2019 Annual Report
QTS Atlanta DC2
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EMPOWERING PEOPLE AND TECHNOLOGY&HYBRIDHYPERSCALEIndustry’s First Software-Defined Data Center Letter From
Our CEO
Dear Fellow Stockholders,
Looking back over 2019, I am proud of the significant
accomplishments of our “powered by people” QTS’ers. I
am most proud that our people always feel we can serve
each other and our customers better than the year before.
Our commitment to continued improvement toward the
highest standards in Environmental, Social and Governance
(“ESG“) initiatives is documented in our annual ESG
initiatives report. We remain committed to making the
investments in our business to enable QTS to continue to
deliver consistent results for stockholders, customers and
our QTS employees and communities. 2019 was a year of
strong execution for our team and I am pleased that those
efforts were reflected in our industry-leading operating and
financial results with tremendous visibility into our growth
in 2020 and beyond. Our success in 2019 would not have
been possible without the continued dedication of our QTS
employees across the company and I’d like to thank each
one of you for your commitment to serving each other, our
customers and our communities.
The demand environment for third-party data centers is
robust and expanding, and I am confident in the capability
of QTS’ platform to continue to deliver consistent growth
in stockholder value. During 2019, QTS delivered the
strongest leasing performance in our history. Importantly,
this achievement was driven by significant contributions
from each of our target customer groups: hyperscale,
hybrid colocation and federal. The diversity of our sources
of growth enables our business to consistently perform in
a variety of different demand cycles, even during periodic
slowdowns in hyperscale absorption as the industry
witnessed at times over the past year. We strongly
believe that having a business approach that balances the
consistent performance of diversified, higher-return hybrid
colocation and federal businesses, and growth acceleration
opportunities with strategic hyperscale customers is
the best path to optimize growth and risk-adjusted
performance for QTS.
Providing differentiated solutions within each part of our
business remains a core focus to drive enhanced risk-
adjusted returns and performance both today, and in the
future. These differentiators include industry leadership
in sustainability initiatives, cost-advantaged mega scale
infrastructure, operational capability and track record in our
federal business, and our continued strong commitment
to a fully digitized, premium customer experience through
QTS’ software-defined data center platform. Our base
of 1,200+ customers continues to demonstrate that they
value these unique capabilities, and we are pleased with
our resulting growth in market share as evidenced by our
financial performance and leasing momentum.
Hyperscale
QTS continues to actively pursue strategic growth
acceleration opportunities with the largest and fastest-
growing hyperscale technology companies in the world.
Our target hyperscale customer vertical is comprised of
the thirty or so largest technology companies whose data
center requirements are expanding at an accelerated pace.
Although their data center requirements are significant, they
also are inherently lumpy with often unpredictable sales
cycles. For this reason, our financial model is built on an
assumption of signing only one to three larger, 5+ megawatt
hyperscale opportunities each year. This allows QTS to be
more selective in the strategic growth opportunities with the
hyperscale customers we pursue, while prioritizing our risk-
adjusted return on capital profile.
2019 was an important year for our hyperscale team.
Following the decision in 2017 to invest in additional locations
to support our hyperscale business combined with a more
deliberate hyperscale sales strategy, I believe that 2019 was
the year that QTS demonstrated its capability as a top-tier
hyperscale player. While bookings activity in the sector
was relatively quiet during the first half of the year, we
experienced a significant acceleration in hyperscale leasing
during 2019. In total, we ended 2019 having signed over
30 megawatts of new hyperscale leasing, which represents
a meaningful acceleration relative to approximately 20
megawatts signed in 2018. Key hyperscale wins during the
year included a 10 megawatt lease in Ashburn with one of
the industry’s fastest growing consumers of hyperscale data
center capacity, a 4 megawatt expansion in Manassas with a
global software-as-a-service provider as part of its continued
ramp in that facility, and a 12 megawatt lease with a large
social media company that will anchor our new expansion
in Atlanta. In addition, we are proud that the majority of
hyperscale leases signed during 2019 came in at the higher
end of our 9-11% target hyperscale return on invested capital
range, demonstrating the value of our cost-advantaged
powered shell capacity and differentiated value proposition.
In addition to the three new strategic logos, existing QTS
hyperscale customers grew within our platform. Incumbency
with hyperscale customers is crucial as they typically prefer
to buy on a recurring basis with existing partners given
the complexities and time commitment related to their
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internal procurement and approved vendor processes. In
our experience, once you have established yourself as an
approved-vendor, hyperscale customers tend to continue to
expand with their existing relationships.
We are pleased with the progress we continue to make
building relationships with our target hyperscale customers
and are confident that hyperscale will remain an attractive
growth opportunity for QTS and our sector for years to come.
Hybrid Colocation
Even as we experienced a strong acceleration in leasing
activity with our target hyperscale customers in 2019, QTS’
core engine of growth remains hybrid colocation, which
continues to represent approximately two thirds of our
recurring revenue base. Our hybrid colocation business is
predominantly comprised of a diversified set of enterprise
customers from a variety of industries including retail,
healthcare, financial and technology. Ongoing outsourcing
of data center infrastructure by enterprise customers has
been the primary driver of growth for the third-party data
center industry for nearly the last two decades and we fully
anticipate this trend to continue for many years to come. As
businesses across nearly every industry incorporate a digital
presence into their strategy, enterprises continue to migrate
from legacy, internally-managed data center infrastructure to
scalable, third-party data center providers like QTS.
Our hybrid colocation business had another solid year in
2019 with strength in enterprise demand in Atlanta, Ashburn,
Piscataway and Chicago. During the year we signed 158 new
hybrid colocation logos, reflecting an increase in average
deal size of more than 40% year-over-year and we remain
encouraged by the growing number of larger enterprise
deals in our pipeline so far in 2020.
Within the enterprise customer vertical, QTS’ software-
defined data center platform continues to prove to be a
valuable differentiator. The space and power solutions that
most operators have delivered the same way for over a
decade isn’t sustainable in an environment where digitization
is impacting nearly every industry. We believe a higher
bar has been established to win market share and the
investments QTS has made in a software-defined platform
have positioned us to deliver the next generation solutions
Enterprise customers will soon come to expect.
Federal
The federal vertical remains a core focus area for QTS. Due
to the years of hard work and investments we have made
and the unique security requirements for this customer
base and higher barriers to entry, the return on capital
profile for federal data center deployments is typically well
in excess of the return profile we see for other customer
segments. Incumbency and industry expertise are powerful
differentiators for federal customers. QTS has committed
to the necessary processes, operational capability, and
talent, including QTS personnel capable of supporting highly
compliant government agencies, to position our business to
succeed in the federal vertical.
Although meaningful opportunities within the federal space
have been relatively slow to materialize over the past
several years, we have started to see a growing number
of sizable federal opportunities in our pipeline. These
opportunities are growing as data requirements supporting
federal programs continue to rapidly expand. At the same
time, these programs are running into pressure internally to
find outsourced solutions, be it within data centers or the
cloud.
As evidence of this trend, in 2019 our federal sales team
posted a strong acceleration in leasing activity year-over-
year. The highlight of the year for the federal team came
in the second quarter with the signing of a 5+ megawatt,
multi-site deployment with a hyperscale customer
supporting a large federal program. We are excited
about the momentum we see building within the federal
customer vertical and look forward to leveraging our unique
capability and relationships to further drive our growth.
Strong 2020 Growth Outlook
As CEO of QTS, I view my primary role as being a steward
of people and a steward of capital. If we focus on the
greatest strength of QTS, our people, they will be great
stewards of our capital that our stockholders entrust
us with. This will ensure our industry-leading customer
engagement and an environment that encourages the
pursuit of excellence every day in our mission and purpose
of “empowering people and technology.” Our commitment
to enriching the lives of our employees and communities is
unwavering while we remain focused on allocating capital
with a healthy balance to drive both near- and long-term
stockholder returns, understanding that investors have a
variety of return thresholds and time horizons.
Across our three target customer verticals, we believe
our platform is uniquely positioned in the market to drive
enhanced value for our customers and outsized stockholder
returns. QTS’ record-setting leasing performance in 2019
resulted in the highest backlog of signed but not yet
commenced revenue in our company’s history exiting the
year, which provides tremendous visibility into growth in
2020 and beyond. As with any business, there is much we
can continue to improve upon. However, I am encouraged
by the momentum we are seeing in our underlying business
fundamentals and look forward to the opportunity to
continue to execute against our strategic initiatives to drive
consistent incremental performance.
I would like to thank our Board of Directors for their
continued guidance and insight as well as our customers,
partners and stockholders for their ongoing trust and
confidence in QTS. We truly appreciate your support and
look forward to another successful year of performance in
2020.
Chad L. Williams
Chairman & CEO
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Consistent Performance Enabled
by Differentiated Platform
Significant powered
shell capacity:
• Cost advantage
•
Ability to deliver quickly
• Growth capacity
•
Strategically located in Tier 1 markets
Software-defined
data center:
•
•
•
•
First of its kind monitoring
and orchestration platform
Fully integrated and hybrid
enabled
SDN-enabled universal
connectivity
Premium customer
experience
Leading provider with
established expertise:
• High-end security & compliance platform
• Operational capability
• Demonstrated track record
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2019 Achievements
2019
2018
2017
M
$ 41
$
7
6
M
$
6
4
M
Record Leasing Performance1
$93.1
$19.0
$32.5
$32.5
$41.5
$41.5
$41.5
Q4 2019
2020
2021
2022+
Record $93.1M Annualized
Booked-Not-Billed Backlog ($M)2
CONSECUTIVE
YEARS OF
68
64
72
75
88
40
INDUSTRY
AVERAGE
NINES OR
GREATER
FACILITY UPTIME
PERFORMANCE
2015
2016
2017
2018
2019
Industry-Leading Net Promoter Score
1 Incremental annualized rent signed from new and modified leases, net of downgrades. Reflects results for core business in 2018 and 2017.
2 Represents annualized revenue from signed, but not commenced leases, as of December 31, 2019; may not sum due to rounding.
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The Industry’s First
Software-Defined Data Center
We have implemented a digitization-first strategy
In fact, industry analysts from 451 were recently
at QTS, and after two plus years of intense work,
quoted as saying, “QTS is one of the first data center
we are now seeing the benefits of our initiatives.
service providers to leverage data for customer use
The data center market continues to grow, but
and to improve visibility across hybrid and multi-
customers are changing their buying expectations of
cloud environments.”
data center services, with data visibility and multi-
cloud access becoming the new norm.
During 2019, SDP accelerated as a key differentiator
for QTS. During the year, we averaged more
In late 2017, we introduced our software-defined
than 17,000 active users of SDP across a base of
data center platform, the first of its kind in the data
1,200+ customers, with average session time on
center industry, and have continued to enhance
the platform doubling year-over-year to nearly 20
this offering into 2020. Our software-defined data
minutes. SDP remains a primary differentiator with
center platform, or SDP, which empowers customers
our customers and continues to drive value for
to interact with their data and QTS services, remains
QTS in three primary areas. First, as evidenced by
a powerful differentiator in the market. Through
our strong leasing activity over the past two years
this platform and QTS’ application programming
since introducing the platform, we believe SDP is
interface, or API, we can enable real-time access
increasing our win rate in customer engagements
to all aspects of data center operations including
and allowing us to grow our market share. Second,
security, power, cooling, sensors, provisioning and
we have leveraged SDP as a valuable tool to identify
many other key metrics.
However, our SDP platform is more than just a
critical infrastructure monitoring tool and interface.
Through this platform, we are able to seamlessly
qualified leads for the large majority of our sales
team. And third, we are actively using SDP internally
to drive operating efficiencies which has contributed
to our continued margin improvement.
integrate our customers’ infrastructure with the
The visibility and dynamic control that SDP affords
world’s largest and most advanced IT partners,
also continues to support our industry-leading
cloud service providers and carriers, accelerating
customer satisfaction. 2019 marked the fourth
the ecosystems developing within our facilities.
consecutive year that QTS has led the data center
Customer-demand for cloud solutions is a theme
industry in customer satisfaction, as measured by
that has continued for the last several years. It is for
Net Promoter Score, or NPS. We achieved an NPS
this reason that we have strategically invested in SDP
score of 88 in 2019 which was approximately double
which acts as the facilitator for customers to solve
the average NPS score for the data center industry.
hybrid IT needs, integrating their colocation and
connecting with cloud environments. Customers
leveraging cloud environments is a trend that
we expect will continue, and these customers
are choosing QTS because we have the platform,
technology and capability to integrate their complex
IT requirements.
I am excited about our 2020 roadmap for SDP
including enabling broader online transaction
capability, opening up more automation within our
data centers and continuing to enhance how we
engage with prospects and customers.
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2019
2018
1,362
872
“We use Power Analytics on a daily
basis to keep our environment
operating at an 80% utilization
threshold and to plan for expansion
projects at the data center. Power
Analytics is driving engineering
decisions every day.”
Enhancements & Features
Major U.S. Semiconductor Data Center Manager
17,000+ ACTIVE SDP USERS
“Through your APIs, I am able to make
our work visible to the leadership
team with near real-time reporting.
The best part is they can see how
our environment is operating and
to what level, on-demand. Our
company has never had this level of
visibility - from any provider.”
Client Data Center Manager, QTS Atlanta
2019
200+
2018
157
27%
INCREASE
Customer-Facing API’s
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Footprint Expansion
Approximately 2,500 MWs of potential power capacity across 3.2 million square feet of data hall space within QTS’
existing owned powered shell combined with nearly 730 acres of adjacent land holdings to support future growth.
New Site Expansion
Atlanta, GA (DC-2)
opening mid-2020
Hillsboro, OR
opening mid-2020
Eemshaven, Netherlands
opening mid-2020
Groningen, Netherlands
acquired in early 2019
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Continued Expansion Within QTS’ Existing Owned Powered Shell
Ashburn, VA
Chicago, IL
Manassas, VA
Piscataway, NJ
Irving, TX
Forth Worth, TX
Richmond, VA
Santa Clara, CA3
3 Subject to long-term ground lease.
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ESG Highlights
Sustainability
Community
As a commercial energy consumer, we believe it is
At QTS, we believe that how we deliver our services is
our industry’s responsibility to accelerate efforts to
equally as important as what is delivered. That is why
mitigate growth in the usage of our world’s resources.
we adhere to a “powered by people” approach in all
Consistent with our commitment to deliver the highest
matters of our business, supported by our core values.
standards in ESG principles, in 2019 we published our
QTS recognizes that a healthy community provides a
first ESG Initiatives Report. The report is intended
healthy environment to conduct business. We have
to provide transparency to our key stakeholders and
a responsibility as a steward of people to actively
allow them to evaluate the progress we are making
support the communities in which our employees
in executing on our commitments. Among the key
live, work and do business. As a team-oriented
highlights of the report is our goal of procuring 100%
organization whose core values include integrity,
renewable energy by 2025. We already are well on
character and trust, there is a conscious emphasis on
our way to that target with 100% of our current power
support of family, faith and community volunteerism
in our mega data center sites in Irving, Piscataway,
which we live out through the QTS Community
Chicago, Hillsboro and Groningen currently supported
Impact program. We encourage and facilitate our
by renewable-sourced power. The availability of
employees serving their communities. In 2019, QTS
carbon-free energy sources continues to grow and
employees donated over 3,000 volunteer hours to
we are successfully finding opportunities to procure
various communities, and provided over 80 different
renewable energy sources at costs comparable to
organizations with charitable contributions amounting
nonrenewable. QTS is proud to take a leadership role
to over $700,000.
in that effort, and we were recently recognized as the
top-ranked data center globally in sustainability by
GRESB (Global Real Estate Sustainability Benchmark),
a leading ESG assessment firm for real estate and
infrastructure across the world.
QTS Groningen
QTS Atlanta
QTS Piscataway
QTS Overland Park
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-36109
QTS Realty Trust, Inc.
QualityTech, LP
(Exact name of registrant as specified in its charter)
Maryland (QTS Realty Trust, Inc.)
Delaware (QualityTech, LP)
(State or other jurisdiction of
incorporation or organization)
12851 Foster Street, Overland Park, Kansas
(Address of principal executive offices)
46-2809094
27-0707288
(I.R.S. Employer
Identification No.)
66213
(Zip Code)
(913) 312-5503
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Class A common stock, $.01 par value
Preferred Stock, 7.125% Series A Cumulative Redeemable
Perpetual, $0.01 par value
Preferred Stock, 6.50% Series B Cumulative Convertible
Perpetual, $0.01 par value
Trading Symbol(s)
QTS
QTS.PRA
QTS.PRB
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
QTS Realty Trust, Inc.
QTS Realty Trust, Inc.
Yes ☒ No ☐
Yes ☐ No ☒
QualityTech, LP
QualityTech, LP
Yes ☐ No ☒
Yes ☒ No ☐
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.
(1) QualityTech, LP is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, but has filed all such reports during the preceding 12 months.
QTS Realty Trust, Inc.
Yes ☒ No ☐
QualityTech, LP
Yes ☐(1) No ☐
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).
QTS Realty Trust, Inc.
Yes ☒ No ☐
QualityTech, LP
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
QTS Realty Trust, Inc.
Large accelerated filer
Non-accelerated filer
QualityTech, LP
Large accelerated filer
Non-accelerated filer
☒
☐
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. □
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
QTS Realty Trust, Inc.
Yes ☐ No ☒
QualityTech, LP
Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the Class A common stock, $0.01 par value per share,
was last sold at June 30, 2019 was approximately $2.6 billion. There were 58,105,122 shares of Class A common stock and 128,408 shares of Class B common stock, $0.01 par value per share, of
the registrant outstanding on February 25, 2020.
Portions of the Definitive Proxy Statement for our 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. We expect to file our proxy statement within 120
days after December 31, 2019.
Documents Incorporated by Reference
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . . .
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION
Page
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . 93
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
ITEM 16. FORM 10-K SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
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EXPLANATORY NOTE
This report combines the annual reports on Form 10-K of QTS Realty Trust, Inc. (“QTS”) and QualityTech, LP, a
Delaware limited partnership, which is our operating partnership (the “Operating Partnership”). This report also
includes the financial statements of QTS and those of the Operating Partnership, although it presents only one set of
combined notes for QTS’ financial statements and those of the Operating Partnership.
Substantially all of QTS’s assets are held by, and its operations are conducted through, the Operating Partnership. QTS is
the sole general partner of the Operating Partnership, and, as of December 31, 2019, its only material asset consisted of
its ownership of approximately 89.7% of the Operating Partnership. Management operates QTS and the Operating
Partnership as one business. The management of QTS consists of the same employees as the management of the
Operating Partnership. QTS does not conduct business itself, other than acting as the sole general partner of the
Operating Partnership and issuing public equity from time to time. QTS has not issued or guaranteed any indebtedness.
Except for net proceeds from public equity issuances by QTS, which are contributed to the Operating Partnership in
exchange for units of limited partnership interest of the Operating Partnership, the Operating Partnership generates all
remaining capital required by our business through its operations, the direct or indirect incurrence of indebtedness, and
the issuance of partnership units. Therefore, as general partner with control of the Operating Partnership, QTS
consolidates the Operating Partnership for financial reporting purposes.
We believe, therefore, that a combined presentation with respect to QTS and the Operating Partnership, including
providing one set of notes for the financial statements of QTS and the Operating Partnership, provides the following
benefits:
•
•
•
enhances investors’ understanding of QTS and the Operating Partnership by enabling investors to view the
business as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a
substantial portion of the disclosure in this report applies to both QTS and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one presentation instead of two separate
presentations.
In addition, in light of these combined disclosures, we believe it is important for investors to understand the few
differences between QTS and the Operating Partnership in the context of how QTS and the Operating Partnership
operate as a consolidated company. With respect to balance sheets, the presentation of stockholders’ equity and partners’
capital are the main areas of difference between the consolidated balance sheets of QTS and those of the Operating
Partnership. On the Operating Partnership’s consolidated balance sheets, partners’ capital includes partnership units that
are owned by QTS and other partners. On QTS’ consolidated balance sheets, stockholders’ equity includes common
stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated dividends in excess
of earnings. The remaining equity reflected on QTS’s consolidated balance sheet is the portion of net assets that are
retained by partners other than QTS, referred to as noncontrolling interests. With respect to statements of operations, the
primary difference in QTS’ Statements of Operations and Statements of Comprehensive Income is that for net income
(loss), QTS retains its proportionate share of the net income (loss) based on its ownership of the Operating Partnership,
with the remaining balance being retained by the Operating Partnership.
In order to highlight the few differences between QTS and the Operating Partnership, there are sections and disclosure in
this report that discuss QTS and the Operating Partnership separately, including separate financial statements, separate
audit reports, separate controls and procedures sections, separate Exhibit 31 and 32 certifications, and separate
presentation of certain accompanying notes to the financial statements, including Note 10 – Partners’ Capital, Equity and
Incentive Compensation Plans and Note 18 – Quarterly Financial Information (unaudited). In the sections that combine
disclosure for QTS and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of
“we,” “our,” “us,” “our company” and “the Company.” Although the Operating Partnership is generally the entity that
enters into contracts, holds assets and issues debt, we believe that these general references to “we,” “our,” “us,” “our
company” and “the Company” in this context are appropriate because the business is one enterprise operated through the
Operating Partnership.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Form 10-K constitute forward-looking statements within the meaning of the
federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In
particular, statements pertaining to our capital resources, portfolio performance, 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 Form 10-K 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 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;
violations of our prohibition on harassment could result in liabilities and/or litigation;
the expansion of social media platform presents new risks and challenges;
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. 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.”
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ITEM 1. BUSINESS
PART I
Unless the context requires otherwise, references in this Form 10-K to “we,” “our,” “us,” “our company” and “the
Company” refer to QTS Realty Trust, Inc. (“QTS”), a Maryland corporation, together with its consolidated
subsidiaries, including QualityTech, LP, a Delaware limited partnership, which we refer to in this Form 10-K as the
“Operating Partnership” or “predecessor.”
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 cloud, 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, and technology industries, among others. We build out our data center facilities to
accommodate both multi-tenant environments (hybrid colocation) and dedicated build-to-suit requirements that involve
significant amounts of space and power (hyperscale), depending on the needs and availability of each facility at that
time. We believe that we own and operate one of the largest portfolios of multi-tenant data centers in the United States,
as measured by gross square footage, and have the capacity to nearly double our sellable data center raised floor space
without constructing or acquiring any new buildings. In addition, we own approximately 730 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.
We operate a portfolio of 24 data centers located throughout the United States, Canada and Europe. Across our footprint,
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.
QTS is a Maryland corporation formed on May 17, 2013 and is the sole general partner and majority owner of
QualityTech, LP, our operating partnership (the “Operating Partnership”). Substantially all of our assets are held by, and
our operations are conducted through, the Operating Partnership. QTS’ Class A common stock trades on the New York
Stock Exchange under the ticker symbol “QTS.”
The Operating Partnership is a Delaware limited partnership formed on August 5, 2009 and was QTS’ historical
predecessor prior to QTS’s initial public offering on October 15, 2013 (the “IPO”), having operated the Company’s
business until the IPO. As of December 31, 2019, QTS owned an approximate 89.7% ownership interest in the
Operating Partnership.
We believe that QTS has operated and has been organized in conformity with the requirements for qualification and
taxation as a REIT commencing with its taxable year ended December 31, 2013. Our qualification as a REIT, and
maintenance of such qualification, depends upon our ability to meet, on a continuing basis, various complex
requirements under the Internal Revenue Code of 1986, as amended (the “Code”) relating to, among other things, the
sources of our gross income, the composition and values of our assets, our distributions to our stockholders and the
concentration of ownership of our equity shares.
Our Portfolio
We operate 24 data centers located throughout the United States, Canada and Europe, containing an aggregate of
approximately 7.2 million gross square feet of space, including approximately 3.2 million “basis-of-design” raised floor
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square feet (approximately 96.0% of which is wholly owned by us including our data center in Santa Clara which is
subject to a long-term ground lease), which represents the total sellable data center raised floor potential of our existing
data center facilities. This reflects the maximum amount of space in our existing buildings that could be leased following
full build-out, depending on the space and power configuration that we deploy. As of December 31, 2019, this space
included approximately 1.7 million raised floor operating net rentable square feet, or NRSF, plus approximately
1.6 million square feet of additional raised floor in our development pipeline, of which approximately 167,000 raised
floor square feet is expected to become operational by December 31, 2020. Of the total 167,000 raised floor square feet
in our development pipeline that is expected to become operational by December 31, 2020, approximately 142,000
square feet was related to customer leases which had been executed as of December 31, 2019 but not yet commenced.
Our facilities collectively have access to approximately 894 megawatts (“MW”) of available utility power. Access to
power is typically the most limiting and expensive component in developing a data center and, as such, we believe our
significant access to power represents an important competitive advantage.
We account for the operations of all our properties in one reporting segment.
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 and the world’s largest global Internet
and cloud companies, to major healthcare, telecommunications and software and web-based companies.
As a result of our diverse customer base, customer concentration in our portfolio is limited. As of December 31, 2019,
only five of our more than 1,200 customers individually accounted for more than 3% of our monthly recurring revenue
(“MRR”), with the largest customer accounting for approximately 10.9% of our MRR and the next largest customer
accounting for only 5.8% of our MRR.
The majority of our MRR is generated from customers deployed in our U.S. data center locations. Customers deployed
in our U.S. data center locations accounted for $33.6 million, $31.0 million and $31.3 million of total MRR as of
December 31, 2019, 2018 and 2017, respectively, and MRR from our international locations represented $0.5 million,
$0.2 million and $0.4 million of MRR as of December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019,
our 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, 2019) was approximately $7.8 million, or $93.1 million of
annualized rent. As of December 31, 2018, our 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, 2018) was approximately
$5.2 million, or $62.6 million of annualized rent.
Our Structure
Substantially all of our assets are held by, and our operations are conducted through, the Operating Partnership. Our
interest in the Operating Partnership entitles us to share in cash distributions from, and in the profits and losses of, the
Operating Partnership in proportion to our percentage ownership. As the sole general partner of the Operating
Partnership, we generally have the exclusive power under the Operating Partnership’s partnership agreement to manage
and conduct the Operating Partnership’s business and affairs.
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The following diagram depicts our ownership structure, on a non-diluted basis as of December 31, 2019.
Directors,
Executive Officers,
Employees and
Affiliates
Public
Stockholders
10.3%
12.6%
87.4%
QTS Realty Trust, Inc (the REIT)
89.7%
QualityTech, LP
(the Operating Partnership)
Property Holding
Subsidiaries
Quality Technology
Services Holding, LLC
(the TRS)
Our Competitive Strengths
We believe that we are uniquely positioned in the data center industry and distinguish ourselves from other data center
providers through the following competitive strengths:
• Software-Defined Data Center Platform. QTS’ Service Delivery Platform (“SDP”) is a software-defined
orchestration platform that empowers customers to interact with their data and QTS services by providing
real-time visibility, access and dynamic control of critical metrics across hybrid environments from a single
platform. Collectively, the ability to digitize, analyze and automate significant amounts of data through SDP
enables customers to innovate, make better business decisions and maximize their outsourced IT investments
both within QTS and across multiple integrated service providers.
• Platform Anchored by Strategically Located, Owned “Mega” Data Centers. Our larger “mega” data centers
are located in Ashburn, Atlanta (DC-1) (formerly known as our Atlanta Metro facility), Atlanta-Suwanee,
Chicago, Fort Worth, Irving, Piscataway, Princeton, Richmond and Manassas (which we contributed to an
unconsolidated entity), with future sites available in Phoenix and Hillsboro. Our facilities are constructed with
the flexibility and capacity to support multi-tenant environments across a broad range of customer types, sizes
and IT infrastructure requirements, which we believe delivers greater efficiency than single-use or smaller
scale data centers. We believe that our data centers are engineered to among the highest specifications
commercially available. As of December 31, 2019, our portfolio of 24 data centers (16 of which are wholly
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owned, representing 96.0% of our raised square feet, including our data center in Santa Clara which is subject
to a long-term ground lease) provides the opportunity to nearly double our sellable data center raised floor
capacity without constructing or acquiring any new buildings. In addition, we own approximately 730 acres of
land at our existing 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.
• Substantial Data Center Development Expertise. We have gained substantial expertise in developing data
center facilities through the acquisition and redevelopment and/or construction of our operating facilities. Our
data center development strategy is primarily focused on “mega” scale facilities that allow for significant
incremental growth opportunity, either through ground up development or redevelopment of existing data
center powered shell footprint. Our data center development strategy allows us to rapidly scale our
developments in a modular manner to coincide with customer demand, and drives higher efficiency into our
model through increased operating and build cost leverage at scale.
• Balanced Approach to Hyperscale and Hybrid Colocation Verticals. The scale of our facilities combined
with our innovative SDP platform and world-class customer service capability, gives us the ability to meet the
needs of a broad set of customers ranging from large hyperscale users to smaller enterprises and government
agencies. We believe customers will continue to have evolving and diverse IT needs and will prefer providers
that can offer the flexibility, scalability and technology solutions that de-risk their future IT journey. We
believe our ability to provide solutions to a broad addressable market enhances our leasing velocity,
diversifies our customer mix, results in more balanced lease terms and optimizes cash flows from our assets.
• Diversified, High-Quality Customer Base. As of December 31, 2019, our customer base consists of over
1,200 customers, with our largest customer accounting for approximately 10.9% of our MRR and no others
greater than 5.8%. Only five of our customers exceeded 3% of our MRR. Our focus on premium customer
service and our ability to grow with their IT needs allows us to achieve a low rental churn rate (which is the
MRR lost in the period to a customer intending to fully exit our platform in the near term compared to the
total MRR at the beginning of the period).
• Robust In-House Sales Capabilities. Our in-house sales force has deep knowledge of our customers’
businesses and IT infrastructure needs and is supported by sophisticated sales management, reporting and
incentive systems. Our internal sales force is structured by product offerings, specialized industry segments
and, with respect to our colocation product, by geographical region. Therefore, unlike certain other data center
companies, we are less dependent on data center brokers to identify and acquire or renew our customers,
which we believe is a key enabler of our integrated strategy.
• Security and Compliance Focused. Our operations and compliance teams, led by seasoned management, are
focused on providing a high level of physical security, cybersecurity and compliance solutions and consulting
in all of our data centers and integrated across our product offerings.
• Balance Sheet Positioned to Fund Continued Growth. As of December 31, 2019 we had approximately $872
million of available liquidity consisting of cash and cash equivalents, net proceeds available under forward
equity agreements, and the ability to borrow under our unsecured senior revolving credit facility. As we
continue to expand our real estate portfolio, we can increase availability under our unsecured revolving credit
facility by an additional $500 million through an accordion feature, as well as access additional net proceeds
available under forward equity agreements.
• Seasoned Management Team with Proven Track Record and Strong Alignment with Our Stockholders.
Our senior management team represents a strong balance of significant experience across the commercial real
estate and technology services industries. We believe our senior management team’s experience will enable us
to capitalize on industry relationships by accessing capital from various sources and by providing an ongoing
pipeline of attractive leasing and development opportunities while ensuring the future differentiation of our
technology-enabled platform.
• Ability to Increase Our Margins Through Our Operating Leverage. We anticipate that our business and
growth strategies can be substantially supported by our existing platform. The scale of our data center
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facilities provides a significant opportunity to realize positive operating leverage as we achieve higher
customer occupancy.
• Continuing to Selectively Expand Our Platform to Other Strategic Markets. We expect to continue to
selectively pursue attractive opportunities in strategic locations where we believe our fully integrated platform
would give us a competitive advantage in the leasing of a facility or portfolio of assets. We also believe we
can integrate additional data center facilities into our platform without adding significant incremental
headcount or general and administrative expenses.
• Commitment to Environmental Sustainability. We have committed to leading the industry in sustainability
by implementing cost effective, impactful programs that create value for investors and benefit society. We
have committed to procuring 100% of our energy from renewable sources by 2025. We build world class
LEED-designed facilities, and conserve millions of gallons of water each year through rainwater collection
and greywater reuse systems. Our second annual ESG report will come out in April 2020, in which we intend
to highlight 2019 environmental results, introduce new social programs, and discuss our governance structure.
Competition
We compete with developers, owners and operators of data centers and with IT infrastructure companies in the market
for data center customers, properties for acquisition and the services of key third-party providers. In addition, we
continue to compete with owners and operators of data centers and providers of cloud and managed services that follow
other business models and may offer one or more of these services. We believe, however, that our product offerings set
us apart from our competitors in the data center industry and makes us more attractive to customers, both large and
small. In addition, we believe other providers are seeking ways to enter or strengthen their positions in the data center
market.
We compete for customers based on factors including location, network connectivity, critical load capacity, flexibility
and expertise in the design and operation of data centers. New customers who consider leasing space at our properties
and using our products and existing customers evaluating whether to renew or extend a lease also may consider our
competitors, including wholesale infrastructure providers and colocation and managed services providers. In addition,
our customers may choose to own and operate their own data centers rather than lease from us.
As an owner, developer and operator of data centers, we depend on certain third-party service providers, including
engineers and contractors with expertise in the development of data centers and the provision of managed services. The
level of competition for the services of specialized contractors and other third-party providers increases the cost of
engaging such providers and the risk of delays in operating our data centers and completing our development and
redevelopment projects. We also rely upon the services of specialized contractors for the provision of internet
connectivity and software-related platforms and services. Competition for their services could lead to a negative impact
on our business if they became unavailable to us.
In addition, we face competition for the acquisition of additional properties suitable for the development of data centers
from real estate developers in our industry and in other industries and from customers who develop their own data center
facilities. Such competition may have the effect of reducing the number of available properties for acquisition,
increasing the price of any acquisition and reducing the demand for data center space in the markets we seek to serve.
Regulation
General
Data centers in our markets are subject to various laws, ordinances and regulations, including regulations relating to
common areas. We believe that each of our properties has the necessary permits and approvals to operate its business.
Americans With Disabilities Act
Our properties must comply with Title III of the Americans With Disabilities Act (“ADA”) to the extent that such
properties are “public accommodations” or “commercial facilities” as defined by the ADA. The ADA may require, for
example, removal of structural barriers to access by persons with disabilities in certain public areas of our properties
8
where such removal is readily achievable. We believe that our properties are in substantial compliance with the ADA
and that we will not be required to make substantial capital expenditures to address the requirements of the ADA.
However, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants.
The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our
properties and to make alterations as appropriate in this respect.
Environmental Matters
Under various federal, state and local laws and regulations, a current or former owner or operator of real property may
be liable for the cost to remove or remediate contamination resulting from the presence or discharge of hazardous or
toxic substances, wastes or petroleum products on, under, from or in such property. These costs could be substantial,
liability under these laws may attach without regard to whether the owner or operator knew of, or was responsible for,
the presence of the contaminants, and the liability may be joint and several. Most of our properties presently contain
large underground or aboveground fuel storage tanks for emergency power, which is critical to our operations. If any of
our tanks has a release of fuel to the environment, we likely would have to pay to clean up the contamination. In
addition, prior owners and operators used some of our current properties for industrial and other purposes, which could
have resulted in environmental contamination. Moreover, the presence of contamination or the failure to remediate
contamination at our properties may (1) expose us to third-party liability (e.g., for cleanup costs, bodily injury or
property damage), (2) subject our properties to liens in favor of the government for damages and costs the government
incurs in connection with the contamination, (3) impose restrictions on the manner in which a property may be used or
businesses may be operated, or (4) materially adversely affect our ability to sell, lease or develop the real estate or to
borrow using the real estate as collateral. We also may be liable for the costs of remediating contamination at off-site
disposal or treatment facilities where we arranged for disposal or treatment of hazardous substances at such facilities,
without regard to whether we comply with environmental laws in doing so. Finally, there may be material environmental
liabilities at our properties of which we are not aware. Any of these matters could have a material adverse effect on us.
Our properties are subject to federal, state, and local environmental, health, and safety laws and regulations and zoning
requirements, including those regarding the handling of regulated substances and wastes, emissions to the environment,
and fire codes. For instance, our properties are subject to regulations regarding the storage of petroleum for auxiliary or
emergency power and air emissions arising from the use of power generators. In particular, generators at our data center
facilities are subject to strict emissions limitations, which could preclude us from using critical back-up systems and lead
to significant business disruptions at such facilities and loss of our reputation. In addition, we lease some of our
properties to our customers who also are subject to such environmental, health and safety laws and zoning requirements.
If we, or our customers, fail to comply with these various requirements, we might incur costs and liabilities, including
governmental fines and penalties. Moreover, we do not know whether existing requirements will change or whether
future requirements will require us to make significant unanticipated expenditures that will materially and adversely
affect us. Environmental noncompliance liability also could affect a customer’s ability to make rental payments to us.
We require our customers to comply with these environmental and health and safety laws and regulations.
See ITEM 1A. RISK FACTORS, Risks Related to the Real Estate Industry, for additional information regarding these
risks.
Privacy and Cybersecurity
We may be directly and/or contractually subject to laws, regulations and policies for protecting sensitive data, consumer
privacy and vital national interests, some of which are new or evolving. For example, the U.S. government has
promulgated regulations and standards subject to authority provided through the enactment of a number of laws, such as
the Health Insurance Portability and Accountability Act (“HIPAA”), the Health Information Technology for Economic
and Clinical Health Act (“HITECH Act”), the Gramm-Leach-Bliley Act (“GLBA”), and the Federal Information
Security Management Act of 2002 (“FISMA”), which require many corporations and federal, state and local
governmental entities to control the security of, access to and configuration of their IT systems. A number of states also
have enacted laws and regulations that require covered entities, such as data center operators, to implement and maintain
security measures to protect certain types of information, such as Social Security numbers, payment card information,
and other types of data, from unauthorized use and disclosure. In recent years, three states have passed biometric data
security laws and a number of other states are exploring similar laws. QTS designed its policies and practices based on
the Illinois Biometric Information Privacy Act (“BIPA”), which we believe is the most comprehensive and restrictive
law. In addition, industry organizations have adopted and implemented various security and compliance policies. For
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example, the Payment Card Industry Security Standards Council has issued its mandatory Payment Card Industry Data
Security Standard (“PCI DSS”) which is applicable to all organizations processing payment card transactions. In
addition to federal laws, the California Consumer Privacy Act (“CCPA”), which regulates data collection and privacy
collection, took effect on January 1, 2020. As drafted, the CCPA presents significant compliance challenges, including
assessing how to respond to rights request and structure internal processes. California’s law may still be subject to
change based on regulations from the California Attorney General’s office and other states are considering similar laws.
In connection with certain of these laws, we are subject to audits and assessments, and we may be required to obtain
certain certifications. Audit failure or findings of non-compliance can lead to significant fines or decertification from
engaging in certain activities. For example, violations of HIPAA/HITECH Act regulations can lead to fines of up to $1.5
million for all violations of a particular provision in a calendar year and our failure to demonstrate compliance in an
annual PCI DSS audit may result in fines and exclusion from payment card networks. Additionally, violations of privacy
or security laws, regulations or standards increasingly lead to class-action litigation, which can result in substantial
monetary judgments or settlements. We cannot assure you that future laws, regulations and standards, or future
interpretations of current laws, regulations and standards, related to privacy and security will not have a material adverse
effect on us.
As a company that may process European personal data, we also may be subject to European data protection laws and
regulations. The European General Data Protection Regulation (“GDPR”) which took effect in May 2018, increases the
likelihood of applicability of European law to entities like us, which are established outside the EU but may process data
of European data subjects. Under the GDPR, there can be fines of up to €10,000,000 or up to 2% of the global sales,
whichever is greater, for certain comparatively minor offenses, or up to €20,000,000 or up to 4% of the global sales,
whichever is greater, for more serious offenses.
To facilitate and legitimize the transfer of both client and personnel data from the European Union (“EU”) to the United
States, we self-certified to the U.S. Department of Commerce that we adhere to the EU-U.S. Privacy Shield Framework,
which requires organizations operating in the United States to provide assurance that they are adhering to relevant
European standards for data protection for such transfers. QTS complies with the EU-U.S. Privacy Shield Framework as
set forth by the Department of Commerce regarding the collection, use and retention of personal information transferred
from the EU to the United States. However, our self-certification under the EU-U.S. Privacy Shield Framework may not
be sufficient to ensure compliance with GDPR. Legal challenges have been brought in European courts seeking to
declare the Privacy Shield Framework invalid under European law as a mechanism to legitimize transfers of personal
data from the EU to the United States, which could require us to implement alternative means to address European cross
border data transfer requirement. Also in 2018, EU member states were required to enact national laws to enforce the
EU’s “Directive on security of network and information systems” (the “NIS Directive”), which lays out a number of
cybersecurity expectations and notification obligations for regulated entities.
Insurance
We carry comprehensive general liability, property, earthquake, flood, business interruption and rental loss insurance
covering all of the properties in our portfolio. We also carry coverage for technology professional liability, and
cybersecurity. We have selected policy specifications and insured limits that we believe to be appropriate given the
relative risk of loss, the cost of the coverage and industry practice. In the opinion of our management, the properties in
our portfolio are currently adequately insured and the risk for any failure related to professional liability or a physical or
cybersecurity breach are adequately covered by our insurance. We will not carry insurance for generally uninsured losses
such as loss from riots, war, wet or dry rot, vermin and, in some cases, flooding and earthquake, because such coverage
is not available or is not available at commercially reasonable rates. In addition, although we carry earthquake and flood
insurance on our properties in an amount and with deductibles that we believe are commercially reasonable, such
policies are subject to limitations in certain flood and seismically active zones. Certain of the properties in our portfolio
are located in areas known to be seismically active. See “Risk Factors—Risks Related to the Real Estate Industry—
Uninsured and underinsured losses could have a material adverse effect on us.”
Employees
As of December 31, 2019, we employed approximately 612 persons, none of whom were represented by a labor union.
We believe our relations with our employees are good.
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Offices
Our executive headquarters is located at 12851 Foster Street, Overland Park, Kansas 66213, where our telephone number
is (913) 814-9988. We believe that our current offices are adequate for our present operations; however, based on the
anticipated growth of our company, we may add regional offices depending upon our future operational needs.
Available Information
Our Internet website address is www.qtsdatacenters.com. You can obtain on our website, free of charge, a copy of our
Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any
amendments to those reports, as soon as reasonably practicable after we electronically file such reports or amendments
with, or furnish them to, the SEC. Our Internet website and the information contained therein or connected thereto are
not intended to be incorporated into this Annual Report on Form 10-K.
Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Corporate
Governance Guidelines, and the charters for each of the committees of our board of directors—the Audit Committee, the
Nominating and Corporate Governance Committee, the Compensation Committee and the Security Committee.
ITEM 1A. RISK FACTORS
Set forth below are the risks that we believe are material to our stockholders. You should carefully consider the
following risks in evaluating our Company and our business. If any of the risks discussed in this Form 10-K were to
occur, our business, prospects, financial condition, liquidity, funds from operations and results of operations and our
ability to service our debt and make distributions to our stockholders could be materially and adversely affected, which
we refer to herein collectively as a “material adverse effect on us,” the market price of our common stock could decline
significantly and you could lose all or part of your investment. Some statements in this Form 10-K, including statements
in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Special Note
Regarding Forward-Looking Statements” at the beginning of this Form 10-K.
Risks Related to Our Business and Operations
Because we are focused on the ownership, operation, redevelopment and/or construction of data centers, any
decrease in the demand for data center space could have a material adverse effect on us.
Because our portfolio consists entirely of data centers, or land to be developed or converted into data centers, we are
subject to risks inherent in investments in a single industry. Adverse developments in the data center market or in the
industries in which our customers operate could lead to a decrease in the demand for data center space, which could have
a greater material adverse effect on us than if we owned a more diversified real estate portfolio. These adverse
developments could include: a decline in the technology industry, such as a decrease in the use of mobile or web-based
commerce, industry slowdowns, business layoffs or downsizing, relocation of businesses, increased costs of complying
with existing or new government regulations and other factors; a slowdown in the growth of the Internet generally as a
medium for commerce and communication; a downturn in the market for data center space generally such as oversupply
of or reduced demand for space; and the rapid development of new technologies or the adoption of new industry
standards that render our or our customers’ current products and services obsolete or unmarketable and, in the case of
our customers, that contribute to a downturn in their businesses, increasing the likelihood of a default under their leases
or that they become insolvent or file for bankruptcy protection. To the extent that any of these or other adverse
conditions occur, they are likely to impact market rents for, and cash flows from, our data center space, which could
have a material adverse effect on us.
Our data center infrastructure may become obsolete or unmarketable and we may not be able to upgrade our power,
cooling, security or connectivity systems cost-effectively or at all.
The markets for the data centers we own and operate, as well as certain of the industries in which our customers operate,
are characterized by rapidly changing technology, evolving industry standards, frequent new service introductions,
shifting distribution channels and changing customer demands. As a result, the infrastructure at our data centers may
become obsolete or unmarketable due to demand for new processes and/or technologies, including, without limitation:
(i) new processes to deliver power to, or eliminate heat from, computer systems; (ii) customer demand for additional
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redundancy capacity or, conversely, reduced redundancy capacity; or (iii) new technology that permits lower levels of
critical load and heat removal than our data centers are currently designed to provide. In addition, the systems that
connect our data centers to the Internet and other external networks may become outdated, including with respect to
latency, reliability and diversity of connectivity. When customers demand new processes or technologies, we may not be
able to upgrade our data centers on a cost-effective basis, or at all, due to, among other things, increased expenses to us
that cannot be passed on to customers or insufficient revenue to fund the necessary capital expenditures. The
obsolescence of our power and cooling systems and/or our inability to upgrade our data centers, including associated
connectivity, could reduce revenue at our data centers and could have a material adverse effect on us. Furthermore,
potential future regulations that apply to industries we serve may require customers in those industries to seek specific
requirements from their data centers that we are unable to provide. These may include physical security regulations
applicable to the defense industry and government contractors and privacy and security requirements applicable to the
financial services and health care industries. If such regulations were adopted, we could lose customers or be unable to
attract new customers in certain industries, which could have a material adverse effect on us.
We face considerable competition in the data center industry and may be unable to renew existing leases, lease vacant
space or re-let space on more favorable terms, or at all, as leases expire, which could have a material adverse effect
on us.
Leases representing approximately 16% of our leased raised floor and approximately 29% of our annualized rent
(including all month-to-month leases), in each case as of December 31, 2019, are scheduled to expire by the end of 2020.
The global multi-tenant data center market is highly fragmented and we compete with numerous developers, owners and
operators in the data center industry, including managed service providers and other REITs, some of which own or lease
properties similar to ours, or may do so in the future, in the same submarkets in which our properties are located. Our
competitors may have significant advantages over us, including greater name recognition, longer operating histories,
higher operating margins, pre-existing relationships with current or potential customers, greater financial, marketing and
other resources, and access to greater and less expensive power. These advantages could allow our competitors to
respond more quickly to strategic opportunities or changes in our industry or markets. If our competitors offer space at
rental rates below current market rates or below the rental rates we currently charge our customers, or if our competitors
offer products and services in a greater variety, that are more state-of-the-art or that are more competitively priced than
the products and services we offer, we may lose customers or be unable to attract new customers without lowering our
rental rates and improving the quality, mix and technology of our products and services. We cannot assure you that we
will be able to lease vacant space, renew leases with our existing customers or re-let space to new customers if our
current customers do not renew their leases. Even if our customers renew their leases or we are able to re-let the space,
the terms (including rental rates and lease periods) and costs (including capital) of renewal or re-letting may be less
favorable than the terms of our current leases. In addition, there can be no assurances that the type of space and/or
services currently available at our properties will be sufficient to retain current customers or attract new customers in the
future. Although we offer a full spectrum of data center products from hyperscale to hybrid colocation to certain cloud
and managed services, our competitors that specialize in only one of our product and service offerings may have
competitive advantages in that space. If rental rates for our properties decline, we are unable to lease vacant space, our
existing customers do not renew their leases or we do not re-let space from expiring leases, in each case, on favorable
terms, it could have a material adverse effect on us.
Our business could be negatively affected as a result of actions by activist stockholders.
Stockholder campaigns to effect changes in publicly-traded companies are sometimes led by activist investors through
various corporate actions, including proxy contests. Responding to these actions can disrupt our operations by diverting
the attention of management and our employees as well as our financial resources. Stockholder activism could create
perceived uncertainties as to our future direction, which could result in the loss of potential business opportunities and
make it more difficult to attract and retain qualified personnel and business partners. Furthermore, the election of
individuals to our board of directors with a specific agenda could adversely affect our ability to effectively and timely
implement our strategic plans.
The long sales cycle for data center products could have a material adverse effect on us.
A customer’s decision to lease space in one of our data centers typically involves a significant commitment of resources,
time-consuming contract negotiations regarding the service level commitments and substantial due diligence on the part
of the customer regarding the adequacy of our infrastructure and attractiveness of our products and services. As a result,
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the leasing of data center space has a long sales cycle. Furthermore, we may expend significant time and resources in
pursuing a particular sale or customer that may not result in any revenue. Our inability to adequately manage the risks
associated with leasing the space and products within our facilities could have a material adverse effect on us.
Our customers may choose to develop new data centers, expand their own existing data centers, or choose to go to a
cloud provider, which could result in the loss of one or more key customers or reduce demand and pricing for our
data centers and could have a material adverse effect on us.
Some of our customers may develop or expand their own data center facilities or choose to take their data to a cloud
provider. Our customers may also merge with or be acquired by other entities that are not our customers, and may
discontinue or reduce the use of our data centers in the future. If any of these events occurs with respect to our key
customers, it could result in a loss of business to us or put downward pressure on our pricing. If we lose a customer,
there is no assurance that we would be able to replace that customer at the same or a higher rate, or at all, which could
have a material adverse effect on us.
The bankruptcy, insolvency or financial difficulties of a major customer could have a material adverse effect on us.
The bankruptcy or insolvency of a major customer could have significant consequences for us. If any customer becomes
a debtor in a case under the federal Bankruptcy Code, we cannot evict the customer solely because of the bankruptcy. In
addition, the bankruptcy court might authorize the customer to reject and terminate its lease with us. Our claim against
the customer for unpaid future rent would be subject to a statutory cap that might be substantially less than the remaining
rent owed under the lease. In either case, our claim for unpaid rent likely would not be paid in full. If any of our
significant customers were to become bankrupt or insolvent or suffer a downturn in their business, they may fail to
renew, or reject or terminate, their leases with us and/or fail to pay unpaid or future rent owed to us, which could have a
material adverse effect on us.
Any inability, temporarily or permanently, to fully and consistently operate either of our Atlanta (DC-1) and Atlanta-
Suwanee properties could have a material adverse effect on us.
Our two largest wholly-owned properties in terms of annualized rent, Atlanta (DC-1) (formerly known as our Atlanta
Metro facility) and Atlanta-Suwanee, collectively accounted for approximately 43% of our consolidated annualized rent
as of December 31, 2019. Therefore, any inability, temporarily or permanently, to fully and consistently operate either of
these properties could have a material adverse effect on us. In addition, because both properties are located in the Atlanta
metropolitan area, we are particularly susceptible to adverse developments in that area, including as a result of natural
disasters (such as hurricanes, floods, tornadoes and other events), that could cause, among other things, permanent
damage to the properties and electrical power outages that may last beyond our backup and alternative power
arrangements. Further, Atlanta (DC-1) and Atlanta-Suwanee account for several of our largest leases in terms of MRR.
Any nonrenewal, credit or other issues with large customers could adversely affect the performance of these properties.
We may be adversely affected by the economies and other conditions of the markets in which we operate, particularly
in Atlanta and other metropolitan areas, where we have a high concentration of our data center properties.
We are susceptible to adverse economic or other conditions in the geographic markets in which we operate, such as
periods of economic slowdown or recession, the oversupply of, or a reduction in demand for, data centers in a particular
area, industry slowdowns, layoffs or downsizings, relocation of businesses, increases in real estate and other taxes and
changing demographics. The occurrence of these conditions in the specific markets in which we have concentrations of
properties could have a material adverse effect on us. Our Atlanta area data centers and our data centers in Virginia
(including Richmond, Ashburn, the Vault facility in Dulles, Virginia and leased facilities acquired in 2015), accounted
for approximately 43% and 16%, respectively, of our consolidated annualized rent as of December 31, 2019. We also
own a 50% interest in the Manassas, Virginia data center that was contributed to an unconsolidated entity. As a result,
we are particularly susceptible to adverse market conditions in these areas. In addition, other geographic markets could
become more attractive for developers, operators and customers of data center facilities based on favorable costs and
other conditions to construct or operate data center facilities in those markets. For example, some states have created tax
incentives for developers and operators to locate data center facilities in their jurisdictions. These changes in other
markets may increase demand in those markets and result in a corresponding decrease in demand in our markets. Any
adverse economic or real estate developments in the geographic markets in which we have a concentration of properties,
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or in any of the other markets in which we operate, or any decrease in demand for data center space resulting from the
local business climate or business climate in other markets, could have a material adverse effect on us.
Challenging economic and other market conditions could have a material adverse effect on us.
The cost and availability of credit may be limited if global or national market conditions deteriorate. Furthermore,
deteriorating economic and other market conditions that affect our customers could negatively impact commercial real
estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio.
Additionally, the economic climate could have an impact on our lenders or customers, causing them to fail to meet their
obligations to us. For example, the United Kingdom withdrew from the European Union effective January 31, 2020
(commonly known as “Brexit”), and is now in a period of transition until the end of 2020. The transition period of at
least eleven months, which can be extended up to two additional years, commenced following such departure. While the
announcement of Brexit in June 2016 caused significant volatility in global stock markets and currency exchange rate
fluctuations that resulted in the strengthening of the U.S. dollar against the U.K. Pound Sterling, the impact of the United
Kingdom’s January 2020 departure from the European Union did not trigger similar volatility. Any impact of Brexit
depends on the terms of the United Kingdom’s withdrawal from the European Union, which remain under negotiation
between the parties during the transition period.
Future consolidation and competition in our customers’ industries could reduce the number of our existing and
potential customers and make us dependent on a more limited number of customers.
Mergers or consolidations in our customers’ industries in the future could reduce the number of our existing and
potential customers and make us dependent on a more limited number of customers. If our customers merge with or are
acquired by other entities that are not our customers, they may discontinue or reduce the use of our data centers in the
future. Any of these developments could have a material adverse effect on us.
Our failure to develop and maintain a diverse customer base could have a material adverse effect on us.
Our customers are a mix of hyperscale and hybrid colocation. Each type of customer and their leases with us have
certain features that distinguish them from our other customers, such as operating margin, space and power requirements
and lease term. In addition, our customers engage in a variety of professional, financial, technological and other
businesses. A diverse customer base helps to minimize exposure to economic fluctuations in any one industry, business
sector or customer type, or any particular customer. Our relative mix of products used by our customers may change
over time, as may the industries represented by our customers, the concentration of customers within specified industries
and the economic value and risks associated with each customer, and there is no assurance that we will be able to
maintain a diverse customer base, which could have a material adverse effect on us.
Our government customers, contracts and subcontracts may subject us to additional risks, including early
termination, audits, investigations, sanctions and penalties, which could have a material adverse effect on us.
We derive revenue from contracts with the U.S. government, state and local governments and from subcontracts with
government contractors. Some of these customers may be entitled to terminate all or part of their contracts at any time,
without cause.
