7 million for the three and nine months ended SeptemberJune 30, 2021, and 2020, respectively. The amount reclassified from other comprehensive income as a reduction in interest expense on the consolidated statements of operations was $0.2respectively, and $6.8 million and $1.2$3.5 million for the three and ninesix months ended SeptemberJune 30, 2019,2021, and 2020, respectively. There was no ineffectiveness recognized for the three and ninesix months ended SeptemberJune 30, 2020,2021, and 2019.2020. During the subsequent twelve months, beginning OctoberJuly 1, 2020,2021, we estimate that $13.4$14.3 million will be reclassified from other comprehensive income as an increase to interest expense.
Interest rate derivatives and their fair values as of SeptemberJune 30, 20202021 and December 31, 20192020 were as follows (unaudited and in thousands):
| | Notional Amount | Notional Amount | | Fixed One Month
LIBOR rate per annum | | Fair Value | Notional Amount | | Fixed One Month LIBOR rate per annum | | Fair Value (1) |
| September 30, 2020 | | December 31, 2019 | | Effective Date | | Expiration Date | | September 30, 2020 | | December 31, 2019 | |
| June 30, 2021 | | June 30, 2021 | | December 31, 2020 | | Fixed One Month LIBOR rate per annum | | Effective Date | | Expiration Date | | June 30, 2021 | | December 31, 2020 |
| $ | 25,000 | | | $ | 25,000 | | | 1.989 | % | | January 2, 2018 | | Dec 17, 2021 | | $ | (557) | | | $ | (209) | | 25,000 | | | $ | 25,000 | | | January 2, 2018 | | December 17, 2021 | | $ | (220) | | | $ | (447) | |
| 100,000 | 100,000 | | | 100,000 | | | 1.989 | % | | January 2, 2018 | | Dec 17, 2021 | | (2,227) | | | (837) | | 100,000 | | | 100,000 | | | 1.989 | % | | January 2, 2018 | | December 17, 2021 | | (878) | | | (1,788) | |
| 75,000 | 75,000 | | | 75,000 | | | 1.989 | % | | January 2, 2018 | | Dec 17, 2021 | | (1,671) | | | (627) | | 75,000 | | | 75,000 | | | 1.989 | % | | January 2, 2018 | | December 17, 2021 | | (659) | | | (1,342) | |
| 50,000 | 50,000 | | | 50,000 | | | 2.033 | % | | January 2, 2018 | | Apr 27, 2022 | | (1,470) | | | (545) | | 50,000 | | | 50,000 | | | 2.033 | % | | January 2, 2018 | | April 27, 2022 | | (789) | | | (1,248) | |
| 100,000 | 100,000 | | | 100,000 | | | 2.029 | % | | January 2, 2018 | | Apr 27, 2022 | | (2,933) | | | (1,081) | | 100,000 | | | 100,000 | | | 2.029 | % | | January 2, 2018 | | April 27, 2022 | | (1,574) | | | (2,490) | |
| 50,000 | 50,000 | | | 50,000 | | | 2.033 | % | | January 2, 2018 | | Apr 27, 2022 | | (1,470) | | | (545) | | 50,000 | | | 50,000 | | | 2.033 | % | | January 2, 2018 | | April 27, 2022 | | (789) | | | (1,248) | |
| 100,000 | 100,000 | | | 100,000 | | | 2.617 | % | | January 2, 2020 | | Dec 17, 2023 | | (7,884) | | | (4,007) | | 100,000 | | | 100,000 | | | 2.617 | % | | January 2, 2020 | | December 17, 2023 | | (5,540) | | | (7,191) | |
| 100,000 | 100,000 | | | 100,000 | | | 2.621 | % | | January 2, 2020 | | Apr 27, 2024 | | (8,727) | | | (4,324) | | 100,000 | | | 100,000 | | | 2.621 | % | | January 2, 2020 | | April 27, 2024 | | (6,132) | | | (8,000) | |
| 70,000 | 70,000 | | | 0 | | | 0.968 | % | | March 2, 2020 | | Oct 18, 2026 | | (2,738) | | | 0 | | 70,000 | | | 70,000 | | | 0.968 | % | | March 2, 2020 | | October 18, 2026 | | (324) | | | (2,174) | |
| 30,000 | 30,000 | | | 0 | | | 0.973 | % | | March 2, 2020 | | Oct 18, 2026 | | (1,180) | | | 0 | | 30,000 | | | 30,000 | | | 0.973 | % | | March 2, 2020 | | October 18, 2026 | | (142) | | | (938) | |
| 200,000 | 200,000 | | | 200,000 | | | 2.636 | % | | December 17, 2021 | | Dec 17, 2023 | | (9,812) | | | (3,939) | | 200,000 | | | 200,000 | | | 2.636 | % | | December 17, 2021 | | December 17, 2023 | | (8,804) | | | (9,648) | |
| 200,000 | 200,000 | | | 200,000 | | | 2.642 | % | | April 27, 2022 | | Apr 27, 2024 | | (9,716) | | | (3,802) | | 200,000 | | | 200,000 | | | 2.642 | % | | April 27, 2022 | | April 27, 2024 | | (8,204) | | | (9,500) | |
| 125,000 | 125,000 | | | 0 | | | 1.014 | % | | December 17, 2023 | | Dec 17, 2024 | | (850) | | | 0 | | 125,000 | | | 125,000 | | | 1.014 | % | | December 17, 2023 | | December 17, 2024 | | 140 | | | (704) | |
| 100,000 | 100,000 | | | 0 | | | 1.035 | % | | December 17, 2023 | | Dec 17, 2024 | | (700) | | | 0 | | 100,000 | | | 100,000 | | | 1.035 | % | | December 17, 2023 | | December 17, 2024 | | 89 | | | (584) | |
| 75,000 | 75,000 | | | 0 | | | 1.110 | % | | December 17, 2023 | | Oct 18, 2026 | | (1,256) | | | 0 | | 75,000 | | | 75,000 | | | 1.110 | % | | December 17, 2023 | | October 18, 2026 | | 481 | | | (866) | |
| 100,000 | 100,000 | | | 0 | | | 1.088 | % | | April 27, 2024 | | Apr 27, 2025 | | (680) | | | 0 | | 100,000 | | | 100,000 | | | 1.088 | % | | April 27, 2024 | | April 27, 2025 | | 157 | | | (540) | |
| 125,000 | 125,000 | | | 0 | | | 1.082 | % | | April 27, 2024 | | Apr 27, 2025 | | (842) | | | 0 | | 125,000 | | | 125,000 | | | 1.082 | % | | April 27, 2024 | | April 27, 2025 | | 208 | | | (666) | |
| 75,000 | 75,000 | | | 0 | | | 0.977 | % | | April 27, 2024 | | Oct 18, 2026 | | (789) | | | 0 | | 75,000 | | | 75,000 | | | 0.977 | % | | April 27, 2024 | | October 18, 2026 | | 765 | | | (422) | |
| | $ | (55,502) | | | $ | (19,916) | | | $ | (32,215) | | | $ | (49,796) | |
(1)The fair value of the derivative financial instruments is presented on a gross basis, whereby positive amounts are presented within the “Other assets, net” and negative amounts are presented within the “Derivative liabilities” line items, as applicable, within the consolidated balance sheets.
Power Purchase Agreements
In March 2019, we entered into 2 10 year10-year agreements to purchase renewable energy equal to the expected electricity needs of our datacentersdata centers in Chicago, Illinois and Piscataway, New Jersey. These arrangements currently qualify for hedge accounting whereby we record the changes in fair value of the instruments in “Accumulated other comprehensive income” or loss on the consolidated balance sheets and statements of comprehensive income which is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The amount reclassified from other comprehensive income as an increase to utilities expense on the consolidated statements of operations was an increase to utilities expense of $0.2 million and $1.0an increase to utilities expense of $0.4 million for the three and nine months ended SeptemberJune 30, 2020.2021, and 2020, respectively, and an increase to utilities expense of $0.1 million and an increase to utilities expense of $0.8 million for the six months ended June 30, 2021 and 2020, respectively. We currently reflect these agreements, which are designated as cash flow hedges, at fair value as liabilities on the consolidated balance sheets within the “Derivative liabilities” line item.
Power purchase agreement derivatives and their fair values as of SeptemberJune 30, 20202021 and December 31, 20192020 were as follows (unaudited and in thousands):
| | | Fair Value | | Fair Value |
| Counterparty | Counterparty | | Facility | | Effective Date | | Expiration Date | | September 30, 2020 | | December 31, 2019 | Counterparty | | Facility | | Effective Date | | Expiration Date | | June 30, 2021 | | December 31, 2020 |
| Calpine Energy Solutions, LLC | Calpine Energy Solutions, LLC | | Piscataway | | 3/8/2019 | | Feb 28, 2029 | | $ | (2,155) | | | $ | (2,919) | | Calpine Energy Solutions, LLC | | Piscataway | | March 8, 2019 | | February 28, 2029 | | $ | (1,118) | | | $ | (2,162) | |
| Calpine Energy Solutions, LLC | Calpine Energy Solutions, LLC | | Chicago | | 3/8/2019 | | Feb 28, 2029 | | (2,375) | | | (3,774) | | Calpine Energy Solutions, LLC | | Chicago | | March 8, 2019 | | February 28, 2029 | | 496 | | | (1,764) | |
| | $ | (4,530) | | | $ | (6,693) | | | $ | (622) | | | $ | (3,926) | |
8. Commitments and Contingencies
We are subject to various routine legal proceedings and other matters in the ordinary course of business. We currently do not have any litigation that would have a material adverse impact on our financial statements. Additionally, we do not currently have any material contingencies related to the impact of COVID-19 reflected in our financial statements aside from certain increases to our general bad debt reserve provided for under ASC 450-20.
9. Partners’ Capital, Equity and Incentive Compensation Plans
QualityTech, LP
QTS has the full power and authority to do all the things necessary to conduct the business of the Operating Partnership.
As of SeptemberJune 30, 2020,2021, the Operating Partnership had 4 classes of limited partnership units outstanding: Series A Preferred Units, Series B Convertible Preferred Units, Class A units of limited partnership interest (“Class A units”) and Class O LTIP units of limited partnership units (“Class O units”). The Class A units currently outstanding are now redeemable on a 1-for-one exchange rate at any time for cash or shares of Class A common stock of QTS. The Company may in its sole discretion elect to assume and satisfy the redemption amount with cash or its shares. Class O units were issued upon grants made under the QualityTech, LP 2010 Equity Incentive Plan (the “2010 Equity Incentive Plan”). Class O units are pari passu with Class A units. Each Class O unit is convertible into Class A units by the Operating Partnership at any time or by the holder at any time based on formulas contained in the partnership agreement.
QTS Realty Trust, Inc.
In connection with its initial public offering on October 13, 2013 (“IPO”("IPO"), QTS issued Class A common stock and Class B common stock. Class B common stock entitles the holder to 50 votes per share and was issued to enable our Chief Executive Officer to exchange 2% of his Operating Partnership units so he may have a vote proportionate to his economic interest in the Company. Also in connection with its IPO, QTS adopted the QTS Realty Trust, Inc. 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”), pursuant to which authorized 1.75the Company may issue shares of Class A common stock pursuant to various types of awards. As of June 30, 2021, 7.9 million shares of Class A common stock to be issued under the 2013 Equity Incentive Plan, including options to purchase Class A common stock if exercised. On May 4, 2015, following approval by our stockholders at our 2015 Annual Meeting of Stockholders, the total number of shareswere authorized and available for issuance under the 2013 Equity Incentive Plan was increased by an additional 3,000,000. On May 9, 2019, following approval by our stockholders at our 2019 Annual Meeting of Stockholders, the total number of shares available for issuance under the 2013 Equity Incentive Plan was increased by an additional 1,110,000 to 5,860,000.Plan.
In March 2019, the Compensation Committee completed a redesign of the long-term incentive program for executive officers to include the following types of awards:
a.Performance-Based FFO Unit Awards — performance-based restricted share unit awards, which may be earned based on Operating Funds From Operations (“OFFO”) per diluted share measured over a two-year performance period (performance-based FFO units or “FFO Units”), with two-thirds of the earned FFO Units vesting and settling in shares of Class A common stock vesting aton the date that performance is certified following the end of the performance period when results have been certified and the remaining one-third of the sharesFFO Units vesting and settling at the end of three years from the award grant date. The number of shares of Class A common stock subject to the awards that can be earned ranges from 0% to 200% of the target award based on actual performance over the performance period, with the number of shares to be determined based on a linear interpolation basis between threshold and target and target and maximum performance.
b.Performance-Based Relative TSR Unit Awards — performance-based restricted share unit awards, which may be earned based on total stockholder return (“TSR”) as compared to the MSCI U.S. REIT Index (the “Index”) over a three-year performance period (the performance-based relative TSR units or “TSR Units”Units,” and together with the FFO Units, “performance units”). The number of shares of Class A common stock subject to the awards that can be earned ranges from 0% to 200% of the target award
based on our TSR compared to the Index. In addition, award payouts will be determined on a linear interpolation basis between threshold and target and target and maximum performance; and will be capped at the target performance level if our TSR is negative.
c.Restricted Stock Awards — the restricted stock awards vest as to one-third33% of the shares subject to awards on the first anniversary of the date of grant and as to 8.375% of the shares subject to the awards each quarter-end thereafter, subject to the named executive officer’s continued service as an employee as of each vesting date.
In connection with the closing of the Merger Transactions, immediately prior to the effective time of the merger (the “Effective Time”), each FFO Unit and TSR Unit that is outstanding will automatically become earned and vested with respect to that number of shares of Class A common stock subject to such performance units (including any related accrued dividend equivalents awarded with respect to performance units that were deemed reinvested in additional shares of Class A common stock in accordance with the applicable award agreement governing such units) determined in accordance with the terms of the applicable award agreement, which, in the case of TSR Units, is based on the achievement of the applicable performance goals as measured from the beginning of the applicable performance period through the date immediately prior to the closing date, and, in the case of FFO Units, is deemed earned at the target number of shares subject to the award (each such earned and vested performance unit (including any related dividend equivalents) we refer to as an “earned unit”); provided, however, (i) the FFO Units granted in 2020 will become earned and vest at the maximum level of performance (unless, prior to the Effective Time, Parent and the Company determine, in good faith and taking into account the effects of the occurrence of the transactions contemplated by the Merger Agreement, that, on a pro forma basis, the applicable performance goals would be satisfied at less than maximum performance, in which case such FFO Units will vest based on such actual pro forma performance achievement (but in no event less than target performance)), (ii) any performance units (including any related dividend equivalents) for which the level of performance has previously been determined and certified prior to the date of the Merger Agreement and that remain subject to service-based vesting conditions will, effective immediately prior to the Effective Time, automatically vest and be treated for purposes of the Merger Agreement as an earned unit and (iii) the TSR Units granted to the Company’s Chairman and Chief Executive Officer Chad L. Williams will be earned and vested at the greater of (x) target level or (y) the level of actual achievement of the applicable performance goals set forth in the applicable award agreement as measured from the beginning of the applicable performance period through the date immediately prior to the closing date. At the Effective Time, the earned units will be cancelled in exchange for a cash payment (without interest) in an amount equal to the number of earned units multiplied by $78 (less any applicable income and employment withholding taxes). Any performance units that do not become earned will be cancelled for no consideration immediately prior to the Effective Time.
The following is a summary of award activity under the 2010 Equity Incentive Plan and 2013 Equity Incentive Plan and related information for the ninesix months ended SeptemberJune 30, 20202021 (unaudited):
| | | 2010 Equity Incentive Plan | | 2013 Equity Incentive Plan | | 2010 Equity Incentive Plan | | 2013 Equity Incentive Plan |
| | Numbers of Class O units | | Weighted average exercise price | | Weighted average fair value | | Options | | Weighted average exercise price | | Weighted average fair value | | Restricted Stock / Deferred Stock | | Weighted average fair value at grand date | | TSR Units | | Weighted average fair value at grand date | | FFO Units | | Weighted average fair value at grand date | | Numbers of Class O units | | Weighted average exercise price | | Weighted average fair value | | Options | | Weighted average exercise price | | Weighted average fair value | | Restricted Stock / Deferred Stock | | Weighted average fair value at grant date | | TSR Units (2) | | Weighted average fair value at grant date | | FFO Units (2) | | Weighted average fair value at grant date |
| Outstanding at December 31, 2019 | 82,310 | | | $ | 25.00 | | | $ | 5.97 | | | 1,934,838 | | | $ | 37.11 | | | $ | 7.05 | | | 389,750 | | | $ | 39.67 | | | 84,350 | | | $ | 54.64 | | | 84,350 | | | $ | 42.01 | | |
| Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 75,435 | | | $ | 25.00 | | | $ | 6.11 | | | 1,936,407 | | | $ | 38.55 | | | $ | 7.26 | | | 416,496 | | | $ | 52.20 | | | 168,552 | | | $ | 66.90 | | | 132,267 | | | $ | 51.45 | |
| Granted | Granted | — | | | — | | | — | | | 99,872 | | | 56.84 | | | 9.35 | | | 264,545 | | | 56.90 | | | 84,202 | | | 79.18 | | | 84,202 | | | 56.84 | | Granted | 0 | | | 0 | | | 0 | | | 96,366 | | | 59.06 | | | 10.53 | | | 271,625 | | | 59.09 | | | 105,402 | | | 64.72 | | | 105,402 | | | 59.06 | |
Exercised/Vested (1) | Exercised/Vested (1) | (1,875) | | | 25.00 | | | 10.26 | | | (88,022) | | | 28.68 | | | 5.24 | | | (220,564) | | | 40.09 | | | — | | — | | — | | — | Exercised/Vested (1) | 0 | | | 0 | | | 0 | | | (51,220) | | | 38.63 | | | 7.91 | | | (171,236) | | | 52.63 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Cancelled/Expired | Cancelled/Expired | — | | | — | | | — | | | — | | | — | | | — | | | (7,669) | | | 48.88 | | | — | | — | | — | | — | Cancelled/Expired | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (4,305) | | | 57.38 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Outstanding at September 30, 2020 | 80,435 | | | $ | 25.00 | | | $ | 5.87 | | | 1,946,688 | | | $ | 38.50 | | | $ | 7.25 | | | 426,062 | | | $ | 49.98 | | | 168,552 | | | $ | 66.90 | | | 168,552 | | | $ | 49.42 | | |
| Outstanding at June 30, 2021 | | Outstanding at June 30, 2021 | 75,435 | | | $ | 25.00 | | | $ | 6.11 | | | 1,981,553 | | | $ | 39.55 | | | $ | 7.40 | | | 512,580 | | | $ | 55.66 | | | 273,954 | | | $ | 66.06 | | | 237,669 | | | $ | 54.82 | |
____________________
(1)This representsRepresents (i) Class O units which were converted to Class A units, (ii) options to purchase Class A common stock which were exercised, and (iii) the Class A common stock that has been released from restriction and which was not surrendered by the holder to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted common stock, with respect to the applicable column.
(2)Unmeasured TSR Units and FFO Units are presented in the table herein at 100% of target.
The assumptions and fair values for restricted stock and options to purchase shares of Class A common stock granted for the ninesix months ended SeptemberJune 30, 20202021 are included in the following table on a per unit basis (unaudited). Options to purchase shares of Class A common stock were valued using the Black-Scholes model and TSR Units were valued using a Monte-Carlo simulation that leveraged similar assumptions to those used to value the Class A common stock and FFO Units.
| | | | | |
| Nine Months Ended September 30, 2020 |
Fair value of FFO units and restricted stock granted | $56.84 - $65.96 |
Fair value of TSR units granted | $ | 79.18 | |
Fair value of options granted | $ | 9.35 | |
Expected term (years) | 5.5 |
Expected volatility | 27 | % |
Expected dividend yield | 3.31 | % |
Expected risk-free interest rates | 0.61 | % |
| | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Fair value of FFO Units and restricted stock granted | $ | 59.06 | | - | $ | 64.20 | |
| Fair value of TSR Units granted | | | $ | 64.72 | |
| Fair value of options granted | $ | 3.79 | | - | $ | 11.36 | |
| Expected term (years) | 0.4 | - | 5.5 |
| Expected volatility | 28 | % | - | 31 | % |
| Expected dividend yield | 3.39 | % |
| Expected risk-free interest rates | 0.06 | % | - | 0.90 | % |
The following tables summarize information about awards outstanding as of SeptemberJune 30, 20202021 (unaudited).
| | | Operating Partnership Awards Outstanding | | Operating Partnership Awards Outstanding |
| | Exercise prices | | Awards outstanding | | Weight average remaining vesting period
(years) | | Exercise prices | | Awards outstanding | | Weight average remaining vesting period
(years) |
| Class O Units | Class O Units | $ | 25.00 | | | 80,435 | | | — | Class O Units | $ | 25.00 | | | 75,435 | | | — |
| Total Operating Partnership awards outstanding | Total Operating Partnership awards outstanding | | 80,435 | | | Total Operating Partnership awards outstanding | | 75,435 | | |
| | | QTS Realty Trust, Inc. Awards Outstanding | | QTS Realty Trust, Inc. Awards Outstanding |
| | Exercise prices | | Awards outstanding | | Weight average remaining vesting period
(years) | | Exercise prices | | Awards outstanding | | Weight average remaining vesting period
(years) |
| Restricted stock | Restricted stock | $ | — | | | 426,062 | | | 0.7 | Restricted stock | — | | 512,580 | | | 0.9 |
| TSR units | — | | | 168,552 | | | 0.8 | |
| FFO units | — | | | 168,552 | | | 0.5 | |
| TSR Units | | TSR Units | — | | 273,954 | | | 0.9 |
| FFO Units | | FFO Units | — | | 237,669 | | | 0.6 |
| Options to purchase Class A common stock | Options to purchase Class A common stock | 21.00 - 56.84 | | 1,946,688 | | | 0.2 | Options to purchase Class A common stock | $ | 21.00 | | - | $ | 59.06 | | | 1,981,553 | | | 0.7 |
| Total QTS Realty Trust, Inc. awards outstanding | Total QTS Realty Trust, Inc. awards outstanding | | 2,709,854 | | | Total QTS Realty Trust, Inc. awards outstanding | | 3,005,756 | | |
Any awards outstanding as of the end of the period have been valued as of the grant date and generally vest ratably over a defined service period. As of SeptemberJune 30, 20202021, all restricted Class A common stock, TSR units,Units, and FFO unitsUnits outstanding were unvested and approximately 0.1 million options to purchase Class A common stock were outstanding and unvested. As of SeptemberJune 30, 20202021, we had $31.7$43.8 million of unrecognized equity-based compensation expense which will be recognized over a remaining weighted-average vesting period of 0.6 years.approximately nine months or at the Effective Time. The total intrinsic value of Class O units and options to purchase Class A common stock outstanding at SeptemberJune 30, 2021 was $79.0 million.
Further, pursuant to the Merger Agreement, the Company has suspended the 2020 was $50.8 million.Amended and Restated QTS Realty Trust, Inc. Employee Stock Purchase Plan (the “Company ESPP”) and no new offering period shall be commenced thereunder unless and until the Merger Agreement is terminated. Subject to the consummation of the Company merger, the Company ESPP shall terminate immediately prior to the Effective Time. Except as otherwise required by the Merger Agreement, applicable law, or an existing Company benefit arrangement, or as permitted by the Merger Agreement or consented to by Parent, the Company is restricted from entering into, adopting, amending in any material respects or terminating any agreements, arrangements, plans or policies related to employee benefits.
