Docoh
Loading...

QTS Qts Realty Trust

Filed: 3 May 21, 8:00pm

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 March 31, 2021
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.
(Exact name of registrant as specified in its charter)
__________________________________________________________
Maryland
(State or other jurisdiction of
incorporation or organization)

12851 Foster Street, Overland Park, Kansas
(Address of principal executive offices)

46-2809094
(I.R.S. Employer
Identification No.)

66213
(Zip Code)
(913) 312-5503
(Registrant’s telephone number, including area code)
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 SymbolName of each exchange on which registered:
Class A common stock, $0.01 par valueQTSNew York Stock Exchange
Preferred Stock, 7.125% Series A Cumulative Redeemable Perpetual, $0.01 par valueQTS PRANew York Stock Exchange
Preferred Stock, 6.50% Series B Cumulative Convertible Perpetual, $0.01 par valueQTS PRBNew 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.
Yes  x     No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive 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). 
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.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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).
Yes       No  x
There were 68,777,469 shares of Class A common stock, $0.01 par value per share, and 124,481 shares of Class B common stock, $0.01 par value per share, of QTS Realty Trust, Inc. outstanding on April 29, 2021.
1

QTS Realty Trust, Inc.
Form 10-Q
For the Quarterly Period Ended March 31, 2021
INDEX
1

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
March 31, 2021December 31, 2020
(unaudited)
ASSETS
Real Estate Assets
Land$164,822 $165,109 
Buildings, improvements and equipment2,965,488 2,839,261 
Less: Accumulated depreciation(745,237)(702,944)
2,385,073 2,301,426 
Construction in progress1,119,749 1,028,765 
Real Estate Assets, net3,504,822 3,330,191 
Investments in unconsolidated entity25,858 22,608 
Operating lease right-of-use assets, net49,851 51,342 
Cash and cash equivalents14,652 22,775 
Rents and other receivables, net124,392 107,563 
Acquired intangibles, net64,934 68,090 
Deferred costs, net64,333 63,689 
Prepaid expenses14,147 10,253 
Goodwill173,843 173,843 
Other assets, net48,458 48,218 
TOTAL ASSETS$4,085,290 $3,898,572 
LIABILITIES
Unsecured term loans and revolver, net$1,305,167 $1,335,241 
Senior notes, net of debt issuance costs492,775 492,534 
Finance leases42,525 41,718 
Operating lease liabilities56,327 58,005 
Accounts payable and accrued liabilities202,552 187,270 
Dividends and distributions payable41,686 39,373 
Advance rents, security deposits and other liabilities23,506 19,850 
Derivative liabilities36,751 53,722 
Deferred income taxes826 810 
Deferred income93,495 85,351 
TOTAL LIABILITIES2,295,610 2,313,874 
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 March 31, 2021 and December 31, 2020, respectively103,212 103,212 
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 March 31, 2021 and December 31, 2020, respectively304,223 304,223 
Common stock: $0.01 par value, 450,133,000 shares authorized, 68,962,873 and 64,580,118 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively690 646 
Additional paid-in capital1,834,309 1,622,857 
Accumulated other comprehensive loss(35,181)(50,451)
Accumulated dividends in excess of earnings(536,031)(504,313)
Total stockholders’ equity1,671,222 1,476,174 
Noncontrolling interests118,458 108,524 
TOTAL EQUITY1,789,680 1,584,698 
TOTAL LIABILITIES AND EQUITY$4,085,290 $3,898,572 
See accompanying notes to financial statements.
2

QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands except per share data)
Three Months Ended March 31,
20212020
Revenues:
Rental$144,308 $120,081 
Other4,424 6,211 
Total revenues148,732 126,292 
Operating expenses:
Property operating costs46,284 40,781 
Real estate taxes and insurance5,022 3,911 
Depreciation and amortization55,506 45,070 
General and administrative23,641 20,683 
Transaction, integration, and impairment costs1,516 216 
Total operating expenses131,969 110,661 
Operating income16,763 15,631 
Other income and expense:
Interest expense(8,148)(7,162)
Other income159 
Equity in net loss of unconsolidated entity(559)(677)
Income before taxes8,056 7,951 
Tax benefit (expense)(138)169 
Net income7,918 8,120 
Net income attributable to noncontrolling interests(79)(110)
Net income attributable to QTS Realty Trust, Inc.$7,839 $8,010 
Preferred stock dividends(7,045)(7,045)
Net income attributable to common stockholders$794 $965 
Net loss per share attributable to common shares
Basic$(0.07)$(0.01)
Diluted$(0.07)$(0.01)
See accompanying notes to financial statements.
3

QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited and in thousands)
Three Months Ended March 31,
20212020
Net income$7,918 $8,120 
Other comprehensive income (loss):
Foreign currency translation adjustment loss(158)(223)
Increase (decrease) in fair value of derivative contracts17,253 (36,715)
Reclassification of other comprehensive income to utilities expense(66)354 
Reclassification of other comprehensive income to interest expense3,375 758 
Comprehensive income (loss)28,322 (27,706)
Comprehensive (income) loss attributable to noncontrolling interests(2,558)2,831 
Comprehensive income (loss) attributable to QTS Realty Trust, Inc.$25,764 $(24,875)

See accompanying notes to financial statements.
4

QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF EQUITY
(unaudited and in thousands)
The consolidated statement of equity for the three months ended March 31, 2021:
Preferred StockCommon stockAdditional
paid-in capital
Accumulated other
comprehensive
income (loss)
Accumulated
dividends in
excess of earnings
Total
stockholders'
equity
Noncontrolling
interests
Total
SharesAmountSharesAmount
Balance January 1, 20217,443 $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 50 — — 54 59 
Conversion of Class A Partnership units to Class A common stock— — 92 2,040 — — 2,041 (2,041)
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— — — — — — — (3,235)(3,235)
Net Income— — — — — — 7,839 7,839 79 7,918 
Balance March 31, 20217,443$407,435 68,963$690 $1,834,309 $(35,181)$(536,031)$1,671,222 $118,458 $1,789,680 

The consolidated statement of equity for the three months ended March 31, 2020:
Preferred StockCommon stockAdditional
paid-in capital
Accumulated other
comprehensive
income (loss)
Accumulated
dividends in
excess of earnings
Total
stockholders'
equity
Noncontrolling
interests
Total
SharesAmountSharesAmount
Balance January 1, 20207,443 $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 (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— — — — — — — (3,133)(3,133)
Net income— — — — — — 8,010 8,010 110 8,120 
Balance March 31, 20207,443 $407,435 60,398 $604 $1,412,025 $(57,998)$(403,430)$1,358,636 $105,060 $1,463,696 

