QTS Reports Second Quarter 2015 Operating Results

OVERLAND PARK, Kan., Aug. 4, 2015 /PRNewswire/ -- QTS Realty Trust, Inc. ("QTS" or the "Company") (NYSE: QTS) today announced operating results for the second quarter ended June 30, 2015.

Second Quarter Highlights

• Reported Operating FFO of $23.4 million in the second quarter of 2015, an increase of 27.5% compared to the second quarter of 2014. Operating FFO for the second quarter of 2015 on a fully diluted per share basis was $0.53 per share. Adjusted Operating FFO was $22.2 million in the second quarter of 2015, an increase of 18.8% compared to the second quarter of 2014.
• Reported Adjusted EBITDA of $31.8 million in the second quarter of 2015, an increase of 36.7% compared to the second quarter of 2014.
• Reported NOI of $44.6 million in the second quarter of 2015, an increase of 32.4% compared to the second quarter of 2014.
• Total revenues of $68.1 million recognized in the second quarter of 2015, an increase of 32.7% compared to the second quarter of 2014. Monthly Recurring Revenue ("MRR") as of June 30, 2015 increased by 58.9% to $25.5 million compared to MRR as of June 30, 2014.
• During the second quarter of 2015 the Company executed new and modified leases aggregating to a net increase of $10.6 million in incremental annualized rent, net of downgrades, which brought the Company's booked-not-billed annualized rent to $68.7 million as of June 30, 2015, the highest level in the Company's history.
• On June 5, 2015 the Company issued 5,750,000 shares of its Class A common stock and used the net proceeds of approximately $203.7 million to repay amounts outstanding under its unsecured revolving credit facility and to fund a portion of the cash consideration payable by the Company in the acquisition of Carpathia Hosting, Inc. ("Carpathia").
• Completed the acquisition of Carpathia Hosting, Inc. for $326 million (as defined in the purchase and sale agreement) with cash obtained from the aforementioned common stock issuance and borrowings on the revolving credit facility. The above results include operating results for Carpathia for the period June 16, 2015 through June 30, 2015.

"The continued momentum that QTS experienced in the second quarter further demonstrates the success of our integrated product mix. Our C2 product continues to support stable and predictable growth as the engine of our business. In addition, we are pleased to bring Carpathia into the QTS family and excited about the added strength and scale this brings to our C3 cloud and managed service product offering," said Chad Williams, Chairman and CEO of QTS.

Williams added, "With our new record booked-not-billed backlog, we are pleased with the visibility we have for continued future growth and success in the business. We have raised our guidance to reflect this growth and to incorporate the growth that Carpathia will add to our portfolio."

Financial Results

Net income recognized in the second quarter of 2015 was $5.5 million ($0.13 and $0.12 per basic and diluted share, respectively), which included approximately $4.7 million of transaction and integration costs and $3.1 million of income tax benefit associated with the Carpathia acquisition, compared to net income of $3.9 million recognized in the second quarter of 2014, which also reflected transaction and restructuring charges of approximately $2.1 million related to the acquisition of QTS' Chicago and Princeton facilities and severance costs associated with various remote employees.

QTS generated Operating FFO of $23.4 million in the second quarter of 2015, an increase of approximately 27.5% compared to $18.4 million for the second quarter of 2014. Adjusted Operating FFO was $22.2 million in the second quarter of 2015, an increase of 18.8% compared to $18.7 million in the second quarter of 2014.

Additionally, QTS generated $31.8 million of Adjusted EBITDA in the second quarter of 2015, an increase of 36.7% compared to $23.3 million for the second quarter of 2014. MRR as of June 30, 2015 was $25.5 million, an increase of 58.9% compared to MRR as of June 30, 2014 of $16.0 million, with total revenues increasing by 32.7% to $68.1 million for the second quarter 2015 compared to $51.3 million for the second quarter 2014.

Leasing Activity

During the second quarter of 2015, QTS entered into customer leases representing approximately $10.6 million of incremental annualized rent, net of downgrades. While the Company did not sign any significant C1 leases during the second quarter of 2015, it did see significant leasing activity in its C2/C3 categories. This C2/C3 leasing activity continues to support the Company's belief in its investment in its 3C platform.