Dividends and Distributions
The following tables present quarterly cash dividends and distributions paid to QTS’our common and preferred stockholders and the Operating Partnership’s unit holders for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 (unaudited):
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Record Date | | Payment Date | | Per Share and
Per Unit Rate | | Aggregate Dividend/Distribution Amount (in millions) |
| Common Stock/Units | | | | | | |
| | | | | | |
| June 19, 2020 | | July 7, 2020 | | $ | 0.47 | | | $ | 31.5 | |
| March 20, 2020 | | April 7, 2020 | | $ | 0.47 | | | 31.5 | |
| December 20, 2019 | | January 7, 2020 | | $ | 0.44 | | | 28.6 | |
| | | | | | $ | 91.6 | |
| | | | | | |
| Series A Preferred Stock/Units | | | | | | |
| | | | | | |
| June 30, 2020 | | July 15, 2020 | | $ | 0.45 | | | $ | 1.9 | |
| March 31, 2020 | | April 15, 2020 | | $ | 0.45 | | | 1.9 | |
| December 31, 2019 | | January 15, 2020 | | $ | 0.45 | | | 1.9 | |
| | | | | | $ | 5.7 | |
| | | | | | |
| Series B Preferred Stock/Units | | | | | | |
| | | | | | |
| June 30, 2020 | | July 15, 2020 | | $ | 1.63 | | | $ | 5.1 | |
| March 31, 2020 | | April 15, 2020 | | $ | 1.63 | | | 5.1 | |
| December 31, 2019 | | January 15, 2020 | | $ | 1.63 | | | 5.1 | |
| | | | | | $ | 15.3 | |
| | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Record Date | | Payment Date | | Per Share Rate | | Aggregate Dividend/Distribution Amount (in millions) |
| Common Stock | | | | | | |
| | | | | | |
| March 19, 2021 | | April 6, 2021 | | $ | 0.50 | | | $ | 35.7 | |
| December 22, 2020 | | January 7, 2021 | | $ | 0.47 | | | 33.4 |
| | | | | | $ | 69.1 | |
| | | | | | |
| Series A Preferred Stock | | | | | | |
| | | | | | |
| March 31, 2021 | | April 15, 2021 | | $ | 0.45 | | | $ | 1.9 | |
| December 31, 2020 | | January 15, 2021 | | $ | 0.45 | | | 1.9 |
| | | | | | $ | 3.8 | |
| | | | | | |
| Series B Preferred Stock | | | | | | |
| | | | | | |
| March 31, 2021 | | April 15, 2021 | | $ | 1.63 | | | $ | 5.1 | |
| December 31, 2020 | | January 15, 2021 | | $ | 1.63 | | | 5.1 |
| | | | | | $ | 10.2 | |
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Record Date | | Payment Date | | Per Share and
Per Unit Rate | | Aggregate Dividend/Distribution Amount (in millions) |
| Common Stock/Units | | | | | | |
| | | | | | |
| June 25, 2019 | | July 9, 2019 | | $ | 0.44 | | | $ | 27.3 | |
| March 20, 2019 | | April 4, 2019 | | $ | 0.44 | | | 27.3 | |
| December 21, 2018 | | January 8, 2019 | | $ | 0.41 | | | 23.7 | |
| | | | | | $ | 78.3 | |
| | | | | | |
| Series A Preferred Stock/Units | | | | | | |
| | | | | | |
| June 30, 2019 | | July 15, 2019 | | $ | 0.45 | | | $ | 1.9 | |
| March 31, 2019 | | April 15, 2019 | | $ | 0.45 | | | 1.9 | |
| December 31, 2018 | | January 15, 2019 | | $ | 0.45 | | | 1.9 | |
| | | | | | $ | 5.7 | |
| | | | | | |
| Series B Preferred Stock/Units | | | | | | |
| | | | | | |
| June 30, 2019 | | July 15, 2019 | | $ | 1.63 | | | $ | 5.1 | |
| March 31, 2019 | | April 15, 2019 | | $ | 1.63 | | | 5.1 | |
| December 31, 2018 | | January 15, 2019 | | $ | 1.63 | | | 5.1 | |
| | | | | | $ | 15.3 | |
| | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Record Date | | Payment Date | | Per Share Rate | | Aggregate Dividend/Distribution Amount (in millions) |
| Common Stock | | | | | | |
| | | | | | |
| March 20, 2020 | | April 7, 2020 | | $ | 0.47 | | | $ | 31.5 | |
| December 20, 2019 | | January 7, 2020 | | $ | 0.44 | | | 28.6 |
| | | | | | $ | 60.1 | |
| | | | | | |
| Series A Preferred Stock | | | | | | |
| | | | | | |
| March 31, 2020 | | April 15, 2020 | | $ | 0.45 | | | $ | 1.9 | |
| December 31, 2019 | | January 15, 2020 | | $ | 0.45 | | | 1.9 |
| | | | | | $ | 3.8 | |
| | | | | | |
| Series B Preferred Stock | | | | | | |
| | | | | | |
| March 31, 2020 | | April 15, 2020 | | $ | 1.63 | | | $ | 5.1 | |
| December 31, 2019 | | January 15, 2020 | | $ | 1.63 | | | 5.1 |
| | | | | | $ | 10.2 | |
Additionally, subsequent to SeptemberJune 30, 2020, the Company2021, we paid the following dividends:
•On October 6, 2020, the CompanyJuly 7, 2021, we paid itsour regular quarterly cash dividend of $0.47$0.50 per common share and per unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on SeptemberJune 18, 2020.2021.
•On OctoberJuly 15, 2020, the Company2021, we paid a quarterly cash dividend of approximately $0.45 per share on itsour Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on SeptemberJune 30, 2020, and the Operating Partnership paid a quarterly cash distribution of approximately $0.45 per unit on outstanding Series A Preferred Units held by the Company.2021.
•On OctoberJuly 15, 2020, the Company2021, we paid a quarterly cash dividend of approximately $1.63 per share on itsour Series B Preferred Stock to holders of Series B Preferred Stock of record as of the close of business on SeptemberJune 30, 2020, and the Operating Partnership paid a quarterly cash distribution2021.
Equity Issuances
Class A Common Stock
In SeptemberJune 2019, we established an “at-the-market” equity offering program (the “Prior ATM Program”) pursuant to which we could issue, from time to time, up to $400 million of our Class A common stock, $0.01 par value per share (the “Class A common stock”), which could include shares to be sold on a forward basis. TheDuring the three months ended March 31, 2021, we settled the remaining shares subject to the forward sale agreements under the Prior ATM Program.
Because we had utilized substantially all of the offering capacity of the Prior ATM Program, in May 2020, we established a new “at-the-market” equity offering program (the “Current ATM Program”) pursuant to which we may issue, from time to time, up to $500 million of our Class A common stock, which may include shares to be sold on a forward basis. As under the Prior ATM Program, the use of forward sales under the PriorCurrent ATM Program generally allows us to lock in a price on the sale of shares of our Class A common stock when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares of our Class A common stock are issued at settlement on a later date. Pursuant to the Merger Agreement, the Company is restricted from issuing common stock under the ATM Program.
In June 2020, we conducted an underwritten offering of 4,400,000 shares of our common stock on a forward basis.
During the three months ended June 30, 2021, we settled 8.2 million shares sold on a forward basis, representing all remaining outstanding forward stock sales from the Current ATM Program and the June 2020 underwritten offering, generating net proceeds of approximately $490.9 million. We have concluded that the forward sale agreements meet the derivative scope exception for certain contracts involving an entity’s own equity. The initial forward sale price is subject to daily adjustment based on a floating interest rate factor equal to the specified daily rate less a spread, and will decrease by other fixed amounts specified in the forward sale agreement. Until settlement of all of the forward sale agreements, ourOur earnings per share dilution resulting from the forward sale agreements, if any, is determined using the two-class method.
In May 2020, we established a new “at-the-market” equity offering program (the “ATM Program”) pursuant to which we may issue, from time to time, up to $500 millionPreferred Stock
As of our Class A common stock, which may include shares to be sold on a forward basis. As under the Prior ATM Program, the use of forward sales under the ATM Program generally allows us to lock in a price
on the sale of shares of our Class A common stock when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares of our Class A common stock are issued at settlement on a later date. We have concluded that the forward sale agreements meet the derivative scope exception for certain contracts involving an entity’s own equity. Until settlement of all of the forward sale agreements, our earnings per share dilution resulting from the agreements, if any, is determined using the two-class method.
At any time during the term of any forward sale under the Prior ATM Program or the ATM Program, we may settle the forward sale by physical delivery of shares of Class A common stock to the forward purchasers or, at our election, cash settle or net share settle. The initial forward sale price per share under each forward sale equals the product of (x) an amount equal to 100% minus the applicable forward selling commission and (y) the volume weighted average price per share at which the borrowed shares of our common stock were sold pursuant to the equity distribution agreement by the relevant forward seller during the applicable forward hedge selling period for such shares to hedge the relevant forward purchaser’s exposure under such forward sale. Thereafter, the forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor equal to the specified daily rate less a spread, and is decreased based on specified amounts related to dividends on shares of our common stock during the term of the applicable forward sale. If the specified daily rate is less than the spread on any day, the interest rate factor will result in a daily reduction of the applicable forward sale price.
During the three months ended September 30, 2020, we received $151.8 million of net proceeds from the settlement of forward shares as noted in the table below. We expect to physically settle (by delivering shares of Class A common stock) the remaining forward sales under the Prior ATM Program and ATM Program prior to the first anniversary date of each respective transaction. In addition, during the three months ended September 30, 2020, we utilized the forward provisions under the Prior ATM Program and the ATM Program to allow for the sale of additional shares of our common stock as noted in the table below.
In June 2020, we conducted an underwritten offering of 4,400,000 shares of common stock offered on a forward basis at a price of $64.90 per share representing available net proceeds upon physical settlement of approximately $269.4 million as of September 30, 2020. We expect to physically settle the forward sale agreements (by the delivery of shares of common stock) and receive proceeds, subject to certain adjustments, from the sale of those shares of common stock by June 30, 2021, although we have the right to elect settlement prior to that time. We have concluded that the forward sale agreements meet the derivative scope exception for certain contracts involving an entity’s own equity. The initial forward sale price is subject to daily adjustment based on a floating interest rate factor equal to the specified daily rate less a spread, and will decrease by other fixed amounts specified in the forward sale agreement. Until settlement of all of the forward sale agreements, our earnings per share dilution resulting from the agreements, if any, is determined using the two-class method.
The following table represents a summary of equity issuances of our Class A common stock for the three months ended September 30, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| Offering Program | | Forward Shares Sold/(Settled) | | | Net Proceeds Available/(Received) (1) | |
| Shares and net proceeds available as of June 30, 2020 | | 10,299 | | | | $ | 584,924 | | (2) |
| May 2020 ATM Program - Sales | | 114 | | | | 7,348 | | |
| June 2019 Prior ATM Program - Settlements | | (2,948) | | (3) | | (151,844) | | |
| Shares and net proceeds available as of September 30, 2020 | | 7,465 | | | | $ | 440,428 | | |
____________________
(1)Net Proceeds Available remain subject to certain adjustments until settled.
(2)Proceeds available reported in the Form 10-Q for the period ended June 30, 2020 were $591 million. The $6 million decrease is primarily due to QTS’ declared dividends, which reduces cash expected to be received upon full physical settlement of the forward shares.
(3)Represents the number of forward shares we elected to physically settle during the period
Preferred Stock
On March 15, 2018, QTS issuedhad outstanding 4,280,000 shares of 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock (“("Series A Preferred Stock”Stock") with a liquidation preference of $25.00 per share which included 280,000as well as 3,162,500 shares of the underwriters’ partial exercise6.50% Series B Cumulative Convertible Perpetual Preferred Stock (“Series B Preferred Stock”) with a liquidation preference of their option to purchase additional shares. In connection with the issuance of$100.00 per share. Dividends on the Series A Preferred Stock on March 15, 2018 the Operating Partnership issued to the Company 4,280,000and Series A Preferred Units, which have economic terms that are substantially similar to the Company’s Series A Preferred Stock. The Series A Preferred Units were issued in exchange for the Company’s contribution of the net offering proceeds of the offering of the Series A Preferred Stock to the Operating Partnership.
Dividends on the Series AB Preferred Stock are payable quarterly in arrears on or about the 15th day of each January, April, July and October.
The Series A Preferred Stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, the Series A Preferred Stock will rank senior to common stock and pari passu with the Series B Preferred Stock with respect to the payment of distributions and other amounts. Except in instances relating to preservation of QTS’ qualification as a REIT or pursuant to the Company’s special optional redemption right, the Series A Preferred Stock is not redeemable prior to March 15, 2023.date. On and after March 15, 2023, the Company may, at its option, redeem the Series A Preferred Stock, in whole, at any time, or in part, from time to time, for cash at a redemption price of $25.00 per share, plus any accrued and unpaid dividends (whether or not declared) to, but not including, the date of redemption.
Upon Under certain conditions, upon the occurrence of a change of control, the Company has a special optional redemption right that enables it towe may redeem the Series A Preferred Stock in whole, at any time, or in part, from time to time within 120 days after the first date on which a change of control has occurred resulting in neither QTS nor the surviving entity having a class of common shares listed on the NYSE, NYSE Amex, or NASDAQ or the acquisition of beneficial ownership of its stock entitling a person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in election of directors. The special optional redemption price is $25.00 per share, plus any accrued and unpaid dividends (whether or not declared) to, but not including, the date of redemption.
Upon the occurrence of a change of control,such event and the holders will have the right (unless the Company has elected to exercise its special optional redemption right to redeemconvert their Series A Preferred Stock)Stock to convert some orClass A common stock in accordance with the terms of the Series A Preferred Stock. On July 30, 2021, and in accordance with the Merger Agreement, we issued a notice of redemption pursuant to which all shares of such holder’s Series A Preferred Stock into a number of shares of Class A common stock, par value $0.01 per share, equal tothat are outstanding following the lesser of:
•the quotient obtained by dividing (i) the sumclosing of the $25.00 liquidation preference plus the amount of any accrued and unpaid dividends (whether or not declared) to, but not including, the change of control conversion date (unless the change of control conversion date is after a record date for a Series A Preferred Stock dividend payment and prior to the corresponding Series A Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividendCompany merger will be included in this sum) by (ii) the Common Stock Price; andredeemed.
• 1.46929 (i.e., the Share Cap);
subject, in each case, to certain adjustments and provisions for the receipt of alternative consideration of equivalent value as described in the prospectus supplement for the Series A Preferred Stock.
On June 25, 2018, QTS issued 3,162,500 shares of 6.50% Series B Cumulative Convertible Perpetual Preferred Stock (“Series B Preferred Stock”) with a liquidation preference of $100.00 per share, which included 412,500 shares the underwriters purchased pursuant to the exercise of their overallotment option in full. In connection with the issuance of the
The Series B Preferred Stock on June 25, 2018 the Operating Partnership issued to the Company 3,162,500 Series B Preferred Units, whichdoes not have economic terms that are substantially similar to the Company’s Series B Preferred Stock. The Series B Preferred Units were issued in exchange for the Company’s contribution of the net offering proceeds of the offering of the Series B Preferred Stock to the Operating Partnership.
Dividends on the Series B Preferred Stock are payable quarterly in arrears on or about the 15th day of each January, April, July and October.a stated maturity date. The Series B Preferred Stock is convertible by holders into shares of Class A common stock at any time at the then-prevailing conversion rate. The conversion rate as of SeptemberJune 30, 20202021 is 2.13822.1462 shares of the Company’s Class A common stock per share of Series B Preferred Stock. The Series B Preferred Stock does not have a stated maturity date. Upon liquidation, dissolution or winding up, the Series B Preferred Stock will rank senior to common stock and pari passu with the Series A Preferred Stock with respect to the payment of distributions and other amounts. The Series B Preferred Stock is not redeemable by the Company. At any time on or after July 20, 2023, the Company may at its option cause all (but not less than all) outstanding shares of the Series B Preferred Stock to be automatically converted into the Company’s Class A common stock at the then-prevailing conversion rate if the closing sale price of the Company’s Class A common stock is equal to or exceeds 150% of the then-prevailing conversion price for at least 20 trading days in a period of 30 consecutive trading days, including the last trading day of such 30-day period, ending on the trading day prior to the issuance of a press release announcing the mandatory conversion.
If
On August 2, 2021, the Company issued a holder converts its sharesnotice of fundamental change advising holders that the closing of the Company merger constitutes a “fundamental change” and that pursuant to the Company merger, each outstanding share of Series B Preferred Stock at any time beginningshall be automatically converted into one Series A preferred unit of Merger Sub I, with such Series A preferred units having terms materially the same as the Series B Preferred Stock including that each Series A preferred unit may be converted into cash during the specified period following the partnership merger at the openingholder’s election in accordance with the terms of business on the trading day immediately following the effective date of a fundamental change (as described in the prospectus supplement) and ending at the close of business on the 30th trading day immediately following such effective date, the holder will automatically receive a number of shares of the Company’s Class A common stock equal to the greater of:securities.
•the sum of (i) a number of shares of the Company’s Class A common stock, as may be adjusted, as described in the Articles Supplementary for the 6.50% Series B Cumulative Convertible Perpetual Preferred Stock filed with the State Department of Assessments and Taxation of Maryland on June 22, 2018 (the “Articles Supplementary”) and (ii) the make-whole premium described in the Articles Supplementary; and
•a number of shares of the Company's Class A common stock equal to the lesser of (i) the liquidation preference divided by the average of the daily volume weighted average prices of the Company's Class A common stock for ten days preceding the effective date of a fundamental change and (ii) 5.1020 (subject to adjustment).
10. Related Party Transactions
As described further in Note 5 – ‘Investments in Unconsolidated Entity’, during the ninethree months ended September 30,March 31, 2019, we formed an unconsolidated entity with Alinda, an infrastructure investment firm. We contributed a hyperscale data center under development in Manassas, Virginia to the entity. The facility, and the previously executed operating lease to a global cloud-based software company pursuant to a 10-year lease agreement, was contributed in exchange for cash and noncash consideration in the form of equity interest in the entity that was measured at fair value pursuant to ASC Topic 820. We and Alinda each own a 50% interest in the entity.
Under the unconsolidated entity operating agreement, we serve as the entity’s operating member, subject to authority and oversight of a board appointed by us and Alinda, and separately we serve as manager and developer of the facility in exchange for management and development fees. During the three months ended SeptemberJune 30, 2021 and 2020, we did 0t earn anyreceived $0.6 million and $0.4 million, respectively, in development fees from the unconsolidated entity, and earned less than $0.1$0.9 million duringand $0.9 million for the six months ended June 30, 2021 and 2020, respectively. During the three months ended SeptemberJune 30, 2019. We earned development fees of approximately $0.92021 and 2020, we received $0.3 million and $0.4 million for the nine months ended September 30, 2020 and 2019, respectively. In addition, we earned approximately $0.2 million, and $0.1 millionrespectively, in management fees from the unconsolidated entity, duringand $0.5 million and $0.4 million for the six months ended June 30, 2021 and 2020, respectively. During the three months ended SeptemberJune 30, 20202021, we also received a distribution from the unconsolidated entity that was contemplated in the operating agreement and 2019, respectively, and $0.6 million and $0.3 million foris classified as an investing cash flow given the nine months ended September 30, 2020 and 2019, respectively.nature of the distribution as a return of capital.
In addition, we periodically execute transactions with entities affiliated with our Chairman and Chief Executive Officer. Such transactions include automobile, furniture and equipment purchases as well as building operating lease payments and receipts andas well as reimbursement for the use of a private aircraft service by our officers and directors.
The transactions which occurred during the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 are outlined below (unaudited and in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Tax, utility, insurance and other reimbursement | Tax, utility, insurance and other reimbursement | $ | 114 | | | $ | 173 | | | $ | 368 | | | $ | 608 | | Tax, utility, insurance and other reimbursement | $ | 254 | | | $ | 78 | | | $ | 423 | | | $ | 254 | |
| Rent expense | Rent expense | 257 | | | 254 | | | 770 | | | 761 | | Rent expense | 260 | | | 257 | | | 520 | | | 514 | |
| Capital assets acquired | 0 | | | 53 | | | 0 | | | 477 | | |
| Total | Total | $ | 371 | | | $ | 480 | | | $ | 1,138 | | | $ | 1,846 | | Total | $ | 514 | | | $ | 335 | | | $ | 943 | | | $ | 768 | |
11. Noncontrolling Interest
Concurrently with the completion of the IPO, we consummated a series of transactions pursuant to which QTS became the sole general partner and majority owner of QualityTech, LP, which then became its operating partnership. The previous owners of QualityTech, LP retained 21.2% ownership of the Operating Partnership as of the date of the IPO.
Commencing at any time beginning November 1, 2014, at the election of the holders of the noncontrolling interest, the currently outstanding Class A units of the Operating Partnership are redeemable for cash or, at the election of the Company, Class A common stock of the Company on a 1-for-one basis. As of SeptemberJune 30, 2020,2021, the noncontrolling ownership interest percentage of QualityTech, LP was 9.4%7.7%.
12. Earnings per share of QTS Realty Trust, Inc.
Basic income (loss) per share is calculated by dividing the net income (loss) attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share adjusts basic income per share for the effects of potentially dilutive common shares. Unvested restricted stock awards and our forward sale contracts described in Note 9 contain non-forfeitable rights to dividends and thus are participating securities and are included in the computation of basic earnings per share pursuant to the two-class method for all periods presented. The two-class method is an earnings allocation formula that treats a participating security as having rights to undistributed earnings that would otherwise have been available to common stockholders. Accordingly, service-based restricted stock awards and the forward sale contracts were included in the calculation of basic earnings per share using the two-class method for all periods presented to the extent outstanding during the period.
The computation of basic and diluted net income (loss) per share is as follows (in thousands, except per share data, and unaudited):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Numerator: | Numerator: | | | | | | | | Numerator: | | | | | | | |
| Net income | Net income | $ | 6,907 | | | $ | 6,588 | | | $ | 25,236 | | | $ | 35,271 | | Net income | $ | 4,199 | | | $ | 10,209 | | | $ | 12,117 | | | $ | 18,329 | |
| (Income) loss attributable to noncontrolling interests | (Income) loss attributable to noncontrolling interests | 18 | | | 49 | | | (408) | | | (1,593) | | (Income) loss attributable to noncontrolling interests | 251 | | | (317) | | | 172 | | | (427) | |
| Preferred stock dividends | Preferred stock dividends | (7,045) | | | (7,045) | | | (21,135) | | | (21,135) | | Preferred stock dividends | (7,045) | | | (7,045) | | | (14,090) | | | (14,090) | |
| Earnings attributable to participating securities | Earnings attributable to participating securities | (4,372) | | | (2,184) | | | (11,521) | | | (5,999) | | Earnings attributable to participating securities | (2,678) | | | (5,552) | | | (7,964) | | | (7,148) | |
| Net income (loss) available to common stockholders after allocation to participating securities | $ | (4,492) | | | $ | (2,592) | | | $ | (7,828) | | | $ | 6,544 | | |
| Net loss available to common stockholders after allocation to participating securities | | Net loss available to common stockholders after allocation to participating securities | $ | (5,273) | | | $ | (2,705) | | | $ | (9,765) | | | $ | (3,336) | |
| Denominator: | Denominator: | | | | | | | | Denominator: | | | | | | | |
| Weighted average shares outstanding - basic | Weighted average shares outstanding - basic | 61,036 | | | 54,928 | | | 59,615 | | | 53,874 | | Weighted average shares outstanding - basic | 69,338 | | | 59,773 | | | 66,903 | | | 58,900 | |
| Effect of Class O units, TSR units and options to purchase Class A common stock on an "as if" converted basis | 0 | | | 0 | | | 0 | | | 463 | | |
| Effect of Class O units, TSR Units, FFO Units and options to purchase Class A common stock on an "as if" converted basis | | Effect of Class O units, TSR Units, FFO Units and options to purchase Class A common stock on an "as if" converted basis | 0 | | | 0 | | | 0 | | | 0 | |
| Weighted average shares outstanding - diluted | Weighted average shares outstanding - diluted | 61,036 | | | 54,928 | | | 59,615 | | | 54,337 | | Weighted average shares outstanding - diluted | 69,338 | | | 59,773 | | | 66,903 | | | 58,900 | |
| | Basic net income (loss) per share | $ | (0.07) | | | $ | (0.05) | | | $ | (0.13) | | | $ | 0.12 | | |
| Basic net loss per share * | | Basic net loss per share * | $ | (0.08) | | | $ | (0.05) | | | $ | (0.15) | | | $ | (0.06) | |
| | Diluted net income (loss) per share | $ | (0.07) | | | $ | (0.05) | | | $ | (0.13) | | | $ | 0.12 | | |
| Diluted net loss per share * | | Diluted net loss per share * | $ | (0.08) | | | $ | (0.05) | | | $ | (0.15) | | | $ | (0.06) | |
*Note: The calculations of basic and diluted net income (loss) per share above do not include the following number of Class A partnership units, Class O units, TSR unitsUnits, FFO Units and options to purchase common stock on an “as if” converted basis, and the effects of Series B Convertible preferred stock on an “as if” converted basis, as their respective inclusions would have been antidilutive:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Class A Partnership units | Class A Partnership units | 6,658 | | | 6,668 | | | 6,667 | | | 6,670 | | Class A Partnership units | 6,440 | | | 6,671 | | | 6,453 | | | 6,671 | |
| Class O units, TSR units and options to purchase common stock on an "as if" converted basis | 1,176 | | | 557 | | | 1,126 | | | 0 | | |
| Class O units, TSR Units, FFO Units and options to purchase common stock on an "as if" converted basis | | Class O units, TSR Units, FFO Units and options to purchase common stock on an "as if" converted basis | 1,434 | | | 1,131 | | | 1,372 | | | 1,066 | |
| Series B Convertible preferred stock on an "as if" converted basis | Series B Convertible preferred stock on an "as if" converted basis | 6,762 | | | 6,729 | | | 6,756 | | | 6,729 | | Series B Convertible preferred stock on an "as if" converted basis | 6,787 | | | 6,756 | | | 6,783 | | | 6,753 | |
13. Contracts with Customers
Future minimum payments to be received under non-cancelable customer contracts including both lease rental revenue components and non-lease revenue components that are accounted for as a combined lease component in accordance with the practical expedient provided by ASC Topic 842 which is discussed in Note 2 above (inclusive of payments for contracts which have not yet commenced, and exclusive of variable lease revenue such as recoveries of operating costs from customers) are as follows for the years ending December 31 (unaudited and in thousands):
| | | | | |
| 2021 (July - December) | $ | 246,515 | |
| 2022 | 430,232 | |
| 2023 | 335,884 | |
| 2024 | 270,302 | |
| 2025 | 210,056 | |
| Thereafter | 600,928 | |
| Total | $ | 2,093,917 | |
| | | | | |
| 2020 (October - December) | $ | 108,231 | |
| 2021 | 405,822 | |
| 2022 | 323,623 | |
| 2023 | 221,007 | |
| 2024 | 169,774 | |
| Thereafter | 421,599 | |
| Total | $ | 1,650,056 | |
14. Fair Value of Financial Instruments
ASC Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based upon the application of discount rates to estimated future cash flows based upon market yields or by using other valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, fair values are not necessarily indicative of the amounts we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.
Short-term instruments: The carrying amounts of cash and cash equivalents and restricted cash approximate fair value.
Derivative Contracts:
Interest rate swaps
Currently, we use interest rate swaps to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of fair value accounting guidance, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of SeptemberJune 30, 2020,2021, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. We do not have any fair value measurements on a recurring basis using significant unobservable inputs (Level 3) as of SeptemberJune 30, 20202021 or December 31, 2019.2020.