Recently, political pressure has increased for governments and their agencies, both domestically and internationally, to
reduce spending. Some of our federal government contracts and subcontracts are directly or indirectly subject to
Congressional approval of appropriations to fund the expenditures under these contracts. Similarly, some of our state and
local contracts and subcontracts are subject to government funding authorizations. To the extent that funding underlying
any of these government contracts or subcontracts is reduced or eliminated, whether by failure to get Congressional
approval or as a result of partial U.S. government shutdowns, there is an increased risk of termination by the
counterparties, which could have a material adverse effect on us.
Government contracts and subcontracts also are generally subject to government audits and investigations. To the extent
we fail to comply with laws or regulations related to such contracts, any such audit or investigation of us could result in
various civil and criminal penalties and administrative sanctions, including termination of such contracts, refund of a
portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future
government business, any of which could have a material adverse effect on us.
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We derive significant revenue from our largest customers, and the loss or significant reduction in business from one
or more of these customers could have a material adverse effect on us.
Our top 10 customers collectively accounted for approximately 36% of our portfolio’s total MRR as of December 31,
2019. We have one customer that accounted for approximately 10.9% of our MRR and the next largest customer
accounted for only 5.8% of our MRR as of December 31, 2019. As a result, if we lose and are unable to replace one or
more of these customers, if these customers significantly reduce their business with us or default on their obligations to
us or if we choose not to enforce, or to enforce less vigorously, any rights that we may have now or in the future against
these significant customers because of our desire to maintain our relationship with them, our business, financial
condition and results of operations, including the amount of cash available for distribution to our stockholders, could be
materially adversely affected.
Our future growth depends upon the successful expansion or redevelopment of our existing properties, the
development of new properties, and any delays or unexpected costs in such expansion, redevelopment or development
could have a material adverse effect on us.
We have initiated or are contemplating the redevelopment of multiple of our existing data center properties including:
Atlanta (DC-1), Irving, Piscataway, Chicago, Fort Worth, Ashburn and the Manassas facility which was contributed to
an unconsolidated entity. Our future growth depends upon the successful completion of these efforts, as well as on
development of new properties including Atlanta (DC-2) and Hillsboro. With respect to our current and any future
expansions, developments and redevelopments, we will be subject to certain risks, including the following:
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financing risks;
increases in interest rates or credit spreads;
site selection and lack of availability of adequate properties for development;
construction and/or lease-up delays;
changes to plans or specifications;
construction site accidents or other casualties;
lack of availability of, and/or increased costs for, specialized data center components, including long lead-
time items such as generators;
cost overruns, including construction or labor costs that exceed our original estimates;
failure of contractors to perform on a timely basis or at all, or other misconduct on the part of contractors;
contractor and subcontractor disputes, strikes, labor disputes or supply disruptions;
environmental issues, fire, flooding, earthquakes and other natural disasters;
delays with respect to obtaining or the inability to obtain necessary zoning, occupancy, environmental, land
use and other governmental permits, and changes in zoning and land use laws, particularly with respect to
build-outs at our Santa Clara facility;
failure to achieve expected occupancy and/or rental rate levels within the projected time frame, if at all; and
sub-optimal mix of products.
In addition, with respect to any expansions, developments or redevelopments, we will be subject to risks and, potentially,
unanticipated costs associated with obtaining access to a sufficient amount of power from local utilities, including the
need, in some cases, to develop utility substations on our properties in order to accommodate our power needs,
constraints on the amount of electricity that a particular locality’s power grid is capable of providing at any given time,
and risks associated with the negotiation of long-term power contracts with utility providers. Local utilities may also
experience unexpected costs relating to the production or transmission of power, including environmental and other
variability associated with downed utility lines. Similarly, we will be subject to the risks and, potentially, unanticipated
costs associated with obtaining access to sufficient internet, telecommunication and fiber optic network connectivity. We
may not be able to successfully negotiate such contracts on favorable terms, or at all. Any inability to negotiate utility or
telecommunications contracts on a timely basis or on favorable terms or in volumes sufficient to supply the critical load
and connectivity anticipated for future developments could have a material adverse effect on us.
While we intend to develop data center properties primarily in markets with which we are familiar, we have and may in
the future acquire properties in new geographic markets where we expect to achieve favorable risk-adjusted returns on
our investment. We may not possess the same level of familiarity with development or redevelopment in these new
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markets and therefore cannot assure you that our development activities will generate attractive returns. Furthermore,
development and redevelopment activities, regardless of whether they are ultimately successful, also typically require a
substantial portion of our management’s time and attention. This may distract our management from focusing on other
operational activities of our business.
These and other risks could result in delays, increased costs and a lower stabilized return on invested capital and could
prevent completion of our development and expansion projects once undertaken, which could have a material adverse
effect on us.
We may commence development of a data center facility prior to having received any commitments from customers to
lease any space in the facility and any extended vacancies could have a material adverse effect on our business,
results of operations and financial condition.
As part of our growth strategy, we intend to commit substantial operational and financial resources to develop new data
centers and expand existing ones. However, we may not require pre‑leasing commitments from customers before we
develop or expand a data center, and we may not have sufficient customer demand to lease the new data center space
when completed. Once development of a data center is complete, we incur a certain amount of operating expenses even
if there are no tenants occupying the space. A lack of customer demand for data center space or excess capacity in the
data center market could impair our ability to achieve our expected rate of return on our investment, which could have a
material adverse effect on our financial condition, operating results and the market price of our common stock.
Our properties are designed primarily for lease as data centers, which could make it difficult to reposition them if we
are not able to lease or re-let available space.
Our properties are highly specialized properties that contain extensive electrical, communications and mechanical
systems. Such systems are often custom-designed to house, power and cool certain types of computer systems and
networking equipment. Any office space (such as private office space, open office areas and conference centers) located
at our properties is merely complementary to such systems, to facilitate our ability to service and maintain them. As a
result, our properties are not well-suited for primary use by customers as anything other than data centers. Major
renovations and expenditures would be required to convert the properties for use as commercial office space, or for any
other use, which would substantially reduce the benefits from such a conversion. In the event of a conversion, the value
of our properties may be impaired due to the costs of reconfiguring the real estate for alternate purposes and the removal
or modification of the specialized systems and equipment. The highly specialized nature of our data center properties
could make it difficult and costly to reposition them if we are not able to lease or re-let available space on favorable
terms, or at all, which could have a material adverse effect on us.
We lease space in several locations under long-term non-cancellable lease agreements and the non-renewal or loss of
such leases, or the continuing obligations under such leases in the event of a loss of customers or customer revenues,
could have a material adverse effect on us.
We lease the space that houses our data centers in several locations under long-term lease agreements. For example, we
lease the space housing our data centers in Jersey City, New Jersey and Overland Park, Kansas, where our corporate
headquarters is located, under leases expiring (taking into account our extension options) in 2031 and 2028 respectively.
We also lease data center space in several locations under non-cancellable leases expiring through 2026 and, in turn,
sublease that space to our customers. The landlords could attempt to evict us for reasons beyond our control and we may
incur costs if we are forced to vacate this space due to the high costs of relocating the equipment in these facilities and
installing the necessary infrastructure in a new data center property. If we are forced to vacate any of these facilities, we
could lose customers that chose our services based on our location. In addition, we cannot assure you that we will be
able to renew these leases prior to their expiration dates on favorable terms or at all. Certain of such leases relate to data
centers owned by companies that may view us as a competitor, which may impact their willingness to extend these
leases upon expiration. If we are unable to renew these lease agreements, we could lose a significant number of
customers who are unwilling to relocate their equipment to another one of our data center properties, which could have a
material adverse effect on us. Even if we are able to renew these leases, the terms and other costs of renewal may be less
favorable than our existing lease arrangements. Failure to sufficiently increase revenue from customers at these facilities
to offset these projected higher costs could have a material adverse effect on us. Further, we may be unable to maintain
good working relationships with our landlords, which would adversely affect our relationship with our customers and
could result in the loss of current customers.
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In addition, the terms of our customer contracts are, in many cases, of shorter duration than the non-cancellable lease
agreements for data center space described above. We are obligated to make payments on these long-term non-
cancellable leases regardless of whether our customer contracts are terminated or expire and regardless of whether our
customers continue to make payments under their contracts. To the extent we experience a loss of customers or customer
revenue, including upon expiration or termination of customer contracts, our continuing obligations under the non-
cancellable lease agreements for data center space may result in expenses to us without offsetting revenue, which could
have a material adverse effect on us.
The ground sublease structure at our Santa Clara property could prevent us from developing the property as we
desire, and we may have to incur additional expenses prior to the end of the ground sublease to restore the property to
its prelease state.
Our interest in the Santa Clara property is subject to a ground sublease granted by a third party, as ground sublessor, to
our indirect subsidiary Quality Investment Properties Santa Clara, LLC (“QIP Santa Clara”). The ground sublease
terminates in 2052 and we have two options to extend the original term for consecutive ten-year terms. The ground
sublease structure presents special risks. We, as ground sublessee, will own all improvements on the land, including the
buildings in which the data centers are located during the term of the ground sublease. Upon the expiration or earlier
termination of the ground sublease, however, the improvements on the land will become the property of the ground
sublessor. Unless we purchase a fee interest in the land and improvements subject to the ground sublease, we will not
have any economic interest in the land or improvements at the expiration of the ground sublease. Therefore, we will not
share in any increase in value of the land or improvements beyond the term of the ground sublease, notwithstanding our
capital outlay to purchase our interest in the data center or fund improvements thereon, and will lose our right to use the
building on the subleased property. In addition, upon the expiration of the ground sublease, the ground sublessor may
require the removal of the improvements or the restoration of the improvements to their condition prior to any permitted
alterations at our sole cost and expense. If we do not meet a certain net worth test, we also will be required to provide the
ground sublessor with a bond in connection with such removal and restoration requirements. In addition, while we
generally have the right to undertake alterations to the demised premises, the ground sublessor has the right to
reasonably approve the quality of such work and the form and content of certain financial information of QIP Santa
Clara. The ground sublessor need not give its approval to alterations if it or its affiliate determines that the work will
have a material adverse impact on the fee interest in property adjacent to the demised premises. In addition, though the
ground sublease provides that we may exercise the rights of ground lessor in the event of a rejection of the master
ground lease, each of the master ground lease and the ground sublease may be rejected in bankruptcy. Finally, in the
event of a condemnation, the ground lessor is entitled to an allocable share of any condemnation proceeds. The ground
sublease, however, does contain important nondisturbance protections and provides that, in event of the termination of
the master ground lease, the ground sublease will become a direct lease between the ground lessor and QIP Santa Clara.
We depend on third parties to provide Internet, telecommunication and fiber optic network connectivity to the
customers in our data centers, and any delays or disruptions in service, availability, or additional costs could have a
material adverse effect on us.
Our products and infrastructure rely on third-party service providers. In particular, we depend on third parties to provide
Internet, telecommunication and fiber optic network connectivity to the customers in our data centers, and we have no
control over the reliability of the services provided by these suppliers. Our customers may in the future experience
difficulties due to service failures unrelated to our systems and services. Any Internet, telecommunication or fiber optic
network failures may result in significant loss of connectivity to our data centers, which could reduce the confidence of
our customers and could consequently impair our ability to retain existing customers or attract new customers and could
have a material adverse effect on us.
Similarly, we depend upon the presence of Internet, telecommunications and fiber optic networks serving the locations
of our data centers in order to attract and retain customers. The construction required to connect multiple carrier facilities
to our data centers is complex, requiring a sophisticated redundant fiber network, and involves matters outside of our
control, including regulatory requirements and the availability of construction resources. Each new data center that we
develop requires significant amounts of capital for the construction and operation of a sophisticated redundant fiber
network. We believe that the availability of carrier capacity affects our business and future growth. We cannot assure
you that any carrier will elect to offer its services within our data centers or that once a carrier has decided to provide
connectivity to our data centers that it will continue to do so for any period of time or at a cost that is feasible to our
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customers. Furthermore, some carriers are experiencing business difficulties or have announced consolidations or
mergers. As a result, some carriers may be forced to downsize or terminate connectivity within our data centers, which
could adversely affect our customers and could have a material adverse effect on us.
Power outages, limited availability of electrical resources and increased energy costs could have a material adverse
effect on us.
Our data centers are subject to electrical power outages, regional competition for available power and increased energy
costs. We attempt to limit exposure to system downtime by using backup generators and power supplies generally at a
significantly higher operating cost than we would pay for an equivalent amount of power from a local utility. However,
we may not be able to limit our exposure entirely even with these protections in place. Power outages, which have and
may last beyond our backup and alternative power arrangements, may harm our customers and our business. During
power outages, changes in humidity and temperature can cause permanent damage to servers and other electrical
equipment. We could incur financial obligations or be subject to lawsuits by our customers in connection with a loss of
power. Any loss of services or equipment damage could reduce the confidence of our customers in our services and
could consequently impair our ability to attract and retain customers, which could have a material adverse effect on us.
In addition, power and cooling requirements at our data centers are increasing as a result of the increasing power and
cooling demands of modern servers. Since we rely on third parties to provide our data centers with sufficient power to
meet our customers’ needs, and we generally do not control the amount of power drawn by our customers, our data
centers could have a limited or inadequate amount of electrical resources.
We also may be subject to risks and unanticipated costs associated with obtaining power from various utility companies.
Utilities that serve our data centers may be dependent on, and sensitive to price increases for, a particular type of fuel,
such as coal, oil or natural gas. The price of these fuels and the electricity generated from them could increase as a result
of proposed legislative measures related to climate change or efforts to regulate carbon emissions. For example, under
the U.S. Environmental Protection Agency’s “Affordable Clean Energy” rule, coal-fired power plants are required to
make efficiency improvements to reduce their greenhouse gases emissions, and they may increase their prices to make
these improvements. While our wholesale customers are billed on a pass-through basis for their direct energy usage, our
retail customers pay a fixed cost for services, including power, so any excess energy costs above such fixed costs are
borne by us. Although, for technical and practical reasons, our retail customers often use less power than the amount we
are required to provide pursuant to their leases, there is no assurance that this will always be the case. Although we have
a diverse customer base, the concentration and mix of our customers may change and increases in the cost of power at
any of our data centers would put those locations at a competitive disadvantage relative to data centers served by utilities
that can provide less expensive power. This could adversely affect our relationships with our customers and hinder our
ability to operate our data centers, which could have a material adverse effect on us.
We rely on the proper and efficient functioning of computer and data-processing systems, and a large-scale
malfunction could have a material adverse effect on us.
Our ability to keep our data centers operating depends on the proper and efficient functioning of computer and data-
processing systems. Since computer and data-processing systems are susceptible to malfunctions and interruptions,
including those due to equipment damage, power outages, cyber-attacks and a range of other hardware, software and
network problems, we cannot guarantee that our data centers will not experience such malfunctions or interruptions in
the future. Additionally, expansions and developments in the products and services that we offer, including our Cloud
and Managed Services, could increasingly add a measure of complexity that may overburden our data center, network
resources and human capital, making service interruptions and failures more likely. A significant or large-scale
malfunction or interruption of one or more of any of our data centers’ computer or data-processing systems could
adversely affect our ability to keep such data centers running efficiently. If a malfunction results in a wider or sustained
disruption to business at a property, it could have a material adverse effect on us.
Interruptions in our provision of products or services could result in a loss of customers and damage our reputation,
which could have a material adverse effect on us.
Our business and reputation could be adversely affected by any interruption or failure in the provision of products and
services, even if such events occur as a result of a natural disaster, human error, landlord maintenance failure, water
damage, fiber cuts, extreme temperature or humidity, sabotage, vandalism, terrorist acts, unauthorized entry or other
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unanticipated problems. If a significant disruption occurs, we may be unable to implement disaster recovery or security
measures in a timely manner or, if and when implemented, these measures may not be sufficient or could be
circumvented through the reoccurrence of a natural disaster or other unanticipated problem, or as a result of accidental or
intentional actions. Furthermore, such disruptions can cause damage to servers and may result in legal liability where
interruptions in service violate service commitments in customer leases. Resolving network failures or alleviating
security problems also may require interruptions, delays, or cessation of service to our customers. Accordingly, failures
in our products and services, including problems at our data centers or network interruptions may result in significant
liability, a loss of customers and damage to our reputation, which could have a material adverse effect on us.
Security breaches at our facilities or affecting our networks may result in disclosure of sensitive customer
information that could harm our reputation and expose us to liability from customers and government agencies, and
we may incur increasing or uncertain compliance and prevention costs, all of which could have a material adverse
effect on us.
Our network could be subject to unauthorized access, computer viruses, cyber-attacks or cyber intrusions and other
disruptive problems, including malware, computer viruses and attachments to e-mails caused by customers, employees,
or others inside or outside of our organization. Our exposure to cybersecurity threats and negative consequences of
security breaches will likely increase as we store increasing amounts of customer data. Additionally, as we increasingly
market the security features in our data centers, our data centers may be further targeted by cyber attackers seeking to
compromise data security. Because a portion of our business focuses on serving U.S. government agencies and their
contractors with a general focus on data security and information technology, we may be especially likely to be targeted
by cyber-attacks, including by organizations or persons that may be affiliated with nation-states or otherwise hostile to
the U.S. government. Despite our activities to maintain the security and integrity of our networks and related systems,
there can be no assurance that these activities will be effective.
Unauthorized access, computer viruses or other disruptive problems could lead to interruptions, delays and cessation of
service to our customers and the compromise or loss of our, our customers’ or our customers’ end-users’ information.
We routinely process, store and transmit large amounts of data for our customers, which includes sensitive and
personally identifiable information. Loss or compromise of this data could cost us both monetarily and in terms of
customer goodwill and lost business, even if we do not ourselves process the data. Unauthorized access could also
potentially jeopardize the security of our confidential information or confidential information of our customers or our
customers’ end-users, which might expose us to liability from customers and from the government agencies that regulate
us or our customers, as well as harm our brand and deter potential customers from renting our space and purchasing our
services. For example, violations of HIPAA and its implementing regulations, as amended by the HITECH Act, can lead
to fines of up to $1.5 million for identical violations of a particular provision in a calendar year, and under the GDPR,
there can be fines of up to €10,000,000 or up to 2% of the global sales, whichever is greater, for certain comparatively
minor offenses and up to €20,000,000 or up to 4% of the global sales, whichever is greater, for more serious offenses.
Additionally, violations of privacy or cybersecurity laws (including the recently-passed CCPA), regulations or standards
increasingly lead to class-action and other types of litigation, which can result in substantial monetary judgments or
settlements. We also may suffer increased remediation, security, and insurance costs in the event of a security breach.
Therefore, any such security breaches could have a material adverse effect on us.
In addition, the regulatory framework around data custody, cybersecurity, data privacy and breaches varies by
jurisdiction and is an evolving area of law. We cannot predict how future laws, regulations and standards, or future
interpretations of current laws, regulations and standards, related to privacy and cybersecurity will affect our business,
and we cannot predict the cost of compliance. Furthermore, we may be required to expend significant attention and
financial resources to protect against physical or cybersecurity breaches that could result in the misappropriation of our
or our customers’ information. As techniques used to breach security change frequently, and generally are not
recognized until launched against a target, we may not be able to implement security measures in a timely manner or, if
and when implemented, we may not be able to determine the extent to which these measures could be
circumvented. Any internal or external breach in our network could severely harm our business and result in costly
litigation and potential liability for us. We also may be liable for, and suffer reputational harm if, any of our third-party
service providers or subcontractors suffers security breaches. To the extent our customers demand that we accept
unlimited liability and to the extent there is a competitive trend to accept it, such a trend could affect our ability to retain
these limitations in our leases at the risk of losing the business. Such a trend may be particularly likely to occur with
regard to our Cloud and Managed Services. These potential costs and liabilities could have a material adverse effect on
us.
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The loss of key personnel, including our executive officers, could have a material adverse effect on us.
Our continued success depends, to a significant extent, on the continued services of key personnel, particularly our
executive officers, who have extensive market knowledge and long-standing business relationships. In particular, our
reputation among and our relationships with our key customers are the direct result of a significant investment of time
and effort by these individuals to build our credibility in a highly specialized industry. The loss of services of one or
more key members of our executive management team could diminish our business and investment opportunities and
our relationships with lenders, business partners and existing and prospective customers and could have a material
adverse effect on us.
Violations of our prohibition on harassment, sexual or otherwise, could result in liabilities and/or litigation.
We prohibit harassment or discrimination in the workplace, whether sexual harassment or any other form. This policy
applies to all aspects of employment. Notwithstanding our conducting training and taking disciplinary action against
alleged violations, we may encounter additional costs from claims made and/or legal proceedings brought against us.
Any such claims or allegations, or even just stories or rumors about such misconduct at the Company, could also harm
our reputation and therefore our business, including our ability to recruit future employees or secure contracts with new
customers, even if such allegations do not result in any legal liability or direct financial losses.
The expansion of social media platforms presents new risks and challenges.
The inappropriate use of certain social media vehicles could cause brand damage or information leakage or the improper
dissemination of material non-public information. In addition, negative posts or comments about us on any social
networking web site could seriously damage our reputation. Further, the disclosure of non-public company sensitive
information through external media channels could lead to information loss as there might not be structured processes in
place to secure and protect information. If our non-public sensitive information is disclosed or if our reputation is
seriously damaged through social media, it could have a material adverse effect on our business, financial condition,
results of operations, cash flows, and/or ordinary share price.
Any inability to recruit or retain qualified personnel, or maintain access to key third-party service providers and
software developers, could have a material adverse effect on us.
We must continue to identify, hire, train, and retain IT professionals, technical engineers, operations employees, and
sales and senior management personnel who maintain relationships with our customers and who can provide the
technical, strategic and marketing skills required to grow our company, develop and expand our data centers, maximize
our rental and services income and achieve the highest sustainable rent levels at each of our facilities. There is a shortage
of qualified personnel in these fields, and we compete with other companies for the limited pool of these personnel.
Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such
personnel. An increase in these costs or our inability to recruit and retain necessary technical, managerial, sales and
marketing personnel or to maintain access to key third-party providers could have a material adverse effect on us. For
example, for certain products, we partner or collaborate with third parties such as software developers. Our failure to
maintain such relationships could impact our ability to provide certain services, in particular, government-related
services, which could have a material adverse effect on us.
We may be unable to identify and complete acquisitions on favorable terms or at all, which may inhibit our growth
and have a material adverse effect on us.
We continually evaluate the market of available properties and businesses and may acquire additional properties and
businesses when opportunities exist. Our ability to acquire properties and businesses on favorable terms is subject to the
following significant risks:
• we may be unable to acquire a desired property or business because of competition from other real estate
investors with significant resources and/or access to capital, including both publicly traded REITs and
institutional investment funds;
even if we are able to acquire a desired property or business, competition from other potential acquirers may
significantly increase the purchase price or result in other less favorable terms;
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even if we enter into agreements for the acquisition of a desired property or business, these agreements are
subject to customary conditions to closing, including completion of due diligence investigations to our
satisfaction, and we may incur significant expenses for properties or businesses we never actually acquire;
• we may be unable to finance acquisitions on favorable terms or at all; and
• we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with
respect to such liabilities such as liabilities for clean-up of environmental contamination, claims by customers,
vendors or other persons dealing with the former owners of the properties and claims for indemnification by
general partners, directors, officers and others indemnified by the former owners of the properties.
Any inability to complete property or business acquisitions on favorable terms or at all could have a material adverse
effect on us.
We may be unable to successfully integrate and operate acquired properties and achieve the intended benefits of our
other acquisitions, which could have a material adverse effect on us.
Even if we are able to make acquisitions on favorable terms, our ability to successfully integrate and operate them is
subject to various risks. We may be unable to accomplish the integration of an acquired property smoothly, successfully
or within anticipated cost estimates. The diversion of our management’s attention from our operations to any such
integration efforts, and any difficulties encountered, could prevent us from realizing the full benefits we anticipated to
result from such acquisition and could have a material adverse effect on us. Additional risks include, among others:
• we may spend more than budgeted amounts to make necessary improvements or renovations to acquired
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properties, as well as require substantial management time and attention;
the inability to successfully integrate the operations, particularly acquisitions of operating businesses or
portfolios of properties, into our existing operations, maintain consistent standards, controls, policies and
procedures, or realize the benefits we anticipate of the acquisition within the anticipated timeframe or at all;
the inability to effectively monitor and manage our expanded business, retain customers, suppliers and
business partners, attract new customers, retain key employees or attract highly qualified new employees;
anticipated future synergies, accretion, revenues, cost savings or operating metrics may fail to materialize or
our estimates thereof may prove to be inaccurate;
the acquired business may fail to perform as expected;
certain portions of businesses we may acquire may be located in new markets, including foreign markets, in
which we have not previously operated and in which we may face risks associated with an incomplete
knowledge or understanding of the local market;
the market price of our common stock may decline if we do not achieve the benefits we anticipate of the
transaction as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the
transaction on our financial results is not consistent with the expectations of financial or industry analysts; and
potential unknown liabilities with limited or no recourse against the seller and unforeseen increased expenses
related to the acquisitions.
We cannot assure you that we will be able to complete any integration without encountering difficulties or that any such
difficulties will not have a material adverse effect on us. Failure to realize the intended benefits of an acquisition could
have a material adverse effect on us.
We may be subject to unknown or contingent liabilities related to properties or businesses that we acquire, which may
result in damages and investment losses.
Assets and entities that we have acquired or may acquire in the future may be subject to unknown or contingent
liabilities for which we may have limited or no recourse against the sellers. Unknown or contingent liabilities might
include liabilities for clean-up or remediation of environmental conditions, claims of customers, vendors or other persons
dealing with the acquired entities, tax liabilities and other liabilities whether incurred in the ordinary course of business
or otherwise. In the future we may enter into transactions with limited representations and warranties or with
representations and warranties that do not survive the closing of the transactions, in which event we would have no or
limited recourse against the sellers of such properties. Customers increasingly are looking to pass through their
regulatory obligations and other liabilities to their outsourced data center providers and we may not be able to limit our
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liability or damages in an event of loss suffered by such customers whether as a result of our breach of agreement or
otherwise.
While we usually require the sellers to indemnify us with respect to breaches of representations and warranties that
survive, such indemnification is often limited and subject to various materiality thresholds, a significant deductible or an
aggregate cap on losses. As a result, there is no guarantee that we will recover any amounts with respect to losses due to
breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that we
may incur with respect to liabilities associated with acquired properties and entities may exceed our expectations.
Finally, indemnification agreements between us and the sellers typically provide that the sellers will retain certain
specified liabilities relating to the assets and entities acquired by us. While the sellers are generally contractually
obligated to pay all losses and other expenses relating to such retained liabilities, there can be no guarantee that such
arrangements will not require us to incur losses or other expenses as well. Additionally, in connection with our
acquisitions, we may assume agreements with customers that may subject us to greater liability for an event of loss
compared to our typical customer agreements. If an event of loss occurred, we could be liable for material monetary
damages and could incur significant legal fees in defending against such an action. Any of these matters could have a
material adverse effect on us.
Our international operations expose us to regulatory, currency, legal, tax and other risks distinct from those faced by
us in the United States.
Although our operations are primarily based in the United States, we also have a presence outside of the United States.
Foreign operations involve risks not generally associated with investments in the United States, including:
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our limited knowledge of and relationships with customers, contractors, suppliers or other parties in these
markets;
complexity and costs associated with managing international development and operations;
difficulty in hiring qualified management, sales and other personnel and service providers;
differing employment practices and labor issues;
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• multiple, conflicting, changing and uncertain legal, regulatory, entitlement and permitting, and tax and treaty
environments;
rapid changes in governmental, economic and political policy, political or civil unrest, acts of terrorism or the
threat of international boycotts or U.S. anti-boycott legislation;
exposure to increased taxation, confiscation or expropriation and the risk of forced nationalization;
currency transfer restrictions and limitations on our ability to distribute cash earned in foreign jurisdictions to
the United States;
difficulty in enforcing agreements in non-U.S. jurisdictions, including those entered into in connection with
our acquisitions or in the event of a default by one or more of our customers, suppliers or contractors;
compliance with anti-bribery and corruption laws;
local business and cultural factors;
political and economic instability, including sovereign credit risk, in certain geographic regions; and
difficulties in complying with U.S. rules governing REITs while operating outside of the United States.
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In addition, the GDPR, which took effect in May 2018, imposes detailed privacy requirements and increases the
likelihood of applicability of European law to entities like us, which are established outside the EU but may process data
of European data subjects. Also, while we have signed up to the EU-U.S. Privacy Shield Framework, which requires
organizations operating in the United States to provide assurance that they are adhering to relevant European standards
for data protection for such transfers, our self-certification under the EU-U.S. Privacy Shield Framework may not be
sufficient to ensure compliance with GDPR. Legal challenges have been brought in European courts seeking to declare
the Privacy Shield Framework invalid under European law as a mechanism to legitimize transfers of personal data from
the EU to the United States, which could require us to implement alternative means to address European cross border
data transfer requirement. To the extent we are not in compliance with the GDPR, the EU authorities may investigate or
bring enforcement actions against us that may result in criminal and administrative sanctions. Such actions could have a
material adverse effect on us and harm our reputation.
Our inability to overcome these risks could adversely affect our foreign operations and growth prospects and could have
a material adverse effect on us.
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Government regulation could have a material adverse effect on us.
Various laws and governmental regulations, both in the U.S. and abroad, governing internet related services, related
communications services and information technologies remain largely unsettled, even in areas where there has been
some legislative action. We remain focused on whether and how existing and changing laws, such as those governing
cybersecurity, data privacy and data security, intellectual property, libel, telecommunications services, consumer
protection and taxation, apply to the internet and to related offerings such as ours, and substantial resources may be
required to comply with regulations or bring any non-compliant business practices into compliance with such
regulations.
In addition, the regulatory framework around data custody, data privacy and breaches varies by jurisdiction and is an
evolving area of law with increasingly complex and rigorous regulatory standards enacted to protect business and
personal data in the U.S. and elsewhere. We may not be able to limit our liability or damages in the event of such a loss.
Data protection legislation is becoming increasingly common in the United States at both the federal and state level and
may require us to further modify our data processing practices and policies. For example, the CCPA, which took effect
on January 1, 2020, and is intended to provide California residents with increased privacy rights and protections with
respect to their personal information. Compliance with existing and proposed laws and regulations can be costly; any
failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to
secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by
governmental entities or others, fines and penalties, damage to our reputation and credibility and could have a negative
impact on our business and results of operations.
We are exposed to ongoing litigation and other legal and regulatory actions, which may divert management’s time
and attention, require us to pay damages and expenses or restrict the operation of our business.
We are subject to the risk of legal claims and proceedings and regulatory enforcement actions in the ordinary course of
our business and otherwise, and we could incur significant liabilities and substantial legal fees as a result of these
actions. Our management may devote significant time and attention to the resolution (through litigation, settlement or
otherwise) of these actions, which would detract from our management’s ability to focus on our business. Any such
resolution could involve payment of damages or expenses by us, which may be significant. In addition, any such
resolution could involve our agreement to terms that restrict the operation of our business. The results of legal
proceedings cannot be predicted with certainty. We cannot guarantee losses incurred in connection with any current or
future legal or regulatory proceedings or actions will not exceed any provisions we may have set aside in respect of such
proceedings or actions or will not exceed any available insurance coverage. The occurrence of any of these events could
have a material adverse effect on us.
We may co-invest in joint ventures with third parties from time to time, and such investments could be adversely
affected by the capital markets, lack of sole decision-making authority, reliance on joint venture partners’ financial
condition and any disputes that may arise between us and our joint venture partners.
On February 22, 2019, we entered into a joint venture agreement with Alinda Capital Partners (“Alinda”), an
infrastructure investment firm, with respect to our Manassas data center. At closing, we contributed cash and our
Manassas data center (a 118,000 square foot 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 (which includes a 50%
interest in future income). Under the joint venture agreement, we serve as the entity’s operating member, subject to
authority and oversight of a board appointed by us and Alinda, and separately we serve as manager and developer of the
facility in exchange for management and development fees. The 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 joint ventures based on similar terms and a
comparable capitalization rate. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Factors That May Influence Future Results of Operations and Cash Flows—Joint Ventures.”
In addition to this agreement, we may in the future co-invest with third parties through partnerships, joint ventures or
other structures in which we acquire noncontrolling interests in, or share responsibility for, managing the affairs of a
property, partnership, co-tenancy or other entity. Even if we have general management authority over joint ventures, we
expect that our joint venture partners would have customary approval rights over certain major decisions. We may not be
in a position to exercise sole decision-making authority regarding any properties owned through joint ventures or similar
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ownership structures. In addition, investments in joint ventures may, under certain circumstances, involve risks not
present when a third party is not involved, including potential deadlocks in making major decisions, restrictions on our
ability to exit the joint venture, reliance on joint venture partners and the possibility that a joint venture partner might
become bankrupt or fail to fund its share of required capital contributions, thus exposing us to liabilities in excess of our
share of the joint venture or jeopardizing our REIT status. Furthermore, our joint venture partners may take actions that
are not within our control that could jeopardize our REIT status. The funding of our capital contributions to such joint
ventures may be dependent on proceeds from asset sales, credit facility advances or sales of equity securities. Joint
venture partners may have business interests or goals that are inconsistent with our business interests or goals, and may
be in a position to take actions contrary to our policies or objectives. We may, in specific circumstances, be liable for the
actions of our joint venture partners. In addition, any disputes that may arise between us and joint venture partners may
result in litigation or arbitration that would increase our expenses. Any of the foregoing may have a material adverse
effect on our business, financial condition and results of operations.
Risks Related to Financing
An inability to access external sources of capital on favorable terms or at all could limit our ability to execute our
business and growth strategies.
In order to qualify and maintain our qualification as a REIT, we are required under the Code to distribute at least 90% of
our “REIT taxable income” (determined before the deduction for dividends paid and excluding net capital gains)
annually. In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than
100% of our “REIT taxable income,” including any net capital gains. In addition, QTS will be subject to a 4%
nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the
sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from
prior years. Because of these distribution requirements, we may not be able to fund future capital needs, including capital
for development projects and acquisition opportunities, from operating cash flow. Consequently, we intend to rely on
third-party sources of capital to fund a substantial amount of our future capital needs. We may not be able to obtain such
financing on favorable terms or at all. Any additional debt we incur will increase our leverage, expose us to the risk of
default and impose operating restrictions on us. In addition, any equity financing could be materially dilutive to the
equity interests held by our stockholders. Our access to third-party sources of capital depends, in part, on general market
conditions, the market’s perception of our growth potential, our leverage, our current and expected results of operations,
liquidity, financial condition and cash distributions to stockholders and the market price of our common stock. If we
cannot obtain capital when needed, we may not be able to execute our business and growth strategies (including
redeveloping or acquiring properties when strategic opportunities exist), satisfy our debt service obligations, make the
cash distributions to our stockholders necessary to qualify and maintain our qualification as a REIT (which would
expose us to significant penalties and corporate level taxation), or fund our other business needs, which could have a
material adverse effect on us.
Our indebtedness outstanding as of December 31, 2019 was approximately $1,463.9 million, which exposes us to
interest rate fluctuations and the risk of default thereunder, among other risks.
Our net indebtedness outstanding as of December 31, 2019 was approximately $1,463.9 million. Approximately $617.0
million of this indebtedness bears interest at a variable rate after taking into account $400 million of swaps that were
entered into in April 2017 effectively converting our floating rate debt into fixed rate debt. In addition, the Company has
entered into $200 million of additional swaps that will convert floating rate debt into fixed rate debt effective January 2,
2020. Increases in interest rates, or the loss of the benefits of our existing or future hedging agreements, would increase
our interest expense, which would adversely affect our cash flow and our ability to service our debt. Our organizational
documents contain no limitations regarding the maximum level of indebtedness, as a percentage of our market
capitalization or otherwise, that we may incur. We may incur significant additional indebtedness, including mortgage
indebtedness, in the future. Our substantial outstanding indebtedness, and the limitations imposed on us by our debt
agreements, could have other significant adverse consequences, including the following:
our cash flow may be insufficient to meet our required principal and interest payments;
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• we may use a substantial portion of our cash flows to make principal and interest payments and we may be
unable to obtain additional financing as needed or on favorable terms, which could, among other things, have
a material adverse effect on our ability to complete our development and redevelopment pipeline, capitalize
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upon acquisition opportunities, fund working capital, make capital expenditures, make cash distributions to
our stockholders, or meet our other business needs;
• we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable
than the terms of our original indebtedness;
• we may be forced to dispose of one or more of our properties, possibly on unfavorable terms or in violation of
certain covenants to which we may be subject;
• we may be required to maintain certain debt and coverage and other financial ratios at specified levels,
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thereby reducing our financial flexibility;
our vulnerability to general adverse economic and industry conditions may be increased;
greater exposure to increases in interest rates for our variable rate debt and to higher interest expense on future
fixed rate debt;
• we may be at a competitive disadvantage relative to our competitors that have less indebtedness;
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our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate
may be limited; and
• we may default on our indebtedness by failure to make required payments or violation of covenants, which
would entitle holders of such indebtedness and possibly other indebtedness to accelerate the maturity of their
indebtedness and, if such indebtedness is secured, to foreclose on our properties that secure their loans and
receive an assignment of our rents and leases.
The occurrence of any one of these events could have a material adverse effect on us.
The agreements governing our existing indebtedness contain various covenants and other provisions which limit
management’s discretion in the operation of our business, reduce our operational flexibility and create default risks.
The agreements governing our existing indebtedness contain, and agreements governing our future indebtedness may
contain, covenants and other provisions that impose significant restrictions on us and our subsidiaries. These covenants
restrict, among other things, our and our subsidiaries’ ability to:
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incur or guarantee additional indebtedness;
pay dividends and make certain investments and other restricted payments;
incur restrictions on the payment of dividends or other distributions from subsidiaries of the Operating
Partnership;
create or incur certain liens;
transfer or sell certain assets;
engage in certain transactions with affiliates; and
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• merge or consolidate with other companies or transfer or sell all or substantially all of our assets.
These covenants may restrict our ability to engage in certain transactions that may be in our best interest.
Our unsecured credit facility and the indenture governing our 4.750% Senior Notes due 2025 (the “Senior Notes”) also
contain provisions that may limit QTS’ ability to make distributions to its stockholders and the Operating Partnership’s
ability to make distributions to QTS. The unsecured credit facility generally provides that if a default occurs and is
continuing, QTS will be precluded from making distributions on common stock and partnership interests, as applicable
(other than those required to allow QTS to qualify and maintain its status as a REIT, so long as such default does not
arise from a payment default or event of insolvency) and lenders under the unsecured credit facility and, potentially,
other indebtedness, could accelerate the maturity of the related indebtedness. The indenture governing the Senior Notes
contains provisions that restrict the Operating Partnership’s ability to make distributions to QTS, except distributions
required to allow QTS to qualify and maintain its status as a REIT, so long as no event of default has occurred and is
continuing.
These covenants could impair our ability to grow our business, take advantage of attractive business opportunities or
successfully compete. In addition, failure to meet the covenants may result in an event of default under the applicable
indebtedness, which could result in the acceleration of the applicable indebtedness and potentially other indebtedness,
which could have a material adverse effect on us.
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The documents that govern our outstanding indebtedness require that we maintain certain financial ratios and, if we
fail to do so, we will be in default under the applicable debt instrument, which in turn could trigger defaults under
our other debt instruments, which could result in the maturities of all of our debt obligations being accelerated.
Each of our significant debt instruments requires that we maintain certain financial ratios. Our unsecured credit facility
provides that the outstanding principal balance of the loans and letter of credit liabilities under the unsecured credit
facility cannot exceed the lesser of the $1.7 billion total commitment or the unencumbered asset pool availability. In
addition, the unsecured credit facility requires that we maintain, among other things, (i) a maximum leverage ratio of
total indebtedness to gross asset value not in excess of 60% (or 65% for- one or more periods of up to four consecutive
fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written
notice to the administrative agent), (ii) a minimum fixed charge coverage ratio (defined as the ratio of consolidated
EBITDA, subject to certain adjustments, to consolidated fixed charges) of not less than 1.50 to 1.00 and (iii) tangible net
worth, as defined in the credit agreement, of at least $1,686,000,000 plus 75% of the sum of net equity offering
proceeds. In addition, the indenture that governs the Senior Notes requires the Operating Partnership and its Restricted
Subsidiaries (as defined in the indenture that governs the Senior Notes) to maintain at all times total unencumbered
assets of at least 150% of the aggregate principal amount of all of their outstanding unsecured indebtedness.
If we do not continue to satisfy these ratios or tests, we will be in default under the applicable debt instrument, which in
turn may trigger defaults under our other debt instruments, which could result in the maturities of all of our debt
obligations being accelerated. These events would have a material adverse effect on our liquidity.
Any hedging transactions involve costs and expose us to potential losses.
Hedging agreements enable us to convert floating rate liabilities to fixed rate liabilities or fixed rate liabilities to floating
rate liabilities. Hedging transactions expose us to certain risks, including that losses on a hedge position may reduce the
cash available for distribution to stockholders and such losses may exceed the amount invested in such instruments and
that counterparties to such agreements could default on their obligations, which could increase our exposure to
fluctuating interest rates.
In addition, we have used and may use interest rate swaps to hedge our exposure to interest rate fluctuations. For
example, On April 5, 2017, we entered into forward interest rate swap agreements with an aggregate notional amount of
$400 million. The forward swap agreements effectively fix the interest rate on $400 million of term loan borrowings,
$200 million of swaps allocated to Term Loan A and $200 million allocated to Term Loan B, from January 2, 2018
through December 17, 2021 and April 27, 2022, respectively. On December 20, 2018, we entered into additional forward
interest rate swap agreements with an aggregate notional amount of $400 million. The forward swap agreements
effectively fix the interest rate on $400 million of term loan borrowings, $200 million of swaps allocated to Term Loan
A and $200 million allocated to Term Loan B, from December 17, 2021 through December 17, 2023 and April 27, 2022
through April 27, 2024, respectively. On December 20, 2018, we entered into additional forward interest rate swap
agreements with an aggregate notional amount of $200 million. The forward swap agreements effectively fix the interest
rate on $100 million of additional term loan borrowings from January 2, 2020 through December 17, 2023 as well as
$100 million of additional term loan borrowings from January 2, 2020 through April 27, 2024. We may use interest rate
swaps or other forms of hedging again in the future.
The REIT rules impose certain restrictions on our ability to utilize hedges, swaps and other types of derivatives to hedge
our liabilities. We may use hedging instruments in our risk management strategy to limit the effects of changes in
interest rates on our operations. However, future hedges may be ineffective in eliminating all of the risks inherent in any
particular position due to the fact that, among other things, the duration of the hedge may not match the duration of the
related liability, the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an
extent that it impairs our ability to sell or assign our side of the hedging transaction and the hedging counterparty owing
money in the hedging transaction may default on its obligation to pay. The use of derivatives could have a material
adverse effect on us.
We may be adversely affected by changes in LIBOR reporting practices, the method in which LIBOR is determined or
the use of alternative reference rates.
As of December 31, 2019, we had approximately $1.0 billion of debt outstanding that was indexed to the London
Interbank Offered Rate (“LIBOR”). In July 2017, the United Kingdom regulator that regulates LIBOR announced its
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intention to phase out LIBOR rates by the end of 2021. In April 2018, the New York Federal Reserve commenced
publishing an alternative reference rate to LIBOR as calculated for the U.S. dollar (“USD-LIBOR”), the Secured
Overnight Financing Rate (“SOFR”), proposed by a group of major market participants (the Alternative Reference Rates
Committee (“ARRC”)), convened by the U.S. Federal Reserve with participation by SEC Staff and other regulators.
SOFR is based on transactions in the more robust U.S. Treasury repurchase market and has been proposed as the
alternative to USD-LIBOR for use in derivatives and other financial contracts that currently rely on USD-LIBOR as a
reference rate. ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently
working on industry-wide and company-specific transition plans as it relates to derivatives and cash markets exposed to
LIBOR. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR, and it is
impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator
of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether additional
reforms to LIBOR may be enacted. Such developments and any other legal or regulatory changes in the method by
which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a
sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or
methodologies of LIBOR, which may discourage market participants from continuing to administer or to participate in
LIBOR’s determination and, in certain situations, could result in LIBOR no longer being determined and published. The
transition from USD-LIBOR to SOFR or any other replacement rate adopted is likely to cause uncertainty due to a
mismatch in the LIBOR maturities and the terms of SOFR. If a published USD-LIBOR rate is unavailable, the interest
rates on our debt which is indexed to LIBOR will be determined using various alternative methods, any of which may
result in interest obligations which are more than or do not otherwise correlate over time with the payments that would
have been made on such debt if USD-LIBOR was available in its current form. Further, the same costs and risks that
may lead to the unavailability of USD-LIBOR may make one or more of the alternative methods impossible or
impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our
financing costs, and consequently, on our financial condition, operating results and cash flows. In addition, confusion
related to the transition from USD-LIBOR to SOFR or another replacement reference rate for our debt which is indexed
to LIBOR and hedging instruments could have an uncertain economic effect on these instruments, hinder our ability to
establish effective hedges and result in a different economic value over time for these instruments than they otherwise
would have had under USD-LIBOR.
Risks Related to the Real Estate Industry
The operating performance and value of our properties are subject to risks associated with the real estate industry.
As a real estate company, we are subject to all of the risks associated with owning and operating real estate, including:
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adverse changes in international, national or local economic and demographic conditions;
vacancies or our inability to rent space on favorable terms, including possible market pressures to offer
customers rent abatements, customer improvements, early termination rights or below-market renewal
options;
adverse changes in the financial condition or liquidity of buyers, sellers and customers (including their ability
to pay rent to us) of properties, including data centers;
the attractiveness of our properties to customers;
competition from other real estate investors with significant resources and assets to capital, including other
real estate operating companies, publicly traded REITs and institutional investment funds;
reductions in the level of demand for data center space;
increases in the supply of data center space;
fluctuations in interest rates, which could have a material adverse effect on our ability, or the ability of buyers
and customers of properties, including data centers, to obtain financing on favorable terms or at all;
increases in expenses that are not paid for by or cannot be passed on to our customers, such as the cost of
complying with laws, regulations and governmental policies;
the relative illiquidity of real estate investments, especially the specialized real estate properties that we hold
and seek to acquire and develop;
changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without
limitation, health, safety, environmental, zoning and tax laws, and governmental fiscal policies;
property restrictions and/or operational requirements pursuant to restrictive covenants, reciprocal easement
agreements, operating agreements or historical landmark designations; and
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civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes, tornados, hurricanes and
floods, which may result in uninsured and underinsured losses.
In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the
public perception that any of these events may occur, could result in a general decline in occupancy and rental sales, and
therefore revenues, or an increased incidence of defaults under existing leases. Accordingly, we cannot assure you that
we will be able to execute our business and growth strategies. Any inability to operate our properties to meet our
financial, operational and strategic expectations could have a material adverse effect on us.
The illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in
economic, financial, investment and other conditions.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in our portfolio
in response to changing economic, financial, investment or other conditions is limited. The real estate market is affected
by many factors that are beyond our control, including those described above. In particular, data centers represent a
particularly illiquid part of the overall real estate market. This illiquidity is driven by a number of factors, including the
relatively small number of potential purchasers of such data centers—including other data center operators and large
corporate users—and the relatively high cost per square foot to develop data centers, which substantially limits a
potential buyer’s ability to purchase a data center property with the intention of redeveloping it for an alternative use,
such as an office building, or may substantially reduce the price buyers are willing to pay. Our inability to dispose of
properties at opportune times or on favorable terms could have a material adverse effect on us.
In addition, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other
types of real estate companies. In particular, the tax laws applicable to REITs require that we hold our properties for
investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales
of properties that otherwise would be in our best interest. Therefore, we may not be able to vary our portfolio in response
to economic, financial, investment or other conditions promptly or on favorable terms, which could have a material
adverse effect on us.
Declining real estate valuations could result in impairment charges, the determination of which involves a significant
amount of judgment on our part. Any impairment charge could have a material adverse effect on us.
We review our properties for impairment on a quarterly and annual basis and whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable, and in the fourth quarter of 2019 we recognized
an impairment charge of $11.5 million related to a write-down of certain data center assets and equipment in one of our
Dulles, Virginia data centers. Indicators of impairment include, but are not limited to, a sustained significant decrease in
the market price of or the cash flows expected to be derived from a property. A significant amount of judgment is
involved in determining the presence of an indicator of impairment. If the total of the expected undiscounted future cash
flows is less than the carrying amount of a property on our balance sheet, a loss is recognized for the difference between
the fair value and carrying value of the property. The evaluation of anticipated cash flows requires a significant amount
of judgment regarding assumptions that could differ materially from actual results in future periods, including
assumptions regarding future occupancy, rental rates and capital requirements. Any impairment charge could have a
material adverse effect on us.
Increased tax rates and reassessments could significantly increase our property taxes and have a material adverse
effect on us.
Each of our properties is subject to real and personal property taxes. These taxes may increase as tax rates change and as
the properties are assessed or reassessed by taxing authorities. It is likely that the properties will be reassessed by taxing
authorities as a result of (i) the acquisition of the properties by us and (ii) the informational returns that we must file in
connection with the formation transactions in connection with QTS’ initial public offering. Some of our customer
contracts do not contain provisions requiring our customers to pay their proportionate share of those taxes. Any increase
in property taxes on the properties could have a material adverse effect on us.
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If California changes its property tax scheme, our California properties could be subject to significantly higher tax
levies.
Owners of California property are subject to particularly high property taxes. Voters in the State of California previously
passed Proposition 13, which generally limits annual real estate tax increases to 2% of assessed value per annum. From
time to time, various groups have proposed repealing Proposition 13, or providing for modifications such as a “split roll
tax,” whereby commercial property, for example, would be taxed at a higher rate than residential property. Given the
uncertainty, it is not possible to quantify the risk to us of a tax increase or the resulting impact on us of any increase, but
any tax increase could be significant at our California properties.
Uninsured and underinsured losses could have a material adverse effect on us.
We carry comprehensive liability, fire, extended coverage, earthquake, business interruption and rental loss insurance
with respect to our properties, as well as cybersecurity insurance, and we plan to obtain similar coverage for properties
we acquire in the future. However, certain types of losses, generally of a catastrophic nature, such as earthquakes and
floods, may be either uninsurable or not economically insurable. Should a property sustain damage, we may incur losses
due to insurance deductibles, to co-payments on insured losses or to uninsured losses. In the event of a substantial
property loss, the insurance coverage may not be sufficient to pay the full current market value or current replacement
cost of the property. Inflation, changes in building codes and ordinances, environmental considerations, and other factors
also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed.
Under such circumstances, the insurance proceeds we receive might not be adequate to restore our economic position
with respect to such property. Lenders may require such insurance and our failure to obtain such insurance may
constitute default under loan agreements, which could have a material adverse effect on us. Finally, a disruption in the
financial markets may make it more difficult to evaluate the stability, net assets and capitalization of insurance
companies and any insurer’s ability to meet its claim payment obligations. A failure of an insurance company to make
payments to us upon an event of loss covered by an insurance policy could have a material adverse effect on us. In the
event of an uninsured or partially insured loss, we could lose some or all of our capital investment, cash flow and
revenues related to one or more properties, which could also have a material adverse effect on us.
As the current or former owner or operator of real property, we could become subject to liability for environmental
contamination, regardless of whether we caused such contamination, which could have a material adverse effect on
us.
Under various federal, state and local statutes, regulations and ordinances relating to the protection of the environment, a
current or former owner or operator of real property may be liable for the cost to remove or remediate contamination
resulting from the presence or discharge of hazardous substances, wastes or petroleum products on, under, from or in
such property. These costs could be substantial, liability under these laws may attach without regard to whether the
owner or operator knew of, or was responsible for, the presence of the contaminants, and the liability may be joint and
several. Most of our properties presently contain large underground or above ground fuel storage tanks used to fuel
generators for emergency power, which is critical to our operations. If any of the tanks that we own or operate releases
fuel to the environment, we would likely have to pay to clean up the contamination. In addition, prior owners and
operators used some of our current properties for industrial and commercial purposes, which could have resulted in
environmental contamination, including our Irving and Richmond data center properties, which were previously used as
semiconductor plants. Moreover, the presence of contamination or the failure to remediate contamination at our
properties may (1) expose us to third-party liability (e.g., for cleanup costs, bodily injury or property damage), (2)
subject our properties to liens in favor of the government for damages and costs the government incurs in connection
with the contamination, (3) impose restrictions on the manner in which a property may be used or businesses may be
operated, or (4) materially adversely affect our ability to sell, lease or develop the real estate or to borrow using the real
estate as collateral. In addition, there may be material environmental liabilities at our properties of which we are not
aware. We also may be liable for the costs of remediating contamination at off-site facilities at which we have arranged,
or will arrange, for disposal or treatment of our hazardous substances without regard to whether we complied or will
comply with environmental laws in doing so. Any of these matters could have a material adverse effect on us.
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We could become subject to liability for failure to comply with environmental, health and safety requirements or
zoning laws, which could cause us to incur additional expenses.
Our properties are subject to federal, state and local environmental, health and safety laws and regulations and zoning
requirements, including those regarding the handling of regulated substances and wastes, emissions to the environment
and fire codes. For instance, our properties are subject to regulations regarding the storage of petroleum for auxiliary or
emergency power and air emissions arising from the use of power generators. In particular, generators at our data center
facilities are subject to strict emissions limitations, which could preclude us from using critical back-up systems and lead
to significant business disruptions at such facilities and loss of our reputation. If we exceed these emissions limits, we
may be exposed to fines and/or other penalties. In addition, we lease some of our properties to our customers who also
are subject to such environmental, health and safety laws and zoning requirements. If we, or our customers, fail to
comply with these various laws and requirements, we might incur costs and liabilities, including governmental fines and
penalties. Moreover, we do not know whether existing laws and requirements will change or, if they do, whether future
laws and requirements will require us to make significant unanticipated expenditures that could have a material adverse
effect on us. Environmental noncompliance liability also could affect a customer’s ability to make rental payments to us.
We could become subject to liability for asbestos-containing building materials in the buildings on our property,
which could cause us to incur additional expenses.
Some of our properties may contain, or may have contained, asbestos-containing building materials. Environmental,
health and safety laws require that owners or operators of or employers in buildings with asbestos-containing materials
(“ACM”) properly manage and maintain these materials, adequately inform or train those who may come into contact
with ACM and undertake special precautions, including removal or other abatement, in the event that ACM is disturbed
during building maintenance, renovation or demolition. These laws may impose fines and penalties on employers,
building owners or operators for failure to comply with these laws. In addition, third parties may seek recovery from
employers, owners or operators for personal injury associated with exposure to asbestos. If we become subject to any of
these penalties or other liabilities as a result of ACM at one or more of our properties, it could have a material adverse
effect on us.
Our properties may contain or develop harmful mold or suffer from other adverse conditions, which could lead to
liability for adverse health effects and costs of remediation.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the
moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne
toxins or irritants. Indoor air quality issues also can stem from inadequate ventilation, chemical contamination from
indoor or outdoor sources and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to
airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms,
including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any
of our properties could require us to undertake a costly remediation program to contain or remove the mold or other
airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant
mold or other airborne contaminants could expose us to liability from our customers, employees of our customers and
others if property damage or personal injury occurs. Thus, conditions related to mold or other airborne contaminants
could have a material adverse effect on us.