During the second quarter of 2015, QTS renewed leases with a total annualized rent of $7.5 million at an average rent per square foot of $785, which was 5.1% higher than the annualized rent prior to their respective renewals. This compares to a prior four quarter average increase of 0.9% over the rates immediately prior to renewal. The renewal rate in the second quarter of 2015 was positively impacted by a renewal involving a change in service level for a Carpathia customer and negatively impacted by three larger QTS customers that changed their product mix. Without the effect of these renewals, QTS' rates would have increased by 2.0% following renewal in the second quarter of 2015, which aligns with the Company's expectation of low to mid-single digit increases. The Company defines renewals as leases for which the customer retains the same amount of space before and after renewal, which facilitates rate comparability. As summarized in more detail in our supplemental information, there is variability in our renewal rates based on the mix of product types renewed, and renewal rates are expected to increase in the low single digits. Rental churn (which is the MRR impact from a customer completely departing the platform in a given period compared to the total MRR at the beginning of the period) was 0.4% for the second quarter of 2015 and 0.8% for the six months ended June 30, 2015.

During the second quarter of 2015, QTS commenced customer leases (which includes new customers and also existing customers that renewed their lease term) at an average rent of $525 per square foot. This rate was primarily driven by a sizable ramp of a large C1 customer in the quarter, in addition to larger C2 customers with a smaller level of managed services attached to those customers.

As of June 30, 2015, the booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of June 30, 2015) was approximately $5.7 million, or $68.7 million of annualized rent, the highest amount in the Company's history, and compares to $64.3 million at March 31, 2015. The booked-not-billed balance is expected to contribute an incremental $9.7 million to revenue in 2015 (representing $31.9 million in annualized revenues), an incremental $13.9 million in 2016 (representing $19.4 million in annualized revenues), and an incremental $17.4 million in annualized revenues thereafter.

Development, Redevelopment, and Acquisitions

During the second quarter of 2015, the Company brought online seven megawatts of gross power and approximately 26,000 net rentable square feet ("NRSF") of raised floor at an aggregate cost of approximately $42 million.  In addition, during the second quarter of 2015, the Company continued redevelopment of the Dallas – Fort Worth, Atlanta – Metro, Richmond and Chicago facilities to have space ready for customers later in 2015, 2016 and forward.  The Company expects to bring an additional 67,000 raised floor NRSF into service at an aggregate cost of approximately $90 million in the remaining two quarters of 2015. The majority of the capital spend that is not placed into service in 2015 will be for ongoing expansion and development of the Company's facilities, including the Chicago facility, and to facilitate the booked-not-billed backlog.

On June 16, 2015, the Company completed the acquisition of 100% of the outstanding stock of Carpathia Hosting, Inc. ("Carpathia"), a Virginia-based colocation, cloud and managed services provider for approximately $326 million (as defined in the purchase and sale agreement). Upon completion of this acquisition, the Company assumed all of the assets and liabilities of Carpathia Acquisition, Inc., and Carpathia Acquisition, Inc. and its subsidiaries, including Carpathia, became indirect, wholly-owned subsidiaries of the Company. Carpathia is a provider of colocation, hybrid cloud and Infrastructure-as-a-Service (IaaS) servicing enterprise customers and federal agencies, with a customer base of approximately 230 customers.  Carpathia utilizes eight domestic data centers located in Dulles, Virginia; Phoenix, Arizona; San Jose, California; Harrisonburg, Virginia and Ashburn, Virginia; and five international data centers located in Toronto, Amsterdam, London, Hong Kong and Sydney.

Balance Sheet and Liquidity

As of June 30, 2015, QTS' total debt balance was $754.1 million, resulting in a debt to annualized Adjusted EBITDA of 4.8x, which is adjusted to annualize Carpathia's Adjusted EBITDA for the period June 16, 2015 through June 30, 2015. This ratio continues to be impacted by various portions of QTS' portfolio that were placed into service in the second quarter of 2015 which have not yet produced a stabilized Adjusted EBITDA. In addition, the Company incurred costs included in construction in progress related to revenue which will begin to ramp in the remainder of 2015 and 2016 associated with the Company's record booked-not-billed backlog of $68.7 million in annualized rent. As the revenues associated with this backlog commence, the Company expects its long term debt to Adjusted EBITDA ratio to continue to improve.