See accompanying notes to financial statements.
5

QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited and in thousands)
Three Months Ended March 31,
20212020
Cash flow from operating activities:
Net income$7,918 $8,120 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization53,825 43,373 
Amortization of above and below market leases10 90 
Amortization of deferred loan costs1,130 987 
Distributions from unconsolidated entity569 300 
Equity in net loss of unconsolidated entity559 677 
Equity-based compensation expense6,856 4,875 
Bad debt expense1,013 3,719 
Deferred tax expense (benefit)18 (270)
Foreign currency remeasurement income(159)
Changes in operating assets and liabilities
Rents and other receivables, net(17,933)2,888 
Prepaid expenses(3,914)(3,164)
Due to/from affiliates, net(4,095)(4,428)
Other assets(445)(238)
Accounts payable and accrued liabilities2,610 7,173 
Advance rents, security deposits and other liabilities3,771 6,727 
Deferred income8,203 392 
Net cash provided by operating activities60,095 71,062 
Cash flow from investing activities:
Acquisitions, net of cash acquired(401)(1,797)
Additions to property and equipment(214,279)(171,218)
Net cash used in investing activities(214,680)(173,015)
Cash flow from financing activities:
Credit facility proceeds253,000 212,917 
Credit facility repayments(280,000)
Payment of deferred financing costs(5)
Payment of preferred stock dividends(7,045)(7,045)
Payment of common stock dividends(30,352)(25,627)
Distribution to noncontrolling interests(3,082)(2,934)
Proceeds from exercise of stock options1,979 808 
Payment of tax withholdings related to equity-based awards(1,435)(2,293)
Principal payments on finance lease obligations(662)(620)
Mortgage principal debt repayments(12)
Common stock issuance proceeds, net of costs215,923 83,260 
Net cash provided by financing activities148,326 258,449 
Effect of foreign currency exchange rates on cash and cash equivalents(1,864)(192)
Net change in cash and cash equivalents(8,123)156,304 
Cash and cash equivalents, beginning of period22,775 15,653 
Cash and cash equivalents, end of period$14,652 $171,957 

See accompanying notes to financial statements.
6

QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(unaudited and in thousands)
Three Months Ended March 31,
20212020
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest$8,801 $9,370 
Noncash investing and financing activities:
Accrued capital additions$138,259 $125,750 
Net increase (decrease) in other assets/liabilities related to change in fair value of derivative contracts$17,253 $(35,097)
Accrued equity issuance costs$75 $44 
Accrued preferred stock dividend$5,938 $5,938 
See accompanying notes to financial statements.
7

QTS REALTY TRUST, INC.
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 March 31, 2021, our portfolio consisted of 28 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 March 31, 2021, QTS owned approximately 91.4% 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 QTS’ board of directors manages the Operating Partnership and the Company’s business and affairs.
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, 2020, filed with the SEC on February 26, 2021. The consolidated balance sheet data included herein as of December 31, 2020 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.
As outlined in our Annual Report on Form 10-K for the year 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. The 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.
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. All significant intercompany accounts and transactions have been eliminated in the financial statements.
8

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 March 31, 2021, we had one 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 $25.9 million as of March 31, 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 March 31, 2021, depreciation expense related to real estate assets and non-real estate assets was $42.7 million and $2.9 million, respectively, for a total of $45.6 million. For the three months ended March 31, 2020, depreciation expense related to real estate assets and non-real estate assets was $32.3 million and $3.4 million, respectively, for a total of $35.7 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 $5.5 million and $4.5 million for the three months ended March 31, 2021 and 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 $7.0 million and $8.1 million for the three months ended March 31, 2021 and 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.
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.
9

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 months ended March 31, 2021 and March 31, 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, 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 March 31, 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.
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, 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-line basis.
In addition, rental revenue includes straight-line rent. Straight-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 sheet included in rents and other receivables, net was $71.0 million and $63.6 million as of March 31, 2021 and December 31, 2020, respectively.
Rental revenue also includes amortization of set-up fees which are amortized over the term of the respective lease as discussed below in the "Deferred Income" section.
Variable Lease Revenue from Recoveries
10

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 managed service offerings, as well as revenue earned from partner channel, management and development fees. We, through our taxable REIT subsidiaries (“TRS”), may provide use of our managed services to our customers on an individual or combined basis. In our managed services offering, 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 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” 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.
11

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 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 $5.3 million and $5.4 million as of March 31, 2021 and December 31, 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 $93.5 million and $85.4 million as of March 31, 2021 and December 31, 2020, respectively. Additionally, $6.4 million and $3.9 million of deferred income was amortized into revenue for the three months ended March 31, 2021 and 2020, respectively.
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 $6.9 million and $4.9 million for the three months ended March 31, 2021 and 2020, respectively.
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 three months ended March 31, 2021, 1 of our customers exceeded 10% of total revenues, representing approximately 11% of total revenues for the three months ended March 31, 2021.
As of March 31, 2021, three of our customers exceeded 5% of trade accounts receivable (which excludes straight-line rent receivables). In aggregate, these three customers accounted for approximately 53% of trade accounts receivable. NaN of these customers individually exceeded 10% of total trade accounts receivable representing 40% of total trade accounts receivable.
Income Taxes – We provide for income taxes during interim periods based on the estimated effective tax rate for the 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 (7.8)% and 13.0% for the three months ended March 31, 2021 and 2020, respectively.
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).
12

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 March 31, 2021, we valued our derivative instruments primarily utilizing Level 2 inputs. See Note 14 – ‘Fair Value of Financial Instruments’ for additional details.
New Accounting Pronouncements
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. We adopted this ASU effective January 1, 2021, and the provisions of the standard did not have a material impact on our consolidated financial 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 applied 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.
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.
13

3. Real Estate Assets and Construction in Progress
The following is a summary of our cost of owned or leased properties as of March 31, 2021 and December 31, 2020 (in thousands):
As of March 31, 2021 (unaudited):
Property LocationLandBuildings, Improvements and EquipmentConstruction in ProgressTotal Cost
Ashburn, Virginia Campus (1)
$16,476 $391,247 $219,065 $626,788 
Atlanta, Georgia Campus (2)
55,158 771,045 183,319 1,009,522 
Chicago, Illinois9,400 251,676 131,322 392,398 
Dulles, Virginia3,154 55,580 4,220 62,954 
Eemshaven, Netherlands5,153 20,991 47,859 74,003 
Fort Worth, Texas9,079 124,481 3,350 136,910 
Groningen, Netherlands1,821 11,324 3,249 16,394 
Hillsboro, Oregon18,414 47,364 72,033 137,811 
Irving, Texas8,606 409,565 89,516 507,687 
Leased Facilities (3)
83,180 60 83,240 
Manassas, Virginia Campus (4)
37 90,947 90,984 
Phoenix, Arizona (5)
38,063 38,063 
Piscataway, New Jersey7,466 122,599 39,951 170,016 
Princeton, New Jersey20,700 35,267 55,976 
Richmond, Virginia2,180 235,381 128,911 366,472 
Sacramento, California1,481 66,304 125 67,910 
Santa Clara, California (6)
117,522 16,871 134,393 
Suwanee, Georgia (Atlanta-Suwanee)3,521 184,975 7,607 196,103 
Other (7)
2,213 36,950 43,272 82,435 
$164,822 $2,965,488 $1,119,749 $4,250,059 
_______________________________
(1)The “Ashburn, Virginia Campus” includes both the existing data center Ashburn, VA (DC - 1) as well as new property development associated with the construction of a second 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 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 wholly owned data center in Manassas, Virginia as well as separate land purchases in Manassas, Virginia.
(5)Represents 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 additional land.
14