Laws, regulations or other issues related to climate change could have a material adverse effect on us.
If we, or other companies with which we do business, particularly utilities that provide our facilities with electricity,
become subject to laws or regulations related to climate change, it could have a material adverse effect on us. The United
States may enact new laws, regulations and interpretations relating to climate change, including potential cap-and-trade
systems, carbon taxes and other requirements relating to reduction of carbon footprints and/or greenhouse gas emissions.
Other countries have enacted climate change laws and regulations and the United States has been involved in discussions
regarding international climate change treaties. The federal government and some of the states and localities in which we
operate have enacted certain climate change laws and regulations and/or have begun regulating carbon footprints and
greenhouse gas emissions. Although these laws and regulations have not had any known material adverse effect on us to
date, they could limit our ability to develop new facilities or result in substantial costs, including compliance costs,
retrofit costs and construction costs, monitoring and reporting costs and capital expenditures for environmental control
facilities and other new equipment. In addition, these laws and regulations could lead to increased costs for the
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electricity that we require to conduct our operations. Furthermore, our reputation could be damaged if we violate climate
change laws or regulations. We cannot predict how future laws and regulations, or future interpretations of current laws
and regulations, related to climate change will affect our business, results of operations, liquidity and financial condition.
Lastly, the potential physical impacts of climate change on our operations are highly uncertain, and would be particular
to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns
and intensities, water shortages, which may result in water use restrictions and water efficiency mandates, changing sea
levels and changing temperatures. Any of these matters could have a material adverse effect on us.
We may incur significant costs complying with various federal, state and local regulations, which could have a
material adverse effect on us.
The properties in our portfolio are subject to various federal, state and local laws, including the Americans with
Disabilities Act (“ADA”) as well as state and local fire and life safety requirements. Under the ADA, all places of public
accommodation and commercial facilities must meet federal requirements related to access and use by disabled persons.
A number of additional federal, state and local regulations may also require modifications to our properties, or restrict
our ability to renovate our properties. If we fail to comply with these various requirements, we might incur governmental
fines or private damage awards. We cannot predict the ultimate amount of the cost of compliance with the ADA or other
legislation. In addition, we do not know whether existing requirements will change, or if they do, whether future
requirements will require us to make significant unanticipated expenditures that could have a material adverse effect on
us.
Risks Related to Our Organizational Structure
As of December 31, 2019, Chad L. Williams, our Chairman and Chief Executive Officer, owned approximately 10.0%
of QTS’ outstanding common stock on a fully diluted basis and has the ability to exercise significant influence on the
company and any matter presented to its stockholders.
As of December 31, 2019, Chad L. Williams, our Chairman, President and Chief Executive Officer owned
approximately 10.0% of QTS’ outstanding common stock on a fully diluted basis. Mr. Williams has a significant vote in
matters submitted to a vote of stockholders as a result of his ownership of Class B common stock, which gives him
voting power equal to his economic interest in QTS as if he had exchanged all of his OP units for shares of Class A
common stock, including in the election of directors. No other stockholder is permitted to own more than 7.5% of the
aggregate of the outstanding shares of its common stock, except for certain designated investment entities that may own
up to 9.8% of the aggregate of the outstanding shares of its common stock, subject to certain conditions, and except as
approved by the board of directors pursuant to the terms of QTS’ charter. Consequently, Mr. Williams may be able to
significantly influence the outcome of matters submitted for stockholder action, including the election of the board of
directors and approval of significant corporate transactions, such as business combinations, consolidations and mergers,
as well as the determination of its day-to-day business decisions and management policies. As a result, Mr. Williams
could exercise his influence on QTS in a manner that conflicts with the interests of other stockholders. Mr. Williams
may have interests that differ from other stockholders, including by reason of his remaining interest in the Operating
Partnership, and may accordingly vote in ways that may not be consistent with the interests of holders of Class A
common stock. Moreover, if Mr. Williams were to sell, or otherwise transfer, all or a large percentage of his holdings,
the market price of QTS’ common stock could decline and QTS could find it difficult to raise the capital necessary for it
to execute its business and growth strategies.
The tax protection agreement, during its term, could limit our ability to sell or otherwise dispose of certain properties
and may require the Operating Partnership to maintain certain debt levels and agree to certain terms with lenders
that otherwise would not be required to operate our business.
In connection with the IPO, we entered into a tax protection agreement with Chad L. Williams, our Chairman and Chief
Executive Officer, and his affiliates and family members who own OP units that provides that if (1) we sell, exchange,
transfer, convey or otherwise dispose of our Atlanta (DC-1), Atlanta-Suwanee or Santa Clara data centers in a taxable
transaction prior to January 1, 2026, referred to as the protected period, (2) cause or permit any transaction that results in
the disposition by Mr. Williams or his affiliates and family members who own OP units of all or any portion of their
interests in the Operating Partnership in a taxable transaction during the protected period or (3) fail prior to the
expiration of the protected period to maintain approximately $175 million of indebtedness that would be allocable to
Mr. Williams and his affiliates for tax purposes or, alternatively, fail to offer Mr. Williams and his affiliates and family
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members who own OP units the opportunity to guarantee specific types of the Operating Partnership’s indebtedness in
order to enable them to continue to defer certain tax liabilities, we will indemnify Mr. Williams and his affiliates and
family members who own OP units against certain resulting tax liabilities. Therefore, although it may be in our
stockholders’ best interests that we sell, transfer, convey or otherwise dispose of one of these properties, it may be
economically prohibitive for us to do so during the protected period because of these indemnity obligations. Moreover,
these obligations may require us to maintain more or different indebtedness or agree to terms with our lenders that we
would not otherwise agree to. As a result, the tax protection agreement will, during its term, restrict our ability to take
actions or make decisions that otherwise would be in our best interests. As of December 31, 2019, our Atlanta (DC-1),
Atlanta-Suwanee and Santa Clara data centers represented approximately 49% of our consolidated annualized rent.
QTS’ charter and Maryland law contain provisions that may delay, defer or prevent a change in control of our
company, even if such a change in control may be in your interest, and as a result may depress our common stock
price.
The stock ownership limits imposed by the Code for REITs and imposed by QTS’ charter may restrict our business
combination opportunities that might involve a premium price for shares of our common stock or otherwise be in the
best interest of our stockholders.
In order for QTS to maintain its qualification as a REIT under the Code, not more than 50% in value of our outstanding
stock may be owned, directly or indirectly, by five or fewer individuals (defined in the Code to include certain entities)
at any time during the last half of each taxable year. QTS’ charter, with certain exceptions, authorizes our board of
directors to take the actions that are necessary and desirable to preserve our qualification as a REIT. Unless exempted by
our board of directors, no person may actually or constructively own more than 7.5% of the aggregate of the outstanding
shares of our common stock by value or by number of shares, whichever is more restrictive, or 7.5% of the aggregate of
the outstanding shares of our preferred stock by value or by number of shares, whichever is more restrictive. However,
certain entities that are defined as designated investment entities in our charter are permitted to own up to 9.8% of the
aggregate of the outstanding shares of our common stock or preferred stock, so long as each beneficial owner of the
shares owned by such designated investment entity would satisfy the 7.5% ownership limit if those beneficial owners
owned directly their proportionate share of the common stock owned by the designated investment entity.
In addition, QTS’ charter provides an excepted holder limit that allows Chad L. Williams, his family members and
entities owned by or for the benefit of them, and any person who is or would be a beneficial owner or constructive owner
of shares of our common stock as a result of the beneficial ownership or constructive ownership of shares of our
common stock by Chad L. Williams, his family members and certain entities controlled by them, as a group, to own
more than 7.5% of the aggregate of the outstanding shares of our common stock, so long as, under the applicable tax
attribution rules, no one such excepted holder treated as an individual would hold more than 19.8% of the aggregate of
the outstanding shares of our common stock, no two such excepted holders treated as individuals would own more than
27.3% of the aggregate of the outstanding shares of our common stock, no three such excepted holders treated as
individuals would own more than 34.8% of the aggregate of the outstanding shares of our common stock, no four such
excepted holders treated as individuals would own more than 42.3% of the aggregate of the outstanding shares of our
common stock and no five such excepted holders treated as individuals would own more than 49.8% of the aggregate of
the outstanding shares of our common stock. Currently, Chad L. Williams would be attributed all of the shares of
common stock owned by each such other excepted holder and, accordingly, the Williams excepted holders as a group
would not be allowed to own in excess of 19.8% of the aggregate of the outstanding shares of our common stock. Our
board of directors may, in its sole discretion, grant other exemptions to the stock ownership limits, subject to such
conditions and the receipt by our board of directors of certain representations and undertakings.
In addition to these ownership limits, our charter also prohibits any person from (a) beneficially or constructively
owning, as determined by applying certain attribution rules of the Code, our stock that would result in us being “closely
held” under Section 856(h) of the Code or that would otherwise cause us to fail to qualify as a REIT, (b) transferring
stock if such transfer would result in our stock being owned by fewer than 100 persons, (c) beneficially or constructively
owning shares of our capital stock that would result in us owning (directly or indirectly) an interest in a tenant if the
income derived by us from that tenant for our taxable year during which such determination is being made would
reasonably be expected to equal or exceed the lesser of one percent of our gross income or an amount that would cause
us to fail to satisfy any of the REIT gross income requirements and (d) beneficially or constructively owning shares of
our capital stock that would cause us otherwise to fail to qualify as a REIT. The ownership limits imposed under the
Code are based upon direct or indirect ownership by “individuals,” but only during the last half of a tax year. The
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ownership limits contained in our charter key off of the ownership at any time by any “person,” which term includes
entities. These ownership limitations in our charter are common in REIT charters and are intended to provide added
assurance of compliance with the tax law requirements, and to minimize administrative burdens. However, the
ownership limits on our common stock also might delay, defer or prevent a transaction or a change in control of our
company that might involve a premium price for shares of our common stock or otherwise be in the best interest of our
stockholders.
Our authorized but unissued shares of common and preferred stock may prevent a change in control of our Company
that might involve a premium price for shares of our common stock or otherwise be in the best interest of our
stockholders.
QTS’ charter authorizes QTS to issue additional shares of common and preferred stock. In addition, our board of
directors may, without stockholder approval, amend QTS’ charter to increase the aggregate number of shares of our
common stock or the number of shares of stock of any class or series that we have authority to issue and classify or
reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the
classified or reclassified shares; provided that our board of directors may not amend QTS’ charter to increase the
aggregate number of shares of Class B common stock that we have the authority to issue or reclassify any shares of our
capital stock as Class B common stock without stockholder approval. In 2018, QTS issued 4,280,000 shares of 7.125%
Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) and 3,162,500 shares of 6.50%
Series B Cumulative Convertible Perpetual Preferred Stock (“Series B Preferred Stock”). As a result, the Series A
Preferred Stock and Series B Preferred Stock, and the ability our board of directors to establish additional series of
shares of common or preferred stock, could delay, defer or prevent a transaction or a change in control of our company
that might involve a premium price for shares of our common stock or otherwise be in the best interest of our
stockholders. In addition, our Series A Preferred Stock and Series B Preferred Stock rank, and any other Preferred Stock
that we may issue would rank, senior to our common stock with respect to the payment of distributions and other
amounts (including upon liquidation), in which case we could not pay any distributions on our common stock until full
distributions have been paid with respect to such preferred stock.
Certain provisions of Maryland law could inhibit a change in control of our Company.
Certain provisions of the Maryland General Corporation Law (or MGCL) may have the effect of inhibiting a third party
from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could
provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing
market price of such shares, including:
•
•
“business combination” provisions that, subject to limitations, prohibit certain business combinations between
us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of
our then outstanding voting power of our shares or an affiliate or associate of ours who, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding
voting shares) or an affiliate thereof for five years after the most recent date on which the stockholder
becomes an interested stockholder, and thereafter imposes special appraisal rights and special stockholder
voting requirements on these combinations; and
“control share” provisions that provide that “control shares” of our company (defined as shares which, when
aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three
increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as
the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to
the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled
to be cast on the matter, excluding all interested shares.
QTS has opted out of these provisions of the MGCL, in the case of the business combination provisions of the MGCL by
resolution of its board of directors, and in the case of the control share provisions of the MGCL by a provision in its
bylaws. However, our board of directors may by resolution elect to opt in to the business combination provisions of the
MGCL and it may, by amendment to its bylaws (which such amendment could be adopted by its board of directors in its
sole discretion), opt in to the control share provisions of the MGCL in the future.
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Certain provisions in the partnership agreement of the Operating Partnership may delay, defer or prevent unsolicited
acquisitions of us or changes in our control.
Provisions in the partnership agreement of the Operating Partnership may delay, defer or prevent unsolicited acquisitions
of us or changes in our control. These provisions include, among others:
•
•
•
•
•
redemption rights of qualifying parties;
a requirement that we may not be removed as the general partner of the Operating Partnership without our
consent;
transfer restrictions on our OP units;
our inability, as general partner, in some cases, to amend the partnership agreement without the consent of the
limited partners; and
the right of the limited partners to consent to transfers of the general partnership interest and mergers under
specified circumstances.
These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or
change of our control, although some stockholders might consider such proposals, if made, desirable.
QTS’ charter and bylaws, the partnership agreement of the Operating Partnership and Maryland law also contain other
provisions that may delay, defer or prevent a transaction or a change in control of our company that might involve a
premium price for our common stock or that our stockholders otherwise believe to be in their best interests.
Our Chairman and Chief Executive Officer has outside business interests that could require time and attention and
may interfere with his ability to devote time to our business.
Chad L. Williams, our Chairman and Chief Executive Officer, has outside business interests that could require his time
and attention. These interests include the ownership of our Overland Park, Kansas facility, at which our corporate
headquarters is also located (which is leased to us), and certain office and other properties and certain other non-real
estate business ventures. Mr. Williams’ employment agreement requires that he devote substantially all of his business
time to our company, provided that he will be permitted to engage in other specified activities. Mr. Williams also may
have fiduciary obligations associated with these business interests that interfere with his ability to devote time to our
business and that could have a material adverse effect on us.
If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately and timely
report our financial results.
An inability to maintain effective disclosure controls and procedures and internal control over financial reporting could
adversely affect our results of operation, could cause us to fail to meet our reporting obligations under the Exchange Act
on a timely basis or could result in material misstatements or omissions in our Exchange Act reports (including our
financial statements), any of which, as well as the perception thereof, could cause investors to lose confidence in the
company and could have a material adverse effect on us and cause the market price of our common stock to decline
significantly.
Conflicts of interest exist or could arise in the future with holders of OP units, which may impede business decisions
that could benefit our stockholders.
Conflicts of interest exist or could arise in the future as a result of the relationships between QTS and its affiliates, on the
one hand, and the Operating Partnership or any partner thereof, on the other. Our directors and officers have duties to
QTS and its stockholders under applicable Maryland law in connection with their management of our company. At the
same time, we, as general partner, have fiduciary duties to the Operating Partnership and to its limited partners under
Delaware law in connection with the management of the Operating Partnership. QTS’ duties as general partner to the
Operating Partnership and its partners may come into conflict with the duties of our directors and officers to our
company and our stockholders. These conflicts may be resolved in a manner that is not in the best interest of
stockholders.
Additionally, the partnership agreement expressly limits our liability by providing that QTS and its officers, directors,
agents and employees will not be liable or accountable to the Operating Partnership for losses sustained, liabilities
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incurred or benefits not derived if we or such officer, director, agent or employee acted in good faith. In addition, the
Operating Partnership is required to indemnify QTS, and its officers, directors, agents, employees and designees to the
extent permitted by applicable law from and against any and all claims arising from operations of the Operating
Partnership, unless it is established that (1) the act or omission was committed in bad faith, was fraudulent or was the
result of active and deliberate dishonesty, (2) the indemnified party received an improper personal benefit in money,
property or services or (3) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe
that the act or omission was unlawful. The provisions of Delaware law that allow the fiduciary duties of a general partner
to be modified by a partnership agreement have not been resolved in a court of law, and we have not obtained an opinion
of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary
duties that would be in effect were it not for the partnership agreement.
Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could
limit our stockholders’ recourse in the event of actions not in our stockholders’ best interests.
Under Maryland law generally, a director is required to perform his or her duties in good faith, in a manner he or she
reasonably believes to be in the best interests of our company and with the care that an ordinarily prudent person in a
like position would use under similar circumstances. Under Maryland law, directors are presumed to have acted with this
standard of care. In addition, our charter limits the liability of our directors and officers to us and our stockholders for
money damages, except for liability resulting from:
•
•
actual receipt of an improper benefit or profit in money, property or services; or
active and deliberate dishonesty by the director or officer that was established by a final judgment as being
material to the cause of action adjudicated.
QTS’ charter obligates QTS to indemnify its directors and officers for actions taken by them in those capacities to the
maximum extent permitted by Maryland law. QTS’ bylaws require it to indemnify each director or officer, to the
maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened
to be made, a party by reason of his or her service to us. In addition, QTS may be obligated to advance the defense costs
incurred by its directors and officers. As a result, QTS and its stockholders may have more limited rights against its
directors and officers than might otherwise exist absent the current provisions in QTS’ charter and bylaws or that might
exist with other companies.
Our board of directors may change our policies and practices and enter into new lines of business without a vote of
our stockholders, which limits your control of our policies and practices and could have a material adverse effect on
us.
Our major policies, including our policies and practices with respect to investments, financing, growth and
capitalization, are determined by our board of directors. Our board of directors may change these and other policies from
time to time or enter into new lines of business, at any time, without the consent of our stockholders. Accordingly, our
stockholders will have limited control over changes in our policies. These changes could result in our making
investments and engaging in business activities that are different from, and possibly riskier than, the investments and
business activities described in this Form 10-K. A change in our policies and procedures or our entry into new lines of
business may increase our exposure to other risks or real estate market fluctuations and could have a material adverse
effect on us.
Risks Related to our Class A Common Stock
Our cash available for distribution to stockholders may not be sufficient to pay distributions at expected or REIT-
required levels, or at all, and we may need to borrow or rely on other third-party capital in order to make such
distributions, as to which no assurance can be given, which could cause the market price of our common stock to
decline significantly.
We intend to continue to pay regular quarterly distributions to our stockholders. However, no assurance can be given
that our estimated cash available for distribution to our stockholders will be accurate or that our actual cash available for
distribution to our stockholders will be sufficient to pay distributions to them at any expected or REIT-required level or
at any particular yield, or at all. Accordingly, we may need to borrow or rely on other third-party capital to make
distributions to our stockholders, and such third-party capital may not be available to us on favorable terms or at all. As a
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result, we may not be able to pay distributions to our stockholders in the future. Our failure to pay any such distributions
or to pay distributions that fail to meet our stockholders’ expectations from time to time or the distribution requirements
for a REIT could cause the market price of our common stock to decline significantly. 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, our 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. In addition, we may pay distributions some or all of which may
constitute a return of capital. To the extent that we decide to make distributions in excess of our current and accumulated
earnings and profits, such distributions would generally be considered a return of capital for U.S. federal income tax
purposes to the extent of the holder’s adjusted tax basis in its shares. A return of capital is not taxable, but it has the
effect of reducing the holder’s adjusted tax basis in its investment. To the extent that distributions exceed the adjusted
tax basis of a holder’s shares, they will be treated as gain from the sale or exchange of such shares. 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.
Future issuances or sales of our common stock, or the perception of the possibility of such issuances or sales, may
depress the market price of our common stock.
We cannot predict the effect, if any, of our future issuances or sales of our common stock or OP units, or future resales
of our common stock or OP units by existing holders, or the perception of such issuances, sales or resales, on the market
price of our common stock. Any such future issuances, sales or resales, or the perception that such issuances, sales or
resales might occur, could depress the market price of our common stock and also may make it more difficult and costly
for us to sell equity or equity-related securities in the future at a time and upon terms that we deem desirable.
As of December 31, 2019, we had 58,099,115 shares of our Class A common stock outstanding. In addition, as of
December 31, 2019, we had 128,408 shares of our Class B common stock and 6,673,634 OP units outstanding (each of
which may, and in certain cases must, exchange into shares of Class A common stock on a one-for-one basis). In
addition, as of December 31, 2019, we had 3,162,500 shares of Series B Preferred Stock, which are convertible into
shares of Class A common stock at any time at the option of the holder. Subject to applicable law, our board of directors
has the authority, without further stockholder approval, to issue additional shares of common stock and preferred stock
on the terms and for the consideration it deems appropriate.
In addition to the restricted stock that we previously have granted to our directors, executive officers and other
employees under our equity incentive plan, we may also issue additional shares of our common stock and securities
convertible into, or exchangeable or exercisable for, our common stock under our equity incentive plan. We have filed
with the SEC a registration statement on Form S-8 covering the common stock issuable under our equity incentive plan.
Shares of our common stock covered by such registration statement are eligible for transfer or resale without restriction
under the Securities Act, unless held by affiliates. We also may issue from time to time additional shares of our common
stock or OP units in connection with acquisitions and may grant registration rights in connection with such issuances
pursuant to which we would agree to register the resale of such securities under the Securities Act. In addition, we have
granted registration rights to Chad L. Williams, our Chairman and Chief Executive Officer, and others with respect to
shares of common stock owned by them or upon redemption of OP units held by them. The market price of our common
stock may decline significantly upon the registration of additional shares of our common stock pursuant to these
registration rights or future issuances of equity in connection with acquisitions or our equity incentive plan.
Future issuances of debt securities, which would rank senior to our common stock upon our liquidation, and future
issuances of equity securities (including OP units), which would dilute the holdings of our existing common
stockholders and may be senior to our common stock for the purposes of making distributions, periodically or upon
liquidation, may negatively affect the market price of our common stock.
In the future, we may issue debt or equity securities or incur other borrowings. Upon our liquidation, holders of our debt
securities and other loans and preferred stock will receive a distribution of our available assets before common
stockholders. If we incur debt in the future, our future interest costs could increase and adversely affect our results of
operations and liquidity.
We are not required to offer any additional equity securities to existing common stockholders on a preemptive basis.
Therefore, additional common stock issuances, directly or through convertible or exchangeable securities (including OP
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units), warrants or options, will dilute the holdings of our existing common stockholders and such issuances, or the
perception of such issuances, may reduce the market price of our common stock. Our Series A Preferred Stock and our
Series B Preferred Stock has a preference on distribution payments, periodically or upon liquidation, which could
eliminate or otherwise limit our ability to make distributions to common stockholders. In addition, our Series B Preferred
Stock is convertible, at any time, at the option of the holder thereof, into shares of our Class A common stock at an
initial conversion rate of 2.1264 shares of our Class A common stock per share of Series B Preferred Stock, subject to
certain adjustments including adjustments on a fundamental change transaction. As a result, the issuance of additional
shares of our Class A common stock upon conversion of the Series B Preferred Stock will dilute the ownership interest
of our Class A common stockholders and could have a dilutive effect on earnings per share of our Class A common
stock and funds from operations per share of our Class A common stock. Because our decision to issue debt or equity
securities or incur other borrowings in the future will depend on market conditions and other factors beyond our control,
we cannot predict or estimate the amount, timing, nature or success of our future capital-raising efforts. Thus, common
stockholders bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings will
negatively affect the market price of our common stock.
The trading volume and market price of our common stock may be volatile and could decline significantly in the
future.
The market price of our common stock may be volatile. The stock markets, including the NYSE, on which our common
stock is listed, have experienced significant price and volume fluctuations. As a result, the market price of our common
stock is likely to be similarly volatile, and could decline significantly, unrelated to our operating performance or
prospects. The market price of our common stock could be subject to wide fluctuations in response to a number of
factors, including those listed in this “Risk Factors” section of this Form 10-K and others such as:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our operating performance and prospects and those of other similar companies;
actual or anticipated variations in our financial condition, liquidity, results of operations, FFO, Operating
FFO, Adjusted Operating FFO, NOI, EBITDAre or MRR in the amount of distributions, if any, paid to our
stockholders;
changes in our estimates or those of securities analysts relating to our earnings or other operating metrics;
publication of research reports about us, our significant customers, our competition, data center companies
generally, the real estate industry or the technology industry;
additions or departures of key personnel;
the passage of legislation or other regulatory developments that adversely affect us or our industry;
changes in market valuations of similar companies;
adverse market reaction to leverage we may incur or equity we may issue in the future;
actions by institutional stockholders;
actual or perceived accounting issues, including changes in accounting principles;
compliance with NYSE requirements;
our qualification as a REIT;
terrorist acts;
speculation in the press or investment community;
the realization of any of the other risk factors presented in this Form 10-K;
adverse developments in the creditworthiness, business or prospects of one or more of our significant
customers; and
general market, economic and political conditions.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in
the market price of their common stock. This type of litigation, if brought against us, could result in substantial costs and
divert our management’s attention and resources, which could have a material adverse effect on us.
Increases in market interest rates may cause prospective purchasers to seek higher distribution yields and therefore
reduce demand for our common stock and result in a decline in the market price of our common stock.
The price of our common stock may be influenced by our distribution yield (i.e., the amount of our annual or annualized
distributions, if any, as a percentage of the market price of our common stock) relative to market interest rates. An
increase in market interest rates, which are currently low relative to historical levels, may lead prospective purchasers
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and holders of our common stock to expect a higher distribution yield, which we may not be able, or may choose not, to
satisfy. As a result, prospective purchasers may decide to purchase other securities rather than our common stock, which
would reduce the demand for our common stock, and existing holders of our common stock may decide to sell their
shares, either of which could result in a decline in the market price of our common stock.
Risks Related to QTS’ Status as a REIT
If QTS does not qualify as a REIT, or fails to remain qualified as a REIT, we will be subject to U.S. federal income
tax as a regular corporation and could face significant tax liability, which could reduce the amount of cash available
for distribution to our stockholders, could have a material adverse effect on QTS, and could adversely affect the
Operating Partnership’s ability to service its indebtedness.
QTS elected to be taxed as a REIT, commencing with our taxable year ended December 31, 2013, when we filed our tax
return for that year. We believe that we have been organized and have operated and will continue to operate in
conformity with the requirements for qualification and taxation as a REIT. QTS’ qualification as a REIT, and
maintenance of such qualification, depends upon our ability to meet, on a continuing basis, various complex
requirements under the Code relating to, among other things, the sources of its gross income, the composition and values
of its assets, its distributions to its stockholders and the concentration of ownership of its equity shares.
We have not requested and do not plan to request a ruling from the IRS that QTS qualifies as a REIT, and the statements
in this Form 10-K are not binding on the IRS, or any court. If QTS loses its REIT status, we will face serious tax
consequences that could adversely affect our ability to raise capital and the Operating Partnership’s ability to service its
indebtedness for each of the years involved because:
• we would not be allowed a deduction for distributions to stockholders in computing our taxable income and
would be subject to U.S. federal income tax at regular corporate rates and, therefore, would have to pay
significant income taxes;
for taxable years beginning before December 31, 2017, we would be subject to the U.S. federal alternative
minimum tax and possibly increased state and local taxes; and
unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT
for four taxable years following the year during which it was disqualified.
•
•
In addition, if QTS fails to qualify as a REIT, we will not be required to make distributions to stockholders, and all
distributions to stockholders will be subject to tax as dividend income to the extent of its current and accumulated
earnings and profits. As a result of all these factors, QTS’ failure to qualify as a REIT could impair our ability to execute
our business and growth strategies, as well as make it more difficult for us to raise capital and for the Operating
Partnership to service its indebtedness.
Qualifying as a REIT involves highly technical and complex provisions of the Code and therefore, in certain
circumstances, may be subject to uncertainty.
In order to qualify as a REIT, QTS must satisfy a number of requirements, including requirements regarding the
composition of our assets, the sources of our income and the diversity of our share ownership. Also, we must make
distributions to stockholders aggregating annually at least 90% of our “REIT taxable income” (determined without
regard to the dividends-paid deduction and excluding net capital gain). Compliance with these requirements and all other
requirements for qualification as a REIT involves the application of highly technical and complex Code provisions for
which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the
applicable U.S. Department of the Treasury regulations (“Treasury Regulations”) that have been promulgated under the
Code is greater in the case of a REIT that, like QTS, holds its assets through a partnership and conducts significant
business operations through one or more taxable REIT subsidiaries (each a “TRS”). Even a technical or inadvertent
mistake could jeopardize QTS’ REIT status. In addition, the determination of various factual matters and circumstances
relevant to REIT qualification is not entirely within our control and may affect its ability to qualify as a REIT.
Accordingly, we cannot be certain that our organization and operation will enable QTS to qualify as a REIT for U.S.
federal income tax purposes.
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Even if QTS qualifies as a REIT, we will be subject to some taxes that will reduce our cash flow.
Even if QTS qualifies for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our
income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a
result of a foreclosure, and state or local income, property and transfer taxes. For example, our TRSs and certain of our
subsidiaries are subject to U.S. federal, state, and local corporate-level income taxes on their net taxable income, if any,
which primarily consists of the revenues from the Cloud and Managed Service business. In addition, QTS may incur a
100% excise tax on transactions with our TRSs if they are not conducted on an arm’s-length basis. See “The ownership
limitation on TRS stock could limit the growth of the Cloud and Managed Services business, and our transactions with
our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not
conducted on arm’s-length terms” below.
Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general,
prohibited transactions are sales or other dispositions by the Operating Partnership of property held primarily for sale to
customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction
depends on the facts and circumstances related to that sale. The need to avoid prohibited transactions could cause the
Operating Partnership to forgo or defer sales of properties that it otherwise would have sold or that might otherwise be in
its best interest to sell. In addition, we could, in certain circumstances, be required to pay an excise or penalty tax (which
could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our
qualification as a REIT. Any of these taxes would reduce our cash flow and could decrease cash available for
distribution to stockholders and decrease cash available to service the Operating Partnership’s indebtedness.
If the structural components of our properties were not treated as real property for purposes of the REIT
qualification requirements, QTS could fail to qualify as a REIT, which could have a material adverse effect on us.
A significant portion of the value of our properties is attributable to structural components related to the provision of
electricity, heating ventilation and air conditioning, humidification regulation, security and fire protection, and
telecommunication services. If rent attributable to personal property leased in connection with a lease of real property is
greater than 15% of the total rent attributable to that lease, the portion of total rent that is attributable to the personal
property will not be qualifying income for purposes of the REIT income tests. Therefore, if the Operating Partnership’s
structural components of the properties are determined not to constitute real property for purposes of the REIT
qualification requirements, we could fail to qualify as a REIT, which could have a material adverse impact on us,
depress the market price of our common stock, and adversely affect our ability to raise capital as well as the Operating
Partnership’s ability to service its indebtedness.
The REIT distribution requirements could adversely affect our ability to grow our business and may force us to seek
third-party capital during unfavorable market conditions.
To qualify as a REIT, we generally must distribute to our stockholders at least 90% of its “REIT taxable income”
(determined without regard to the dividends-paid deduction and excluding net capital gain) each year, and we will be
subject to regular corporate income taxes to the extent that we distribute less than 100% of our “REIT taxable income”
each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions
paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income
and 100% of our undistributed income from prior years. In order to maintain our REIT status and avoid the payment of
income and excise taxes, we may be forced to seek third-party capital to meet the distribution requirements even if the
then-prevailing market conditions are not favorable. These capital needs could result from differences in timing between
the recognition of taxable income and the actual receipt of cash or the effect of non-deductible capital expenditures, the
creation of reserves or required debt or amortization payments. If we do not have other funds available in these
situations, the Operating Partnership could be required to borrow funds on unfavorable terms, or sell assets at
disadvantageous prices. In addition, we may be forced to distribute amounts that would otherwise have been invested in
future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the
REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year.
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Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends, which could
depress the market price of our common stock if it is perceived as a less attractive investment.
The maximum tax rate applicable to income from "qualified dividends" payable by non-REIT “C” corporations to U.S.
stockholders that are individuals, trusts and estates generally is 20% (excluding the 3.8% net investment income tax).
Dividends payable by REITs, however, generally are not eligible for the current reduced rate, except to the extent that
certain holding requirements have been met and a REIT's dividends are attributable to dividends received by a REIT
from taxable corporations (such as a TRS), to income that was subject to tax at the REIT/corporate level, or to dividends
properly designated by the REIT as "capital gains dividends." Effective for taxable years beginning after December 31,
2017, and before January 1, 2026, those U.S. stockholders may deduct 20% of their dividends from REITs (excluding
qualified dividend income and capital gains dividends). For those U.S. stockholders in the top marginal tax bracket of
37%, the deduction for REIT dividends yields an effective income tax rate of 29.6% on REIT dividends, which is higher
than the 20% tax rate on qualified dividend income paid by non-REIT “C” corporations. Although the reduced rates
applicable to dividend income from non-REIT “C” corporations do not adversely affect the taxation of REITs or
dividends payable by REITs, it could cause investors who are non-corporate taxpayers to perceive investments in REITs
to be relatively less attractive than investments in the stock of non-REIT “C” corporations that pay dividends, which
could depress the market price of the stock of REITs, including our common stock.
QTS may in the future choose to pay dividends in the form of shares of common stock, in which case stockholders
may be required to pay income taxes in excess of the cash dividends they receive.
The Company may seek in the future to distribute taxable dividends that are payable in cash and shares of common
stock, at the election of each stockholder. Taxable stockholders receiving such dividends will be required to include the
full amount of the dividend as ordinary income to the extent of QTS’ current and accumulated earnings and profits for
U.S. federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such
dividends in excess of the cash dividends received. If a U.S. stockholder sells the shares of common stock that it receives
as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to
the dividend, depending on the market price of common stock at the time of the sale. In addition, in such case, a U.S.
stockholder could have a capital loss with respect to the common stock sold that could not be used to offset such
dividend income. Furthermore, with respect to certain non-U.S. stockholders, the Company may be required to withhold
U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is
payable in common stock. In addition, such a taxable share dividend could be viewed as equivalent to a reduction in
QTS’ cash distributions, and that factor, as well as the possibility that a significant number of QTS’ stockholders could
determine to sell shares of common stock in order to pay taxes owed on dividends, may put downward pressure on the
market price of the QTS’ common stock.
Complying with REIT requirements may cause the Operating Partnership to liquidate or forgo otherwise attractive
investment opportunities.
To qualify as a REIT, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets
consists of cash, cash items, government securities and “real estate assets” (as defined in the Code), including certain
mortgage loans and securities (the “75% asset test”). The remainder of our investments (other than securities includable
in the 75% asset test, and securities issued by our TRSs) generally cannot include more than 10% of the outstanding
voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In
addition, in general, no more than 5% of the value of our total assets (other than securities includable in the 75% asset
test, and securities issued by our TRSs) can consist of the securities of any one issuer no more than 20% (25% for our
tax years that began prior to December 31, 2017) of the value of our total assets can be represented by securities of one
or more TRS, and debt instruments issued by publicly offered REITs, to the extent not secured by real property or
interests in real property, cannot exceed 25% of the value of our total assets. If we fail to comply with these requirements
at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or
qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax
consequences. As a result, the Operating Partnership may be required to liquidate or forgo otherwise attractive
investment opportunities. These actions could have the effect of reducing our income and amounts available for
distribution to our stockholders and the Operating Partnership’s income and amounts available to service its
indebtedness.
40
In addition to the asset tests set forth above, to qualify as a REIT, we must continually satisfy tests concerning, among
other things, the sources of our income, the amounts we distribute to our stockholders and the ownership of our stock.
The Operating Partnership may be unable to pursue investment opportunities that would be otherwise advantageous to it
in order to satisfy the source-of-income or asset-diversification requirements for us to qualify as a REIT. Thus,
compliance with the REIT requirements may hinder the Operating Partnership’s ability to make certain attractive
investments and, thus, reduce the Operating Partnership’s income and amounts available to service its indebtedness.
Our ability to own stock and securities of TRSs is limited and our transactions with our TRSs will cause us to be
subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm's-
length terms.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not
be qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect
to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting
power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT's
assets may consist of stock or securities of one or more TRSs. In addition, the rules applicable to TRSs limit the
deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate
level of corporate taxation. The rules also impose a 100% excise tax on “redetermined rent,” “redetermined deductions”
or “excess interest” to the extent rent paid by a TRS exceeds an arm’s-length amount, and a 100% excise tax on
“redetermined TRS service income” (generally, gross income (less deductions allocable thereto) of a TRS attributable to
services provided to, or on behalf of, the parent REIT that is less than the amounts that would have been paid by a REIT
to the TRSs if based on arm’s-length negotiations).
Our TRSs will pay U.S. federal, state and local income tax on its taxable income. The after-tax net income of our TRSs
will be available for distribution to us but generally is not required to be distributed. We believe that the aggregate value
of the stock and securities of our TRSs is less than 20% of the value of our total assets (including the stock and securities
of our TRSs). Furthermore, we monitor the value of our respective investments in our TRSs for the purpose of ensuring
compliance with the ownership limitations applicable to TRSs. We scrutinize all of our transactions involving our TRSs
to ensure that they are entered into on arm's-length terms to avoid incurring the 100% excise tax described above. There
can be no assurance, however, that we will be able to comply with the 20% limitation discussed above or avoid
application of the 100% excise tax discussed above.
Complying with REIT requirements may limit the Operating Partnership’s ability to hedge effectively and may cause
QTS and/or QTS’ TRSs to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Any income from a
hedging transaction that the Operating Partnership enters into to manage the risk of interest rate changes with respect to
borrowings made or to be made to acquire or carry real estate assets, or manage the risk of certain currency fluctuations,
does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that
certain identification requirements are met. To the extent that the Operating Partnership enters into other types of
hedging transactions or fails to properly identify such transaction as hedges, the income is likely to be treated as non-
qualifying income for purposes of both of the gross income tests. As a result of these rules, the Operating Partnership
may be required to limit its use of advantageous hedging techniques or implement those hedges through a TRS. This
could increase the cost of the Operating Partnership’s hedging activities because a TRS may be subject to tax on gains or
expose the Operating Partnership to greater risks associated with changes in interest rates than it would otherwise want
to bear. In addition, losses in a TRS will generally not provide any current tax benefit, except that such losses could be
carried back or forward and therefore be applied against past or future taxable income of the TRSs.
If the Operating Partnership fails to qualify as a partnership for U.S. federal income tax purposes, QTS would fail to
qualify as a REIT and suffer other adverse consequences.
The Operating Partnership believes that it has been organized and operated in a manner so as to be treated as a
partnership, and not an association or publicly traded partnership taxable as a corporation for U.S. federal income tax
purposes. As a partnership, it is not subject to U.S. federal income tax on its income. Instead, each of its partners,
including QTS, is allocated that partner’s share of the Operating Partnership’s income. No assurance can be provided,
however, that the IRS will not challenge its status as a partnership for U.S. federal income tax purposes, or that a court
would not sustain such a challenge. If the IRS were successful in treating the Operating Partnership as an association or
41
publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, QTS would fail to meet the
gross income tests and certain of the asset tests applicable to REITs and, accordingly, would cease to qualify as a REIT,
which could adversely affect our ability to raise capital and the Operating Partnership’s ability to service its
indebtedness. Also, the failure of the Operating Partnership to qualify as a partnership would cause it to become subject
to U.S. federal corporate income tax, which would reduce significantly the amount of its cash available for debt service
and for distribution to its partners, including QTS.
QTS has a carryover tax basis in respect of certain of its assets acquired in connection with the IPO, and the amount
that QTS must distribute to its stockholders therefore may be higher.
As a result of the tax-free merger of General Atlantic REIT, Inc. (“GA REIT”) with and into QTS in connection with the
IPO, certain of the operating properties, including Atlanta-Metro, Atlanta-Suwanee, Richmond, Santa Clara and Miami,
have carryover tax bases that are lower than the fair market values of these properties at the time QTS acquired them in
connection with the IPO. As a result of this lower aggregate tax basis, QTS will recognize higher taxable gain upon the
sale of these assets, and QTS will be entitled to lower depreciation deductions on these assets than if it had purchased
these properties in taxable transactions at the time of the IPO. Lower depreciation deductions and increased gains on
sales generally will increase the amount of QTS’ required distribution under the REIT rules.
As a result of our formation transactions in connection with QTS’ initial public offering, Quality Technology
Services Holding, LLC (“QTS Holdings TRS”) may be limited in using certain tax benefits and, consequently, may
have greater taxable income and, thus, the Operating Partnership may have less after-tax cash available to service its
indebtedness.
If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code and the Treasury
Regulations thereunder, such corporation’s ability to use net operating losses (“NOLs”) generated prior to the time of
that ownership change may be limited. To the extent the affected corporation’s ability to use NOLs is limited, such
corporation’s taxable income may increase. As of December 31, 2019, QTS had approximately $73.3 million of NOLs
(all of which are attributable to QTS Holdings TRS (a TRS of QTS)) that will begin to expire in 20 years if not utilized.
In general, an ownership change occurs if one or more large stockholders, known as “5% stockholders,” including
groups of stockholders that may be aggregated and treated as a single 5% stockholder, increase their aggregate
percentage interest in a corporation by more than 50% over their lowest ownership percentage during the preceding
three-year period. We believe that the formation transactions in connection with QTS’ public offering, caused an
ownership change within the meaning of Section 382 of the Code with respect to QTS Holdings TRS. Accordingly, to
the extent QTS Holdings TRS has taxable income in future years, its ability to use NOLs incurred prior to our formation
transactions in connection with QTS’ initial public offering in such future years will be limited, and it will have greater
taxable income as a result of such limitation. As a result of those limitations, the Operating Partnership may have less
after-tax cash available to service its indebtedness.
The new tax law imposed further limits on the deductibility of certain executive compensation expense, which could
result in greater taxes for our TRS or the need to increase distributions to our stockholders.
Under Section 162(m) of the Internal Revenue Code, a publicly held corporation is generally limited to a $1 million
annual tax deduction for compensation paid to each of its “covered employees.” Prior to the enactment of the Tax Cuts
and Jobs Act (“2017 Tax Law”), a publicly held corporation’s covered employees included its chief executive officer
and three other most highly compensated executive officers (other than the chief financial officer), and certain “qualified
performance-based compensation” was excluded from the $1 million deduction limit. As a result of the 2017 Tax Law,
which became effective January 1, 2018, the definition of “covered employee” was expanded to include a publicly held
corporation’s chief financial officer, and the exception for “qualified performance-based compensation” was repealed,
subject to a grandfather rule for compensation paid pursuant to a written, binding contract that was in effect on
November 2, 2017, which was not modified in any material respect on or after that date.
As a REIT, we are generally not subject to federal income taxes other than through our TRS. Moreover, the IRS has
previously issued private letter rulings holding that, under certain circumstances, Section 162(m) does not apply to
compensation paid to employees of a REIT’s operating partnership. With respect to tax years prior to 2019, we have
determined that the compensation paid to our executive officers by our Operating Partnership or a subsidiary of our
Operating Partnership for services to our Operating Partnership should not be subject to the $1 million deduction limit.
However, pursuant to the proposed regulations applicable for taxable years ending on or after December 20, 2019,
42
deductions for compensation paid to our executive officers that may have otherwise been allowable may be limited.
Provided deductions for compensation paid to our executive officers is limited, we may be required to make additional
distributions to stockholders to comply with our REIT distribution requirements and eliminate our U.S. federal income
tax liability and a larger portion of stockholder distributions that would otherwise have been treated as a return of capital
may be subject to U.S. federal income tax as dividend income as a result of our increased taxable income. Any such
compensation allocated to our taxable REIT subsidiaries, whose income is subject to U.S. federal income tax, would
result in an increase in income taxes due to the inability to deduct such compensation
Legislative or other actions affecting REITs could materially and adversely affect us and our investors as well as the
Operating Partnership.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative
process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive
application, could materially and adversely affect us and our stockholders as well as the Operating Partnership. We
cannot predict when or if any new U.S. federal income tax law, regulation, or administrative interpretation, or any
amendment to any existing U.S. federal income tax law, regulation or administrative interpretation will be adopted,
promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. New
legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively
affect our ability to qualify as a REIT or the U.S. federal income tax consequences of such qualification. We urge you to
consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and
proposals and their potential effect on an investment in our stock. Although REITs generally receive certain tax
advantages compared to entities taxed as C corporations, it is possible that future legislation would result in a REIT
having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to
be treated for U.S. federal income tax purposes as a C corporation.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our Portfolio
We operate a portfolio of 24 data centers located throughout the United States, Canada and Europe. Within the U.S., we
are located in some of the top U.S. data center markets and other high-growth markets. Our data centers are highly
specialized, full-service, mission-critical facilities used by our customers to house, power and cool the networking
equipment and computer systems that support their most critical business processes.
Operating Properties
The following table presents an overview of the portfolio of operating properties that we own or lease, referred to herein
as our operating properties, based on information as of December 31, 2019. The table excludes data center development
associated with land acquired in Phoenix, AZ and the 28 acres purchased in Ashburn, VA in 2017. On February 22,
2019, the Company entered into an agreement whereby it contributed the Manassas facility to a 50% owned
43
unconsolidated entity. Balances in the following table represent the unconsolidated entity at its 100% share. QTS’s pro
rata share of the unconsolidated entity is 50%.
Operating Net Rentable Square Feet (Operating NRSF) (1)
Property
Richmond, VA . . . . . . . . . . . . .
Atlanta, GA (DC - 1) (10) . . . . . . .
Irving, TX . . . . . . . . . . . . . . . .
Princeton, NJ . . . . . . . . . . . . . .
Chicago, IL . . . . . . . . . . . . . . .
Ashburn, VA . . . . . . . . . . . . . .
Suwanee, GA . . . . . . . . . . . . . .
Piscataway, NJ . . . . . . . . . . . . .
Fort Worth, TX . . . . . . . . . . . . .
Santa Clara, CA (11) . . . . . . . . . .
Sacramento, CA . . . . . . . . . . . .
Dulles, VA (12) . . . . . . . . . . . . .
Leased facilities (13) . . . . . . . . . . 2006 & 2015
Other (14) . . . . . . . . . . . . . . . . . Misc.
Year
Acquired (2)
2010
2006
2013
2014
2014
2017
2005
2016
2016
2007
2012
2017
Gross
Square
Feet (3)
1,318,353
968,695
698,000
553,930
474,979
445,000
369,822
360,000
261,836
135,322
92,644
87,159
192,513
459,549
6,417,802
Raised
Floor (4)
117,309
527,186
187,742
58,157
70,000
68,487
205,608
103,820
37,960
59,905
54,595
30,545
63,862
51,561
1,636,737
Office &
Other (5)
51,093
36,953
6,981
2,229
1,786
6,096
8,697
14,311
14,106
944
2,794
5,997
18,650
49,337
219,974
Supporting
Infrastructure (6)
131,654
364,815
198,913
111,405
71,622
76,650
107,128
104,301
69,466
45,094
23,916
32,892
41,901
70,636
1,450,393
Total
300,056
928,954
393,636
171,791
143,408
151,233
321,433
222,432
121,532
105,943
81,305
69,434
124,413
171,534
3,307,104
% Occupied (7)
Annualized
Rent (8)
83.8 % $ 32,682,862
95.5 % 114,298,127
51,259,686
94.9 %
10,338,627
100.0 %
17,999,785
95.2 %
6,474,751
95.1 %
60,550,226
93.4 %
18,264,957
86.5 %
4,977,718
99.8 %
21,357,660
87.6 %
10,426,795
36.5 %
16,922,311
68.3 %
81.8 %
25,935,576
12,711,754
84.1 %
91.3 % 404,200,835
Available
Utility Power
(MW) (9)
Basis of
Design
(BOD)
NRSF
557,309
527,186
275,701
158,157
215,855
178,000
205,608
176,000
80,000
80,940
54,595
48,270
84,474
180,380
759 2,822,475
110
72
140
22
24
50
36
111
50
11
8
13
14
98
Current
Raised
Floor as a
% of BOD
21.0 %
100.0 %
68.1 %
36.8 %
32.4 %
38.5 %
100.0 %
59.0 %
47.5 %
74.0 %
100.0 %
63.3 %
75.6 %
28.6 %
58.0 %
New Property Development
Atlanta, GA (DC - 2) (15) . . . . . . .
Hillsboro, OR . . . . . . . . . . . . . .
2018
2017
495,000
158,000
653,000
—
—
—
—
—
—
—
—
—
—
—
—
— %
— %
— %
—
—
—
—
—
—
240,000
85,000
325,000
— %
— %
— %
Unconsolidated Properties - at the Unconsolidated Entity's 100% Share (16)
22,400
Manassas, VA . . . . . . . . . . . . . .
118,031
2018
12,663
39,044
74,107
100.0 %
8,404,790
135
66,324
33.8 %
Total properties . . . . . . . . . . . .
7,188,833
1,659,137
232,637
1,489,437
3,381,211
91.5 % $ 412,605,625
894 3,213,799
51.6 %
(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.
Represents the year a property was acquired or, in the case of a property under lease, the year our initial lease commenced for the property.
(2)
(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
(4)
(5)
(6)
(7)
subject to our lease. This includes 383,761 square feet of our office and support space, which is not included in operating NRSF.
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.
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.
Represents required data center support space, including mechanical, telecommunications and utility rooms, as well as building common areas.
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 signed leases as of a particular date, which includes revenue from our rental and
cloud and managed services activities, but excludes customer recoveries, deferred set up fees and other one-time and variable revenues. MRR does not include the impact from booked-not-billed
contracts as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect the accounting associated with any free rent, rent
abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Represents installed utility power and transformation capacity that is available for use by the facility as of December 31, 2019.
(9)
(10) This property was formerly known as “Atlanta, GA (Metro)” but has been renamed “Atlanta, GA (DC-1)” to distinguish between the existing data center and the new property development
shown as “Atlanta, GA (DC-2)” within the new property development section.
(11) Subject to long-tern ground lease.
(12) The Dulles campus has two data center buildings and the Company is currently relocating customers from the smaller and older facility to the new facility in an effort to optimize its operating
(13)
cost structure.
Includes 7 facilities. All facilities are leased, including those subject to finance leases. During the quarter ended December 31, 2019, the Company exited its Hong Kong and London leased
facilities.
(14) Consists of Miami, FL; Lenexa, KS; Overland Park, KS; Eemshaven, Netherlands and Groningen, Netherlands facilities.
(15) Represents the development of a new data center building at our Atlanta, GA campus.
(16) Represents the Company’s unconsolidated entity at its 100% share. QTS’s pro rata share of the unconsolidated entity is 50%.
44
Development Pipeline
The following table presents an overview of our development pipeline, based on information as of December 31, 2019.
Raised Floor NRSF
Overview as of December 31, 2019
Property
Richmond, VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Atlanta, GA (DC - 1) (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Irving, TX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Princeton, NJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chicago, IL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ashburn, VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Suwanee, GA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Piscataway, NJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fort Worth, TX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Santa Clara, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sacramento, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dulles, VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased facilities (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Phoenix, AZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manassas, VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
NRSF in
Service
117,309
527,186
187,742
58,157
70,000
68,487
205,608
103,820
37,960
59,905
54,595
30,545
63,862
—
—
51,561
1,636,737
Under
Construction (1)
Future
Available (2)
440,000
—
67,959
100,000
140,895
35,513
—
67,180
27,635
21,035
—
17,725
20,612
—
—
128,819
Basis of
Design
NRSF
557,309
527,186
275,701
158,157
215,855
178,000
205,608
176,000
80,000
80,940
54,595
48,270
84,474
—
—
180,380
1,067,373 2,822,475
—
—
20,000
—
4,960
74,000
—
5,000
14,405
—
—
—
—
—
—
—
118,365
New Property Development
Atlanta, GA (DC - 2) (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hillsboro, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
36,132
7,000
43,132
203,868
78,000
281,868
240,000
85,000
325,000
Approximate
Acreage of
Available
Land (3)
182.2
—
29.4
65.0
23.0
62.9
15.4
—
26.5
—
—
—
—
84.2
87.1
—
575.7
61.3
92.0
153.3
Unconsolidated Properties - at the Unconsolidated
Entity's 100% Share (8)
Manassas, VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,400
5,600
38,324
66,324
—
Totals as of December 31, 2019 . . . . . . . . . . . . . . . . . . . . . 1,659,137
167,097
1,387,565 3,213,799
729.0
(1) Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use on or before
December 31, 2020.
(2) Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use after December
31, 2020.
(3) The total cost basis of available land, which is land available for future development, is approximately $231.5 million, of which approximately
$199.4 million is included in Construction in Progress on the consolidated balance sheet. The Basis of Design NRSF does not include any build-
out on the available land.
(4) This property was formerly known as “Atlanta, GA (Metro)” but has been renamed “Atlanta, GA (DC-1)” to distinguish between the existing
(5)
data center and the new property development shown as “Atlanta, GA (DC – 2)” within the new property development section.
Includes 7 facilities. All facilities are leased, including those subject to finance leases. During the quarter ended December 31, 2019, the
Company exited its Hong Kong and London leased facilities.
(6) Consists of Miami, FL; Lenexa, KS; Overland Park, KS; Eemshaven, Netherlands; and Groningen, Netherlands facilities.
(7) Represents the development of a new data center building at our Atlanta, GA campus.
(8) On February 22, 2019, the Company entered into an agreement whereby it contributed the Manassas facility to a 50% owned unconsolidated
entity. Balances herein represent the entity’s full 100% share. QTS’s pro rata share of the unconsolidated entity is 50%.
45
The table below sets forth our estimated costs for completion of our major development projects currently under
construction and expected to be operational by December 31, 2020 (dollars in millions):
Under Construction Costs (1)
Actual (2)
Estimated Cost
to Completion (3) Total
Property
Ashburn, VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Atlanta, GA (DC - 1) (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fort Worth, TX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Irving, TX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chicago, IL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Piscataway, NJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
New Property Development
Atlanta, GA (DC - 2) (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hillsboro, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unconsolidated Properties - at the Company's 50% Share (6)
Manassas, VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118 $
28
25
10
2
3
186 $
48
7
2
Expected
Completion date
65 $ 183 Q1/Q2/Q4 2020
Q1 2020
2
Q1 2020
2
Q2 2020
1
Q4 2020
7
Q3 2020
1
30
27
11
9
4
78 $ 264
99
15
147
22
Q3/Q4 2020
Q2 2020
2
4
Q3 2020
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
243 $
194 $ 437
(1)
In addition to projects currently under construction, our near-term development projects are expected to be delivered in a modular manner, and
we currently expect to invest additional capital to complete these near term projects. The ultimate timing and completion of, and the commitment
of capital to, our future development projects are within our discretion and will depend upon a variety of factors, including the actual contracts
executed, availability of financing and our estimation of the future market for data center space in each particular market.
(2) Represents actual costs for NRSF under construction through December 31, 2019. In addition to the $243 million of construction costs incurred
through December 31, 2019 for development expected to be completed by December 31, 2020, as of December 31, 2019 we had incurred $680
million of additional costs (including acquisition costs and other capitalized costs) for other development projects that are expected to be
completed after December 31, 2020.
(3) Represents management’s estimate of the additional costs required to complete the current NRSF under development. There may be an increase
in costs if customers’ requirements exceed our current basis of design.
