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QTS Reports Fourth Quarter And Full Year 2017 Operating ResultsOVERLAND PARK, Kan., Feb. 20, 2018 /PRNewswire/ -- QTS Realty Trust, Inc. ("QTS" or the "Company") (NYSE: QTS) today announced operating results for the fourth quarter and full year ended December 31, 2017.
Fourth Quarter and Full Year Highlights
"During 2017 we established the foundation for growth in Hyperscale and Hybrid Colocation which sets QTS up for strong execution in 2018 and beyond. The opportunity within Hyperscale remains significant and through our mega scale assets and an expanded footprint in key markets, we expect to play an integral role enabling future Hyperscale growth. In addition, by leveraging our industry-first software-defined data center platform and strategic partnerships with Hyperscale cloud providers and SDN-enabled exchange providers, QTS has the opportunity to deliver differentiated hybrid colocation solutions to the broader Enterprise sector," said Chad Williams, Chairman and CEO of QTS. Williams added, "By re-focusing the organization around the two primary drivers of demand in our business, Hyperscale and Hybrid Colocation, QTS is positioned to deliver accelerating performance and enhanced long-term value creation for shareholders." Financial Results Quarterly Results Net loss recognized in the fourth quarter of 2017 was $16.1 million ($0.29 per basic and diluted share), compared to net income of $5.5 million ($0.10 per basic and diluted share) recognized in the fourth quarter of 2016. Net loss for the fourth quarter of 2017 included debt restructuring expenses of approximately $20 million, primarily related to the replacement of the $300 million 5.875% senior notes with the $400 million 4.750% notes, compared to debt restructuring expenses of $0.2 million in the fourth quarter of 2016. The company incurred $9.4 million of transaction, integration and impairment costs in the fourth quarter of 2017, consisting of $6.5 million related to the write-off of customer specific assets and equipment largely as a result of a fourth quarter 2017 C3 customer churn event, $1.8 million related to the impairment of certain product related assets, $0.8 million in other miscellaneous restructuring charges and $0.3 million of acquisition and integration expenses, compared to transaction, integration, and impairment costs of $1.5 million in the fourth quarter of 2016. During the fourth quarter of 2017, the company recognized $4.4 million of income tax benefit, of which $3.4 million related to a one-time non-cash tax benefit attributable to the re-measurement of deferred tax assets (liabilities) as a result of a reduction in the U.S. corporate tax rate due to new tax legislation effective January 1, 2018, compared to $0.7 million of income tax benefit recognized in the fourth quarter of 2016. Additionally, fourth quarter results include contract modification fees of $5.2 million due to a customer's location portability rights whereby the customer has elected to pay for an option to relocate some of its capacity within other QTS facilities. QTS generated Operating FFO of $45.9 million, or $0.79 per fully diluted share, in the fourth quarter of 2017, which includes a non-cash tax benefit of approximately $4.4 million (of which $3.4 million related to a one-time non-cash tax benefit attributable to re-measurement of deferred tax assets (liabilities) due to new tax legislation), compared to Operating FFO of $35.4 million, or $0.64 per fully diluted share, for the fourth quarter of 2016, which included a non-cash tax benefit of approximately $0.2 million. Operating FFO for the fourth quarter of 2017 represents an increase of approximately 29.7% compared to the prior year. Excluding the effects of the Company's non-cash deferred tax benefit, Operating FFO was $0.72 per fully diluted share in the fourth quarter of 2017 compared to $0.63 per fully diluted share in the fourth quarter of 2016. Additionally, QTS generated $57.5 million of Adjusted EBITDA in the fourth quarter of 2017, an increase of 18.8% compared to $48.4 million for the fourth quarter of 2016. QTS generated total revenues of $118.9 million in the fourth quarter of 2017, an increase of 12.8% compared to $105.4 million in the fourth quarter of 2016. MRR as of December 31, 2017 was $31.7 million compared to MRR as of December 31, 2016 of $30.9 million. 