As of December 31, 2020:
Property LocationLandBuildings, Improvements and EquipmentConstruction in ProgressTotal Cost
Ashburn, Virginia Campus (1)
$16,476 $371,725 $185,903 $574,104 
Atlanta, Georgia Campus (2)
55,157 700,142 191,072 946,371 
Chicago, Illinois9,400 250,336 104,117 363,853 
Dulles, Virginia3,154 54,323 4,148 61,625 
Eemshaven, Netherlands5,366 21,712 47,531 74,609 
Fort Worth, Texas9,079 124,054 1,064 134,197 
Groningen, Netherlands1,896 11,206 3,730 16,832 
Hillsboro, Oregon18,414 34,594 78,390 131,398 
Irving, Texas8,606 392,275 99,591 500,472 
Leased Facilities (3)
82,759 225 82,984 
Manassas, Virginia Campus (4)
25 67,073 67,098 
Phoenix, Arizona (5)
37,729 37,729 
Piscataway, New Jersey7,466 122,176 30,401 160,043 
Princeton, New Jersey20,700 35,261 55,966 
Richmond, Virginia2,180 233,927 120,577 356,684 
Sacramento, California1,481 66,300 12 67,793 
Santa Clara, California (6)
117,343 9,385 126,728 
Suwanee, Georgia (Atlanta-Suwanee)3,521 184,467 6,718 194,706 
Other (7)
2,213 36,636 41,094 79,943 
$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 new property development associated with the construction of a second 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 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 wholly owned data center in Manassas, Virginia as well as separate land purchases in Manassas, Virginia.
(5)Represents 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 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 approximately ten years to twenty 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 six 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.
15


Components of lease expense were as follows (unaudited and in thousands):
Three months ended March 31,
20212020
Finance lease cost:
Amortization of assets$1,013 $1,038 
Interest on lease liabilities469 489 
Operating lease expense:
Operating lease cost2,232 2,263 
Variable lease cost270 264 
Sublease income(49)(48)
Total lease costs$3,935 $4,006 
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 March 31,
20212020
Lease revenue:
Minimum lease revenue$127,706 $107,485 
Variable lease revenue (primarily recoveries from customers)16,602 12,596 
Total lease revenue$144,308 $120,081 
5. Investments in Unconsolidated Entity
During the three months ended March 31, 2019, we formed an unconsolidated entity with Alinda Capital Partners (“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 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 $25.9 million and $22.6 million as of March 31, 2021 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 March 31, 2021 and December 31, 2020, the total assets of the entity were $145.8 million and $141.5 million, respectively. As of March 31, 2021 and December 31, 2020, the total debt outstanding, net of deferred financing costs, was $92.2 million and $90.1 million, respectively.
16

6. Debt
Below is a listing of our outstanding debt, including finance leases, as of March 31, 2021 and December 31, 2020 (in thousands):
Weighted Average Effective Interest Rate at March 31, 2021 (1)
Maturity DateMarch 31,
2021
December 31,
2020
(unaudited)(unaudited)
Unsecured Credit Facility
Revolving Credit Facility1.36%December 17, 2023$361,877 $392,337 
Term Loan A3.26%December 17, 2024225,000 225,000 
Term Loan B3.30%April 27, 2025225,000 225,000 
Term Loan C3.46%October 18, 2026250,000 250,000 
Term Loan D1.45%January 15, 2026250,000 250,000 
3.875% Senior Notes3.88%October 1, 2028500,000 500,000 
Finance Leases4.35%2031 - 204042,525 41,718 
2.87%1,854,402 1,884,055 
Less net debt issuance costs(13,935)(14,562)
Total outstanding debt, net$1,840,467 $1,869,493 
_________________________
(1)The coupon interest rates associated with Term Loan A, Term Loan B, and Term Loan C incorporate the effects of our interest rate swaps in effect as of March 31, 2021.
The annual remaining principal payment requirements of our debt securities as of March 31, 2021 per the contractual maturities, excluding extension options and excluding operating and finance leases, are as follows (unaudited and in thousands):
2021 (April - December)$
2022
2023361,877 
2024225,000 
2025225,000 
Thereafter1,000,000 
Total$1,811,877 
As of March 31, 2021, we were in compliance with all of our 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.
17

As of March 31, 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 March 31, 2021 and December 31, 2020, the fair value of interest rate swaps represented an aggregate liability of $32.0 million and $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 (loss). The amount reclassified from other comprehensive income to interest expense on the consolidated statements of operations was an increase to interest expense of $3.4 million and $0.8 million for the three months ended March 31, 2021, and 2020, respectively. There was no ineffectiveness recognized for the three months ended March 31, 2021, and 2020. During the subsequent twelve months, beginning April 1, 2021, we estimate that $13.7 million will be reclassified from other comprehensive income as an increase to interest expense.
Interest rate derivatives and their fair values as of March 31, 2021 and December 31, 2020 were as follows (unaudited and in thousands):
Notional AmountFixed One Month LIBOR rate per annumFair Value
March 31, 2021December 31, 2020Effective DateExpiration DateMarch 31, 2021December 31, 2020
$25,000 $25,000 1.989 %January 2, 2018December 17, 2021$(334)$(447)
100,000 100,000 1.989 %January 2, 2018December 17, 2021(1,333)(1,788)
75,000 75,000 1.989 %January 2, 2018December 17, 2021(1,001)(1,342)
50,000 50,000 2.033 %January 2, 2018April 27, 2022(1,017)(1,248)
100,000 100,000 2.029 %January 2, 2018April 27, 2022(2,027)(2,490)
50,000 50,000 2.033 %January 2, 2018April 27, 2022(1,016)(1,248)
100,000 100,000 2.617 %January 2, 2020December 17, 2023(6,144)(7,191)
100,000 100,000 2.621 %January 2, 2020April 27, 2024(6,722)(8,000)
70,000 70,000 0.968 %March 2, 2020October 18, 2026232 (2,174)
30,000 30,000 0.973 %March 2, 2020October 18, 2026100 (938)
200,000 200,000 2.636 %December 17, 2021December 17, 2023(8,781)(9,648)
200,000 200,000 2.642 %April 27, 2022April 27, 2024(8,162)(9,500)
125,000 125,000 1.014 %December 17, 2023December 17, 2024336 (704)
100,000 100,000 1.035 %December 17, 2023December 17, 2024244 (584)
75,000 75,000 1.110 %December 17, 2023October 18, 20261,230 (866)
100,000 100,000 1.088 %April 27, 2024April 27, 2025399 (540)
125,000 125,000 1.082 %April 27, 2024April 27, 2025513 (666)
75,000 75,000 0.977 %April 27, 2024October 18, 20261,503 (422)
$(31,980)$(49,796)
Power Purchase Agreements
In March 2019, we entered into 2 10-year agreements to purchase renewable energy equal to the expected electricity needs of our data 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 to utilities expense on the consolidated statements of operations was a reduction to utilities expense of $0.1 million and an increase to utilities expense of $0.4 million for the three months ended March 31, 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.
18

Power purchase agreement derivatives and their fair values as of March 31, 2021 and December 31, 2020 were as follows (unaudited and in thousands):
Fair Value
CounterpartyFacilityEffective DateExpiration DateMarch 31, 2021December 31, 2020
Calpine Energy Solutions, LLCPiscatawayMarch 8, 2019February 28, 2029$(2,534)$(2,162)
Calpine Energy Solutions, LLCChicagoMarch 8, 2019February 28, 2029(2,237)(1,764)
$(4,771)$(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.
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 March 31, 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"), 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 the Company may issue shares of Class A common stock pursuant to various types of awards. As of March 31, 2021, 5.9 million shares of Class A common stock were authorized and available for issuance under the 2013 Equity Incentive Plan. On March 4, 2021, the Board of Directors approved an amendment and restatement of the 2013 Equity Incentive Plan, to among other things, increase the number of shares available for issuance under the plan by an additional 2.0 million shares, which amendment is expected to be approved at our 2021 Annual Meeting of Stockholders on May 4, 2021.
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 on the date that performance is certified following the end of the performance period and the remaining one-third of the FFO 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.
19