Power Purchase Agreements
In March 2019, we began using energy hedges to manage risk related to energy prices. The inputs used to value the derivatives primarily fall within Level 2 of the fair value hierarchy, and valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including futures curves. The fair values of the energy hedges are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future energy rates (forward curves) derived from observable market futures curves. To comply with the provisions of fair value accounting guidance, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s
nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Unsecured Credit facility, Term Loan D and 3.875% Senior Notes: As market interest rates have fluctuated compared to contracted interest rates, the fair value of our unsecured credit facility approximated the carrying value of the credit facility less the fair value of the interest rate swap liability. Our Term Loan D did not have interest rates which were materially different than current market conditions and therefore, the fair value approximated the carrying value. The fair value of our 3.875% Senior Notes was estimated using Level 2 “significant other observable inputs,” primarily based on quoted market prices for the same or similar issuances. At SeptemberJune 30, 2020,2021, the fair value of the 3.875% Senior Notes was approximately $415.0$533.8 million.
Finance Leases: The fair value of our other debt instruments (including finance leases and mortgage notes payable) werewas estimated in the same manner as the unsecured credit facility above. Similarly, each of these instruments did not have interest rates which were materially different than current market conditions and therefore, the fair value of each instrument approximated the respective carrying values.
15. Subsequent Events
In October 2020,July 2021, we paid our regular quarterly cash dividends on our common stock, Series A Preferred Stock and Series B Preferred Stock. See the ‘Dividends and Distributions’ section of Note 9 for additional details.
In September 2020, through our subsidiaries,
On July 30, 2021, and in accordance with the Operating Partnership and QTS Finance Corporation (collectively, the “Issuers”),Merger Agreement, we conductedissued a private offering without registration rightsnotice of $500 million aggregate principal amount of senior notes due October 1, 2028 (the “2028 Senior Notes”). The 2028 Senior Notes have an interest rate of 3.875% per annum and were issued on October 7, 2020 at a price equalredemption pursuant to 100% of their face value. The Notes will mature on October 1, 2028. The net proceeds from the offering were used to repay a portionwhich all shares of the amountSeries A Preferred Stock that are outstanding under our unsecured revolving credit facility. Subsequently, we gave notice that we will redeemfollowing the 4.750% Senior Notes on November 16, 2020 and will use the corresponding availability under our unsecured revolving credit facility, along with additional borrowings from Term Loan D (discussed below), to satisfy and discharge the indenture. As a result of early repaymentclosing of the Senior Notes, we expect to incur early redemption fees equal to 3.563%Company merger will be redeemed. In addition, on August 2, 2021, the Company issued a notice of fundamental change advising holders that the closing of the aggregate principal amount, or approximately $14.3 million. Additionally,Company merger constitutes a “fundamental change” and that pursuant to the deferred financing costs associated withCompany merger, each outstanding share of Series B Preferred Stock shall be automatically converted into one Series A preferred unit of Merger Sub I. See the 4.750% Senior Notes, which were approximately $3.9 million as‘Equity Issuances’ section of September 30, 2020, will be written off at the time of repayment.
In October 2020, through our Operating Partnership, we entered into a $250 million term loan (“Term Loan D”) that providesNote 9 for commitments to make a single term loan borrowing of up to $250 million on or before November 16, 2020. We intend to draw the entire $250 million on or before November 16, 2020. Term Loan D will mature on January 15, 2026. Interest rates on Term Loan D can vary based on leverage levels consistent with our existing term loans as discussed in Note 6. As of the date of this report, the interest rate on Term Loan D is LIBOR plus 1.2% and includes a LIBOR floor of 25 basis points. When combined with our current $1.7 billion unsecured credit facility, Term Loan D increases QTS' aggregate unsecured credit facility capacity to $1.95 billion. Term Loan D also provides for a $250 million accordion feature to increase Term Loan D up to $500 million, subject to obtaining additional loan commitments.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis presentscovers the financial condition and results of operations of QTS Realty Trust, Inc., a Maryland corporation (“QTS”), which includes the operations of QualityTech, LP (the “Operating Partnership”), for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019.2020. You should read the following discussion and analysis in conjunction with QTS’ and the Operating Partnership’sQTS' accompanying consolidated financial statements and related notes and “Risk Factors” contained elsewhere in this Form 10-Q. We believe it is important for investors to understand the few differences between the financial statements of QTS and the Operating Partnership. See “Explanatory Note” for an explanation of the differences between these financial statements in the context of how QTS and the Operating Partnership operate as a consolidated company. Since the financial data presented in this Item 2 does not contain any differences between QTS and the Operating Partnership, all periods presented reflect the operating results of both QTS and the Operating Partnership.
Forward-Looking Statements
Some of the statements contained in this Form 10-Q 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 COVID-19 pandemic, its impact on us and our response thereto, the pending acquisition of the Company and our strategy, plans, intentions, capital resources, liquidity, 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.
The forward-looking statements contained in this Form 10-Q 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:
•the ability of the Company to obtain stockholder approval required to consummate the proposed acquisition of the Company (the “transaction”), the satisfaction or waiver of other conditions to closing in the definitive agreement for the proposed transaction, unanticipated difficulties or expenditures relating to the proposed transaction, the response of customers and business partners to the announcement of the proposed transaction, potential difficulties in employee retention as a result of the proposed transaction, the occurrence of any event, change or other circumstances that could give rise to the termination of the proposed transaction and the outcome of legal proceedings instituted against the Company, its directors and others related to the proposed transaction
•adverse economic or real estate developments in our 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 COVID-19 pandemic, including, but not limited to, the risk of business and/or operational disruptions, disruption of our customers’ businesses that could affect their ability to make rental payments to us, supply chain disruptions and delays in the construction or development of our data centers;
•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;business
•significant increases in construction and development costs;
•the increasingly competitive environment in which we operate;
•defaults on, or termination or non-renewal of, leases by customers;
•decreased rental rates or increased vacancy rates;
•increased interest rates and operating costs, including increased energy costs;
•financing risks, including our failure to obtain necessary outside financing;
•dependence on third parties to provide Internet, telecommunications and network connectivity to our data centers;
•our failure to qualify and maintain QTS’ qualification as a REIT;real estate investment trust (“REIT”);
•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; andand;
•limitations inherent in our current and any future unconsolidated joint venture investments, such as lack of sole decision-makingsole-decision making authority and reliance on our partners’ financial condition.condition
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, 2019,2020, and Item 1A. “Risk Factors” of this Form 10-Q, as well as other periodic reports that we file with the Securities and Exchange Commission, many of which should be interpreted as being heightened as a result of the ongoing COVID-19 pandemic and the actions taken to contain the pandemic or mitigate its impact.
Overview
QTS is a leading provider of data center solutions to the world’s largest and most sophisticated hyperscale technology companies, enterprises and government agencies. Through our technology-enabled platform, delivered across mega scale data center infrastructure, we offer a comprehensive portfolio of secure and compliant IT solutions. Our data centers are facilities that power and support our customers’ IT infrastructure equipment and provide seamless access and connectivity to a range of communications and IT services providers. Across our broad footprint of strategically located data centers, we provide flexible, scalable and secure IT solutions, including data center space, power and cooling, connectivity and value-add managed services for more than 1,200 customers in the financial services, healthcare, retail, government, technology and various other industries. We build out our data center facilities depending on the needs of our customers to accommodate both multi-tenant environments (hybrid colocation) and customers that require significant amounts of space and power (hyperscale), including federal customers. We believe that we own and operate one of the largest portfolios of multi-tenant data centers in the United States, as measured by gross square footage, and have the capacity to nearly doublesignificantly expand our sellable data center raised floor space without constructing or acquiring any new buildings. In addition, we own more than 732approximately 864 acres of land that is available at our data center properties that provides us with the opportunity to significantly expand our capacity to further support future demand from current and new potential customers.
As of SeptemberJune 30, 2020,2021, we operated a portfolio of 2728 data centerscenter properties located throughout the United States, Canada and Europe. Within the United States, our data centers are concentrated in the markets which we believe offer the highest growth opportunities. Our data centers are highly specialized, mission-critical facilities utilized by our customers to store, power and cool the server, storage, and networking equipment that support their most critical business systems and processes. We believe that our data centers are best-in-class and engineered to adhere to the highest specifications commercially available to customers, providing fully redundant, high-density power and cooling sufficient to meet the needs of the largest companies and organizations in the world. We have demonstrated a strong operating track record of “five-nines” (99.999%) reliability since QTS’ inception.
Pending Acquisition by Blackstone
As previously announced, on June 7, 2021, the Company and the Operating Partnership entered into an agreement and plan of merger (“Merger Agreement”) with Volt Upper Holdings LLC, a Delaware limited liability company (“Parent”), Volt Lower Holdings LLC, a Delaware limited liability company (“Merger Sub I”), and Volt Acquisition LP, a Delaware limited partnership (“Merger Sub II”). Parent, Merger Sub I and Merger Sub II are affiliates of The Blackstone Group Inc. Pursuant to the Merger Agreement (i) Merger Sub II shall merge with and into the Operating Partnership (the “partnership merger”), with the Operating Partnership being the surviving entity, and immediately following the consummation of the partnership merger, (ii) the Company shall merge with and into Merger Sub I (the “Company merger”), with Merger Sub I being the surviving entity. Pursuant to the Merger Agreement the outstanding shares of common stock of the Company will be acquired for $78 per share in an all-cash transaction. In addition, (i) the outstanding shares of Series A Preferred Stock (other than shares owned by Parent, Merger Sub I or any subsidiary of Parent, the Company or Merger Sub I (such shares, “Excluded Shares”)) shall be automatically converted into the right to receive an amount in cash equal to $25.00 plus any accrued and unpaid dividends, without interest and (ii) the outstanding shares of Series B Preferred Stock (other than Excluded Shares) shall be automatically converted into one Series A preferred unit of Merger Sub I, which shall have terms materially the same as the Series B Preferred Stock.
The COVID-19 PandemicCompany merger, partnership merger and the other transactions contemplated by the Merger Agreement (the “Merger Transactions”) are subject to customary closing conditions, including approval by the Company’s common stockholders at a special meeting to be held on August 26, 2021. The Merger Transactions are expected to close on the third business day after the conditions to closing are satisfied or waived, including approval of the Company’s stockholders of the merger and other transactions contemplated by the Merger Agreement. The Company can provide no assurances regarding whether the Merger Transactions will close as expected during the third quarter of 2021, or at all. The board of directors of the Company has
unanimously approved the Merger Agreement, and has recommended approval of the merger, and the other transactions contemplated by the Merger Agreement, by the Company’s stockholders.
Novel Coronavirus (COVID-19)
We continue to actively monitor developments with respect to COVID-19 and have taken numerous actions based on corporate policies specifically focusing on the safety and wellness of our customers, partners, and employees, as well as providing continuous and resilient services. Although the COVID-19 pandemic has caused significant disruptions to the United States and global economy and has contributed to significant volatility and negative pressure in financial markets, as of September 30, 2020,the date of this report, these developments have not had a known material adverse effect on our business. As of September 30, 2020,the date of this report, each of our data centers in North America and Europe are fully operational and operating in accordance with our business continuity plans. Across each of the respective jurisdictions in which we operate, our business has been deemed an essential operation, which has allowed us to remain fully staffed with critical personnel in place to continue to provide service and support for our customers.
We previously reported that since the beginning of the economic disruptions from COVID-19, we had experienced a modest increase in customer requests for extended payment terms, primarily concentrated in the retail, oil and gas, hospitality and transportation customer verticals, with these customers representing approximately 5% of our revenue for the three months ended March 31, 2020. Consistent with the information we reported in the second quarter, during the third quarter of 2020 and through the date of this report, the pace of additional customer requests for extended payment terms continued to moderate while a number of customers who had previously asked for extended payment terms have since resumed payments. Overall, we continue to see cash collections and receivables trending toward a level that is closer to our historical levels.
In addition, we previously reported we had experienced modest delays in construction activity in a few of our markets primarily as a result of availability of contractors and slower permitting. Consistent with the information we reported in the second quarter, during the third quarter of 2020 and through the date of this report, we are pleased to report that our commitments to customers remain on track and we do not currently anticipate any meaningful delays in our development activity associated with our booked-not-billed backlog assuming current trends continue.
The extent to which COVID-19 impactsmay impact our business and our customers’ operations remains largely uncertain and will depend on future developments, thatwhich are highly uncertain and cannot be predicted with confidence, including the duration and scope of the pandemic, new information that may emerge concerning the severity, variants or mutations of COVID-19, the response of the overall economyvaccine efficacy and financial marketsrollout and theother actions taken to contain COVID-19 or treat its impact, such as government actions, laws or orders or any changes or amendments thereto and the success of any lifting or easing of, or the risk of any premature lifting or easing of, any such restrictions, among others. The COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial performance, and results of operations and also may exacerbate many of the risks identified under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. For a further discussion of the risks related to the COVID-19 pandemic, see “Item 1A Risk Factors.”2020.
Our Customer Base
Our data center facilities are designed with the flexibility to support a diverse set of solutions and customers. Our customer base is comprised of more than 1,200 different companies of all sizes representing an array of industries, each with unique and varied business models and needs. We serve Fortune 1000 companies as well as small and medium-sized businesses, or SMBs, including financial institutions, healthcare companies, retail companies, government agencies, communications service providers, software companies and global Internet companies.
We have customers that range from large enterprise and technology companies with significant IT expertise and data center requirements, including financial institutions, “Big Four” accounting firms, government agencies and the world’s largest global Internet and cloud companies, to major healthcare, telecommunications and software and web-based companies.
As a result of our diverse customer base, customer concentration in our portfolio is limited. As of SeptemberJune 30, 2020,2021, only fivesix of our more than 1,200 customers individually accounted for more than 3% of our monthly recurring revenue (“MRR”) (as defined below), with the largest customer accounting for approximately 10.6%14.6% of our MRR and the next largest customer accounting for only 5.6%5.2% of our MRR.
Our Portfolio
As of SeptemberJune 30, 2020,2021, our portfolio consisted of 28 owned and leased properties, including 100% of thea property owned by an unconsolidated entity, with which we are affiliated, we operated 27 data centers located throughout the United States, Canada and Europe, containing an aggregate of approximately 7.5 million gross square feet of space, including approximately 3.4 million “basis-of-design” raised floor square feet (approximately 96.6% of which is wholly owned by us including our data center in Santa Clara which is subject to a long-term ground lease), which represents the total sellable data center raised floor potential of our existing data center facilities. This reflects the maximum amount of space in our existing buildings that could be leased following full build-out, depending on the space and power configuration that we deploy. As of September 30, 2020, this space included approximately 1.9 million raised floor operating net rentable square feet, or NRSF, plus approximately 1.4 million square feet of additional raised floor in our development pipeline, of which approximately 78,000 raised floor square feet is expected to become operational by December 31, 2020. Of the total 1.4 million raised floor square feet in our development pipeline, approximately 64,000 square feet was related to customer leases which had been executed as of September 30, 2020 but not yet commenced. Our facilities collectively have access to approximately 1,055 megawatts (“MW”) of available utility power. Access to power typically is the most limiting and expensive component in developing a data center and, as such, we believe our significant access to power represents an important competitive advantage.
Europe. The following table presents an overview of theour portfolio of operating properties, that we own or lease, based on information as of SeptemberJune 30, 2020:2021:
| | | Net Rentable Square Feet (Operating NRSF) (1) | | | Net Rentable Square Feet (Operating NRSF) (1) | |
| Property | | Year Acquired (2) | | Gross Square Feet (3) | | Raised Floor (4) | | Office & Other (5) | | Supporting Infrastructure (6) | | Total | | % Occupied (7) | | Annualized Rent (8) | | Available Utility Power (MW) (9) | | Basis of
Design
("BOD")
NRSF | | Current
Raised
Floor as a
% of BOD | |
| Properties | | Properties | | Year Acquired (2) | | Gross Square Feet (3) | | Raised Floor (4) | | Office & Other (5) | | Supporting Infrastructure (6) | | Total | | % Occupied (7) | | Annualized Rent (8) | | Available Utility Power (MW) (9) | | Basis of Design ("BOD") NRSF (10) | | Current
Raised
Floor as a
% of BOD |
| Richmond, VA | Richmond, VA | | 2010 | | 1,318,353 | | | 117,309 | | | 51,093 | | | 131,654 | | | 300,056 | | | 85.1 | % | | $ | 35,021,750 | | | 110 | | | 557,309 | | | 21.0 | % | Richmond, VA | | 2010 | | 1,318,353 | | | 140,398 | | | 51,093 | | | 153,449 | | | 344,940 | | | 83.5 | % | | $ | 32,562,651 | | | 110 | | | 557,309 | | | 25 | % |
Atlanta, GA (DC - 1) (10) | | 2006 | | 968,695 | | | 527,186 | | | 36,953 | | | 364,815 | | | 928,954 | | | 98.8 | % | | 122,157,934 | | | 72 | | | 527,186 | | | 100.0 | % | |
| Atlanta, GA (DC - 1) | | Atlanta, GA (DC - 1) | | 2006 | | 968,695 | | | 527,186 | | | 36,953 | | | 364,815 | | | 928,954 | | | 98.1 | % | | 123,084,878 | | | 72 | | | 527,186 | | | 100 | % |
| Irving, TX | Irving, TX | | 2013 | | 698,000 | | | 208,114 | | | 15,300 | | | 228,656 | | | 452,070 | | | 95.1 | % | | 54,226,439 | | | 140 | | | 275,701 | | | 75.5 | % | Irving, TX | | 2013 | | 698,000 | | | 224,605 | | | 15,300 | | | 252,733 | | | 492,638 | | | 95.7 | % | | 57,374,515 | | | 140 | | | 275,701 | | | 81 | % |
| Princeton, NJ | Princeton, NJ | | 2014 | | 553,930 | | | 58,157 | | | 2,229 | | | 111,405 | | | 171,791 | | | 100.0 | % | | 10,514,807 | | | 22 | | | 158,157 | | | 36.8 | % | Princeton, NJ | | 2014 | | 553,930 | | | 58,157 | | | 2,229 | | | 111,405 | | | 171,791 | | | 100.0 | % | | 10,558,271 | | | 22 | | | 158,157 | | | 37 | % |
Atlanta, GA (DC-2) (11) | | 2018 | | 495,000 | | | 37,839 | | | 9,250 | | | 34,698 | | | 81,787 | | | 100.0 | % | | 604,800 | | | 100 | | | 240,000 | | | 15.8 | % | |
| Atlanta, GA (DC - 2) | | Atlanta, GA (DC - 2) | | 2020 | | 495,000 | | | 99,118 | | | 9,250 | | | 90,870 | | | 199,238 | | | 98.2 | % | | 27,076,030 | | | 100 | | | 240,000 | | | 41 | % |
| Chicago, IL | Chicago, IL | | 2014 | | 474,979 | | | 87,500 | | | 3,508 | | | 88,422 | | | 179,430 | | | 91.0 | % | | 23,393,455 | | | 56 | | | 215,855 | | | 40.5 | % | Chicago, IL | | 2014 | | 474,979 | | | 127,222 | | | 4,931 | | | 125,595 | | | 257,748 | | | 91.1 | % | | 27,632,743 | | | 56 | | | 215,855 | | | 59 | % |
Ashburn, VA (DC-1) (12) | | 2017 | | 445,000 | | | 140,586 | | | 13,199 | | | 145,936 | | | 299,721 | | | 96.0 | % | | 10,710,780 | | | 50 | | | 178,000 | | | 79.0 | % | |
Ashburn, VA (DC - 1) (11) | | Ashburn, VA (DC - 1) (11) | | 2018 | | 445,000 | | | 163,125 | | | 13,199 | | | 169,319 | | | 345,643 | | | 99.6 | % | | 24,842,959 | | | 50 | | | 178,000 | | | 92 | % |
| Suwanee, GA | Suwanee, GA | | 2005 | | 369,822 | | | 212,975 | | | 8,697 | | | 107,128 | | | 328,800 | | | 91.0 | % | | 60,483,084 | | | 36 | | | 212,975 | | | 100.0 | % | Suwanee, GA | | 2005 | | 369,822 | | | 212,975 | | | 8,697 | | | 107,128 | | | 328,800 | | | 88.1 | % | | 59,776,332 | | | 36 | | | 212,975 | | | 100 | % |
| Piscataway, NJ | Piscataway, NJ | | 2016 | | 360,000 | | | 111,263 | | | 19,243 | | | 110,479 | | | 240,985 | | | 94.9 | % | | 22,364,575 | | | 111 | | | 176,000 | | | 63.2 | % | Piscataway, NJ | | 2016 | | 360,000 | | | 118,263 | | | 19,243 | | | 116,289 | | | 253,795 | | | 95.0 | % | | 25,443,454 | | | 111 | | | 176,000 | | | 67 | % |
| Netherlands facilities (12) | | Netherlands facilities (12) | | 2019 | | 312,114 | | | 38,632 | | | — | | | 47,367 | | | 85,999 | | | 81.7 | % | | 8,295,561 | | | 92 | | | 158,000 | | | 24 | % |
Ashburn, VA (DC - 2) (13) | | Ashburn, VA (DC - 2) (13) | | 2021 | | 310,000 | | | 39,204 | | | 1,192 | | | 27,443 | | | 67,839 | | | 100.0 | % | | — | | | 50 | | | 169,664 | | | 23 | % |
| Fort Worth, TX | Fort Worth, TX | | 2016 | | 261,836 | | | 71,147 | | | 17,232 | | | 125,794 | | | 214,173 | | | 96.3 | % | | 5,854,763 | | | 50 | | | 80,000 | | | 88.9 | % | Fort Worth, TX | | 2016 | | 261,836 | | | 71,147 | | | 17,232 | | | 125,794 | | | 214,173 | | | 67.0 | % | | 10,107,749 | | | 50 | | | 80,000 | | | 89 | % |
| Hillsboro, OR | Hillsboro, OR | | 2017 | | 158,000 | | | 16,563 | | | 1,000 | | | 14,228 | | | 31,791 | | | 100.0 | % | | 1,511,964 | | | 30 | | | 85,000 | | | 19.5 | % | Hillsboro, OR | | 2020 | | 158,000 | | | 23,563 | | | 1,000 | | | 20,240 | | | 44,803 | | | 81.3 | % | | 4,380,684 | | | 30 | | | 85,000 | | | 28 | % |
Santa Clara, CA (13) | | 2007 | | 135,322 | | | 59,905 | | | 1,238 | | | 45,094 | | | 106,237 | | | 90.2 | % | | 23,547,632 | | | 11 | | | 80,940 | | | 74.0 | % | |
Santa Clara, CA (14) | | Santa Clara, CA (14) | | 2007 | | 135,322 | | | 62,046 | | | 1,238 | | | 45,094 | | | 108,378 | | | 91.4 | % | | 25,944,154 | | | 11 | | | 80,940 | | | 77 | % |
| Sacramento, CA | Sacramento, CA | | 2012 | | 92,644 | | | 54,595 | | | 2,794 | | | 23,916 | | | 81,305 | | | 45.2 | % | | 11,102,123 | | | 8 | | | 54,595 | | | 100.0 | % | Sacramento, CA | | 2012 | | 92,644 | | | 54,595 | | | 2,794 | | | 23,916 | | | 81,305 | | | 59.1 | % | | 11,671,128 | | | 8 | | | 54,595 | | | 100 | % |
Dulles, VA (14) | | 2017 | | 87,159 | | | 30,545 | | | 5,997 | | | 32,892 | | | 69,434 | | | 93.4 | % | | 18,052,231 | | | 13 | | | 48,270 | | | 63.3 | % | |
Leased facilities (15) | | 2006 & 2015 | | 190,875 | | | 62,274 | | | 18,650 | | | 41,901 | | | 122,825 | | | 83.8 | % | | 23,863,584 | | | 14 | | | 82,886 | | | 75.1 | % | |
Other (16) | | Misc. | | 459,549 | | | 61,012 | | | 49,337 | | | 77,441 | | | 187,790 | | | 78.7 | % | | 14,621,632 | | | 97 | | | 180,380 | | | 33.8 | % | |
Dulles, VA (15) | | Dulles, VA (15) | | 2017 | | 66,751 | | | 26,625 | | | — | | | 22,206 | | | 48,831 | | | 86.2 | % | | 13,267,724 | | | 13 | | | 44,545 | | | 60 | % |
Leased facilities (16) | | Leased facilities (16) | | 2006 & 2015 | | 187,706 | | | 59,065 | | | 18,650 | | | 41,901 | | | 119,616 | | | 84.0 | % | | 22,277,731 | | | 10 | | | 79,717 | | | 74 | % |
Other (17) | | Other (17) | | Misc. | | 147,435 | | | 22,380 | | | 98,674 | | | 30,074 | | | 151,128 | | | 79.8 | % | | 10,001,496 | | | 5 | | | 22,380 | | | 100 | % |
| | 7,069,164 | | | 1,856,970 | | | 255,720 | | | 1,684,459 | | | 3,797,149 | | | 93.6 | % | | $ | 438,031,553 | | | 920 | | | 3,153,254 | | | 58.9 | % | | | | 7,355,587 | | | 2,068,306 | | | 301,675 | | | 1,875,638 | | | 4,245,619 | | | 92.6 | % | | $ | 494,298,060 | | | 966 | | | 3,316,024 | | | 62 | % |
| | New Property Development | New Property Development | | New Property Development | |
Ashburn, VA (DC - 2) (17) | | 2017 | | 310,000 | | | — | | | — | | | — | | | — | | | — | % | | $ | — | | | — | | | 165,000 | | | — | % | |
Manassas, VA (DC - 2) (18) | | Manassas, VA (DC - 2) (18) | | 2021 | | 340,000 | | | — | | | — | | | — | | | — | | | — | % | | — | | | — | | | 160,000 | | | — | % |
| Unconsolidated Properties - at the Entity's 100% Share (18) | | |
| Manassas, VA | | 2018 | | 118,031 | | | 33,600 | | | 12,663 | | | 39,044 | | | 85,307 | | | 0.0% | | $ | 9,856,599 | | | 135 | | | 66,324 | | | 50.7 | % | |
Unconsolidated Properties - at the Entity's 100% Share (19) | | Unconsolidated Properties - at the Entity's 100% Share (19) | |
| Manassas, VA (DC - 1) | | Manassas, VA (DC - 1) | | 2018 | | 118,031 | | | 33,600 | | | 12,663 | | | 39,044 | | | 85,307 | | | 100.0 | % | | 11,164,640 | | | 135 | | | 66,324 | | | 51 | % |
| | Total Properties | Total Properties | | 7,497,195 | | | 1,890,570 | | | 268,383 | | | 1,723,503 | | | 3,882,456 | | | 93.8 | % | | $ | 447,888,152 | | | 1,055 | | | 3,384,578 | | | 55.9 | % | Total Properties | | | 7,813,618 | | | 2,101,906 | | | 314,338 | | | 1,914,682 | | | 4,330,926 | | | 92.8 | % | | $ | 505,462,700 | | | 1,101 | | | 3,542,348 | | | 59 | % |
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(1)Represents the total square feet of a building that is currently leased or available for lease plus developed supporting infrastructure, based on engineering drawings and estimates, but does not include space held for redevelopment or space used for our own office space.