(4) This property was formerly known as “Atlanta, GA (Metro)” but has been renamed “Atlanta, GA (DC-1)” to distinguish between the existing
data center and the new property development shown as “Atlanta, GA (DC – 2)” within the new property development section.
(5) Represents the development of a new data center building at our Atlanta, GA campus.
(6) On February 22, 2019, the Company entered into an agreement whereby it contributed the Manassas facility to a 50% owned unconsolidated
entity. Balances herein represent QTS’ 50% ownership percentage at December 31, 2019.
We also own an aggregate of approximately 730 acres of additional available land at our Richmond, Atlanta-Metro
Campus, Irving, Princeton, Chicago, Ashburn, Manassas, Atlanta-Suwanee, Fort Worth, Phoenix, and Hillsboro data
center properties which can support the development of over 13.1 million additional square feet of raised floor.
46
Customer Diversification
Our portfolio is currently leased to more than 1,200 customers comprised of companies of all sizes representing an array
of industries, each with unique and varied business models and needs. The following table sets forth information
regarding the 10 largest customers in our portfolio based on annualized rent as of December 31, 2019:
Principal Customer Industry
Content & Digital Media . . . . . . . . . . . . . . . . . . . . . . . . .
Cloud & IT Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cloud & IT Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Content & Digital Media . . . . . . . . . . . . . . . . . . . . . . . . .
Cloud & IT Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cloud & IT Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cloud & IT Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government & Security . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total / Weighted Average . . . . . . . . . . . . . . . . . . . . . . . . .
Number
of
Locations
1
4
1
3
4
6
1
1
1
1
Annualized Rent (1)
$
% of Portfolio
Annualized
Rent
10.9%
5.8%
4.6%
3.7%
3.4%
1.8%
1.8%
1.6%
1.4%
1.2%
36.2%
44,322,809
23,576,694
18,801,601
15,227,599
13,728,398
7,547,448
7,505,622
6,807,642
5,532,614
4,952,232
148,002,659
$
Weighted
Average
Remaining
Lease Term
(Months) (2)
31
62
27
30
50
18
45
39
30
55
38
(1) Annualized rent is presented for leases commenced as of December 31, 2019. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases (which represent customer leases that have been executed but for
which lease payments have not commenced) as of a particular date unless otherwise specifically noted. This amount reflects the annualized cash
rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also
excludes operating expense and power reimbursements.
(2) Weighted average based on customer’s percentage of total annualized rent expiring as of December 31, 2019.
The following chart shows the breakdown of all our customers by industry based on annualized rent as of December 31,
2019:
Industry
Cloud & IT Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Content & Digital Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government & Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Total Annualized Rent
as of December 31, 2019
31.5 %
19.2 %
15.3 %
7.2 %
7.1 %
5.6 %
5.3 %
8.8 %
100.0 %
47
Lease Distribution by Product Type
Product Type (Square Feet) (1)
Hyperscale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hybrid Colocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Leased
Raised Floor (2)
659,922
546,340
1,206,262
% of Portfolio
Leased Raised
Floor
Annualized
Rent (3)
55 % $ 136,232,356
45 %
272,170,874
100 % $ 408,403,230
% of Portfolio
Annualized
Rent
33 %
67 %
100 %
(1) Represents all leases in our portfolio for which billing has commenced as of December 31, 2019.
(2) Represents the square footage of raised floor at a property under lease as specified in the lease and that has commenced billing as of December
31, 2019.
(3) Annualized rent is presented for leases commenced as of December 31, 2019. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future
scheduled rent increases and also excludes operating expense and power reimbursements.
Lease Expirations
The following table sets forth a summary schedule of the lease expirations as of December 31, 2019 at the properties in
our portfolio, excluding leases that have been booked but not billed. Unless otherwise stated in the footnotes, the
information set forth in the table assumes that customers exercise no renewal options and all early termination rights are
exercised:
Year of Lease
Expiration
Month-to-Month (3) . . . . . .
2020 . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . .
2028 . . . . . . . . . . . . . . . . . .
2029 . . . . . . . . . . . . . . . . . .
After 2029 . . . . . . . . . . . . .
Portfolio Total . . . . . . . . . .
Number of
Leases
Expiring (1)
Total Raised
Floor of
Expiring Leases
% of Portfolio
Leased Raised
Floor
Annualized Rent (2)
1,179
1,763
1,138
881
231
192
22
13
26
13
7
1
5,466
17,140
174,172
229,759
341,031
115,023
172,480
51,440
26,111
41,081
2,938
35,079
8
1,206,262
2 % $
14 %
19 %
28 %
10 %
14 %
5 %
2 %
3 %
— %
3 %
— %
18,491,895
100,400,380
76,374,011
110,079,995
40,944,595
44,101,949
4,468,381
3,904,800
1,970,619
939,240
6,727,365
—
100 % $ 408,403,230
% of Portfolio
Annualized Rent
5 %
24 %
19 %
27 %
10 %
11 %
1 %
1 %
— %
— %
2 %
— %
100 %
(1) Represents each agreement with a customer signed as of December 31, 2019 for which billing has commenced; a lease agreement could include
multiple spaces and a customer could have multiple leases.
(2) Annualized rent is presented for leases commenced as of December 31, 2019. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future
scheduled rent increases and also excludes operating expense and power reimbursements.
(3) Consists of annualized rent associated with customer leases whose original contract terms ended on December 31, 2019 and have signed a
renewal or are eligible for renewal, as well as customers whose leases expired prior to December 31, 2019 and have continued on a month-to-
month basis. We do not typically enter into month-to-month leases.
Description of Our Properties
Below is a description of our properties. More detail is provided for the properties that represent more than ten percent of
our total assets or accounted for more than ten percent of our aggregate gross revenues or both as of and for the year
ended December 31, 2019.
48
Atlanta, Georgia Campus
Our Atlanta (DC-1) facility, formerly known as Atlanta-Metro, is currently our largest data center based on total
operating NRSF. As of December 31, 2019, the property consisted of approximately 969,000 gross square feet with
approximately 929,000 total operating NRSF, including approximately 527,000 raised floor operating NRSF. An on-site
Georgia Power substation supplies 72 MW of utility power to the facility, which is backed up by diesel generators, and
the facility has 120 MW of transformer capacity. The facility also includes a small amount of private “Class A” office
space. As of December 31, 2019, the facility was approximately 96% occupied by 241 customers across our product
offerings.
Portions of the Atlanta (DC-1) facility are included in our development pipeline, as we plan to continue to expand the
facility in multiple phases. During the year ended December 31, 2019, we placed approximately 49,000 NRSF of raised
floor into service. Upon completion of the build-out of the facility, we anticipate that the facility would contain
approximately 938,000 total operating NRSF, including approximately 527,000 NRSF of raised floor.
We are the owner of our Atlanta (DC-1) facility. We were previously the owner of the facility through a bond-financed
sale-leaseback structure. The structure was necessary in the State of Georgia to receive property tax abatement. In 2006,
the Development Authority of Fulton County (“DAFC”) issued a taxable industrial development revenue bond to us with
a face amount of $300 million in exchange for legal title to the facility. The acquisition of the bond by us was “cashless”
as the bond was issued to us in exchange for title to the facility. The bond matured on December 1, 2019, at which time
we exercised our option to purchase the facility for $10.
In October 2018, we completed the acquisition of approximately 55 acres of land in Atlanta, Georgia adjacent to our
existing Atlanta (DC-1) data center. In addition, this facility is adjacent to approximately 72 acres of undeveloped land,
inclusive of the land purchase in October 2018, owned by us that we estimate could be developed to provide, at a
minimum, approximately 2.5 million additional NRSF of raised floor. Additionally, during the fourth quarter of 2019,
the Company sold certain land improvements near its Atlanta (DC-1) facility and entered into an underlying ground
lease and services agreement with the buyer.
We have begun the construction of a second megascale data center Atlanta (DC-2) on our land adjacent to the existing
Atlanta (DC-1) facility. The Atlanta (DC-2) facility is included within our development pipeline, as we plan to construct
the facility in multiple phases. Upon completion of the first phase of the facility, we anticipate that the facility would
contain approximately 495,000 gross square feet, and 276,000 raised floor NRSF upon completion of the build-out. We
anticipate that this first phase of development will cost (in addition to the $48 million already incurred as of December
31, 2019) approximately $99 million in the aggregate based on current estimates.
Lease Expirations. The following table sets forth a summary schedule of lease expirations for leases in place as of
December 31, 2019 at the Atlanta (DC-1) facility. Unless otherwise stated in the footnotes, the information set forth in
the table assumes that customers exercise no renewal options and all early termination rights.
Number of
Leases
Expiring (1)
Year of Lease
Expiration
Month-to-Month (3) . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . .
2028 . . . . . . . . . . . . . . . . . . . . . .
2029 . . . . . . . . . . . . . . . . . . . . . .
After 2029 . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
Total
% of Facility
Raised Floor of
Expiring Leases Raised Floor
Leased
% of Facility
Annualized
Annualized
Rent (2)
1 % $
3,775,610
10 %
21,631,572
28 %
27,942,972
44 %
42,097,527
9 %
9,765,277
8 %
7,854,487
— %
7,200
— %
—
— %
543,564
— %
—
— %
679,918
— %
—
100 % $ 114,298,127
Rent
3 %
19 %
24 %
37 %
8 %
7 %
— %
— %
1 %
— %
1 %
— %
100 %
3,888
42,619
121,314
187,216
36,768
31,001
2,086
—
1,216
—
3,445
—
429,553
214
368
182
187
32
31
4
—
11
—
2
—
1,031
49
(1) Represents each lease with a customer signed as of December 31, 2019 for which billing has commenced; a lease agreement could include
multiple spaces and/or service orders and a customer could have multiple leases.
(2) Annualized rent is presented for leases commenced as of December 31, 2019. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future
scheduled rent increases and also excludes operating expense and power reimbursements.
(3) Consists of annualized rent associated with customer leases whose original contract terms ended on December 31, 2019 and have signed a
renewal or are eligible for renewal, as well as customers whose leases expired prior to December 31, 2019 and have continued on a month-to-
month basis. We do not typically enter into month-to-month leases.
Primary Customers. The following table summarizes information regarding primary customers, which are customers
occupying 10% or more of the leased raised floor of the Atlanta (DC-1) facility, as of December 31, 2019:
Principal Customer Industry
Content & Digital Media . .
Content & Digital Media . .
Weighted Average
Remaining Lease
Term (Months) (1)
31
26
Renewal
Option
1x3 years & 1x5 years
3x5 years
$
Annualized
Rent (2)
44,322,809
11,526,619
% of Facility
Annualized Rent
39 %
10 %
(1) Weighted average based on customer’s percentage of total annualized rent expiring as of December 31, 2019.
(2) Annualized rent is presented for leases commenced as of December 31, 2019. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future
scheduled rent increases and also excludes operating expense and power reimbursements.
Historical Percentage Leased and Annualized Rental Rates. The following table sets forth the leasable raised floor,
percentage leased, annualized rent and annualized rent per leased raised square foot for the Atlanta (DC-1) facility:
Date
December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facility Leasable
Raised Floor
% Occupied and
Billing (1)
Annualized
Rent (2)
Annualized Rent
per Leased
Square Foot
449,712
408,986
392,114
388,227
353,967
96 % $ 114,298,127 $
99 % 101,394,293
96,559,779
96 %
92,848,008
94 %
82,563,392
96 %
266
250
256
254
243
(1) Calculated as data center raised floor that is subject to a signed lease for which billing has commenced as of the applicable date, divided by
leasable raised floor based on the then current configuration of the property, expressed as a percentage.
(2) Annualized rent is presented for leases commenced as of the applicable date. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future
scheduled rent increases and also excludes operating expense and power reimbursements.
Atlanta-Suwanee
Our Suwanee, Georgia, or Atlanta-Suwanee, facility consists of approximately 370,000 gross square feet, and as of
December 31, 2019 it had approximately 321,000 total operating NRSF, including approximately 206,000 raised floor
operating NRSF. Georgia Power supplies 36 MW of utility power to the facility, which is backed up by diesel
generators. The facility also contains a small amount of “Class A” private office space and our operating service center,
which provides 24x7 support to all of our customers and data centers. As of December 31, 2019, the facility was
approximately 93% occupied by 325 customers. We are the fee simple owner of the Atlanta-Suwanee facility.
We are not currently redeveloping significant portions the Atlanta-Suwanee facility.
50
The facility is adjacent to 15 acres of undeveloped land owned by us that we believe could be developed to provide, at a
minimum, an additional approximately 310,000 total operating NRSF, of which approximately would be 210,000 NRSF
of raised floor. These 15 acres of undeveloped land are not included in our current development plans.
Lease Expirations. The following table sets forth a summary schedule of the lease expirations for leases in place as of
December 31, 2019 at the Atlanta-Suwanee facility. Unless otherwise stated in the footnotes, the information set forth in
the table assumes that customers exercise no renewal options and all early termination rights.
Number of
Leases
Raised Floor of
Expiring (1) Expiring Leases Raised Floor
Leased
Total
% of Facility
% of Facility
Annualized
Rent
Year of Lease
Expiration
Month-to-Month (3) . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After 2027 . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
303
311
279
125
45
7
—
—
12
—
1,082
3,716
34,571
28,248
19,176
17,457
2,783
—
—
20,194
—
126,145
Annualized
Rent (2)
3 % $
3,804,408
27 %
20,058,837
22 %
16,275,855
15 %
10,912,964
15 %
6,999,245
2 %
1,071,862
— %
—
— %
—
16 %
1,427,055
— %
—
100 % $ 60,550,226
5 %
33 %
27 %
18 %
12 %
2 %
— %
— %
3 %
— %
100 %
(1) Represents each lease with a customer signed as of December 31, 2019 for which billing has commenced; a lease agreement could include
multiple spaces and/or service orders and a customer could have multiple leases.
(2) Annualized rent is presented for leases commenced as of December 31, 2019. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future
scheduled rent increases and also excludes operating expense and power reimbursements.
(3) Consists of annualized rent associated with customer leases whose original contract terms ended on December 31, 2019 and have signed a
renewal or are eligible for renewal, as well as customers whose leases expired prior to December 31, 2019 and have continued on a month-to-
month basis. We do not typically enter into month-to-month leases.
Primary Customers. The following table summarizes information regarding primary customers, which are customers
occupying 10% or more of the leased raised floor of the Atlanta-Suwanee facility, as of December 31, 2019:
Principal Customer Industry
Cloud & IT Services . . . . . . . . . . . . . . . . . . . . . . .
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . .
Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Average
Remaining Lease
Term (Months) (1)
35
11
93
Renewal
Option
Annualized Rent (2)
2x5 years $
2x5 years
2x5 years
5,292,091
3,781,696
1,427,055
% of Facility
Annualized Rent
9 %
6 %
2 %
(1) Weighted average based on customer’s percentage of total annualized rent expiring as of December 31, 2019.
(2) Annualized rent is presented for leases commenced as of December 31, 2019. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future
scheduled rent increases and also excludes operating expense and power reimbursements.
51
Historical Percentage Leased and Annualized Rental Rates. The following table sets forth the leasable raised floor,
percentage leased, annualized rent and annualized rent per leased raised square foot for the Atlanta-Suwanee facility:
Date
December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . .
Facility Leasable
Raised Floor
% Occupied
and
Billing (1)
135,050
134,684
135,544
138,722
117,013
$
93 %
92 %
92 %
80 %
84 %
Annualized
Rent (2)
60,550,226 $
55,080,296
56,998,497
59,206,902
56,769,086
Annualized Rent
per Leased
Square Foot
480
445
459
537
576
(1) Calculated as data center raised floor that is subject to a signed lease for which billing has commenced as of the applicable date, divided by
leasable raised floor based on the then current configuration of the property, expressed as a percentage.
(2) Annualized rent is presented for leases commenced as of the applicable date. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any free rent, rent abatements or future scheduled rent increases and also
excludes operating expense and power reimbursements.
Irving
We purchased our Irving facility in February 2013. Prior to our purchase, the facility was operated as a semiconductor
fabrication facility. Similar to our Richmond facility, the Irving facility has significant pre-existing infrastructure.
Specifically, the Irving facility has diverse feeds of 140 MW of utility power and approximately 698,000 gross square
feet on 39 acres. We are the fee simple owner of the Irving facility.
We acquired our Irving facility because we believe that we will be able to execute a redevelopment strategy similar to
our Richmond facility. Given the infrastructure that was already in place due to its former use as a semiconductor
fabrication facility, we believe that the incremental costs to redevelop data center raised floor space in this facility will
be lower compared to typical costs for ground-up development or redevelopments of other building types. In addition,
the access to a significant amount of utility power provides the necessary power capacity to support our growth strategy
for our Irving data center. Furthermore, we believe that the Dallas market is an important data center market primarily
due to its strong business environment and relatively affordable power costs.
The Irving facility is included in our development pipeline, as we continue to convert the entire facility into an operating
data center in multiple phases. We placed approximately 25,000 raised floor NRSF and 26,000 raised floor NRSF into
service during the years ended December 31, 2017 and 2018, respectively. During the year ended December 31, 2019,
we placed approximately 14,000 raised floor NRSF into service. Our current under construction redevelopment plans
call for the addition of up to approximately 49,000 total operating NRSF, including approximately 20,000 NRSF of
raised floor. We anticipate that this expansion will cost (in addition to costs already incurred as of December 31, 2019)
approximately $1 million in the aggregate based on current estimates. Longer term, we can further expand the facility by
approximately 226,000 total NRSF, of which approximately 68,000 NRSF would be raised floor. Upon completion of
the build-out of the facility, we anticipate that the facility would contain approximately 669,000 total operating NRSF,
including approximately 276,000 NRSF of raised floor.
We own sufficient undeveloped land on the site, approximately 29 acres, that we believe could also be developed to
provide an additional 1.3 million total operating NRSF, of which approximately 680,000 NRSF would be raised floor.
These 29 acres of undeveloped land are not included in our current development plans.
As of December 31, 2019, the facility was approximately 95% occupied by 151 customers.
52
Lease Expirations. The following table sets forth a summary schedule of the lease expirations for leases in place as of
December 31, 2019 at the Irving facility. Unless otherwise stated in the footnotes, the information set forth in the table
assumes that customers exercise no renewal options and all early termination rights.
Number of
Leases
Total
% of Facility
Raised Floor of
Leased
Expiring (1) Expiring Leases Raised Floor
% of Facility
Annualized
Rent
Year of Lease
Expiration
Month-to-Month (3) . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
155
244
153
136
50
26
10
—
774
1,417
4,862
5,002
75,386
12,848
50,377
7,545
—
157,437
Annualized
Rent (2)
1,421,055
1 % $
4,320,937
3 %
3,175,335
3 %
22,036,728
48 %
3,825,702
8 %
14,820,052
32 %
1,659,877
5 %
—
— %
100 % $ 51,259,686
3 %
8 %
6 %
43 %
7 %
30 %
3 %
— %
100 %
(1) Represents each lease with a customer signed as of December 31, 2019 for which billing has commenced; a lease agreement could include
multiple spaces and/or service orders and a customer could have multiple leases.
(2) Annualized rent is presented for leases commenced as of December 31, 2019. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future
scheduled rent increases and also excludes operating expense and power reimbursements.
(3) Consists of annualized rent associated with customer leases whose original contract terms ended on December 31, 2019 and have signed a
renewal or are eligible for renewal, as well as customers whose leases expired prior to December 31, 2019 and have continued on a month-to-
month basis. We do not typically enter into month-to-month leases.
Primary Customers. The following table summarizes information regarding primary customers, which are customers
occupying 10% or more of the leased raised floor of the Irving facility, as of December 31, 2019:
Principal Customer Industry
Cloud & IT Services . . . . . . . . . . . . . . . . . . . .
Cloud & IT Services . . . . . . . . . . . . . . . . . . . .
Weighted Average
Remaining Lease
Term (Months) (1)
27
57
Renewal
Option
Annualized Rent (2)
2x5years $
2x5years
18,801,601
13,583,445
% of Facility
Annualized Rent
37 %
26 %
(1) Weighted average based on customer’s percentage of total annualized rent expiring as of December 31, 2019.
(2) Annualized rent is presented for leases commenced as of December 31, 2019. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future
scheduled rent increases and also excludes operating expense and power reimbursements.
53
Historical Percentage Leased and Annualized Rental Rates. The following table sets forth the leasable raised floor,
percentage leased, annualized rent and annualized rent per leased raised square foot for the Irving facility:
Date
December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facility Leasable
Raised Floor
% Occupied
and Billing (1)
Annualized
Rent (2)
Annualized Rent
per Leased
Square Foot
165,838
165,518
138,307
120,776
47,722
95 % $ 51,259,686 $
95 %
96 %
97 %
90 %
50,666,209
43,876,400
29,318,582
9,133,696
326
323
331
251
213
(1) Calculated as data center raised floor that is subject to a signed lease for which billing has commenced as of the applicable date, divided by
leasable raised floor based on the then current configuration of the property, expressed as a percentage.
(2) Annualized rent is presented for leases commenced as of the applicable date. We define annualized rent as MRR multiplied by 12. We calculate
MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed
services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time
revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This
amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future
scheduled rent increases and also excludes operating expense and power reimbursements.
Below is a description of our other properties.
Richmond
Our Richmond, Virginia data center is situated on an approximately 292-acre site comprised of three large buildings
available for data center redevelopment, each with two to three floors, and an administrative building that also has space
available for data center redevelopment. As of December 31, 2019, the data center had approximately 1.3 million gross
square feet with approximately 300,000 total operating NRSF, including approximately 117,000 of raised floor operating
NRSF. The Richmond facility contains approximately 110 MW of utility power, which is backed up by diesel
generators. As of December 31, 2019, one of these primary buildings was fully operational as a data center and another
was partially operational. We believe that our Richmond facility is situated in an ideal location due to its proximity to
Washington, DC, which offers numerous sources of demand for our products including the federal government, and
provides geographical diversification from the Northern Virginia data center market. There are three core segments that
we believe represent the most significant opportunity for our Richmond data center: entities associated with the federal
government, given the highly secured nature of this facility and its proximity to Washington, DC; regulated industries,
such as financial institutions, given our investments in security and regulatory compliance; and large enterprise
customers, given the large scale of this facility. Our Richmond mega data center can accommodate large and growing
customers, while also accommodating colocation and cloud and managed services customers, at attractive energy costs.
We acquired our Richmond facility in 2010 through a bankruptcy process. We estimate that the former owner, a
semiconductor manufacturer, had invested over $1 billion to develop the facility prior to the bankruptcy. Because the
facility operated as a semiconductor fabrication facility prior to our acquisition, it had significant pre-existing
infrastructure, including 110 MW of utility power, approximately 25,000 tons of chiller capacity, “Class A” private
office space and other related supporting infrastructure. As a result, to date the incremental cost to redevelop the facility
into a data center has been lower than the typical cost of ground-up data center development or redevelopment of other
types of buildings into data centers. As of December 31, 2019, the facility was approximately 84% occupied by 144
customers across our product offerings.
We are the fee simple owner of the Richmond facility.
We are not currently redeveloping significant portions of the Richmond facility. Longer term, we can further expand the
facility by approximately 888,000 total operating NRSF, of which approximately 440,000 NRSF would be raised floor.
Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 1.2 million
total operating NRSF, including approximately 557,000 NRSF of raised floor.
In addition, we own approximately 182 acres of undeveloped land on the site that we estimate could be developed to
provide, at a minimum, an additional approximately 6.3 million total operating NRSF, of which approximately
54
3.5 million NRSF would be raised floor. These 182 acres of undeveloped land are not included in our current
development plans.
Chicago
Our Chicago facility, which we acquired on July 8, 2014, is the former Sun Times Press facility near downtown
Chicago, Illinois. We are the fee simple owner of the Chicago facility. The facility consists of approximately 475,000
gross square feet, including approximately 70,000 raised floor operating NRSF.
The Chicago facility is included in our development pipeline, as we plan to convert the facility into an operating data
center in multiple phases. We placed approximately 14,000 raised floor NRSF and 18,000 raised floor NRSF into service
during the years ended December 31, 2017 and 2018, respectively. During the year ended December 31, 2019, we placed
approximately 24,000 raised floor NRSF into service. Our current under construction redevelopment plans call for the
addition of up to approximately 10,000 total operating NRSF, including approximately 5,000 NRSF of raised floor. We
anticipate that this expansion will cost (in addition to costs already incurred as of December 31, 2019) approximately $7
million in the aggregate based on current estimates. Longer term, we can further expand the facility by approximately
280,000 total operating NRSF, of which approximately 141,000 would be raised floor. Upon completion of the build-out
of the facility, we anticipate that the facility would contain approximately 433,000 total operating NRSF with raised
floor capacity of approximately 216,000 square feet.
We own sufficient undeveloped land on the site, approximately 23 acres, that we believe could also be developed to
provide an additional 350,000 total operating NRSF, of which approximately 200,000 NRSF would be raised floor.
These 23 acres of undeveloped land are not included in our current development plans.
As of December 31, 2019, the facility was approximately 95% occupied by 79 customers.
Leased Facilities Acquired in 2015
We acquired leased facilities as part of our acquisition of Carpathia Hosting, Inc. (“Carpathia”) on June 16, 2015. As of
December 31, 2019, these leased facilities, including those subject to finance leases, consisted of four domestic data
centers located in Phoenix, Arizona; San Jose, California and Ashburn, Virginia; and two international data centers
located in Toronto, Canada and Amsterdam, Netherlands. As of December 31, 2019, QTS is no longer leasing space at
the Secaucus, New Jersey; London, United Kingdom and Hong Kong facilities.
These leased facilities consist of approximately 70,513 gross square feet with approximately 36,413 total operating
NRSF, including approximately 31,862 raised floor operating NRSF. We are not currently redeveloping the leased
facilities, we have no current plans to further build out or expand any of these leased facilities.
As of December 31, 2019, the facilities were approximately 85% occupied by 62 customers. The majority of the
customers at these facilities are cloud and managed services customers which lease small amounts of space.
Santa Clara
Our Santa Clara, California facility was acquired in November 2007. The facility, which is owned subject to a long-term
ground sublease as described below, consists of two buildings containing approximately 135,000 gross square feet with
approximately 106,000 total operating NRSF, including approximately 60,000 raised floor operating NRSF. The facility
is situated on a 6.5-acre site in Silicon Valley. Several Silicon Valley Power substations supply 11 MW of utility power
to the facility, which is backed up by diesel generators. We believe that Silicon Valley is an ideal data center location
due to the large concentration of technology companies and the high local demand for data centers and cloud and
managed services.
As of December 31, 2019, the facility was approximately 88% occupied by 90 customers.
We are not currently redeveloping significant portions of the Santa Clara facility. Longer term, we can further expand
the facility by approximately 25,000 total operating NRSF, of which approximately 21,000 NRSF would be raised floor.
Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 131,000
total operating NRSF, including approximately 81,000 NRSF of raised floor.
55
The Santa Clara facility is subject to a ground lease. We acquired a ground sublease interest in the land on which the
Santa Clara facility is located in November 2007. The ground sublease expires in 2052, subject to two 10-year extension
options. The annual rent payable under the ground sublease increases annually by the lesser of 6% or the increase in the
Consumer Price Index for the San Francisco Bay area. The rent was recently adjusted effective October 1, 2018, and will
also be adjusted in 2038, to equal one-twelfth of an amount equal to 8.5% of the product of (i) the then fair market value
of the demised premises (without taking into account the value of the improvements existing on the land) calculated on a
per square foot basis, and (ii) the net square footage of the demised premises. During the term of the ground lease, we
have certain obligations to facilitate the provision of job training, seminars and research opportunities for students of a
community college that is adjacent to the property. We are the indirect holder of this ground sublease.
Sacramento
Our Sacramento, California facility, which we acquired in December 2012, is located 120 miles from our Santa Clara
facility on a 6.8-acre site. The facility currently consists of approximately 93,000 gross square feet with approximately
81,000 total operating NRSF, including approximately 55,000 raised floor operating NRSF. The Sacramento Municipal
Utility District supplies 8 MW of utility power to the facility, which is backed up by diesel generators. The facility is an
institutional grade data center with a classic “N+1” design that provides a single extra uninterruptible power supply
module for use in the event of a system failure. This facility will provide our regional customer base with business
continuity services. We believe the property’s location is a valuable complement to our Santa Clara facility for our
customers, as it will allow them to diversify their footprint in the California market with a single provider.
We are not currently redeveloping significant portions the Sacramento facility.
As of December 31, 2019, the facility was approximately 37% occupied by 132 customers. The majority of the
customers at this facility are colocation customers which lease small amounts of space. We are the fee simple owner of
the Sacramento facility.
Miami
Our Miami, Florida facility currently consists of approximately 30,000 gross square feet with approximately 26,000 total
operating NRSF, including 20,000 raised floor operating NRSF. The property sits on a 1.6-acre site located at Dolphin
Center with 4 MW of utility power supplied by Florida Power & Light and backed up by diesel generators. With a wind
rating of 185 miles-per-hour, the facility is built to withstand a Category 5 hurricane. Miami is a strategic location for us
because it is a gateway to the South American financial markets and a transcontinental Internet hub. Other than normally
recurring capital expenditures, we have no current plans to further build-out or expand the Miami facility.
As of December 31, 2019, the facility was approximately 71% occupied by 101 customers. We intend to continue to
lease-up this property. We are the fee simple owner of the Miami facility.
Jersey City
Our Jersey City, New Jersey facility is a leased facility that consists of approximately 122,000 gross square feet with
approximately 88,000 total operating NRSF, including approximately 32,000 raised floor operating NRSF. The Jersey
City facility was originally leased by another party in March 2004 and we acquired the lease in October 2006 when we
acquired the lessee. The lease expires in September 2026 and is subject to one five-year extension option. The facility
was redeveloped in November 2006, and we subsequently leased it to service customers in New Jersey and New York.
The facility is comprised of four floors of a 19 story building located on one city block in the metropolitan New York
City area, six miles from Manhattan. PSE&G supplies 7 MW of utility power to the facility, which is backed up by
diesel generators. The facility also contains a small amount of “Class A” office space. We believe that the location in
Jersey City provides us with a crucial presence in the tri-state area, where space is highly coveted given the strong
demand from financial services firms.
We are not currently redeveloping significant portions of the Jersey City facility. Longer term, we can further expand the
facility by approximately 21,000 NRSF of raised floor. Upon completion of the build-out of the facility, we anticipate
that the facility would contain approximately 109,000 total operating NRSF, including approximately 53,000 NRSF of
raised floor.
56
As of December 31, 2019, the facility was approximately 76% occupied by 57 customers.
Princeton
Our Princeton, New Jersey facility, which we acquired on June 30, 2014, is located on approximately 194 acres and
consists of approximately 554,000 gross square feet, including approximately 58,000 square feet of raised floor, and 22
MW of available utility power. Concurrently with acquiring this data center we entered into a 10 year lease for the
facility’s 58,000 square feet of raised floor with Atos, an international information technology services company
headquartered in Bezos, France. The lease includes a 15 year renewal at the option of Atos.
We are not currently redeveloping significant portions of the Princeton facility. Longer term, we can expand the facility
by approximately 372,000 total operating NRSF, of which approximately 100,000 NRSF would be raised floor. Upon
completion of the build-out of the facility, we anticipate that the facility would contain approximately 544,000 total
operating NRSF, including approximately 158,000 NRSF of raised floor.
As of December 31, 2019, the facility was approximately 100% occupied by 1 customer.
Piscataway
Our Piscataway, New Jersey facility, which we acquired on June 6, 2016, currently consists of approximately 360,000
gross square feet with approximately 222,000 total operating NRSF, including approximately 104,000 raised floor
operating NRSF. The property is located on a 38-acre campus and includes an on-site 111 MW substation as well as
solar panels that produce approximately 2 MW of power.
The Piscataway facility is included in our development pipeline. During the year ended December 31, 2019, we placed
approximately 5,000 NRSF of raised floor into service. Our current under construction redevelopment plans call for the
addition of up to 9,000 total operating NRSF, including 5,000 NRSF of raised floor. We anticipate that this expansion
will cost approximately $1 million in the aggregate based on current estimates (in addition to costs already incurred as of
December 31, 2019). Longer term, we can further expand the facility by approximately 123,000 total operating NRSF,
of which approximately 67,000 would be raised floor. Upon completion of the build-out of the facility, we anticipate that
the facility would contain approximately 354,000 total operating NRSF, including approximately 176,000 NRSF of
raised floor.
As of December 31, 2019, the facility was approximately 86% occupied by 57 customers.
Fort Worth
Our Forth Worth, Texas facility, which we acquired on December 16, 2016, is located on approximately 53 acres and
consists of approximately 262,000 gross square feet, including approximately 38,000 square feet of raised floor and 50
MW of available utility power. The facility is located approximately 20 miles from our Irving, Texas data center.
The Fort Worth facility is included in our development pipeline, as we plan to convert the facility into an operating data
center in multiple phases. During the year ended December 31, 2019, we placed approximately 27,000 raised floor
NRSF into service. Our current under construction redevelopment plans call for the addition of up to approximately
14,000 total operating NRSF, including approximately 14,000 NRSF of raised floor. We anticipate that this expansion
will cost (in addition to costs already incurred as of December 31, 2019) approximately $2 million in the aggregate
based on current estimates. Longer term, we can further expand the facility by approximately 115,000 total operating
NRSF, of which approximately 28,000 would be raised floor. Upon completion of the build-out of the facility, we
anticipate that the facility would contain approximately 251,000 total operating NRSF, including approximately 80,000
NRSF of raised floor.
As of December 31, 2019, the facility was approximately 100% occupied by 12 customers.
57
Ashburn
In August 2017, we completed the acquisition of approximately 24 acres of land in Ashburn, Virginia. We constructed a
mega data center facility on the acquired land parcel, with the first phase in-serviced during the year ended December
31, 2018, and the Company is continuing to develop and expand the property. Ultimately, we believe the 24 acre parcel
of land can support approximately 50 megawatts of available utility power, 445,000 gross square feet and 178,000
square feet of raised floor capacity upon completion.
The Ashburn facility is included in our development pipeline, as we plan to expand the mega data center in multiple
phases. The first phase was complete in mid-2018 as we placed approximately 14,000 raised floor NRSF into service.
Additionally, during the year ended December 31, 2019, we placed approximately 54,000 raised floor NRSF into
service. Our current under construction development plans call for up to approximately 151,000 total operating NRSF,
including approximately 74,000 NRSF of raised floor. We anticipate that this expansion will cost (in addition to costs
already incurred as of December 31, 2019) approximately $65 million in the aggregate based on current estimates.
Longer term, we can further expand the facility by approximately 106,000 total operating NRSF, of which
approximately 36,000 would be raised floor. Upon completion of the build-out of the facility, we anticipate that the
facility would contain approximately 408,000 gross square feet, including approximately 178,000 NRSF of raised floor.
In addition, in October 2017, we completed the acquisition of approximately 28 acres of land in Ashburn, Virginia, that
we believe could also be developed to provide an additional 2 million total operating NRSF, of which approximately 1
million NRSF would be raised floor. These 28 acres of undeveloped land are not included in our current development
plans or property table.
As of December 31, 2019, the facility was approximately 95% occupied by 12 customers.
Dulles
Our Vault facility in Dulles, Virginia consists of approximately 88,000 gross square feet, including approximately
31,000 square feet of raised floor NRSF and 13 MW of available utility power. The data center buildings were built from
the ground up to stringent Sensitive Compartmented Information Facility standards set by the Department of Defense
and National Security Agency. The Dulles campus has two data center buildings and we initiated a plan in the fourth
quarter of 2019 to abandon one of the buildings and relocate customers from the smaller and older facility being
abandoned to the newer facility in an effort to better optimize our operating cost structure. In addition, the Dulles data
center is located a quarter of a mile from our Ashburn data center.
We acquired the Dulles, Virginia campus as part of our acquisition of Carpathia on June 16, 2015. From the Carpathia
acquisition date through October 5, 2017, the facility was subject to a lease financing obligation. On October 6, 2017,
the Company completed the buyout of the Dulles facility. At the time of the Dulles facility purchase the lease financing
obligation was approximately $17.8 million and the Company purchased the property for approximately $34.1 million
cash, for a net purchase price of $16.3 million.
The Dulles facility is included in our development pipeline. Longer term, we can further expand the existing facility by
approximately 18,000 NRSF of raised floor. Upon completion of the build-out of the facility, we anticipate that the
facility would contain approximately 87,000 total operating NRSF, including approximately 48,000 NRSF of raised
floor.
As of December 31, 2019, the facility was approximately 68% occupied by 99 customers.
Groningen, Netherlands and Eemshaven, Netherlands
In April 2019 we completed the acquisition of two data centers in the Netherlands for approximately $44 million in cash
consideration, including closing costs. The two facilities, in Groningen and Eemshaven, have approximately 160,000
square feet of raised floor capacity and over 35 megawatts of built out available utility power.
As of December 31, 2019, the Groningen data center was largely stabilized with over 30 colocation tenants and had
built-out capacity representing approximately 10 gross megawatts of power and 45,000 square feet of raised floor data
center space.
58
The Eemshaven facility, which was vacant as of December 31, 2019, was originally constructed to support a single
hyperscale tenant and has built-out capacity representing approximately 28 gross megawatts of power and 113,000
square feet of raised floor data center space. The facility is strategically located adjacent to multiple hyperscale
customer-owned data center deployments, including a 500+ megawatt data center campus operated by one of the largest
hyperscale cloud providers in the world. In addition, the facility is located in close proximity to multiple transatlantic
fiber cable landings providing access to multiple markets within Europe and North America. QTS anticipates investing
incremental capital to recommission the facility in order to position the Eemshaven data center with sellable capacity in
future years.
Phoenix
In July 2017, we completed the acquisition of approximately 84 acres of land in Phoenix, Arizona to be used for future
development.
Hillsboro
In October 2017, we completed the acquisition of approximately 92 acres of land in Hillsboro, Oregon to be used for
future development. Ultimately, we believe the 92 acre parcel of land can support approximately 250 megawatts of
available utility power, 1.5 million gross square feet and 1.0 million square feet of raised floor capacity upon
completion.
The Hillsboro facility is included in our development pipeline, as we plan to bring online the mega data center in
multiple phases. The first phase will consist of 27 megawatts of power capacity, 158,000 gross square feet and 85,000
square feet of raised floor capacity. We anticipate that this first phase of development will cost (in addition to the $7
million already incurred as of December 31, 2019) approximately $15 million in the aggregate based on current
estimates.
Manassas
In March 2018, we completed the acquisition of approximately 61 acres of land in Manassas, Virginia. The land is
currently being used to support the construction of a data center, which the Company completed and delivered Phase 1 in
the first quarter of 2019. Additionally, during the three months ended September 30, 2018, the Company completed the
acquisition of approximately 57 acres of additional land in Manassas, Virginia to be used for future development which
is adjacent to the aforementioned 61 acres of land in Manassas.
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 the Manassas data center, and Alinda contributed cash, in each case, in
exchange for a 50% interest in the unconsolidated entity (which includes a 50% interest in future income). The Company
received approximately $53 million in cash plus a 50% equity interest in the unconsolidated entity at closing in exchange
for contributing the data center to the unconsolidated entity. Under the agreement, we serve as the entity’s operating
member, subject to authority and oversight of a board appointed by us and Alinda, and separately we serve as manager
and developer of the facility in exchange for management and development fees. The 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 agreements based
on similar terms and 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. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Factors That May Influence Future Results of Operations and Cash
Flows—Unconsolidated Entity.”
59
Overland Park
The Overland Park, Kansas facility, known as the J. Williams Technology Center, is a leased facility consisting of
approximately 33,000 gross square feet, with approximately 8,000 total operating NRSF, including approximately 2,500
raised floor operating NRSF. Kansas City Power & Light supplies approximately 1 MW of utility power, which is
backed up by a diesel generator. The J. Williams Technology Center has housed the corporate headquarters of the
Quality Group of Companies, LLC. (“QGC”) since September 2003. We lease the facility under a lease with an entity
controlled by our Chairman and Chief Executive Officer, which was entered into in January 2009 and expires in
December 2023. This building, while containing a small data center, is primarily utilized as our corporate headquarters.
Other than normally recurring capital expenditures and expansion of our own office space at our headquarters, we have
no current plans to further build-out or expand the raised floor at our Overland Park data center.
As of December 31, 2019, the facility was approximately 55% occupied by 11 customers.
Lenexa
Our Lenexa, Kansas property, which was acquired in 2004, contains approximately 35,000 gross square feet. The
Lenexa property does not currently operate as a data center, nor do we intend to operate it as a data center. We have
historically used this property primarily as a warehouse, but currently lease approximately 22,000 square feet to a tenant
for general office use, and 12,205 square feet to a tenant as general office and warehouse space. Other than minimal
normally recurring capital expenditures, we have no current plans to further build out or expand the Lenexa property.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of our business, we are subject to claims for negligence and other 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. For additional information with respect to current legal proceedings, refer to Item 8 –
Note 11 – Commitments and Contingencies in “Financial Statements and Supplementary Data” included in this Annual
Report.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
QTS’s common stock is listed on the New York Stock Exchange (“NYSE”) and trade under the symbol “QTS.” As of
February 25, 2020, we had 30 holders of record of our common stock. This figure does not reflect the beneficial
ownership of shares held in nominee name.
QTS also has 128,408 shares of Class B common stock outstanding, which are not listed on any exchange. The Class B
common stock is held by one registered holder, Chad L. Williams, our Chairman and Chief Executive Officer.
There is no established public trading market for the Operating Partnership’s limited partnership units. As of February
25, 2020, the Operating Partnership had 24 holders of record of its Class A units.
Performance Graph
The following line graph sets forth, for the period from December 31, 2014, through December 31, 2019, a comparison
of the percentage change in the cumulative total stockholder return on our common stock compared to the cumulative
total return of the S&P 500 Market Index and the MSCI US REIT Index (“RMZ”). The graph assumes that $100 was
invested on December 31, 2014, in shares of our common stock and each of the aforementioned indices and that all
60
dividends were reinvested without the payment of any commissions. There can be no assurance that the performance of
our shares will continue in line with the same or similar trends depicted in the graph below.
QTS
S&P 500
MSCI US REIT
$170
$160
$150
$140
$130
$120
$110
$100
$90
Dec 31,
2014
Dec 31,
2015
Dec 31,
2016
Dec 31,
2017
Dec 31,
2018
Dec 31,
2019
Pricing Date
Dec. 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dec. 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dec. 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dec. 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dec. 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dec. 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
QTS
S&P 500
100.00
133.30
146.72
160.05
109.49
160.37
100.00
99.27
108.74
129.86
121.76
156.92
MSCI US REIT
100.00
98.49
102.65
103.53
94.59
114.40
This performance graph shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or incorporated by reference into any filing by us under the Securities Act of 1933, as amended, or
the Securities Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Unregistered Sales of Equity Securities
QTS did not sell any equity securities during the fiscal year ended December 31, 2019 that were not registered under the
Securities Act of 1933, as amended.
QTS from time to time issues shares of Class A common stock pursuant to the QTS Realty Trust, Inc. 2013 Equity
Incentive Plan (the “2013 Equity Incentive Plan”) upon exercise of stock options issued and issuance of restricted stock
under the 2013 Equity Incentive Plan, upon redemption of Class A units of limited partnership of the Operating
Partnership (either through Class A units previously held or those received from conversion of Class O units from the
QualityTech, LP 2010 Equity Incentive Plan) and under the “at-the-market” equity offering program. Pursuant to the
partnership agreement of the Operating Partnership, each time QTS issues shares of its Class A common stock, the
Operating Partnership issues to QTS, its general partner, an equal number of Class A units. The units issued to QTS are
not registered under the Securities Act in reliance on Section 4(a)(2) of the Securities Act due to the fact that Class A
units were issued only to QTS and therefore, did not involve a public offering. During the year ended December 31,
2019, the Operating Partnership issued approximately 145,000 Class A units to QTS in connection with Class A unit
redemptions and stock option exercises and issuances pursuant to the 2013 Equity Incentive Plan, with a value
aggregating approximately $6.6 million based on the respective dates of the redemptions and option exercises, as
applicable. In addition, during the year ended December 31, 2019 the Operating Partnership issued 6,832,000 Class A
units to QTS, of which 4,000,000 shares related to the underwritten public offering in February of 2019 and 2,832,000
shares related to the settlement of a portion of the shares subject to forward sale agreements, with an aggregate value of
approximately $268.2 million, net of equity issuance costs.
61
The Operating Partnership also issues Class A units upon the conversion of Class O units of the Operating Partnership.
During the year ended December 31, 2019, the Operating Partnership issued less than 0.1 million Class A units to
holders of Class O units. These Class A units were not registered under the Securities Act in reliance on Section 4(a)(2)
of the Securities Act due to the fact that Class A units were issued only to the respective holders of Class O units at the
time of conversion and did not involve a public offering.
Repurchases of Equity Securities
During the year ended December 31, 2019, certain of our employees surrendered Class A common stock owned by them
to satisfy their statutory minimum 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 year ended December 31, 2019.
Period
January 1, 2019 through January 31, 2019 . . . . . . .
February 1, 2019 through February 28, 2019 . . . . .
March 1, 2019 through March 31, 2019 . . . . . . . . .
April 1, 2019 through April 30, 2019 . . . . . . . . . . .
May 1, 2019 through May 31, 2019 . . . . . . . . . . . . .
June 1, 2019 through June 30, 2019 . . . . . . . . . . . . .
July 1, 2019 through July 31, 2019 . . . . . . . . . . . . .
August 1, 2019 through August 31, 2019 . . . . . . . .
September 1, 2019 through September 30, 2019 . .
October 1, 2019 through October 31, 2019 . . . . . . .
November 1, 2019 through November 30, 2019 . . .
December 1, 2019 through December 31, 2019 . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total number
of shares
purchased (1)
Average price
paid per
share
Total number of
shares purchased as
part of publicly
announced plans or
programs
Maximum number of
shares that may yet
be purchased under the
plans or programs
639 $
2,926
45,132
2,303
—
8,415
—
980
11,042
9
—
13,798
85,244 $
37.05
42.11
42.43
45.42
—
43.28
—
45.97
51.41
51.25
—
54.27
45.67
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(1) The number of shares purchased represents shares of Class A common stock surrendered by certain of our employees to satisfy 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 statutory minimum federal income tax.
62
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data on a historical basis for QTS and the Operating Partnership, which
is also our historical predecessor. QTS is the sole general partner and majority owner of the Operating Partnership and as
of December 31, 2019, QTS owned an approximate 89.7% ownership interest in the Operating Partnership. Substantially
all of our assets are held by, and our operations are conducted through, the Operating Partnership.
The financial data as of years ended December 31, 2019, 2018, 2017, 2016 and 2015 and for the period from January 1,
2015 through December 31, 2019 is that of QTS and its majority-owned subsidiaries, which includes the Operating
Partnership.
The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto which are
included elsewhere in this Form 10-K. The data for QTS and the Operating Partnership are substantially the same with
the primary differences being the presentation of stockholders’ equity and partners’ capital, and the allocation of net
income (loss), whereby QTS retains its share of the net income (loss) based on its ownership of the Operating
Partnership, with the remaining balance being retained by the Operating Partnership. Therefore, the financial and
operating data presented in the following tables reflect the results of the Operating Partnership for all periods presented,
except where specifically noted.
($ in thousands, except share and per share data)
Statement of Operations Data
Revenues:
2019
Year Ended December 31,
2017
2016
2018
2015
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
465,123 $
15,695
480,818
413,620 $
36,904
450,524
379,787 $
66,723
446,510
333,383 $
68,980
402,363
258,196
52,887
311,083
Operating expenses:
Property operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate taxes and insurance . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction, integration and impairment costs . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on sale of real estate, net . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income and expense:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net loss of unconsolidated entity . . . . . . . . . . . . . .
Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit of taxable REIT subsidiaries . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
156,048
14,503
168,305
80,385
15,190
—
434,431
14,769
61,156
111
(26,593)
(1,523)
(50)
(1,473)
31,628
37
31,665
148,236
12,193
149,891
80,857
2,743
37,943
431,863
—
18,661
150
(28,749)
(605)
—
—
(10,543)
3,368
(7,175)
153,209
11,959
140,924
87,231
11,060
—
404,383
—
42,127
67
(30,523)
(19,992)
—
—
(8,321)
9,778
1,457
136,488
8,840
124,786
83,286
10,906
—
364,306
—
38,057
3
(23,159)
(192)
—
—
14,709
9,976
24,685
104,355
5,869
85,811
67,783
11,282
—
275,100
(164)
35,819
2
(21,289)
(468)
—
—
14,064
10,065
24,129
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(374)
2,715
(175)
(3,160)
(3,803)
Net income (loss) attributable to QTS Realty
Trust, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to common
31,291 $
(28,180)
(4,460) $
(16,666)
1,282 $
—
21,525 $
—
20,326
—
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,111 $
(21,126) $
1,282 $
21,525 $
20,326
Net income (loss) per share attributable to common shares:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.09) $
(0.09)
(0.44) $
(0.44)
0.01 $
0.01
0.47 $
0.46
0.54
0.53
54,836,801
54,836,801
50,432,590
50,432,590
48,380,964
55,855,683
46,205,937
53,962,234
37,568,109
45,353,170
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . $
1.76 $
1.64 $
1.56 $
1.44 $
1.28
63
Other Data (unaudited)
FFO available to common
2019
2018
The Company
Year Ended December 31,
2017
2016
2015
stockholders & OP unit holders (1) . . . . . . . . . . . . . . . . . $
Operating FFO (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized MRR in the period . . . . . . . . . . . . . . . . . . . . .
MRR at period end (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOI (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDAre (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160,476 $
165,728
390,267
34,034
313,056
228,716
250,380
112,278 $
151,161
375,515
31,141
290,095
183,783
224,210
125,012 $
156,064
375,086
31,708
281,342
163,059
207,974
133,159 $
140,666
347,331
30,890
257,036
162,651
184,334
98,517
103,916
269,783
27,489
200,859
121,162
140,040
($ in thousands)
Balance Sheet Data
Real estate at cost * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net investment in real estate ** . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
The Company
December 31,
2017
2016
2015
3,230,428 $
2,671,868
3,223,533
1,453,065
2,812,856 $
2,345,212
2,861,969
1,345,117
2,357,322 $
1,962,499
2,415,056
1,229,929
1,964,857 $
1,647,023
2,086,470
965,826
1,583,153
1,343,217
1,747,339
861,569
* Reflects undepreciated cost of real estate assets, and does not include real estate intangible assets acquired in connection with acquisitions.
** Net investment in real estate includes building and improvements (net of accumulated depreciation), land, and construction in progress.
($ in thousands)
Cash Flow Data
Cash flow provided by (used for):
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
The Company
Year Ended December 31,
2017
2016
2015
199,490 $
(387,260)
191,396
191,273
(598,553)
410,796
$
170,323 $
(434,352)
262,692
153,794 $
(452,972)
299,954
109,787
(612,095)
500,324
64
(1) We calculate FFO in accordance with the standards established by the National Association of Real Estate
Investment Trusts, or 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 we 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 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. 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 other
REITs calculate Operating FFO on a comparable basis, between REITs.
A reconciliation of net income (loss) to FFO and Operating FFO is presented below:
(unaudited $ in thousands)
FFO
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Equity in net loss of unconsolidated entity . . . . . . . . . . . . . . . . .
Real estate depreciation and amortization . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of real estate, net . . . . . . . . . . . . . . . . . . . . .
Impairments of depreciated property . . . . . . . . . . . . . . . . . . . . .
Pro rata share of FFO from unconsolidated entity . . . . . . . . . . . .
FFO * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FFO available to common stockholders & OP unit
2019
Year Ended December 31,
2016
2017
2018
2015
31,665 $
1,473
156,387
(13,408)
11,461
1,078
188,656
(28,180)
(7,175) $
—
136,119
—
—
—
128,944
(16,666)
1,457 $
—
123,555
—
—
—
125,012
—
24,685 $
—
108,474
—
—
—
133,159
—
holders ** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160,476
112,278
125,012
133,159
Debt restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction, integration and impairment costs . . . . . . . . . . . . . .
Tax benefit associated with restructuring, transaction and
integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash reversal of deferred tax asset valuation allowance . . . .
Operating FFO available to common stockholders & OP
1,523
—
3,729
—
—
605
37,943
2,743
(2,408)
—
19,992
—
11,060
—
—
193
—
10,906
(3,592)
—
24,129
—
74,224
164
—
—
98,517
—
98,517
468
—
11,282
(3,176)
(3,175)
unit holders ** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
165,728 $
151,161 $
156,064
$
140,666
$
103,916
∗
Beginning January 1, 2018, pursuant to a NAREIT issued white paper, we disclose the amount of gains or losses from the sale of assets that are
incidental to our primary business included in FFO as well as impairment write-downs associated with assets that are incidental to our primary
business included in FFO. FFO for the year ended December 31, 2019 includes a $1.4 million gain on sale of real estate related to certain assets
considered incidental to our primary business and were included in the “Gain on sale of real estate, net” line item of the consolidated statements
of operations. FFO for the year ended December 31, 2018 includes $15.8 million of impairment losses related to certain non-real estate product
related assets that were considered incidental to our primary business and were included in the “Restructuring” line item of the consolidated
statement of operations.
** The Company’s 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.
65
(2) 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 the
Company’s 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. MRR
does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically
noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with
any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power
reimbursements. Management uses MRR and recognized MRR as supplemental performance measures because they
provide useful measures of increases in contractual revenue from our customer leases.
A reconciliation of total GAAP revenues to recognized MRR in the period and MRR at period-end is presented below:
(unaudited $ in thousands)
Recognized MRR in the period
Total period revenues (GAAP basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 480,818 $ 450,524 $ 446,510 $ 402,363 $
Less: Total period variable lease revenue from recoveries . . . . . . . . . . . . . .
Total period deferred setup fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total period straight line rent and other . . . . . . . . . . . . . . . . . . . . . . . . . .
(37,886)
(10,690)
(22,848)
(29,271)
(9,172)
(16,589)
(55,046)
(15,156)
(20,349)
(45,386)
(12,475)
(17,148)
2018
2019
Year Ended December 31,
2016
2017
Recognized MRR in the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 390,267 $ 375,515 $ 375,086 $ 347,331 $
MRR at period end*
Total period revenues (GAAP basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 480,818 $ 450,524 $ 446,510 $ 402,363 $
Less: Total revenues excluding last month . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues for last month of period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Last month variable lease revenue from recoveries . . . . . . . . . . . . . .
Last month deferred setup fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Last month straight line rent and other . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Pro rata share of MRR at period end of unconsolidated entity. . . . . . .
MRR at period end* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,034 $ 31,141 $ 31,708 $ 30,890 $
(438,810)
42,008
(4,578)
(1,333)
(2,413)
350
(412,041)
38,483
(3,822)
(1,015)
(2,505)
—
(366,385)
35,978
(3,247)
(968)
(873)
—
(406,345)
40,165
(3,175)
(1,123)
(4,159)
—
2015
311,083
(22,581)
(6,042)
(12,677)
269,783
311,083
(280,020)
31,063
(1,415)
(716)
(1,443)
—
27,489
∗
Does not include our booked-not-billed MRR balance, which was $7.8 million, $5.2 million, $3.9 million, $3.6 million and $4.8 million as of
years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.