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”). 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 33% 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.
The following is a summary of award activity under the 2010 Equity Incentive Plan and 2013 Equity Incentive Plan and related information for the three months ended March 31, 2021 (unaudited):
2010 Equity Incentive Plan2013 Equity Incentive Plan
Numbers of Class O unitsWeighted average exercise priceWeighted average fair valueOptionsWeighted average exercise priceWeighted average fair valueRestricted Stock / Deferred StockWeighted average fair value at grant dateTSR UnitsWeighted average fair value at grant dateFFO UnitsWeighted average fair value at grant date
Outstanding at December 31, 202075,435 $25.00 $6.11 1,936,407 $38.55 $7.26 416,496 $52.20 168,552 $66.90 132,267 $51.45 
Granted96,366 59.06 10.53 270,464 59.07 105,402 64.72 105,402 59.06 
Exercised/Vested (1)
(51,220)38.63 7.91 (123,438)54.57 
Cancelled/Expired(3,716)57.24 
Outstanding at March 31, 202175,435 $25.00 $6.11 1,981,553 $39.55 $7.40 559,806 $54.96 273,954 $66.06 237,669 $54.82 
____________________
(1)Represents (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.
The assumptions and fair values for restricted stock and options to purchase shares of Class A common stock granted for the three months ended March 31, 2021 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.
Three Months Ended March 31, 2021
Fair value of FFO units and restricted stock granted$59.06 -$61.17 
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 volatility28 %-31 %
Expected dividend yield3.39 %
Expected risk-free interest rates0.06 %-0.90 %
The following tables summarize information about awards outstanding as of March 31, 2021 (unaudited).
Operating Partnership Awards Outstanding
Exercise pricesAwards outstandingWeight average remaining vesting period 
(years)
Class O Units$25.00 75,435 
Total Operating Partnership awards outstanding75,435 

20

QTS Realty Trust, Inc. Awards Outstanding
Exercise pricesAwards outstandingWeight average remaining vesting period 
(years)
Restricted stock$— 559,806 1.1
TSR units— 273,954 1.1
FFO units— 237,669 0.8
Options to purchase Class A common stock$21.00 -$59.06 1,981,553 0.9
Total QTS Realty Trust, Inc. awards outstanding3,052,982 
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 March 31, 2021, all restricted Class A common stock, TSR units, and FFO units outstanding were unvested and approximately 0.1 million options to purchase Class A common stock were outstanding and unvested. As of March 31, 2021, we had $51.4 million of unrecognized equity-based compensation expense which will be recognized over a remaining weighted-average vesting period of approximately 1 year. The total intrinsic value of Class O units and options to purchase Class A common stock outstanding at March 31, 2021 was $47.5 million.
Dividends and Distributions
The following tables present quarterly cash dividends and distributions paid to our common and preferred stockholders for the three months ended March 31, 2021 and 2020 (unaudited):
Three Months Ended March 31, 2021
Record DatePayment DatePer Share RateAggregate Dividend/Distribution Amount (in millions)
Common Stock
December 22, 2020January 7, 2021$0.47 $33.4 
$33.4 
Series A Preferred Stock
December 31, 2020January 15, 2021$0.45 $1.9 
$1.9 
Series B Preferred Stock
December 31, 2020January 15, 2021$1.63 $5.1 
$5.1 

Three Months Ended March 31, 2020
Record DatePayment DatePer Share RateAggregate Dividend/Distribution Amount (in millions)
Common Stock
December 20, 2019January 7, 2020$0.44 $28.6 
$28.6 
Series A Preferred Stock
December 31, 2019January 15, 2020$0.45 $1.9 
$1.9 
Series B Preferred Stock
December 31, 2019January 15, 2020$1.63 $5.1 
$5.1 
21

Additionally, subsequent to March 31, 2021, we paid the following dividends:
On April 6, 2021, we paid our regular quarterly cash dividend of $0.50 per common share to stockholders of record as of the close of business on March 19, 2021.
On April 15, 2021, we paid a quarterly cash dividend of approximately $0.45 per share on our Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on March 31, 2021.
On April 15, 2021, we paid a quarterly cash dividend of approximately $1.63 per share on our Series B Preferred Stock to holders of Series B Preferred Stock of record as of the close of business on March 31, 2021.
Equity Issuances
Class A Common Stock

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. During the three months ended March 31, 2021, we settled the remaining shares subject to the forward sale agreements.
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 Current 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 expect to physically settle (by delivering shares of common stock) the forward sales under the Current ATM Program prior to the first anniversary date of each respective transaction. We have concluded that the forward sale agreements meet the derivative scope exception for certain contracts involving an entity’s own equity. Our earnings per share dilution resulting from the forward sale agreements, if any, is determined using the two-class method.
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 March 31, 2021 we settled a portion of the 4,400,000 shares subject to the forward sales agreements. We expect to physically settle the remaining 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. Our earnings per share dilution resulting from the forward sale agreements, if any, is determined using the two-class method.
The following table represents a summary of our aggregate forward equity activity under the Prior ATM Program, Current ATM Program and our underwritten offerings from December 31, 2020 through March 31, 2021:
Offering ProgramForward
Shares Sold/(Settled)
Net Proceeds Available/(Received) (1)
Shares and net proceeds available as of December 31, 20209,961 $581,598 (2)
Forward Equity - Sales1,504 91,620 
Forward Equity - Settlements(3,865)(3)(215,964)
Shares and net proceeds available as of March 31, 20217,600 $457,254 
____________________
(1)Net Proceeds Available remain subject to certain adjustments until settled.
(2)Proceeds available reported in the Form 10-K for the period ended December 31, 2020 were $587.6 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.


22

Preferred Stock
As of March 31, 2021, we had outstanding 4,280,000 shares of 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock ("Series A Preferred Stock") with a liquidation preference of $25.00 per share as well as 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. Dividends on the Series A Preferred Stock and Series B 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. 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. Under certain conditions, upon the occurrence of a change of control, we may redeem the Series A Preferred Stock in whole, at any time, or in part, from time to time within 120 days after the occurrence of such event and the holders will have the right to convert their Series A Preferred Stock to Class A common stock in accordance with the terms of the Series A Preferred Stock.
The Series B Preferred Stock does not have 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 March 31, 2021 is 2.1436 shares of the Company’s Class A common stock per share of Series B Preferred Stock. 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.
10. Related Party Transactions
As described further in Note 5 ‘Investments in Unconsolidated Entity’, during the three months ended 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 March 31, 2021 and 2020, we received $0.3 million and $0.5 million in development fees from the unconsolidated entity, respectively, as well as $0.3 million and $0.2 million in management fees from the unconsolidated entity, respectively.
In addition, we periodically execute transactions with entities affiliated with our Chairman and Chief Executive Officer. Such transactions include building operating lease payments and receipts as well as reimbursement for the use of a private aircraft service by our officers and directors.
The transactions which occurred during the three months ended March 31, 2021 and 2020 are outlined below (unaudited and in thousands):
Three Months Ended
March 31,
20212020
Tax, utility, insurance and other reimbursement$169 $176 
Rent expense260 257 
Total$429 $433 
23

