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QTS Reports Fourth Quarter And Full Year 2016 Operating Results

OVERLAND PARK, Kan., Feb. 21, 2017 /PRNewswire/ -- QTS Realty Trust, Inc. ("QTS" or the "Company") (QTS) today announced operating results for the fourth quarter and full year ended December 31, 2016.

Fourth Quarter and Full Year Highlights

  • Reported net income of $5.5 million and $24.7 million for the quarter and year ended December 31, 2016, respectively, an increase of 2.8% and 2.3% compared to the same periods in 2015. Net income was $0.10 per basic and diluted share for the fourth quarter of 2016, compared to net income per basic and diluted share of $0.11 for the fourth quarter of 2015. Net income per basic and diluted share for the year ended 2016 was $0.47 and $0.46, respectively, compared to net income per basic and diluted share of $0.54 and $0.53, respectively, for the year ended 2015.
  • Reported Operating FFO of $35.4 million and $140.7 million for the quarter and year ended December 31, 2016, respectively, an increase of 12.2% and 35.4% compared to the same periods in 2015. Operating FFO included a non-cash deferred tax benefit of $0.2 million and $6.4 million for the quarter and year ended December 31, 2016, respectively. Operating FFO for the quarter and year ended December 31, 2016 on a fully diluted per share basis was $0.64 per share and $2.61 per share, respectively, a decrease of 2.1% and an increase of 13.8% compared to the same periods of 2015. Excluding the effects of the Company's non-cash deferred tax benefit, Operating FFO on a fully diluted per share basis for the quarter and year ended December 31, 2016 represented an increase of 6.2% and 12.7% compared to the same periods of 2015.
  • Reported FFO of $34.2 million and $133.2 million for the quarter and year ended December 31, 2016, respectively, an increase of 21.8% and 35.2% compared to the same periods in 2015. FFO for the quarter and year ended December 31, 2016 on a fully diluted per share basis was $0.62 per share and $2.47 per share, respectively, an increase of 7% and 14% compared to the same periods of 2015.
  • Reported Adjusted EBITDA of $48.4 million and $184.3 million for the quarter and year ended December 31, 2016, respectively, an increase of 17.9% and 31.6% compared to the same periods in 2015.
  • Reported NOI of $67.2 million and $257.0 million for the quarter and year ended December 31, 2016, respectively, an increase of 13.5% and 28.0% compared to the same periods in 2015.
  • Reported total revenues of $105.4 million and $402.4 million for the quarter and year ended December 31, 2016, respectively, an increase of 13.8% and 29.3% compared to the same periods in 2015.

"We are pleased to end 2016 with a solid fourth quarter and strong momentum heading into 2017. Enterprise demand for hybrid IT solutions is accelerating and our integrated technology services platform positions QTS to be a trusted IT partner to our customers," said Chad Williams, Chairman and CEO of QTS.

Williams added, "The investments we are making to enhance our product mix and develop our real estate footprint continue to expand our long-term growth opportunity. We are pleased with our execution in existing markets and excited about our performance in our newer data centers in Chicago and Piscataway. We also look forward to the additional opportunity for growth in a high demand, Tier 1 market with our new acquisition in Fort Worth." 

Financial Results

Quarterly Results

Net income recognized in the fourth quarter of 2016 was $5.5 million ($0.10 per basic and diluted share), which included approximately $1.5 million of transaction and integration costs and $0.7 million of income tax benefit, compared to net income of $5.3 million ($0.11 per basic and diluted share) recognized in the fourth quarter of 2015, which also included approximately $5.0 million of transaction and integration costs and $4.4 million of income tax benefit.

QTS generated Operating FFO of $35.4 million, or $0.64 per fully diluted share, in the fourth quarter of 2016, which includes a non-cash tax benefit of approximately $0.2 million, compared to Operating FFO of $31.5 million, or $0.65 per fully diluted share, for the fourth quarter of 2015, which included a non-cash tax benefit of approximately $2.4 million. The Operating FFO for the fourth quarter of 2016 represents an increase of approximately 12.2% compared to the prior year, and a 2.1% decrease on a fully diluted per share basis. Excluding the effects of the Company's non-cash deferred tax benefit, Operating FFO for the fourth quarter of 2016 represents an increase of approximately 20.9% compared to the prior year, and a 6.2% increase on a fully diluted per share basis.