66
(3) We calculate net operating income, or 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, debt restructuring costs, gain (loss) on extinguishment of debt,
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 (with the exception of the leased facilities acquired in 2015, which were
allocated a charge of 10% of cash revenues) 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.
A reconciliation of net income (loss) to NOI is presented below:
(unaudited $ in thousands)
Net Operating Income (NOI)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Equity in net loss of unconsolidated entity . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
Debt restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit of taxable REIT subsidiaries . . . . . . . . . . . . . . .
Transaction, integration and impairment costs . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of real estate, net . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOI from consolidated operations * . . . . . . . . . . . . $
Pro rata share of NOI from unconsolidated entity . . . . . . . . .
Total NOI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Breakdown of NOI by facility:
Atlanta (DC - 1) data center ** . . . . . . . . . . . . . . . . . . . . . . $
Atlanta-Suwanee data center . . . . . . . . . . . . . . . . . . . . . . . .
Richmond data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Irving data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dulles data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased data centers *** . . . . . . . . . . . . . . . . . . . . . . . . . . .
Santa Clara data center . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Piscataway data center . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Princeton data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sacramento data center . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chicago data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ashburn data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fort Worth data center . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other facilities **** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOI from consolidated operations * . . . . . . . . . . . . $
Pro rata share of NOI from unconsolidated entity . . . . . . . . .
Total NOI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2019
2018
2017
2016
2015
Year Ended December 31,
31,665 $
1,473
(111)
26,593
168,305
1,523
50
(37)
15,190
80,385
(14,769)
—
310,267 $
2,789
313,056 $
96,196 $
48,704
32,979
45,484
11,730
8,793
7,549
13,584
9,977
6,204
13,104
4,698
4,021
7,244
310,267 $
2,789
313,056 $
(7,175) $
—
(150)
28,749
149,891
605
—
(3,368)
2,743
80,857
—
37,943
290,095 $
—
290,095 $
87,060 $
48,165
33,445
42,621
16,944
9,695
8,344
12,266
9,729
7,448
8,878
1,250
902
3,348
290,095 $
—
290,095 $
1,457 $
—
(67)
30,523
140,924
19,992
—
(9,778)
11,060
87,231
—
—
281,342 $
—
281,342 $
80,648 $
48,365
40,919
32,870
21,672
12,006
11,378
9,395
9,598
6,804
4,652
—
268
2,767
281,342 $
—
281,342 $
24,685 $
—
(3)
23,159
124,786
193
—
(9,976)
10,906
83,286
—
—
257,036 $
—
257,036 $
81,074 $
45,760
30,752
16,608
19,384
24,131
13,703
5,627
9,544
7,734
167
—
3
2,549
257,036 $
—
257,036 $
24,129
—
(2)
21,289
85,811
468
—
(10,065)
11,282
67,783
164
—
200,859
—
200,859
69,861
41,088
20,959
5,547
10,391
19,154
14,352
—
9,461
7,516
—
—
—
2,530
200,859
—
200,859
*
Includes facility level general and administrative allocation charges of 4% of cash revenue for all facilities (with the exception of the leased
facilities acquired in 2015, which were allocated a charge of 10% of cash revenues through 2018). These allocated charges aggregated to $18.6
million, $20.8 million, $21.6 million, $20.6 million and $15.2 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015,
respectively.
** This property was formerly known as “Atlanta-Metro data center” but has been renamed “Atlanta (DC-1)” to distinguish between the existing
data center and the new property development.
*** At December 31, 2019 includes 7 facilities. All facilities are leased, including those subject to finance leases. During the quarter ended
December 31, 2019, the Company exited its Hong Kong and London facilities.
**** Consists of Miami, FL; Lenexa, KS; Overland Park, KS; Duluth, GA; and Groningen, Netherlands facilities.
67
(4) We calculate earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) in
accordance with the standards established by the National Association of Real Estate Investment Trusts
(“NAREIT”). EBITDAre represents net income (loss) (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 a measure 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.
In addition to EBITDAre, we calculate an adjusted measure of EBITDA, which we refer to as 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 “Pro rata share of EBITDAre from 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 calculated Adjusted EBITDA on a comparable basis,
between REITs.
We use 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
an indication of funds available to meet our cash needs, including our ability to make distributions to our
stockholders.
A reconciliation of net income (loss) to EBITDAre and Adjusted EBITDA is presented below:
(unaudited $ in thousands)
EBITDAre
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Equity in net loss of unconsolidated entity . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit of taxable REIT subsidiaries . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on disposition of depreciated property . . . . . . . .
Impairments of depreciated property . . . . . . . . . . . . . . . . . .
Pro rata share of EBITDAre from unconsolidated entity . . . .
EBITDAre * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA
Debt restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation expense . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction, integration and impairment costs . . . . . . . . . . .
Loss on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2019
2018
2017
2016
2015
Year Ended December 31,
31,665 $
1,473
26,593
(111)
(37)
168,305
(13,408)
11,461
2,775
228,716
(7,175) $
—
28,749
(150)
(3,368)
149,891
6,994
8,842
—
183,783
1,457 $
—
30,523
(67)
(9,778)
140,924
—
4,219
—
167,278
24,685 $
—
23,159
(3)
(9,976)
124,786
—
—
—
162,651
1,523
16,412
—
3,729
—
250,380 $
605
14,972
22,107
2,743
—
224,210 $
19,992
13,863
—
6,841
—
207,974 $
193
10,584
—
10,906
—
184,334 $
24,129
—
21,289
(2)
(10,065)
85,811
—
—
—
121,162
468
6,964
—
11,282
164
140,040
∗
Beginning January 1, 2018, pursuant to a NAREIT issued white paper, we disclose the amount of gains or losses from the sale of assets that are incidental to our
primary business included in EBITDAre as well as impairment write-downs associated with assets that are incidental to our primary business included in EBITDAre.
EBITDAre for the year ended December 31, 2019 includes a $1.4 million gain on sale of real estate related to certain assets considered incidental to our primary
business and were included in the “Gain on sale of real estate, net” line item of the consolidated statement of operations. No gains, losses or impairment write-downs
associated with assets incidental to our primary business were included in EBITDAre for the year ended December 31, 2018.
For more information on our use of Non-GAAP Financial Measures see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations ̶Non-GAAP Financial Measures.”
68
ITEM 7. 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.
You should read the following discussion and analysis in conjunction with QTS’s and the Operating Partnership’s
consolidated financial statements and related notes and “Risk Factors” contained elsewhere in this Form 10-K. Some of
the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information
with respect to our business and growth strategies, our expectations regarding the future performance of our business and
the other non-historical statements contained herein are forward-looking statements. See “Special Note Regarding
Forward-Looking Statements.” This Form 10-K contains stand-alone audited and unaudited financial statements and
other financial data for each of QTS and the Operating Partnership. See “Explanatory Note” for an explanation of the
few differences between these financial statements in the context of how QTS and the Operating Partnership operate as a
consolidated company.
Since the financial data presented in this Item 7 does not contain any differences between QTS and the Operating
Partnership, all periods presented reflect the operating results of the Operating Partnership.
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, and technology industries. We build out our data center facilities to accommodate both multi-tenant
environments (hybrid colocation) and for executed leases that require significant amounts of space and power
(hyperscale), depending on the needs of each facility at that time. We believe that we own and operate one of the largest
portfolios of multi-tenant data centers in the United States, as measured by gross square footage, and have the capacity to
nearly double our sellable data center raised floor space without constructing or acquiring any new buildings. In
addition, we own more than 730 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.
We operate a portfolio of 24 data centers 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.
QTS is a Maryland corporation formed on May 17, 2013 and is the sole general partner and majority owner of
QualityTech, LP, our operating partnership (the “Operating Partnership”). Substantially all of our assets are held by, and
our operations are conducted through, the Operating Partnership. QTS’ Class A common stock trades on the New York
Stock Exchange under the ticker symbol “QTS.”
The Operating Partnership is a Delaware limited partnership formed on August 5, 2009 and was QTS’ historical
predecessor prior to QTS’s initial public offering on October 15, 2013 (the “IPO”), having operated the Company’s
business until the IPO. As of December 31, 2019, QTS owned an approximate 89.7% ownership interest in the
Operating Partnership.
We believe that QTS has operated and has been organized in conformity with the requirements for qualification and
taxation as a REIT commencing with its taxable year ended December 31, 2013. Our qualification as a REIT, and
maintenance of such qualification, depends upon our ability to meet, on a continuing basis, various complex
69
requirements under the Internal Revenue Code of 1986, as amended (the “Code”) relating to, among other things, the
sources of our gross income, the composition and values of our assets, our distributions to our stockholders and the
concentration of ownership of our equity shares.
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 and the world’s largest global Internet
and cloud companies, to major healthcare, telecommunications and software and web-based companies.
As a result of our diverse customer base, customer concentration in our portfolio is limited. As of December 31, 2019,
only five of our more than 1,200 customers individually accounted for more than 3% of our monthly recurring revenue
(“MRR”) (as defined below), with the largest customer accounting for approximately 10.9% of our MRR and the next
largest customer accounting for only 5.8% of our MRR.
Our Portfolio
We operate 24 data centers located throughout the United States, Canada and Europe, containing an aggregate of
approximately 7.2 million gross square feet of space, including approximately 3.2 million “basis-of-design” raised floor
square feet (approximately 96.0% of which is wholly owned by us including our data center in Santa Clara which is
subject to a long-term ground lease), which represents the total sellable data center raised floor potential of our existing
data center facilities. This reflects the maximum amount of space in our existing buildings that could be leased following
full build-out, depending on the space and power configuration that we deploy. As of December 31, 2019, this space
included approximately 1.7 million raised floor operating net rentable square feet, or NRSF, plus approximately 1.6
million square feet of additional raised floor in our development pipeline, of which approximately 167,000 raised floor
square feet is expected to become operational by December 31, 2020. Of the total 167,000 raised floor square feet in our
development pipeline that is expected to become operational by December 31, 2020, approximately 142,000 square feet
was related to customer leases which had been executed as of December 31, 2019 but not yet commenced. Our facilities
collectively have access to approximately 894 megawatts (“MW”) of available utility power. Access to power is
typically the most limiting and expensive component in developing a data center and, as such, we believe our significant
access to power represents an important competitive advantage.
Key Operating Metrics
The following sets forth definitions for our key operating metrics. These metrics may differ from similar definitions used
by other companies.
Monthly Recurring Revenue (“MRR”). 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 does
not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. MRR
does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also
excludes operating expense and power reimbursements.
Annualized Rent. We define annualized rent as MRR multiplied by 12.
Rental Churn. We define rental churn as the 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.
Leasable Raised Floor. We define leasable raised floor as the amount of raised floor square footage that we have leased
plus the available capacity of raised floor square footage that is in a leasable format as of a particular date and according
70
to a particular product configuration. The amount of our leasable raised floor may change even without completion of
new development projects due to changes in our configuration of space.
Percentage (%) Occupied and Billing Raised Floor. We define percentage occupied and billing raised floor as the
square footage that is subject to a signed lease for which billing has commenced as of a particular date compared to
leasable raised floor based on the current configuration of the properties as of that date, expressed as a percentage.
Booked-not-Billed. We define booked-not-billed as our customer leases that have been signed, but for which lease
payments have not yet commenced.
Factors That May Influence Future Results of Operations and Cash Flows
Recent Accounting Pronouncements. We adopted the provisions of Accounting Standards Codification (“ASC”) Topic
606, Revenue from Contracts with Customers, effective January 1, 2018. We also adopted ASC Topic 842, Leases,
effective January 1, 2019. For additional information with respect to the impact of the standards on our financial
condition and results of operations, refer to Item 8 – Note 2 – Summary of Significant Accounting Policies in “Financial
Statements and Supplementary Data” included in this Annual Report.
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 December 31, 2019, we had in place customer leases generating revenue for approximately 91% 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. Future economic downturns, regional downturns or downturns in the
technology industry, new technological developments, evolving industry demands and other similar factors described
above under “Risk Factors” could impair our ability to attract new customers or renew existing customers’ leases on
favorable terms, or at all, and could adversely affect our customers’ ability to meet their obligations to us. Negative
trends in one or more of these factors could adversely affect our revenue in future periods, which would impact our
results of operations and cash flows. We also at times may elect to reclaim space from customers in a negotiated
transaction where we believe that we can redevelop and/or re-lease that space at higher rates, which may cause a
decrease in revenue until the space is re-leased.
Leasing Arrangements. As of December 31, 2019, 45% of our MRR came from customers which individually occupied
greater than or equal to 6,600 square feet of space (or approximately 1 MW of power), with the remaining 55%
attributable to customers utilizing less than 6,600 square feet of space. As of December 31, 2019, approximately 49% of
our MRR was attributable to the metered power model, the majority of which is comprised of customers that
individually occupy greater than 6,600 square feet of space. 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 December
31, 2019, the remaining approximately 51% 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 and customer downgrades at renewal and renew,
lease and re-lease expiring space will impact our results of operations and cash flows. Leases which have commenced
billing representing approximately 16% and 19% of our total leased raised floor are scheduled to expire during the years
ending December 31, 2020 (including all month-to-month leases) and 2021, respectively. These leases also represented
approximately 29% and 19%, respectively, of our annualized rent as of December 31, 2019. 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 be at or below the then-current market rents.
71
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 or the issuance of additional equity. We believe that we
have sufficient access to capital from our current cash and cash equivalents, and borrowings under our credit facilities to
fund our development and redevelopment projects.
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 118,000
square foot hyperscale data center under development in Manassas, Virginia), and Alinda contributed cash, in each case,
in exchange for a 50% interest in the unconsolidated entity. The Manassas data center, which is currently leased to a
global cloud-based software company pursuant to a 10-year lease agreement, was contributed at an expected stabilized
value upon completion of approximately $240 million. At the closing, we received approximately $53 million in net
proceeds, which was funded from the cash contributed by Alinda and also borrowings under a $164.5 million secured
credit facility entered into by the unconsolidated entity at closing that carries a rate of LIBOR plus 2.25%. We used these
distributions to pay down our revolving credit facility and for general corporate purposes. Under the agreement, we will
receive additional distributions in the future as and when we complete development of each phase of the Manassas data
center and place it into service, which allows us to receive distributions for Alinda’s share of the joint venture 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 us and Alinda, 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 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. We
also incur general and administrative expenses, including expenses relating to senior management, our in-house sales
and marketing organization, cloud and managed services support personnel and legal, human resources, accounting and
other expenses related to professional services. We also will incur additional expenses arising from being a publicly
traded company, including employee equity-based compensation. Increases or decreases in our operating expenses will
impact our results of operations and cash flows. 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 booked-not-billed balances.
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 regards 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.
72
The following leasing and booked-not-billed statistics include results of the consolidated business as well as QTS’ 50%
pro rata share of revenue from the unconsolidated entity, if any.
Incremental
New/modified leases signed . . Three Months Ended December 31, 2019
Year Ended December 31, 2019
373
1,741
Number of Annualized rent (2) Annualized Rent (2), Net
Leases
per leased sq ft
$
$
465
465
$
$
of Downgrades
27,742,166
76,056,932
Renewed Leases (1) . . . . . . . . . Three Months Ended December 31, 2019
Year Ended December 31, 2019
90
375
Number of
Renewed Annualized rent (2)
Leases
per leased sq ft Annualized Rent (2)
$
$
$
$
11,522,508
62,778,972
777
673
Rent Change
(2.2) %
1.0 %
Period
Period
(1) We define renewals as leases where the customer retains the same amount of space before and after renewals, which facilitates rate
comparability.
(2) We define annualized rent as MRR as of December 31, 2019, multiplied by 12.
The following table outlines the booked-not-billed balance as of December 31, 2019 and how that will affect revenue in
2020 and subsequent years:
Booked-not-billed (1)
MRR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Incremental revenue (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annualized revenue (3)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020
3,457,580 $
23,969,832
41,490,960 $
2021
2,712,087 $
22,511,306
32,545,044 $
Thereafter
1,586,883 $
19,042,596
19,042,596 $
Total
7,756,550
93,078,600
(1)
(2)
Includes the Company’s consolidated booked-not-billed balance in addition to booked-not-billed revenue associated with the unconsolidated
entity at QTS’s pro rata share of the book-not-billed revenue. Of the $93.1 million annualized booked-not-billed revenue, approximately $1.6
million related to QTS’s pro rata share of booked-not-billed revenue associated with the unconsolidated entity.
Incremental revenue represents the expected amount of recognized MRR for the business in the period based on when the booked-not-billed
leases commence throughout the period.
(3) Annualized revenue represents the booked-not-billed MRR multiplied by 12, demonstrating how much recognized MRR might have been
recognized if the booked-not-billed leases commencing in the period were in place for an entire year.
(4) As of December 31, 2019, adjusting booked-not-billed revenue for the effects of revenue which had begun recognition via straight line rent, the
Company’s annualized booked-not-billed balance was $60.7 million, of which $41.6 million was attributable to 2020, $14.2 million was
attributable to 2021, and $4.9 million was attributable to years thereafter.
The Company estimates the remaining cost to provide the space, power, connectivity and other services to the customer
contracts which had not billed as of December 31, 2019 to be approximately $351 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
existing space which was previously developed.
73
Results of Operations
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Changes in revenues and expenses for the year ended December 31, 2019 compared to the year ended December 31,
2018 are summarized below (in thousands):
Revenues:
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 465,123 $ 413,620 $ 51,503
36,904 (21,209)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,294
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,818 450,524
15,695
12 %
(57)%
7 %
Operating expenses:
Year Ended December 31,
2019
2018
$ Change % Change
Property operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,048 148,236
7,812
Real estate taxes and insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,193
2,310
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,305 149,891
18,414
80,857
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(472)
12,447
2,743
Transaction, integration and impairment costs . . . . . . . . . . . . . . . . . . . .
37,943 (37,943)
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,568
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434,431 431,863
14,769
—
42,495
18,661
Gain on sale of real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income and expense:
80,385
15,190
—
14,769
61,156
14,503
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,593) (28,749)
(605)
Debt restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,523)
—
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(50)
(1,473)
Equity in net loss of unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . .
—
31,628 (10,543)
Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,368
Tax benefit of taxable REIT subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
(39)
2,156
(918)
(50)
(1,473)
42,171
(3,331)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,665 $ (7,175) $ 38,840
111
37
5 %
19 %
12 %
(1)%
454 %
(100)%
1 %
* %
228 %
(26)%
(7)%
152 %
* %
* %
400 %
(99)%
541 %
Revenues. Total revenues for the year ended December 31, 2019 were $480.8 million compared to $450.5 million for
the year ended December 31, 2018. The increase of $30.3 million, or 7%, was largely attributable to growth in our
hyperscale and hybrid colocation offerings in the Atlanta (DC-1), Chicago, Ashburn, Irving, Fort Worth and Piscataway
data centers as well as revenue from the Groningen data center which was acquired in April 2019. In addition, increased
utility usage by our metered power customers increased our revenue from operating cost reimbursement by
approximately $9.7 million compared to the prior year. Offsetting these increases were revenue reductions in various
leased facilities associated with our transition from certain cloud and managed services offerings as a part of the strategic
growth plan implemented in 2018.
Property Operating Costs. Property operating costs for the year ended December 31, 2019 were $156.0 million
compared to property operating costs of $148.2 million for the year ended December 31, 2018, an increase of $7.8
million, or 5%. The breakdown of our property operating costs is summarized in the table below (in thousands):
Year Ended December 31,
2019
2018
$ Change % Change
Property operating costs:
Direct payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,618 $ 22,498 $
13,446
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,525
Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,598
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,775
Management fee allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,394
Total property operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 156,048 $ 148,236 $
12,882
12,125
68,292
18,571
20,560
1,120
(564)
(2,400)
9,694
(2,204)
2,166
7,812
5 %
(4)%
(17)%
17 %
(11)%
12 %
5 %
74
Total property operating costs increased due to continued growth in our business primarily attributable to an increase in
utilities expense, direct payroll expenses as well as bad debt expense (which is included in “Other”). These increases
were partially offset by expense reductions in repairs and maintenance, management fee allocation and rent expense
primarily related to our transition from our cloud and managed services offerings associated with our 2018 strategic
growth plan.
Real Estate Taxes and Insurance. Real estate taxes and insurance for the year ended December 31, 2019 were
$14.5 million compared to $12.2 million for the year ended December 31, 2018. The increase of $2.3 million, or 19%,
was primarily attributable to an increase in real estate taxes and personal property taxes at our Irving, Ashburn, Chicago
and Fort Worth facilities.
Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2019 was $168.3
million compared to $149.9 million for the year ended December 31, 2018. The increase of $18.4 million, or 12%, was
attributable to additional depreciation expense primarily related to an increase in assets placed in service in our Ashburn,
Atlanta (DC-1), Chicago, and Irving facilities.
General and Administrative Expenses. General and administrative expenses were $80.4 million for the year ended
December 31, 2019 compared to general and administrative expenses of $80.9 million for the year ended December 31,
2018, a decrease of $0.5 million, or 1%. The decrease was primarily attributable to the implementation of the
aforementioned strategic growth plan, resulting in a decrease in net payroll expenses and software licenses, partially
offset by an increase in equity-based compensation expense and professional services fees.
Transaction, Integration & Impairment Costs. Transaction, integration and impairment costs were $15.2 million for the
year ended December 31, 2019, compared to $2.7 million for the year ended December 31, 2018. The increase was
primarily attributable to a $11.5 million impairment recognized in 2019 related to a write-down of certain data center
assets and equipment in one of our Dulles, Virginia data centers. The Dulles campus has two data center buildings and
we initiated a plan in the fourth quarter of 2019 to abandon one of the buildings and relocate customers from the smaller
and older facility being abandoned to the newer facility in an effort to better optimize our operating cost structure. The
remaining costs for the year ended December 31, 2019 and December 31, 2018 are primarily attributable to costs related
to the examination of actual and potential acquisitions.
Restructuring Costs. Restructuring costs, which are costs associated with our strategic growth plan in the prior year,
were $37.9 million for the year ended December 31, 2018, primarily related to employee severance expenses,
professional fees, acceleration of equity-based compensation awards and the sale or write-off of certain product-related
assets. No restructuring costs were recognized during the year ended December 31, 2019.
Gain on sale of real estate, net. The gain on sale of real estate net incurred during the year ended December 31, 2019
primarily relates to a $13.4 million net gain realized upon sale of the Manassas facility to the unconsolidated entity
which represents the fair value of cash and noncash consideration received in the sale transaction, net of costs directly
related to the sale in excess of the carrying amounts of the assets. In addition, during the year ended December 31, 2019,
we recognized a $1.4 million gain on sale of certain ancillary land improvements near our Atlanta (DC-1) facility.
Interest Expense. Interest expense for the year ended December 31, 2019 was $26.6 million compared to $28.7 million
for the year ended December 31, 2018. The decrease of $2.2 million, or 7%, was due primarily to a higher level of
capitalized interest due to a larger construction in progress balance associated with continued ongoing capital
development projects, partially offset by an increase in interest costs related to an increase in the average total debt
balance of $149.9 million.
Debt Restructuring Costs. Debt restructuring costs for the year ended December 31, 2019 were $1.5 million compared
to debt restructuring costs of $0.6 million for the year ended December 31, 2018. The increase in debt restructuring costs
of $0.9 million was primarily attributable to an amendment and restatement of our unsecured credit facility during the
fourth quarter of 2019 which included a new seven year term loan, increased capacity of the revolving credit facility and
extended maturity dates. The debt restructuring costs in 2018 related to similar extension of terms (however, did not
incorporate a new term loan), modification of various covenants and reduced pricing associated with the credit facility.
Other Income (Expense). Other income (expense) represents the impact of foreign currency exchange rate fluctuations
on the value of investments in foreign subsidiaries whose functional currencies are other than the U.S. Dollar. We
75
recognized $0.1 million of foreign currency loss related to our investment in the Netherlands facilities during the year
ended December 31, 2019, with no such expenses recognized during the prior year.
Equity in net income (loss) of unconsolidated entity. This represents equity in earnings (loss) of our unconsolidated
entity formed during the first quarter of 2019 that owns our Manassas data center. Equity in net loss was $1.5 million for
the year ended December 31, 2019, which was primarily attributable to real estate depreciation expenses, with no such
equity in earnings (loss) recognized during the prior year.
Tax Benefit of Taxable REIT Subsidiaries. Tax benefit of taxable REIT subsidiaries for the year ended December 31,
2019 was less than $0.1 million compared to $3.4 million for the year ended December 31, 2018. The decrease in tax
benefit was primarily attributable to an increase in valuation allowances recorded against current period operating losses
relative to the prior period.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
For a discussion comparing the Company’s financial condition and results of operations for the year ended December
31, 2018 compared to the year ended December 31, 2017 refer to subsection “Results of Operations - Year Ended
December 31, 2018 Compared to Year Ended December 31, 2017” of Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31,
2018, which is incorporated by reference herein. This discussion should be read in conjunction with Item 8. Financial
Statements and Supplementary Data.
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; (5) NOI; (6) EBITDAre; and
(7) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to,
net income or loss and cash flows from operating activities as a measure of our operating performance. FFO, Operating
FFO, Adjusted Operating FFO, MRR, NOI, EBITDAre and Adjusted EBITDA, as calculated by us, may not be
comparable to FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDAre and Adjusted EBITDA as
reported by other companies that do not use the same definition or implementation guidelines or interpret the standards
differently from us.
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 performance measure because, in excluding real estate-related depreciation and amortization, impairment
and gains and losses from property dispositions related to our primary business, it provides a performance measure that,
when compared year over year, captures trends in occupancy rates, rental rates and operating costs.
Due to the volatility and nature of certain significant charges and gains recorded in our operating results that
management believes are not reflective of our core operating performance, management computes an adjusted measure
of FFO, which we refer to as Operating funds from operations (“Operating FFO”). Operating FFO is a non-GAAP
measure that is used as a supplemental operating measure and to provide additional information to users of the financial
statements. We generally calculate Operating FFO as FFO excluding certain non-routine charges and gains and losses
that management believes are not indicative of the results of our operating real estate portfolio. We believe that
Operating FFO provides investors with another financial measure that may facilitate comparisons of operating
performance between periods and, to the extent they calculate Operating FFO on a comparable basis, between REITs.
76
Adjusted Operating Funds From Operations (“Adjusted Operating FFO”) is a non-GAAP measure that is used as a
supplemental operating measure and to provide additional information to users of the financial statements. We calculate
Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment,
paid leasing commissions, amortization of deferred financing costs and bond discount, non-real estate depreciation and
amortization, straight line rent adjustments, deferred taxes and equity-based compensation.
We offer these measures because we recognize that FFO, Operating FFO and Adjusted Operating FFO will be used by
investors as a basis to compare our operating performance with that of other REITs. However, because FFO, Operating
FFO and Adjusted Operating FFO exclude real estate depreciation and amortization and capture neither the changes in
the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized
leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic
effect and could materially impact our financial condition, cash flows and results of operations, the utility of FFO,
Operating FFO and Adjusted Operating FFO as measures of our operating performance is limited. Our calculation of
FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO
or do not calculate FFO in accordance with NAREIT guidance. In addition, our calculations of FFO, Operating FFO and
Adjusted Operating FFO are not necessarily comparable to FFO, Operating FFO and Adjusted Operating 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 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 (loss) to FFO, Operating FFO and Adjusted Operating FFO is presented below:
(unaudited $ in thousands)
FFO
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Equity in net loss of unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairments of depreciated property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro rata share of FFO from unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FFO(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred Stock Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FFO available to common stockholders & OP unit holders . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2019
31,665 $
1,473
156,387
(13,408)
11,461
1,078
188,656
(28,180)
160,476
(7,175) $
—
136,119
—
—
—
128,944
(16,666)
112,278
1,457
—
123,555
—
—
—
125,012
—
125,012
Debt restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit associated with restructuring, transaction and integration costs . . . . . . . . . . . . . .
Operating FFO available to common stockholders & OP unit holders(2) . . . . . . . . . . . . .
1,523
—
3,729
—
165,728
605
37,943
2,743
(2,408)
151,161
19,992
—
11,060
—
156,064
(5,009)
Maintenance capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20,115)
Leasing commissions paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs and bond discount . . . . . . . . . . . . . . . . . . . . . . . . . .
3,868
17,369
Non real estate depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Straight line rent revenue and expense and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,967)
(9,778)
Tax benefit from operating results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,863
—
Adjustments for unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Operating FFO available to common stockholders & OP unit holders(2) . . . . . $ 154,799 $ 145,123 $ 151,295
(4,233)
(31,102)
3,917
11,918
(7,922)
(37)
16,412
118
(6,662)
(24,246)
3,856
13,772
(6,770)
(960)
14,972
—
(1) Beginning January 1, 2018, pursuant to a NAREIT issued white paper, we disclose the amount of gains or losses from the sale of assets that are
incidental to our primary business included in FFO as well as impairment write-downs associated with assets that are incidental to our primary
business included in FFO. FFO for the year ended December 31, 2019 includes a $1.4 million gain on sale of real estate related to certain assets
considered incidental to our primary business and were included in the “Gain on sale of real estate, net” line item of the consolidated statements
of operations. FFO for the year ended December 31, 2018 includes $15.8 million of impairment losses related to certain non-real estate product
related assets that were considered incidental to our primary business and were included in the “Restructuring” line item of the consolidated
statement of operations.
(2) The Company’s 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.
77
Monthly Recurring Revenue (MRR) and Recognized MRR
We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue
from our rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees,
variable related revenues, non-cash revenues and other one-time revenues. MRR is also calculated to include the
Company’s 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. It does not include the impact from booked-not-billed leases as of a particular
date, unless otherwise specifically noted.
Separately, we calculate recognized MRR as the recurring revenue recognized during a given period, which includes
revenue from our rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up
fees, variable related revenues, non-cash revenues and other one-time revenues.
Management uses MRR and recognized MRR as supplemental performance measures because they provide useful
measures of increases in contractual revenue from our customer leases and customer leases attributable to our business.
MRR and recognized MRR should not be viewed by investors as alternatives to actual monthly revenue, as determined
in accordance with GAAP. Other companies may not calculate MRR or recognized MRR in the same manner.
Accordingly, our MRR and recognized MRR may not be comparable to other companies’ MRR and recognized MRR.
MRR and recognized MRR should be considered only as supplements to total revenues as a measure of our performance.
MRR and recognized MRR should not be used as measures of our results of operations or liquidity, nor is it indicative of
funds available to meet our cash needs, including our ability to make distributions to our stockholders.
A reconciliation of total GAAP revenues to recognized MRR in the period and MRR at period end is presented below:
(unaudited $ in thousands)
Recognized MRR in the period
Total period revenues (GAAP basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Total period variable lease revenue from recoveries . . . . . . . . . . . . . . . . . . . . . . . .
Total period deferred setup fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total period straight line rent and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized MRR in the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2019
480,818 $
(55,046)
(15,156)
(20,349)
390,267
450,524 $
(45,386)
(12,475)
(17,148)
375,515
446,510
(37,886)
(10,690)
(22,848)
375,086
MRR at period end
Total period revenues (GAAP basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Total revenues excluding last month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues for last month of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Last month variable lease revenue from recoveries . . . . . . . . . . . . . . . . . . . . . . . . .
Last month deferred setup fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Last month straight line rent and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Pro rata share of MRR at period end of unconsolidated entity . . . . . . . . . . . . . . . . .
MRR at period end * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
480,818 $
(438,810)
42,008
(4,578)
(1,333)
(2,413)
350
34,034 $
450,524 $
(412,041)
38,483
(3,822)
(1,015)
(2,505)
—
31,141 $
446,510
(406,345)
40,165
(3,175)
(1,123)
(4,159)
—
31,708
* Does not include our booked-not-billed MRR balance, which was $7.8 million, $5.2 million and $3.9 million as of
December 31, 2019, 2018 and 2017, respectively.
78
Net Operating Income (NOI)
We calculate net operating income (“NOI”), as net income (loss) (computed in accordance with GAAP), excluding:
interest expense, interest income, tax expense (benefit) of taxable REIT subsidiaries, depreciation and amortization,
write off of unamortized deferred financing, debt restructuring costs, gain (loss) on extinguishment of debt, transaction
and integration 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 (with the exception of the leased facilities acquired in 2015, which were allocated a charge of 10% of cash
revenues) 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 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 as computed in accordance with GAAP.
A reconciliation of net income to NOI is presented below:
Year Ended December 31,
2018
2019
2017
(unaudited $ in thousands)
Net Operating Income (NOI)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Equity in net loss of unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit of taxable REIT subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction, integration and impairment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,457
—
(67)
30,523
140,924
19,992
—
(9,778)
11,060
87,231
—
—
NOI from consolidated operations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 310,267 $ 290,095 $ 281,342
—
Total NOI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 313,056 $ 290,095 $ 281,342
(7,175) $
—
(150)
28,749
149,891
605
—
(3,368)
2,743
80,857
—
37,943
31,665 $
1,473
(111)
26,593
168,305
1,523
50
(37)
15,190
80,385
(14,769)
—
Pro rata share of NOI from unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,789
—
Breakdown of NOI by facility:
Atlanta (DC - 1) data center (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Atlanta-Suwanee data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richmond data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Irving data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dulles data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased data centers (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Santa Clara data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Piscataway data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Princeton data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sacramento data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chicago data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ashburn data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fort Worth data center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other facilities (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80,648
48,365
40,919
32,870
21,672
12,006
11,378
9,395
9,598
6,804
4,652
—
268
2,767
NOI from consolidated operations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 310,267 $ 290,095 $ 281,342
—
Total NOI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 313,056 $ 290,095 $ 281,342
87,060 $
48,165
33,445
42,621
16,944
9,695
8,344
12,266
9,729
7,448
8,878
1,250
902
3,348
96,196 $
48,704
32,979
45,484
11,730
8,793
7,549
13,584
9,977
6,204
13,104
4,698
4,021
7,244
Pro rata share of NOI from unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,789
—
79
(1)
Includes facility level general and administrative allocation charges of 4% of cash revenue for all facilities (with the exception of the leased facilities acquired in 2015,
which were allocated a charge of 10% of cash revenues through 2018). These allocated charges aggregated to $18.6 million, $20.8 million and $21.6 million for the
years ended December 31, 2019, 2018 and 2017, respectively.
(2) This property was formerly known as “Atlanta-Metro data center” but has been renamed “Atlanta (DC-1)” to distinguish between the existing data center and the new
property development.
(3) At December 31, 2019 includes 7 facilities. All facilities are leased, including those subject to finance leases.
(4) Consists of Miami, FL; Lenexa, KS; Overland Park, KS; and Groningen, Netherlands facilities. In addition, includes management fees and development fees received
from the unconsolidated entity.
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
(loss) (computed in accordance with GAAP) adjusted to exclude gains (or losses) from sales of depreciated property
related to our primary business, income tax expense (or benefit), interest expense, depreciation and amortization,
impairments of depreciated property related to our primary business, and similar adjustments for unconsolidated entities.
Management uses EBITDAre as a supplemental performance measure because it provides performance measures that,
when compared year over year, captures the performance of our operations by removing the impact of our capital
structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from our
operating results.
Due to the volatility and nature of certain significant charges and gains recorded in our operating results that
management believes are not reflective of operating performance, we compute an adjusted measure of EBITDAre,
which we refer to as Adjusted EBITDA. We calculate Adjusted EBITDA as EBITDAre excluding certain non-routine
charges, write off of unamortized deferred financing costs, gains (losses) on extinguishment of debt, restructuring costs,
and transaction and integration costs, as well as our pro-rata share of each of those respective adjustments associated
with the unconsolidated entity aggregated into one line item categorized as “Adjustments for the unconsolidated entity.”
In addition, we calculate Adjusted EBITDA excluding certain non-cash recurring costs such as equity-based
compensation. We believe that Adjusted EBITDA provides investors with another financial measure that may facilitate
comparisons of operating performance between periods and, to the extent other REITs calculate Adjusted EBITDA on a
comparable basis, between REITs.
Management uses EBITDAre and Adjusted EBITDA as supplemental performance measures as they provide useful
measures of assessing our operating results. Other companies may not calculate EBITDAre or Adjusted EBITDA in the
same manner. Accordingly, our EBITDAre and Adjusted EBITDA may not be comparable to others. EBITDAre and
Adjusted EBITDA should be considered only as supplements to net income (loss) as measures of our performance and
should not be used as substitutes for net income (loss), as measures of our results of operations or liquidity or as
indications of funds available to meet our cash needs, including our ability to make distributions to our stockholders.
80
A reconciliation of net income to EBITDAre and Adjusted EBITDA is presented below:
(unaudited $ in thousands)
EBITDAre and Adjusted EBITDA
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Equity in net loss of unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit of taxable REIT subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on disposition of depreciated property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairments of depreciated property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro rata share of EBITDAre from unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDAre (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2019
31,665 $
1,473
(111)
26,593
(37)
168,305
(13,408)
11,461
2,775
228,716
(7,175) $
—
(150)
28,749
(3,368)
149,891
6,994
8,842
—
183,783
1,457
—
(67)
30,523
(9,778)
140,924
—
4,219
—
167,278
Debt restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction, integration and impairment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,992
13,863
—
6,841
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250,380 $ 224,210 $ 207,974
605
14,972
22,107
2,743
1,523
16,412
—
3,729
(1) Beginning January 1, 2018, pursuant to a NAREIT issued white paper, we disclose the amount of gains or losses from the sale of assets that are incidental to our
primary business included in EBITDAre as well as impairment write-downs associated with assets that are incidental to our primary business included in EBITDAre.
EBITDAre for the year ended December 31, 2019 includes a $1.4 million gain on sale of real estate related to certain assets considered incidental to our primary
business and were included in the “Gain on sale of real estate, net” line item of the consolidated statement of operations. No gains, losses or impairment write-downs
associated with assets incidental to our primary business were included in EBITDAre for the year ended December 31, 2018.
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.
We expect that we will incur approximately $550 million to $600 million in additional capital expenditures through
December 31, 2020, in connection with the development of our data center facilities, which excludes acquisitions and
includes of our 50% proportionate share of capital expenditures at the Manassas facility that was contributed to an
unconsolidated entity. We expect to spend approximately $450 million to $500 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 facility, proceeds from the forward equity transactions discussed below,
additional equity issuances through our ATM program or other capital markets activity. As of February 28, 2020, we
have approximately $220 million of expected proceeds that will be paid upon settlement of pending forward equity
transactions.
81
Our cash paid for capital expenditures for the years ended December 31, 2019, 2018 and 2017 are summarized in the
table below (in thousands):
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2017
Year Ended December 31,
2018
386,592 $ 213,632
127,038
117,029
5,009
6,662
91,049
88,673
601,332 $ 434,352
2019
256,012 $
76,383
4,233
105,059
441,687 $
(1) Represents capital expenditures for capitalized interest, commissions, personal property, overhead costs and corporate fixed assets. Corporate
fixed assets primarily relate to construction of corporate offices, leasehold improvements and product related assets.
Long-Term Liquidity
Our long-term liquidity needs primarily consist of funds for property acquisitions, scheduled debt maturities, payment of
principal at maturity of our Senior Notes, funding payments for finance leases, dividend payments on our Series A
Preferred Stock and Series B Preferred Stock and recurring and non-recurring capital expenditures. We may also pursue
new developments and additional redevelopment of our data centers and future redevelopment of other space in our
portfolio. We may also pursue development on land which QTS currently owns that is available at our data center
properties in Atlanta (DC–2) (which represents the development of a new data center building at our Atlanta (DC-1)
campus), Atlanta-Suwanee, Richmond, Irving, Fort Worth, Princeton, Chicago, Ashburn, Phoenix, Hillsboro and
Manassas. 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 credit facility, distributions from our unconsolidated entity and
issuance of additional equity or debt securities, subject to prevailing market conditions, as discussed below.
Equity Capital
On March 15, 2018, we issued 4,280,000 shares of 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock
with a liquidation preference of $25.00 per share, which included 280,000 shares of the underwriters’ partial exercise of
their option to purchase additional shares. We used the net proceeds of approximately $103.2 million to repay amounts
outstanding under our unsecured revolving credit facility.
On June 25, 2018, we issued 3,162,500 shares of 6.50% Series B Cumulative Convertible Perpetual Preferred Stock with
a liquidation preference of $100.00 per share, which included 412,500 shares the underwriters purchased pursuant to the
exercise of their overallotment option in full. We used the net proceeds of approximately $304 million to repay amounts
outstanding under our unsecured revolving credit facility.
In February 2019, we conducted an underwritten offering of 7,762,500 shares of Class A common stock, consisting of
4,000,000 shares issued during the first quarter of 2019 and 3,762,500 shares sold on a forward basis, which included
1,012,500 shares sold upon full exercise of the underwriters’ option to purchase additional shares. We received net
proceeds of approximately $159 million from the issuance of 4,000,000 shares during the first quarter of 2019, which
were used to repay amounts outstanding under our unsecured revolving credit facility. During the third quarter of 2019,
we settled 2,832,000 forward shares for total net proceeds of approximately $110 million, which was used to repay
amounts outstanding under our revolving credit facility. Following this partial settlement, we have approximately $36
million of proceeds remaining available under this forward sale (subject to further adjustment as described below),
which we expect to physically settle prior to March 31, 2020 with the issuance of approximately 0.9 million shares of
common stock, although we have the right to elect settlement prior to that time.
In June 2019, we established a new “at-the-market” equity offering program (the “ATM Program”) pursuant to which
we may issue, from time to time, up to $400 million of our Class A common stock, which may include shares to be sold
on a forward basis. The use of forward sales under the ATM Program generally allows the Company to lock in a price on
the sale of shares when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares
are issued at settlement on a later date.
82
During the year ended December 31, 2019, we utilized the forward provisions under the ATM Program to allow for the
sale of up to an aggregate of 2.9 million shares of our common stock. At December 31, 2019, we had not settled any of
these forward sales. Through February 28, 2020 (including the sales during the year ended December 31, 2019 described
above), we utilized the forward provisions under the ATM Program to allow for the sale of up to an aggregate of 3.6
million shares of our common stock. As of February 28, 2020, we had not settled any of these forward sales.
The following table represents a summary of our equity issuances during the year ended December 31, 2019, as well as
through February 28, 2020 (in thousands):
Offering Program
February 2019 Offering . . . . . . . . . . . . . .
February 2019 Offering . . . . . . . . . . . . . .
June 2019 $400 million ATM Program . .
Total as of December 31, 2019 . . . . . . . .
June 2019 $400 million ATM Program . .
Total as of February 28, 2020 . . . . . . . .
Forward
Shares
Sold
N/A
3,763
2,864
Shares Settled
Net
Proceeds
Received
Remaining
Expected
Proceeds Available
4,000 $ 159,360 $
2,832 (2)
—
109,998
-
—
35,799
Forward Settlement
Maturity Date (1)
N/A
March 31, 2020
764 (3)
— $
$
-
$
142,046 Various through January 17, 2021
177,844
41,646 Various through January 30, 2021
219,490
(1) Represents the final date which shares sold under each forward agreement may be settled.
(2) Represents the number of forward shares we elected to physically settle during the year ended December 31, 2019.
(3) Represents shares issued on a forward basis subsequent to December 31, 2019 through February 28, 2020.
We expect to physically settle (by delivering shares of common stock) the forward sales under the ATM program and the
February 2019 Offering prior to the first anniversary date of each respective transaction. As seen in the table above,
when combined with proceeds remaining available under the forward sale in the February 2019 Offering, we currently
have access to nearly $220 million of net proceeds through forward stock sales (subject to further adjustment as
described below). We view forward equity sales under our ATM program as an important capital raising tool that we
expect to continue to strategically and selectively use, subject to market conditions and overall availability under the
ATM program.
At any time during the term of any forward sale, the Company may settle the forward sale by physical delivery of shares
of common stock to the forward purchaser or, at the Company’s election, cash settle or net share settle. The initial
forward sale price per share under each forward sale equals the product of (x) an amount equal to 100% minus the
applicable forward selling commission and (y) the volume weighted average price per share at which the borrowed
shares of our common stock were sold pursuant to the equity distribution agreement by the relevant forward seller during
the applicable forward hedge selling period for such shares to hedge the relevant forward purchaser’s exposure under
such forward sale. Thereafter, the forward sale price is subject to adjustment on a daily basis based on a floating interest
rate factor equal to the specified daily rate less a spread, and is decreased based on specified amounts related to
dividends on shares of our common stock during the term of the applicable forward sale. If the specified daily rate is less
than the spread on any day, the interest rate factor will result in a daily reduction of the applicable forward sale price.
Previously, in March 2017, 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 $300 million of our Class A common stock. We terminated
the prior ATM program in March 2019 in connection with the expiration of our prior universal shelf registration
statement. We replaced our expired universal shelf registration statement with a new universal registration in April 2019.
Manassas Unconsolidated Entity.
On February 22, 2019, we entered into an agreement with Alinda Capital Partners (“Alinda”), an infrastructure
investment firm, with respect to our Manassas data center, as described above under “Factors That May Influence Future
Results of Operations and Cash Flows.” At the closing, we received approximately $53 million in cash proceeds, which
was comprised of the cash contributed by Alinda and also borrowings under a $164.5 million secured credit facility
entered into by the unconsolidated entity at closing that carries a rate of LIBOR plus 2.25%. We used these proceeds to
pay down our revolving credit facility and for general corporate purposes. Under the agreement, we will receive
additional proceeds in the future as and when we complete development of each phase of the Manassas data center and
place it into service, which allows us to receive proceeds for Alinda’s share of the unconsolidated entity based on the
expected full stabilization of the asset. These proceeds will be based on a 6.75% capitalization rate for each phase
delivered during the first three years of the venture.
83
Cash
As of December 31, 2019, we had $15.7 million of unrestricted cash and cash equivalents.
Dividends and Distributions
The following tables present quarterly cash dividends and distributions paid to QTS’ common and preferred stockholders
and the Operating Partnership’s unit holders for the years ended December 31, 2019 and 2018:
Year Ended December 31, 2019
Record Date
Common Stock/Units
September 19, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . October 4, 2019
July 9, 2019
June 25, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 20, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 4, 2019
December 21, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
January 8, 2019
Payment Date
$
Series A Preferred Stock/Units
September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . October 15, 2019 $
July 15, 2019
June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 15, 2019
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
January 15, 2019
Series B Preferred Stock/Units
September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . October 15, 2019 $
July 15, 2019
June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 15, 2019
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
January 15, 2019
Year Ended December 31, 2018
Record Date
Common Stock/Units
September 20, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . October 4, 2018
July 6, 2018
June 20, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 22, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 5, 2018
December 5, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 5, 2018
Payment Date
$
Series A Preferred Stock/Units
September 28, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . October 15, 2018 $
July 16, 2018
June 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 5, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 16, 2018
Series B Preferred Stock/Units
September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . October 15, 2018 $
84
Per Share and
Per Unit Rate
Dividend/Distribution
Amount (in millions)
Aggregate
0.44 $
0.44
0.44
0.41
$
0.45 $
0.45
0.45
0.45
$
1.63 $
1.63
1.63
1.63
$
27.3
27.3
27.3
23.7
105.6
1.9
1.9
1.9
1.9
7.6
5.1
5.1
5.1
5.1
20.4
Per Share and
Per Unit Rate
Dividend/Distribution
Amount (in millions)
Aggregate
0.41 $
0.41
0.41
0.39
$
0.45 $
0.45
0.15
$
1.99 $
$
23.7
23.7
23.7
22.2
93.3
1.9
1.9
0.6
4.4
6.3
6.3
Additionally, subsequent to December 31, 2019, the Company paid the following dividends:
• On January 7, 2020, the Company paid its regular quarterly cash dividend of $0.44 per common share and per
unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on
December 20, 2019.
• On January 15, 2020, the Company paid a quarterly cash dividend of approximately $0.45 per share on its
Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on
December 31, 2019, and the Operating Partnership paid a quarterly cash distribution of approximately $0.45
per unit on outstanding Series A Preferred Units held by the Company.
• On January 15, 2020, the Company paid a quarterly cash dividend of approximately $1.63 per share on its
Series B Preferred Stock to holders of Series B Preferred Stock of record as of the close of business on
December 31, 2019, and the Operating Partnership paid a quarterly cash distribution of approximately $1.63
per unit on outstanding Series B Preferred Units held by the Company.
Indebtedness
As of December 31, 2019, we had approximately $1,463.9 million of indebtedness, including finance lease obligations.
Unsecured Credit Facility. We amended and restated our unsecured credit facility in October 2019 (as so amended and
restated, the “unsecured credit facility”), which among other things, increased the total potential borrowings, extended
maturity dates, lowered interest rates, and provided for an additional term loan under the agreement. The unsecured
credit facility includes a $225 million term loan which matures on December 17, 2024 (“Term Loan A”), a $225 million
term loan which matures on April 27, 2025 (“Term Loan B”), an additional term loan of $250 million which matures on
October 18, 2026 (“Term Loan C”) and a $1.0 billion revolving credit facility which matures on December 17, 2023.
The revolving portion of the credit facility has a one-year extension option available to the Company. Amounts
outstanding under the new unsecured credit facility bear interest at a variable rate equal to, at our election, LIBOR or a
base rate, plus a spread that will vary depending upon our leverage ratio. For revolving credit loans, the spread ranges
from 1.25% to 1.85% for LIBOR loans and 0.25% to 0.85% for base rate loans. For Term Loan A and Term Loan B, the
spread ranges from 1.20% to 1.80% for LIBOR loans and 0.20% to 0.80% for base rate loans. For Term Loan C the
spread ranges from 1.50% to 1.85% for LIBOR loans and 0.50% to 0.85% for base rate loans. The new unsecured credit
facility also provides for borrowing capacity of up to $300 million in various foreign currencies.
Under the new unsecured credit facility, the capacity may be increased from the current capacity of $1.7 billion to $2.2
billion subject to certain conditions set forth in the credit agreement, including the consent of the administrative agent
and obtaining necessary commitments. We are also required to pay a commitment fee to the lenders assessed on the
unused portion of the revolving portion of the new unsecured credit facility. At our election, we can prepay amounts
outstanding under the new unsecured credit facility, in whole or in part, without penalty or premium.
Our ability to borrow under the new unsecured credit facility is subject to ongoing compliance with a number of
customary affirmative and negative covenants, including limitations on liens, mergers, consolidations, investments,
distributions, asset sales and affiliate transactions, as well as the following financial covenants: (i) the Operating
Partnership's and its subsidiaries' consolidated total unsecured debt plus any capitalized lease obligations with respect to
the unencumbered asset pool properties may not exceed 60% of the unencumbered asset pool value (or 65% of the
unencumbered asset pool value for up to four consecutive fiscal quarters immediately following a material acquisition
for which the Operating Partnership has provided written notice to the Agent, provided the four fiscal quarter period
includes the quarter in which the material acquisition was consummated); (ii) the unencumbered asset pool debt yield
cannot be less than 10.5%; (iii) QTS must maintain a minimum fixed charge coverage ratio (defined as the ratio of
consolidated EBITDA, subject to certain adjustments, to consolidated fixed charges) for the prior two most recently-
ended calendar quarters of 1.50 to 1.00; (iv) QTS must maintain a maximum debt to gross asset value (as defined in the
amended and restated credit agreement) ratio of 60% (or 65% for the four consecutive fiscal quarters immediately
following a material acquisition for which the Operating Partnership has provided written notice to the Agent, provided
the four fiscal quarter period includes the quarter in which the material acquisition was consummated); and (v) QTS
must maintain tangible net worth (as defined in the amended and restated credit agreement) cannot be less than the sum
of $1,686,000,000 plus 75% of the net proceeds from any equity offerings subsequent to June 30, 2019.
85
The availability under the new revolving credit facility is the lesser of (i) $1.0 billion, (ii) 60% of the unencumbered
asset pool capitalized value (or 65% of the unencumbered asset pool capitalized value for the four consecutive fiscal
quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to
the Agent, provided the four fiscal quarter period includes the quarter in which the material acquisition was
consummated) and (iii) the amount resulting in an unencumbered asset pool debt yield of 10.5%. In the case of clauses
(ii) and (iii) of the preceding sentence, the amount available under the revolving credit facility is adjusted to take into
account any other unsecured debt and certain capitalized leases. A material acquisition is an acquisition of properties or
assets with a gross purchase price equal to or in excess of 15% of the Operating Partnership’s gross asset value (as
defined in the amended and restated credit agreement) as of the end of the most recently ended quarter for which
financial statements are publicly available. The availability of funds under our new unsecured credit facility depends on
compliance with our covenants.
As of December 31, 2019, we had outstanding $1,017.0 million of indebtedness under the unsecured credit facility,
consisting of $317 million of outstanding borrowings under the unsecured revolving credit facility and $700 million
outstanding under the term loans, exclusive of net debt issuance costs of $6.4 million. In connection with the unsecured
credit facility, as of December 31, 2019, we had additional letters of credit outstanding aggregating to $4.0 million.
On April 5, 2017, we entered into forward interest rate swap agreements with an aggregate notional amount of $400
million. The forward swap agreements effectively fix the interest rate on $400 million of term loan borrowings, $200
million of swaps allocated to Term Loan A and $200 million allocated to Term Loan B, from January 2, 2018 through
December 17, 2021 and April 27, 2022, respectively. On December 20, 2018, we entered into additional forward interest
rate swap agreements with an aggregate notional amount of $400 million. The forward swap agreements effectively fix
the interest rate on $400 million of term loan borrowings, $200 million of swaps allocated to Term Loan A and $200
million allocated to Term Loan B, from December 17, 2021 through December 17, 2023 and April 27, 2022 through
April 27, 2024, respectively. On December 20, 2018, we entered into additional forward interest rate swap agreements
with an aggregate notional amount of $200 million. The forward swap agreements effectively fix the interest rate on
$100 million of additional term loan borrowings from January 2, 2020 through December 17, 2023 as well as $100
million of additional term loan borrowings from January 2, 2020 through April 27, 2024.
4.750% Senior Notes due 2025. On November 8, 2017, the Operating Partnership and QTS Finance Corporation, a
subsidiary of the Operating Partnership formed solely for the purpose of facilitating the offering of the 5.875% Senior
Notes due 2022 (collectively, the “Issuers”) issued $400 million aggregate principal amount of 4.750% Senior Notes due
November 15, 2025 (the “Senior Notes”) in a private offering. The Senior Notes have an interest rate of 4.750% per
annum and were issued at a price equal to 100% of their face value. The net proceeds from the offering were used to
fund the redemption of, and satisfy and discharge the indenture pursuant to which the Issuers issued, the 5.875% Senior
Notes due 2022 and to repay a portion of the amount outstanding under the Company’s unsecured revolving credit
facility.
The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the
Operating Partnership’s existing subsidiaries (other than foreign subsidiaries and receivables entities) and future
subsidiaries that guarantee any indebtedness of QTS, the Issuers or any other subsidiary guarantor. QTS Realty Trust,
Inc. does not guarantee the Senior Notes and will not be required to guarantee the Senior Notes except under certain
circumstances. The offering was conducted pursuant to Rule 144A of the Securities Act of 1933, as amended, and the
Senior Notes were issued pursuant to an indenture, dated as of November 8, 2017, among QTS, the Issuers, the
guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (the “Indenture”). As of December
31, 2019, the outstanding net debt issuance costs associated with the Senior Notes were $4.5 million.