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 March 31, 2021, the noncontrolling ownership interest percentage of QualityTech, LP was 8.6%.
12. Earnings per share
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 March 31,
20212020
Numerator:
Net income$7,918 $8,120 
Income attributable to noncontrolling interests(79)(110)
Preferred stock dividends(7,045)(7,045)
Earnings attributable to participating securities(5,285)(1,596)
Net loss available to common stockholders after allocation to participating securities$(4,491)$(631)
Denominator:
Weighted average shares outstanding - basic64,442 58,038 
Effect of Class O units, TSR units, FFO units and options to purchase Class A common stock on an "as if" converted basis
Weighted average shares outstanding - diluted64,442 58,038 
Basic net loss per share *$(0.07)$(0.01)
Diluted net loss per share *$(0.07)$(0.01)
______________________________
*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 units, 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 March 31,
20212020
Class A Partnership units6,466 6,671 
Class O units, TSR units, FFO units and options to purchase common stock on an "as if" converted basis1,212 655 
Series B Convertible preferred stock on an "as if" converted basis6,779 6,749 
24

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 (April - December)$349,511 
2022394,619 
2023296,826 
2024240,951 
2025186,194 
Thereafter554,414 
Total$2,022,515 
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 March 31, 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 March 31, 2021 or December 31, 2020.
Power Purchase Agreements
25

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 March 31, 2021, the fair value of the 3.875% Senior Notes was approximately $500.0 million.
Finance Leases: The fair value of our finance leases was 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 April 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.
26

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis covers the financial condition and results of operations of QTS Realty Trust, Inc., for the three months ended March 31, 2021 and 2020. You should read the following discussion and analysis in conjunction with QTS’s accompanying consolidated financial statements and related notes and “Risk Factors” contained elsewhere in this Form 10-Q.
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, 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:
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
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 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; and;
limitations inherent in our current and any future joint venture investments, such as lack of sole-decision making authority and reliance on our partners’ financial condition

While forward-looking statements reflect 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, 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.

27


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 significantly expand our sellable data center raised floor space without constructing or acquiring any new buildings. In addition, we own approximately 785 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 March 31, 2021, we operated a portfolio of 28 data center 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.
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 in financial markets, as of the date of this report, these developments have not had a known material adverse effect on our business. As of 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.
The extent to which COVID-19 may impact our and our customers’ operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, new information that may emerge concerning the severity, variants or mutations of COVID-19, vaccine efficacy and rollout and other actions taken to contain COVID-19 or treat its impact, among others. The COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial performance, and results of operations and 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, 2021.
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.
28

As a result of our diverse customer base, customer concentration in our portfolio is limited. As of March 31, 2021, only six 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 14.0% of our MRR and the next largest customer accounting for 5.4% of our MRR.
Our Portfolio
As of March 31, 2021, our portfolio consisted of 28 owned and leased properties, including a property owned by an unconsolidated entity, with data centers located throughout the United States, Canada and Europe. The following table presents an overview of our portfolio of operating properties, based on information as of March 31, 2021:
Net Rentable Square Feet (Operating NRSF) (1)
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 20101,318,353 140,398 51,093 153,450 344,941 79.6 %$31,792,898 110 557,309 25.2 %
Atlanta, GA (DC - 1) 2006968,695 527,186 36,953 364,815 928,954 98.2 %122,570,381 72 527,186 100.0 %
Irving, TX 2013698,000 224,605 15,300 252,733 492,638 94.7 %56,031,686 140 275,701 81.5 %
Princeton, NJ 2014553,930 58,157 2,229 111,405 171,791 100.0 %10,558,271 22 158,157 36.8 %
Atlanta, GA (DC - 2)2020495,000 81,268 9,250 74,508 165,026 94.7 %20,202,698 100 240,000 33.9 %
Chicago, IL 2014474,979 98,500 4,931 98,022 201,453 93.1 %26,130,724 56 215,855 45.6 %
Ashburn, VA (DC - 1) (11)
2018445,000 163,125 13,199 169,319 345,643 99.6 %21,005,283 50 178,000 91.6 %
Suwanee, GA 2005369,822 212,975 8,697 107,128 328,800 87.5 %59,486,041 36 212,975 100.0 %
Piscataway, NJ 2016360,000 118,263 19,243 116,289 253,795 92.1 %24,807,716 111 176,000 67.2 %
Netherlands facilities (12)
2019312,114 38,632 — 47,367 85,999 78.5 %5,847,527 92 158,000 24.5 %
Fort Worth, TX 2016261,836 71,147 17,232 125,794 214,173 67.0 %7,941,415 50 80,000 88.9 %
Hillsboro, OR 2020158,000 23,563 1,000 20,240 44,803 81.3 %2,242,164 30 85,000 27.7 %
Santa Clara, CA (13)
2007135,322 59,905 1,238 45,094 106,237 88.5 %23,334,870 11 80,940 74.0 %
Sacramento, CA201292,644 54,595 2,794 23,916 81,305 46.1 %11,197,637 54,595 100.0 %
Dulles, VA (14)
201766,751 26,625 — 22,206 48,831 86.7 %16,964,565 13 44,545 59.8 %
Leased facilities (15)
 2006 & 2015187,706 59,065 18,650 41,901 119,616 85.6 %22,506,983 10 79,717 74.1 %
Other (16)
 Misc.147,435 22,380 98,674 30,074 151,128 74.3 %9,420,734 22,380 100.0 %
 7,045,587 1,980,389 300,483 1,804,259 4,085,131 91.4 %$472,041,593 916 3,146,360 62.9 %
New Property Development
Ashburn, VA (DC - 2) (17)
2021310,000 — — — — — %— — 169,664 — %
Manassas, VA (DC - 2) (18)
2021340,000 — — — — — %— — 160,000 — %
Unconsolidated Properties - at the Entity's 100% Share (19)
Manassas, VA (DC - 1)2018118,031 33,600 12,663 39,044 85,307 1.0%11,336,918 135 66,324 0.5%
Total Properties 7,813,618 2,013,989 313,146 1,843,303 4,170,438 91.5 %$483,378,511 1,051 3,542,348 56.9 %
_______________________
(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)With respect to acquisitions, represents the year a property was acquired. 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 424,246 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 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 backlog 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 March 31, 2021.
(10)Represents the total sellable data center raised floor potential of the existing data center facility.
(11)This property was formerly known as “Ashburn, VA” but has been renamed “Ashburn, VA (DC - 1)” to distinguish between the existing data center and the new property development shown as “Ashburn, VA (DC - 2)” within the New Property Development section.
29