2017 Results Net income recognized for the year ended December 31, 2017 was $1.5 million ($0.01 per basic and diluted share), which included approximately $20 million of debt restructuring costs, $11.1 million of transaction, integration and certain impairment related costs and $9.8 million of income tax benefit, compared to net income of $24.7 million ($0.47 and $0.46 per basic and diluted share, respectively) recognized for the year ended December 31, 2016, which included approximately $0.2 million of debt restructuring costs, $10.9 million of transaction and integration costs and $10.0 million of income tax benefit. QTS generated Operating FFO of $156.1 million, or $2.76 per fully diluted share, during the year ended December 31, 2017, which includes a non-cash tax benefit of approximately $9.8 million (of which $3.4 million related to a one-time non-cash tax benefit attributable to re-measurement of deferred tax assets (liabilities) due to new tax legislation), compared to Operating FFO of $140.7 million, or $2.61 per share, for the year ended December 31, 2016, which included a non-cash tax benefit of approximately $6.4 million. Operating FFO for 2017 represents an increase of approximately 10.9% compared to the prior year. Excluding the effects of the Company's non-cash deferred tax benefit, Operating FFO was $2.59 per fully diluted share for the year ended December 31, 2017 compared to $2.49 per fully diluted share for the year ended December 31, 2016. Additionally, QTS generated $208.0 million of Adjusted EBITDA during the year ended December 31, 2017, an increase of 12.8% compared to $184.3 million during the year ended December 31, 2016. QTS generated total revenues of $446.5 million during the year ended December 31, 2017, an increase of 11.0% compared to $402.4 million during the year ended December 31, 2016. Leasing Activity During the quarter and year ended December 31, 2017, QTS entered into new and modified customer leases representing approximately $8.7 million and $41.7 million, respectively, of incremental annualized rent, net of downgrades. Subsequent to December 31, 2017, the Company signed a lease to refill the previously vacated space in one of its leased facilities in Northern Virginia. Had the lease closed in the fourth quarter of 2017, as previously expected, fourth quarter 2017 net leasing would have exceeded $14 million. Blended pricing on new and modified leases signed during the fourth quarter was higher than the prior four quarter average, which was driven by a higher proportion of C2/C3 deals signed in the fourth quarter of 2017. Pricing of C2/C3 new and modified leases signed during the fourth quarter decreased compared to the prior four quarter average due primarily to several larger footprint C2 deals which tend to have a lower price per square foot compared to C3 deals. During the quarter and year ended December 31, 2017, QTS renewed leases with total annualized rent of $15.3 million and $53.3 million at an average rent per square foot of $923 and $845, respectively, which was 1.2% and 1.5% higher than the annualized rent prior to their respective renewals. There is variability in the Company's renewal rates based on the mix of product types renewed, and renewal rates are generally expected to increase in the low to mid-single digits as compared to pre-renewal pricing. Rental churn (which the Company defines as MRR lost in the period to a customer intending to fully exit the QTS platform in the near term compared to total MRR at the beginning of the period) was 2.8% for the fourth quarter of 2017, of which 1.2% related to a C3 customer who terminated due to liquidation. Rental churn was 8.4% for the year ended December 31, 2017, a significant portion of which was the result of a single customer termination in the first quarter of 2017 at one of the Company's leased facilities in Northern Virginia, for which space was subsequently re-leased by the Company in the first quarter of 2018. Excluding this customer termination as well as the C3 customer churn due to liquidation in the fourth quarter of 2017, rental churn for the year ended December 31, 2017 would have been 4.7%. During the quarter and year ended December 31, 2017, QTS commenced customer leases (which includes new customers and also existing customers that renewed their lease term) representing approximately $26.9 million and $119.1 million of annualized rent at $718 and $613 per square foot, respectively. Average pricing on QTS commenced leases during the fourth quarter of 2017 increased compared to the prior four quarter average primarily due to a larger mix of C2/C3 commencements which tend to have higher rate per square foot in comparison to C1 deals. As of December 31, 2017, the booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of December 31, 2017) was approximately $3.9 million, or $46.8 million of annualized rent, and compares to $3.6 million, or $43.1 million of annualized rent, at December 31, 2016. The booked-not-billed balance is expected to contribute an incremental $21.7 million to revenue in 2018 (representing $30.6 million in annualized revenues), an incremental $4.5 million in 2019 (representing $7.0 million in annualized revenues), and an incremental $9.3 million in annualized revenues thereafter. Development, Redevelopment, and Acquisitions During the year ended December 31, 2017 the Company brought online approximately 13 megawatts of gross power and approximately 58,000 net rentable square feet ("NRSF") of raised floor and various portions of customer specific capital at an aggregate cost of approximately $122 million. In addition, during the fourth quarter of 2017, the Company continued development of the Irving, Ashburn, Atlanta-Metro, Chicago, Piscataway and Fort Worth Facilities to have space ready for customers in 2018 and forward. The Company expects to bring an additional 124,000 raised floor NRSF into service