(2)RepresentsWith respect to acquisitions, represents the year a property was acquired or, in the case of a propertyacquired. With respect to properties under lease, represents the year our initial lease commenced for the property. With respect to new data center construction, represents the year the facility was opened or expected to be opened.
(3)With respect to our owned properties, gross square feet represents the entire building area. With respect to leased properties, gross square feet represents that portion of the gross square feet subject to our lease. Gross square feet includes 424,773424,246 square feet of our office and support space, which is not included in operating NRSF.
(4)Represents management’s estimate of the portion of NRSF of the facility with available power and cooling capacity that is currently leased or readily available to be leased to customers as data center space based on engineering drawings.
(5)Represents the operating NRSF of the facility other than data center space (typically office and storage space) that is currently leased or available to be leased.
(6)Represents required data center support space, including mechanical, telecommunications and utility rooms, as well as building common areas.
(7)Calculated as data center raised floor that is subject to a signed lease for which billing has commenced divided by leasable raised floor based on the current configuration of the properties, expressed as a percentage.
(8)We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under executed contracts as of a particular date, which includes revenue from our rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billedbacklog contracts (as defined below) as of a particular date, unless otherwise specifically noted, nor does it reflect the accounting associated with any free rent, rent abatements or future scheduled rent increases.
(9)Represents installed utility power and transformation capacity that is available for use by the facility as of SeptemberJune 30, 2020.2021.
(10)Represents the total sellable data center raised floor potential of the existing data center facility.
(11)This property was formerly known as “Atlanta, GA (Metro)”“Ashburn, VA” but has been renamed “Atlanta, GA (DC-1)“Ashburn, VA (DC - 1)” to distinguish between the existing data center and the recently developed data center shown as “Atlanta, GA (DC-2)“Ashburn, VA (DC - 2).”.
(11)Represents the newly developed data center building at our Atlanta, GA campus.
(12)This property was formerly known as “Ashburn, VA” but has been renamed “Ashburn, VA (DC-1)” to distinguish betweenConsists of two data centers located in Eemshaven, Netherlands and Groningen, Netherlands.
(13)Represents the existingrecently developed data center and the new property development shown as “Ashburn,in our Ashburn, VA (DC-2)” within the new property development section.market.
(13)(14)Subject to long-term ground lease.
(14)(15)Consists of one data center in Dulles, Virginia. The Dulles campus haspreviously consisted of two data center buildings, and we are currently relocatinghowever as of December 31, 2020, the Company relocated customers from the smaller and older facility to the new facility in an effortorder to optimize its operating cost structure.
(15)(16)Includes 76 facilities. All facilities are leased, including one subject to a finance lease.
(16)(17)Consists of Miami, FL; Lenexa, KS; and Overland Park, KS; Eemshaven, Netherlands and Groningen, NetherlandsKS facilities.
(17)(18)Represents the development of a new data center building at our Ashburn,Manassas, VA campus. The Manassas, VA (DC - 2) data center is 100% owned and consolidated by QTS and is separate from the Manassas, VA (DC - 1) data center that is owned by the unconsolidated entity.
(18)(19)Represents our unconsolidated entity at 100% share. Our equity ownership of the unconsolidated entity is 50%.
Factors That May Influence Future Results of Operations and Cash Flows
Revenue. Our revenue growth will depend on our ability to maintain the historical occupancy rates of leasable raised floor, lease currently available space, lease new capacity that becomes available as a result of our development and redevelopment activities, attract new customers and continue to meet the ongoing technological requirements of our customers. As of SeptemberJune 30, 2020,2021, we had in place customer leases generating revenue for approximately 94%93% of our leasable raised floor. Our ability to grow revenue also will be affected by our ability to maintain or increase rental and managed services rates at our properties. The impact of the COVID-19 pandemic, including, but not limited to, the risk of business and/or operational disruptions, disruption of our customers’ businesses that could affect their ability to make rental payments to us, supply chain disruptions and delays in the construction or development of our data centers, future economic downturns, regional downturns or downturns in the technology industry, new technological developments, evolving industry demands and other similar factors could impair our ability to attract new customers or renew existing customers’ leases on favorable terms, or at all, and could adversely affect our customers’ ability to meet their obligations to us. For example, since the beginning of the economic disruptions from COVID-19,In addition, we have experienced a modest increase in customer requests for payment relief . Consistent with the information we reported in previous periods, during the third quarter of 2020 and through the date of this report, customer requests for extended payment terms continued to moderate while a number of customers who had previously asked for extended payment terms have since resumed payments. In response to these customer requests, although we have not reduced future payments, we have in certain circumstances provided additional flexibility in the form of extended payment terms. Although as of the date of this report these requests have not had an adverse effect on our business, these or other negative trends in one or more of these or other factors described above could adversely affect our revenue in future periods, which would impact our results of operations and cash flows. We also at times may elect to reclaim space from customers in a negotiated transaction where we believe that we can redevelop and/or re-lease that space at higher rates, which may cause a decrease in revenue until the space is re-leased.
Leasing Arrangements. As of SeptemberJune 30, 2020,2021, approximately 47%54% of our MRR was attributable to the metered power model. Under the metered power model, the customer pays us a fixed monthly rent amount, plus reimbursement of certain other operating costs, including actual costs of sub-metered electricity used to power its data center equipment and an estimate of costs for electricity used to power supporting infrastructure for the data center, expressed as a factor of the customer’s actual electricity usage. Fluctuations in our customers’ utilization of power and the supplier pricing of power do not significantly impact our results of operations or cash flows under the metered power model. These leases generally have a minimum term of five years. As of SeptemberJune 30, 2020,2021, the remaining approximately 53%46% of our MRR was attributable to the gross lease or managed service model. Under this model, the customer pays us a fixed amount on a monthly basis, and does not separately reimburse us for operating costs, including utilities, maintenance, repair, property taxes and insurance, as reimbursement for these costs is factored into MRR. However, if customers incur more utility costs than their leases permit, we are able to charge these customers for overages. For leases under the gross lease or managed service model, fluctuations in our customers’ utilization of power and the prices our utility providers charge us will impact our results of operations and cash flows. Our gross leases and managed services contracts generally have a term of three years or less.
Scheduled Lease Expirations. Our ability to minimize rental churn (which we define as MRR lost in the period from a customer intending to fully exit our platform in the near-term compared to the total MRR at the beginning of the period) and customer downgrades at renewal, combined with our ability to renew, lease and re-lease expiring space, will impact our results of operations and cash flows. Leases which have commenced billing representing approximately 8%15% and 22%24% of our total leased raised floor are scheduled to expire during the years ending December 31, 20202021 (including all month-to-month leases) and 2021,2022, respectively. These leases also represented approximately 12%19% and 27%28%, respectively, of our annualized rent as of SeptemberJune 30, 2020.2021. Given that our average rent for larger contracts tend to be at or below market rent at expiration, as a general matter, based on current market conditions, we expect that expiring rents will generally be at or below the then-current market rents.
Acquisitions, Development, and Financing. Our revenue growth also will depend on our ability to acquire and redevelop and/or construct and subsequently lease data center space at favorable rates. We generally fund the cost of data center acquisition, construction and/or redevelopment from our net cash provided by operations, revolving credit facility, other unsecured and secured borrowings, joint ventures and/or the issuance of additional equity. We believe that we have sufficient access to capital fromto fund our current cash and cash equivalents, borrowings under our credit facility and forward equity transactions. Since the beginning of the economic disruptions from COVID-19, we have experienced modest delays in construction activity in a few of our markets, primarily as a result of availability of contractors and slower permitting as more fully described under the caption “The COVID-19 Pandemic.” Consistent with the information we reported in previous periods, during the third quarter of 2020 and through the date of this report, we are pleased to report that our commitments to customers remain on track and we do not currently anticipate any meaningful delays in our development activity associated with our booked-not-billed backlog assuming current trends continue.development.
Unconsolidated Entity. On February 22, 2019, we entered into an agreement with Alinda, an infrastructure investment firm, with respect to our Manassas data center. At closing, we contributed cash and our Manassas data center (a hyperscale data center under development in Manassas, Virginia), and Alinda contributed cash, in each case in exchange for a 50% interest in the unconsolidated entity. The Manassas data center, which is currently leased to a global cloud-based software company pursuant to a 10-year lease agreement, was contributed at an expected stabilized value upon completion of approximately $240 million. At the closing, we received approximately $53 million in net proceeds, which was funded from the cash contributed by Alinda and also borrowings under a $164.5 million secured credit facility entered into by the unconsolidated entity at closing that carries a rate of LIBOR plus 2.00% to 2.25% depending on the existing leverage ratio. We used these distributions to pay down our revolving credit facility and for general corporate purposes. Under the agreement, we will receive additional distributions in the future as and when we complete development of each phase of the Manassas data center and place it into service, which allows us to receive distributions for Alinda’s share of the unconsolidated entity based on the expected full stabilization of the asset. These distributions will be based on a 6.75% capitalization rate for each phase delivered during the first three years of the agreement. Under the agreement, we serve as the unconsolidated entity’s operating member, subject to authority and oversight of a board appointed by Alinda and us, and separately we serve as manager and developer of the facility in exchange for management and development fees. The agreement includes various transfer restrictions and rights of first offer that will allow us to repurchase Alinda’s interest should Alinda wish to exit in the future. In addition, we have agreed to provide Alinda an opportunity to invest in future similar entities based on similar terms and at a comparable capitalization rate. This agreement has been reflected as an unconsolidated entity on our reported financial statements beginning in the first quarter of 2019.
Operating Expenses. Our operating expenses generally consist of direct personnel costs, utilities, property and ad valorem taxes, insurance and site maintenance costs and rental expenses on our ground and building leases. In particular, our buildings require significant power to support the data center operations conducted in them. Although a significant portion of our long-term leases – leases with a term greater than three years – contain reimbursements for certain operating expenses, we will not in all instances be reimbursed for all of the property operating expenses we incur. During the nine months ended September 30, 2020 we experienced an increase in certain operating costs, partially driven by an increase in bad debt expense which was due to the risk of non-payment for customers experiencing business disruptions due to COVID-19. Increases or decreases in our operating expenses will impact our results of operations and cash flows and we expect to incur additional operating expenses as we continue to expand. Although, as of the date of this report, the expenses described above related to the COVID-19 pandemic have not had an adverse effect on our business, these or other negative trends in one or more of these or other factors described above could adversely affect our operating expenses in future periods, which would impact our results of operations and cash flows.
General Leasing Activity
Information is provided in the tables below for both our leasing activity as well as booked-not-billedbacklog balances.
New/For new/modified leases signed, “Incremental Annualized Rent, Net of Downgrades” reflect net incremental MRR signed during the period for purposes of tracking incremental revenue contribution. The amounts include renewals when there was a change in square footage rented, but exclude renewals where square footage remained consistent before and after renewal. (See “Renewed Leases” table below for such renewals.) Annualized rent per leased square foot is computed using the total MRR associated with all new and modified leases for the respective periods.
In regard toRegarding renewed leases signed, consistent with our strategy and business model, the renewal rates below reflect total MRR per square foot including all subscribed services. For comparability, we include only those leases where the square footage remained consistent before and after renewal. All customers with space changes are incorporated into new/modified leasing statistics and rates.
We define booked-not-billed as our customer leases that have been signed, but for which lease payments have not yet commenced.
The following leasing and booked-not-billedbacklog statistics include results of the consolidated business as well as QTS’ 50% share of revenue from the unconsolidated entity, if any.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Number of Leases | | Annualized rent per leased sq ft (1) | | Incremental Annualized Rent (1), Net of Downgrades | | |
| New/Modified Leases Signed | Three Months Ended June 30, 2021 | | 468 | | $ | 277 | | | $ | 26,730,104 | | | |
| Six Months Ended June 30, 2021 | | 987 | | 304 | | | 47,335,497 | | |
| | | | | | | | | |
| Period | | Number of Renewed Leases | | Annualized rent (1) per leased sq ft | | Annualized Rent (2) | | Rent Change |
Renewed Leases (2) | Three Months Ended June 30, 2021 | | 113 | | $ | 946 | | | $ | 14,586,804 | | | 7.4% |
| Six Months Ended June 30, 2021 | | 241 | | 619 | | | 37,579,716 | | | 4.2% |
Table of Contents_______________________ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Number of Leases | | Annualized rent (1) per leased sq ft | | Incremental Annualized Rent (1), Net of Downgrades | | |
| New/modified leases signed | Three Months Ended September 30, 2020 | | 540 | | $390 | | $26,002,722 | | |
| Nine Months Ended September 30, 2020 | | 1,525 | | $428 | | $68,880,074 | | |
| | | | | | | | | |
| Period | | Number of Renewed Leases | | Annualized rent (1) per leased sq ft | | Annualized Rent (1) | | Rent Change |
Renewed Leases (2) | Three Months Ended September 30, 2020 | | 91 | | $609 | | $14,530,020 | | 1.8 | % |
| Nine Months Ended September 30, 2020 | | 281 | | $603 | | $45,364,998 | | 2.9 | % |
_______________________
(1)We define annualized rent as MRR as of SeptemberJune 30, 2020,2021, multiplied by 12.
(2)We define renewals as leases where the customer retains the same amount of space before and after renewals, which facilitates rate comparability.
The following table outlinestables outline the booked-not-billed balanceCompany’s backlog (which represents MRR, excluding cost recoveries, for customer leases that have been signed but have not yet commenced as of Septemberperiod end) as of June 30, 20202021, both on a GAAP rent and how that is expected to affect revenue in 2020 and subsequent years:cash rent basis:
| Booked-not-billed ("BNB") (1) | 2020 | | 2021 | | Thereafter | | Total | |
Backlog - GAAP rent (1) | | Backlog - GAAP rent (1) | | 2021 | | 2022 | | Thereafter | | Total |
| MRR | MRR | $ | 1,955,937 | | | $ | 6,017,948 | | | $ | 2,908,504 | | | $ | 10,882,389 | | MRR | | $ | 2,995,732 | | | $ | 2,260,957 | | | $ | 2,200,005 | | | $ | 7,456,694 | |
Incremental revenue (2) | Incremental revenue (2) | 4,464,483 | | | 39,872,683 | | | 34,902,048 | | | Incremental revenue (2) | | 10,766,155 | | | 20,174,110 | | | 26,400,060 | | |
Annualized revenue (3) (4) | $ | 23,471,244 | | | $ | 72,215,376 | | | $ | 34,902,048 | | | $ | 130,588,668 | | |
Annualized revenue (3) | | Annualized revenue (3) | | $ | 35,948,784 | | | $ | 27,131,484 | | | $ | 26,400,060 | | | $ | 89,480,328 | |
_______________________
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Backlog - Cash rent (1) | | 2021 | | 2022 | | Thereafter | | Total |
| MRR | | $ | 5,007,779 | | | $ | 3,661,320 | | | $ | 4,514,350 | | | $ | 13,183,449 | |
Incremental revenue (2) | | 17,093,259 | | | 29,716,610 | | | 54,172,200 | | | |
Annualized revenue (3) | | $ | 60,093,348 | | | $ | 43,935,840 | | | $ | 54,172,200 | | | $ | 158,201,388 | |
______________________
(1)Includes our consolidated booked-not-billedbacklog balance in addition to booked-not-billed revenuebacklog associated with the unconsolidated entity at QTS’ pro rata share of the booked-not-billedbacklog revenue. Of the $130.6$89.5 million backlog of annualized booked-not-billed revenue,GAAP rent, approximately $1.1$3.1 million related to QTS’ pro rata share of booked-not-billedbacklog revenue associated with the unconsolidated entity. Of the $158.2 million backlog of annualized cash rent, approximately $3.6 million related to QTS’ pro rata share of backlog revenue associated with the unconsolidated entity.
(2)Incremental revenue represents the expected amount of recognized MRR for the business in the period based on when the booked-not-billedbacklog leases commence throughout the period.
(3)Annualized revenue represents the booked-not-billedbacklog MRR multiplied by 12, demonstrating how much recognized MRR mightwould have been recognized if the booked-not-billedbacklog leases commencing in the period were in place for an entire year.
(4)As of September 30, 2020, adjusting booked-not-billed revenue for the effects of revenue which had begun recognition via straight line rent, our annualized booked-not-billed balance was $76.6 million, of which $15.4 million was attributable to 2020, $45.8 million was attributable to 2021, and $15.5 million was attributable to years thereafter.
We estimate the remaining cost to provide the space, power, connectivity and other services to the customer contracts which had not billed as of SeptemberJune 30, 20202021 to be approximately $197.3$391 million. This estimate generally includes customers with newly contracted space of more than 3,300 square feet of raised floor space. The space, power, connectivity and other services provided to customers that contract for smaller amounts of space is generally provided by utilizing existing space which was previously developed.
Results of Operations
Three Months Ended SeptemberJune 30, 20202021 Compared to Three Months Ended SeptemberJune 30, 20192020
Changes in revenues and expenses for the three months ended SeptemberJune 30, 20202021 compared to the three months ended SeptemberJune 30, 20192020 are summarized below (unaudited and in thousands):
| | | Three Months Ended September 30, | | | Three Months Ended June 30, | |
| | 2020 | | 2019 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change |
| Revenues: | Revenues: | | | | | | | | Revenues: | | | | | | | |
| Rental | Rental | $ | 133,782 | | | $ | 121,475 | | | $ | 12,307 | | | 10 | % | Rental | $ | 150,807 | | | $ | 125,996 | | | $ | 24,811 | | | 20 | % |
| Other | Other | 3,756 | | | 3,780 | | | (24) | | | (1) | % | Other | 4,413 | | | 5,644 | | | (1,231) | | | (22) | % |
| Total revenues | Total revenues | 137,538 | | | 125,255 | | | 12,283 | | | 10 | % | Total revenues | 155,220 | | | 131,640 | | | 23,580 | | | 18 | % |
| Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | | | | | |
| Property operating costs | Property operating costs | 43,979 | | | 44,730 | | | (751) | | | (2) | % | Property operating costs | 45,704 | | | 40,349 | | | 5,355 | | | 13 | % |
| Real estate taxes and insurance | Real estate taxes and insurance | 4,005 | | | 3,713 | | | 292 | | | 8 | % | Real estate taxes and insurance | 5,788 | | | 4,106 | | | 1,682 | | | 41 | % |
| Depreciation and amortization | Depreciation and amortization | 51,378 | | | 42,875 | | | 8,503 | | | 20 | % | Depreciation and amortization | 58,255 | | | 47,554 | | | 10,701 | | | 23 | % |
| General and administrative | General and administrative | 22,082 | | | 19,504 | | | 2,578 | | | 13 | % | General and administrative | 24,476 | | | 21,391 | | | 3,085 | | | 14 | % |
| Transaction and integration costs | Transaction and integration costs | 1,078 | | | 827 | | | 251 | | | 30 | % | Transaction and integration costs | 8,391 | | | 381 | | | 8,010 | | | 2,102 | % |
| Total operating expenses | Total operating expenses | 122,522 | | | 111,649 | | | 10,873 | | | 10 | % | Total operating expenses | 142,614 | | | 113,781 | | | 28,833 | | | 25 | % |
| Operating income | Operating income | 15,016 | | | 13,606 | | | 1,410 | | | 10 | % | Operating income | 12,606 | | | 17,859 | | | (5,253) | | | (29) | % |
| Other income and expense: | Other income and expense: | | Other income and expense: | |
| Interest income | Interest income | — | | | 22 | | | (22) | | | (100) | % | Interest income | 1 | | | 2 | | | (1) | | | (50) | % |
| Interest expense | Interest expense | (7,516) | | | (6,724) | | | 792 | | | 12 | % | Interest expense | (7,452) | | | (6,924) | | | 528 | | | 8 | % |
| Other income | — | | | 370 | | | (370) | | | (100) | % | |
| Equity in net loss of unconsolidated entity | Equity in net loss of unconsolidated entity | (366) | | | (317) | | | 49 | | | 15 | % | Equity in net loss of unconsolidated entity | (705) | | | (590) | | | 115 | | | 19 | % |
| Income before taxes | Income before taxes | 7,134 | | | 6,957 | | | 177 | | | 3 | % | Income before taxes | 4,450 | | | 10,347 | | | (5,897) | | | (57) | % |
| Tax expense | Tax expense | (227) | | | (369) | | | (142) | | | (39) | % | Tax expense | (251) | | | (138) | | | 113 | | | 82 | % |
| Net income | Net income | $ | 6,907 | | | $ | 6,588 | | | $ | 319 | | | 5 | % | Net income | $ | 4,199 | | | $ | 10,209 | | | $ | (6,010) | | | (59) | % |
|
Revenues. Total revenues for the three months ended SeptemberJune 30, 20202021 were $137.5$155.2 million compared to $125.3$131.6 million for the three months ended SeptemberJune 30, 2019.2020. The increase of $12.3$23.6 million, or 10%18%, was largely attributable to growth in our hyperscale and hybrid colocation offerings primarily through increases in revenues at our Ashburn (DC - 1), Atlanta (DC - 1) and Fort WorthChicago facilities, as well as the opening of our Atlanta (DC-2)(DC - 2) facility.
Property Operating Costs. Property operating costs for the three months ended SeptemberJune 30, 20202021 were $44.0$45.7 million compared to property operating costs of $44.7$40.3 million for the three months ended SeptemberJune 30, 2019, a decrease2020, an increase of $0.8$5.4 million, or 2%13%.
The breakdown of our property operating costs is summarized in the table below (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
| Property operating costs: | | | | | | | |
| Direct payroll | $ | 7,025 | | | $ | 6,241 | | | $ | 784 | | | 13 | % |
| Rent | 2,680 | | | 3,145 | | | (465) | | | (15) | % |
| Repairs and maintenance | 3,453 | | | 3,093 | | | 360 | | | 12 | % |
| Utilities | 19,759 | | | 21,999 | | | (2,240) | | | (10) | % |
| Management fee allocation | 5,064 | | | 4,820 | | | 244 | | | 5 | % |
| Other | 5,998 | | | 5,432 | | | 566 | | | 10 | % |
| Total property operating costs | $ | 43,979 | | | $ | 44,730 | | | $ | (751) | | | (2) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
| 2021 | | 2020 | | $ Change | | % Change |
| Property operating costs: | | | | | | | |
| Direct payroll | $ | 6,774 | | | $ | 6,939 | | | $ | (165) | | | (2) | % |
| Rent | 2,436 | | | 2,717 | | | (281) | | | (10) | % |
| Repairs and maintenance | 4,285 | | | 3,360 | | | 925 | | | 28 | % |
| Utilities | 21,601 | | | 16,307 | | | 5,294 | | | 32 | % |
| Management fee allocation | 5,701 | | | 4,828 | | | 873 | | | 18 | % |
| Other | 4,907 | | | 6,198 | | | (1,291) | | | (21) | % |
| Total property operating costs | $ | 45,704 | | | $ | 40,349 | | | $ | 5,355 | | | 13 | % |
The decreaseincrease in total property operating costs was primarily due to increased utilities expense, repairs and maintenance expense and management fee allocation resulting from ongoing company growth. The increase in utility costs was primarily driven by increased power utility expenses primarily at the Atlanta (DC - 1) and Suwanee facilities, as well as the opening of our Atlanta (DC - 2) facility. Offsetting these increases was a reduction in general bad debt reserves attributable to a reduction in utility costs primarily driven by lower utilityhigher level of bad debt expense in the Atlanta market. Additionally,prior year associated with the risk of a loss across our portfolio of lease receivables primarily related to customers that experienced business disruptions due to COVID-19 in the second quarter of 2020, which is included in the “Other” line item of the property operating costs table, as well as a reduction in rent expense decreased primarily related to the exit of portions of leased facilities as customers churned, downgraded or migrated to our owned facilities. These decreases were partially offset by other increases resulting from ongoing growth of our data centers, which drove increases in direct payroll, repairs and maintenance and other expenses.