Additionally, QTS generated $48.4 million of Adjusted EBITDA in the fourth quarter of 2016, an increase of 17.9% compared to $41.0 million for the fourth quarter of 2015.

QTS generated total revenues of $105.4 million in the fourth quarter of 2016, an increase of 13.8% compared to $92.7 million in the fourth quarter of 2015. MRR as of December 31, 2016 was $30.9 million, an increase of 12.4% compared to MRR as of December 31, 2015 of $27.5 million.

2016 Results

Net income recognized for the year ended December 31, 2016 was $24.7 million ($0.47 and $0.46 per basic and diluted share, respectively), which included approximately $10.9 million of transaction and integration costs and $10.0 million of income tax benefit, compared to net income of $24.1 million ($0.54 and $0.53 per basic and diluted share, respectively) recognized for the year ended December 31, 2015, which included approximately $11.3 million of transaction and integration costs and $10.1 million of income tax benefit.

QTS generated Operating FFO of $140.7 million, or $2.61 per fully diluted share, during the year ended December 31, 2016, which includes a non-cash tax benefit of approximately $6.4 million, compared to Operating FFO of $103.9 million, or $2.29 per share, for the year ended December 31, 2015, which included a non-cash tax benefit of approximately $3.8 million. The Operating FFO for 2016 represents an increase of approximately 35.4% compared to the prior year, and a 13.8% increase on a per share basis. Excluding the effects of the Company's non-cash deferred tax benefit, Operating FFO for the year ended December 31, 2016 represents an increase of approximately 34.1% compared to the prior year, and a 12.7% increase on a fully diluted per share basis.

Additionally, QTS generated $184.3 million of Adjusted EBITDA during the year ended December 31, 2016, an increase of 31.6% compared to $140.0 million during the year ended December 31, 2015.

QTS generated total revenues of $402.4 million during the year ended December 31, 2016, an increase of 29.3% compared to $311.1 million during the year ended December 31, 2015.

Leasing Activity

During the quarter and year ended December 31, 2016, QTS entered into customer leases representing approximately $11.6 million and $48.0 million, respectively, of incremental annualized rent, net of downgrades, with fourth quarter net leasing activity in line with the prior four quarter average. The fourth quarter sales pricing of $715 per square foot was over 16% higher than the prior quarter average of $614 per square foot, which was driven by 9% higher pricing of C1 signed leases and 40% higher pricing on C2/C3 signed leases. Higher pricing on C2/C3 signed leases was driven by several large C3 deals signed during the quarter.

During the quarter and year ended December 31, 2016, QTS renewed leases with total annualized rent which was 4.7% and 0.6% higher than the annualized rent prior to their respective renewals. The Company defines renewals as leases for which the customer retains the same amount of space before and after renewal. There is variability in the Company's renewal rates based on the mix of product types renewed, and renewal rates are expected to increase in the low to mid-single digits. Rental churn (which the Company defines as MRR lost to a customer intending to fully exit the QTS platform in the near term compared to total MRR at the beginning of the period) was 0.7% for the fourth quarter of 2016 and 5.6% for the year ended December 31, 2016. During the quarter and year ended December 31, 2016, QTS commenced customer leases (which includes new customers and also existing customers that renewed their lease term) representing approximately $2.8 million and $10.8 million of MRR (and representing approximately $33.1 million and $129.0 million of annualized rent) at $464 and $601 per square foot, respectively. Average pricing on QTS commenced leases during the fourth quarter of 2016 decreased compared to the prior four quarter average primarily due to the commencement of larger C1 deals which tend to have a lower rate per square foot.