in 2018 at an aggregate cost of approximately $265 million. Relative to the redevelopment plan disclosed in the prior quarter, and as a result of the capital investments made in new markets during the second half of 2017, the Company did not in-service any capital during the fourth quarter of 2017 and has pushed out a portion of development space in Atlanta-Metro, Irving, Chicago and Piscataway that was previously scheduled to come online in the fourth quarter of 2017. The Company now expects this development space to be brought online during 2018 as part of its overall focus on capital efficiency and discipline. During the year ended December 31, 2017, Company completed the acquisition of approximately 52 acres of land in Ashburn, Virginia. The land was acquired in two separate parcels. The first, which closed during the third quarter of 2017, consists of approximately 24 acres and was purchased for approximately $17 million. The second, which closed in October 2017, consists of approximately 28 acres and was purchased for approximately $36 million to be used for future development. The Company has commenced development of a mega data center facility on the first 24 acre parcel and currently plans to deliver Phase 1 of development at the site, representing four megawatts of available utility power, by mid-2018. To date, QTS has pre-leased 2.2 megawatts, representing over 50% of Phase 1 development capacity. Ultimately, QTS believes the 24 acre parcel of land can support approximately 36 megawatts of gross power and 178,000 square feet of raised floor capacity upon completion. The Company also completed the acquisition of two additional land parcels during the year ended December 31, 2017. During the third quarter of 2017, the Company completed the acquisition of approximately 84 acres of land in Phoenix, Arizona for $25 million to be used for future development. During the fourth quarter of 2017, QTS completed the acquisition of 92 acres of land in Hillsboro, Oregon at a purchase price of approximately $26 million. In addition, in October 2017, QTS also completed the buyout of its Vault Campus in Dulles, Virginia, which is located approximately a quarter mile from the aforementioned Ashburn land purchases. The Company previously leased the property under a capital lease agreement and purchased it for approximately $34 million. Balance Sheet and Liquidity As of December 31, 2017, the Company's total debt balance net of cash and cash equivalents was $1.2 billion, resulting in a net debt to annualized Adjusted EBITDA of 5.4x. This ratio compares to the 5.2x net debt to annualized Adjusted EBITDA reported in the third quarter of 2017 and remains in line with company expectations. In March 2017, the Company established an "at-the-market" ("ATM") equity offering program pursuant to which the Company may issue, from time to time, up to $300 million of its Class A common stock. Pursuant to this ATM program, during the fourth quarter of 2017, the Company issued 274,440 shares of QTS' Class A common stock at a weighted average price of $55.48 per share which generated net proceeds of approximately $15.0 million. During the year ended December 31, 2017, the Company issued 2,036,121 shares of QTS' Class A common stock through the ATM Program at a weighted average price of $53.88 per share which generated net proceeds of approximately $108.1 million. In April 2017, QTS entered into interest rate swaps relating to $400 million of the Company's term loan borrowings ($200 million related to each term loan). These swaps convert floating rate debt to fixed rate debt with an interest rate of approximately 3.5% from January 2, 2018 through December 2021 and April 2022, respectively. Due to the effect of these swaps, as of December 31, 2017 approximately 65.3% of the Company's currently outstanding debt carry a fixed interest rate beginning in January 2018. In October 2017, the Operating Partnership, Quality Tech, LP, and QTS Finance Corporation (collectively, the "Issuers"), issued $400 million aggregate principal amount of 4.750% senior notes due November 15, 2025 (the "Notes") in a private offering. The Notes have an interest rate of 4.750% per annum and were issued at a price equal to 100% of their face value. The net proceeds from the offering were used to fund the redemption and replacement of the Company's 5.875% Senior Notes due 2022 and to repay a portion of the amount outstanding under the Company's unsecured revolving credit facility. The Company incurred debt restructuring expenses in the fourth quarter of 2017 of approximately $20 million associated with issuance of the Notes, including a call premium to redeem the 5.875% Senior Notes due 2022. In December 2017, the Company amended its unsecured credit facility, increasing the total capacity by $320 million and extending the respective terms for an additional year. The amended unsecured credit facility now has a total capacity of $1.52 billion and includes a $350 million term loan which matures in December 2022, another $350 million term loan which matures in April 2023, and an $820 million revolving credit facility which matures in December 