Real Estate Taxes and Insurance. Real estate taxes and insurance for the three months ended SeptemberJune 30, 20202021 were $4.0$5.8 million compared to $3.7$4.1 million for the three months ended SeptemberJune 30, 2019.2020. The increase of $0.3$1.7 million, or 8%41%, was primarily attributable to an increase in real estate taxes associated with the in servicing of certain data center facilities and increased assessed property values at our Atlanta (DC - 11) and DC - 2) and Ashburn facilities, partially offset by a reduction in real estate taxes at our Irving facility.Fort Worth facilities.
Depreciation and Amortization. Depreciation and amortization for the three months ended SeptemberJune 30, 20202021 was $51.4$58.3 million compared to $42.9$47.6 million for the three months ended SeptemberJune 30, 2019.2020. The increase of $8.5$10.7 million, or 20%23%, was primarily due primarily to additional depreciation expense relating to an increase in assets placed in service at our Ashburn (DC-1), Atlanta (DC-1 & DC-2)(DC - 1), Chicago and Fort Worth facilities.Irving facilities, as well as the opening of our Atlanta (DC - 2) facility.
General and Administrative Expenses. General and administrative expenses were $22.1$24.5 million for the three months ended SeptemberJune 30, 20202021 compared to general and administrative expenses of $19.5$21.4 million for the three months ended SeptemberJune 30, 2019,2020, an increase of $2.6$3.1 million, or 13%14%. The increase was primarily attributable to an increase in total compensation expense, the majority of which related to increased equity-based compensation expense associated with the growth of the Company and anticipated achievement of certain performance metrics partially offset by a reductionof outstanding equity awards, as well as an increase in employee travel-related expenses primarily associated with reducedrelated to travel as a result ofand corporate events following limited activity in the COVID-19 pandemic.prior year due to COVID-19.
Transaction and Integration Costs. Transaction and integration costs were $1.1$8.4 million for the three months ended SeptemberJune 30, 2020,2021, compared to $0.8$0.4 million for the three months ended SeptemberJune 30, 2019.2020. The increase of $0.3$8.0 million or 30%, was primarily attributable to an increase intransaction costs associated with the acceleration of equity-based compensation for an executive retirementrecognized during the three months ended SeptemberJune 30, 2020.2021 associated with the potential pending merger. See the "Pending Acquisition by Blackstone" section above for further details.
Interest Expense. Interest expense for the three months ended SeptemberJune 30, 20202021 was $7.5 million compared to $6.7$6.9 million for the three months ended SeptemberJune 30, 2019.2020. The increase in interest expense was primarily attributable to an increase in our average total debt balance from the prior period, partially offset by a decrease in our average interest rates from the prior period.
Equity in net loss of unconsolidated entity. This represents equity in earnings (loss) of our unconsolidated entity formed during the first quarter of 2019 that owns our Manassas (DC - 1) data center. Equity in net loss was $0.7 million for the three months ended June 30, 2021, which remained consistent with a net loss of $0.6 million for the three months ended June 30, 2020.
Tax Expense. Tax expense for the three months ended June 30, 2021 was $0.3 million which remained consistent when compared to $0.1 million of tax expense for the three months ended June 30, 2020.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Changes in revenues and expenses for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 are summarized below (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | |
| 2021 | | 2020 | | $ Change | | % Change |
| Revenues: | | | | | | | |
| Rental | $ | 295,115 | | | $ | 246,077 | | | $ | 49,038 | | | 20 | % |
| Other | 8,837 | | | 11,855 | | | (3,018) | | | (25) | % |
| Total revenues | 303,952 | | | 257,932 | | | 46,020 | | | 18 | % |
| Operating expenses: | | | | | | | |
| Property operating costs | 91,988 | | | 81,130 | | | 10,858 | | | 13 | % |
| Real estate taxes and insurance | 10,810 | | | 8,017 | | | 2,793 | | | 35 | % |
| Depreciation and amortization | 113,761 | | | 92,624 | | | 21,137 | | | 23 | % |
| General and administrative | 48,117 | | | 42,074 | | | 6,043 | | | 14 | % |
| Transaction and integration costs | 9,907 | | | 597 | | | 9,310 | | | 1,559 | % |
| Total operating expenses | 274,583 | | | 224,442 | | | 50,141 | | | 22 | % |
| Operating income | 29,369 | | | 33,490 | | | (4,121) | | | (12) | % |
| Other income and expense: | | | | | | | |
| Interest income | 1 | | | 2 | | | (1) | | | (63) | % |
| Interest expense | (15,600) | | | (14,086) | | | 1,514 | | | 11 | % |
| Other income | — | | | 159 | | | (159) | | | (100) | % |
| Equity in net loss of unconsolidated entity | (1,264) | | | (1,267) | | | (3) | | | 0 | % |
| Income before taxes | 12,506 | | | 18,298 | | | (5,792) | | | (32) | % |
| Tax benefit (expense) | (389) | | 31 | | 420 | | (1,355) | % |
| Net income | $ | 12,117 | | | $ | 18,329 | | | $ | (6,212) | | | (34) | % |
Revenues. Total revenues for the six months ended June 30, 2021 were $304.0 million compared to $257.9 million for the six months ended June 30, 2020. The increase of $46.0 million, or 18%, was largely attributable to growth in our hyperscale and hybrid colocation offerings primarily through increases in revenues at our Ashburn (DC - 1), Atlanta (DC - 1) and Chicago facilities, as well as the opening of our Atlanta (DC - 2) facility.
Property Operating Costs. Property operating costs for the six months ended June 30, 2021 were $92.0 million compared to property operating costs of $81.1 million for the six months ended June 30, 2020, an increase of $10.9 million, or 13%.
The breakdown of our property operating costs is summarized in the table below (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | |
| 2021 | | 2020 | | $ Change | | % Change |
| Property operating costs: | | | | | | | |
| Direct payroll | $ | 13,764 | | | $ | 13,467 | | | $ | 297 | | | 2 | % |
| Rent | 4,835 | | | 5,466 | | | (631) | | | (12) | % |
| Repairs and maintenance | 8,697 | | | 6,699 | | | 1,998 | | | 30 | % |
| Utilities | 42,581 | | | 31,295 | | | 11,286 | | | 36 | % |
| Management fee allocation | 11,178 | | | 9,505 | | | 1,673 | | | 18 | % |
| Other | 10,933 | | | 14,698 | | | (3,765) | | | (26) | % |
| Total property operating costs | $ | 91,988 | | | $ | 81,130 | | | $ | 10,858 | | | 13 | % |
The increase in total property operating costs was primarily due to increased utilities expense, repairs and maintenance expense, management fee allocation and direct payroll costs resulting from ongoing company growth. The increase in utility costs was primarily driven by increased power utility expenses primarily at the Atlanta (DC - 1), Suwanee and Chicago facilities, as well as the opening of our Atlanta (DC - 2) facility. Offsetting these increases was a reduction in general bad debt reserves attributable to a higher level of bad debt expense in the prior year associated with the risk of a loss across our portfolio of lease receivables primarily related to customers that experienced business disruptions due to COVID-19 in the first and second quarters of 2020, which is included in the “Other” line item of the property operating costs table, as well as a reduction in rent expense primarily related to the exit of portions of leased facilities as customers churned, downgraded or migrated to our owned facilities.
Real Estate Taxes and Insurance. Real estate taxes and insurance for the six months ended June 30, 2021 were $10.8 million compared to $8.0 million for the six months ended June 30, 2020. The increase of $2.8 million, or 35%, was primarily attributable to an increase in real estate taxes associated with the in servicing of certain data center facilities and increased assessed property values at our Atlanta (DC - 1), Ashburn (DC - 1) and Fort Worth facilities.
Depreciation and Amortization. Depreciation and amortization for the six months ended June 30, 2021 was $113.8 million compared to $92.6 million for the six months ended June 30, 2020. The increase of $21.1 million, or 23%, was primarily due to additional depreciation expense relating to an increase in assets placed in service at our Ashburn (DC - 1), Chicago, Irving and Atlanta (DC - 1) facilities, as well as the opening of our Atlanta (DC - 2) facility.
General and Administrative Expenses. General and administrative expenses were $48.1 million for the six months ended June 30, 2021 compared to $42.1 million for the six months ended June 30, 2020, an increase of $6.0 million, or 14%. The increase was primarily attributable to an increase in total compensation expense, the majority of which related to increased equity-based compensation expense associated with the growth of the Company and anticipated achievement of certain performance metrics of outstanding equity awards, as well as increases in charitable contributions and software licenses.
Transaction and Integration Costs. Transaction and integration costs were $9.9 million for the six months ended June 30, 2021, compared to $0.6 million for the six months ended June 30, 2020. The increase of $9.3 million was primarily attributable to transaction costs recognized during the six months ended June 30, 2021 associated with the potential pending merger. See the "Pending Acquisition by Blackstone" section above for further details.
Interest Expense. Interest expense for the six months ended June 30, 2021 was $15.6 million compared to $14.1 million for the six months ended June 30, 2020. The increase in interest expense was primarily attributable to an increase in our average total debt balance from the prior period as well as a lower level of capitalized interest during the current period, partially offsetwhich was driven by a reduction in interest rates.
Other Income. Other income represents the impact of foreign currency exchange rate fluctuations on the value of our net investments in foreign subsidiaries whose functional currencies are other than the U.S. Dollar. We recognized no foreign currency gain (loss) related to our investment in the Netherlands facilities during the threesix months ended SeptemberJune 30, 2020.2021. Prior to February 2020, gains or losses from foreign currency transactions related to our investment in the Netherlands facilities were included in determining net income (loss). In February 2020, we entered into a net investment hedge which resulted in gains or losses subsequently being recognized in Other Comprehensive Income (Loss).
Equity in net income (loss)loss of unconsolidated entity. This represents equity in earnings (loss) of our unconsolidated entity formed during the first quarter of 2019 that owns our Manassas (DC - 1) data center. Equity in net loss was $1.3 million for the six months ended June 30, 2021, which remained consistent with a net loss of $1.3 million for the six months ended June 30, 2020.
Tax Expense.Benefit (Expense). Tax expense for the threesix months ended SeptemberJune 30, 20202021 was $0.2$0.4 million which remained consistent when compared to $0.4less than $0.1 million of tax expensebenefit for the threesix months ended SeptemberJune 30, 2019.2020.
Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
Changes in revenues and expenses for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 are summarized below (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | | |
| 2020 | | 2019 | | $ Change | | % Change | |
| Revenues: | | | | | | | | |
| Rental | $ | 379,860 | | | $ | 345,841 | | | $ | 34,019 | | | 10 | % | |
| Other | 15,611 | | | 11,270 | | | 4,341 | | | 39 | % | |
| Total revenues | 395,471 | | | 357,111 | | | 38,360 | | | 11 | % | |
| Operating expenses: | | | | | | | | |
| Property operating costs | 125,109 | | | 117,403 | | | 7,706 | | | 7 | % | |
| Real estate taxes and insurance | 12,023 | | | 10,435 | | | 1,588 | | | 15 | % | |
| Depreciation and amortization | 144,002 | | | 123,144 | | | 20,858 | | | 17 | % | |
| General and administrative | 64,156 | | | 59,519 | | | 4,637 | | | 8 | % | |
| Transaction and integration costs | 1,675 | | | 3,080 | | | (1,405) | | | (46) | % | |
| Total operating expenses | 346,965 | | | 313,581 | | | 33,384 | | | 11 | % | |
| Gain on sale of real estate, net | — | | | 13,408 | | | (13,408) | | | (100) | % | |
| Operating income | 48,506 | | | 56,938 | | | (8,432) | | | (15) | % | |
| Other income and expense: | | | | | | | | |
| Interest income | 2 | | | 103 | | | (101) | | | (98) | % | |
| Interest expense | (21,602) | | | (20,329) | | | 1,273 | | | 6 | % | |
| Other income | 159 | | | 330 | | | (171) | | | (52) | % | |
| Equity in net loss of unconsolidated entity | (1,633) | | | (992) | | | 641 | | | 65 | % | |
| Income before taxes | 25,432 | | | 36,050 | | | (10,618) | | | (29) | % | |
| Tax expense | (196) | | | (779) | | | (583) | | | (75) | % | |
| Net income | $ | 25,236 | | | $ | 35,271 | | | $ | (10,035) | | | (28) | % | |
Revenues. Total revenues for the nine months ended September 30, 2020 were $395.5 million compared to $357.1 million for the nine months ended September 30, 2019. The increase of $38.4 million, or 11%, was largely attributable to growth in our hyperscale and hybrid colocation offerings, primarily through increases in revenues at our Ashburn (DC-1), Fort Worth, Atlanta (DC-1) and Chicago data centers, partially offset by revenue reductions in Richmond and various leased facilities which were associated with the exit from those leased facilities.
Property Operating Costs. Property operating costs for the nine months ended September 30, 2020 were $125.1 million compared to property operating costs of $117.4 million for the nine months ended September 30, 2019, an increase of $7.7 million, or 7%. The breakdown of our property operating costs is summarized in the table below (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
| Property operating costs: | | | | | | | |
| Direct payroll | $ | 20,492 | | | $ | 18,010 | | | $ | 2,482 | | | 14 | % |
| Rent | 8,146 | | | 9,478 | | | (1,332) | | | (14) | % |
| Repairs and maintenance | 10,152 | | | 9,378 | | | 774 | | | 8 | % |
| Utilities | 51,054 | | | 51,618 | | | (564) | | | (1) | % |
| Management fee allocation | 14,569 | | | 13,866 | | | 703 | | | 5 | % |
| Other | 20,696 | | | 15,053 | | | 5,643 | | | 37 | % |
| Total property operating costs | $ | 125,109 | | | $ | 117,403 | | | $ | 7,706 | | | 7 | % |
The increase in total property operating costs was primarily due to an increase in bad debt expense which was partially attributable to the risk of a loss across our portfolio of lease receivables primarily related to customers experiencing business
disruptions due to COVID-19 (which is included in the “Other” line item of the property operating costs table above), increased direct payroll costs and repairs and maintenance expense resulting from ongoing company growth as well as an increase in miscellaneous expenses primarily attributable to an adjustment to prior years' personal property taxes at our Atlanta-Suwanee facility. Offsetting these increases was a reduction in rent expense primarily related to the exit of portions of leased facilities as customers churned, downgraded or migrated to our owned facilities as well as a reduction in utility costs primarily driven by lower utility rates in the Atlanta market.
Real Estate Taxes and Insurance. Real estate taxes and insurance for the nine months ended September 30, 2020 were $12.0 million compared to $10.4 million for the nine months ended September 30, 2019. The increase of $1.6 million, or 15%, was primarily attributable to an increase in real estate taxes at our Ashburn (DC - 1), Atlanta (DC - 1 and DC - 2) and Fort Worth facilities.
Depreciation and Amortization. Depreciation and amortization for the nine months ended September 30, 2020 was $144.0 million compared to $123.1 million for the nine months ended September 30, 2019. The increase of $20.9 million, or 17%, was due primarily to additional depreciation expense relating to an increase in assets placed in service at our Ashburn (DC - 1), Chicago, Fort Worth, Irving and Atlanta (DC - 1) facilities, partially offset by a decrease in depreciation expense at our Richmond facility.
General and Administrative Expenses. General and administrative expenses were $64.2 million for the nine months ended September 30, 2020 compared to general and administrative expenses of $59.5 million for the nine months ended September 30, 2019, an increase of $4.6 million, or 8%. The increase was primarily attributable to an increase in total compensation expense, the majority of which related to increased equity-based compensation expense associated with the growth of the Company and anticipated achievement of certain performance metrics, partially offset by a reduction in employee travel-related expenses primarily associated with reduced travel as a result of the COVID-19 pandemic.
Transaction and Integration Costs. Transaction and integration costs were $1.7 million for the nine months ended September 30, 2020, compared to $3.1 million for the nine months ended September 30, 2019. The decrease of $1.4 million, or 46%, was attributable to a decrease in costs associated with the assessment of actual and potential acquisitions during the nine months ended September 30, 2020.
Gain on sale of real estate, net. The gain on sale of real estate net incurred during the nine months ended September 30, 2019 primarily relates to a $13.4 million net gain realized upon sale of the Manassas facility to the unconsolidated entity which represents the fair value of cash and noncash consideration received in the sale transaction, net of costs directly related to the sale in excess of the carrying amounts of the assets.
Interest Expense. Interest expense for the nine months ended September 30, 2020 was $21.6 million compared to $20.3 million for the nine months ended September 30, 2019. The increase in interest expense was primarily attributable to an increase in our average total debt balance from the prior period as well as a lower level of capitalized interest during the current period, partially offset by reduction in interest rates.
Other Income. Other income represents the impact of foreign currency exchange rate fluctuations on the value of investments in foreign subsidiaries whose functional currencies are other than the U.S. Dollar. We recognized $0.2 million of foreign currency gain related to our investment in the Netherlands facilities during the nine months ended September 30, 2020. Prior to February 2020, gains or losses from foreign currency transactions were included in determining net income (loss). In February 2020, we entered into a net investment hedge which resulted in gains or losses subsequently being recognized in Other Comprehensive Income (Loss).
Equity in net income (loss) of unconsolidated entity. This represents equity in earnings (loss) of our unconsolidated entity formed during the first quarter of 2019 that owns our Manassas data center. The increase in net loss for the nine months ended September 30, 2020 compared to September 30, 2019 was primarily attributable to the unconsolidated entity being in place for three full quarters in the current period compared to only two quarters of the prior period.
Tax Expense. Tax expense for the nine months ended September 30, 2020 was $0.2 million compared to $0.8 million of tax expense for the nine months ended September 30, 2019. The decrease in tax expense is primarily the result of the distribution of an intangible asset that represented a deferred tax liability on the 2019 financial statements of one of the taxable REIT subsidiaries.
Non-GAAP Financial Measures
We consider the following non-GAAP financial measures to be useful to investors as key supplemental measures of our performance: (1) FFO; (2) Operating FFO; (3) Adjusted Operating FFO; (4) MRR and Recognized MRR; (5) NOI; (6) EBITDAre; and (7) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss and cash flows from operating activities as a measure of our operating performance. FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDAre and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDAre and Adjusted EBITDAsimilarly titled measures as reported by other companies that do not use the same definition or implementation guidelines or interpret the standards differently from us.
We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. We believe the presentation of non-GAAP financial measures provide meaningful supplemental information to both management and investors that is indicative of our operations. We have included a reconciliation of this additional information to the most comparable GAAP measure in the selected financial information below.
FFO, Operating FFO and Adjusted Operating FFO
We consider funds from operations (“FFO”) to be a supplemental measure of our 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. We calculate 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 related to our primary business, impairment write-downs of depreciable real estate related to our primary business, real estate-related depreciation and amortization, and similar adjustments for unconsolidated entities. To the extent we incur gains or losses from the sale of assets that are incidental to our primary business, or incur impairment write-downs associated with assets that are incidental to our primary business, we include such amounts in our calculation of FFO. Our management uses FFO as a supplemental operating performance measure because, in excluding real estate-related depreciation and amortization, impairment write-downs of depreciable real estate and gains and losses from property dispositions related to our primary business, 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 our operating results that management believes are not reflective of our core operating performance, management computes an adjusted measure of FFO, which we refer 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. We generally calculate Operating FFO as FFO excluding certain non-routine charges and gains and losses that management believes are not indicative of the results of our operating real estate portfolio. We believe 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. We calculate Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment, paid leasing commissions, amortization of deferred financing costs, and bond discount, non-real estate depreciation and amortization, straight linestraight-line rent adjustments, income taxes, equity-based compensation and similar adjustments for unconsolidated entities.
We offer these measures because we recognize that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare our 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 our 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 our properties, all of which have real economic effect and could materially impact our financial condition, cash flows and results of operations, the utility of FFO, Operating FFO and Adjusted Operating FFO as measures of our operating performance is limited. Our 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, our calculations of FFO, Operating FFO and Adjusted Operating FFO are not necessarily comparable to FFO, Operating FFO and Adjusted Operating FFOsimilarly titled measures 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 our 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 our cash needs, including our ability to make distributions to our stockholders.
A reconciliation of net income to FFO, Operating FFO and Adjusted Operating FFO is presented below (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | June 30, | | June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| FFO | FFO | | | | | | | | FFO | | | | | | | | |
| Net income | Net income | $ | 6,907 | | | $ | 6,588 | | | $ | 25,236 | | | $ | 35,271 | | Net income | | $ | 4,199 | | | $ | 10,209 | | | 12,117 | | | $ | 18,329 | |
| Equity in net loss of unconsolidated entity | Equity in net loss of unconsolidated entity | 366 | | | 317 | | | 1,633 | | | 992 | | Equity in net loss of unconsolidated entity | | 705 | | | 590 | | | 1,264 | | | 1,267 | |
| Real estate depreciation and amortization | Real estate depreciation and amortization | 47,880 | | | 39,969 | | | 133,776 | | | 114,440 | | Real estate depreciation and amortization | | 55,044 | | | 44,196 | | | 107,673 | | | 85,896 | |
| Gain on sale of real estate, net | — | | | — | | | — | | | (13,408) | | |
| Pro rata share of FFO from unconsolidated entity | Pro rata share of FFO from unconsolidated entity | 512 | | | 369 | | | 1,189 | | | 754 | | Pro rata share of FFO from unconsolidated entity | | 474 | | | 399 | | | 931 | | | 677 | |
FFO (1) | FFO (1) | 55,665 | | | 47,243 | | | 161,834 | | | 138,049 | | FFO (1) | | 60,422 | | 55,394 | | 121,985 | | 106,169 |
| Preferred stock dividends | Preferred stock dividends | (7,045) | | | (7,045) | | | (21,135) | | | (21,135) | | Preferred stock dividends | | (7,045) | | | (7,045) | | | (14,090) | | | (14,090) | |
| FFO available to common stockholders & OP unit holders | FFO available to common stockholders & OP unit holders | 48,620 | | | 40,198 | | | 140,699 | | | 116,914 | | FFO available to common stockholders & OP unit holders | | 53,377 | | 48,349 | | 107,895 | | 92,079 |
| | Transaction and integration costs | Transaction and integration costs | 1,078 | | | 827 | | | 1,675 | | | 3,080 | | Transaction and integration costs | | 8,391 | | | 381 | | | 9,907 | | | 597 | |
Operating FFO available to common stockholders & OP unit holders (1)(2) | Operating FFO available to common stockholders & OP unit holders (1)(2) | 49,698 | | | 41,025 | | | 142,374 | | | 119,994 | | Operating FFO available to common stockholders & OP unit holders (1)(2) | | 61,768 | | 48,730 | | 117,802 | | 92,676 |
| | Maintenance capital expenditures | Maintenance capital expenditures | (2,268) | | | (381) | | | (8,150) | | | (3,323) | | Maintenance capital expenditures | | (2,337) | | (4,220) | | (4,041) | | (5,882) |
| Leasing commissions paid | Leasing commissions paid | (9,670) | | | (7,302) | | | (25,473) | | | (20,345) | | Leasing commissions paid | | (11,491) | | (6,805) | | (20,951) | | (15,803) |
| Amortization of deferred financing costs | Amortization of deferred financing costs | 990 | | | 978 | | | 2,968 | | | 2,935 | | Amortization of deferred financing costs | | 1,129 | | 991 | | 2,259 | | 1,978 |
| Non real estate depreciation and amortization | Non real estate depreciation and amortization | 3,498 | | | 2,906 | | | 10,226 | | | 8,704 | | Non real estate depreciation and amortization | | 3,212 | | 3,358 | | 6,088 | | 6,728 |
| Straight line rent revenue and expense and other | (7,196) | | | (2,278) | | | (16,653) | | | (4,679) | | |
| Tax expense from operating results | 227 | | | 369 | | | 196 | | | 779 | | |
| Straight-line rent revenue and expense and other | | Straight-line rent revenue and expense and other | | (7,916) | | (5,702) | | (15,525) | | (9,457) |
| Tax expense (benefit) from operating results | | Tax expense (benefit) from operating results | | 251 | | 138 | | 389 | | (31) |
| Equity-based compensation expense | Equity-based compensation expense | 7,315 | | | 4,456 | | | 18,271 | | | 12,052 | | Equity-based compensation expense | | 7,311 | | 6,082 | | 14,167 | | 10,957 |
| Adjustments for unconsolidated entity | Adjustments for unconsolidated entity | (211) | | | 63 | | | (232) | | | 43 | | Adjustments for unconsolidated entity | | 51 | | (88) | | 97 | | (22) |
Adjusted Operating FFO available to common stockholders & OP unit holders (1)(2) | Adjusted Operating FFO available to common stockholders & OP unit holders (1)(2) | $ | 42,383 | | | $ | 39,836 | | | $ | 123,527 | | | $ | 116,160 | | Adjusted Operating FFO available to common stockholders & OP unit holders (1)(2) | | $ | 51,978 | | | $ | 42,484 | | | $ | 100,285 | | | $ | 81,144 | |
_______________________
(1)No gains, losses or impairment write-downs associated with assets incidental to our primary business were incurred during the three and six months ended June 30, 2021 and 2020.
(2)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.
Monthly Recurring Revenue (MRR) and Recognized MRR
We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR is also calculated to include our 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-billedbacklog leases as of a particular date, unless otherwise specifically noted.
Separately, we calculate recognized MRR as the recurring revenue recognized during a given period, which includes revenue from our rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues.
Management uses MRR and recognized MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from our customer leases and customer leases attributable to our 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, our 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 our performance. MRR and recognized MRR should not be used as measures of our results of operations or liquidity, nor is it indicative of funds available to meet our cash needs, including our ability to make distributions to our stockholders.