As of December 31, 2016, the booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of December 31, 2016) was approximately $3.6 million, or $43.1 million of annualized rent, and compares to $50.8 million at September 30, 2016 and $47.7 million at December 31, 2015. The booked-not-billed balance is expected to contribute an incremental $20.0 million to revenue in 2017 (representing $29.5 million in annualized revenues), an incremental $2.9 million in 2018 (representing $4.6 million in annualized revenues), and an incremental $8.9 million in annualized revenues thereafter.

Development, Redevelopment, and Acquisitions

During the fourth quarter and year ended 2016 the Company brought online approximately 8 and 30 megawatts of gross power, respectively. During the fourth quarter and year ended 2016, the Company also brought online approximately 48,000 and 137,000 net rentable square feet ("NRSF") of raised floor and various portions of customer specific capital at an aggregate cost of approximately $66 million and $246 million, respectively. In addition, during the fourth quarter of 2016, the Company continued redevelopment of the Irving (previously disclosed as the "Dallas-Fort Worth" facility), Atlanta-Metro, Chicago, Piscataway, Santa Clara, Fort Worth and certain Leased Facilities acquired in 2015 to have space ready for customers in 2017 and forward.  The Company expects to spend $325 million to $375 million in 2017 on capital expenditures, and place approximately $250 million and approximately 151,000 raised floor NRSF into service in 2017.

During the fourth quarter of 2016, QTS acquired a facility in Fort Worth, Texas for $50 million. This facility has a basis of design of 80,000 square feet, 8 gross MW of current available power with an additional 8 gross MW available for further expansion.  Additionally, the Company signed a 1 MW lease with the prior owner of the facility in January 2017.  This facility will provide additional capacity for the strong demand the Company has seen in the Dallas-Fort Worth market.

Balance Sheet and Liquidity

As of December 31, 2016, the Company's total debt balance net of cash and cash equivalents was $968.1 million, resulting in a debt to annualized Adjusted EBITDA of 5.0x. This ratio continues to be impacted by various portions of the Company's portfolio that were recently placed into service which have not yet produced a stabilized Adjusted EBITDA, including the Company's recent purchase of the Fort Worth facility. In addition, the Company incurred costs included in construction in progress related to revenue which will begin to ramp in 2017 and beyond associated with the Company's booked-not-billed backlog of $43.1 million in annualized rent.

In December 2016, the Company amended its unsecured credit facility, increasing the total capacity by $300 million and extending the term for an additional year. The amended unsecured credit facility has a total capacity of $1.2 billion and includes a $300 million term loan which matures in approximately 5 years, another $200 million term loan which matures in 5.5 years, and a $700 million revolving credit facility which matures in approximately 4 years, with a one year extension option. The unsecured credit facility also includes a $300 million accordion feature.

As of December 31, 2016, the Company had total available liquidity of approximately $571 million which was comprised of $561 million of available capacity under the Company's unsecured revolving credit facility and approximately $10 million of cash and cash equivalents.

2017 Guidance











2016 Actuals


2017

($ in millions except per share amounts)




Low


High

Adjusted EBITDA


$ 184.3


$ 203.0


$ 211.0

Operating FFO (2)


$ 140.7


$ 151.0


$ 157.0

Operating FFO per share (2)


$ 2.61


$ 2.64


$ 2.76

Capital Expenditures (1)


$ 279.0


$ 325.0


$ 375.0



(1)

Excludes acquisitions.

(2)

Incorporates approximately $3 million of estimated non-cash tax benefit being recognized in 2017 compared to $6.4 million of non-cash tax benefit recognized in 2016.

 

The Company expects revenue growth of 11%-13% which is anticipated to be back-end loaded and ramping during the year, with expected churn at the high end of our historical average of 5%-8%. The Company expects Adjusted EBITDA margin to be in line with the 2016 Adjusted EBITDA margin, with 2017 NOI margin approximately 100 basis points below the 2016 NOI margin. This guidance does not contemplate any acquisitions or dispositions.

