QTS Realty Trust, Inc.filecache.investorroom.com/mr5ir_qualitytech/413... · “The Power Analytics App is a game-changer. Most of your competitors take 3 weeks to provide this data

© QTS. All Rights Reserved.

QTS Realty Trust, Inc.Investor Presentation

Fourth Quarter 2019

© QTS. All Rights Reserved.2

Forward Looking Statements

Some of the statements contained in this presentation 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, liquidity, portfolio performance results of operations, anticipated growth in our funds from operations and anticipated

market conditions contain forward-looking statements. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,”

“will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or

phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by

discussions of strategy, plans or intentions.

The forward-looking statements contained in this presentation 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 our qualification as a REIT;

• environmental uncertainties and risks related to natural disasters;

• financial market fluctuations;

• changes in real estate and zoning laws, revaluations for tax purposes and increases in real property tax rates; and

• limitations inherent in our current and any future joint venture investments, such as lack of sole decision-making authority and reliance on our partners’ financial condition.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Any forward-looking statement speaks only as of the date on

which it was made. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new

information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause our future results to differ materially from

any forward-looking statements, see the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 (“10-K”) and in the other

periodic reports we file with the Securities and Exchange Commission.

This presentation includes measures not derived in accordance with generally accepted accounting principles (“GAAP”), such as FFO, operating FFO, adjusted Operating

FFO, EBITDAre, adjusted EBITDA, NOI, ROIC and MRR. These measures should not be considered in isolation or as a substitute for any measure derived in accordance

with GAAP, and may also be inconsistent with similar measures presented by other companies. As used herein, “Core” refers to our business that primarily consists of our

hyperscale and hybrid colocation leases. Reconciliation of these measures to the most closely comparable GAAP measures are presented in the attached pages. We refer

you to the appendix of this presentation for reconciliations of these measures and to the section entitled "Management's Discussion and Analysis of Financial Condition and

Results of Operations--Non-GAAP Financial Measures" in our 10-K for further information regarding these measures.

© QTS. All Rights Reserved. 3

Broad Footprint Focused on Top Data Center Markets

2.9 million SF of raised floor capacity1 and 780+ MW of available utility power2

1. Represents basis-of-design floor space as of September 30, 2019. Basis-of-design floor space defined as the total data center raised floor potential of existing data center facilities.

2. Represents installed utility power and transformation capacity that is available for use by the facility as of September 30, 2019.

3. Based on data center raised floor. Includes Santa Clara, CA which is subject to a long-term ground lease and excludes data centers subject to capital lease obligations.

26 DATA CENTERS 14 96%MARKETS OWNED3


QTS Key Investment Highlights

Secular trends support continued growth

Record backlog supports strong and de-risked growth outlook

Differentiated platform enables enhanced value creation

Balanced capital allocation approach

①

②

③

④

Capital plan fully funded well into 2020⑤


$40

$64

2018 2023

$48

$384

2018 2023

Driving Success in Hyperscale & Hybrid Colocation

1.Structure Research

2.Based on MRR as of September 30, 2019, including QTS’ 50% pro rata share of leases associated with unconsolidated joint

ventures

Hyperscale Hybrid Colocation

8%10%

10%

72%

$489B Market

Size

8%

33%

11%

48%

$803B Market

Size

On-PremiseManaged

InfrastructureColocation Hyperscale/Cloud

2023

IT Infrastructure Growing and Moving Off-Premise1

51%CAGR

Hyperscale/Cloud

Market ($B)Colocation

Market ($B)

201810%CAGR

• Growth Accelerant

• High Credit Quality Tenants

• Longer Term Contracts

• Customer Diversification

• Higher ROIC

• Enhanced Capital Efficiency

• Higher Barriers to Entry

World-Class Mega Data Center Infrastructure Technology-Enabled Colocation Platform

68% of Revenue232% of Revenue2


Strong and Visible Growth Outlook

Record booked-not-billed backlog de-risks future performance

2019 Growth Outlook Summary2

1. Represents annualized MRR associated with leases that have been signed but have not yet commenced; may not sum due to rounding.