A reconciliation of total GAAP revenues to recognized MRR in the period and MRR at period end is presented below (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | June 30, | | June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Recognized MRR in the period | Recognized MRR in the period | | | | | | | | Recognized MRR in the period | | | | | | | |
| Total period revenues (GAAP basis) | Total period revenues (GAAP basis) | $ | 137,538 | | | $ | 125,255 | | | $ | 395,471 | | | $ | 357,111 | | Total period revenues (GAAP basis) | $ | 155,220 | | | $ | 131,640 | | | $ | 303,952 | | | $ | 257,932 | |
| Less: Total period variable lease revenue from recoveries | Less: Total period variable lease revenue from recoveries | (14,887) | | | (17,563) | | | (39,689) | | | (41,028) | | Less: Total period variable lease revenue from recoveries | (17,692) | | | (12,528) | | | (33,820) | | | (24,803) | |
| Total period deferred setup fees | Total period deferred setup fees | (5,300) | | | (4,041) | | | (13,745) | | | (11,095) | | Total period deferred setup fees | (7,241) | | | (4,520) | | | (13,677) | | | (8,444) | |
| Total period straight line rent and other | (9,184) | | | (4,768) | | | (26,543) | | | (14,195) | | |
| Total period straight-line rent and other | | Total period straight-line rent and other | (10,456) | | | (9,327) | | | (22,079) | | | (17,359) | |
| Recognized MRR in the period | Recognized MRR in the period | $ | 108,167 | | | $ | 98,883 | | | $ | 315,494 | | | $ | 290,793 | | Recognized MRR in the period | $ | 119,831 | | | $ | 105,265 | | | $ | 234,376 | | | $ | 207,326 | |
| | MRR at period end | MRR at period end | | MRR at period end | |
| Total period revenues (GAAP basis) | Total period revenues (GAAP basis) | $ | 137,538 | | | $ | 125,255 | | | $ | 395,471 | | | $ | 357,111 | | Total period revenues (GAAP basis) | $ | 155,220 | | | $ | 131,640 | | | $ | 303,952 | | | $ | 257,932 | |
| Less: Total revenues excluding last month | Less: Total revenues excluding last month | (91,485) | | | (81,114) | | | (349,418) | | | (312,970) | | Less: Total revenues excluding last month | (102,328) | | | (87,538) | | | (251,060) | | | (213,830) | |
| Total revenues for last month of period | Total revenues for last month of period | 46,053 | | | 44,141 | | | 46,053 | | | 44,141 | | Total revenues for last month of period | 52,892 | | | 44,102 | | | 52,892 | | | 44,102 | |
| Less: Last month variable lease revenue from recoveries | Less: Last month variable lease revenue from recoveries | (4,643) | | | (6,369) | | | (4,643) | | | (6,369) | | Less: Last month variable lease revenue from recoveries | (6,358) | | | (4,350) | | | (6,358) | | | (4,350) | |
| Last month deferred setup fees | Last month deferred setup fees | (1,864) | | | (1,684) | | | (1,864) | | | (1,684) | | Last month deferred setup fees | (2,548) | | | (1,533) | | | (2,548) | | | (1,533) | |
| Last month straight line rent and other | (3,044) | | | (3,452) | | | (3,044) | | | (3,452) | | |
| Last month straight-line rent and other | | Last month straight-line rent and other | (2,794) | | | (2,480) | | | (2,794) | | | (2,480) | |
| Add: Pro rata share of MRR at period end of unconsolidated entity | Add: Pro rata share of MRR at period end of unconsolidated entity | 411 | | | 343 | | | 411 | | | 343 | | Add: Pro rata share of MRR at period end of unconsolidated entity | 465 | | | 352 | | | 465 | | | 352 | |
MRR at period end (1) | MRR at period end (1) | $ | 36,913 | | | $ | 32,979 | | | $ | 36,913 | | | $ | 32,979 | | MRR at period end (1) | $ | 41,657 | | | $ | 36,091 | | | $ | 41,657 | | | $ | 36,091 | |
(1)Does not include our booked-not-billed MRRbacklog of cash rent balance, which was $10.9$7.5 million and $9.3 million as of SeptemberJune 30, 20202021 and 2019,2020, respectively.
Net Operating Income (NOI)
We calculate net operating income (“NOI”), as net income (loss) (computed in accordance with GAAP), excluding: interest expense, interest income, tax expense (benefit), depreciation and amortization, write off of unamortized deferred financing costs, other income,(income) expense, debt restructuring costs, transaction, integration and impairment costs, gain (loss) on sale of real estate, restructuring costs, general and administrative expenses and similar adjustments for unconsolidated entities. We allocate 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 our customer leases. In addition, we believe it is useful to investors in evaluating and comparing the operating performance of our properties and to compute the fair value of our properties. Our NOI may not be comparable to other REITs’REITs' NOI as other REITs may not calculate NOI in the same manner. NOI should be considered only as a supplement to net income (loss) as a measure of our performance and should not be used as a measure of our results of operations or liquidity or as an indication of funds available to meet our cash needs, including our ability to make distributions to our stockholders. NOI is a measure of the operating performance of our properties and not of our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP.
A reconciliation of net income to NOI is presented below (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | June 30, | | June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Net Operating Income (NOI) | Net Operating Income (NOI) | | | | | | | | Net Operating Income (NOI) | | | | | | | |
| Net income | Net income | $ | 6,907 | | | $ | 6,588 | | | $ | 25,236 | | | $ | 35,271 | | Net income | $ | 4,199 | | | $ | 10,209 | | | $ | 12,117 | | | $ | 18,329 | |
| Equity in net loss of unconsolidated entity | Equity in net loss of unconsolidated entity | 366 | | | 317 | | | 1,633 | | | 992 | | Equity in net loss of unconsolidated entity | 705 | | | 590 | | | 1,264 | | | 1,267 | |
| Interest income | Interest income | — | | | (22) | | | (2) | | | (103) | | Interest income | (1) | | | (2) | | | (1) | | | (2) | |
| Interest expense | Interest expense | 7,516 | | | 6,724 | | | 21,602 | | | 20,329 | | Interest expense | 7,452 | | | 6,924 | | | 15,600 | | | 14,086 | |
| Depreciation and amortization | Depreciation and amortization | 51,378 | | | 42,875 | | | 144,002 | | | 123,144 | | Depreciation and amortization | 58,255 | | | 47,554 | | | 113,761 | | | 92,624 | |
| Other income | — | | | (370) | | | (159) | | | (330) | | |
| Tax expense | 227 | | | 369 | | | 196 | | | 779 | | |
| Other (income) expense | | Other (income) expense | — | | | — | | | — | | | (159) | |
| Tax expense (benefit) | | Tax expense (benefit) | 251 | | | 138 | | | 389 | | | (31) | |
| Transaction and integration costs | Transaction and integration costs | 1,078 | | | 827 | | | 1,675 | | | 3,080 | | Transaction and integration costs | 8,391 | | | 381 | | | 9,907 | | | 597 | |
| General and administrative expenses | General and administrative expenses | 22,082 | | | 19,504 | | | 64,156 | | | 59,519 | | General and administrative expenses | 24,476 | | | 21,391 | | | 48,117 | | | 42,074 | |
| Gain on sale of real estate, net | — | | | — | | | — | | | (13,408) | | |
NOI from consolidated operations (1) | NOI from consolidated operations (1) | $ | 89,554 | | | $ | 76,812 | | | $ | 258,339 | | | $ | 229,273 | | NOI from consolidated operations (1) | $ | 103,728 | | | $ | 87,185 | | | $ | 201,154 | | | $ | 168,785 | |
| Pro rata share of NOI from unconsolidated entity | Pro rata share of NOI from unconsolidated entity | 1,180 | | | 872 | | | 2,950 | | | 1,948 | | Pro rata share of NOI from unconsolidated entity | 1,115 | | | 927 | | | 2,248 | | | 1,771 | |
Total NOI (1) | Total NOI (1) | $ | 90,734 | | | $ | 77,684 | | | $ | 261,289 | | | $ | 231,221 | | Total NOI (1) | $ | 104,843 | | | $ | 88,112 | | | $ | 203,402 | | | $ | 170,556 | |
_______________________
(1)Includes facility level general and administrative allocation charges of 4% of cash revenue for all facilities. These allocated charges aggregated to $5.1$5.7 million and $4.8 million for the three month periodsmonths ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $14.6$11.2 million and $13.9$9.5 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDA
We calculate EBITDAre in accordance with the standards established by NAREIT. EBITDAre represents net income (computed in accordance with GAAP) adjusted to exclude gains (or losses) from sales of depreciated property related to our primary business, income tax expense (or benefit), interest expense, depreciation and amortization, impairments of depreciated property related to our primary business, and similar adjustments for unconsolidated entities. Management uses EBITDAre as a supplemental performance measure because it provides performance measures that, when compared year over year, captures the performance of our operations by removing the impact of our capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from our operating results.
Due to the volatility and nature of certain significant charges and gains recorded in our operating results that management believes are not reflective of operating performance, we compute an adjusted measure of EBITDAre, which we refer to as Adjusted EBITDA. We calculate Adjusted EBITDA as EBITDAre 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 our pro-rata share of each of those respective adjustments associated with the unconsolidated entity aggregated into one line item categorized as “Adjustments for the unconsolidated entity.” In addition, we calculate Adjusted EBITDA excluding certain non-cash recurring costs such as equity-based compensation. We believe 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 our operating results. Other companies may not calculate EBITDAre or Adjusted EBITDA in the same manner. Accordingly, our 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 our performance and should not be used as substitutes for net income (loss), as measures of our results of operations or liquidity or as indications of funds available to meet our cash needs, including our ability to make distributions to our stockholders.
A reconciliation of net income to EBITDAre and Adjusted EBITDA is presented below (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | June 30, | | June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| EBITDAre and Adjusted EBITDA | EBITDAre and Adjusted EBITDA | | | | | | | | EBITDAre and Adjusted EBITDA | | | | | | | |
| Net income | Net income | $ | 6,907 | | | $ | 6,588 | | | $ | 25,236 | | | $ | 35,271 | | Net income | $ | 4,199 | | | $ | 10,209 | | | $ | 12,117 | | | $ | 18,329 | |
| Equity in net loss of unconsolidated entity | Equity in net loss of unconsolidated entity | 366 | | | 317 | | | 1,633 | | | 992 | | Equity in net loss of unconsolidated entity | 705 | | | 590 | | | 1,264 | | | 1,267 | |
| Interest income | Interest income | — | | | (22) | | | (2) | | | (103) | | Interest income | (1) | | | (2) | | | (1) | | | (2) | |
| Interest expense | Interest expense | 7,516 | | | 6,724 | | | 21,602 | | | 20,329 | | Interest expense | 7,452 | | | 6,924 | | | 15,600 | | | 14,086 | |
| Tax expense | 227 | | | 369 | | | 196 | | | 779 | | |
| Tax expense (benefit) | | Tax expense (benefit) | 251 | | | 138 | | | 389 | | | (31) | |
| Depreciation and amortization | Depreciation and amortization | 51,378 | | | 42,875 | | | 144,002 | | | 123,144 | | Depreciation and amortization | 58,255 | | | 47,554 | | | 113,761 | | | 92,624 | |
| Gain on disposition of depreciated property | — | | | — | | | — | | | (13,408) | | |
| Pro rata share of EBITDAre from unconsolidated entity | Pro rata share of EBITDAre from unconsolidated entity | 1,178 | | | 867 | | | 2,921 | | | 1,945 | | Pro rata share of EBITDAre from unconsolidated entity | 1,100 | | | 924 | | | 2,206 | | | 1,743 | |
EBITDAre | EBITDAre | 67,572 | | | 57,718 | | | 195,588 | | | 168,949 | | EBITDAre | 71,961 | | | 66,337 | | | $ | 145,336 | | | $ | 128,016 | |
| | Equity-based compensation expense | Equity-based compensation expense | 7,315 | | | 4,456 | | | 18,271 | | | 12,052 | | Equity-based compensation expense | 7,311 | | | 6,082 | | | 14,167 | | | 10,957 | |
| Transaction, integration and implementation costs | Transaction, integration and implementation costs | 1,099 | | | 827 | | | 1,696 | | | 3,080 | | Transaction, integration and implementation costs | 8,391 | | | 381 | | | 9,907 | | | 597 | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 75,986 | | | $ | 63,001 | | | $ | 215,555 | | | $ | 184,081 | | Adjusted EBITDA | $ | 87,663 | | | $ | 72,800 | | | $ | 169,410 | | | $ | 139,570 | |
_______________________
(1)No gains, losses or impairment write-downs associated with assets incidental to our primary business were incurred during the three and six months ended June 30, 2021 and 2020.
Liquidity and Capital Resources
The Merger Agreement contains provisions which restrict or prohibit certain capital expenditures without the consent of the Parent as well as certain capital transactions typically used to fund our short and long-term liquidity requirements. Until the Merger Transactions close, or the Merger Agreement is terminated, our liquidity requirements will primarily be funded by our cash flow from operations and certain other capital activities allowed under the Merger Agreement. In particular, we are subject to various restrictions under the Merger Agreement on raising additional capital, assuming additional debt, issuing additional equity or debt, repurchasing equity, and entering into certain acquisition, disposition and leasing transactions, among other restrictions, subject to the restrictions under the Merger Agreement.
Short-Term Liquidity
Our short-term liquidity needs include funding capital expenditures for the development of data center space (a significant portion of which is discretionary), meeting debt service and debt maturity obligations, funding payments for finance leases, funding distributions to our common and preferred stockholders and unit holders, utility costs, site maintenance costs, real estate and personal property taxes, insurance, rental expenses, general and administrative expenses and certain recurring and non-recurring capital expenditures.
In addition to the $587.2We incurred $453.4 million of capital expenditures incurred induring the ninesix months ended SeptemberJune 30, 2020, we expect that we will incur approximately $100 million to $200 million in additional capital expenditures through December 31, 2020 in connection with the development of our data center facilities, which excludes acquisitions and includes our 50% proportionate share of capital expenditures at the Manassas facility that was contributed to an unconsolidated entity. We expect to spend approximately $75 million to $150 million of capital expenditures with vendors on development, and the remainder on other capital expenditures and capitalized internal project costs (including capitalized interest, commissions, payroll and other similar costs), personal property and other less material capital projects.2021. A significant portion of theseour future capital expenditures are discretionary in nature and we may ultimately determine not to make these expenditures or the timing of expenditures may vary. In addition, the amount and timing of future capital expenditures may vary if the Merger Transactions close as expected.
We expect to meet these costscapital expenditures requirements and our other short-term liquidity needs through operating cash flow, cash and cash equivalents and borrowings under our credit facilities, proceeds fromfacilities. The funding to meet short term liquidity needs may vary if the forwardMerger Transactions close as expected. The Company is subject to restrictions on equity transactions discussed below, additional equity issuances, through our ATM program or other capital markets activity including debt issuances. We may also sell an interestactivities and sales of interests in certain projects into unconsolidated entities as another sourcepursuant to the terms of capital.the Merger Agreement.
Our cash paid for capital expenditures for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 are summarized in the table below (unaudited and in thousands):
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Development | Development | $ | 489,139 | | | $ | 191,604 | | Development | $ | 386,438 | | | $ | 321,639 | |
| Acquisitions | Acquisitions | 12,628 | | | 69,355 | | Acquisitions | 27,154 | | | 1,797 | |
| Maintenance capital expenditures | Maintenance capital expenditures | 8,150 | | | 3,323 | | Maintenance capital expenditures | 4,041 | | | 5,882 | |
Other capital expenditures (1) | Other capital expenditures (1) | 77,250 | | | 75,952 | | Other capital expenditures (1) | 62,922 | | | 50,134 | |
| Total capital expenditures | Total capital expenditures | $ | 587,167 | | | $ | 340,234 | | Total capital expenditures | $ | 480,555 | | | $ | 379,452 | |
_______________________
(1)Represents capital expenditures for capitalized interest, commissions, personal property, overhead costs and corporate fixed assets. Corporate fixed assets primarily relate to construction of corporate offices, leasehold improvements and product related assets.
Long-Term Liquidity
Our long-term liquidity needs primarily consist of funds for property acquisitions, scheduled debt maturities payment of principal at maturity, or upon redemption, of our Senior Notes and our 2028 Senior Notes,interest payments, funding payments for finance leases, recurring and non-recurring capital expenditures, and dividend payments on our common stock, Series A Preferred Stock and Series B Preferred Stock and recurring and non-recurring capital expenditures.Stock. We may also pursue new developments and additional redevelopment of our data centers and future redevelopment of other space in our portfolio. We may also pursue development on land which we currently own that is available at ourmultiple data center properties in Atlanta (DC–2), Atlanta-Suwanee, Richmond, Irving, Fort Worth, Princeton, Chicago, Ashburn (DC-1), Phoenix, Hillsboro and Manassas.our portfolio. The development and/or redevelopment of this space, including timing, is at our discretion and will depend on a number of factors, including availability of capital and our estimate of the demand for data center space in the applicable market. We expect to meet our long-term liquidity needs with net cash provided by operations, incurrence of additional long-term indebtedness, borrowings under our revolving credit facility, and distributions from our unconsolidated entity, and issuance of additional equity (including forward equity transactions) or debt securities, subject to prevailing market conditions, as discussed below. We may also sell an interestThe Company is subject to restrictions on equity issuances, other capital markets activities and sales of interests in certain projects into unconsolidated entities pursuant to the terms of the Merger Agreement. Our long-term liquidity needs will be different if the Merger Transactions close as another source of capital.expected.
Equity
In June 2019, we established an “at-the-market” equity offering program (the “Prior ATM Program”) pursuant to which we could issue, from time to time, up to $400 million of our Class A common stock, $0.01 par value per share (the “Class A common stock”), which could include shares to be sold on a forward basis. The use ofDuring the three months ended March 31, 2021, we settled the remaining shares subject to the forward salessale agreements under the Prior ATM Program generally allowedProgram.
Because we had utilized substantially all of the Company to lock in a price on the saleoffering capacity of shares when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares are issued at settlement on a later date.
In May 2020, we replaced the Prior ATM Program, by establishingin May 2020, we established a new “at-the-market” equity offering program (the “ATM“Current ATM Program”) pursuant to which we may issue, from time to time, up to $500 million of our Class A common stock, which may include shares to be sold on a forward basis. As under the Prior ATM Program, the use of forward sales under the Current ATM Program generally allows the Companyus to lock in a price on the sale of shares of our Class A common stock when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares of our Class A common stock are issued at settlement on a later date.
During
The Company is subject to restrictions on the three months ended September 30, 2020, we received $151.8 millionissuance of net proceeds from the settlement of forward shares as noted in the table below. In addition, during the three months ended September 30, 2020, we utilized the forward provisions under the ATM Program to allow for the sale of additional shares of ourClass A common stock as noted in the table below. We expect to physically settle (by delivering shares of common stock) the remaining forward sales under the Prior ATM Program and ATM Program priorpursuant to the first anniversary dateterms of each respective transaction.
the Merger Agreement without Parent’s consent. In June 2020, we conducted an underwritten offering of 4,400,000 shares of our common stock on a forward basis at a price of $64.90 per share representing available proceeds upon physical settlement of approximately $269.4 million as of September 30, 2020. We expect to physically settle the forward sale agreements (by the delivery of shares of common stock) and receive proceeds, subject to certain adjustments, from the sale of those shares of common stock by June 30, 2021, although we have the right to elect settlement prior to that time.
The following table represents a summary of our equity issuances duringbasis. During the three months ended September 30, 2020, as well as through November 2, 2020 (unaudited and in thousands):
| | | | | | | | | | | | | | | | | | | | |
| Offering Program | | Forward
Shares Sold/(Settled) | | | Net Proceeds Available/(Received) (1) | |
| Shares and net proceeds available as of June 30, 2020 | | 10,299 | | | | $ | 584,924 | | (2) |
| May 2020 ATM Program - Sales | | 114 | | | | 7,348 | | |
| June 2019 Prior ATM Program - Settlements | | (2,948) | | (3) | | (151,844) | | |
| Shares and net proceeds available as of September 30, 2020 | | 7,465 | | | | 440,428 | | |
| May 2020 ATM Program - Sales | | 246 | | | | 15,875 | | |
| Shares and net proceeds available as of November 2, 2020 | | 7,711 | | | | $ | 456,303 | | |
(1)Net Proceeds Available remainMarch 31, 2021, we settled a portion of the 4,400,000 shares subject to certain adjustments until settled.the forward sales agreements.
(2)Proceeds available reported inDuring the Form 10-Q for the periodthree months ended June 30, 2021, we settled 8.2 million shares sold on a forward basis, representing all remaining outstanding forward stock sales from the Current ATM Program and the June 2020 were $591underwritten offering, generating net proceeds of approximately $490.9 million. The $6 million decrease is due primarily to QTS’ declared dividends, which reduces cash expected to be received upon full physical settlement of the forward shares.
(3)Represents the number of forward shares we elected to physically settle during the period.
As shown in the table above, we currently have access to approximately $456.3 million of net proceeds through forward stock sales (subject to further adjustment as described below). We view forward equity sales as an important capital raising tool that we expect to continue to strategically and selectively use, subject to market conditions and overall availability under the ATM Program.
At any time during the term of any forward sale, we may settle the forward sale by physical delivery of shares of common stock to the forward purchaser or, at our election, cash settle or net share settle. The initial forward sale price per share under each forward sale equals the product of (x) an amount equal to 100% minus the applicable forward selling commission and (y) the volume weighted average price per share at which the borrowed shares of our common stock were sold pursuant to the equity distribution agreement by the relevant forward sellers during the applicable forward hedge selling period for such shares to hedge the relevant forward purchasers’ exposure under such forward sale.
Thereafter, the forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor equal to the specified daily rate less a spread, and is decreased based on specified amounts related to dividends on shares of our common stock during the term of the applicable forward sale. If the specified daily rate is less than the spread on any day, the interest rate factor will result in a daily reduction of the applicable forward sale price.
Manassas Unconsolidated Entity
On February 22, 2019, we entered into an agreement with Alinda, Capital Partners (“Alinda”), an infrastructure investment firm, with respect to our Manassas (DC - 1) data center, as described above under “Factors That May Influence Future Results of Operations and Cash Flows.” At the closing, we received approximately $53 million in proceeds, which was comprised of the cash contributed by Alinda and also borrowings under a $164.5 million secured credit facility entered into by the unconsolidated entity at closing that carries a rate of LIBOR plus 2.00% to 2.25% depending on the existing leverage ratio. We used these proceeds to pay down our revolving credit facility and for general corporate purposes. Under the agreement, we will receive additional proceeds in the future as and when we complete development of each phase of the Manassas data center and place it into service, which allows us to receive proceeds for Alinda’s share of the unconsolidated entity based on the expected full stabilization of the asset. These proceeds will be based on a 6.75% capitalization rate for each phase delivered during the first three years of the agreement.
Cash
As of SeptemberJune 30, 2020,2021, our cash and cash equivalents balance was $22.0$28.1 million.
Dividends and Distributions
The following tables present quarterly cash dividends and distributions paid to our common and preferred stockholders and the Operating Partnership’s unit holders for the ninesix months ended SeptemberJune 30, 20202021 and 2019:2020:
| | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Record Date | | Payment Date | | Per Share Rate | | Aggregate Dividend/Distribution Amount (in millions) |
| Common Stock | | | | | | |
| | | | | | |
| March 19, 2021 | | April 6, 2021 | | $ | 0.50 | | | $ | 35.7 | |
| December 22, 2020 | | January 7, 2021 | | $ | 0.47 | | | 33.4 | |
| | | | | | $ | 69.1 | |
| | | | | | |
| Series A Preferred Stock | | | | | | |
| | | | | | |
| March 31, 2021 | | April 15, 2021 | | $ | 0.45 | | | $ | 1.9 | |
| December 31, 2020 | | January 15, 2021 | | $ | 0.45 | | | 1.9 | |
| | | | | | $ | 3.8 | |
| | | | | | |
| Series B Preferred Stock | | | | | | |
| | | | | | |
| March 31, 2021 | | April 15, 2021 | | $ | 1.63 | | | $ | 5.1 | |
| December 31, 2020 | | January 15, 2021 | | $ | 1.63 | | | 5.1 | |
| | | | | | $ | 10.2 | |
| | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Record Date | | Payment Date | | Per Share Rate | | Aggregate Dividend/Distribution Amount (in millions) |
| Common Stock | | | | | | |
| | | | | | |
| March 20, 2020 | | April 7, 2020 | | $ | 0.47 | | | $ | 31.5 | |
| December 20, 2019 | | January 7, 2020 | | $ | 0.44 | | | 28.6 | |
| | | | | | $ | 60.1 | |
| | | | | | |
| Series A Preferred Stock | | | | | | |
| | | | | | |
| March 31, 2020 | | April 15, 2020 | | $ | 0.45 | | | $ | 1.9 | |
| December 31, 2019 | | January 15, 2020 | | $ | 0.45 | | | 1.9 | |
| | | | | | $ | 3.8 | |
| Series B Preferred Stock | | | | | | |
| | | | | | |
| March 31, 2020 | | April 15, 2020 | | $ | 1.63 | | | $ | 5.1 | |
| December 31, 2019 | | January 15, 2020 | | $ | 1.63 | | | 5.1 | |
| | | | | | $ | 10.2 | |
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Record Date | | Payment Date | | Per Share and
Per Unit Rate | | Aggregate Dividend/Distribution Amount (in millions) |
| Common Stock/Units | | | | | | |
| | | | | | |
| June 19, 2020 | | July 7, 2020 | | $ | 0.47 | | | $ | 31.5 | |
| March 20, 2020 | | April 7, 2020 | | $ | 0.47 | | | 31.5 | |
| December 20, 2019 | | January 7, 2020 | | $ | 0.44 | | | 28.6 | |
| | | | | | $ | 91.6 | |
| | | | | | |
| Series A Preferred Stock/Units | | | | | | |
| | | | | | |
| June 30, 2020 | | July 15, 2020 | | $ | 0.45 | | | $ | 1.9 | |
| March 31, 2020 | | April 15, 2020 | | $ | 0.45 | | | 1.9 | |
| December 31, 2019 | | January 15, 2020 | | $ | 0.45 | | | 1.9 | |
| | | | | | $ | 5.7 | |
| | | | | | |
| Series B Preferred Stock/Units | | | | | | |
| | | | | | |
| June 30, 2020 | | July 15, 2020 | | $ | 1.63 | | | $ | 5.1 | |
| March 31, 2020 | | April 15, 2020 | | $ | 1.63 | | | 5.1 | |
| December 31, 2019 | | January 15, 2020 | | $ | 1.63 | | | 5.1 | |
| | | | | | $ | 15.3 | |
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Record Date | | Payment Date | | Per Share and
Per Unit Rate | | Aggregate Dividend/Distribution Amount (in millions) |
| Common Stock/Units | | | | | | |
| | | | | | |
| June 25, 2019 | | July 9, 2019 | | $ | 0.44 | | | $ | 27.3 | |
| March 20, 2019 | | April 4, 2019 | | $ | 0.44 | | | 27.3 | |
| December 21, 2018 | | January 8, 2019 | | $ | 0.41 | | | 23.7 | |
| | | | | | $ | 78.3 | |
| | | | | | |
| Series A Preferred Stock/Units | | | | | | |
| | | | | | |
| June 30, 2019 | | July 15, 2019 | | $ | 0.45 | | | $ | 1.9 | |
| March 31, 2019 | | April 15, 2019 | | $ | 0.45 | | | 1.9 | |
| December 31, 2018 | | January 15, 2019 | | $ | 0.45 | | | 1.9 | |
| | | | | | $ | 5.7 | |
| | | | | | |
| Series B Preferred Stock/Units | | | | | | |
| | | | | | |
| June 30, 2019 | | July 15, 2019 | | $ | 1.63 | | | $ | 5.1 | |
| March 31, 2019 | | April 15, 2019 | | $ | 1.63 | | | 5.1 | |
| December 31, 2018 | | January 15, 2019 | | $ | 1.63 | | | 5.1 | |
| | | | | | $ | 15.3 | |
Additionally, subsequent to SeptemberJune 30, 2020,2021, we paid the following dividends:
•On October 6, 2020, the CompanyJuly 7, 2021, we paid itsour regular quarterly cash dividend of $0.47$0.50 per common share and per unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on SeptemberJune 18, 2020.2021.