Chief Financial Officer Transition

In conjunction with announcing operating results for the fourth quarter and full year ended December 31, 2016, QTS also announced in a separate press release, it has named Jeffrey Berson as Chief Financial Officer and Bill Schafer as EVP – Finance and Accounting, effective April 3, 2017. Please reference our press release entitled, "QTS Announces Chief Financial Officer Transition" for additional details.

Non-GAAP Financial Measures

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

Conference Call Details

The Company will host a conference call and webcast on February 22, 2017, at 8:30 a.m. Eastern time (7:30 a.m. Central time) to discuss its financial results, current business trends and market conditions.

The dial-in number for the conference call is (877) 883-0383 (U.S.) or (412) 902-6506 (International). The participant entry number is 8439196# and callers are asked to dial in ten minutes prior to start time. A link to the live broadcast and the replay will be available on the Company's website (www.qtsdatacenters.com) under the Investors tab.

About QTS

QTS Realty Trust, Inc. (QTS) is a leading provider of secure, compliant data center solutions, hybrid cloud and fully managed services. QTS' integrated technology service platform of custom data center (C1), colocation (C2) and cloud and managed services (C3) provides flexible, scalable, secure IT solutions for web and IT applications. QTS' Critical Facilities Management (CFM) provides increased efficiency and greater performance for third-party data center owners and operators. QTS owns, operates or manages 25 data centers and supports more than 1,100 customers in North America, Europe and Asia Pacific.

QTS Investor Relations Contact

Stephen Douglas – Vice President – Investor Relations and Strategic Planning
Jeff Berson – Chief Investment Officer
William Schafer – Chief Financial Officer
ir@qtsdatacenters.com  

Forward Looking Statements

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

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

While forward-looking statements reflect the Company's good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 and other periodic reports the Company files with the Securities and Exchange Commission.

 

Combined Consolidated Balance Sheets


(in thousands)











December 31,



December 31,

ASSETS



2016



2015

Real Estate Assets







Land


$

74,130


$

57,112

Buildings, improvements and equipment



1,524,767



1,180,386

Less: Accumulated depreciation



(317,834)



(239,936)




1,281,063



997,562








Construction in progress



365,960



345,655

Real Estate Assets, net



1,647,023



1,343,217

Cash and cash equivalents



9,580



8,804

Rents and other receivables, net



41,540



28,233

Acquired intangibles, net (1) (2)



129,754



115,702

Deferred costs, net (3) (4)



38,507



30,042

Prepaid expenses



6,918



6,502

Goodwill (1)



173,843



181,738

Other assets, net (5)



39,305



33,101

TOTAL ASSETS


$

2,086,470


$

1,747,339








LIABILITIES







Unsecured credit facility, net (4)


$

634,939


$

520,956

Senior notes, net of discount and debt issuance costs (4)



292,179



290,852

Capital lease and lease financing obligations



38,708



49,761

Accounts payable and accrued liabilities



86,129



95,924

Dividends and distributions payable



19,634



15,378

Advance rents, security deposits and other liabilities



24,893



18,798

Deferred income taxes (1)



15,185



18,813

Deferred income



21,993



16,991

TOTAL LIABILITIES



1,133,660



1,027,473








EQUITY














Common stock, $0.01 par value, 450,133,000 shares authorized, 47,831,250 and 41,225,784 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively



478



412

Additional paid-in capital



931,783



670,275

Accumulated dividends in excess of earnings



(97,793)



(52,732)

Total stockholders' equity



834,468



617,955

Noncontrolling interests



118,342



101,911

TOTAL EQUITY



952,810



719,866

TOTAL LIABILITIES AND EQUITY


$

2,086,470


$

1,747,339














(1)

During the second quarter of 2016, the purchase price allocation associated with the acquisition of Carpathia Hosting, Inc. ("Carpathia") was finalized.  The primary adjustments to the purchase price allocation made during the first and second quarters of 2016 consisted of a $14.7 million increase in intangible assets, a $6.0 million increase in deferred tax liability and a reduction in goodwill of $7.9 million.