(12)Consists of two data centers located in Eemshaven, Netherlands and Groningen, Netherlands.
(13)Subject to long-term ground lease.
(14)Consists of one data center in Dulles, Virginia. The Dulles campus previously consisted of two data center buildings, however as of December 31, 2020, the Company relocated customers from the smaller and older facility to the new facility in order to optimize its operating cost structure.
(15)Includes 7 facilities. All facilities are leased, including one subject to a finance lease.
(16)Consists of Miami, FL; Lenexa, KS; and Overland Park, KS facilities.
(17)Represents the development of a new data center building at our Ashburn, VA campus.
(18)Represents the development of a new data center building at our 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.
(19)Represents our unconsolidated entity at 100% share. Our equity ownership of the unconsolidated entity is 50%.
As of March 31, 2021, we had approximately 1.5 million square feet of additional raised floor in our development pipeline, of which approximately 0.3 million raised floor square feet is expected to become operational by December 31, 2021. Of the total 1.5 million raised floor square feet in our development pipeline, approximately 0.2 million square feet was related to customer leases which had been executed as of March 31, 2021 but not yet commenced.
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 March 31, 2021, we had in place customer leases generating revenue for approximately 92% 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. In addition, 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 March 31, 2021, approximately 52% 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 March 31, 2021, the remaining approximately 48% 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 18% and 25% of our total leased raised floor are scheduled to expire during the years ending December 31, 2021 (including all month-to-month leases) and 2022, respectively. These leases also represented approximately 25% and 28%, respectively, of our annualized rent as of March 31, 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 from our current cash and cash equivalents, borrowings under our revolving credit facility and forward equity transactions to fund our development that is under construction.
30

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. 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. 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.
General Leasing Activity
Information is provided in the tables below for both our leasing activity as well as backlog balances.
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 to 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.
The following leasing and backlog statistics include results of the consolidated business as well as QTS’ 50% share of revenue from the unconsolidated entity, if any.
PeriodNumber of Leases
Annualized rent per leased sq ft (1)
Incremental Annualized Rent (1), Net of Downgrades
New/modified leases signedThree Months Ended March 31, 2021519$345 $20,605,393 
PeriodNumber of Renewed Leases
Annualized rent (1)
 per leased sq ft
Annualized Rent (2)
Rent Change
Renewed Leases (2)
Three Months Ended March 31, 2021128$508 $22,992,912 2.2 %
_______________________
(1)We define annualized rent as MRR as of March 31, 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.
31

The following tables outline the Company’s backlog (which represents MRR, excluding cost recoveries, for customer leases that have been signed but have not yet commenced as of period end) as of March 31, 2021, both on a GAAP rent and cash rent basis:
Backlog - GAAP rent (1)
20212022ThereafterTotal
MRR$2,986,284 $1,687,421 $2,063,390 $6,737,095 
Incremental revenue (2)
16,461,435 15,071,785 24,760,680 
Annualized revenue (3)
$35,835,408 $20,249,052 $24,760,680 $80,845,140 

Backlog - Cash rent (1)
20212022ThereafterTotal
MRR$6,081,608 $2,534,379 $4,077,889 $12,693,876 
Incremental revenue (2)
29,286,486 19,719,547 48,934,668 
Annualized revenue (3)
$72,979,296 $30,412,548 $48,934,668 $152,326,512 
______________________
(1)Includes our consolidated backlog balance in addition to backlog associated with the unconsolidated entity at QTS’ pro rata share of the backlog revenue. Of the $80.8 million backlog of annualized GAAP rent, approximately $1.7 million related to QTS’ pro rata share of backlog revenue associated with the unconsolidated entity. Of the $152.3 million backlog of annualized cash rent, approximately $2.1 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 backlog leases commence throughout the period.
(3)Annualized revenue represents the backlog MRR multiplied by 12, demonstrating how much recognized MRR would have been recognized if the backlog leases commencing in the period were in place for an entire year.
We estimate the remaining cost to provide the space, power, connectivity and other services to the customer contracts which had not billed as of March 31, 2021 to be approximately $460 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.
32

Results of Operations
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
Changes in revenues and expenses for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 are summarized below (unaudited and in thousands):
Three Months Ended March 31,
20212020$ Change% Change
Revenues:
Rental$144,308 $120,081 $24,227 20 %
Other4,424 6,211 (1,787)(29)%
Total revenues148,732 126,292 22,440 18 %
Operating expenses:
Property operating costs46,284 40,781 5,503 13 %
Real estate taxes and insurance5,022 3,911 1,111 28 %
Depreciation and amortization55,506 45,070 10,436 23 %
General and administrative23,641 20,683 2,958 14 %
Transaction, integration, and impairment costs1,516 216 1,300 602 %
Total operating expenses131,969 110,661 21,308 19 %
Operating income16,763 15,631 1,132 %
Other income and expense:
Interest expense(8,148)(7,162)986 14 %
Other income— 159 (159)(100)%
Equity in net loss of unconsolidated entity(559)(677)(118)(17)%
Income before taxes8,056 7,951 105 %
Tax benefit (expense)(138)169 307 (182)%
Net income$7,918 $8,120 $(202)(2)%
Revenues. Total revenues for the three months ended March 31, 2021 were $148.7 million compared to $126.3 million for the three months ended March 31, 2020. The increase of $22.4 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), Irving and Atlanta (DC - 1) facilities, as well as the opening of our Atlanta (DC - 2) facility.
Property Operating Costs. Property operating costs for the three months ended March 31, 2021 were $46.3 million compared to property operating costs of $40.8 million for the three months ended March 31, 2020, an increase of $5.5 million, or 13%.
The breakdown of our property operating costs is summarized in the table below (unaudited and in thousands):
Three Months Ended March 31,
20212020$ Change% Change
Property operating costs:
Direct payroll$6,991 $6,528 $463 %
Rent2,399 2,748 (349)(13)%
Repairs and maintenance4,412 3,339 1,073 32 %
Utilities20,980 14,988 5,992 40 %
Management fee allocation5,477 4,676 801 17 %
Other6,025 8,502 (2,476)(29)%
Total property operating costs$46,284 $40,781 $5,503 13 %
33

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 usage primarily at the Atlanta (DC - 1), Piscataway 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 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 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 three months ended March 31, 2021 were $5.0 million compared to $3.9 million for the three months ended March 31, 2020. The increase of $1.1 million, or 28%, was primarily attributable to an increase in real estate taxes associated with increased assessed property values at our Irving, Ashburn (DC - 1) and Atlanta (DC - 1) facilities.
Depreciation and Amortization. Depreciation and amortization for the three months ended March 31, 2021 was $55.5 million compared to $45.1 million for the three months ended March 31, 2020. The increase of $10.4 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, and Atlanta (DC - 1), as well as the opening of our Atlanta (DC - 2) facility.
General and Administrative Expenses. General and administrative expenses were $23.6 million for the three months ended March 31, 2021 compared to general and administrative expenses of $20.7 million for the three months ended March 31, 2020, an increase of $3.0 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, partially offset by a reduction in employee travel-related expenses primarily associated with reduced travel as a result of the COVID-19 pandemic.
Transaction, Integration and Impairment Costs. Transaction and integration costs were $1.5 million for the three months ended March 31, 2021, compared to $0.2 million for the three months ended March 31, 2020. The increase of $1.3 million was attributable to an increase in costs associated with the assessment of actual and potential acquisitions and other similar costs during the three months ended March 31, 2021.
Interest Expense. Interest expense for the three months ended March 31, 2021 was $8.1 million compared to $7.2 million for the three months ended March 31, 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, which 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 three months ended March 31, 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 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 $0.6 million for the three months ended March 31, 2021, which remained consistent with a net loss of $0.7 million for the three months ended March 31, 2020.
Tax Benefit (Expense). Tax expense for the three months ended March 31, 2021 was $0.1 million which remained consistent when compared to $0.2 million of tax benefit for the three months ended March 31, 2020.
34