•On OctoberJuly 15, 2020, the Company2021, we paid a quarterly cash dividend of approximately $0.45 per share on itsour Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on SeptemberJune 30, 20202021.
and the Operating Partnership paid a quarterly cash distribution of approximately $0.45 per unit on outstanding Series A Preferred Units held by the Company.
•On OctoberJuly 15, 2020, the Company2021, we paid a quarterly cash dividend of approximately $1.63 per share on itsour Series B Preferred Stock to holders of Series B Preferred Stock of record as of the close of business on SeptemberJune 30, 2020 and the Operating Partnership paid a quarterly cash distribution of approximately $1.63 per unit on outstanding Series B Preferred Units held by the Company.2021.
Indebtedness
Below is a listing of our outstanding debt, including finance leases, as of June 30, 2021 and December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Weighted Average Effective Interest Rate at June 30, 2021 (1) | | Maturity Date | | June 30,
2021 | | December 31,
2020 |
| (unaudited) | | | | (unaudited) | | |
| Unsecured Credit Facility | | | | | | | |
| Revolving Credit Facility | 1.35% | | December 17, 2023 | | $ | 95,156 | | | $ | 392,337 | |
| Term Loan A | 3.26% | | December 17, 2024 | | 225,000 | | | 225,000 | |
| Term Loan B | 3.30% | | April 27, 2025 | | 225,000 | | | 225,000 | |
| Term Loan C | 3.46% | | October 18, 2026 | | 250,000 | | | 250,000 | |
| Term Loan D | 1.45% | | January 15, 2026 | | 250,000 | | | 250,000 | |
| 3.875% Senior Notes | 3.88% | | October 1, 2028 | | 500,000 | | | 500,000 | |
| Finance Leases | 4.36% | | 2031 - 2041 | | 42,395 | | | 41,718 | |
| 3.12% | | | | 1,587,551 | | | 1,884,055 | |
| Less net debt issuance costs | | | | | (13,307) | | | (14,562) | |
| Total outstanding debt, net | | | | | $ | 1,574,244 | | | $ | 1,869,493 | |
_________________________
(1)The coupon interest rates associated with Term Loan A, Term Loan B, and Term Loan C incorporate the effects of our interest rate swaps in effect as of June 30, 2021.
As of SeptemberJune 30, 2020,2021, we had approximately $1,667.9 million of indebtedness, including finance lease obligations.
Unsecured Credit Facility. We amended and restatedavailability under our unsecured credit facility in October 2019 (as so amended and restated, the “unsecured credit facility”), which among other things, increased the total potential borrowings, extended maturity dates, lowered interest rates, and provided for an additional term loan under the agreement. The unsecured credit facility includes a $225 million term loan which matures on December 17, 2024 (“Term Loan A”), a $225 million term loan which matures on April 27, 2025 (“Term Loan B”), an additional term loan of $250 million which matures on October 18, 2026 (“Term Loan C”) and a $1.0 billion revolving credit facility which matures on December 17, 2023. The revolving portion of the credit facility has a one-year extension option available to the Company. Amounts outstanding under the new unsecured credit facility bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will vary depending upon our leverage ratio. For revolving credit loans, the spread ranges from 1.25% to 1.85% for LIBOR loans and 0.25% to 0.85% for base rate loans. For Term Loan A and Term Loan B, the spread ranges from 1.20% to 1.80% for LIBOR loans and 0.20% to 0.80% for base rate loans. For Term Loan C the spread ranges from 1.50% to 1.85% for LIBOR loans and 0.50% to 0.85% for base rate loans. The new unsecured credit facility also provides for borrowing capacity$901.3 million, excluding $500.0 million of up to $300 million in various foreign currencies.
Under the new unsecured credit facility, the capacity may be increased from the current capacity of $1.7 billion to $2.2 billion subject to certain conditions set forth in the credit agreement, including the consent of the administrative agent and obtaining necessary commitments. We are also required to pay a commitment fee to the lenders assessed on the unused portion of the revolving portion of the new unsecured credit facility. At our election, we can prepay amounts outstanding under the new unsecured credit facility, in whole or in part, without penalty or premium.
Our ability to borrow under the new unsecured credit facility is subject to ongoing compliance with a number of customary affirmative and negative covenants, including limitations on liens, mergers, consolidations, investments, distributions, asset sales and affiliate transactions, as well as the following financial covenants: (i) the Operating Partnership's and its subsidiaries' consolidated total unsecured debt plus any capitalized lease obligations with respect to the unencumbered asset pool properties may not exceed 60% of the unencumbered asset pool value (or 65% of the unencumbered asset pool value for up to four consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent, provided the four fiscal quarter period includes the quarter in which the material acquisition was consummated); (ii) the unencumbered asset pool debt yield cannot be less than 10.5%; (iii) QTS must maintain a minimum fixed charge coverage ratio (defined as the ratio of consolidated EBITDA, subject to certain adjustments, to consolidated fixed charges) for the prior two most recently-ended calendar quarters of 1.50 to 1.00; (iv) QTS must maintain a maximum debt to gross asset value (as defined in the amended and restated credit agreement) ratio of 60% (or 65% for the four consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent, provided the four fiscal quarter period includes the quarter in which the material acquisition was consummated); and (v) QTS must maintain tangible net worth (as defined in the amended and restated credit agreement) which cannot be less than the sum of $1,686.0 million plus 75% of the net proceeds from any equity offerings subsequent to June 30, 2019.
The availability under the new revolving credit facility is the lesser of (i) $1.0 billion, (ii) 60% of the unencumbered asset pool capitalized value (or 65% of the unencumbered asset pool capitalized value for the four consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent, provided the four fiscal quarter period includes the quarter in which the material acquisition was consummated) and (iii) the amount resulting in an unencumbered asset pool debt yield of 10.5%. In the case of clauses (ii) and (iii) of the preceding sentence, the amount available under the revolving credit facility is adjusted to take into account any other unsecured debt and certain capitalized leases. A material acquisition is an acquisition of properties or assets with a gross purchase price equal to or in excess of 15% of the Operating Partnership’s gross asset value (as defined in the amended and restated credit agreement) as of the end of the most recently ended quarter for which financial statements are publicly available. The availability of funds under our new
unsecured credit facility depends on compliance with our covenants. The current availability underthrough the unsecured credit facility was $823.5 million as of September 30, 2020.facility's accordion feature.
As of SeptemberJune 30, 2020,2021, we had outstanding $1,223.0 million of indebtedness under the unsecured credit facility, consisting of $523.0 million of outstanding borrowings under the unsecured revolving credit facility and $700.0 million outstanding under the term loans, exclusive of net debt issuance costs of $5.6 million. In connectionwere in compliance with the unsecured credit facility, as of September 30, 2020, we had additional letters of credit outstanding aggregating to $3.5 million.
As of September 30, 2020, we had interest rate swap agreements in place with an aggregate notional amount of $700 million. The forward swap agreements effectively fix the interest rate on $700 million of term loan borrowings, $225 million of swaps allocated to Term Loan A, $225 million allocated to Term Loan B and $250 million allocated to Term Loan C, through the current maturity dates of the respective term loans.
4.750% Senior Notes due 2025. On November 8, 2017, the Operating Partnership and QTS Finance Corporation, a subsidiary of the Operating Partnership formed solely for the purpose of facilitating the offering of the 5.875% Senior Notes due 2022 (collectively, the “Issuers”), issued $400 million aggregate principal amount of 4.750% Senior Notes due November 15, 2025 (the “Senior Notes”) in a private offering. The Senior Notes have an interest rate of 4.750% per annum and were issued at a price equal to 100% of their face value. The net proceeds from the offering were used to fund the redemption of the 5.875% Senior Notes due 2022 and to repay a portion of the amount outstanding under the Company’s unsecured revolving credit facility.
The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Operating Partnership’s existing subsidiaries (other than certain foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any indebtednessour covenants of QTS, the Issuers or any other subsidiary guarantor. QTS Realty Trust, Inc. does not guarantee the Senior Notes and will not be required to guarantee the Senior Notes except under certain circumstances. The offering was conducted pursuant to Rule 144A of the Securities Act of 1933, as amended, and the Senior Notes were issued pursuant to an indenture, dated as of November 8, 2017, among QTS, the Issuers, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (the “Indenture”). As of September 30, 2020, the outstanding netour debt issuance costs associated with the Senior Notes were $3.9 million.
The Indenture contains affirmative and negative covenants that, among other things, limits or restricts the Operating Partnership’s ability and the ability of certain of its subsidiaries (the “Restricted Subsidiaries”) to: incur additional indebtedness; pay dividends; make certain investments or other restricted payments; enter into transactions with affiliates; enter into agreements limiting the ability of the Operating Partnership’s restricted subsidiaries to pay dividends; engage in sales of assets; and engage in mergers, consolidations or sales of substantially all of their assets.
However, certain of these covenants will be suspended if and for so long as the Senior Notes are rated investment grade by specified debt rating services and there is no default under the Indenture. The Operating Partnership and its Restricted Subsidiaries also are required to maintain total unencumbered assets (as defined in the Indenture) of at least 150% of their unsecured debt on a consolidated basis.
The Senior Notes may be redeemed by the Issuers, in whole or in part, at any time prior to November 15, 2020 at a redemption price equal to (i) 100% of the principal amount, plus (ii) accrued and unpaid interest to the redemption date, and (iii) a make-whole premium. On or after November 15, 2020, the Issuers may redeem the Senior Notes, in whole or in part, at a redemption price equal to (i) 103.563% of the principal amount from November 15, 2020 to November 14, 2021, (ii) 102.375% of the principal amount from November 15, 2021 to November 14, 2022, (iii) 101.188% of the principal amount from November 15, 2022 to November 14, 2023 and (iv) 100.000% of the principal amount of the Senior Notes from November 15, 2023 and thereafter, in each case plus accrued and unpaid interest to, but excluding, the redemption date. In addition, at any time prior to November 15, 2020, the Issuers may, subject to certain conditions, redeem up to 40% of the aggregate principal amount of the Senior Notes at 104.750% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the redemption date, with the net cash proceeds of certain equity offerings consummated by the Company or the Operating Partnership. Also, upon the occurrence of a change of control of us or the Operating Partnership, holders of the Senior Notes may require the Issuers to repurchase all or a portion of the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes to be repurchased plus accrued and unpaid interest to the repurchase date.
We gave notice that we will redeem the 4.750% Senior Notes on November 16, 2020 and will use the corresponding availability under our unsecured revolving credit facility, along with additional borrowings from Term Loan D (discussed below), to satisfy and discharge the indenture. As a result of early repayment of the Senior Notes, we expect to incur early
redemption fees equal to 3.563% of the aggregate principal amount, or approximately $14.3 million. Additionally, the deferred financing costs associated with the 4.750% Senior Notes, which were approximately $3.9 million as of September 30, 2020, will be written off at the time of repayment.
3.875% Senior Notes due 2028. In September 2020, we conducted a private offering of $500 million aggregate principal amount of senior notes due 2028 (the “2028 Senior Notes”). The 2028 Senior Notes have an interest rate of 3.875% per annum and were issued on October 7, 2020 at a price equal to 100% of their face value. The Notes will mature on October 1, 2028. The net proceeds from the offering were used to repay a portion of the amount outstanding under our unsecured revolving credit facility.
Term Loan D. In October 2020, we entered into a $250 million term loan (“Term Loan D”) that provides for commitments to make a single term loan borrowing of up to $250 million on or before November 16, 2020. We intend to draw the entire $250 million on or before November 16, 2020. Term Loan D will mature on January 15, 2026. Interest rates on Term Loan D can vary based on leverage levels consistent with our existing term loans. The current interest rate on Term Loan D is LIBOR plus 1.2% and includes a LIBOR floor of 25 basis points. When combined with our current $1.7 billion unsecured credit facility, the Term Loan D increases our aggregate unsecured credit facility capacity to $1.95 billion. Term Loan D also provides for a $250 million accordion feature to increase Term Loan D up to $500 million, subject to obtaining additional loan commitments.
Lenexa Mortgage. On March 8, 2017, we entered into a $1.9 million mortgage loan secured by our Lenexa facility. This mortgage has a fixed rate of 4.1%, with periodic principal payments due monthly and a balloon payment of $1.6 million in May 2022. As of September 30, 2020, the outstanding balance under the Lenexa mortgage was $1.7 million.agreements.
Contingencies
We are subject to various routine legal proceedings and other matters in the ordinary course of business. While resolution of these matters cannot be predicted with certainty, management believes, based upon information currently available, that the final outcome of these proceedings will not have a material adverse effect on our financial condition, liquidity or results of operations.
Contractual Obligations
The following table summarizes our contractual obligations as of SeptemberJune 30, 20202021 including the future non-cancellable minimum rental payments required under operating leases and the maturities and scheduled principal repayments of indebtedness and other agreements (unaudited and in thousands):
| Obligations (1) | Obligations (1) | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total | Obligations (1) | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| Operating Leases | Operating Leases | | $ | 2,404 | | | $ | 9,818 | | | $ | 10,266 | | | $ | 10,393 | | | $ | 8,317 | | | $ | 48,908 | | | $ | 90,106 | | Operating Leases | | $ | 4,968 | | | $ | 10,266 | | | $ | 10,393 | | | $ | 8,317 | | | $ | 8,036 | | | $ | 40,872 | | | $ | 82,852 | |
| Finance Leases | Finance Leases | | 660 | | | 2,712 | | | 2,958 | | | 3,229 | | | 3,516 | | | 30,147 | | | 43,222 | | Finance Leases | | 1,400 | | | 3,007 | | | 3,283 | | | 3,574 | | | 3,883 | | | 27,248 | | | 42,395 | |
Future Principal Payments of Indebtedness (2) | Future Principal Payments of Indebtedness (2) | | 18 | | | 73 | | | 1,599 | | | 522,951 | | | 225,000 | | | 875,000 | | | 1,624,641 | | Future Principal Payments of Indebtedness (2) | | — | | | — | | | 95,156 | | | 225,000 | | | 225,000 | | | 1,000,000 | | | 1,545,156 | |
Total (4)(3) | Total (4)(3) | | $ | 3,082 | | | $ | 12,603 | | | $ | 14,823 | | | $ | 536,573 | | | $ | 236,833 | | | $ | 954,055 | | | $ | 1,757,969 | | Total (4)(3) | | $ | 6,368 | | | $ | 13,273 | | | $ | 108,832 | | | $ | 236,891 | | | $ | 236,919 | | | $ | 1,068,120 | | | $ | 1,670,403 | |
| As adjusted total obligations (3) | | $ | 3,082 | | | $ | 12,603 | | | $ | 14,823 | | | $ | 186,573 | | | $ | 236,833 | | | $ | 1,304,055 | | | $ | 1,757,969 | | |
_______________________
(1)Contractual obligations do not include our energy power purchase agreements as QTS has the ability to sell unused capacity back to the utility provider.
(2)Does not include the related debt issuance costs on the 3.875%Senior Notes, nor the related debt issuance costs on the term loans reflected at SeptemberJune 30, 2020. Also does not include2021, nor the letters of credit outstanding aggregating to $3.5 million as of SeptemberJune 30, 20202021 under our unsecured credit facility.
(3)Balances include the effects of the our issuance of $500 million 2028 Senior Notes and $250 million Term Loan D which were both issued subsequent to September 30, 2020. As adjusted balances assume the proceeds generated from the aforementioned debt issuances were used to fund the redemption of the existing 2025 Senior Notes as well as pay down the Company’s unsecured revolving credit facility.
(4)Total obligations amount does not include contractual interest that we are required to pay on our long-term debt obligations, nor does it include the effects of our issuances of $500 million 2028 Senior Notes and $250 million Term Loan D which were both issued subsequent to September 30, 2020. Contractual interest payments on our credit facilities, mortgages, finance leases, and other financing arrangements through the scheduled maturity date, assuming no prepayment of debt and inclusive of the effects of interest rate swaps, are shown below. Interest payments were estimated based on the principal amount of debt outstanding and the applicable interest rate as of September 30, 2020 (unaudited and in thousands):obligations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
| $ | 13,068 | | | $ | 52,199 | | | $ | 54,155 | | | $ | 53,922 | | | $ | 38,186 | | | $ | 34,578 | | | $ | 246,108 | |
Off-Balance Sheet Arrangements
On February 22, 2019, we entered into an agreement with Alinda, Capital Partners (“Alinda”), an infrastructure investment firm, with respect to our Manassas (DC - 1) data center, as described above under “Factors That May Influence Future Results of Operations and Cash Flows.” As of SeptemberJune 30, 2020,2021, our pro rata share of mortgage debt of the unconsolidated entity, excluding deferred financing costs, was approximately $45.2$57.3 million, all of which is subject to forward interest rate swap agreements. See Item 3, Quantitative and Qualitative Disclosures About Market Risk, for information on the Company’s interest rate swaps.
The Company has various forward equity contracts, described above, that provide for the ability to raise capital and issue common stock at varying prices and future dates. As of September 30, 2020, the Company had access to approximately $440.4 million of net proceeds through forward stock sales (subject to further adjustment as described above under the heading “Equity Capital”). The Company views forward equity sales as an important capital raising tool that it expects to continue to strategically and selectively use, subject to market conditions and overall availability under the Prior ATM Program and the ATM Program. See the section above titled “Equity Capital” for additional information related to our forward stock sales.
Cash Flows
Cash flow for the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 20192020 are summarized below (unaudited and in thousands):
| | | Three Months Ended September 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Cash flow provided by (used for): | Cash flow provided by (used for): | | | | | Cash flow provided by (used for): | | | | |
| Operating activities | Operating activities | | $ | 220,120 | | | $ | 149,233 | | Operating activities | | $ | 148,375 | | | $ | 133,366 | |
| Investing activities | Investing activities | | (587,167) | | | (287,512) | | Investing activities | | (468,645) | | | (379,452) | |
| Financing activities | Financing activities | | 371,560 | | | 139,079 | | Financing activities | | 328,264 | | | 246,454 | |
NineSix Months Ended SeptemberJune 30, 20202021 Compared to NineSix Months Ended SeptemberJune 30, 20192020
Cash flow provided by operating activities was $220.1$148.4 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $149.2$133.4 million for the ninesix months ended SeptemberJune 30, 2019.2020. There was an increase in cash operating income of $70.9$15.2 million from the prior period primarily related to our expansion of certain data centers and leasing activity, as well as an increasepartially offset by a decrease in cash flow associated with net changes in working capital of $34.0$0.2 million primarily related to changes in accounts payable and accrued liabilities and advance rents and other liabilities.receivables and deferred income.
Cash flow used for investing activities increased by $299.7$89.2 million to $587.2$468.6 million for the ninesix months ended SeptemberJune 30, 2020,2021, compared to $287.5$379.5 million for the ninesix months ended SeptemberJune 30, 2019.2020. The increase was due primarily to an increase in additions to property and equipment of $303.7$75.7 million as well as cash proceeds of $52.7 million received fromdue to increased leasing activity over the Company’s contribution of assets to an unconsolidated entity during the prior period, partially offset by a reduction in acquisitions of $56.7 million as compared to the prior period.past year.
Cash flow provided by financing activities increased by $232.5$81.8 million to $371.6$328.3 million for the ninesix months ended SeptemberJune 30, 2020,2021, compared to $139.1$246.5 million for the ninesix months ended SeptemberJune 30, 2019.2020. The increase was primarily due to $230.5higher net equity proceeds received of $572.8 million, of higherpartially offset by lower net borrowings under the Company’s revolvingour unsecured credit facility during the current period and higher net equity issuance proceeds of $17.1 million, which were partially offset by higher payments of cash dividends to common stockholders of $12.7$483.9 million.
Critical Accounting Policies
The Company applies those accounting policies that management believes best reflect the underlying business and economic events, consistent with accounting principles generally accepted in the United States. Inherent in such policies are certain key assumptions and estimates made by management. Management periodically updates its estimates used in the preparation of the consolidated financial statements based on its latest assessment of the current and projected business and general economic environment.
Additional information regarding the Company’s Critical Accounting Policies and Estimates is included in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Inflation
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our financial statements which have been prepared in accordance with GAAP. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates. We have provided a summary of our significant accounting policies in Note 2 of our unaudited financial statements included elsewhere in this Form 10-Q.
Inflation
A significant portion of our long-term leases-leasesleases—leases with a term greater than three years-containyears—contain rent increases and reimbursement for certain operating costs. As a result, we believe that we are largely insulated from the effects of inflation over periods greater than three years. Leases with terms of three years or less will be replaced or renegotiated within three years and should adjust to reflect changed conditions, also mitigating the effects of inflation. Moreover, to the extent that there are material increases in utility costs, we generally reserve the right to renegotiate the rate. However, any increases in the costs of redevelopment of our properties will generally result in a higher cost of the property, which will result in increased cash requirements to redevelop our properties and increased depreciation and amortization expense in future periods, and, in some circumstances, we may not be able to directly pass along the increase in these redevelopment costs to our customers in the form of higher rental rates.
Distribution Policy
To satisfy the requirements to qualify as a REIT, and to avoid paying tax on our income, QTS intends to continue to make regular quarterly distributions of all, or substantially all, of its REIT taxable income (excluding net capital gains) to its stockholders. The Merger Agreement restricts our ability to pay dividends on our capital stock, however, we are permitted to pay quarterly dividends on (i) our common stock with record dates consistent with historical record dates for fiscal year 2020 (or the next business day if not a business day) that do not exceed $0.50 per share per dividend and (ii) our Series A Preferred Stock of up to $0.4453125 per share per dividend and on our Series B Preferred Stock of up to $1.625 per share per dividend, in each case, with record dates consistent with historical record dates for fiscal year 2020 (or the next business day if not a business day).
All distributions will be made at the discretion of our board of directors and will depend on our historical and projected results of operations, liquidity and financial condition, QTS’ REIT qualification, our debt service requirements, operating expenses and capital expenditures, prohibitions and other restrictions under financing arrangements and applicable law and other factors as our board of directors may deem relevant from time to time. We anticipate that our estimated cash available for distribution will exceed the annual distribution requirements applicable to REITs and the amount necessary to avoid the payment of tax on undistributed income. However, under some circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet these distribution requirements and we may need to borrow funds to make certain distributions. If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.
The Operating Partnership also includes certain partners that are subject to a taxable income allocation, however, not entitled to receive recurring distributions. The partnership agreement does stipulate however, to the extent that taxable income is allocated to these partners that the partnership will make a distribution to these partners equal to the lesser of the actual per unit distributions made to Class A partners or an estimated amount to cover federal, state and local taxes on the allocated taxable income. No suchallocations of taxable income or distributions were made to these partners during the nine months ended September 30, 2020 and 2019.periods presented.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control, contribute to interest rate risk.
As of SeptemberJune 30, 2020,2021, we had interest rate swap agreements in place with an aggregate notional amount of $700 million. The forward swap agreements effectively fix the interest rate on $700 million of term loan borrowings, $225 million of swaps allocated to Term Loan A, $225 million allocated to Term Loan B and $250 million allocated to Term Loan C, through the current maturity dates of the respective term loans.