(2)

The June 2016 acquisition of the Piscataway, NJ facility contributed $15.6 million to net acquired intangibles as of December 31, 2016.

(3)

As of December 31, 2016 and December 31, 2015, deferred costs, net included $7.0 million and $6.3 million of deferred financing costs net of amortization, respectively, and $31.5 million and $23.8 million of deferred leasing costs net of amortization, respectively.

(4)

Debt issuance costs, net related to the Senior Notes and term loan portion of the Company's unsecured credit facility aggregating $10.1 million and $10.2 million at December 31, 2016 and December 31, 2015, respectively, have been netted against the related debt liability line items for both periods presented, as required by recently issued accounting guidance.

(5)

As of December 31, 2016 and December 31, 2015, other assets, net included $31.7 million and $25.9 million of corporate fixed assets, respectively, primarily relating to construction of corporate offices, leasehold improvements and product related assets.

 

 

Combined Consolidated Statements of Operations and Comprehensive Income


(in thousands except share and per share data)


The following financial data for the year ended December 31, 2016 includes the operating results of the Piscataway facility for the period June 6, 2016 (the date the Company acquired the facility) through December 31, 2016.



















Three Months Ended


Year Ended



December 31,


September 30,


December 31,


December 31,



2016


2016


2015


2016


2015

Revenues:
















Rental


$

78,622


$

77,005


$

66,240


$

295,723


$

230,510

Recoveries from customers



8,965



8,703



5,177



29,271



22,581

Cloud and managed services



16,340



16,243



19,406



68,488



51,994

Other (1)



1,516



1,514



1,867



8,881



5,998

Total revenues



105,443



103,465



92,690



402,363



311,083

Operating expenses:
















Property operating costs



35,773



36,288



32,063



136,488



104,355

Real estate taxes and insurance



2,514



2,566



1,448



8,840



5,869

Depreciation and amortization



33,093



32,699



27,020



124,786



85,811

General and administrative (2)



21,450



19,942



19,890



83,286



67,783

Transaction and integration costs (3)



1,521



3,465



5,026



10,906



11,282

Total operating expenses



94,351



94,960



85,447



364,306



275,100

















Operating income



11,092



8,505



7,243



38,057



35,983

















Other income and expense:
















Interest income



-



1



-



3



2

Interest expense



(6,125)



(6,179)



(5,730)



(23,159)



(21,289)

     Other income/(expense), net (4)



(193)



1



(385)



(192)



(468)

Income before taxes



4,774



2,328



1,128



14,709



14,228

Tax benefit of taxable REIT subsidiaries (5)



707



4,210



4,370



9,976



10,065

Loss on sale of real estate



-



-



(164)



-



(164)

Net income



5,481



6,538



5,334



24,685



24,129

Net income attributable to noncontrolling interests (6)



(675)



(808)



(731)



(3,160)



(3,803)

Net income attributable to QTS Realty Trust, Inc.


$

4,806


$

5,730


$

4,603


$

21,525


$

20,326

















Net income per share attributable to common shares:
















     Basic


$

0.10


$

0.12


$

0.11


$

0.47


$

0.54

     Diluted



0.10



0.12



0.11



0.46



0.53

















Weighted average common shares outstanding:
















     Basic



47,853,304



47,854,516



41,168,656



46,205,937



37,568,109

     Diluted



55,572,050



55,687,665



48,829,726



53,962,234



45,353,170







(1)

Other revenue – Includes straight line rent, sales of scrap metals and other unused materials and various other revenue items. Straight line rent was $1.5 million, $1.5 million and $1.8 million for the three months ended December 31, 2016, September 30, 2016 and December 31, 2015, respectively.  Straight line rent was $8.4 million and $5.1 million for the year ended December 31, 2016 and 2015, respectively.