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 similarly 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 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 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, non-real estate depreciation and amortization, straight-line rent adjustments, income taxes, equity-based compensation and similar adjustments for unconsolidated entities.
35

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 similarly 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
March 31,
20212020
FFO
Net income$7,918 $8,120 
Equity in net loss of unconsolidated entity559 677 
Real estate depreciation and amortization52,629 41,700 
Pro rata share of FFO from unconsolidated entity457 278 
FFO (1)
61,563 50,775 
Preferred stock dividends(7,045)(7,045)
FFO available to common stockholders & OP unit holders54,518 43,730 
Transaction and integration costs1,516 216 
Operating FFO available to common stockholders & OP unit holders (2)
56,034 43,946 
Maintenance capital expenditures(1,704)(1,662)
Leasing commissions paid(9,460)(8,998)
Amortization of deferred financing costs1,130 987 
Non real estate depreciation and amortization2,876 3,370 
Straight-line rent revenue and expense and other(7,609)(3,755)
Tax expense (benefit) from operating results138 (169)
Equity-based compensation expense6,856 4,875 
Adjustments for unconsolidated entity46 66 
Adjusted Operating FFO available to common stockholders & OP unit holders (2)
$48,307 $38,660 
_______________________
(1)No gains, losses or impairment write-downs associated with assets incidental to our primary business were incurred during the three months ended March 31, 2021 and March 31, 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
36

We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR is also calculated to include 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 backlog 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 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
March 31,
20212020
Recognized MRR in the period
Total period revenues (GAAP basis)$148,732 $126,292 
Less: Total period variable lease revenue from recoveries(16,128)(12,275)
Total period deferred setup fees(6,436)(3,924)
Total period straight-line rent and other(11,623)(8,032)
Recognized MRR in the period$114,545 $102,061 
MRR at period end
Total period revenues (GAAP basis)$148,732 $126,292 
Less: Total revenues excluding last month(99,683)(82,446)
Total revenues for last month of period49,049 43,846 
Less: Last month variable lease revenue from recoveries(5,163)(4,156)
Last month deferred setup fees(2,179)(1,410)
Last month straight-line rent and other(2,370)(3,669)
Add: Pro rata share of MRR at period end of unconsolidated entity472 352 
MRR at period end (1)
$39,809 $34,963 
_______________________
(1)Does not include our backlog of cash rent balance, which was $6.7 million and $8.4 million as of March 31, 2021 and 2020, respectively.
Net Operating Income (NOI)
37

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) 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' 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
March 31,
20212020
Net Operating Income (NOI)
Net income$7,918 $8,120 
Equity in net loss of unconsolidated entity559 677 
Interest expense8,148 7,162 
Depreciation and amortization55,506 45,070 
Other (income) expense— (159)
Tax expense (benefit)138 (169)
Transaction and integration costs1,516 216 
General and administrative expenses23,641 20,683 
NOI from consolidated operations (1)
$97,426 $81,600 
Pro rata share of NOI from unconsolidated entity1,133 844 
Total NOI (1)
$98,559 $82,444 
_______________________
(1)Includes facility level general and administrative allocation charges of 4% of cash revenue for all facilities. These allocated charges aggregated to $5.5 million and $4.7 million for the three month periods ended March 31, 2021 and 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.
38

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
March 31,
20212020
EBITDAre and Adjusted EBITDA
Net income$7,918 $8,120 
Equity in net loss of unconsolidated entity559 677 
Interest expense8,148 7,162 
Tax expense (benefit)138 (169)
Depreciation and amortization55,506 45,070 
Pro rata share of EBITDAre from unconsolidated entity1,106 819 
EBITDAre (1)
73,375 61,679 
Equity-based compensation expense6,856 4,875 
Transaction, integration and implementation costs1,516 216 
Adjusted EBITDA$81,747 $66,770 
_______________________
(1)No gains, losses or impairment write-downs associated with assets incidental to our primary business were incurred during the three months ended March 31, 2021 and March 31, 2020.

Liquidity and Capital Resources
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.
39

In addition to the $214.3 million of capital expenditures incurred in the three months ended March 31, 2021, we expect that we will incur approximately $660 million to $760 million in additional capital expenditures through December 31, 2021 in connection with the development of our data center facilities, which excludes acquisitions and excludes our 50% proportionate share of capital expenditures at the Manassas facility that was contributed to an unconsolidated entity. We expect to spend approximately $550 million to $650 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. A significant portion of these expenditures are discretionary in nature and we may ultimately determine not to make these expenditures or the timing of expenditures may vary.
We expect to meet these costs and our other short-term liquidity needs through operating cash flow, cash and cash equivalents, borrowings under our credit facilities, proceeds from the forward equity transactions discussed below, additional equity issuances through our Current ATM program or other capital markets activity including debt issuances. We may also sell an interest in certain projects into unconsolidated entities as another source of capital.
Our cash paid for capital expenditures for the three months ended March 31, 2021 and 2020 are summarized in the table below (unaudited and in thousands):
Three Months Ended March 31,
20212020
Development$183,836 $143,153 
Acquisitions401 1,797 
Maintenance capital expenditures1,704 1,662 
Other capital expenditures (1)
28,739 26,403 
Total capital expenditures$214,680 $173,015 
_______________________
(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 and 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. 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 we own that is available at multiple data center properties in 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, distributions from our unconsolidated entity, settlement of forward equity shares 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 interest in certain projects into unconsolidated entities as another source of capital.
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. During the three months ended March 31, 2021, we settled the remaining shares subject to the forward sale agreements.
40

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 Current 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 expect to physically settle (by delivering shares of common stock) the forward sales under the Current ATM Program prior to the first anniversary date of each respective transaction. As of May 3, 2021, we had approximately $277 million of capacity remaining in our Current 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 March 31, 2021 we settled a portion of the 4,400,000 shares subject to the forward sales agreements. We expect to physically settle the remaining 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 aggregate forward equity activity under the Prior ATM Program, Current ATM Program and our underwritten offerings during the three months ended March 31, 2021, as well as through May 3, 2021 (unaudited and in thousands):
Offering ProgramForward
Shares Sold/(Settled)
Net Proceeds
Available/(Received) (1)
Shares and net proceeds available as of December 31, 20209,961 $581,598 (2)
Forward Equity - Sales1,504 91,620 
Forward Equity - Settlements(3,865)(3)(215,964)
Shares and net proceeds available as of March 31, 20217,600 457,254 
Forward Equity - Sales573 35,727 
Shares and net proceeds available as of May 3, 20218,173 $492,981 
_______________________
(1)Net Proceeds Available remain subject to certain adjustments until settled.
(2)Proceeds available reported in the Form 10-K for the period ended December 31, 2020 were $587.6 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, as of May 3, 2021, we had access to approximately $493.0 million of net proceeds through forward stock sales (subject to a decrease in the forward sale price as described in the forward sale agreements). 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 Current ATM Program.
Manassas Unconsolidated Entity
On February 22, 2019, we entered into an agreement with 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.” 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 March 31, 2021, our cash and cash equivalents balance was $14.7 million.
41