2. Reflects midpoint of 2019 guidance over 2018 results for Core business.

$80M Annualized

Booked-Not-Billed MRR ($M)1

70bpEBITDA Margin

Growth Y/Y

12%Revenue

Growth Y/Y

14%Adjusted EBITDA

Growth Y/Y


Differentiated Capability to Drive Success Across

Three Primary Customer Verticals

HYPERSCALEHYBRID COLOCATION FEDERAL

Significant powered

shell capacity:

• Cost advantage

• Ability to deliver quickly

• Growth capacity

• Strategically located in

Tier 1 markets

Leading provider with

established expertise:

• High-end security &

compliance platform

• Operational capability

• Demonstrated track record

Software-defined data

center:

• First of its kind monitoring

and orchestration platform

• Fully integrated and hybrid

enabled

• SDN-enabled universal

connectivity

• Premium customer

experience


Service Delivery Platform Differentiates QTS

Colocation

SDP enables the first true Software Defined Data Center

Over 16,000 SDP Users | 15+ Integrated Partners | 90M Data Points Collected Per Day

The Data We Digitize What We Do With the Data How We Share the Data


QTS Service Delivery Platform - Third Party Feedback

On how they leverage SDP Today:

“SDP allowed us to review over and under-subscribed

cabinets in real-time, enabling us to shift infrastructure

or increase our density.”

VP of IT(Multi-National Bank)

IT Director(Clean Energy

Automotive

Manufacturer)

Product

Manager(Communications Service

Provider Partner)

On using SDP for their Customers:

“The Power Analytics App is a game-changer. Most of

your competitors take 3 weeks to provide this data

to our Customers.”

On how SDP drove the selection of QTS:

“There was not a close 2nd in our evaluation. The

innovation of SDP combined with Solution Portability

and NPS made this an easy decision.”

“”

You are showing things that have been on

my clients’ wish list for quite some

time….mostly what they get from your

competitors is a really limited subset of

what you’ve just shown

On QTS’ Power & Sensor

Real-Time Analytics

Research Vice President, Infrastructure Strategies

Group – Industry Leading Research & Advisory Firm

“”

The API and programmatic approach,

being able to bridge into the physical world

is very attractive…. I see differentiation

here

On how QTS’ SDP Platform

Interacts with Customers

Research Director, Cloud Service Provider Group –

Industry Leading Research & Advisory Firm

“”