(2)

General and administrative expenses – Includes personnel costs, sales and marketing costs, professional fees, travel costs, product investment costs and other corporate general and administrative expenses. General and administrative expenses were 20.3%, 19.3%, and 21.5% of total revenues for the three month periods ended December 31, 2016, September 30, 2016 and December 31, 2015, respectively. General and administrative expenses were 20.7% and 21.8% of total revenues for the year ended December 31, 2016 and 2015, respectively.

(3)

Transaction and integration costs – For the three month periods ended December 31, 2016, September 30, 2016, and December 31, 2015, the Company recognized $0.4 million, $0.1 million and $0.5 million, respectively, in transaction costs related to the examination of actual and potential acquisitions.  Transaction costs were $1.3 million and $4.9 million for the year ended December 31, 2016 and 2015, respectively.  The Company also recognized $1.1 million, $3.4 million and $4.6 million in integration costs for the three month periods ended December 31, 2016, September 30, 2016 and December 31, 2015, respectively, with integration costs for the three months ended December 31, 2016 including an offset of approximately $1.0 million related to the reimbursement of certain escrow funds.  Integration costs include various costs to integrate QTS and acquired businesses (including consulting fees, costs to consolidate office space and costs which were previously duplicated) as well as accelerated depreciation of certain software following acquisition. Integration costs were $9.6 million and $6.3 million for the year ended December 31, 2016 and 2015, respectively.

(4)

Other expense, net – Primarily includes write offs of unamortized deferred financing costs associated with the early extinguishment and/or restructuring of certain debt instruments.

(5)

Tax benefit of taxable REIT subsidiaries – For the three months ended December 31, 2016, September 30, 2016 and December 31, 2015, the Company recorded 0.7 million, $4.2 million and $4.4 million, respectively.  The current year amounts related to recorded operating losses which include certain transaction and integration costs.  The prior year amount related to the reversal of valuation allowances of deferred tax assets, aggregating approximately $3.2 million, which was a result of the purchase of Carpathia.  The Company recorded $10.0 million and $10.1 million in tax benefits for the year ended December 31, 2016 and 2015, respectively.

(6)

Noncontrolling interest – The noncontrolling ownership interest of QualityTech, LP was 12.4% and 14.2% as of December 31, 2016 and 2015, respectively, with the decrease primarily attributable to the equity issuance in April 2016.

 

Reconciliations of Net Income to FFO, Operating FFO & Adjusted Operating FFO


(unaudited and in thousands except per share data)


The Company calculates FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ("NAREIT"). FFO represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of property, real estate-related depreciation and amortization and similar adjustments for unconsolidated partnerships and joint ventures. The Company generally calculates Operating FFO as FFO excluding certain non-routine charges and gains and losses that management believes are not indicative of the results of the Company's operating real estate portfolio. The Company believes that Operating FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent other REITs calculate Operating FFO on a comparable basis, between the Company and these other REITs. The Company calculates Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment, paid leasing commissions, amortization of deferred financing costs and bond discount, non-real estate depreciation, straight line rent adjustments, deferred taxes and non-cash compensation. Operating FFO and Adjusted Operating FFO are non-GAAP measures that are used as supplemental performance measures and to provide additional information to users of the financial statements.


A reconciliation of net income to FFO, Operating FFO and Adjusted Operating FFO is presented below:



Three Months Ended


Year Ended


December 31,


September 30,


December 31,


December 31,


2016


2016


2015


2016


2015

FFO















Net income

$

5,481


$

6,538


$

5,334


$

24,685


$

24,129

Real estate depreciation and amortization


28,703



28,493



22,575



108,474



74,224

Loss on sale of real estate


-



-



164



-



164

FFO


34,184



35,031



28,073



133,159



98,517
















Write off of unamortized deferred finance costs


193



-



385



193



468

Integration costs


1,134



3,355



4,552



9,568



6,334

Transaction costs


387



110



474



1,338



4,948

Tax benefit associated with transaction and integration costs


(525)



(1,136)



(1,970)



(3,592)



(3,176)

Non-cash reversal of deferred tax asset valuation allowance


-



-



-



-



(3,175)

Operating FFO *


35,373



37,360



31,514



140,666



103,916
















Maintenance Capex


(2,613)