On June 5, 2015, the Company issued 5,750,000 shares of QTS' Class A common stock and GA QTS Interholdco, LLC, a selling stockholder and an affiliate of General Atlantic LLC, sold 1,250,000 shares of QTS' Class A common stock at a price of $37.00 per share. The selling stockholder granted the underwriters a 30-day option to purchase an aggregate of up to an additional 1,050,000 shares of QTS' Class A common stock at the public offering price, which the underwriters exercised. The Company used the net proceeds of approximately $203.7 million to fund a portion of the cash consideration payable by the Company in the Carpathia acquisition, and prior to such use, it used a portion of the net proceeds to repay amounts outstanding under its unsecured revolving credit facility and to pay off its Atlanta-Metro Equipment Loan. The Company did not receive any proceeds from the offering of shares by the selling stockholder.

2015 Guidance

QTS is raising its 2015 guidance to reflect the continued momentum in QTS and to account for both the effect of including Carpathia operations and for the June equity issuance. The Company now expects Adjusted EBITDA of $134.0 million to $142.0 million, Operating FFO of $95.5 million to $100.5 million, and Operating FFO per share of $2.10 to $2.20, which reflects the equity issuance discussed above. QTS is also revising its 2015 guidance on Capital Expenditures, excluding acquisitions, to approximately $300 million to $350 million to incorporate the positive acceleration of customer activity in the Richmond, Atlanta-Metro and Dallas-Fort Worth facilities and to fund capital expenditure needs of Carpathia.

This guidance is calculated based on core revenue growth, excluding acquisitions, in the mid to high teens (which ramp during the year), annual rental churn of 4-7%, and does not contemplate any acquisitions or dispositions other than those which have already been disclosed.

Non-GAAP Financial Measures

This release includes certain non-GAAP financial measures that management believes are helpful in understanding the Company's business, as further described below.

Conference Call Details

The Company will host a conference call and webcast on August 5, 2015, at 10:00 a.m., Eastern time (9:00 a.m. Central time) to discuss its financial results, current business trends and market conditions.

The dial-in number for the conference call is (877) 883-0383 (U.S.) or (412) 902-6506 (International). The participant entry number is 3619873# and callers are asked to dial in ten minutes prior to start time. A link to the live broadcast, earnings presentation and the replay will be available on the Company's website (www.qtsdatacenters.com) under the Investors tab.

About QTS

QTS Realty Trust, Inc. (NYSE: QTS) is a leading provider of secure, compliant data center solutions and fully managed services, and the owner of Carpathia Hosting, a provider of colocation, hybrid cloud services and managed hosting. QTS' integrated technology service platform of custom data center (C1), colocation (C2) and cloud and managed services (C3) provides flexible, scalable, secure IT solutions for web and IT applications. QTS' Critical Facility Management (CFM) provides increased efficiency and greater performance for third-party data center owners and operators. QTS owns, operates or manages 25 data centers and supports more than 1,000 customers in the United States, Canada, Europe and the Asia Pacific region.

QTS Investor Relations Contact

Jeff Berson – Chief Investment Officer
William Schafer – Chief Financial Officer
[email protected]

Forward Looking Statements

Some of the statements contained in this release constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In particular, statements pertaining to the Company's capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, all of the statements regarding anticipated growth in funds from operations and anticipated market conditions are forward-looking statements. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," or "potential" or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this release reflect the Company's current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed in any forward-looking statement. The Company does not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: adverse economic or real estate developments in the Company's markets or the technology industry; global, national and local economic conditions; risks related to our international operations; difficulties in identifying properties to acquire and completing acquisitions; the Company's failure to successfully develop, redevelop and operate acquired properties, including data centers acquired in our acquisition of Carpathia Hosting, Inc.; significant increases in construction and development costs; the increasingly competitive environment in which the Company operates; defaults on, or termination or non-renewal of, leases by customers; increased interest rates and operating costs, including increased energy costs; financing risks, including the Company's failure to obtain necessary outside financing; decreased rental rates or increased vacancy rates; dependence on third parties to provide Internet, telecommunications and network connectivity to the Company's data centers; the Company's failure to qualify and maintain its qualification as a real estate investment trust; environmental uncertainties and risks related to natural disasters; financial market fluctuations; and changes in real estate and zoning laws and increases in real property tax rates.

While forward-looking statements reflect the Company's good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 and periodic reports the Company files with the Securities and Exchange Commission.

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SOURCE QTS Realty Trust, Inc.

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