The Indenture contains affirmative and negative covenants that, among other things, limits or restricts the Operating
Partnership’s ability and the ability of certain of its subsidiaries (the “Restricted Subsidiaries”) to: incur additional
indebtedness; pay dividends; make certain investments or other restricted payments; enter into transactions with
affiliates; enter into agreements limiting the ability of the Operating Partnership’s restricted subsidiaries to pay
dividends; engage in sales of assets; and engage in mergers, consolidations or sales of substantially all of their assets.
However, certain of these covenants will be suspended if and for so long as the Senior Notes are rated investment grade
by specified debt rating services and there is no default under the Indenture. The Operating Partnership and its Restricted
Subsidiaries also are required to maintain total unencumbered assets (as defined in the Indenture) of at least 150% of
their unsecured debt on a consolidated basis.
86
The Senior Notes may be redeemed by the Issuers, in whole or in part, at any time prior to November 15, 2020 at a
redemption price equal to (i) 100% of the principal amount, plus (ii) accrued and unpaid interest to the redemption date,
and (iii) a make-whole premium. On or after November 15, 2020, the Issuers may redeem the Senior Notes, in whole or
in part, at a redemption price equal to (i) 103.563% of the principal amount from November 15, 2020 to November 14,
2021, (ii) 102.375% of the principal amount from November 15, 2021 to November 14, 2022, (iii) 101.188% of the
principal amount from November 15, 2022 to November 14, 2023 and (iv) 100.000% of the principal amount of the
Senior Notes from November 15, 2023 and thereafter, in each case plus accrued and unpaid interest to, but excluding,
the redemption date. In addition, at any time prior to November 15, 2020, the Issuers may, subject to certain conditions,
redeem up to 40% of the aggregate principal amount of the Senior Notes at 104.750% of the principal amount thereof,
plus accrued and unpaid interest to, but excluding, the redemption date, with the net cash proceeds of certain equity
offerings consummated by the Company or the Operating Partnership. Also, upon the occurrence of a change of control
of us or the Operating Partnership, holders of the Senior Notes may require the Issuers to repurchase all or a portion of
the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes to be repurchased plus accrued and
unpaid interest to the repurchase date.
Lenexa Mortgage. On March 8, 2017, we entered into a $1.9 million mortgage loan secured by our Lenexa facility.
This mortgage has a fixed rate of 4.1%, with periodic principal payments due monthly and a balloon payment of $1.6
million in May 2022. As of December 31, 2019, the outstanding balance under the Lenexa mortgage was $1.7 million.
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 December 31, 2019, including the future non-
cancellable minimum rental payments required under operating leases and the maturities and scheduled principal
repayments of indebtedness and other agreements (in thousands):
Obligations (1)
Thereafter
Total
2024
97,291
8,317 $ 48,908 $
Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . $ 9,589 $ 9,818 $ 10,266 $ 10,393 $
2,958
45,140
30,146
3,516
Finance Leases. . . . . . . . . . . . . . . . . . . . . . . . . .
3,229
Future Principal Payments of Indebtedness (2) . .
1,599 317,028 225,000 875,000 1,418,764
Total (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,232 $ 12,603 $ 14,823 $ 330,650 $ 236,833 $ 954,054 $ 1,561,195
2,579
64
2,712
73
2020
2023
2021
2022
(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 Senior Notes nor the related debt issuance costs on the term loans reflected at December
31, 2019. Also does not include letters of credit outstanding aggregating to $4.0 million as of December 31, 2019 under our unsecured credit
facility.
(3) Total obligations does not include contractual interest that we are required to pay on our long-term debt obligations. Contractual interest
payments on our credit facilities, mortgages, finance leases and other financing arrangements through the scheduled maturity date, assuming no
prepayment of debt and inclusive of the effects of interest rate swaps, are shown below. Interest payments were estimated based on the principal
amount of debt outstanding and the applicable interest rate as of December 31, 2019 (in thousands):
2020
55,389
2021
55,333
$
$
2022
57,235
$
2023
56,983
$
$
Off-Balance Sheet Arrangements
2024
42,075
Thereafter
$
37,930
$
Total
304,945
On February 22, 2019, we entered into an agreement with Alinda Capital Partners (“Alinda”), an infrastructure
investment firm, with respect to our Manassas data center, as described above under “Factors That May Influence Future
Results of Operations and Cash Flows.” As of December 31, 2019, our pro rata share of mortgage debt of the
unconsolidated entity, excluding deferred financing costs, was approximately $35.1 million, all of which is subject to
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forward interest rate swap agreements. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for
information on the Company’s interest rate swaps.
In February 2019, we conducted an underwritten offering of 7,762,500 shares of Class A common stock, consisting of
4,000,000 shares issued during the first quarter of 2019 and 3,762,500 shares sold on a forward basis. During the third
quarter of 2019, we settled 2,832,000 forward shares for total net proceeds of approximately $110 million, which was
used to repay amounts outstanding under our revolving credit facility. Following this partial settlement, we have
approximately $36 million of proceeds remaining available under this forward sale (subject to further adjustment as
described above under the heading “Equity Capital”), which we expect to physically settle prior to March 31, 2020 with
the issuance of approximately 0.9 million shares of common stock, although we have the right to elect settlement prior to
that time.
During the year ended December 31, 2019, we utilized the forward provisions under the ATM Program to allow for the
sale of up to an aggregate of 2.9 million shares of our common stock, representing available net proceeds upon physical
settlement of approximately $142 million (subject to further adjustment as described above under the heading “Equity
Capital”). At December 31, 2019, the Company had not settled any of these forward sales and had approximately $258
million of Class A common stock remaining available for sale under the ATM program.
Through February 28, 2020 (including the sales during the year ended December 31, 2019 described above), the
Company utilized the forward provisions under the ATM Program to allow for the sale of up to an aggregate of 3.6
million shares of its common stock, representing available net proceeds upon physical settlement of approximately $184
million (subject to further adjustment as described above under the heading “Equity Capital”). As of February 28, 2020,
the Company had not settled any of these forward sales and had approximately $216 million of Class A common stock
remaining available for sale under the ATM Program.
The Company expects to physically settle (by delivering shares of common stock) these forward sales prior to the first
anniversary date of each respective transaction. When combined with the approximately $36 million of proceeds
remaining available under the forward sale in the first quarter of 2019, the Company currently has access to nearly $220
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 under its ATM Program 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 ATM Program.
Cash Flows
(in thousands)
Cash flow provided by (used for):
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 199,490 $ 191,273 $ 170,323
Investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (387,260) (598,553) (434,352)
262,692
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
410,796
191,396
2017
2019
Year Ended December 31,
2018
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Cash flow provided by operating activities was $199.5 million for the year ended December 31, 2019, compared to
$191.3 million for the year ended December 31, 2018. The increase in cash flow provided by operating activities of $8.2
million was primarily due to an increase in cash operating income of $40.4 million, offset by a decrease in cash flow
associated with net changes in working capital of $32.1 million primarily relating to an increase in rents and other
receivables.
Cash flow used for investing activities decreased by $211.3 million to $387.3 million for the year ended December 31,
2019, compared to $598.6 million for the year ended December 31, 2018. The decrease was due primarily to cash
proceeds of $52.7 million received from the Company’s contribution of assets to an unconsolidated entity during 2019 as
well as a decrease in additions to property and equipment of $123.1 million. In addition, cash paid for acquisitions
decreased $40.6 million primarily related to increased cash paid for land acquisitions adjacent to Atlanta (DC-1) and
Manassas in 2018.
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Cash flow provided by financing activities was $191.4 million for the year ended December 31, 2019, compared to
$410.8 million for the year ended December 31, 2018. The decrease was primarily due to lower net equity issuance
proceeds of $139.2 million, higher payments of cash dividends to common and preferred stockholders of $29.0 million,
and lower net proceeds of $56.0 million under our unsecured credit facility.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
For a discussion comparing the Company’s liquidity and capital resources for the year ended December 31, 2018
compared to the year ended December 31, 2017 refer to subsection “Liquidity and Capital Resources - Year Ended
December 31, 2018 Compared to Year Ended December 31, 2017” of Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31,
2018, which is incorporated by reference herein. This discussion should be read in conjunction with Item 8. Financial
Statements and Supplementary Data.
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
audited financial statements included elsewhere in this Form 10-K. We describe below accounting policies that require
material subjective or complex judgments and that have the most significant impact on our financial condition and
results of operations.
Acquisitions and Sales of Real Estate. When accounting for business combinations, asset acquisitions and real estate
sales, we are required to make subjective assessments which involve significant judgment to allocate the purchase price
paid to the acquired tangible assets and intangible assets and liabilities for asset acquisitions and business combinations
and to determine the amount of non-monetary consideration received for sales of real estate.
In order to determine fair values associated with assets we acquire or non-monetary consideration received in sales of
real estate assets, we utilize estimation models to derive the fair value of identifiable assets and any equity consideration
received. These estimation models consist of common real estate valuation models that include Level 3 inputs such as
market rents, discount rates, expected occupancy and estimates of additional capital expenditures, and capitalization
rates derived from market data.
Unconsolidated Affiliates. We account for our 50% equity investment in our unconsolidated entity arrangement using
the equity method of accounting. We determined that while the entity is a variable interest entity (“VIE”), we were not
the primary beneficiary, thus the equity method of accounting was appropriate for transactions between QTS and the
entity.
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,
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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.
Capitalization of Costs. We capitalize certain development costs, including internal costs, incurred in connection with
development of real estate assets. The capitalization of costs during the construction period (including interest and
related loan fees, property taxes, internal payroll costs, and other direct and indirect project costs) begins when
redevelopment efforts commence and ends when the asset is ready for its intended use.
Impairment of Long-Lived Assets and Goodwill. Whenever events or changes in circumstances indicate that the
carrying amount of the asset group(s) may not be recoverable, we assess whether there has been impairment in the value
of long-lived assets used in operations or in development and intangible assets. Recoverability of assets to be held and
used is generally measured by comparison of the carrying amount of the asset group 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 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.
The fair value of goodwill is the consideration transferred 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 the Company performed on October 1, 2019, the Company determined qualitatively that it is not more
likely than not that the fair value of the Company’s one reporting unit was less than the carrying amount, thus it did not
perform a quantitative analysis.
Rental Revenue. We, as a lessor, have retained substantially all the risks and benefits of ownership and account for our
leases as operating leases. ASC Topic 842 allows lessors to combine nonlease components with the related lease
components if both the timing and pattern of transfer are the same for the nonlease component(s) and related lease
component, and the lease component would be classified as an operating lease. 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. We combine our lease and nonlease
components that meet the defined criteria and account for the combined lease component under ASC Topic 842. 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.
Rental revenue also includes amortization of set-up fees which are amortized over the term of the respective lease, as
discussed above.
Inflation
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
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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 such distributions were made during the years ended December 31, 2019, 2018 or
2017.
ITEM 7A. 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 December 31, 2019, after consideration of $400 million of interest rates swaps in effect, we had outstanding
$617.0 million of consolidated indebtedness that bore interest at variable rates.
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 expense on the $617.0 million of variable indebtedness outstanding as of December 31,
2019 by approximately $6.2 million annually. Conversely, a decrease in the LIBOR rate to 0.76% would decrease the
interest expense on this $617.0 million of variable indebtedness outstanding by approximately $6.2 million annually
based on the one month LIBOR rate of approximately 1.763% as of December 31, 2019.
On April 5, 2017, the Company entered into forward interest rate swap agreements with an aggregate notional amount of
$400 million. The forward swap agreements effectively fix the interest rate on $400 million of term loan borrowings,
$200 million of swaps allocated to Term Loan A and $200 million allocated to Term Loan B, from January 2, 2018
through December 17, 2021 and April 27, 2022, respectively, at approximately 3.2% assuming the current LIBOR
spread of 1.2%.
On December 20, 2018, we entered into additional forward interest rate swap agreements with an aggregate notional
amount of $400 million. The forward swap agreements effectively fix the interest rate on $400 million of term loan
borrowings, $200 million of swaps allocated to Term Loan A and $200 million allocated to Term Loan B, from
December 17, 2021 through December 17, 2023 and April 27, 2022 through April 27, 2024, respectively. The weighted
average effective fixed interest rate on the $400 million notional amount of term loan financing following the
commencement of these swap agreements will approximate 3.8%, commencing on December 17, 2021 and April 27,
2022, assuming the current LIBOR spread of 1.2%. On December 20, 2018, the Company entered into additional
forward interest rate swap agreements with an aggregate notional amount of $200 million. The forward swap agreements
effectively fix the interest rate on $100 million of additional term loan borrowings from January 2, 2020 through
December 17, 2023 as well as $100 million of additional term loan borrowings from January 2, 2020 through April 27,
2024. The weighted average effective fixed interest rate on the $200 million notional amount of term loan financing,
following the execution of these swap agreements, will approximate 3.8% to 4.1%, commencing on January 2, 2020,
assuming the current LIBOR spreads on the Company’s term loans of 1.2% to 1.5%.
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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to the Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
QTS Realty Trust, Inc.
Disclosure Controls and Procedures
Based on an evaluation of disclosure controls and procedures for the period ended December 31, 2019, 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.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). Our internal control system was designed to provide
reasonable assurance to management and our board of directors regarding the preparation and fair presentation of
published financial statements in accordance with generally accepted accounting principles.
As of December 31, 2019, management assessed the effectiveness of QTS Realty Trust, Inc.'s internal control over
financial reporting based on the criteria for effective internal control over financial reporting established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Based on this assessment, management has concluded that, as of December 31, 2019, QTS Realty Trust, Inc.’s internal
control over financial reporting was effective to provide reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Ernst & Young LLP, an independent registered public accounting firm, has audited QTS Realty Trust, Inc.’s
consolidated financial statements included in this Annual Report on Form 10-K and, as part of its audit, has issued its
report, included herein on page F-3, on the effectiveness of QTS Realty Trust, Inc.’s internal control over financial
reporting.
Changes in Internal Control over Financial Reporting
There were no changes in QTS’ internal control over financial reporting during the three-month period ended
December 31, 2019 that have materially affected, or are reasonably likely to materially affect, QTS’ internal control over
financial reporting.
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QualityTech, LP
Disclosure Controls and Procedures
Based on an evaluation of disclosure controls and procedures for the period ended December 31, 2019, 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 QualityTech, LP’s disclosure controls and procedures are
effective to ensure that information required to be disclosed by QualityTech, LP 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.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). Our internal control system was designed to
provide reasonable assurance to management and our board of directors regarding the preparation and fair presentation
of published financial statements in accordance with generally accepted accounting principles.
As of December 31, 2019, management assessed the effectiveness of QualityTech, LP’s internal control over financial
reporting based on the criteria for effective internal control over financial reporting established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management has concluded that, as of December 31, 2019, QualityTech, LP’s internal control
over financial reporting was effective to provide reasonable assurance regarding the reliability of our financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Changes in Internal Control over Financial Reporting
There were no changes in QualityTech, LP’s internal control over financial reporting during the three-month period
ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, QualityTech, LP’s
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information regarding directors is incorporated herein by reference from the section entitled “Proposal One: Election
of Directors—Nominees for Election as Directors” in the Company’s definitive Proxy Statement (“2020 Proxy
Statement”) to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, for the
Company’s Annual Meeting of Stockholders to be held on May 6, 2020. The 2020 Proxy Statement will be filed within
120 days after the end of the Company’s fiscal year ended December 31, 2019.
The information regarding executive officers is incorporated herein by reference from the section entitled “Executive
Officers” in the Company’s 2020 Proxy Statement.
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The information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is
incorporated herein by reference from the section entitled “Security Ownership of Certain Beneficial Owners and
Management—Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s 2020 Proxy Statement.
The information regarding the Company’s code of business conduct and ethics is incorporated herein by reference from
the sections entitled “Corporate Governance and Board Matters—Code of Business Conduct and Ethics” in the
Company’s 2020 Proxy Statement.
The information regarding the Company’s audit committee, its members and the audit committee financial experts is
incorporated by reference herein from the section entitled “Corporate Governance and Board Matters—Committees of
the Board—Audit Committee” in the Company’s 2020 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information included under the following captions in the Company’s 2020 Proxy Statement is incorporated herein
by reference: “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation of
Executive Officers,” “Corporate Governance and Board Matters—Compensation of Directors” and “Corporate
Governance and Board Matters—Compensation Committee Interlocks and Insider Participation.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information regarding security ownership of certain beneficial owners and management is incorporated herein by
reference from the section entitled “Security Ownership of Certain Beneficial Owners and Management” and
“Compensation of Executive Officers—Equity Compensation Plan Information” in the Company’s 2020 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information regarding transactions with related persons and director independence is incorporated herein by
reference from the sections entitled “Certain Relationships and Related Party Transactions” and “Corporate Governance
and Board Matters—Corporate Governance Profile” in the Company’s 2020 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information regarding principal auditor fees and services and the audit committee’s pre-approval policies are
incorporated herein by reference from the sections entitled “Proposal Three: Ratification of the Appointment of
Independent Registered Public Accounting Firm—Principal Accountant Fees and Services” and “Proposal Three:
Ratification of the Appointment of Independent Registered Public Accounting Firm—Pre-Approval Policies and
Procedures” in the Company’s 2020 Proxy Statement.
94
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following is a list of documents filed as a part of this report:
PART IV
(1) Financial Statements
Included herein at pages F-1 through F-55.
(2) Financial Statement Schedules
The following financial statement schedules are included herein at pages F-56 through F-58:
Schedule II—Valuation and Qualifying Accounts
Schedule III—Real Estate Investments
All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the
related instructions, are inapplicable or the related information is included in the footnotes to the applicable financial
statement and, therefore, have been omitted.
(3) Exhibits
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INDEX TO EXHIBITS
Exhibit
Number
Exhibit Description
3.1
Articles of Amendment and Restatement of QTS Realty Trust, Inc., incorporated by reference to Exhibit 3.1
to the Current Report on Form 8-K filed with the SEC on October 17, 2013 (Commission File No. 001-
36109)
3.2
Second Amended and Restated Bylaws of QTS Realty Trust, Inc., incorporated by reference to Exhibit 3.2
to the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2017 (Commission File No. 001-36109)
3.3
Articles Supplementary designating QTS Realty Trust, Inc.’s 7.125% Series A Cumulative Redeemable
Perpetual Preferred Stock, liquidation preference $25.00 per share, $0.01 par value per share, incorporated
by reference to Exhibit 3.2 to the Company’s Form 8-A filed on March 15, 2018 (Commission File No. 001-
36109)
3.4
Articles Supplementary designating QTS Realty Trust, Inc.’s 6.50% Series B Cumulative Convertible
Perpetual Preferred Stock, liquidation preference $100.00 per share, $0.01 par value per share, incorporated
by reference to Exhibit 3.3 to the Company’s Form 8-A filed on June 25, 2018 (Commission File No. 001-
36109)
3.5
Articles Supplementary opting out of the Maryland Unsolicited Takeovers Act, incorporated by reference to
Exhibit 3.1 to the Company’s Form 8-K filed on September 25, 2018 (Commission File No. 001-36109)
3.6
Articles of Amendment to the Articles of Amendment and Restatement of QTS Realty Trust, Inc.,
incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on May 10,
2019 (Commission File No. 002-36109)
3.7
Amended and Restated Certificate of Limited Partnership of QualityTech, LP
4.1
Form of Specimen Class A Common Stock Certificate, incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No.
333-190675)
4.2
Indenture, dated November 8, 2017, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty
Trust, Inc., certain subsidiaries of QualityTech, LP and Deutsche Bank Trust Company Americas,
incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on November
8, 2017 (Commission File No. 001-36109)
4.3
Form of 4.750% Senior Notes due 2025 (included as Exhibit A to Exhibit 4.1 hereof)
4.4
Supplemental Indenture, dated as of December 22, 2017, by and among QualityTech, LP, QTS Finance
Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities
identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture
dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers,
QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company
Americas, as trustee incorporated by reference to Exhibit 4.4 to the Annual Report on Form 10-K filed with
the SEC on February 28, 2018 (Commission File No. 001-36109)
4.5
Supplemental Indenture, dated as of June 1, 2018, by and among QualityTech, LP, QTS Finance
Corporation, QTS Realty Trust, Inc., the entity identified therein as a Guaranteeing Subsidiary, the entities
identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture
dated, as of November 8, 2017, by and among QualityTech, LP and QTS Finance Corporation, as issuers,
QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company
Americas, as trustee, incorporated by reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q filed
with the SEC on August 2, 2019 (Commission File No. 001-36109)
96
4.6
Supplemental Indenture dated as of December 31, 2018 among West Midtown Acquisition Company, LLC,
QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as
Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of
November 8, 2017, by and among QualityTech, LP and QTS Finance Corporation, as issuers, QTS Realty
Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as
trustee, incorporated by reference to Exhibit 4.7 to the Annual Report on Form 10-K filed with the SEC on
February 25, 2019 (Commission File No. 001-36109)
4.7
Supplemental Indenture, dated as of March 29, 2019 by and among QualityTech, LP, QTS Finance
Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities
identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture
dated, as of November 8, 2017, by and among QualityTech, LP and QTS Finance Corporation, as issuers,
QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company
Americas, as trustee, incorporated by reference to Exhibit 4.7 to the Quarterly Report on Form 10-Q filed
with the SEC on November 12, 2019 (Commission File No. 001-36109)
4.8
Supplemental Indenture, dated as of June 28, 2019 by and among QualityTech, LP, QTS Finance
Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities
identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture
dated, as of November 8, 2017, by and among QualityTech, LP and QTS Finance Corporation, as issuers,
QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company
Americas, as trustee, incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form 10-Q filed
with the SEC on November 12, 2019 (Commission File No. 001-36109)
4.9
Supplemental Indenture, dated as of November 1, 2019 by and among QualityTech, LP, QTS Finance
Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities
identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture
dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers,
QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company
Americas, as trustee, incorporated by reference to Exhibit 4.9 to the Quarterly Report on Form 10-Q filed
with the SEC on November 12, 2019 (Commission File No. 001-36109)
Form of stock certificate evidencing the 7.125% Series A Cumulative Redeemable Perpetual Preferred
Stock, liquidation preference $25.00 per share, $0.01 par value per share, incorporated by reference to
Exhibit 4.1 to the Company’s Form 8-A filed on March 15, 2018 (Commission File No. 001-36109)
Form of stock certificate evidencing the 6.50% Series B Cumulative Convertible Perpetual Preferred Stock,
liquidation preference $100.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 4.1
to the Company’s Form 8-A filed on June 25, 2018 (Commission File No. 001-36109)
4.10
4.11
4.12
Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934
10.1
10.2
Fifth Amended and Restated Agreement of Limited Partnership of QualityTech, LP dated October 15, 2013
incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on October
17, 2013 (Commission File No. 001-36109)
Amendment No. 1 to the Fifth Amended and Restated Agreement of Limited Partnership of QualityTech, LP
incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March
20, 2018 (Commission File No.001-36109)
10.3
Amendment No. 2 to Fifth Amended and Restated Agreement of Limited Partnership of QualityTech, LP,
dated as of June 25 2018, by QTS Realty Trust, Inc., incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed on June 27, 2018 (Commission File No. 001-36109)
97
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
Amendment No. 3 to the Fifth Amended and Restated Agreement of Limited Partnership of QualityTech,
LP, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
October 16, 2018 (Commission File No.001-36109)
Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and
Chad L. Williams, incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-11/A
filed with the SEC on September 26, 2013 (Commission File No. 001-36109) †
Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and
Jeffrey H. Berson, incorporated by reference to Exhibit 10.17 to the Registration Statement on Form S-11/A
filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and
Shirley E. Goza, incorporated by reference to Exhibit 10.18 to the Registration Statement on Form S-11/A
filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and
John W. Barter, incorporated by reference to Exhibit 10.19 to the Registration Statement on Form S-11/A
filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and
William O. Grabe, incorporated by reference to Exhibit 10.20 to the Registration Statement on Form S-11/A
filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and
Catherine R. Kinney, incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-
11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and
Peter A. Marino, incorporated by reference to Exhibit 10.22 to the Registration Statement on Form S-11/A
filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and
Scott D. Miller, incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-11/A
filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and
Philip P. Trahanas, incorporated by reference to Exhibit 10.24 to the Registration Statement on Form S-11/A
filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and
Stephen E. Westhead, incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-
11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
Indemnification Agreement dated as of March 21, 2016 by and between QTS Realty Trust, Inc. and Jon
Greaves, incorporated by reference to Exhibit 10.30 to the Form 10-K for the year ended December 31, 2016
filed with the SEC on March 1, 2017 (Commission File No. 001-36109) †
Indemnification Agreement dated as of August 31, 2016 by and between QTS Realty Trust, Inc. and Steven
Bloom, incorporated by reference to Exhibit 10.31 to the Form 10-K for the year ended December 31, 2016
filed with the SEC on March 1, 2017 (Commission File No. 001-36109) †
Indemnification Agreement, dated as of February 20, 2018, by and between QTS Realty Trust, Inc. and
David Robey, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on February 20, 2018 (Commission File No. 001-36109)†
98
10.18
10.19
Indemnification Agreement, dated as of September 24, 2018, by and among QTS Realty Trust, Inc. and
Mazen Al-Rawashdeh, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on
September 25, 2018 (Commission File No. 001-36109)†
Indemnification Agreement, dated as of March 13, 2019, by and between QTS Realty Trust, Inc. and Wayne
Rehberger, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC
on March 13, 2019 (Commission File No. 001-36109)†
10.20
Registration Rights Agreement dated October 15, 2013 by and among QTS Realty Trust, Inc. and the parties
listed on Schedule I thereto, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K
filed with the SEC on October 17, 2013 (Commission File No. 001-36109)
10.21
Amended and Restated Registration Rights Agreement dated October 15, 2013 by and among QTS Realty
Trust, Inc., QualityTech GP, LLC, Chad L. Williams and certain entities owned or controlled by Chad L.
Williams, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the SEC
on October 17, 2013 (Commission File No. 001-36109)
10.22
Tax Protection Agreement dated as of October 15, 2013 by and among QTS Realty Trust, Inc., QualityTech,
LP and the signatories party thereto, incorporated by reference to Exhibit 10.5 to the Current Report on
Form 8-K filed with the SEC on October 17, 2013 (Commission File No. 001-36109)
10.23
QualityTech, LP 2010 Equity Incentive Plan, incorporated by reference to Exhibit 10.20 to the Registration
Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675) †
10.24
Amendment No. 1 to QualityTech, LP 2010 Equity Incentive Plan, incorporated by reference to Exhibit
10.21 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission
File No. 333-190675) †
10.25
Form of Class O Unit Award Agreement (Time-Based Vesting) under QualityTech, LP 2010 Equity
Incentive Plan, incorporated by reference to Exhibit 10.22 to the Registration Statement on Form S-11/A
filed with the SEC on August 16, 2013 (Commission File No. 333-190675) †
10.26
Form of Class O Unit Award Agreement (Performance-Based Vesting) under QualityTech, LP 2010 Equity
Incentive Plan, incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-11/A
filed with the SEC on August 16, 2013 (Commission File No. 333-190675) †
10.27
Form of Class O Unit Award Agreement under QualityTech, LP 2010 Equity Incentive Plan, incorporated
by reference to Exhibit 10.24 to the Registration Statement on Form S-11/A filed with the SEC on
August 16, 2013 (Commission File No. 333-190675) †
10.28
QTS Realty Trust, Inc. 2013 Equity Incentive Plan, incorporated by reference to Exhibit 10.39 to the
Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No.
333-190675) †
10.29
Amendment No. 1 to QTS Realty Trust, Inc. 2013 Equity Incentive Plan, incorporated by reference to
Exhibit 10.40 to the Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC
on February 23, 2015 (Commission File No. 001-36109) †
10.30
Amendment No. 2 to QTS Realty Trust, Inc. 2013 Equity Incentive Plan, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 6, 2015 (Commission File No.
001-36109) †
10.31
Form of Restricted Shares Agreement under QTS Realty Trust, Inc. 2013 Equity Incentive Plan,
incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
November 6, 2013 (Commission File No. 001-36109) †
99
10.32
Form of Non-Qualified Option Agreement under QTS Realty Trust, Inc. 2013 Equity Incentive Plan,
incorporated by reference to Exhibit 10.29 to the Registration Statement on Form S-11/A filed with the SEC
on August 16, 2013 (Commission File No. 333-190675) †
10.33
Form of Performance Share Unit Agreement (Performance-Based [Non-Shareholder Return] Units) under
QTS Realty Trust, Inc. 2013 Equity Incentive Plan. †
10.34
Form of Performance Share Unit Agreement (Performance-Based [Non-Shareholder Return] Units) for
Grants to Chief Executive Officer under QTS Realty Trust, Inc. 2013 Equity Incentive Plan. †
10.35
Form of Performance Share Unit Agreement (Performance-Based [Shareholder Return] Units) under QTS
Realty Trust, Inc. 2013 Equity Incentive Plan. )†
10.36
Form of Performance Share Unit Agreement (Performance-Based [Shareholder Return] Units) for Grants to
Chief Executive Officer under QTS Realty Trust, Inc. 2013 Equity Incentive Plan. †
10.37
Ground Lease, dated October 2, 1997, by and between Mission-West Valley Land Corporation, as landlord,
and Nexus Properties, Inc., Kinetic Systems, Inc., Digital Square, Inc., R. Darrell Gary, Michael J. Reidy
and Michael J. Reidy as trustee of the Ronald Bonaguidi irrevocable trust, together as tenants, incorporated
by reference to Exhibit 10.33 to the Registration Statement on Form S-11/A filed with the SEC on
August 16, 2013 (Commission File No. 333-190675)
10.38
First Amendment to Ground Lease, dated April 29, 1998, by and between Mission-West Valley Land
Corporation, as landlord, and Nexus Properties, Inc., Kinetic Systems, Inc., R. Darrell Gary, Michael J.
Reidy and Michael J. Reidy as trustee of the Ronald Bonaguidi irrevocable trust, together as tenants,
incorporated by reference to Exhibit 10.34 to the Registration Statement on Form S-11/A filed with the SEC
on August 16, 2013 (Commission File No. 333-190675)
10.39
Second Amendment to Ground Lease, dated September 24, 2009, by and between Mission-West Valley
Land Corporation, as landlord, and Quality Investment Properties Santa Clara, LLC, Chad L. Williams,
incorporated by reference to Exhibit 10.35 to the Registration Statement on Form S-11/A filed with the SEC
on August 16, 2013 (Commission File No. 333-190675)
10.40
Third Amendment to Ground Lease, dated November 17, 2011, by and between Mission-West Valley Land
Corporation, as landlord, and Quality Investment Properties Santa Clara, LLC, Chad L. Williams,
incorporated by reference to Exhibit 10.36 to the Registration Statement on Form S-11/A filed with the SEC
on August 16, 2013 (Commission File No. 333-190675)
10.41
Lease Agreement, dated January 1, 2009, by and between Quality Investment Properties-Williams Center,
L.L.C. and Quality Technology Services Lenexa, LLC, incorporated by reference to Exhibit 10.38 to the
Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-
190675)
10.42
First Amendment to Lease, dated March 1, 2013, by and between Quality Investment Properties-Williams
Center, L.L.C. and Quality Technology Services Lenexa, LLC, incorporated by reference to Exhibit 10.39 to
the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No.
333-190675)
10.43
Second Amendment to Lease, dated December 1, 2013, by and between Quality Investment Properties-
Williams Center, L.L.C. and Quality Technology Services Lenexa, LLC, incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on May 7, 2014 (Commission File
No. 001-36109)
10.44
Third Amendment to Lease, dated May 1, 2014, by and between Quality Investment Properties-Williams
Center, L.L.C. and Quality Technology Services Lenexa, LLC, incorporated by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q filed with the SEC on May 7, 2014 (Commission File No. 001-36109)
100
10.45
2020 Amended and Restated QTS Realty Trust, Inc. Employee Stock Purchase Plan†
10.46
Employment Agreement, dated April 11, 2017, by and among QTS Realty Trust, Inc., QualityTech, LP,
Quality Technology Services, LLC and Chad L. Williams, incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed with the SEC on April 14, 2017 (Commission File No. 001-36109) †
10.47
Employment Agreement, dated April 11, 2017, by and among QTS Realty Trust, Inc., QualityTech, LP,
Quality Technology Services, LLC and Jeffrey H. Berson, incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K filed with the SEC on April 14, 2017 (Commission File No. 001-36109) †
10.48
Employment Agreement, dated April 11, 2017, by and among QTS Realty Trust, Inc., QualityTech, LP,
Quality Technology Services, LLC and Shirley E. Goza, incorporated by reference to Exhibit 10.7 to the
Quarterly Report on Form 10-Q filed with the SEC on May 8, 2017 (Commission File No. 001-36109) †
10.49
Employment Agreement, dated April 11, 2017, by and among QTS Realty Trust, Inc., QualityTech, LP,
Quality Technology Services, LLC and Jon D. Greaves, incorporated by reference to Exhibit 10.8 to the
Quarterly Report on Form 10-Q filed with the SEC on May 8, 2017 (Commission File No. 001-36109) †
10.50
Employment Agreement, dated April 11, 2017, by and among QTS Realty Trust, Inc., QualityTech, LP,
Quality Technology Services, LLC and Steven C. Bloom, incorporated by reference to Exhibit 10.9 to the
Quarterly Report on Form 10-Q filed with the SEC on May 8, 2017 (Commission File No. 001-36109) †
10.51
Amendment to Employment Agreement dated June 23, 2017 by and among QTS Realty Trust, Inc.,
QualityTech, LP, Quality Technology Services, LLC, and Chad L. Williams, incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2017 (Commission File
No. 001-36109) †
10.52
Amendment to Employment Agreement dated June 23, 2017 by and among QTS Realty Trust, Inc.,
QualityTech, LP, Quality Technology Services, LLC, and Jeffrey H. Berson, incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2017 (Commission File
No. 001-36109) †
10.53
Amendment to Employment Agreement dated June 23, 2017 by and among QTS Realty Trust, Inc.,
QualityTech, LP, Quality Technology Services, LLC, and Shirley E. Goza, incorporated by reference to
Exhibit 10.6 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2017 (Commission File
No. 001-36109) †
10.54
Amendment to Employment Agreement dated June 23, 2017 by and among QTS Realty Trust, Inc.,
QualityTech, LP, Quality Technology Services, LLC, and Steven C. Bloom, incorporated by reference to
Exhibit 10.7 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2017 (Commission File
No. 001-36109) †
10.55
Amendment to Employment Agreement dated June 23, 2017 by and among QTS Realty Trust, Inc.,
QualityTech, LP, Quality Technology Services, LLC, and Jon D. Greaves, incorporated by reference to
Exhibit 10.8 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2017 (Commission File
No. 001-36109) †
10.56
Employment Agreement, dated March 15, 2018, by and among QTS Realty Trust, Inc., QualityTech, LP,
Quality Technology Services Holding, LLC, Quality Technology Services, LLC, and David Robey,
incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March
20, 2018 (Commission File No. 001-36109) †
10.57
Stock Purchase Agreement dated May 6, 2016 by and among Quality Technology Services Holding, LLC,
Carpathia Holdings, LLC and Carpathia Acquisition, Inc., incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K filed with the SEC on May 12, 2015 (Commission File No. 002-36109)
101
10.58
First Amendment to Stock Purchase Agreement dated May 6, 2016 by and among Quality Technology
Services Holding, LLC, Carpathia Holdings, LLC and Carpathia Acquisition, Inc., incorporated by reference
to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on June 19, 2015 (Commission File No.
001-36109)
10.59
Transaction Agreement, dated as of April 24, 2018, by and between QTS Technology Services Holding,
LLC, QualityTech, LP, and General Datatech, L.P., incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q filed on August 6, 2018 (Commission File No. 001-36109)
10.60
Channel Agreement, dated as of April 24, 2018, by and between QTS Technology Services Holding, LLC
and General Datatech, L.P., incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on
Form 10-Q filed on August 6, 2018 (Commission File No. 001-36109)
10.61
Seventh Amended and Restated Credit Agreement dated as of October 18, 2019 by and among QualityTech,
LP, KeyBank National Association, as agent, the lenders party thereto, KeyBanc Capital Markets, Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Regions Capital Markets and TD Securities (USA)
LLC, as joint lead arrangers and joint bookrunners with respect to the Revolving Credit Loans, Term Loans
A and Term Loans B, KeyBanc Capital Markets, Inc., Regions Capital Markets, SunTrust Robinson
Humphrey, Inc. and TD Securities (USA) LLC as joint lead arrangers and joint bookrunners with respect to
the Term Loans C, and Bank of America, N.A., Regions Bank and TD Securities (USA) LLC, as co-
syndication agents, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with
the SEC on October 22, 2019 (Commission File No.001-36109)
10.62
Fifth Amended and Restated Unconditional Guaranty of Payment and Performance dated as of October 18,
2019 by QTS Realty Trust, Inc. (to KeyBank National Association)., incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K filed with the SEC on October 22, 2019 (Commission File No.001-
36109)
10.63
QTS Realty Trust, Inc. Director Deferred Compensation Plan, effective January 1, 2018 , incorporated by
reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 10,
2018 (Commission File No. 001-36109). †
21.1
List of Subsidiaries of QTS Realty Trust, Inc. and QualityTech, LP
23.1
Consent of Ernst & Young LLP
31.1
31.2
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QTS
Realty Trust, Inc.)
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QTS Realty
Trust, Inc.)
31.3
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(QualityTech, LP)
31.4
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QualityTech,
LP)
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (QTS Realty Trust, Inc.)
32.2
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (QualityTech, LP)
102
101
The following materials from QTS Realty Trust, Inc.’s and QualityTech, LP’s Annual Report on Form 10-K
for the year ended December 31, 2019, formatted in iXBRL (inline eXtensible Business Reporting
Language): (i) consolidated balance sheets, (ii) consolidated statements of operations and statements of
comprehensive income, (iii) consolidated statements of equity and partners’ capital, (iv) consolidated
statements of cash flows, and (v) the notes to the consolidated financial statements
104
Cover Page Interactive Date File (formatted in iXBRL (inline eXtensible Business Reporting Language) and
contained in Exhibit 101).
† Denotes a management contract or compensatory plan, contract or arrangement.
ITEM 16. FORM 10-K SUMMARY
The Company has chosen not to include a Form 10-K Summary.
103
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: February 28, 2020
QTS Realty Trust, Inc.
/s/ Chad L. Williams
Chad L. Williams
Chairman and Chief Executive Officer
DATE: February 28, 2020
/s/ William H. Schafer
William H. Schafer
Executive Vice President – Finance and Accounting
(Principal Accounting Officer)
DATE: February 28, 2020
DATE: February 28, 2020
/s/ Jeffrey H. Berson
Jeffrey H. Berson
Chief Financial Officer
(Principal Financial Officer)
QualityTech, L.P.
/s/ Chad L. Williams
Chad L. Williams
Chairman and Chief Executive Officer
DATE: February 28, 2020
/s/ William H. Schafer
DATE: February 28, 2020
William H. Schafer
Executive Vice President – Finance and Accounting
(Principal Accounting Officer)
/s/ Jeffrey H. Berson
Jeffrey H. Berson
Chief Financial Officer
(Principal Financial Officer)
104
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by
the following persons on behalf of the registrant and in the capacities on the dates indicated.
DATE: February 28, 2020
DATE: February 28, 2020
DATE: February 28, 2020
DATE: February 28, 2020
DATE: February 28, 2020
DATE: February 28, 2020
DATE: February 28, 2020
DATE: February 28, 2020
DATE: February 28, 2020
DATE: February 28, 2020
/s/ Chad L. Williams
Chad L. Williams
Chairman and Chief Executive Officer
/s/ John W. Barter
John W. Barter
Director
/s/ William O. Grabe
William O. Grabe
Director
/s/ Catherine R. Kinney
Catherine R. Kinney
Director
/s/ Peter A. Marino
Peter A. Marino
Director
/s/ Scott D. Miller
Scott D. Miller
Director
/s/ Mazen Rawashdeh
Mazen Rawashdeh
Director
/s/ Philip P. Trahanas
Philip P. Trahanas
Director
/s/ Wayne Rehberger
Wayne Rehberger
Director
/s/ Stephen E. Westhead
Stephen E. Westhead
Director
105
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of QTS Realty Trust, Inc. and QualityTech, LP
Page
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Financial Statements of QTS Realty Trust, Inc.:
Consolidated Balance Sheets as of December 31, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . . F-8
Consolidated Statements of Comprehensive Income (loss) for the years ended December 31, 2019, 2018 and
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Consolidated Statements of Equity for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . . . . . F-10
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . F-11
Consolidated Financial Statements of QualityTech, LP:
Consolidated Balance Sheets as of December 31, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . . F-14
Consolidated Statements of Comprehensive Income (loss) for the years ended December 31, 2019, 2018 and
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Consolidated Statements of Partners’ Capital for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . F-16
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . F-17
Notes to QTS Realty Trust, Inc. and QualityTech, LP Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . F-19
Supplemental Schedule—Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-56
Supplemental Schedule—Schedule III—Real Estate and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . F-57
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of QTS Realty Trust, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of QTS Realty Trust, Inc. (the Company) as of
December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), equity
and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial
statement schedules listed in the Index at Item 15(2) (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated February 28, 2020 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on
the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Capitalization of Internal Development Real Estate Costs
Description of
the Matter
During the year ended December 31, 2019, the Company capitalized $17.8 million of internal
development real estate costs and $33.2 million of capitalized interest. As disclosed in Note 2 to
the consolidated financial statements, the Company capitalizes certain internal development real
estate costs incurred in connection with development of its properties. The capitalization of these
costs during the construction period (including interest and related loan fees, internal payroll
costs, 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
F-2
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 depreciated over its estimated
useful life.
Auditing the capitalization of internal development real estate costs was complex due to the
volume of development activities and the judgments involved in determining the appropriateness
of capitalizing certain costs based on the nature of the costs and status of each project, including
determining when development commences for each project and when projects are no longer
under active development.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s capitalization of internal development real estate costs process. For
example, we tested controls over management’s review of the inputs into the computation of
internal cost capitalization amounts, including the timing of the commencement of development
activities and timeliness of placing assets into service.
Description of
the Matter
To test internal real estate costs capitalized during the construction period, we performed audit
procedures that included, among others, examining capitalization records, conducting site visits to
locations with significant internal development real estate costs capitalized and performing
inquiries of site and operations personnel at those locations to corroborate the status of the
projects. We also tested construction in progress additions and assets placed into service during
the period and inspected source documentation to evaluate the completeness and accuracy of
management’s assertions related to the ongoing development status and capitalization of internal
development real estate costs related to its capital projects. Additionally, we performed
procedures to test the accuracy and completeness of the information included in the Company’s
calculation of internal development real estate costs, including comparison of inputs such as
interest rates and payroll information to underlying records.
Investment in Unconsolidated Entity
As disclosed in Notes 7 and 18 to the consolidated financial statements, on February 22, 2019, the
Company contributed a hyperscale data center under development in Manassas, Virginia and a
previously executed ten-year operating lease agreement to a newly formed entity in exchange for
cash and non-cash consideration in the form of a 50% equity interest in the newly formed entity
that was measured at fair value. The Company determined that the newly formed entity is a
variable interest entity (VIE) for which the Company is not the primary beneficiary but has the
ability to exercise significant influence. Therefore, the Company accounted for its investment in
the unconsolidated entity using equity method investment accounting.
Auditing management’s determination that the newly formed entity is a VIE and the Company is
not the primary beneficiary as well as auditing management’s measurement of the equity interest
received in the transaction at fair value, was complex and required significant judgment. In
particular, there was judgment involved in determining whether the Company is the primary
beneficiary of the entity based on the contractual arrangements and structure of the transaction.
Additionally, the fair value measurement of the equity interest received in the transaction was
sensitive to certain significant assumptions, including market rents, discount rates, expected
occupancy, estimates of additional capital expenditures, and capitalization rates derived from
market data.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of
controls over the Company’s process for evaluating the newly formed entity for consolidation and
fair value measurement of the non-monetary consideration received in the transaction, including
controls over management’s review of the significant assumptions described above.
F-3
To test the Company’s determination that the newly formed entity is a VIE, we performed audit
procedures that included, among others, reviewing management’s analysis of the entity’s total
equity investment at risk upon inception and evaluating whether it is sufficient to finance the
entity’s activities without additional subordinated financial support based on qualitative and
quantitative analysis. To test the Company’s determination that the Company is not the primary
beneficiary of the entity, we performed audit procedures that included, among others, reviewing
management’s analysis of significant activities of the entity such as capital decisions, financing
decisions and operating decisions, and which party, if any, has the power to direct such activities.
Our evaluation considered the purpose and design of the entity, the composition of the board of
managers and other legal rights of the parties, including the significance of the decision rights of
each party in assessing which party has power to direct the activities that most significantly
affect the economic performance of the entity. To test the Company’s estimate of the fair value
of non-monetary consideration received in the transaction, we performed audit procedures that
included, among others, assessing the methodologies used by the Company and testing the
significant assumptions discussed above and the completeness and accuracy of the underlying
data used by the Company in its analysis. We compared the significant assumptions used by
management to current industry and economic trends, relevant market information, and other
applicable sources. We involved our valuation specialists to assist in evaluating the significant
assumptions described above as well as the models utilized to derive the concluded fair value.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010
Kansas City, Missouri
February 28, 2020
F-4
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of QTS Realty Trust, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited QTS Realty Trust, Inc.’s internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, QTS Realty Trust, Inc. (the
Company) maintained, in all material respects, effective internal control over financial reporting as of December 31,
2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related
consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in
the period ended December 31, 2019, and the related notes and financial statement schedules listed in the Index at Item
15(2) (collectively referred to as the “consolidated financial statements”) and our report dated February 28, 2020
expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2020
F-5
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of QTS Realty Trust, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of QualityTech, LP (the Company) as of December 31,
2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), partners’ capital and
cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial
statement schedules listed in the Index at Item 15(2) (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010
Kansas City, Missouri
February 28, 2020
F-6
QTS REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
ASSETS
Real Estate Assets
December 31, 2019 December 31, 2018
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings, improvements and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real Estate Assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rents and other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred costs, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES
Unsecured credit facility, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior notes, net of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases and mortgage notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and distributions payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance rents, security deposits and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
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 December 31, 2019 and December 31, 2018, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.50% Series B cumulative convertible perpetual preferred stock: $0.01 par value (liquidation
preference $100.00 per share), 3,162,500 shares authorized, issued and outstanding as of December
31, 2019 and December 31, 2018, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock: $0.01 par value, 450,133,000 shares authorized, 58,227,523 and 51,123,417 shares
issued and outstanding as of December 31, 2019 and December 31, 2018, respectively . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated dividends in excess of earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
See accompanying notes to financial statements.
$
$
$
130,605
2,178,901
(558,560)
1,750,946
920,922
2,671,868
30,218
57,141
15,653
81,181
81,679
52,363
10,586
173,843
—
49,001
3,223,533
1,010,640
395,549
46,876
64,416
142,547
34,500
18,027
26,609
—
749
39,169
1,779,082
105,541
1,917,251
(467,644)
1,555,148
790,064
2,345,212
—
—
11,759
55,093
95,451
45,096
6,822
173,843
71,800
56,893
2,861,969
945,657
394,786
4,674
—
99,166
29,633
29,709
2,970
24,349
1,097
33,241
1,565,282
103,212
103,212
304,223
304,265
582
1,330,444
(24,642)
(376,002)
1,337,817
106,634
1,444,451
3,223,533
$
511
1,062,473
2,073
(278,548)
1,193,986
102,701
1,296,687
2,861,969
F-7
QTS REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share data)
Year Ended December 31,
2018
2017
2019
Revenues:
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
465,123 $
15,695
480,818
413,620 $
36,904
450,524
379,787
66,723
446,510
Operating Expenses:
Property operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate taxes and insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction, integration and impairment costs . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income and expenses:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net loss of unconsolidated entity . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit of taxable REIT subsidiaries . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . .
Net income (loss) attributable to QTS Realty Trust, Inc. . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to common stockholders. . . . . . . . . . . . . $
156,048
14,503
168,305
80,385
15,190
—
434,431
14,769
61,156
111
(26,593)
(1,523)
(50)
(1,473)
31,628
37
31,665
(374)
31,291
(28,180)
3,111 $
148,236
12,193
149,891
80,857
2,743
37,943
431,863
—
18,661
150
(28,749)
(605)
—
—
(10,543)
3,368
(7,175)
2,715
(4,460)
(16,666)
(21,126) $
153,209
11,959
140,924
87,231
11,060
—
404,383
—
42,127
67
(30,523)
(19,992)
—
—
(8,321)
9,778
1,457
(175)
1,282
—
1,282
Net income per share attributable to Class A common shares:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.09) $
(0.09)
(0.44) $
(0.44)
0.01
0.01
Weighted average Class A common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,836,801
54,836,801
50,432,590
50,432,590
48,380,964
55,855,683
See accompanying notes to financial statements.
F-8
QTS REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss):
Foreign currency translation adjustment gain . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in fair value of derivative contracts . . . . . . . . . . . . . . . .
Reclassification of other comprehensive income to utilities expense . . . . . .
Reclassification of other comprehensive income to interest expense . . . . . .
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (income) loss attributable to noncontrolling interests . . . . .
Comprehensive income (loss) attributable to QTS Realty Trust, Inc. . . . . . . . $
Year Ended December 31,
2018
(7,175) $
2019
31,665 $
2017
1,457
34
(29,843)
749
(1,031)
1,574
(169)
1,405 $
—
895
—
110
(6,170)
711
(5,459) $
—
1,449
—
—
2,906
(349)
2,557
See accompanying notes to financial statements.
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F-10
QTS REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
Cash flow from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of above and below market leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of senior notes discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions from unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in (earnings) loss of unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense (recoveries) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write off of deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Integration, impairment & restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency remeasurement (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities
Rents and other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to/from affiliates, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance rents, security deposits and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from investing activities:
Proceeds from sale of property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from financing activities:
Credit facility proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit facility repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.75% Senior Notes Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.75% Notes Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt extinguishment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of common stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of tax withholdings related to equity based awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dulles, VA Vault Finance Lease Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage principal debt repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock issuance proceeds, net of costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issuance proceeds, net of costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency exchange rates on cash and cash equivalents . . . . . . . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2018
2017
2019
31,665 $
(7,175) $
1,457
160,528
187
3,877
—
3,280
1,473
—
16,412
2,406
1,532
(348)
(14,769)
11,462
50
(27,234)
(3,406)
9,284
35
2,973
(5,845)
5,928
199,490
54,427
(76,383)
(4,144)
(361,160)
(387,260)
399,028
(334,000)
—
—
—
—
(5,130)
(28,180)
(94,085)
(11,533)
3,857
(3,900)
(2,855)
—
(65)
—
268,259
191,396
268
3,894
11,759
15,653 $
143,354
465
3,856
—
—
—
—
14,972
(2,275)
605
(2,970)
6,994
19,575
—
(6,495)
(3,063)
—
4,518
8,573
2,069
8,270
191,273
2,779
(117,029)
—
(484,303)
(598,553)
483,000
(362,000)
—
—
—
—
(3,964)
(10,728)
(82,579)
(10,759)
246
(2,205)
(7,626)
—
(66)
407,477
—
410,796
—
3,516
8,243
11,759 $
136,585
865
3,640
229
—
—
19,912
13,863
3,519
80
(10,742)
—
9,027
—
(12,881)
755
—
282
(5,071)
5,491
3,312
170,323
—
(127,038)
—
(307,314)
(434,352)
888,000
(696,000)
1,920
(300,000)
400,000
(13,218)
(10,862)
—
(74,592)
(10,289)
4,972
(4,725)
(12,224)
(17,785)
(54)
—
107,549
262,692
—
(1,337)
9,580
8,243
See accompanying notes to financial statements.
F-11
QTS REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(in thousands)
Year Ended December 31,
2018
2017
2019
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (excluding deferred financing costs and amounts capitalized) . . . . . . . . . . . . . . . $
Noncash investing and financing activities:
56,023 $
51,380 $
44,357
Accrued capital additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net increase (decrease) in derivative liabilities related to change in fair value of derivative contracts . $
Equity received in unconsolidated entity in exchange for real estate assets . . . . . . . . . . . . . . . . . . . . . $
Accrued preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued equity issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
92,206 $
(28,952) $
25,280 $
5,938 $
— $
30 $
76,890 $
895 $
— $
5,938 $
76 $
115 $
75,965
—
—
—
458
25
1,743 $
8,640
61,514
1,239
2,628
906
359
128
(52)
(722)
9,363
14,341
103,334
—
—
—
—
—
—
—
76,383 $ 117,029 $ 127,038
— $
445
114,283
—
2,301
—
—
—
—
—
Acquisitions, net of cash acquired:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings, improvements and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rents and other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance rents, security deposits and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
See accompanying notes to financial statements.
F-12
QUALITYTECH, LP
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
ASSETS
Real Estate Assets
December 31, 2019 December 31, 2018
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings, improvements and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real Estate Assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rents and other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
130,605
2,178,901
(558,560)
1,750,946
920,922
2,671,868
30,218
57,141
15,653
81,181
81,679
52,363
10,586
173,843
—
49,001
3,223,533
$
LIABILITIES
Unsecured credit facility, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior notes, net of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases and mortgage notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and distributions payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance rents, security deposits and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,010,640
395,549
46,876
64,416
142,547
34,500
18,027
26,609
—
749
39,169
1,779,082
105,541
1,917,251
(467,644)
1,555,148
790,064
2,345,212
—
—
11,759
55,093
95,451
45,096
6,822
173,843
71,800
56,893
2,861,969
945,657
394,786
4,674
—
99,166
29,633
29,709
2,970
24,349
1,097
33,241
1,565,282
PARTNERS' CAPITAL
7.125% Series A cumulative redeemable perpetual preferred units: $0.01 par
value (liquidation preference $25.00 per unit), 4,600,000 units authorized,
4,280,000 units issued and outstanding as of December 31, 2019 and
December 31, 2018, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.50% Series B cumulative convertible perpetual preferred units: $0.01 par value
(liquidation preference $100.00 per unit), 3,162,500 units authorized, issued
and outstanding as of December 31, 2019 and December 31, 2018, respectively . .
Common units: $0.01 par value, 450,133,000 units authorized, 64,901,157 and
57,799,035 units issued and outstanding as of December 31, 2019 and
December 31, 2018, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL PARTNERS' CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND PARTNERS' CAPITAL . . . . . . . . . . . . . . . . . . $
See accompanying notes to financial statements.