2021, with a one year extension option. The unsecured credit facility also includes a $400 million accordion feature. As of December 31, 2017, the Company had total available liquidity of approximately $697 million which was comprised of $689 million of available capacity under the Company's unsecured revolving credit facility and approximately $8 million of cash and cash equivalents. On February 20, 2018, the Company authorized for payment of a regular quarterly cash dividend of $0.41 per share on its common stock for the first quarter of 2018. The $0.41 per share dividend is payable on April 5, 2018 to common stockholders of record at the close of business on March 22, 2018. The $0.41 per share dividend rate represents an increase of 5.1% over the 2017 quarterly per share dividend rate of $0.39 per share. Restructuring Plan In conjunction with its fourth quarter 2017 earnings release, QTS has separately announced a restructuring plan to increase growth, profitability and predictability in the Company's business, while also reducing complexity and simplifying the Company's cost structure. Under the restructuring plan, the Company intends to realign its product offerings around Hyperscale and Hybrid Colocation, while exiting certain of its C3- Cloud and Managed Services offerings by the end of 2018, including some estimated colocation impact from customers using an integrated solution (which are now labeled as "Non-Core" offerings), and to implement a broader cost reduction initiative reflecting the Company's simplified product set. Over the course of 2018, QTS plans to focus its guidance and disclosure of key performance metrics around its Core business, which includes its Hyperscale and Hybrid Colocation businesses, to isolate trends in the go-forward company. QTS will separate out Non-Core business financials, which includes specific C3 products the Company plans to exit in addition to an estimate of C3-attached colocation revenue. Refer to the press release that was published for additional details. 2018 Guidance In accordance with the restructuring plan described above, references to QTS' "Core" business in the guidance below includes Hyperscale and Hybrid Colocation verticals, which generally includes QTS's C1 and C2 business. References to QTS' "Non-Core" business in the guidance below includes specific products within its C3 – Cloud and Managed Services business, as well as colocation revenue attached to specific C3 customers, which QTS plans to exit over the course of 2018 as part of its restructuring plan.
The Company expects annual rental churn for the Core business of 3% to 6%, compared to its historical range of 5% to 8%. The Company expects capital expenditures of $425 million to $475 million, front end loaded in 2018 related to new development in Ashburn, VA and excluding additional success based development in Hillsboro, OR and Phoenix, AZ. The Company expects to maintain leverage in the mid-5x range over the course of 2018. 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. The Company does not, nor does it suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. The Company believes that the presentation of non-GAAP financial measures provide meaningful supplemental information to both management and investors that is indicative of the Company's operations. The Company has included a reconciliation of this additional information to the most comparable GAAP measure in the selected financial information below. Conference Call Details The Company will host a conference call and webcast on February 21, 2018, at 8:30 a.m. Eastern time (7:30 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 8240964# and callers are asked to dial in ten minutes prior to start time. A link to the live broadcast 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, hybrid cloud and fully managed services. 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 Facilities 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 1,100 customers primarily in North America. QTS Investor Relations Contact Stephen Douglas – Vice President – Investor Relations and Strategic Planning 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, 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. You also can 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; obsolescence or reduction in marketability of our infrastructure due to changing industry demands; global, national and local economic conditions; risks related to the Company's international operations; difficulties in identifying properties to acquire and completing acquisitions; the Company's 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 the Company operates; 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 the Company's failure to obtain necessary outside financing; 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, revaluations for tax purposes 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. Any forward-looking statement speaks only as of the date on which it was made. 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, 2016 and other periodic reports the Company files with the Securities and Exchange Commission.