Dividends and Distributions
The following tables present quarterly cash dividends and distributions paid to our common and preferred stockholders for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31, 2021
Record DatePayment DatePer Share RateAggregate Dividend/Distribution Amount (in millions)
Common Stock
December 22, 2020January 7, 2021$0.47 33.4 
$33.4 
Series A Preferred Stock
December 31, 2020January 15, 2021$0.45 1.9 
$1.9 
Series B Preferred Stock
December 31, 2020January 15, 2021$1.63 5.1 
$5.1 
Three Months Ended March 31, 2020
Record DatePayment DatePer Share RateAggregate Dividend/Distribution Amount (in millions)
Common Stock
December 20, 2019January 7, 2020$0.44 28.6 
$28.6 
Series A Preferred Stock
December 31, 2019January 15, 2020$0.45 1.9 
$1.9 
Series B Preferred Stock
December 31, 2019January 15, 2020$1.63 5.1 
$5.1 
Additionally, subsequent to March 31, 2021, we paid the following dividends:
On April 6, 2021, we paid our regular quarterly cash dividend of $0.50 per common share to stockholders of record as of the close of business on March 19, 2021.
On April 15, 2021, we paid a quarterly cash dividend of approximately $0.45 per share on our Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on March 31, 2021.
On April 15, 2021, we paid a quarterly cash dividend of approximately $1.63 per share on our Series B Preferred Stock to holders of Series B Preferred Stock of record as of the close of business on March 31, 2021.
Indebtedness
Below is a listing of our outstanding debt, including finance leases, as of March 31, 2021 and December 31, 2020 (in thousands):
42

Weighted Average Effective Interest Rate at March 31, 2021 (1)
Maturity DateMarch 31,
2021
December 31,
2020
(unaudited)(unaudited)
Unsecured Credit Facility
Revolving Credit Facility1.36%December 17, 2023$361,877 $392,337 
Term Loan A3.26%December 17, 2024225,000 225,000 
Term Loan B3.30%April 27, 2025225,000 225,000 
Term Loan C3.46%October 18, 2026250,000 250,000 
Term Loan D1.45%January 15, 2026250,000 250,000 
3.875% Senior Notes3.88%October 1, 2028500,000 500,000 
Finance Leases4.35%2031 - 204042,525 41,718 
2.87%1,854,402 1,884,055 
Less net debt issuance costs(13,935)(14,562)
Total outstanding debt, net$1,840,467 $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 March 31, 2021.
As of March 31, 2021, we had availability under our $1.0 billion revolving credit facility of $638.1 million, excluding $500.0 million of availability through the unsecured credit facility's accordion feature.
As of March 31, 2021, we were in compliance with all of our covenants of our debt 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 March 31, 2021 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)
20212022202320242025ThereafterTotal
Operating Leases$7,393 $10,266 $10,393 $8,317 $8,036 $40,872 $85,277 
Finance Leases2,074 2,987 3,260 3,550 3,856 26,798 42,525 
Future Principal Payments of Indebtedness (2)
— — 361,877 225,000 225,000 1,000,000 1,811,877 
Total (3)
$9,467 $13,253 $375,530 $236,867 $236,892 $1,067,670 $1,939,679 
_______________________
(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 March 31, 2021. Also does not include letters of credit outstanding aggregating to $3.5 million as of March 31, 2021 under our unsecured credit facility.
(3)Total obligations amount does not include contractual interest that we are required to pay on our long-term debt obligations.

Off-Balance Sheet Arrangements
43

On February 22, 2019, we entered into an agreement with 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 March 31, 2021, our pro rata share of mortgage debt of the unconsolidated entity, excluding deferred financing costs, was approximately $46.7 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 March 31, 2021, the Company had access to approximately $457.3 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 Current ATM Program. See the section above titled “Equity Capital” for additional information related to our forward stock sales.
Cash Flows
Cash flow for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 are summarized below (unaudited and in thousands):
Three Months Ended
March 31,
20212020
Cash flow provided by (used for):
Operating activities$60,095 $71,062 
Investing activities(214,680)(173,015)
Financing activities148,326 258,449 
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
Cash flow provided by operating activities was $60.1 million for the three months ended March 31, 2021 compared to $71.1 million for the three months ended March 31, 2020. There was a decrease in cash flow associated with net changes in working capital of $21.2 million primarily related to changes in rents and other receivables, partially offset by an increase in cash operating income of $10.2 million from the prior period primarily related to our expansion of certain data centers and leasing activity.
Cash flow used for investing activities increased by $41.7 million to $214.7 million for the three months ended March 31, 2021, compared to $173.0 million for the three months ended March 31, 2020. The increase was due primarily to an increase in additions to property and equipment of $43.1 million.
Cash flow provided by financing activities decreased by $110.1 million to $148.3 million for the three months ended March 31, 2021, compared to $258.4 million for the three months ended March 31, 2020. The decrease was primarily due to lower net borrowings under our unsecured credit facility of $239.9 million, partially offset by higher net equity proceeds received of $132.7 million.
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
44

A significant portion of our long-term leases—leases with a term greater than three years—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.
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 allocations of taxable income or distributions were made to these partners during the 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 March 31, 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 March 31, 2021, after consideration of interest rate swaps in effect, we had outstanding $611.9 million of consolidated indebtedness that bore interest at variable rates, which was comprised of the revolving portion of the unsecured credit 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 $611.9 million of variable indebtedness outstanding as of March 31, 2021 by approximately $5.8 million annually. Conversely, a decrease in the LIBOR rate to 0.00% would decrease the interest costs on this $611.9 million of variable indebtedness outstanding by approximately $0.4 million annually based on the one month LIBOR rate of approximately 0.11% as of March 31, 2021.
45

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. The Company has contracts consisting of the unsecured credit facility and the forward interest rate swap agreements, described above, that are indexed to LIBOR and is monitoring and evaluating the related risks, which may include higher interest on loans 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.
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
Disclosure Controls and Procedures
Based on an evaluation of disclosure controls and procedures for the period ended March 31, 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 March 31, 2021, that have materially affected, or are reasonably likely to materially affect, QTS’ internal control over financial reporting.
46

PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
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
There have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on February 26, 2021, which is accessible on the SEC’s website at www.sec.gov.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
QTS did not sell any securities during the three months ended March 31, 2021 that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).
Repurchases of Equity Securities
During the three months ended March 31, 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 March 31, 2021:
Period
Total number
of shares
purchased (1)
Average price paid per shareTotal number of shares purchased as part of publicly announced plans or programsMaximum number of shares that may yet be purchased under the plans or programs
January 1, 2021 through January 31, 2021— $— N/AN/A
February 1, 2021 through February 28, 2021— — N/AN/A
March 1, 2021 through March 31, 202123,905 60.04 N/AN/A
Total23,905 $60.04 
_______________________
(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 5. Other Information
None.
ITEM 6. Exhibits
47

Exhibit
Number
Exhibit Description
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
48

101The following materials from QTS Realty Trust, Inc.’s and QualityTech, LP’s Quarterly Report on Form 10-Q for the period ended March 31, 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.
104Cover 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.

49

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.
DATE: May 3, 2021/s/ Chad L. Williams
Chad L. Williams
Chairman and Chief Executive Officer
DATE: May 3, 2021/s/ William H. Schafer
William H. Schafer
Executive Vice President – Finance and Accounting
(Principal Accounting Officer)
DATE: May 3, 2021/s/ Jeffrey H. Berson
Jeffrey H. Berson
Chief Financial Officer
(Principal Financial Officer)
50