(1,731)



(2,711)



(5,059)



(4,745)

Leasing commissions paid


(5,154)



(4,402)



(3,237)



(18,751)



(13,108)

Amortization of deferred financing costs and bond discount


912



879



872



3,545



3,424

Non real estate depreciation and amortization


4,390



4,207



4,445



16,313



11,531

Straight line rent revenue and expense and other


(984)



(957)



(2,398)



(6,794)



(4,402)

Tax benefit from operating results


(181)



(3,075)



(2,400)



(6,384)



(3,754)

Equity-based compensation expense


2,697



2,637



1,758



10,584



6,964

Adjusted Operating FFO *

$

34,440


$

34,918


$

27,843


$

134,120


$

99,826
















Fully diluted weighted average shares


55,572



55,688



48,830



53,962



45,353

Operating FFO per share

$

0.64


$

0.67


$

0.65


$

2.61


$

2.29







*     

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.

 

Reconciliations of Net Income to EBITDA and Adjusted EBITDA


(unaudited and in thousands)


The Company calculates EBITDA as net income (loss) adjusted to exclude interest expense and interest income, provision (benefit) for income taxes (including income taxes applicable to sale of assets) and depreciation and amortization. The Company believes that EBITDA is another metric that is often utilized to evaluate and compare the Company's ongoing operating results between periods and between REITs. In addition to EBITDA, the Company calculates an adjusted measure of EBITDA, which the Company refers to as Adjusted EBITDA, as EBITDA excluding write off of unamortized deferred financing costs, gain (loss) on extinguishment of debt, transaction and integration costs, equity-based compensation expense, restructuring costs and gain (loss) on sale of real estate. The Company believes that Adjusted EBITDA provides investors with another financial measure that can facilitate comparisons of operating performance between periods and between REITs.


A reconciliation of net income to EBITDA and Adjusted EBITDA is presented below:



Three Months Ended


Year Ended


December 31,


September 30,


December 31,


December 31,


2016


2016


2015


2016


2015

EBITDA and Adjusted EBITDA















Net income

$

5,481


$

6,538


$

5,334


$

24,685


$

24,129

Interest expense


6,125



6,179



5,730



23,159



21,289

Interest income


-



(1)



-



(3)



(2)

Tax benefit of taxable REIT subsidiaries


(707)



(4,210)



(4,370)



(9,976)



(10,065)

Depreciation and amortization


33,093



32,699



27,020



124,786



85,811

EBITDA


43,992



41,205



33,714



162,651



121,162
















Write off of unamortized deferred finance costs


194



-



385



193



468

Equity-based compensation expense


2,697



2,637



1,758



10,584



6,964

Integration costs


1,134



3,355



4,552



9,568



6,334

Transaction costs


387



110



474



1,338



4,948

Loss on sale of real estate


-



-



164



-



164

Adjusted EBITDA

$

48,404


$

47,307


$

41,047


$

184,334


$

140,040

 

Reconciliations of Net Income to Net Operating Income (NOI)


(unaudited and in thousands)



The Company calculates net operating income ("NOI") as net income (loss), excluding: interest expense, interest income, tax expense (benefit) of taxable REIT subsidiaries, depreciation and amortization, write off of unamortized deferred financing costs, gain (loss) on extinguishment of debt, transaction and integration costs, gain (loss) on sale of real estate, restructuring costs and general and administrative expenses. The Company believes that NOI is another metric that is often utilized to evaluate returns on operating real estate from period to period and also, in part, to assess the value of the operating real estate. A reconciliation of net income to NOI is presented below:






Three Months Ended


Year Ended


December 31,


September 30,


December 31,


December 31,


2016


2016


2015


2016


2015

Net Operating Income (NOI)















Net income

$

5,481


$

6,538


$

5,334


$

24,685


$

24,129

Interest expense


6,125



6,179



5,730



23,159



21,289

Interest income


-



(1)



-



(3)



(2)