Reconciliations of Net Income to FFO, Operating FFO & Adjusted Operating FFO (unaudited and in thousands except per share data) The Company considers funds from operations ("FFO"), to be a supplemental measure of its 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. The Company calculates 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 property, real estate-related depreciation and amortization and similar adjustments for unconsolidated partnerships and joint ventures. The Company's management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, 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 the Company's operating results that management believes are not reflective of its core operating performance, management computes an adjusted measure of FFO, which the Company refers to as Operating FFO. The Company generally calculates Operating FFO as FFO excluding certain non-routine charges and gains and losses that management believes are not indicative of the results of the Company's operating real estate portfolio. The Company believes that Operating FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent other REITs calculate Operating FFO on a comparable basis, between REITs. Operating FFO and Adjusted Operating Funds From Operations ("Adjusted Operating FFO") are non-GAAP measures that are used as supplemental operating measures and to provide additional information to users of the financial statements. The Company calculates Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment, paid leasing commissions, amortization of deferred financing costs and bond discount, non-real estate depreciation, straight line rent adjustments, deferred taxes and non-cash compensation. The Company offers these measures because it recognizes that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare its 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 the Company's 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 its properties, all of which have real economic effect and could materially impact its financial condition, cash flows and results of operations, the utility of FFO, Operating FFO and Adjusted Operating FFO as measures of its operating performance is limited. The Company's 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, the Company's calculations of FFO, Operating FFO and Adjusted Operating FFO are not necessarily comparable to FFO, Operating FFO and Adjusted Operating FFO 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 the Company's 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 its cash needs, including its ability to make distributions to its stockholders. A reconciliation of net income to FFO, Operating FFO and Adjusted Operating FFO is presented below:
Reconciliations of Net Income to EBITDA and Adjusted EBITDA (unaudited and in thousands) The Company calculates EBITDA as net income (loss) (computed in accordance with GAAP) adjusted to exclude interest expense and interest income, provision (benefit) for income taxes (including income taxes applicable to sale of assets) and depreciation and amortization. Management believes that EBITDA is useful to investors in evaluating and facilitating comparisons of the Company's operating performance between periods and between REITs by removing the impact of its capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from its operating results. In addition to EBITDA, the Company calculates an adjusted measure of EBITDA, which it refers to as Adjusted EBITDA, as EBITDA excluding write off of unamortized deferred financing costs, gains (losses) on extinguishment of debt, transaction and integration costs, equity-based compensation expense, restructuring costs and gain (loss) on sale of real estate. The Company believes that Adjusted EBITDA provides investors with another financial measure that can facilitate comparisons of operating performance between periods and between REITs. Management uses EBITDA and Adjusted EBITDA as supplemental performance measures as they provide useful measures of assessing the Company's operating results. Other companies may not calculate EBITDA or Adjusted EBITDA in the same manner. Accordingly, the Company's EBITDA and Adjusted EBITDA may not be comparable to others. EBITDA and Adjusted EBITDA should be considered only as supplements to net income (loss) as measures of the Company's performance and should not be used as substitutes for net income (loss), as measures of its results of operations or liquidity or as an indications of funds available to meet its cash needs, including its ability to make distributions to its stockholders. A reconciliation of net income to EBITDA and Adjusted EBITDA is presented below:
Reconciliations of Net Income to Net Operating Income (NOI) (unaudited and in thousands) The Company calculates net operating income ("NOI") as net income (loss) (computed in accordance with GAAP), excluding: interest expense, interest income, tax expense (benefit) of taxable REIT subsidiaries, depreciation and amortization, write off of unamortized deferred financing costs, gain (loss) on extinguishment of debt, transaction and integration costs, gain (loss) on sale of real estate, restructuring costs and general and administrative expenses. Management uses NOI as a supplemental performance measure because it provides a useful measure of the operating results from its customer leases. In addition, management believes it is useful to investors in evaluating and comparing the operating performance of its properties and to compute the fair value of its properties. The Company's 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 as a measure of the Company's performance and should not be used as a measure of results of operations or liquidity or as an indication of funds available to meet cash needs, including the ability to make distributions to stockholders. NOI is a measure of the operating performance of the Company's properties and not of the Company's performance as a whole. NOI is therefore not a substitute for net income as computed in accordance with GAAP. A reconciliation of net income to NOI is presented below:
Reconciliations of Total Revenues to Recognized MRR in the period and MRR at period end (unaudited and in thousands) The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. Separately, the Company calculates recognized MRR as the recurring revenue recognized during a given period, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set up fees, variable related revenues, non-cash revenues and other one-time revenues. Management uses MRR and recognized MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from the Company's customer leases. 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, the Company's 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 its performance. MRR and recognized MRR should not be used as measures of the Company's results of operations or liquidity, nor is it indicative of funds available to meet its cash needs, including its ability to make distributions to its stockholders. A reconciliation of total revenues to recognized MRR in the period and MRR at period-end is presented below:
SOURCE QTS Realty Trust, Inc. 
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