103,212
103,212
304,223
304,265
1,064,481
(27,465)
1,444,451
3,223,533
$
886,866
2,344
1,296,687
2,861,969
F-13
QUALITYTECH, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Year Ended December 31,
2018
2017
2019
Revenues:
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
465,123 $
15,695
480,818
413,620 $
36,904
450,524
379,787
66,723
446,510
Operating Expenses:
Property operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate taxes and insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction, integration and impairment costs . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income and expenses:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (loss) of unconsolidated entity . . . . . . . . . . . . . . . .
Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit of taxable REIT subsidiaries . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Preferred unit distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
156,048
14,503
168,305
80,385
15,190
—
434,431
14,769
61,156
111
(26,593)
(1,523)
(50)
(1,473)
31,628
37
31,665 $
(28,180)
Net income (loss) attributable to common unitholders . . . . . . . . . . . . . . $
3,485 $
148,236
12,193
149,891
80,857
2,743
37,943
431,863
—
18,661
150
(28,749)
(605)
—
—
(10,543)
3,368
(7,175) $
(16,666)
(23,841) $
153,209
11,959
140,924
87,231
11,060
—
404,383
—
42,127
67
(30,523)
(19,992)
—
—
(8,321)
9,778
1,457
—
1,457
See accompanying notes to financial statements.
F-14
QUALITYTECH, LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss):
Foreign currency translation adjustment gain . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in fair value of derivative contracts . . . . . . . . . . . . .
Reclassification of other comprehensive income to utilities expense . . .
Reclassification of other comprehensive income to interest expense . . .
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
34
(29,843)
749
(1,031)
1,574 $
—
895
—
110
(6,170) $
1,457
—
1,449
—
—
2,906
Year Ended December 31,
2018
(7,175) $
2019
31,665 $
2017
See accompanying notes to financial statements.
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F-16
QUALITYTECH, LP
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
Cash flow from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of above and below market leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of senior notes discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions from unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in (earnings) loss of unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense (recoveries) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write off of deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Integration, impairment & restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency remeasurement (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities
Rents and other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to/from affiliates, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance rents, security deposits and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from investing activities:
Proceeds from sale of property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from financing activities:
Credit facility proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit facility repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.75% Senior Notes Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.75% Notes Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt extinguishment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partnership distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of tax withholdings related to equity based awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dulles, VA Vault Finance Lease Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage principal debt repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock issuance proceeds, net of costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issuance proceeds, net of costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency exchange rates on cash and cash equivalents . . . . . . . . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2019
$
31,665
$
(7,175)
$
1,457
160,528
187
3,877
—
3,280
1,473
—
16,412
2,406
1,532
(348)
(14,769)
11,462
50
(27,234)
(3,406)
9,284
35
2,973
(5,845)
5,928
199,490
54,427
(76,383)
(4,144)
(361,160)
(387,260)
399,028
(334,000)
—
—
—
—
(5,130)
(28,180)
(94,085)
(11,533)
3,857
(3,900)
(2,855)
—
(65)
—
268,259
191,396
268
3,894
11,759
15,653
$
143,354
465
3,856
—
—
—
—
14,972
(2,275)
605
(2,970)
6,994
19,575
—
(6,495)
(3,063)
—
4,518
8,573
2,069
8,270
191,273
2,779
(117,029)
—
(484,303)
(598,553)
483,000
(362,000)
—
—
—
—
(3,964)
(10,728)
(82,579)
(10,759)
246
(2,205)
(7,626)
—
(66)
407,477
—
410,796
—
3,516
8,243
11,759
$
136,585
865
3,640
229
—
—
19,912
13,863
3,519
80
(10,742)
—
9,027
—
(12,881)
755
—
282
(5,071)
5,491
3,312
170,323
—
(127,038)
—
(307,314)
(434,352)
888,000
(696,000)
1,920
(300,000)
400,000
(13,218)
(10,862)
—
(74,592)
(10,289)
4,972
(4,725)
(12,224)
(17,785)
(54)
—
107,549
262,692
—
(1,337)
9,580
8,243
$
See accompanying notes to financial statements.
F-17
QUALITYTECH, LP
CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(in thousands)
Year Ended December 31,
2018
2017
2019
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (excluding deferred financing costs and amounts capitalized) . . . . . . . . . . . . . . . . $
Noncash investing and financing activities:
56,023 $
51,380 $
44,357
Accrued capital additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net increase (decrease) in derivative liabilities related to change in fair value of derivative contracts . . $
Equity received in unconsolidated entity in exchange for real estate assets . . . . . . . . . . . . . . . . . . . . . . $
Accrued preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued equity issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
92,206 $
(28,952) $
25,280 $
5,938 $
— $
30 $
76,890 $
895 $
— $
5,938 $
76 $
115 $
75,965
—
—
—
458
25
1,743 $
8,640
61,514
1,239
2,628
906
359
128
(52)
(722)
9,363
14,341
103,334
—
—
—
—
—
—
—
76,383 $ 117,029 $ 127,038
— $
445
114,283
—
2,301
—
—
—
—
—
Acquisitions, net of cash acquired:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings, improvements and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rents and other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance rents, security deposits and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
See accompanying notes to financial statements.
F-18
QTS REALTY TRUST, INC.
QUALITYTECH, LP
NOTES TO 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 December 31, 2019 our portfolio consisted of 24 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.
The Operating Partnership is a Delaware limited partnership formed on August 5, 2009 and is QTS’ historical
predecessor. As of December 31, 2019, QTS owned approximately 89.7% of the interests in the Operating Partnership.
Substantially all of QTS’ assets are held by, and QTS’ operations are conducted through, the Operating Partnership.
QTS’ interest in the Operating Partnership entitles QTS to share in cash distributions from, and in the profits and losses
of, the Operating Partnership in proportion to QTS’ percentage ownership. As the sole general partner of the Operating
Partnership, QTS generally has the exclusive power under the partnership agreement of the Operating Partnership to
manage and conduct the Operating Partnership’s business and affairs, subject to certain limited approval and voting
rights of the limited partners. QTS’ board of directors manages 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”). In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been
included.
The accompanying financial statements are presented for both QTS Realty Trust, Inc. and QualityTech, LP. References
to “QTS” mean QTS Realty Trust, Inc. and its controlled subsidiaries and references to the “Operating Partnership”
mean QualityTech, LP and its controlled subsidiaries.
The Operating Partnership meets the definition and criteria of a variable interest entity (“VIE”) in accordance with ASC
Topic 810 Consolidation, and the Company is the primary beneficiary of the VIE. As discussed below, 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.
QTS is the sole general partner of the Operating Partnership, and its only material asset consists of its ownership interest
in the Operating Partnership. Management operates QTS and the Operating Partnership as one business. The
management of QTS consists of the same employees as the management of the Operating Partnership. QTS does not
conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public
equity from time to time. QTS has not issued or guaranteed any indebtedness. Except for net proceeds from public equity
issuances by QTS, which are contributed to the Operating Partnership in exchange for units of limited partnership
interest of the Operating Partnership, the Operating Partnership generates all remaining capital required by the business
through its operations, the direct or indirect incurrence of indebtedness, and the issuance of partnership units. Therefore,
as general partner with control of the Operating Partnership, QTS consolidates the Operating Partnership for financial
reporting purposes.
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The Company believes, therefore, that providing one set of notes for the financial statements of QTS and the Operating
Partnership provides the following benefits:
•
•
•
enhances investors’ understanding of QTS and the Operating Partnership by enabling investors to view the
business as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial
portion of the disclosure applies to both QTS and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one set of notes instead of two separate sets of
notes.
In addition, in light of these combined notes, the Company believes it is important for investors to understand the few
differences between QTS and the Operating Partnership in the context of how QTS and the Operating Partnership
operate as a consolidated company. With respect to balance sheets, the presentation of stockholders’ equity and partners’
capital are the main areas of difference between the consolidated balance sheets of QTS and those of the Operating
Partnership. On the Operating Partnership’s consolidated balance sheets, partners’ capital includes preferred partnership
units and common partnership units that are owned by QTS and other partners as well as accumulated other
comprehensive income (loss). On QTS’ consolidated balance sheets, stockholders’ equity includes preferred stock,
common stock, additional paid in capital, accumulated other comprehensive income (loss) and accumulated dividends in
excess of earnings. The remaining equity reflected on QTS’s consolidated balance sheet is the portion of net assets that
are retained by partners other than QTS, referred to as noncontrolling interests. With respect to statements of operations,
the primary difference in QTS' Statements of Operations and Statements of Comprehensive Income (Loss) is that for net
income (loss), QTS retains its proportionate share of the net income (loss) based on its ownership of the Operating
Partnership, with the remaining balance being retained by the Operating Partnership. These combined notes refer to
actions or holdings as being actions or holdings of “the Company.” Although the Operating Partnership is generally the
entity that enters into contracts, holds assets and issues debt, management believes that these general references to “the
Company” in this context is appropriate because the business is one enterprise operated through the Operating
Partnership.
As discussed above, QTS owns no operating assets and has no operations independent of the Operating Partnership and
its subsidiaries. Also, the Operating Partnership owns no operating assets and has no operations independent of its
subsidiaries. Obligations under the 4.750% Senior Notes due 2025 and the unsecured credit facility, both discussed in
Note 8, are fully, unconditionally, and jointly and severally guaranteed by the Operating Partnership’s existing
subsidiaries (other than certain foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any
indebtedness of QTS Realty Trust, Inc., the Operating Partnership, QTS Finance Corporation (the co-issuer of the
4.750% Senior Notes due 2025) or any subsidiary guarantor. The indenture governing the 4.750% Senior Notes due
2025 restricts the ability of the Operating Partnership to make distributions to QTS, subject to certain exceptions,
including distributions required in order for QTS to maintain its status as a real estate investment trust under the Internal
Revenue Code of 1986, as amended (the “Code”).
The consolidated financial statements of QTS Realty Trust, Inc. include the accounts of QTS Realty Trust, Inc. and its
majority owned controlled subsidiaries including the Operating Partnership as well as unconsolidated entities accounted
for using equity method investment accounting. This includes the operating results of the Operating Partnership for all
periods presented.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and
assumptions include the useful lives of fixed assets, allowances for doubtful accounts and deferred tax assets and the
valuation of derivatives, real estate assets, acquired intangible assets and certain accruals.
Principles of Consolidation – The consolidated financial statements of QTS Realty Trust, Inc. include the accounts of
QTS Realty Trust, Inc. and its controlled subsidiaries. The consolidated financial statements of QualityTech, LP include
F-20
the accounts of QualityTech, LP and its subsidiaries. All significant intercompany accounts and transactions have been
eliminated in the financial statements.
We evaluate our investments in less than wholly owned entities to determine whether they should be recorded on a
consolidated basis. The percentage of ownership interest in the entity, an evaluation of control and whether a VIE exists
are all considered in our consolidation assessment. Investments in real estate entities which we have the ability to
exercise significant influence, but do not have financial or operating control, are accounted for using the equity method
of accounting. Accordingly, our share of the earnings or losses of these entities is included in consolidated net income
(loss).
Variable Interest Entities (VIEs) – We determine whether an entity is a VIE and, if so, whether it should be
consolidated by utilizing judgments and estimates that are inherently subjective. The determination of whether an entity
in which we hold a direct or indirect variable interest is a VIE is based on several factors, including whether the entity’s
total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional
subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a
qualitative analysis, and then a quantitative analysis, if necessary.
We analyze any investments in VIEs to determine if we are the primary beneficiary. In evaluating whether we are the
primary beneficiary, we evaluate our direct and indirect economic interests in the entity. Determining which reporting
entity, if any, is the primary beneficiary of a VIE is primarily a qualitative approach focused on identifying which
reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact such entity’s
economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could
potentially be significant to such entity. Performance of that analysis requires the exercise of judgment.
We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly
impact the VIE’s economic performance including, but not limited to, the ability to direct financing, leasing,
construction and other operating decisions and activities. In addition, we consider the rights of other investors to
participate in those decisions, to replace the manager and to sell or liquidate the entity. We determine whether we are the
primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that
conclusion upon a reconsideration event. As of December 31, 2019, 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 aggregate investment, which was approximately $30.2 million as of December 31, 2019.
Reclassifications – Revenue categories in the statements of operations for the years ended December 31, 2018 and 2017
have been reclassified to conform to 2019 presentation which is presented in accordance with ASC Topic 842 and the
reclassified presentation consists of two categories instead of four categories presented historically. The statements of
operations for the year ended December 31, 2018 incorporates a reclassification of $7.4 million of straight line rent from
the “Other” line item into the “Rental” line item, a reclassification of $45.4 million of “Recoveries from Customers”
from its own line item into the “Rental” line item, as well as the combination of $35.7 million of what was previously
classified as “Cloud and managed services” revenue and $1.2 million of remaining “Other” revenue into a single “Other”
line item. The statements of operations for the year ended December 31, 2017 incorporates a reclassification of $6.1
million of straight line rent from the “Other” line item into the “Rental” line item, a reclassification of $37.9 million of
“Recoveries from Customers” from its own line item into the “Rental” line item, as well as the combination of $65.5
million of what was previously classified as “Cloud and managed services” revenue and $1.2 million of remaining
“Other” revenue into a single “Other” line item.
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 year ended December 31, 2019, depreciation expense
related to real estate assets and non-real estate assets was $118.9 million and $11.9 million, respectively, for a total of
F-21
$130.8 million. For the year ended December 31, 2018, depreciation expense related to real estate assets and non-real
estate assets was $101.2 million and $12.3 million, respectively, for a total of $113.5 million. For the year ended
December 31, 2017, depreciation expense related to real estate assets and non-real estate assets was $90.1 million and
$14.2 million, respectively, for a total of $104.3 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 depreciated over its estimated useful life. Capitalization of such costs, excluding
interest, aggregated to $17.8 million, $17.4 million and $12.7 million for the years ended December 31, 2019, 2018 and
2017 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 $33.2 million, $26.8 million
and $14.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Acquisitions and Sales – Acquisitions of real estate and other entities are either accounted for as asset acquisitions or
business combinations depending on facts and circumstances. When substantially all of the fair value of gross assets
acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the transaction is accounted
for as an asset acquisition. In an asset acquisition, the purchase price paid for assets acquired is allocated between
identified tangible and intangible assets acquired based on relative fair value. Transaction costs associated with asset
acquisitions are capitalized. When substantially all of the fair value of assets acquired is not concentrated in a group of
similar identifiable assets, the set of assets will generally be considered a business. When accounting for business
combinations, purchase accounting is applied to the assets and liabilities related to all real estate investments acquired in
accordance with the accounting requirements of ASC Topic 805, Business Combinations, which requires the recording
of net assets of acquired businesses at fair value. The fair value of the consideration transferred is assigned to the
acquired tangible assets, consisting primarily of land, construction in progress, building and improvements, and
identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-
place leases, value of customer relationships, trade names, software intangibles and finance leases. The excess of the fair
value of liabilities assumed, common stock issued and cash paid over the fair value of identifiable assets acquired is
allocated to goodwill, which is not amortized. Transaction costs associated with business combinations are expensed as
incurred.
In developing estimates of fair value of acquired assets and assumed liabilities, management analyzes a variety of factors
including market data, estimated future cash flows of the acquired operations, industry growth rates, current replacement
cost for fixed assets and market rate assumptions for contractual obligations. Such a valuation requires management to
make significant estimates and assumptions, particularly with respect to the intangible assets.
Acquired in-place leases are amortized as amortization expense on a straight-line basis over the remaining life of the
underlying leases.
Acquired customer relationships are amortized as amortization expense on a straight-line basis over the expected life of
the customer relationship. These amortization expenses are accounted for as real estate amortization expense.
Other acquired intangible assets, which includes platform, above or below market leases, and trade name intangibles, are
amortized on a straight-line basis over their respective expected lives. Above or below market leases are amortized as a
reduction to or increase in rental revenue when we are the lessor as well as a reduction to or increase in rent expense
over the remaining lease terms when we are the lessee. The expense associated with trade name intangibles is accounted
for as real estate amortization expense, whereas the expense associated with the amortization of platform intangibles is
accounted for as non-real estate amortization expense.
We account for the sale of assets to non-customers under Financial Accounting Standards Board (“FASB”) Accounting
Standards Update (“ASU”) No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial
Assets (Subtopic 610-20), which provides for recognition or derecognition based on transfer of ownership. During the
year ended December 31, 2019, we sold our Manassas facility to an unconsolidated entity in exchange for cash
F-22
consideration and noncash consideration in the form of an equity interest in the unconsolidated entity. After measuring
the consideration received at fair value, we recognized a $13.4 million gain on sale of real estate, net of approximately
$5.8 million of transaction costs, associated with our contribution of certain assets in our Manassas facility to the
unconsolidated entity. Substantially all of the fair value of the assets contributed to the entity was concentrated in a
group of similar identifiable assets and the sale of the assets were not to a customer, therefore the transaction was
accounted for as an asset sale. The gain on sale of real estate is included within the “Gain on sale of real estate, net” line
item of the consolidated statements of operations. In addition, during the year ended December 31, 2019, we recognized
a $1.4 million gain on sale of certain land and improvements near our Atlanta (DC-1) (formerly known as Atlanta-
Metro) facility which is included within the “Gain on sale of real estate, net” line item of the consolidated statements of
operations. During the year ended December 31, 2018, we recognized a $7.0 million net loss on sale of equipment
associated with our strategic growth plan which was included within the “Restructuring” line item of the consolidated
statements of operations.
Impairment of Long-Lived Assets, Intangible Assets and Goodwill – We review our long-lived assets, intangible
assets and equity method investments for impairment when events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of
the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset
group. If the net carrying value of the asset group exceeds the value of the undiscounted cash flows, the fair value of the
asset group is assessed and may be considered impaired. An impairment loss is recognized based on the excess of the
carrying amount of the impaired asset over its fair value. For the year ended December 31, 2019, we recognized a $11.5
million impairment loss related to the write-down of certain data center assets and equipment in one of our Dulles,
Virginia data centers. The Dulles campus has two data center buildings and we initiated a plan in the fourth quarter of
2019 to abandon one of the buildings and relocate customers from the smaller and older facility being abandoned to the
newer facility in an effort to better optimize our operating cost structure. The impairment loss is included within the
“Transaction, integration and impairment costs” line item of the consolidated statements of operations. For the year
ended December 31, 2018, we recognized $8.8 million of impairment losses related to certain product-related assets,
which was included in the “Restructuring” line item of the consolidated statements of operations. For the year ended
December 31, 2017, we recognized a $1.6 million impairment loss related to equipment used to support our cloud and
managed service platform, which was included in the “Transaction, integration and impairment costs” line item of the
consolidated statements of operations.
The fair value of goodwill is the consideration transferred in a business combination which is not allocable to
identifiable intangible and tangible assets. Goodwill is subject to at least an annual assessment for impairment. In
connection with the goodwill impairment evaluation that we performed as of October 1, 2019, we determined
qualitatively that it is not more likely than not that the fair value of our one 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 December 31, 2019.
Assets Held for Sale – We completed the sale of the Manassas facility to an unconsolidated entity on February 22,
2019. As of December 31, 2018, prior to our sale of the assets to the entity, the completion of the sale was probable and
we accordingly reclassified certain assets, as well as liabilities associated with those assets, as held for sale. As of
December 31, 2018, the asset value of $71.8 million associated with the held for sale assets was included within the
“Assets held for sale” line item of the consolidated statements of financial position and primarily consisted of
construction in progress. The liability value of $24.3 million associated with the held for sale liabilities was included
within the “Liabilities held for sale” line item of the consolidated statements of financial position and primarily consisted
of accounts payable and accrued liabilities associated with construction in progress assets. See Note 7 – ‘Investments in
Unconsolidated Entity’ for further discussion of the unconsolidated entity.
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
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depositing a majority of our funds with several major financial institutions. We also have not experienced any losses and
do not believe that the risk is significant.
Deferred Costs – Deferred costs, net, on our balance sheets include both financing costs and leasing costs.
Deferred financing costs represent fees and other costs incurred in connection with obtaining debt and are amortized
over the term of the loan and are included in interest expense. Debt issuance costs related to revolving debt arrangements
are deferred and presented as assets on the balance sheet; however, all other debt issuance costs are recorded as a direct
offset to the associated liability. Amortization of debt issuance costs, including those costs presented as offsets to the
associated liability in the consolidated balance sheets, were $3.9 million, $3.9 million and $3.6 million for the years
ended December 31, 2019, 2018 and 2017, respectively. During the year ended December 31, 2019, we wrote off
unamortized financing costs of $1.5 million in connection with the modification of our unsecured credit facility in
October 2019 whereby we added a seven year additional term loan, increased capacity of the revolving facility, extended
maturity dates as well as decreased the interest rates. During the year ended December 31, 2018, we wrote off
unamortized financing costs of $0.6 million in connection with the modification of our unsecured credit facility in
November 2018 whereby we decreased the interest rates, modified and/or eliminated certain covenants and extended the
term for an additional year. During the year ended December 31, 2017, we wrote off unamortized financing costs of $5.2
million primarily in connection with the replacement of our $300 million 5.875% senior notes with the $400 million of
4.750% notes.
Deferred financing costs presented as assets on the balance sheets related to revolving debt arrangements, net of
accumulated amortization are as follows:
(dollars in thousands)
December 31,
2019
December 31,
2018
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
13,776 $
(5,743)
8,033 $
11,530
(3,859)
7,671
Deferred financing costs presented as offsets to the associated liabilities on the balance sheets related to fixed debt
arrangements, net of accumulated amortization, are as follows:
(dollars in thousands)
December 31,
2019
December 31,
2018
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
15,777 $
(4,937)
10,840 $
14,501
(2,944)
11,557
Initial direct costs, or deferred leasing costs, include commissions paid to third parties, including brokers, leasing and
referral agents, and internal sales commissions paid to employees for successful execution of lease agreements and are
accounted for pursuant to ASC Topic 842, Leases. These costs are incurred when we execute lease agreements and
represent only incremental costs that would not have been incurred if the lease agreement had not been executed. To a
lesser extent, we incur the same incremental costs to obtain managed services and cloud contracts with customers that
are accounted for pursuant to ASC Topic 606, Revenue from Contracts with Customers. Because the framework of
accounting for these costs and the underlying nature of the costs are the same for our revenue and lease contracts, the
costs are presented on a combined basis within our financial statements and within the below table. Both revenue and
leasing commissions are capitalized and generally amortized over the term of the related leases or the expected term of
the contract using the straight-line method. If a customer lease terminates prior to the expiration of its initial term, any
unamortized initial direct costs related to the lease are written off to amortization expense. Amortization of deferred
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leasing costs totaled $24.2 million, $21.3 million and $18.5 million for the years ended December 31, 2019, 2018 and
2017, respectively. Deferred leasing costs, net of accumulated amortization are as follows:
(dollars in thousands)
December 31,
2019
December 31,
2018
Deferred leasing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred leasing costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
77,178 $
(32,848)
44,330 $
63,018
(25,593)
37,425
Revenue Recognition – We derive our revenues from leases with customers for data center space which include lease
components and nonlease revenue components, such as power, tenant recoveries, cloud and managed services. We
adopted ASC Topic 842, Leases, the new accounting standard for leases, effective January 1, 2019 using the modified
retrospective approach. In addition, we adopted ASC Topic 606, Revenue from Contracts with Customers, the new
accounting standard for revenue from contracts with customers, effective January 1, 2018 using the modified
retrospective approach. We have elected the available practical expedient 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
under ASC Topic 842. See the ‘Recently Adopted Accounting Standards’ section below for further details.
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
sheets included in rents and other receivables, net was $38.7 million and $29.7 million as of December 31, 2019 and
December 31, 2018, respectively.
Rental revenue also includes amortization of set-up fees which are amortized over the term of the respective lease as
discussed below.
Variable Lease Revenue from Recoveries
Certain customer leases contain provisions under which customers reimburse us for power and cooling-related charges
as well as a portion of the property’s real estate taxes, insurance and other operating expenses. Recoveries of power and
cooling-related expenses relate specifically to our variable power arrangements, whereby customers pay variable
monthly fees for the specific amount of power utilized at the current utility rates. Our performance obligation is to stand
ready to deliver power over the life of the customer contract up to a contracted power capacity. Customers have the
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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 of the
statements of operations.
Other Revenue
Other revenue primarily consists of revenue from our cloud and managed service offerings as well as revenue earned
from partner channel, management and development fees. We, through our TRS, may provide both our cloud product
and use of our managed services to our customers on an individual or combined basis. In both our cloud and managed
services offerings the TRS’s performance obligation is to provide services (e.g. cloud hosting, data backup, data storage
or data center personnel labor hours) to facilitate a fully integrated information technology (“IT”) outsourcing
environment over a contracted term. Although underlying services may vary, over the contracted term monthly service
offerings are substantially the same and we account for the services as a series of distinct services in accordance with
ASC Topic 606. Service fee revenue is recognized as the revenue is earned, which generally coincides with the services
being provided. As we have the right to consideration from customers in an amount that corresponds directly with the
value to the customer of the TRS’s performance of providing continuous services, we recognize monthly revenue for the
amount invoiced.
With respect to the transaction price allocated to remaining performance obligations within our cloud and managed
service contracts, we have elected to use the optional exemption provided by ASC Topic 606 whereby we are not
required to estimate the total transaction price allocated to remaining performance obligations as we apply the “right-to-
invoice” practical expedient. As described above, the nature of our performance obligation in these contracts is to
provide monthly services that are substantially the same and accounted for as a series of distinct services. These
contracts generally have a remaining term ranging from month-to-month to three years.
Management fees and other revenues are generally received from our unconsolidated affiliate properties as well as third
parties. Management fee revenue is earned based on a contractual percentage of unconsolidated affiliate 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.
Allowance for Uncollectible Accounts Receivable – We record a provision for uncollectible accounts if a receivable
balance relating to lease components is considered by management to be not probable of collection, and this provision is
recorded as a reduction to leasing revenues. We also record a general provision of estimated uncollectible tenant
receivables that is based on management’s historical experience and a review of the current status of our receivables
deemed probable of collection. 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 $2.3 million and $3.8 million as of December 31, 2019 and December 31, 2018,
respectively.
Advance Rents and Security Deposits – Advance rents, typically prepayment of the following month’s rent, consist of
payments received from customers prior to the time they are earned and are recognized as revenue in subsequent periods
when earned. Security deposits are collected from customers at the lease origination and are generally refunded to
customers upon lease expiration.
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
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deferred income liability which amortizes into rental revenue over the term of the related lease on a straight-line basis.
Deferred income was $39.2 million, $33.2 million and $25.3 million as of December 31, 2019, 2018 and 2017,
respectively. Additionally, $15.2 million, $12.5 million and $10.7 million of deferred income was amortized into
revenue for the years ended December 31, 2019, 2018 and 2017, respectively.
Foreign Currency - The financial position of foreign subsidiaries is translated at the exchange rates in effect at the end
of the period, while revenues and expenses are translated at average exchange rates during the period. Gains or losses
from translation of foreign operations where the local currency is the functional currency are included as components of
other comprehensive income (loss). Gains or losses from foreign currency transactions are included in determining net
income (loss).
Equity-based Compensation – Equity-based compensation costs are measured based upon their estimated fair value on
the date of grant or modification and amortized ratably over their respective service periods. We have elected to account
for forfeitures as they occur. Equity-based compensation expense was $16.4 million, $15.0 million and $13.9 million for
the years ended December 31, 2019, 2018 and 2017, respectively. Equity-based compensation expense classified within
General and Administrative Expense for the year ended December 31, 2018 does not include $3.1 million of equity-
based compensation associated with the acceleration of equity awards related to certain employees impacted by the
Company’s strategic growth plan. The aforementioned equity-based compensation expense was included in the
“Restructuring” expense line item on the consolidated statements of operations.
Segment Information – We manage our business as one operating segment and thus one reportable segment consisting
of a portfolio of investments in multiple data centers.
Customer Concentrations – During the year ended December 31, 2019, one of our customers exceeded 10% of total
revenues, representing 14% of total revenues for the year ended December 31, 2019.
As of December 31, 2019, five of our customers exceeded 5% of trade accounts receivable. In aggregate, these five
customers accounted for 30% of trade accounts receivable. None of these customers individually exceeded 10% of total
accounts receivable.
Distribution Policy
To satisfy the requirements to qualify for taxation as a REIT, and to avoid paying tax on our income, we intend to
continue to make regular quarterly distributions of all, or substantially all, of our REIT taxable income (excluding net
capital gains) to our 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, our 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 partnership agreement of the Operating Partnership requires the Operating Partnership to distribute at least quarterly
100% of our “available cash” (as defined in the partnership agreement) to the partners of the Operating Partnership, in
accordance with the terms established for the class of partnership interests held by such partner. Furthermore, because
QTS intends to continue to qualify as a REIT for tax purposes, QTS is required to make reasonable efforts to distribute
available cash (a) to limited partners of the Operating Partnership so as to preclude any such distribution or portion
thereof from being treated as part of a sale of property to the Operating Partnership by a limited partner under Section
707 of the Code or the regulations thereunder; provided, however, that neither of QTS nor the Operating Partnership
shall have liability to a limited partner under any circumstances as a result of any distribution to a limited partner being
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so treated, and (b) to QTS, as general partner, in an amount sufficient to enable QTS to make distributions to its
stockholders that will enable QTS to (1) satisfy the requirements for qualification as a REIT under the Code and the
regulations thereunder, and (2) avoid any federal income or excise tax liability. Consistent with the partnership
agreement, we intend to continue to distribute quarterly an amount of our available cash sufficient to enable QTS to pay
quarterly dividends to its stockholders in an amount necessary to satisfy the requirements applicable to REITs under the
Code and to eliminate federal income and excise tax liability.
Fair Value Measurements – ASC Topic 820, Fair Value Measurement, emphasizes that fair-value is a market-based
measurement, not an entity-specific measurement. Therefore, a fair-value measurement should be determined based on
the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market
participant assumptions in fair-value measurements, a fair-value hierarchy is established that distinguishes between
market participant assumptions based on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions
about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the
ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in
active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest
rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are
unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little,
if any, related market activity. In instances where the determination of the fair-value measurement is based on inputs
from different levels of the fair-value hierarchy, the level in the fair-value hierarchy within which the entire fair-value
measurement falls is based on the lowest level input that is significant to the fair-value measurement in its entirety. Our
assessment of the significance of a particular input to the fair-value measurement in its entirety requires judgment, and
considers factors specific to the asset or liability.
As of December 31, 2019, we valued our derivative instruments primarily utilizing Level 2 inputs. See Note 18 – ‘Fair
Value of Financial Instruments’ for additional details.
Recently Adopted Accounting Standards
Revenue from Contracts with Customers
In May 2014, the FASB issued guidance codified in ASC Topic 606, Revenue from Contracts with Customers, which
supersedes the former revenue recognition requirements in ASC Topic 605, Revenue Recognition. Under this new
guidance, entities should recognize revenues to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The standard
establishes a five-step model framework which recognizes revenue as an entity transfers control of goods or services to
the customer and requires enhanced disclosures. We adopted ASC Topic 606 effective January 1, 2018, and elected the
modified retrospective transition approach, which applied the provisions of the new guidance at the effective date
without adjusting comparative periods presented. The adoption did not result in a cumulative catch-up adjustment to
opening equity and does not change the recognition pattern of our operating revenues accounted for under ASC Topic
606.
Leases
In February 2016, and further amended in 2018, the FASB issued ASC Topic 842, Leases, which supersedes the former
lease guidance in ASC Topic 840, Leases. The new standard increases transparency and comparability most significantly
by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheets for those
leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users
of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
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We adopted ASC Topic 842 effective January 1, 2019 using the modified retrospective approach, which applied the
provisions of the new guidance at the effective date without adjusting comparative periods presented. We elected a
package of practical expedients permitted under the transition guidance within the new standard which allowed us to not
reassess (i) whether expired or existing contracts contain a lease under the new standard, (ii) the lease classification for
existing leases or (iii) whether previously-capitalized initial direct costs would qualify for capitalization under the new
standard. We did not elect the hindsight practical expedient which permits entities to use hindsight in determining the
lease term and assessing impairment.
The adoption of ASC Topic 842 impacted our consolidated balance sheets with the recognition of existing operating
leases as lessee resulting in $62.9 million of ROU assets and $70.7 million of lease liabilities recorded as of January 1,
2019. We also recognized a $1.8 million cumulative effect adjustment to retained earnings. The adjustment to retained
earnings was due to an impairment of certain ROU assets associated with vacant office space for which we are a lessee
and assumed in a prior acquisition. See the table below for the impact of adoption of the lease standard on our
consolidated balance sheets as of January 1, 2019 (in thousands):
Operating lease right-of-use assets . . . . $
Operating lease liabilities . . . . . . . . . . .
Deferred rent payable . . . . . . . . . . . . . .
— $
—
5,922
62,922 $
70,657
(5,922)
62,922
70,657
—
As Previously
Reported
New Lease Standard
Adjustment
As Adjusted
As lessor, accounting for our leases remained largely unchanged from ASC Topic 840. The new lease standard more
narrowly defines initial direct costs as only costs that are incremental to origination of a lease (i.e. costs that would not
have been incurred had the lease not been obtained). We did not historically capitalize non-incremental costs, therefore
this change did not have an impact on the accounting for initial direct costs in the consolidated financial statements.
Additionally, from a lessor perspective, we elected a practical expedient which allows lessors to combine nonlease
components with the related lease components if both the timing and pattern of transfer are the same for the nonlease
component(s) and related lease component, and the lease component would be classified as an operating lease. 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.
Lessors are permitted to apply the practical expedient to all existing leases on a retrospective or prospective basis. We
elected the practical expedient to combine our lease and nonlease components that meet the defined criteria and account
for the combined lease component under ASC Topic 842.
New Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –
Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in ASU 2018-13 eliminate the
requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy,
valuation processes for Level 3 fair value measurements, and policy for timing of transfers between levels. ASU 2018-13
also provides clarification in the measurement uncertainty disclosure by explaining that the disclosure is to communicate
information about the uncertainty in measurement as of the reporting date. In addition, ASU 2018-13 added the
following requirements: changes in unrealized gains and losses for the period included in other comprehensive income
for recurring Level 3 fair value measurements held at the end of the reporting period; and range and weighted average of
significant unobservable inputs used in Level 3 fair value measurements. Finally, ASU 2018-13 updated language to
further encourage entities to apply materiality when considering de minimus determination for disclosure requirements.
The guidance will be applied retrospectively for fiscal years beginning after December 15, 2019, and interim periods
within those fiscal years, with the exception of amendments to changes in unrealized gains and losses, the range and
weighted average of significant unobservable inputs used for Level 3 fair value measurements, and the narrative
description of measurement uncertainty which will be applied prospectively. Early adoption is permitted. We do not
expect provisions of the standard will have a material impact on our consolidated financial statements.
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In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a
Service Contract. The amendments in ASU 2018-15 clarifies that implementation costs incurred by customers in cloud
computing arrangements are deferred if they would be capitalized by customers in the software licensing arrangements
under the internal-use software guidance. ASU 2018-15 also clarifies that any capitalized costs should not be recorded to
“Depreciation and amortization” in the Consolidated Statements of Operations for costs after adoption. ASU 2018-15 is
effective for the Company beginning January 1, 2020 and provides for the alternative to adopt the ASU (a) prospectively
only for new costs incurred after the adoption date or (b) by adjusting existing costs to comply with this standard,
including the requirement to present the amortization of costs outside “Depreciation and amortization”. We plan to adopt
this ASU prospectively to all new implementation costs incurred after adoption. We do not expect this standard will have
a material impact on our net income. However, this standard will likely result in certain expenses currently recognized as
non-real estate depreciation being recognized as general and administrative or operating expense in future periods.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments, and subsequent amendments to the guidance: ASU 2018-19 in November 2018,
ASU 2019-04 in April 2019, ASU 2019-05 in May 2019, and ASUs 2019-10 & 2019-11 in November 2019. The
standard, as amended, requires entities to use a new impairment model based on current expected credit losses (“CECL”)
rather than incurred losses. The CECL model is designed to capture expected credit losses through the establishment of
an allowance account, which will be presented as an offset to the amortized cost basis of the related financial asset. The
guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. As
the majority of our revenue is generated from operating leases which are governed under ASC Topic 842, we do not
currently expect the provisions of the standard will have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions and
adding some requirements regarding franchise (or similar) tax, step-ups in a business combination, treatment of entities
not subject to tax and when to apply enacted changes in tax laws. This ASU is effective for fiscal years beginning after
December 15, 2020 and interim periods within those fiscal years. The amendments related to changes in ownership of
foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a
cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments
related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all
periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the
beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. Early adoption
is permitted. We are currently assessing the impact of this standard on our consolidated financial statements.
We determined all other recently issued accounting pronouncements will not have a material impact on our consolidated
financial statements or do not materially apply to our operations.
3. Acquisitions and Sales
(All references to square footage, acres and megawatts are unaudited)
Netherlands Acquisition
On April 23, 2019, we completed the acquisition of two data centers in the Netherlands (the “Netherlands facilities”) for
approximately $44.5 million in cash consideration, including closing costs. The two facilities, in Groningen and
Eemshaven, have approximately 160,000 square feet of raised floor capacity and 30 megawatts of combined gross power
available. This acquisition was funded with a draw on our unsecured revolving credit facility.
The acquisition was accounted for as an asset acquisition. The purchase price allocation of the Netherlands facilities is a
fair value estimate that utilized Level 2 and Level 3 inputs, including discounted future cash flows and observable
market data on replacement costs, leasing rates, and discount rates that were used to measure the acquired assets and
liabilities on a non-recurring basis.
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The following table summarizes the consideration for the Netherlands facilities and the allocation of the fair value of
assets acquired and liabilities assumed at the acquisition date (in thousands):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangibles (In-place lease & above market lease) . . . . . . . .
Deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired below market lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net identifiable assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Land Acquisitions
Purchase Price Allocation
Weighted Avg
Remaining Useful Life
(in years)
N/A
24
N/A
3
3
3
N/A
3
1,743
8,640
29,902
2,911
906
128
554
44,784
284
284
44,500
In April 2019, we completed the acquisition of approximately 4 acres of land for our Atlanta (DC-2) facility for
approximately $2.2 million. In July 2019, we completed the acquisition of approximately 28 acres of land in Ashburn,
Virginia for approximately $22.4 million. In November 2019, we completed the acquisition of approximately 75 acres of
land in Richmond, Virginia for approximately $7.0 million. These acquisitions were accounted for as asset acquisitions
and are included within the “Construction in Progress” line item of the consolidated balance sheets.
During 2018, we completed multiple acquisitions of land in Manassas, Virginia totaling 118 acres for approximately
$37.0 million. A portion of the land was used to support the construction of the Manassas data center that we contributed
to an unconsolidated entity subsequent to December 31, 2018. These acquisitions were accounted for as asset
acquisitions. The land acquired in the Manassas purchases, as well as subsequent costs for construction in progress, were
included within the “Construction in Progress” line item of the consolidated balance sheets.
In October 2018, we completed the acquisition of approximately 55 acres of land in Atlanta, Georgia adjacent to our
existing Atlanta (DC-1) (formerly known as Atlanta-Metro) mega data center for approximately $80.1 million. The
acquisition was accounted for as an asset acquisition, with the majority of the purchase price included within the
“Construction in Progress” line item of the consolidated balance sheets at the time of acquisition.
Atlanta Land Improvement Sale
In November 2019, we sold to a third party certain land improvements which we had previously acquired as part of a
larger acquisition of land to expand our Atlanta, Georgia campus. This sale of incidental real estate resulted in a gain of
$1.4 million. Additionally, we entered into a ground lease with the Company as lessor and the acquirer of the building as
lessee which has an initial term of 20 years.
F-31
4. Acquired Intangible Assets and Liabilities
Summarized below are the carrying values for the major classes of intangible assets and liabilities (in thousands):
67,244
14,396
10,108
2,301
1,402
95,451
Customer Relationships . . . . . . . . . . . . . . . . . . . .
In-Place Leases . . . . . . . . . . . . . . . . . . . . . . . . . .
Solar Power Agreement (1) . . . . . . . . . . . . . . . . . .
Acquired Favorable Leases
December 31, 2019
December 31, 2018
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Value
95,705 $
34,588
13,747
(36,411) $
(22,522)
(4,448)
59,294 $
12,066
9,299
95,705 $
32,066
13,747
(28,461) $
(17,670)
(3,639)
Useful Lives
12 years
0.5 to 10 years
17 years
$
Acquired below market leases - as Lessee . . . . .
Acquired above market leases - as Lessor . . . . .
Total Intangible Assets . . . . . . . . . . . . . . . . . . . . .
46 years
0.5 to 8 years
$
—
5,035
149,075 $
—
(4,015)
(67,396) $
—
1,020
81,679 $
2,301
4,649
148,468 $
—
(3,247)
(53,017) $
Solar Power Agreement (1) . . . . . . . . . . . . . . . . . .
Acquired Unfavorable Leases
Acquired below market leases - as Lessor . . . . .
Acquired above market leases - as Lessee . . . . .
Total Intangible Liabilities (2) . . . . . . . . . . . . . . . .
17 years
13,747
(4,448)
9,299
13,747
(3,639)
10,108
3 to 4 years
11 to 12 years
$
1,092
2,453
17,292 $
(967)
(983)
(6,398) $
125
1,470
10,894 $
809
2,453
17,009 $
(611)
(767)
(5,017) $
198
1,686
11,992
(1) Amortization related to the Solar Power Agreement asset and liability is recorded at the same rate and therefore has no net impact on the
statements of operations.
Intangible liabilities are included within the “Advance rents, security deposits and other liabilities” line item of the consolidated balance sheets.
(2)
Above or below market leases are amortized as a reduction to or increase in rental revenue in the case of the Company as
lessor as well as a reduction to or increase in rent expense in the case of the Company as lessee over the remaining lease
terms. The net effect of amortization of acquired above-market and below-market leases resulted in a net decrease in
rental revenue of $0.2 million, $0.5 million, and $0.9 million for the years ended December 31, 2019, 2018 and 2017,
respectively. The estimated amortization of acquired favorable and unfavorable leases for each of the five succeeding
fiscal years ending December 31 is as follows (in thousands):
Net Rental Revenue
Decrease
Net Rental Expense
Decrease
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
659 $
154
52
24
6
—
895 $
(216)
(216)
(216)
(216)
(216)
(390)
(1,470)
Net amortization of all other identified intangible assets and liabilities was $13.2 million, $15.0 million and $18.2
million for the years ended December 31, 2019, 2018 and 2017, respectively. The estimated net amortization of all other
identified intangible assets and liabilities for each of the five succeeding fiscal years ending December 31 is as follows
(in thousands):
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
12,100
10,593
10,073
10,070
8,953
19,571
71,360
F-32
5. Real Estate Assets and Construction in Progress
The following is a summary of our cost of owned or leased properties as of December 31, 2019 and 2018 (in thousands):
As of December 31, 2019:
Buildings and
Improvements
Construction
Land
Property Location
Atlanta, Georgia Campus (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,588 $
Irving, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ashburn, Virginia (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richmond, Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chicago, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Suwanee, Georgia (Atlanta-Suwanee) . . . . . . . . . . . . . . . . . . . . . .
Piscataway, New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Santa Clara, California (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fort Worth, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased facilities (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sacramento, California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hillsboro, Oregon (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manassas, Virginia (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Princeton, New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dulles, Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eemshaven, Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Phoenix, Arizona (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Groningen, Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
in Progress Total Cost
525,300 $ 128,930 $ 698,818
476,503
98,170
369,727
362,247
189,375
156,396
337,812
139,948
195,684
301,304
86,878
205,026
183,204
5,559
174,124
147,075
36,056
103,553
115,737
114,499
1,238
99,819
35,722
55,018
83,479
666
82,813
66,902
163
65,258
63,573
63,573
—
57,662
57,662
—
55,931
39
35,192
56,493
4,688
48,651
37,267
37,267
—
34,252
31,840
2,412
13,854
3,028
9,085
38,496
120
36,163
$ 130,605 $ 2,178,901 $ 920,922 $ 3,230,428
8,606
16,476
2,180
9,400
3,521
7,466
—
9,079
—
1,481
—
—
20,700
3,154
—
—
1,741
2,213
(1) The “Atlanta, Georgia Campus” includes both the existing data center Atlanta (DC-1) as well as new property development associated with
construction of a second megascale data center Atlanta (DC-2) on land adjacent to the existing Atlanta DC-1 facility.
(2) Represent land purchases. Land acquisition costs, as well as subsequent development costs, are included within construction in progress until
development on the land has ended and the asset is ready for its intended use.
(3) Owned facility subject to long-term ground sublease.
(4)
(5) Consists of Miami, FL; Lenexa, KS; and Overland Park, KS facilities.
Includes 7 facilities. All facilities are leased, including those subject to finance leases.
F-33
As of December 31, 2018:
Buildings and
Improvements
Construction
Land
Property Location
Atlanta, Georgia Campus (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,416 $
Irving, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richmond, Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chicago, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ashburn, Virginia (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Suwanee, Georgia (Atlanta-Suwanee) . . . . . . . . . . . . . . . . . . . . . .
Piscataway, New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manassas, Virginia (2) (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Santa Clara, California (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dulles, Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fort Worth, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sacramento, California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Princeton, New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased facilities (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hillsboro, Oregon (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Phoenix, Arizona (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,606
2,180
9,400
17,325
3,521
7,466
—
—
3,154
9,079
1,481
20,700
—
—
—
2,213
$ 105,541
493,446 $
345,615
253,098
130,150
63,245
166,298
97,806
—
98,548
72,435
18,623
64,874
34,046
43,347
—
—
35,720
1,917,251
in Progress Total Cost
88,253 $ 602,115
453,666
99,445
323,210
67,932
272,645
133,095
265,521
184,951
173,007
3,188
138,744
33,472
45,194
45,194
106,148
7,600
79,441
3,852
71,417
43,715
66,447
92
55,177
431
52,681
9,334
39,835
39,835
29,562
29,562
38,046
113
790,064 $ 2,812,856
(1) The “Atlanta, Georgia Campus” includes both the existing data center Atlanta (DC-1) as well as new property development associated with
construction of a second megascale data center Atlanta (DC-2) on land adjacent to the existing Atlanta DC-1 facility.
(2) Represent 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.
Includes 10 facilities. All facilities are leased, including those subject to finance leases.
(3) Owned facility subject to long-term ground sublease.
(4)
(5) Consists of Miami, FL; Lenexa, KS; Overland Park, KS; and Duluth, GA facilities.
(6) Excludes $71.0 million of construction in progress included within the “Assets held for sale” line item of the consolidated balance sheets.
6. Leases
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. 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
pursuant to the adoption of ASC Topic 842 effective January 1, 2019. See ‘Note 2’ for further details on recently
adopted accounting standards.
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. Variable lease payments consist of nonlease
services related to 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.
F-34
We use leasing as a source of financing for certain data center facilities and related equipment. We currently operate one
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 one to eighteen 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. Finance lease assets are included within the “Buildings, improvements and equipment” line item of the
consolidated balance sheets and finance lease liabilities are included within “Finance leases and mortgage notes payable”
line item of the consolidated balance sheets.
We currently lease six 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 four to seven years. We
have options to extend the initial lease term on nearly all of these leases. Additionally, we have one ground lease for our
Santa Clara property that is considered an operating lease which is scheduled to expire in 2052.
Components of lease expense were as follows (in thousands):
Year Ended
December 31, 2019
Finance lease cost:
Amortization of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest on lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease expense:
Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sublease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,535
1,693
9,102
1,109
(187)
15,252
Supplemental balance sheet information related to leases was as follows (in thousands, except lease term and discount
rate):
Operating leases:
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases:
Property and equipment, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Finance lease liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average remaining lease term (in years):
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average discount rate:
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2019
57,141
64,416
50,437
(4,830)
45,607
45,141
13.7
11.4
5.1%
4.3%
F-35
Supplemental cash flow and other information related to leases was as follows (in thousands):
Year Ended
December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating cash flows for finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Financing cash flows for finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
9,834
1,704
2,855
Maturities of lease liabilities, which exclude variable rent payments, are as follows (in thousands):
December 31, 2019
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Lease Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Imputed Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating Leases Finance Leases
4,493
9,589 $
4,514
9,818
4,639
10,266
4,776
10,393
8,317
4,918
48,908
34,990
97,291 $
58,330
32,875
13,189
64,416 $
45,141
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 (in thousands):
Year Ended
December 31,
2019
2018
Lease revenue:
Minimum lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 409,157 $ 367,388
Variable lease revenue (primarily recoveries from customers) . . . . . . . . . . . . . . . . . . . . . . . . . .
46,232
Total lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 465,123 $ 413,620
55,966
7. Investments in Unconsolidated Entity
During the three months ended March 31, 2019, QTS formed an unconsolidated entity with Alinda Capital Partners
(“Alinda”), an infrastructure investment firm. QTS 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 $30.2 million as of December 31, 2019. QTS 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
December 31, 2019 the total assets of the entity were $127.8 million and the total debt outstanding, net of deferred
financing costs, was $68.2 million.
Under the equity method, our cost of investment is adjusted for additional contributions to and distributions from the
unconsolidated entity, as well as our share of equity in the earnings and losses of the unconsolidated entity. Generally,
F-36
distributions of cash flows from operations and capital events are made to members of the unconsolidated entity in
accordance with each member’s ownership percentages and the terms of the agreement, but also provides us with rights
to preferential cash distributions as certain phases are completed and leased to the underlying tenant. Our policy is to
account for distributions from the unconsolidated entity on the basis of the nature of the activities that generated the
distribution. Distributions from the operations of the unconsolidated entity are a return on our investment and we classify
these distributions as operating cash flows. Any differences between the cost of our investment in an unconsolidated
affiliate and its underlying equity as reflected in the unconsolidated affiliate’s financial statements generally result from
costs of our investment that are not reflected on the unconsolidated affiliate’s financial statements.
Under the unconsolidated entity agreement, we serve as the entity’s operating member, subject to authority and oversight
of a board appointed by us and Alinda, and separately we serve as manager and developer of the facility in exchange for
management and development fees. The entity agreement includes various transfer restrictions and rights of first offer
that will allow us to repurchase Alinda’s interest should Alinda wish to exit in the future.
8. Debt
Below is a listing of our outstanding debt, including finance leases, as of December 31, 2019 and 2018 (in thousands):
Weighted Average
Coupon Interest Rate at
December 31, 2019 (1) December 31, 2019
Maturities as of
December 31, December 31,
2019
2018
Unsecured Credit Facility
Revolving Credit Facility . . . . . . . . . . . . . . . .
Term Loan I . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term Loan II . . . . . . . . . . . . . . . . . . . . . . . . . .
Term Loan III . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lenexa Mortgage . . . . . . . . . . . . . . . . . . . . . . .
Finance Leases . . . . . . . . . . . . . . . . . . . . . . . . .
Less net debt issuance costs . . . . . . . . . . . . . . .
Total outstanding debt, net . . . . . . . . . . . . . .
April 27, 2025
2.71% December 17, 2023 $ 317,028 $ 252,000
350,000
3.16% December 17, 2024
350,000
3.19%
—
3.19% October 18, 2026
400,000
4.75% November 15, 2025
1,801
4.10%
4.35%
2,873
1,356,674
3.54%
(11,557)
$ 1,453,065 $ 1,345,117
225,000
225,000
250,000
400,000
1,736
45,140
1,463,904
(10,839)
May 1, 2022
2021 - 2038
(1) The coupon interest rates associated with Term Loans I - II incorporate the effects of our interest rate swaps in effect as of December 31, 2019.
Credit Facilities, Senior Notes and Mortgage Notes Payable
(a) Unsecured Credit Facility – In October 2019, the Company amended and restated its unsecured credit facility (the
“unsecured credit facility”), which among other things increased the total potential borrowings, extended maturity dates,
lowered interest rates, and provided for an additional term loan under the agreement. The unsecured credit facility
includes a $225 million term loan which matures on December 17, 2024 (the “Term Loan A”), a $225 million term loan
which matures on April 27, 2025 (the “Term Loan B”), an additional term loan of $250 million, maturing on October 18,
2026 (the “Term Loan C”), and a $1.0 billion revolving credit facility which matures on December 17, 2023. The
revolving portion of the unsecured facility has a one-year extension option. Amounts outstanding under the unsecured
credit facility bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will vary
depending upon our leverage ratio. For revolving credit loans, the spread ranges from 1.25% to 1.85% for LIBOR loans
and 0.25% to 0.85% for base rate loans. For Term Loan A and Term Loan B, the spread ranges from 1.20% to 1.80% for
LIBOR loans and 0.20% to 0.80% for base rate loans. For Term Loan C, the spread ranges from 1.50% to 1.85% for
LIBOR loans and 0.50% to 0.85% for base rate loans. The unsecured credit facility also provides for borrowing capacity
of up to $300 million in various foreign currencies.
Under the unsecured credit facility, the capacity may be increased from the current capacity of $1.7 billion to $2.2
billion subject to certain conditions set forth in the credit agreement, including the consent of the administrative agent
and obtaining necessary commitments. We are also required to pay a commitment fee to the lenders assessed on the
unused
F-37
portion of the unsecured revolving credit facility. At our election, we can prepay amounts outstanding under the
unsecured credit facility, in whole or in part, without penalty or premium.
The Company’s ability to borrow under the unsecured credit facility is subject to ongoing compliance with a number of
customary affirmative and negative covenants. As of December 31, 2019, the Company was in compliance with all of its
covenants.
As of December 31, 2019, the Company had outstanding $1,017 million of indebtedness under the unsecured credit
facility, consisting of $317 million of outstanding borrowings under the unsecured revolving credit facility and $700
million outstanding under the term loans, exclusive of net debt issuance costs of $6.4 million. In connection with the
unsecured credit facility, as of December 31, 2019, the Company had letters of credit outstanding aggregating to $4.0
million. As of December 31, 2019, the weighted average interest rate for amounts outstanding under the unsecured credit
facility, including the effects of interest rate swaps, was 3.03%.
The Company has also entered into certain interest rate swap agreements. See Note 10 – ‘Derivative Instruments’ for
additional details.
(b) Senior Notes – On November 8, 2017, the Operating Partnership and QTS Finance Corporation, a subsidiary of the
Operating Partnership formed solely for the purpose of facilitating the offering of the 5.875% Senior Notes due 2022
(collectively, the “Issuers”), issued $400 million aggregate principal amount of 4.750% Senior Notes due November 15,
2025 (the “Senior Notes”) in a private offering. The Senior Notes have an interest rate of 4.750% per annum and were
issued at a price equal to 100% of their face value. The net proceeds from the offering were used to fund the redemption
of, and satisfy and discharge the indenture pursuant to which the Issuers issued, all of their outstanding 5.875% Senior
Notes and to repay a portion of the amount outstanding under our unsecured revolving credit facility. As of December
31, 2019, the outstanding net debt issuance costs associated with the Senior Notes were $4.5 million.