Depreciation and amortization


33,093



32,699



27,020



124,786



85,811

Write off of unamortized deferred finance costs


194



-



385



193



468

Tax benefit of taxable REIT subsidiaries


(707)



(4,210)



(4,370)



(9,976)



(10,065)

Integration costs


1,134



3,355



4,552



9,568



6,334

Transaction costs


387



110



474



1,338



4,948

Loss on sale of real estate


-



-



164



-



164

General and administrative expenses


21,450



19,942



19,890



83,286



67,783

NOI (1)

$

67,157


$

64,612


$

59,179


$

257,036


$

200,859

Breakdown of NOI by facility:















Atlanta-Metro data center

$

20,187


$

20,030


$

18,256


$

81,074


$

69,861

Atlanta-Suwanee data center


11,937



11,051



10,488



45,760



41,088

Santa Clara data center


3,325



2,961



3,786



13,703



14,352

Richmond data center


8,324



7,850



6,431



30,752



20,959

Sacramento data center


1,892



1,780



1,875



7,734



7,516

Princeton data center


2,364



2,468



2,471



9,544



9,461

Irving data center


4,952



5,118



1,804



16,608



5,547

Leased data centers acquired in 2015


9,848



10,487



12,885



41,785



27,595

Piscataway data center (2)


2,871



2,086



-



5,627



-

Other facilities


1,457



781



1,183



4,449



4,480

NOI (1)

$

67,157


$

64,612


$

59,179


$

257,036


$

200,859







(1)

Includes facility level G&A expense allocation charges of 4% of cash revenue for all entities, with the exception of the leased facilities acquired in 2015, which include G&A expense allocation charges of 10% of cash revenue.  These allocated charges aggregated to $5.3 million, $5.2 million and $5.2 million for the three month periods ended December 31, 2016, September 30, 2016 and December 31, 2015, respectively, and $20.6 million and $15.2 million for the year ended December 31, 2016 and 2015, respectively.

(2)

Includes results of the Piscataway facility for the period June 6, 2016 through December 31, 2016.

 

Reconciliations of Total Revenues to Recognized MRR in the period and MRR at period end


(unaudited and in thousands)


The Company calculates MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases (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. The Company calculates recognized MRR as the recurring revenue recognized during a given period, which includes revenue from its C1, C2 and C3 rental and cloud and managed services activities, but excludes customer recoveries, deferred set up fees, variable related revenues, non-cash revenues and other one-time revenues. Management uses MRR and recognized MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from customer leases. A reconciliation of total revenues to recognized MRR in the period and MRR at period-end is presented below:



Three Months Ended


Year Ended


December 31,


September 30,


December 31,


December 31,


2016


2016


2015


2016


2015

Recognized MRR in the period















Total period revenues (GAAP basis)

$

105,443


$

103,465


$

92,690


$

402,363


$

311,083

Less: Total  period recoveries


(8,965)



(8,703)



(5,177)



(29,271)



(22,581)

Total period deferred setup fees


(2,636)



(2,377)



(1,907)



(9,172)



(6,042)

Total period straight line rent and other


(2,867)



(3,697)



(4,456)



(16,589)



(12,677)

Recognized MRR in the period


90,975



88,688



81,150



347,331



269,783
















MRR at period end















Total period revenues (GAAP basis)

$

105,443


$

103,465


$

92,690


$

402,363


$

311,083

Less: Total revenues excluding last month


(69,465)



(69,427)



(61,627)



(366,385)



(280,020)

Total revenues for last month of period


35,978



34,038



31,063



35,978



31,063

Less: Last month recoveries


(3,247)



(2,398)



(1,415)



(3,247)



(1,415)

Last month deferred setup fees


(968)



(828)



(716)



(968)



(716)

Last month straight line rent and other


(873)



(1,034)



(1,443)



(873)



(1,443)

MRR at period end

$

30,890


$

29,778


$

27,489


$

30,890


$

27,489

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/qts-reports-fourth-quarter-and-full-year-2016-operating-results-300411081.html