As of SeptemberJune 30, 2020,2021, after consideration of interest rate swaps in effect, we had outstanding $523.0$345.2 million of consolidated indebtedness that bore interest at variable rates, which was comprised of the revolving portion of the unsecured credit facility.facility as well as Term Loan D.
We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical 1% change in year-end interest rates. A 1% increase in interest rates would increase the interest costs on the $523.0$345.2 million of variable indebtedness outstanding as of SeptemberJune 30, 20202021 by approximately $5.2$3.1 million annually. Conversely, a decrease in the LIBOR rate to 0.00% would decrease the interest costs on this $523.0$345.2 million of variable indebtedness outstanding by approximately $0.8$0.1 million annually based on the one month LIBOR rate of approximately 0.15%0.10% as of SeptemberJune 30, 2020.2021.
In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of
New York organized the Alternative Reference Rates Committee (“ARRC”) which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. Subsequently, in November 2020, the Intercontinental Exchange Benchmark Administration, the administrator of LIBOR, announced that it intends to extend the cessation date for most LIBOR tenors to June 30, 2023. In March 2021, the administrator of LIBOR announced that the publication of LIBOR will cease for all GBP, EUR, CHF and JPY LIBOR settings and the one-week and two-month USD LIBOR settings immediately after December 31, 2021. It will stop publishing all remaining USD LIBOR settings (i.e. the overnight and the one-, three-, six- and 12-month settings) based on bank submissions immediately after June 30, 2023. The Company currently has contracts consisting of the unsecured credit facility and the forward interest rate swap agreements, documenteddescribed above, that are indexed to LIBOR that will be discontinued after June 30, 2023 and is monitoring and evaluating the related risks, which may include higher interest on loans, conversion to the base rate at the option of the respective agent and amounts received and paid on derivative instruments. These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur. While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified. Due to the extension noted above, we currently expect that all of our contracts indexed to LIBOR will be required to be transitioned to an alternative rate by June 30, 2023. However, it is possible that LIBOR may be discontinued earlier. If a contract is not transitioned to an alternative rate and LIBOR is discontinued, the impact on our contracts is likely to vary by contract. Transitioning to an alternative rate may be challenging for some instruments, as they may require negotiation with the respective counterparty.
The above analyses do not consider the effect of any change in overall economic activity that could impact interest rates or expected changes associated with future indebtedness. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
ITEM 4. Controls and Procedures
QTS Realty Trust, Inc.
Disclosure Controls and Procedures
Based on an evaluation of disclosure controls and procedures for the period ended SeptemberJune 30, 2020,2021, conducted by the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that QTS’ disclosure controls and procedures are effective to ensure that information required to be disclosed by QTS in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in QTS’ internal control over financial reporting during the period ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, QTS’ internal control over financial reporting.
QualityTech, LP
Disclosure Controls and Procedures
Changes in Internal Control over Financial Reporting
There were no changes in QTS’ internal control over financial reporting during the period ended SeptemberJune 30, 2020,2021, that have materially affected, or are reasonably likely to materially affect, QTS’ internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In
Four putative stockholder lawsuits, captioned Stein v. QTS Realty Trust, Inc., et al. (filed July 9, 2021, Southern District of New York), Waterman v. QTS Realty Trust, Inc. et al., (filed July 15, 2021, Southern District of New York), Reisbick v. QTS Realty Trust, Inc. et al. (filed July 26, 2021, Southern District of New York), and Hardwick v. QTS Realty Trust, Inc. et al (filed August 4, 2021, Southern District of New York) have been filed against the Company and the individual members of the Company’s board of directors. The complaints assert claims for violation of Section 14(a) and Rule 14a-9 promulgated under the Exchange Act based on allegations that the preliminary proxy statement on Schedule 14A filed by the Company with the SEC on July 8, 2021 regarding the approval of the Company merger and the other transactions contemplated by the Merger Agreement, among other things, omits certain material information. The complaints also assert control person claims under Section 20(a) of the Exchange Act against the Company’s board of directors.
Among other remedies, the plaintiffs in such matters are seeking to enjoin the mergers. The results of complex legal proceedings are difficult to predict, and could delay or prevent the mergers from becoming effective in a timely manner. Although the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that these lawsuits are without merit and intends to defend against these actions vigorously.
Additionally, in the ordinary course of our business, we are subject to claims and administrative proceedings, none of which we believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on us.
ITEM 1A. Risk Factors
Except as set forth below, as of the date of this report, there have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2019,2020, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2020,26, 2021, which areis accessible on the SEC’s website at www.sec.gov.
Our business may be adversely affected by the ongoing coronavirus (COVID-19) pandemic or by future outbreaks of highly infectious or contagious diseases or other public health crises.
•The novel coronavirus (COVID-19) pandemic is causing significant disruptions to the United States and global economy and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak is rapidly evolving and, as cases of the virus have continued to be identified, many countries, including the United States, have reacted by instituting or reinstituting quarantines, restrictions on travel and mandatory closures of businesses. The COVID-19 pandemic or any other future outbreaks of highly infectious or contagious diseases or other public health crises, and any preventative or protective actions that we or others may take in response thereto, may result in business and/or operational disruption for us and/or our customers, suppliers, contractors, capital sources and other business partners. For example, our customers’ businesses have been and may continue to be disrupted due to the COVID-19 pandemic, which has affected their ability to make rental payments to us, and if this were to continue to occur, our revenues could be negatively affected. Furthermore, the COVID-19 pandemic has and may continue to, and other global economic disrupters could, negatively impact our supply chain, increase the costs of development and cause delays in the construction or development of our data centers due to delays in the ability to obtain permits, disruptions in the availability of contractors, disruptions in the supply of materials or products or the inability of our contractors to perform on a timely basis or at all, and itMerger Transactions may not be possiblecompleted on the terms or timeline currently contemplated or at all.
◦The completion of the Merger Transactions are subject to find replacement productscertain conditions, including (i) approval by our common stockholders; (ii) receipt by Parent and Merger Sub I of an opinion that we have been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code of 1986, as amended, since the taxable year ended December 31, 2009; and (iii) other closing conditions set forth in the Merger Agreement. While it is currently anticipated that the Merger Transactions will be completed in the third quarter of 2021 (within three business days after the satisfaction or supplies. Anywaiver of the conditions to closing, including the approval of the Merger Transactions by the stockholders of the Company), there can be no assurance that such disruptions or delays such could adversely affect our business and growth.
Additional factors that could negatively impact our ability to successfully operate during or following the COVID-19 pandemic or similar public health crises, or that could otherwise significantly adversely impact and disrupt our business, financial condition and results of operations, include, but are not limited to, the risk of unanticipated operating costs and expenses related to measures taken to ensure health and safety and business continuity; difficultyconditions will be satisfied in accessing debt and equity capital on attractive terms,a timely manner or at all, or a severe disruption and instabilitythat an effect, event, development or change will not transpire that could delay or prevent these conditions from being satisfied.
•If the Merger Transactions are completed, our stockholders will forgo the opportunity to benefit from potential future appreciation in the global financial markets or deteriorationsvalue of the Company.
◦The Merger Agreement provides for the Company’s common stockholders of record to receive cash consideration of $78.00 per share, without interest, upon closing of the Merger Transactions. If the Merger Transactions are consummated, common stockholders will no longer hold interests in creditthe Company and, financing conditions, whichtherefore, will not be entitled to benefit from any potential future appreciation in the value of the Company. In the absence of the Merger Transactions, the Company could affect our accesshave various opportunities to capital necessaryenhance its value, including, but not limited to, fund our operations and liquidity needs;entering into a transaction that values the increased riskshares of cyber incidents and disruptions to our internal control procedures due to increased teleworking and state and local stay-at-home orders,common stock higher than the value provided for in the Merger Agreement. Therefore, if the Merger Transactions are completed, stockholders will forgo future appreciation, if any, in the value of the Company and the processes, procedures and controlsopportunity to participate in any other potential transactions that wemay have implementedresulted in a higher price per share than the price to help mitigate cyber risks maybe paid in the Merger Transactions.
•If the Merger Transactions are not be sufficient or that our internal control procedures may experience challenges or delays; the continued service and availability of personnel, including our executive officers and other leaders who are part of our management team and our ability to recruit, attract and retain skilled personnel to the extent our management or personnel are impacted in significant numbersconsummated by December 7, 2021, or in certain other significant wayscircumstances, either of us or Parent may terminate the Merger Agreement.
◦We or Parent may terminate the Merger Agreement if the Merger Transactions have not been consummated by December 7, 2021. We or Parent also may terminate the outbreak of pandemicMerger Agreement (i) by mutual written consent; (ii) if there is a final and non-appealable order permanently restraining, enjoining or epidemic disease and are not available or allowed to conduct work; the risk of asset impairments due to future changes in expectations for sales, earnings and cash flows related to fixed assets, intangible assets and goodwill; and increased susceptibility to litigation related to, among other things, the financial impacts of COVID-19 on our business.
Anyotherwise prohibiting consummation of the foregoing risks and developments, as well as others, could have a material adverse effect onMerger Transactions; (iii) if our business, financial condition and results of operations. The extentcommon stockholders fail to whichapprove the COVID-19 pandemic impacts our business and operations remains largely uncertain and will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the duration and scope of the pandemic, new information that may emerge concerning the severity of COVID-19, the response of the overall economy and financial markets and the actions taken to contain COVID-19 or treat its impact, such as government actions, laws or orders or any changes or amendments thereto and the success of any lifting or easing of, or the risk of any premature lifting or easing of, any such restrictions, among others. The COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial performance, and results of operations and may also exacerbate many of the risks identified under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.Merger
Transactions; (iv) if the other party has breached its representations or covenants in a way that would prevent satisfaction of a closing condition by December 7, 2021; (v) with respect to us, and in accordance with the Merger Agreement, in order to enter into certain superior proposals; or (vi) with respect to Parent, if our Board of Directors has made a change in its recommendation to our stockholders in accordance with the Merger Agreement that they vote in favor of the Merger Transactions.
•The Merger Transactions may not be completed, which may adversely affect our business and could negatively affect our stock price.
◦If the Merger Transactions are not completed for any reason, the trading price of our common stock may decline to the extent that the market price of the common stock reflects positive market assumptions that the Merger Transactions will be completed and the related benefits will be realized. We may also be subject to additional risks if the Merger Transactions are not completed, including:
▪the requirement in the Merger Agreement that, under certain circumstances, we pay Parent a termination fee of $220 million;
▪incurring substantial costs related to the Merger Transactions, such as legal, accounting, financial advisory and integration costs that have already been incurred or will continue to be incurred until closing;
▪reputational harm including relationships with customers and business partners due to the adverse perception of any failure to successfully complete the Merger Transactions; and
▪potential disruption to our business and distraction of our workforce and management team to pursue other opportunities that could be beneficial to the Company, in each case without realizing any of the benefits of having the Merger Transactions completed.
•The pendency of the Merger Transactions could adversely affect our business and operations, including with customers, and may result in the departure of key personnel.
◦The pendency of the Merger Transactions could adversely affect our business and operations and may result in the departure of key personnel. In connection with the Merger Transactions, some of our customers and business partners may delay or defer decisions or may end their relationships with us, which could negatively affect our revenues, earnings and cash flows, regardless of whether the Merger Transactions are completed. In addition, due to operating restrictions in the Merger Agreement, the Company may be unable, during the pendency of the Merger Transactions to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial. Similarly, our current and prospective employees may experience uncertainty about their future roles with us following the Merger Transactions, which may materially adversely affect our ability to attract and retain key personnel during the pendency of the Merger Transactions.
•The Merger Agreement contains provisions that could discourage a potential competing acquirer of the Company or could result in a competing acquisition proposal being at a lower price than it might otherwise be.
◦The Merger Agreement contains provisions that, subject to limited exceptions, restrict the Company’s ability to solicit or negotiate any alternative acquisition proposal. With respect to any written, bona fide acquisition proposal that the Company receives, Parent generally has an opportunity to offer to modify the terms of the Merger Agreement in response to such proposal before the Company’s board of directors may withdraw or modify its recommendation to stockholders in response to such acquisition proposal or terminate the Merger Agreement to enter into a definitive agreement with respect to such acquisition proposal. Upon termination of the Merger Agreement under circumstances relating to an acquisition proposal, the Company may be required to pay a termination fee of $220 million to Parent.
These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company’s business from considering or making a competing acquisition proposal, even if the potential competing acquirer was prepared to pay consideration with a higher per share cash value than the market value proposed to be received or realized in the Merger Transactions, or might cause a potential competing acquirer to propose to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee and expense reimbursement that may become payable in certain circumstances under the Merger Agreement.
•The Chairman of our Board of Directors and our executive officers have interests in seeing the Merger Transactions completed that are different from, or in addition to, those of our other stockholders.
The Chairman of our Board of Directors and our executive officers have interests in the Merger Transactions that are different from other stockholders of the Company. Some of these interests include:
◦Immediately prior to the effective time of the Company merger (the “Effective Time”), each option to acquire a share of Class A common stock (an “option”) that is outstanding immediately prior to the Effective Time will be cancelled in exchange for a cash payment in an amount equal to (1) the number of shares of common stock subject to the option immediately prior to the Effective Time multiplied by (2) the excess (if any) of $78 over the per share exercise price applicable to the option (less any applicable income and employment withholding taxes). However, if the exercise price of an option exceeds $78, then such option will be cancelled for no consideration.
◦Immediately prior to the Effective Time, each award of restricted shares of Class A common stock (a “restricted share award”) that is outstanding immediately prior to the Effective Time will be cancelled in exchange for a cash payment in an amount equal to the number of shares of common stock subject to the restricted share award immediately prior to the Effective Time multiplied by $78 (less any applicable income and employment withholding taxes).
◦Immediately prior to the Effective Time, each TSR Unit or FFO Unit that is outstanding immediately prior to the Effective Time, will automatically become earned and vested with respect to that number of shares of Class A common stock subject to such performance units (including any related accrued dividend equivalents awarded with respect to performance units that were deemed reinvested in additional shares of Class A common stock in accordance with the applicable award agreement governing such units) determined in accordance with the terms of the applicable award agreement, which, in the case of TSR Units is based on the achievement of the applicable performance goals as measured from the beginning of the applicable performance period through the date immediately prior to the closing date, and, in the case of FFO Units, is deemed earned at the target number of shares subject to the award; provided that the FFO Units granted in 2020 will vest at the maximum level of performance, unless otherwise determined as further described in Note 9 of the notes to the financial statements included in this quarterly report on Form 10-Q, and TSR Units granted to the Company’s Chairman and Chief Executive Officer, Chad L. Williams, will be earned and vested at the greater of (x) target level or (y) the level of actual achievement of the applicable performance goals set forth in the applicable award agreement as measured from the beginning of the applicable performance period through the date immediately prior to the closing date. At the Effective Time, earned performance units will be cancelled in exchange for a cash payment (without interest) in an amount equal to the number of earned units multiplied by $78 (less any applicable income and employment withholding taxes). For additional details see Note 9 of the notes to the financial statements included in this quarterly report on Form 10-Q.
◦As required by the Merger Agreement, we will exercise our right to convert each vested Class O LTIP unit into a number of Class A units determined in accordance with the partnership agreement, effective immediately prior to the partnership merger effective time. Each such Class A partnership unit will be treated as a Class A partnership unit, which will be converted into, and be canceled in exchange for, the right to receive $78.00 per unit in cash, without interest, unless the holder of such Class A partnership unit elects to retain such Class A partnership unit in accordance with the Merger Agreement.
The estimated value of the payments that will be made to our current and certain former executive officers that are named executive officers at the Effective Time in respect of their outstanding options, restricted share awards and performance units is approximately $101,000,000, which is based on the number of outstanding awards held by such officers as of July 15, 2021 and based on the terms of the applicable award agreements and the Merger Agreement.
In addition, we are party to employment agreements with current and former executive officers that provide for severance benefits upon a severance-qualifying termination of employment. The severance benefits will be subject to the executive officer’s execution and non-revocation of a release of claims against the Company and compliance with restrictive covenants.
•An adverse judgment in one or more lawsuits challenging the Merger Transactions may prevent the transaction from becoming effective or from becoming effective within the expected timeframe.
◦The Company and the members of our board of directors have been named as defendants in four putative stockholder lawsuits challenging the Merger Transactions. Each lawsuit generally seeks, among other things, to enjoin the defendants from proceeding with the stockholder vote on the Merger Transactions at the special meeting or consummating the Merger Transactions unless and until the Company discloses the allegedly
omitted information. Each complaint also seeks damages allegedly suffered by the plaintiffs as a result of the asserted omission, as well as related attorneys’ fees and expenses. The defendants believe that all of the allegations against them lack merit and intend to defend against the lawsuits vigorously.
Stockholders may file additional lawsuits challenging the Merger Transactions or the other transactions contemplated by the Merger Agreement, which may name the Company, members of the board of directors or others as defendants. No assurance can be made as to the outcome of such lawsuits or the lawsuits described above, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Merger Transactions on the agreed-upon terms, such an injunction may delay the completion of the transaction in the expected timeframe, or may prevent the transaction from being completed altogether. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and diverts management’s attention and resources, which could adversely affect the operation of our business.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Restrictions on Dividends
The Merger Agreement restricts our ability to pay dividends on our capital stock, however, we are permitted to pay quarterly dividends on (i) our common stock with record dates consistent with historical record dates for fiscal year 2020 (or the next business day if not a business day) that do not exceed $0.50 per share per dividend and (ii) our Series A Preferred Stock of up to $0.4453125 per share per dividend and on our Series B Preferred stock of up to $1.625 per share per dividend, in each case, with record dates consistent with historical record dates for fiscal year 2020 (or the next business day if not a business day).
Unregistered Sales of Equity Securities
QTS did not sell any securities during the ninesix months ended SeptemberJune 30, 20202021 that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).
QTS from time to time issues shares of Class A common stock, including pursuant to the QTS Realty Trust, Inc. 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”) upon exercise of stock options issued and grant of restricted stock under the 2013 Equity Incentive Plan, and upon redemption of Class A units of limited partnership of the Operating Partnership (either through Class A units previously held or those received from conversion of Class O units from the QualityTech, LP 2010 Equity Incentive Plan). Pursuant to the partnership agreement of the Operating Partnership, each time QTS issues shares of common stock, the Operating Partnership issues to QTS, its general partner, an equal number of Class A units. The units issued to QTS are not registered under the Securities Act in reliance on Section 4(a)(2) of the Securities Act due to the fact that Class A units were issued only to QTS and therefore, did not involve a public offering. During the nine months ended September 30, 2020, the Operating Partnership issued approximately 88,000 Class A units to QTS in connection with Class A unit redemptions and stock option exercises and issuances pursuant to the 2013 Equity Incentive Plan, with a value aggregating approximately $5.9 million based on the respective dates of the redemptions and option exercises, as applicable. During the nine months ended September 30, 2020 the Operating Partnership issued approximately 4.0 million Class A units to QTS related to the settlement of a portion of the shares subject to forward sale agreements under the Prior ATM Program, with an aggregate value of approximately $203.0 million, net of equity issuance costs. In addition, during the nine months ended September 30, 2020 the Operating Partnership issued approximately 0.9 million Class A units to QTS related to the settlement of the remaining shares subject to forward sale agreements under the February 2019 Offering, with an aggregate value of approximately $35.8 million, net of equity issuance costs.
The Operating Partnership also issues Class A units upon the conversion of Class O units of the Operating Partnership. During the nine months ended September 30, 2020, the Operating Partnership issued less than 0.1 million Class A units to holders of Class O units. These Class A units were not registered under the Securities Act in reliance on Section 4(a)(2) of the Securities Act due to the fact that Class A units were issued only to the respective holders of Class O units at the time of conversion and did not involve a public offering.
Repurchases of Equity Securities
During the three months ended SeptemberJune 30, 2020,2021, certain of our employees surrendered Class A common stock owned by them to satisfy their federal and state tax obligations in connection with the vesting of restricted common stock under the 2013 Equity Incentive Plan.
The following table summarizes all of these repurchases during the three months ended SeptemberJune 30, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total number of shares purchased (1) | | Average price
paid per
share | | Total number of
shares purchased as
part of publicly
announced plans or
programs | | Maximum number of
shares that may yet be
purchased under the
plans or programs | |
| July 1, 2020 through July 31, 2020 | | — | | | $ | — | | | N/A | | N/A | |
| August 1, 2020 through August 31, 2020 | | — | | | — | | | N/A | | N/A | |
| September 1, 2020 through September 30, 2020 | | 14,520 | | | 63.02 | | | N/A | | N/A | |
| Total | | 14,520 | | | $ | 63.02 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total number of shares purchased (1) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Maximum number of shares that may yet be purchased under the plans or programs |
| April 1, 2021 through April 30, 2021 | | — | | | $ | — | | | N/A | | N/A |
| May 1, 2021 through May 31, 2021 | | — | | | — | | | N/A | | N/A |
| June 1, 2021 through June 30, 2021 | | 13,577 | | | 77.30 | | | N/A | | N/A |
| Total | | 13,577 | | | $ | 77.30 | | | | | |
_______________________
(1)The number of shares purchased represents shares of Class A common stock surrendered by certain of our employees to satisfy their federal and state tax obligations associated with the vesting of restricted common stock. With respect to these shares, the price paid per share is based on the closing price of our Class A common stock as of the date of the determination of the federal income tax.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
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Exhibit
Number | | Exhibit Description |
| | |
| 2.1 | | Agreement and Plan of Merger, dated as of June 7, 2021, by and among QTS Realty Trust, Inc., Volt Upper Holdings LLC, Volt Lower Holdings LLC, Volt Acquisition LP, and QualityTech, LP., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2021 (Commission File No. 001-36109).* |
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| 3.1 | | |
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| 3.2 | | |
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| 3.3 | | |
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| 3.4 | | |
| | |
| 3.5 | | |
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| 3.6 | | |
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3.7 | | |
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| 4.1 | | |
| | |
| 4.2 | | Indenture, dated November 8, 2017, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., certain subsidiaries of QualityTech, LP and Deutsche Bank Trust Company Americas, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2017 (Commission File No. 001-36109). |
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4.3 | | |
| | |
| | | | | | | | |
4.4 | | Supplemental Indenture, dated as of December 22, 2017, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2018 (Commission File No. 001-36109). |
| | |
4.5 | | Supplemental Indenture, dated as of June 1, 2018, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entity identified therein as a Guaranteeing Subsidiary, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the Subsidiary Guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 2, 2019 (Commission File No. 001-36109). |
| | |
4.6 | | Supplemental Indenture, dated as of December 31, 2018 among West Midtown Acquisition Company, LLC, QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2019 (Commission File No. 001-36109). |
| | |
4.7 | | Supplemental Indenture, dated as of March 29, 2019 by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2019 (Commission File No. 001-36109). |
| | |
4.8 | | Supplemental Indenture, dated as of June 28, 2019 by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.8 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2019 (Commission File No. 001-36109). |
| | |
4.9 | | Supplemental Indenture, dated as of November 1, 2019 by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.9 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2019 (Commission File No. 001-36109). |
| | | | | | | | |
4.10 | | Supplemental Indenture, dated as of October 15, 2020, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. + |
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4.11 | | Indenture, dated October 7, 2020, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., certain subsidiaries of QualityTech, LP and Deutsche Bank Trust Company Americas, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 7, 2020 (Commission File No. 001-36109). |
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4.124.3 | | |
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| 4.4 | | |
| | | | | | | | |
| 10.1 | | |
| | |
| 31.1 | | |
| | |
| 31.2 | | |
| | |
31.3 | | |
| | |
31.4 | | |
| | |
| 32.1 | | |
| | |
32.299.1 | | |
| | |
| 99.2 | | | | | |
| | |
| 101 | | The following materials from QTS Realty Trust, Inc.’s and QualityTech, LP’s Quarterly Report on Form 10-Q for the period ended SeptemberJune 30, 2020,2021, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations and comprehensive income (loss), (iii) condensed consolidated statements of equity and partners’ capital, (iv) condensed consolidated statements of cash flow, and (v) the notes to the condensed consolidated financial statements. |
| | |
| 104 | | Cover Page Interactive Data File (formatted in iXBRL (inline eXtensible Business Reporting Language) and contained in Exhibit 101). |
_______________________
+ Filed herewith.
† Denotes a management contract or compensatory plan, contract or arrangement.
to furnish a copy of any omitted schedule or exhibit to the SEC upon request by the SEC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| QTS Realty Trust, Inc. |
| |
DATE: November 2, 2020August 5, 2021 | /s/ Chad L. Williams |
| Chad L. Williams |
| Chairman and Chief Executive Officer |
| |
| |
DATE: November 2, 2020August 5, 2021 | /s/ William H. Schafer |
| William H. Schafer |
| Executive Vice President – Finance and Accounting |
| (Principal Accounting Officer) |
| |
| |
DATE: November 2, 2020August 5, 2021 | /s/ Jeffrey H. Berson |
| Jeffrey H. Berson |
| Chief Financial Officer |
| (Principal Financial Officer) |
| |
| QualityTech, LP |
| |
| By: QTS Realty Trust, Inc., its general partner |
| |
DATE: November 2, 2020 | /s/ Chad L. Williams |
| Chad L. Williams |
| Chairman and Chief Executive Officer |
| |
| |
DATE: November 2, 2020 | /s/ William H. Schafer |
| William H. Schafer |
| Executive Vice President – Finance and Accounting |
| (Principal Accounting Officer) |
| |
| |
DATE: November 2, 2020 | /s/ Jeffrey H. Berson |
| Jeffrey H. Berson |
| Chief Financial Officer |
| (Principal Financial Officer) |
| |