The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the
Operating Partnership’s existing subsidiaries (other than foreign subsidiaries and receivables entities) and future
subsidiaries that guarantee any indebtedness of QTS Realty Trust, Inc., the Issuers or any other subsidiary guarantor,
other than QTS Finance Corporation, the co-issuer of the Senior Notes. QTS Realty Trust, Inc. does not guarantee the
Senior Notes and will not be required to guarantee the Senior Notes except under certain circumstances. The offering
was conducted pursuant to Rule 144A of the Securities Act of 1933, as amended, and the Senior Notes were issued
pursuant to an indenture, dated as of November 8, 2017, among QTS, the Issuers, the guarantors named therein, and
Deutsche Bank Trust Company Americas, as trustee.
The annual remaining principal payment requirements as of December 31, 2019 per the contractual maturities, excluding
extension options and excluding operating and finance leases, are as follows (in thousands):
64
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
73
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,599
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
317,028
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
225,000
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
875,000
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,418,764
As of December 31, 2019, we were in compliance with all of our covenants.
9. Income Taxes
The Company has elected for two of its existing subsidiaries to be taxed as taxable REIT subsidiaries pursuant to the
REIT rules of the U.S. Internal Revenue Code. Pursuant to the transaction described in Note 3 – Acquisitions, we also
have subsidiaries subject to tax in non-US jurisdictions.
F-38
For the taxable REIT subsidiaries, income taxes are accounted for under the asset and liability method in accordance
with ASC Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. We consider whether it is more likely than not that some portion or all of the deferred
tax assets will be realized. It is possible that some or all of our deferred tax assets could ultimately expire unused. The
Company establishes valuation allowances against deferred tax assets when the ability to fully utilize these benefits is
determined to be uncertain.
The components of income tax provision from continuing operations are:
For the Year Ended December 31,
2018
2019
2017
Current:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
U.S. State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
298
13
311
(276)
(71)
(1)
(348)
(37) $
(50) $
395
78
423
42
297
44
383
(3,727)
(64)
—
(3,791)
(3,368) $
(9,734)
(427)
—
(10,161)
(9,778)
Temporary differences and carry forwards which give rise to the deferred tax assets and liabilities are as follows:
For the Year Ended December 31,
2018
2019
2017
Deferred tax assets
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred revenue and setup charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense carryforward IRC Sec. 163(j) . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset/(liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
20,218 $
1,299
2,266
512
—
300
18
804
2,782
1,376
29,575
17,610 $
3,171
—
—
1
287
409
—
2,253
1,534
25,265
8,888
3,435
—
—
453
543
2,250
—
—
1,607
17,176
—
(2,494)
(591)
(1,261)
(1,231)
(5,577)
23,998
(24,747)
(749) $
(3,089)
(1,953)
(11,910)
—
(1,049)
(18,001)
7,264
(8,361)
(1,097) $
(4,940)
(1,396)
(13,606)
—
(1,132)
(21,074)
(3,898)
(713)
(4,611)
F-39
The taxable REIT subsidiaries currently have net operating loss carryforwards related to federal income taxes of $33.4
million that expire in 10-17 years and $39.9 million which have no expiration. The taxable REIT subsidiaries also have
$78.4 million of net operating loss carryforwards relating to state income taxes that expire in 1-20 years. The Company’s
interest expense carryforward of $10.9 million has no expiration.
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. The differences between total income tax
expense or benefit and the amount computed by applying the statutory income tax rate to income before provision for
income taxes with respect to the TRS activity were as follows:
For the Year Ended December 31,
2018
2019
2017
TRS
Statutory rate applied to pre-tax loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (12,991) $
Permanent differences, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal and State rate change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contribution of Assets to TRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
(2,868)
13
(20)
—
(110)
15,923
Total tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(37) $
0.1%
(9,656) $
97
(1,430)
78
(146)
—
41
7,648
(3,368) $
7.3%
(5,109)
(284)
(388)
44
(3,251)
(866)
(244)
320
(9,778)
65.1%
On December 22, 2017, the Tax Cuts and Jobs Act ("The Act"), was signed into law by President Trump. The tax
legislation contains several provisions, including the lowering of the U.S. corporate tax rate from 35 percent to 21
percent, effective January 1, 2018.
The Company had significant deferred tax liabilities, primarily related to fixed assets and intangibles, on its balance
sheets as of December 31, 2017. The value of the net deferred tax liabilities decreased significantly as a result of the
reduction in the U.S. corporate income tax rate. Consequently, operating results for the reporting period ended December
31, 2017 reflected a one-time non-cash income tax benefit of $3.3 million for the re-measurement of deferred tax assets
(liabilities).
The Act also repealed corporate alternative minimum tax (“AMT”) for tax years beginning January 1, 2018, and
provides that existing AMT credit carryforwards are refundable beginning in 2018. The Company has approximately
$0.3 million of AMT credit carryovers that are expected to be fully refunded by 2022. The repeal of AMT did not result
in any one-time income tax expense (benefit) to operating results.
The Company followed the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which provided additional
clarification regarding the application of ASC Topic 740 in situations where the Company may not have had the
necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income
tax effects of the Act for the reporting period ended December 31, 2017 in which the Act was enacted. SAB 118
provided for a measurement period beginning in the reporting period that includes the Act’s enactment date and ending
when the Company has obtained, prepared, and analyzed the information needed in order to complete the accounting
requirements. In no circumstances was the measurement period to extend beyond one year from the enactment date.
The Company completed its accounting for income tax effects of the Act in the reporting period ended December 31,
2018 and included the impacts in its income tax provision from continuing operations in accordance with the
measurement period guidance provided in SAB 118. The impacts of completing its accounting were not material to the
income tax provision of the Company’s effective tax rate.
As of December 31, 2019, 2018 and 2017, the Company had no uncertain tax positions. If the Company accrues any
interest or penalties on tax liabilities from significant uncertain tax positions, those items will be classified as interest
expense and general and administrative expense, respectively, in the Statements of Operations and Statements of
F-40
Comprehensive Income. For the years ended December 31, 2019, 2018, and 2017, the Company had accrued no such
interest or penalties.
The Company is currently not under examination by the Internal Revenue Service or any state or foreign jurisdictions.
Tax years ending after December 31, 2015 remain subject to examination and assessment, state limitation periods
included. Tax years ending December 31, 2009 through December 31, 2015 remain open solely for purposes of
examination of our loss and credit carryforwards.
The Company provides a valuation allowance against deferred tax assets if, based on management’s assessment of
operating results and other available evidence, it is more likely than not that some or all of the deferred tax assets will
not be realized. The evidence contemplated by management at December 31, 2019, 2018, and 2017 consists of current
and prior operating results, available tax planning strategies, and the scheduled reversal of existing taxable temporary
differences. Evidence from the scheduled reversal of taxable temporary differences relies on management judgements
based on the accumulation of available evidence. Those judgements may be subject to change in the future as evidence
available to management changes. Management’s assessment of the Company’s valuation allowance may further change
based on our generation or ability to project of future operating income, and changes in tax policy or tax planning
strategies.
As of December 31, 2019, 2018, and 2017 valuation allowances of $24.7 million, $8.4 million and $0.7 million,
respectively, were recognized against certain net federal and state deferred tax assets since it is more likely than not that
the deferred tax assets will not be realized. The $16.3 million year-over-year change is primarily caused by the federal
and state valuation allowances recorded due to ongoing operating losses of the taxable REIT subsidiaries. Additionally,
some portion of the change to the valuation allowances relates to changes in the scheduled reversal of taxable temporary
differences; and some portion of the change to the state valuation allowance is attributable to state net operating losses
generated where the Company has discontinued its operations or reduced its presence in certain state jurisdictions.
10. 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.
On April 5, 2017, we entered into forward interest rate swap agreements with an aggregate notional amount of $400
million. The forward swap agreements effectively fix the interest rate on $400 million of term loan borrowings, $200
million of swaps allocated to Term Loan A and $200 million allocated to Term Loan B, from January 2, 2018 through
December 17, 2021 and April 27, 2022, respectively.
On December 20, 2018, we entered into additional forward interest rate swap agreements with an aggregate notional
amount of $400 million. The forward swap agreements effectively fix the interest rate on $400 million of term loan
borrowings, $200 million of swaps allocated to Term Loan A and $200 million allocated to Term Loan B, from
December 17, 2021 through December 17, 2023 and April 27, 2022 through April 27, 2024, respectively. On December
20, 2018, we entered into additional forward interest rate swap agreements with an aggregate notional amount of $200
million. The forward swap agreements effectively fix the interest rate on $100 million of additional term loan
borrowings from January 2, 2020 through December 17, 2023 as well as $100 million of additional term loan
borrowings from January 2, 2020 through April 27, 2024.
F-41
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 December 31, 2019, the fair value of interest rates swaps represented an aggregate $19.9 million
liability. As of December 31, 2018, the fair value of interest rate swaps included an asset of $5.3 million as well was a
liability of $3.0 million.
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. The amount reclassified from other comprehensive
income to interest expense on the consolidated statements of operations was a reduction to interest expense of $1.0
million and an increase to interest expense of $0.1 million for the years ended December 31, 2019 and 2018,
respectively. No amounts were reclassified from other comprehensive income to interest expense on the consolidated
statements of operations for the year ended December 31, 2017. There was no ineffectiveness recognized for the years
ended December 31, 2019, 2018 and 2017. During the subsequent twelve months, beginning January 1, 2020, we
estimate that $3.6 million will be reclassified from other comprehensive income as an increase to interest expense.
Interest rate derivatives and their fair values as of December 31, 2019 and December 31, 2018 were as follows (in
thousands):
Notional Amount
December 31, 2019 December 31, 2018
$
$
25,000
100,000
75,000
50,000
100,000
50,000
100,000
100,000
200,000
200,000
Fixed One Month
LIBOR rate per
annum
Effective Date
January 2, 2018
January 2, 2018
January 2, 2018
January 2, 2018
January 2, 2018
January 2, 2018
January 2, 2020
January 2, 2020
1.989%
1.989%
1.989%
2.033%
2.029%
2.033%
2.617%
2.621%
2.636% December 17, 2021
2.642%
April 27, 2022
Expiration Date
December 17, 2021 $
December 17, 2021
December 17, 2021
April 27, 2022
April 27, 2022
April 27, 2022
December 17, 2023
April 27, 2024
December 17, 2023
April 27, 2024
Fair Value (1)
December 31, 2019 December 31, 2018
331
(209) $
1,318
(837)
990
(627)
667
(545)
1,341
(1,081)
666
(545)
(782)
(4,007)
(818)
(4,324)
(722)
(3,939)
(648)
(3,802)
2,343
(19,916) $
$
25,000
100,000
75,000
50,000
100,000
50,000
100,000
100,000
200,000
200,000
Power Purchase Agreements
In March 2019, we entered into two 10 year agreements to purchase renewable energy equal to the expected electricity
needs of our datacenters 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 utility expense on the consolidated statements of operations was an increase to
utilities expense of $0.7 million for the year ended December 31, 2019. There was no amount reclassified from other
comprehensive income to utilities expense for the years ended December 31, 2018 or 2017. 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.
F-42
Power purchase agreement derivatives and their fair values as of December 31, 2019 and December 31, 2018 were as
follows (in thousands):
Fair Value
Counterparty
Facility
Calpine Energy Solutions, LLC . . . . Piscataway
Calpine Energy Solutions, LLC . . . . Chicago
Effective Date Expiration Date December 31, 2019 December 31, 2018
—
—
—
(2,919) $
(3,774)
(6,693) $
2/28/2029 $
2/28/2029
3/8/2019
3/8/2019
$
11. Commitments and Contingencies
The Company is subject to various routine legal proceedings and other matters in the ordinary course of business. The
Company currently does not have any litigation that would have a material adverse impact on the Company’s financial
statements.
12. 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 December 31, 2019, the Operating Partnership had four 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 one-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 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”), which authorized 1.75 million shares of Class A common stock to be issued under the 2013 Equity
Incentive Plan, including options to purchase Class A common stock if exercised. On May 4, 2015, following approval
by our stockholders at our 2015 Annual Meeting of Stockholders, the total number of shares available for issuance under
the 2013 Equity Incentive Plan was increased by an additional 3,000,000. On May 9, 2019, following approval by our
stockholders at our 2019 Annual Meeting of Stockholders, the total number of shares available for issuance under the
2013 Equity Incentive Plan was increased by an additional 1,110,000 to 5,860,000.
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 ending December 31, 2020 (performance-based FFO units or “FFO Units”), with two-thirds of the
earned shares of Class A common stock vesting at the end of the performance period when results have been
certified and the remaining one-third of the shares vesting 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
F-43
to be determined based on a linear interpolation basis between threshold and target and target and maximum
performance.
b. Performance-Based Relative TSR Unit Awards — performance-based restricted share unit awards, which may
be earned based on total stockholder return (“TSR”) as compared to the MSCI U.S. REIT Index (the “Index”)
over a three-year performance period ending December 31, 2021 (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 one-third 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 years ended December 31, 2019, 2018 and 2017:
2010 Equity Incentive Plan
2013 Equity Incentive Plan
Weighted
average
Number of
Class O units exercise price
Weighted
Average fair
value
Weighted
average
fair
Options exercise price value
Weighted Restricted
average Stock / Weighted
Deferred average
Stock
Weighted
Weighted
average
average
grant price TSR Units grant price FFO Units grant price
Outstanding at January 1, 2017 . . . .
Granted . . . . . . . . . . . . . . . . . .
Exercised/Vested (1) . . . . . . . . . . .
Cancelled/Expired (2) . . . . . . . . . .
Outstanding at December 31, 2017 . .
Granted . . . . . . . . . . . . . . . . . .
Exercised/Vested (1) . . . . . . . . . . .
Cancelled/Expired (2) . . . . . . . . . .
Outstanding at December 31, 2018 . .
Granted . . . . . . . . . . . . . . . . . .
Exercised/Vested (1) . . . . . . . . . . .
Cancelled/Expired (2) . . . . . . . . . .
Outstanding at December 31, 2019 . .
1,134,811 $
—
(566,771)
—
568,040 $
—
(465,761)
—
102,279 $
—
(19,969)
—
82,310 $
24.06 $
—
24.60
—
23.52 $
—
23.40
—
24.05 $
—
20.25
—
24.97 $
3.62 1,058,297 $
—
2.24
—
468,875
(155,902)
(2,000)
5.00 1,369,270 $
—
4.76
—
674,081
(6,188)
—
5.67 2,037,163 $
—
4.42
—
135,594
(125,213)
(112,706)
5.97 1,934,838 $
31.72 $
50.66
31.89
37.69
38.18 $
34.05
21.50
—
36.86 $
42.27
30.80
45.86
37.11 $
6.51
10.32
414,691 $
228,576
6.60 (163,048)
(98,355)
8.77
381,864 $
7.80
5.63
348,152
3.68 (224,660)
(85,047)
—
420,309 $
7.10
7.62
274,564
6.21 (279,429)
(25,694)
9.43
389,750 $
7.05
40.67
49.86
40.63
39.97
46.37
35.27
46.23
43.50
37.83
42.25
39.20
42.17
39.67
— $
—
—
—
—
—
—
—
—
86,089
—
(1,739)
84,350 $
—
—
—
—
—
—
—
—
—
54.64
—
54.64
54.64
— $
—
—
—
—
—
—
—
—
86,089
—
(1,739)
84,350 $
—
—
—
—
—
—
—
—
—
42.01
—
42.01
42.01
(1) This 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.
Includes restricted Class A common stock surrendered by certain employees to satisfy their statutory minimum federal and state tax obligations
associated with the vesting of restricted common stock.
(2)
The assumptions and fair values for restricted stock and options to purchase shares of Class A common stock granted for
the years ended December 31, 2019, 2018 and 2017 are included in the following table on a per unit basis. 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.
Fair value of FFO units and restricted stock granted . . . . . . .
Fair value of TSR units granted . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of options granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . .
2019
$42.01 - $51.25
$54.64
$7.56 - $8.28
5.5
28%
3.89% - 4.19%
2.33% - 2.56%
2018
$34.03 - $54.01
N/A
$5.55 - $5.64
5.5 - 6.0
28%
4.82%
2.69% - 2.73%
2017
$48.63 - $51.88
N/A
$10.11 - $10.36
5.5 - 5.9
28%
3.08%
2.12% - 2.18%
F-44
The following tables summarize information about awards outstanding as of December 31, 2019.
Operating Partnership Awards Outstanding
Weighted average
Class O Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Operating Partnership awards outstanding . . . . . . . . . . . .
Awards
Exercise prices outstanding vesting period (years)
82,310
82,310
$ 20.00 - 25.00
remaining
—
Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TSR units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FFO units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options to purchase Class A common stock . . . . . . . . . . . . . . . . . . . . .
Total QTS Realty Trust, Inc. awards outstanding . . . . . . . . . . . .
QTS Realty Trust, Inc. Awards Outstanding
Weighted average
$
remaining
Awards
Exercise prices outstanding vesting period (years)
389,750
84,350
84,350
1,934,838
2,493,288
—
—
—
$21.00 - 50.66
1.7
2.0
1.4
0.3
Any remaining nonvested awards are valued as of the grant date and generally vest ratably over a defined service period.
As of December 31, 2019 all restricted Class A common stock, TSR units, and FFO units outstanding were unvested and
approximately 0.6 million options to purchase Class A common stock were outstanding and unvested. As of December
31, 2019 we had $17.0 million of unrecognized equity-based compensation expense which will be recognized over a
remaining weighted-average vesting period of 1.1 years. The total intrinsic value of Class O units and options to
purchase Class A common stock outstanding at December 31, 2019 was $35.4 million.
F-45
Dividends and Distributions
The following tables present quarterly cash dividends and distributions paid to QTS’ common and preferred stockholders
and the Operating Partnership’s unit holders for the years ended December 31, 2019 and 2018:
Year Ended December 31, 2019
Per Share and
Per Unit Rate
Dividend/Distribution
Amount (in millions)
Aggregate
0.44 $
0.44
0.44
0.41
$
0.45 $
0.45
0.45
0.45
$
1.63 $
1.63
1.63
1.63
$
27.3
27.3
27.3
23.7
105.6
1.9
1.9
1.9
1.9
7.6
5.1
5.1
5.1
5.1
20.4
Per Share and
Per Unit Rate
Dividend/Distribution
Amount (in millions)
Aggregate
0.41 $
0.41
0.41
0.39
$
0.45 $
0.45
0.15
$
1.99 $
$
23.7
23.7
23.7
22.2
93.3
1.9
1.9
0.6
4.4
6.3
6.3
Record Date
Common Stock/Units
September 19, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . October 4, 2019
July 9, 2019
June 25, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 20, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 4, 2019
December 21, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
January 8, 2019
Payment Date
$
Series A Preferred Stock/Units
September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . October 15, 2019 $
July 15, 2019
June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 15, 2019
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
January 15, 2019
Series B Preferred Stock/Units
September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . October 15, 2019 $
July 15, 2019
June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 15, 2019
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
January 15, 2019
Year Ended December 31, 2018
Record Date
Common Stock/Units
September 20, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . October 4, 2018
July 6, 2018
June 20, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 22, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 5, 2018
December 5, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 5, 2018
Payment Date
$
Series A Preferred Stock/Units
September 28, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . October 15, 2018 $
July 16, 2018
June 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 5, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 16, 2018
Series B Preferred Stock/Units
September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . October 15, 2018 $
F-46
Additionally, subsequent to December 31, 2019, the Company paid the following dividends:
• On January 7, 2020, the Company paid its regular quarterly cash dividend of $0.44 per common share and per
unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on
December 20, 2019.
• On January 15, 2020, the Company paid a quarterly cash dividend of approximately $0.45 per share on its
Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on
December 31, 2019, and the Operating Partnership paid a quarterly cash distribution of approximately $0.45 per
unit on outstanding Series A Preferred Units held by the Company.
• On January 15, 2020, the Company paid a quarterly cash dividend of approximately $1.63 per share on its
Series B Preferred Stock to holders of Series B Preferred Stock of record as of the close of business on
December 31, 2019, and the Operating Partnership paid a quarterly cash distribution of approximately $1.63 per
unit on outstanding Series B Preferred Units held by the Company.
Equity Issuances
Class A Common Stock
In February 2019, QTS conducted an underwritten offering of 7,762,500 shares of its Class A common stock, $0.01 par
value per share (the “Class A common stock”) consisting of 4,000,000 shares issued by the Company during the first
quarter of 2019 and 3,762,500 shares which will be issued on a forward basis. During the year ended December 31,
2019, we settled a portion of the shares subject to the forward sale agreements. See the table below for additional
quantitative information related to the stock offerings. We have concluded that the forward sale agreements meet the
derivative scope exception for certain contracts involving an entity’s own equity. The initial forward sale price is subject
to daily adjustment based on a floating interest rate factor equal to the specified daily rate less a spread, and will
decrease by other fixed amounts specified in the forward sale agreement. Until settlement of all of the forward sale
agreements, our earnings per share dilution resulting from the agreements, if any, is determined using the two-class
method.
In June 2019, we established a new “at-the-market” equity offering program (the “ATM Program”) pursuant to which
we may issue, from time to time, up to $400 million of our Class A common stock, which may include shares to be sold
on a forward basis. The use of forward sales under the ATM Program generally allows the Company to lock in a price on
the sale of shares of our Class A common stock when sold by the forward sellers, but defer receiving the net proceeds
from such sales until the shares of our Class A common stock are issued at settlement on a later date. We have concluded
that the forward sale agreements meet the derivative scope exception for certain contracts involving an entity’s own
equity. The initial forward sale price is subject to daily adjustment based on a floating interest rate factor equal to the
specified daily rate less a spread, and will decrease by other fixed amounts specified in the forward sale agreement. Until
settlement of all of the forward sale agreements, our earnings per share dilution resulting from the agreements, if any, is
determined using the two-class method.
At any time during the term of any forward sale under the ATM Program, we may settle the forward sale by physical
delivery of shares of Class A common stock to the forward purchasers or, at our election, cash settle or net share settle.
The initial forward sale price per share under each forward sale equals the product of (x) an amount equal to 100%
minus the applicable forward selling commission and (y) the volume weighted average price per share at which the
borrowed shares of our common stock were sold pursuant to the equity distribution agreement by the relevant forward
seller during the applicable forward hedge selling period for such shares to hedge the relevant forward purchaser’s
exposure under such forward sale. Thereafter, the forward sale price is subject to adjustment on a daily basis based on a
floating interest rate factor equal to the specified daily rate less a spread, and is decreased based on specified amounts
related to dividends on shares of our common stock during the term of the applicable forward sale. If the specified daily
rate is less than the spread on any day, the interest rate factor will result in a daily reduction of the applicable forward
sale price. The Company expects to physically settle (by delivering shares of Class A common stock) these forward sales
prior to the first anniversary date of each respective transaction.
F-47
The following table represents a summary of our equity issuances of our Class A common stock during the year ended
December 31, 2019 (in thousands):
Offering Program
February 2019 Offering . . . . . . . . . . . . . .
February 2019 Offering . . . . . . . . . . . . . .
June 2019 $400 million ATM Program . .
Total as of December 31, 2019 . . . . . . . .
Forward
Shares
Sold
N/A
3,763
2,864
Shares Settled
Net
Proceeds
Received
Remaining
Expected
Proceeds Available
4,000 $ 159,360 $
2,832 (2)
—
109,998
—
$
Forward Settlement
Maturity Date (1)
N/A
March 31, 2020
—
35,799
142,046 Various through January 17, 2021
177,844
(1) Represents the final date which shares sold under each forward agreement may be settled.
(2) Represents the number of forward shares we elected to physically settle during the year ended December 31, 2019.
Preferred Stock
On March 15, 2018, QTS issued 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, which included 280,000 shares of
the underwriters’ partial exercise of their option to purchase additional shares. The Company used the net proceeds of
approximately $103.2 million to repay amounts outstanding under its unsecured revolving credit facility. In connection
with the issuance of the Series A Preferred Stock, on March 15, 2018 the Operating Partnership issued to the Company
4,280,000 Series A Preferred Units, which have economic terms that are substantially similar to the Company’s Series A
Preferred Stock. The Series A Preferred Units were issued in exchange for the Company’s contribution of the net
offering proceeds of the offering of the Series A Preferred Stock to the Operating Partnership.
Dividends on the Series A Preferred Stock are payable quarterly in arrears on or about the 15th day of each January,
April, July and October. The first dividend on the Series A Preferred Stock was paid on April 16, 2018, in the amount of
$0.14844 per share for the period March 15, 2018 through April 14, 2018. The Series A Preferred Stock does not have a
stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation,
dissolution or winding up, the Series A Preferred Stock will rank senior to common stock and pari passu with the Series
B Preferred Stock with respect to the payment of distributions and other amounts. Except in instances relating to
preservation of QTS’s qualification as a REIT or pursuant to the Company’s special optional redemption right, the Series
A Preferred Stock is not redeemable prior to March 15, 2023. On and after March 15, 2023, the Company may, at its
option, redeem the Series A Preferred Stock, in whole, at any time, or in part, from time to time, for cash at a redemption
price of $25.00 per share, plus any accrued and unpaid dividends (whether or not declared) to, but not including, the date
of redemption.
Upon the occurrence of a change of control, the Company has a special optional redemption right that enables it to
redeem the Series A Preferred Stock, in whole, at any time, or in part, from time to time, within 120 days after the first
date on which a change of control has occurred resulting in neither QTS nor the surviving entity having a class of
common shares listed on the NYSE, NYSE Amex, or NASDAQ or the acquisition of beneficial ownership of its stock
entitling a person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in
election of directors. The special optional redemption price is $25.00 per share, plus any accrued and unpaid dividends
(whether or not declared) to, but not including, the date of redemption.
Upon the occurrence of a change of control, holders will have the right (unless the Company has elected to exercise its
special optional redemption right to redeem their Series A Preferred Stock) to convert some or all of such holder’s Series
A Preferred Stock into a number of shares of Class A common stock, par value $0.01 per share, equal to the lesser of:
•
•
the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any
accrued and unpaid dividends (whether or not declared) to, but not including, the change of control conversion
date (unless the change of control conversion date is after a record date for a Series A Preferred Stock dividend
payment and prior to the corresponding Series A Preferred Stock dividend payment date, in which case no
additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the Common Stock
Price; and
1.46929 (i.e., the Share Cap);
F-48
subject, in each case, to certain adjustments and provisions for the receipt of alternative consideration of equivalent value
as described in the prospectus supplement for the Series A Preferred Stock.
On June 25, 2018, QTS issued 3,162,500 shares of 6.50% Series B Cumulative Convertible Perpetual Preferred Stock
(“Series B Preferred Stock”) with a liquidation preference of $100.00 per share, which included 412,500 shares the
underwriters purchased pursuant to the exercise of their overallotment option in full. The Company used the net
proceeds of approximately $304 million to repay amounts outstanding under its unsecured revolving credit facility. In
connection with the issuance of the Series B Preferred Stock, on June 25, 2018 the Operating Partnership issued to the
Company 3,162,500 Series B Preferred Units, which have economic terms that are substantially similar to the
Company’s Series B Preferred Stock. The Series B Preferred Units were issued in exchange for the Company’s
contribution of the net offering proceeds of the offering of the Series B Preferred Stock to the Operating Partnership.
Dividends on the Series B Preferred Stock are payable quarterly in arrears on or about the 15th day of each January,
April, July and October. The first dividend on the Series B Preferred Stock was paid on October 15, 2018, in the amount
of $1.9861111 per share for the period June 25, 2018 through October 14, 2018. 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 December 31, 2019 is 2.1318 shares of the Company’s Class A common stock per share of Series
B Preferred Stock. The Series B Preferred Stock does not have a stated maturity date. Upon liquidation, dissolution or
winding up, the Series B Preferred Stock will rank senior to common stock and pari passu with the Series A Preferred
Stock with respect to the payment of distributions and other amounts. The Series B Preferred Stock is not redeemable by
the Company. At any time on or after July 20, 2023, the Company may at its option cause all (but not less than all)
outstanding shares of the Series B Preferred Stock to be automatically converted into the Company’s Class A common
stock at the then-prevailing conversion rate if the closing sale price of the Company’s Class A common stock is equal to
or exceeds 150% of the then-prevailing conversion price for at least 20 trading days in a period of 30 consecutive trading
days, including the last trading day of such 30-day period, ending on the trading day prior to the issuance of a press
release announcing the mandatory conversion.
If a holder converts its shares of Series B Preferred Stock at any time beginning at the opening of business on the trading
day immediately following the effective date of a fundamental change (as described in the prospectus supplement) and
ending at the close of business on the 30th trading day immediately following such effective date, the holder will
automatically receive a number of shares of the Company’s Class A common stock equal to the greater of:
•
•
the sum of (i) a number of shares of the Company’s Class A common stock, as may be adjusted, as described in
the Articles Supplementary for the 6.50% Series B Cumulative Convertible Perpetual Preferred Stock filed with
the State Department of Assessments and Taxation of Maryland on June 22, 2018 (the “Articles
Supplementary”) and (ii) the make-whole premium described in the Articles Supplementary; and
a number of shares of the Company’s Class A common stock equal to the lesser of (i) the liquidation preference
divided by the average of the daily volume weighted average prices of the Company’s Class A common stock
for ten days preceding the effective date of a fundamental change and (ii) 5.1020 (subject to adjustment).
QTS Realty Trust, Inc. Employee Stock Purchase Plan
In June 2015, we established the QTS Realty Trust, Inc. Employee Stock Purchase Plan (the “2015 Plan”) to give
eligible employees the opportunity to purchase, through payroll deductions, shares of our Class A common stock in the
open market by an independent broker with the Company paying brokerage commissions and fees associated with such
share purchases. The 2015 Plan became effective July 1, 2015. We reserved 250,000 shares of our Class A common
stock for purchase under the 2015 Plan, which were registered pursuant to a registration statement on Form S-8 filed on
June 17, 2015.
On May 4, 2017, our stockholders approved the 2017 Amended and Restated QTS Realty Trust, Inc. Employee Stock
Purchase Plan (the “2017 Plan”). The 2017 Plan became effective July 1, 2017 and is administered by the compensation
committee (the “Compensation Committee”) of the board of directors (or by a committee of one or more persons
appointed by it or the board of directors). The 2017 Plan permits participants to purchase our Class A common stock at a
F-49
discount of up to 10% (as determined by the Compensation Committee). Employees of our Company and our majority-
owned subsidiaries who have been employed for at least thirty days and who perform at least thirty hours of service per
week for our Company are eligible to participate in the 2017 Plan, excluding any employee who, at any time during
which the payroll deductions are made on behalf of the participating employees to purchase stock, owns shares
representing five percent or more of the total combined voting power or value of all classes of shares of our Company, or
who is a Section 16 officer. Under the 2017 Plan, there are four purchase periods per year, and participants may deduct a
minimum of $20 per paycheck and a maximum of $1,000 per paycheck towards the purchase of shares. Shares
purchased under the 2017 Plan are subject to a one-year holding period following the purchase date, during which they
may not be sold or transferred. We reserved 239,989 shares of our Class A common stock, subject to certain
adjustments, for purchase under the 2017 Plan, which were registered pursuant to a registration statement on Form S-8
originally filed on June 17, 2015 and amended on June 30, 2017.
Effective February 1, 2020, the 2017 Plan was further amended and restated to, among other things, provide that
employees of our Company and our majority-owned subsidiaries who have been employed for at least thirty days and
who are regular full-time employees are eligible to participate in the 2017 Plan, excluding temporary or part-time
employees and interns, any employee who, at any time during which the payroll deductions are made on behalf of the
participating employees to purchase stock, owns shares representing five percent or more of the total combined voting
power or value of all classes of shares of our Company, or any employee who is a Section 16 officer. In addition, such
amendment and restatement provides that the $1,000 per paycheck limit on each participant’s purchase of shares
assumes 24 pay periods per year and will be adjusted to the extent a participant is paid on a more frequent or infrequent
basis.
13. Related Party Transactions
As described further in Note 7 Investments in Unconsolidated Entity, during the three months ended March 31, 2019,
QTS formed an unconsolidated entity with Alinda, an infrastructure investment firm. QTS 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 Topic
820. QTS and Alinda each own a 50% interest in the entity.
Under the unconsolidated entity agreement, we serve as the entity’s operating member, subject to authority and oversight
of a board appointed by us and Alinda, and separately we serve as manager and developer of the facility in exchange for
management and development fees. During the year ended December 31, 2019, QTS received $0.6 million in
development fees from the unconsolidated entity as well as $0.6 million in management fees from the unconsolidated
entity.
In addition, we periodically execute transactions with entities affiliated with our Chairman and Chief Executive Officer.
Such transactions include automobile, furniture and equipment purchases as well as building operating lease payments
and receipts, and reimbursement for the use of a private aircraft service by our officers and directors.
The transactions which occurred during the years ended December 31, 2019, 2018 and 2017 are outlined below (in
thousands):
(dollars in thousands)
796
Tax, utility, insurance and other reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,014
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
561
Capital assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,685 $ 2,202 $ 2,371
1,014
464
1,014
704
967 $
724 $
2019
2017
December 31,
2018
F-50
14. Employee Benefit Plan
The Company sponsors a defined contribution 401(k) retirement plan covering all eligible employees.
Qualified employees may elect to contribute to the 401(k) Plan on a pre-tax or post-tax basis. The maximum amount of
employee contribution is subject only to statutory limitations. Starting on January 1, 2015, the Company matched 50%
of the first 6% of contributions made by employees. Since January 1, 2016, the Company has matched 100% of the first
1% of contributions and 50% of the next 5% of contributions made by employees. The Company contributed $2.5
million, $2.5 million and $2.6 million to the 401(k) Plan for the years ended December 31, 2019, 2018 and 2017,
respectively.
15. Noncontrolling Interest
Concurrently with the completion of the IPO, QTS 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 one-for-one basis. As of December 31, 2019, the noncontrolling
ownership interest percentage of QualityTech, LP was 10.3%.
16. Earnings per share of QTS Realty Trust, Inc.
Basic income per share is calculated by dividing the net income attributable to common shares by the weighted average
number of common shares outstanding during the period. Diluted income 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 12 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.
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The computation of basic and diluted net income per share is as follows (in thousands, except per share data):
Numerator:
Year Ended
December 31,
2018
2017
2019
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,665 $ (7,175) $ 1,457
(175)
Loss (income) attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
—
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(593)
Earnings attributable to participating securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) available to common stockholders after allocation of
2,715
(16,666)
(947)
(374)
(28,180)
(7,828)
participating securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,717) $ (22,073) $ 689
Denominator:
Weighted average shares outstanding - basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Class A partnership units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Class O units, TSR units and options to purchase Class A common
54,837
—
50,433
—
48,381
6,696
stock on an "as if" converted basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding - diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
54,837
—
50,433
779
55,856
Basic net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(0.09) $
(0.44) $ 0.01
Diluted net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(0.09) $
(0.44) $ 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 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:
Class A Partnership units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class O units, TSR units and options to purchase common stock on an "as if"
Year Ended
December 31,
2018
6,653
2019
6,671
converted basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series B Convertible preferred stock on an "as if" converted basis . . . . . . . . . . . . . . .
518
6,729
350
3,484
17. Contracts with Customers
2017
—
—
—
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 (in thousands):
Year Ending December 31,
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 374,588
323,926
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
237,556
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
147,941
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
103,663
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186,871
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,374,545
F-52
18. 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 December 31,
2019, 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 December 31, 2019 or December 31, 2018.
Power Purchase Agreements
In March 2019, we began using energy hedges to manage risk related to energy prices. The inputs used to value the
derivatives primarily fall within Level 2 of the fair value hierarchy, and valuation of these instruments is determined
using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each
contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses
observable market-based inputs, including futures curves. The fair values of the energy hedges are determined using the
market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted
expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of
future energy rates (forward curves) derived from observable market futures curves. To comply with the provisions of
fair value accounting guidance, we incorporate credit valuation adjustments to appropriately reflect both our own
nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting
the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting
and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Sale of assets: During the year ended December 31, 2019, we recognized a gain on the sale of real estate assets that is
discussed in detail in Note 7. In order to determine fair value of the noncash equity consideration received for the sale of
the assets, we utilized estimation models to derive the fair value of the equity interest received in the transaction. These
F-53
estimation models consisted of generally acceptable real estate valuation models as well as discounted cash flow analysis
that included Level 3 inputs including market rents, discount rates, expected occupancy and estimates of additional
capital expenditures, and capitalization rates derived from market data.
Credit facility and Senior Notes: Our unsecured credit facility 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 Senior Notes was estimated using Level 2 “significant other observable inputs,” primarily based on quoted market
prices for the same or similar issuances. At December 31, 2019, the fair value of the Senior Notes was approximately
$414.5 million.
Other debt instruments: The fair value of our other debt instruments (including finance leases and mortgage notes
payable) were 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.
19. Quarterly Financial Information (unaudited)
The tables below reflect the selected quarterly information for the years ended December 31, 2019 and 2018 for QTS (in
thousands except share data):
December 31, September 30,
June 30,
March 31,
Three Months Ended
2019
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123,707 $ 125,255 $ 119,167 $ 112,689
28,734
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,148
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,558
Net income (loss) attributable to QTS Realty Trust, Inc. . . . . .
Net income (loss) attributable to common stockholders . . . . .
12,513
Net income (loss) per share attributable to common shares -
14,598
7,535
7,483
438
13,606
6,588
6,637
(408)
4,218
(3,606)
(2,511)
(9,556)
basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.20)
(0.05)
(0.03)
Net income (loss) per share attributable to common shares -
diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.20)
(0.05)
(0.03)
0.20
0.20
2018
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 112,337 $ 112,213 $ 112,277 $ 113,697
5,455
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(252)
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(223)
Net income (loss) attributable to QTS Realty Trust, Inc. . . . . .
Net income (loss) attributable to common stockholders . . . . .
(551)
Net income (loss) per share attributable to common shares -
(1,552)
(6,892)
(5,282)
(12,327)
12,876
6,402
6,476
(569)
1,882
(6,433)
(5,431)
(7,679)
basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.02)
(0.25)
(0.16)
(0.02)
Net income (loss) per share attributable to common shares -
diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.02)
(0.25)
(0.16)
(0.02)
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The table below reflects the selected quarterly information for the years ended December 31, 2019 and 2018 for the
Operating Partnership (in thousands):
December 31, September 30,
June 30,
March 31,
Three Months Ended
2019
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123,707 $ 125,255 $ 119,167 $ 112,689
28,734
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,148
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,103
Net income (loss) attributable to common unitholders . . . . . . .
4,218
(3,606)
(10,651)
14,598
7,535
490
13,606
6,588
(457)
2018
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 112,337 $ 112,213 $ 112,277 $ 113,697
5,455
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(252)
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(580)
Net income (loss) attributable to common unitholders . . . . . . .
(1,552)
(6,892)
(13,937)
12,876
6,402
(643)
1,882
(6,433)
(8,681)
20. Subsequent Events
In January 2020, 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 12 for additional details.
Subsequent to December 31, 2019, the Company authorized the following dividends:
• On February 18, 2020, the Company announced that its board of directors authorized payment of a regular
quarterly cash dividend of $0.47 per common share and per unit in the Operating Partnership, payable on April
7, 2020, to stockholders and unit holders of record as of the close of business on March 20, 2020.
• On February 18, 2020, the Company announced that its board of directors authorized payment of a regular
quarterly cash dividend of approximately $0.45 per share on its Series A Preferred Stock, payable on April 15,
2020, to holders of Series A Preferred Stock of record as of the close of business on March 31, 2020.
• On February 18, 2020, the Company announced that its board of directors authorized payment of a regular
quarterly cash dividend of approximately $1.63 per share on its Series B Preferred Stock, payable on April 15,
2020, to holders of Series B Preferred Stock of record as of the close of business on March 31, 2020.
Subsequent to December 31, 2019 through February 28, 2020, we utilized the forward provisions under the ATM
Program to allow for the sale of up to an aggregate of 0.8 million shares of our common stock, representing available net
proceeds upon physical settlement of approximately $41.6 million. Through February 28, 2020, we had not settled any
of these forward sales.
F-55
QTS REALTY TRUST, INC.
QUALITYTECH, LP
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
December 31, 2019
Year Ended December 31,
(dollars in thousands)
Balance at
beginning of
period
Charge to
expenses
Additions/
(Deductions)
Balance at
end of
period
Allowance for uncollectible receivables
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,764 $
11,453
4,217
2,859 $
(2,275)
7,375
(4,344) $
(5,414)
(139)
2,279
3,764
11,453
Valuation allowance for deferred tax assets
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,361 $
713
393
16,386 $
7,648
320
— $
—
—
24,747
8,361
713
F-56
f
o
e
t
a
D
n
o
i
t
i
s
i
u
q
c
A
6
0
0
2
/
3
/
0
1
3
1
0
2
/
8
/
2
9
1
0
2
/
5
1
/
1
1
&
0
1
0
2
/
0
2
/
3
4
1
0
2
/
8
/
7
5
0
0
2
/
1
/
9
6
1
0
2
/
6
/
6
7
0
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The following table reconciles the historical cost and accumulated depreciation for the years ended December 31, 2019,
2018 and 2017 (in thousands):
Year Ended December 31,
2018
2017
2019
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions (acquisitions and improvements) . . . . . . . . . . . . . . . . . . . . . . . . .
Property
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,812,856 $ 2,357,322 $ 1,964,857
(18,198)
410,663
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,230,428 $ 2,812,856 $ 2,357,322
Accumulated depreciation
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (467,644) $ (394,823) $ (317,834)
13,970
(90,959)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (558,560) $ (467,644) $ (394,823)
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions (depreciation and amortization expense) . . . . . . . . . . . . . . . . . . .
28,172
(119,088)
30,139
(102,960)
(41,363)
458,935
(43,616)
499,150
F-58
List of Subsidiaries of QTS Realty Trust, Inc.
Exhibit 21.1
State of Incorporation or
Formation
Subsidiary Name
2470 Satellite Boulevard, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Ashburn Acquisition Co, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Bondurant Acquisition Co., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Carpathia Acquisition, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Carpathia Hosting, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
ENH Investments, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Los Lunas Acquisition Co., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Manassas Acquisition Co., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
National Acquisition Company, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
New Albany Acquisition Co., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Papillion Acquisition Co., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QAE Acquisition Company, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Georgia
QTS Critical Facilities Management, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Federal, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Finance Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Ashburn, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Ashburn II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Carpathia, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Chicago, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Fort Worth, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Hillsboro, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Manassas II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Manassas, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Phoenix, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Piscataway, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Princeton, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS JV I Holding II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS JV I Holding, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS JV I TRS, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS JV I, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Gateway, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Irving II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Irving, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Lenexa, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Metro, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Miami, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Richmond, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Sacramento, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Santa Clara, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties, Suwanee, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services - Manassas Facilities Management, LLC . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Ashburn II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services B.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Netherlands
State of Incorporation or
Formation
Subsidiary Name
Quality Technology Services Chicago II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Federal Holding, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Fort Worth II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Holding, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Irving II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Jersey City, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Lenexa II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Lenexa, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Metro II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Miami II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Northeast, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Phoenix II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Piscataway II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Princeton II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Richmond II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Sacramento II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Santa Clara II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services, N.J. II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services, N.J., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services, Suwanee II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QualityTech, LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
ServerVault, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
SWO Logistics, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
West Midtown Acquisition Company, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Whale Ventures, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
List of Subsidiaries of QualityTech, LP
State of Incorporation or
Formation
Subsidiary Name
2470 Satellite Boulevard, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Ashburn Acquisition Co, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Bondurant Acquisition Co., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Carpathia Acquisition, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Carpathia Hosting, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
ENH Investments, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Los Lunas Acquisition Co., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Manassas Acquisition Co., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
National Acquisition Company, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
New Albany Acquisition Co., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Papillion Acquisition Co., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QAE Acquisition Company, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Georgia
QTS Critical Facilities Management, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Federal, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Finance Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Ashburn, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Ashburn II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Carpathia, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Chicago, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Fort Worth, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Hillsboro, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Manassas II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Manassas, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Phoenix, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Piscataway, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS Investment Properties Princeton, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS JV I Holding II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS JV I Holding, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS JV I TRS, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
QTS JV I, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Gateway, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Irving II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Irving, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Lenexa, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Metro, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Miami, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Richmond, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Sacramento, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties Santa Clara, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Investment Properties, Suwanee, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services - Manassas Facilities Management, LLC . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Ashburn II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services B.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Netherlands
Quality Technology Services Chicago II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Federal Hosting, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
State of Incorporation or
Formation
Subsidiary Name
Quality Technology Services Fort Worth II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Holding, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Irving II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Jersey City, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Lenexa II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Lenexa, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Metro II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Miami II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Northeast, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Phoenix II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Piscataway II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Princeton II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Richmond II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Sacramento II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services Santa Clara II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services, N.J. II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services, N.J., LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Quality Technology Services, Suwanee II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
ServerVault, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
SWO Logistics, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
West Midtown Acquisition Company, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Whale Ventures, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-191674) pertaining to the QTS Realty Trust, Inc. 2013 Equity Incentive Plan
(2) Registration Statement (Form S-3 No. 333-199844) of QTS Realty Trust, Inc.
(3) Registration Statement (Form S-8 No. 333-204020) pertaining to the QTS Realty Trust, Inc. 2013 Equity Incentive Plan
(4) Registration Statement (Form S-8 No. 333-205040) pertaining to the 2017 Amended and Restated QTS Realty Trust, Inc.
Employee Stock Purchase Plan
(5) Registration Statement (Form S-3 No. 333-230923) of QTS Realty Trust, Inc.
(6) Registration Statement (Form S-8 No. 333-231424) pertaining to the QTS Realty Trust, Inc. 2013 Equity Incentive Plan
of our reports dated February 28, 2020, with respect to the consolidated financial statements and schedules of QTS Realty Trust, Inc.
and the effectiveness of internal control over financial reporting of QTS Realty Trust, Inc. included in this Annual Report (Form 10-K)
of QTS Realty Trust, Inc. for the year ended December 31, 2019.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2020
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Chad L. Williams, certify that:
1. I have reviewed this Annual Report on Form 10-K of QTS Realty Trust, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 28, 2020
/s/ Chad L. Williams
Chad L. Williams
Chairman and Chief Executive Officer
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Jeffrey H. Berson, certify that:
1. I have reviewed this Annual Report on Form 10-K of QTS Realty Trust, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 28, 2020
/s/ Jeffrey H. Berson
Jeffrey H. Berson
Chief Financial Officer
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.3
I, Chad L. Williams, certify that:
1. I have reviewed this Annual Report on Form 10-K of QualityTech, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 28, 2020
/s/ Chad L. Williams
Chad L. Williams
Chairman and Chief Executive Officer
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.4
I, Jeffrey H. Berson, certify that:
1. I have reviewed this Annual Report on Form 10-K of QualityTech, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 28, 2020
/s/ Jeffrey H. Berson
Jeffrey H. Berson
Chief Financial Officer
Certification Pursuant To
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report of QTS Realty Trust, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chad L. Williams,
Chairman and Chief Executive Officer of the Company, and I, Jeffrey H. Berson, Chief Financial Officer of the Company, certify, to
our knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: February 28, 2020
/s/ Chad L. Williams
Chad L. Williams
Chairman and Chief Executive Officer
/s/ Jeffrey H. Berson
Jeffrey H. Berson
Chief Financial Officer
Certification Pursuant To
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the Annual Report of QualityTech, LP (the “Company”) on Form 10-K for the year ended December 31,
2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chad L. Williams, Chairman and
Chief Executive Officer of the Company, and I, Jeffrey H. Berson, Chief Financial Officer of the Company, certify, to our knowledge,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: February 28, 2020
/s/ Chad L. Williams
Chad L. Williams
Chairman and Chief Executive Officer
/s/ Jeffrey H. Berson
Jeffrey H. Berson
Chief Financial Officer
Letter From
Our CEO
Dear Fellow Stockholders,
Looking back over 2019, I am proud of the significant
accomplishments of our “powered by people” QTS’ers. I
am most proud that our people always feel we can serve
each other and our customers better than the year before.
Our commitment to continued improvement toward the
highest standards in Environmental, Social and Governance
(“ESG“) initiatives is documented in our annual ESG
initiatives report. We remain committed to making the
investments in our business to enable QTS to continue to
deliver consistent results for stockholders, customers and
our QTS employees and communities. 2019 was a year of
strong execution for our team and I am pleased that those
efforts were reflected in our industry-leading operating and
financial results with tremendous visibility into our growth
in 2020 and beyond. Our success in 2019 would not have
been possible without the continued dedication of our QTS
employees across the company and I’d like to thank each
one of you for your commitment to serving each other, our
customers and our communities.
The demand environment for third-party data centers is
robust and expanding, and I am confident in the capability
of QTS’ platform to continue to deliver consistent growth
in stockholder value. During 2019, QTS delivered the
strongest leasing performance in our history. Importantly,
this achievement was driven by significant contributions
from each of our target customer groups: hyperscale,
hybrid colocation and federal. The diversity of our sources
of growth enables our business to consistently perform in
a variety of different demand cycles, even during periodic
slowdowns in hyperscale absorption as the industry
witnessed at times over the past year. We strongly
believe that having a business approach that balances the
consistent performance of diversified, higher-return hybrid
colocation and federal businesses, and growth acceleration
opportunities with strategic hyperscale customers is
the best path to optimize growth and risk-adjusted
performance for QTS.
Providing differentiated solutions within each part of our
business remains a core focus to drive enhanced risk-
adjusted returns and performance both today, and in the
future. These differentiators include industry leadership
in sustainability initiatives, cost-advantaged mega scale
infrastructure, operational capability and track record in our
federal business, and our continued strong commitment
to a fully digitized, premium customer experience through
QTS’ software-defined data center platform. Our base
of 1,200+ customers continues to demonstrate that they
value these unique capabilities, and we are pleased with
our resulting growth in market share as evidenced by our
financial performance and leasing momentum.
Hyperscale
QTS continues to actively pursue strategic growth
acceleration opportunities with the largest and fastest-
growing hyperscale technology companies in the world.
Our target hyperscale customer vertical is comprised of
the thirty or so largest technology companies whose data
center requirements are expanding at an accelerated pace.
Although their data center requirements are significant, they
also are inherently lumpy with often unpredictable sales
cycles. For this reason, our financial model is built on an
assumption of signing only one to three larger, 5+ megawatt
hyperscale opportunities each year. This allows QTS to be
more selective in the strategic growth opportunities with the
hyperscale customers we pursue, while prioritizing our risk-
adjusted return on capital profile.
2019 was an important year for our hyperscale team.
Following the decision in 2017 to invest in additional locations
to support our hyperscale business combined with a more
deliberate hyperscale sales strategy, I believe that 2019 was
the year that QTS demonstrated its capability as a top-tier
hyperscale player. While bookings activity in the sector
was relatively quiet during the first half of the year, we
experienced a significant acceleration in hyperscale leasing
during 2019. In total, we ended 2019 having signed over
30 megawatts of new hyperscale leasing, which represents
a meaningful acceleration relative to approximately 20
megawatts signed in 2018. Key hyperscale wins during the
year included a 10 megawatt lease in Ashburn with one of
the industry’s fastest growing consumers of hyperscale data
center capacity, a 4 megawatt expansion in Manassas with a
global software-as-a-service provider as part of its continued
ramp in that facility, and a 12 megawatt lease with a large
social media company that will anchor our new expansion
in Atlanta. In addition, we are proud that the majority of
hyperscale leases signed during 2019 came in at the higher
end of our 9-11% target hyperscale return on invested capital
range, demonstrating the value of our cost-advantaged
powered shell capacity and differentiated value proposition.
In addition to the three new strategic logos, existing QTS
hyperscale customers grew within our platform. Incumbency
with hyperscale customers is crucial as they typically prefer
to buy on a recurring basis with existing partners given
the complexities and time commitment related to their
Executive Leaders
Chad L. Williams
Chairman, President & CEO
Jeff Berson
Chief Financial Officer
Steve Bloom
Chief People Officer
Shirley Goza
General Counsel, VP & Secretary
Tag Greason
Chief Hyperscale Officer
Jon Greaves
Chief Technology Officer
Clint Heiden
Chief Revenue Officer
David Robey
Chief Operating Officer
Board of Directors
Independent Auditors
Ernst & Young LLP
Kansas City, MO
QTS Investor Relations
12851 Foster St.
Overland Park, KS 66213
ir@qtsdatacenters.com
Annual Meeting of
Stockholders
May 6, 2020 at 8:00 am ET
QTS Ashburn Office
22271 Broderick Drive
Sterling, Virginia 20166
Stock Listing
QTS Realty Trust, Inc. is traded on the
New York Stock Exchange under the
symbol “QTS.”
Chad L. Williams
Chairman & CEO
Philip P. Trahanas
Lead Director
Independent Investor
John W. Barter
Retired EVP Allied Signal
(now Honeywell)
William O. Grabe
Advisory Director, General Atlantic LLC
Catherine R. Kinney
Formerly with NYSE
Peter A. Marino
Private Consultant, Government &
Industry on Defense and Intelligence
Scott D. Miller
CEO SSA & Company and G100
Managing General Partner of MSP, LLC
Mazen Rawashdeh
Chief Infrastructure & Architecture
Officer eBay
Wayne M. Rehberger
Formerly with Engility Holdings, Inc.,
SVP & Chief Financial Officer
Stephen E. Westhead
CEO and Lead Investor U.S. Trailer
QTS Executive Team
Data Center Locations
ARIZONA
Phoenix, AZ
Phoenix-Van Buren, AZ†
CALIFORNIA
Sacramento, CA
San Jose, CA†
Santa Clara, CA
CANADA
Toronto†
FLORIDA
Miami, FL
GEORGIA
Atlanta, GA (DC-1)*
Atlanta, GA (DC-2)*
Suwanee, GA*
ILLINOIS
Chicago, IL*
KANSAS
Overland Park, KS
NETHERLANDS
Amsterdam†
Eemshaven
Groningen
NEW JERSEY
Jersey City, NJ
Piscataway, NJ*
Princeton, NJ*
OREGON
Hillsboro, OR*
TEXAS
Fort Worth, TX*
Irving, TX*
VIRGINIA
Ashburn-Beaumeade, VA†
Ashburn-Broderick, VA*
Corporate Offices
Corporate Headquarters
J Williams Technology Centre
12851 Foster Street
Overland Park, KS 66213
913.814.9988
Operations Headquarters
Ashburn-Devin Shafron, VA†
QTS Suwanee
Ashburn-Filigree, VA†
Ashburn-Lockridge, VA
Ashburn-Moran, VA
Ashburn-Shellhorn, VA
Manassas, VA*
Richmond, VA*
300 Satellite Blvd NW
Suwanee, GA 30024
Leadership Training Facility
QTS Duluth Office
2470 Satellite Blvd NW
Duluth, GA 30096
Product Solutions /
Federal Headquarters
QTS Ashburn Office
22271 Broderick Drive
Sterling, VA 20166
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*Mega Data Center
†Leased Data Center
INTEGRITY, CHARACTER, TRUST
ACTION, INNOVATION, ACCOUNTABILITY
TEAM ORIENTED
RESPECT OUR CUSTOMERS
SUPPORT OF FAMILY, FAITH & COMMUNITY
VOLUNTEERISM
12851 Foster Street, Overland Park, KS 66213 | 913.814.9988 | QTSDATACENTERS.COM
©2020 QTS Realty Trust, Inc. All Rights Reserved.
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