You have cemented yourselves as the

provider that is pushing the boundaries in

development and service delivery. It’s

clear you are more than just a colo provider

On QTS’ vision for Hybrid Colocation

Research Vice President, Technology Service Provider

Group – Industry Leading Research & Advisory Firm

Customers and Partners Industry Analysts


The QTS Hyperscale Advantage

* JLL Global Data Center Outlook 2018


Approach to Hyperscale Value Creation

Hyperscale strategy prioritizes capital efficiency and returns

• Contributed 24 MW Manassas hyperscale development into JV in 2019

• Reduced QTS’ overall capital requirement by approximately $120 million

• Enhanced stabilized return profile by ~300 basis points to ~12%

Enhanced return profile utilizing JV structure with Alinda

• 3 MW lease with new hyperscale logo signed in Q1 ’19 deploys into

existing powered shell capacity with significant scalability

• 12 MW lease with existing hyperscale customer signed in Q4 ’19

anchors new expansion in Atlanta adjacent to existing facility, leveraging

existing competitive advantages in Atlanta market

• Leveraging existing low basis infrastructure supports enhanced capital

efficiency and ROIC at or above typical hyperscale ROIC profile of 9-11%

Leveraging low basis infrastructure

• 5+ MW lease supporting a large Federal program with hyperscale

customer signed in Q2 ’19 in multiple facilities with powered shell capacity

• Higher barriers to entry and unique security requirements of Federal

customers create opportunity to generate above-average ROIC

Capitalizing on established capabilities in Federal vertical


Uniquely positioned to succeed in Federal vertical

• Unique security, personnel and operational requirements

• Incumbency and industry expertise are powerful differentiators for QTS

• Higher barriers to entry create opportunity to achieve premium ROIC

Higher barriers to entry targeting the Federal vertical

• Seeing a growing number of sizable Federal deals in the market similar to

5+ MW lease signed with hyperscale customer in Q2 ‘19

• Increasing pressure on Federal Government to find outsourced solutions

Growing opportunity set

• QTS has made strategic investments in the necessary processes,

operational capability and talent required to meet Federal needs

• Track record of success in Federal vertical with strategically located

powered shell footprint further supporting enhanced returns on capital

Federal Vertical Remains a Core Focus Area for QTS


Disciplined Approach to Development

Capital discipline and de-risked entry point

• Continued focus on capital discipline to balance long-term growth with near-term

results

• De-risked approach to market expansion

• Infrastructure designed to support multi-tenant environments to enable increased

flexibility and drive valuable diversification of product and customer mix

Greenfield Development

with Visibility on

Anchor Tenant

Low-Basis,

Infrastructure-Rich

Development

Repurposing

Existing Assets

Examples

• Richmond, VA

• Irving, TX

• Chicago, IL

• Atlanta, GA

• Suwanee, GA

• Piscataway, NJ

• Eemshaven (Netherlands)

• Groningen (Netherlands)

• Princeton, NJ

• Fort Worth, TX

• Ashburn, VA

• Manassas, VA

• Hillsboro, OR

• Phoenix, AZ

• Atlanta, GA (expansion)

Data Center

Re-Focus

Enterprise

Sale-Leaseback

Pre-Lease

Greenfield


Positioned for Continued Capital Efficient Growth

QTS’ powered shell capacity represents 5+ years of growth

• Ability to approximately double

footprint in pre-built powered shell

reduces future capital needs

• Existing capacity in strategic

hyperscale markets supports

capital efficient future growth

• In addition, have land available in

majority of key markets already

acquired and pad-ready

Powered Shell Capacity

1.Full Buildout reflects our “Basis of Design” NRSF at full buildout; does not include additional development which could take place on adjacent, owned land.

2.Includes properties contributed to unconsolidated joint ventures at the JVs’ 100% share

57% currently built out

1.3M SFadditional capacity

2.9M SF at Full Buildout1,2


Atlanta-Metro Mega Data Center Expansion

• Development will include a new data center adjacent to QTS’ existing site totaling more

than 250,000 SF of leasable capacity and 72 critical megawatts

• Expect to deliver first phase of new development in mid-2020

• Significant pre-leasing through the 12MW anchor tenant signed subsequent to the end of

Q3 ‘19 is consistent with QTS’ de-risked approach to overall capital allocation

• Expansion takes advantage of QTS’ key competitive advantages in Atlanta market

• One of the most strategic and interconnected campus’ in the southeast with access to 200+

network, IT services and cloud providers

• Strong operating leverage based on 1M+ SF currently in operation in the Atlanta market

• Ability to offer customers the lowest cost of power in the market (20%+ below peers)

through expandable 120MW substation

• Large embedded customer base totaling over 500 customers across two existing sites

• QTS currently owns approximately 76 acres of adjacent land in Atlanta, which provides the

opportunity to more than double the Company’s current Atlanta footprint over time

Next phase of development extends QTS’ runway for growth and market

leadership in Atlanta


Best-in-Class “Mega” Data Centers

205,608 SF

100% Built Out

205,608 SF

Utility Power: 36MW Occupied: 91.8%

527,186 SF

100% Built Out

527,186 SF

Utility Power: 120MW1 Occupied: 97.9%

167,309 SF

30% Built Out

557,309 SF


Atlanta-Suwanee, GA

ROIC: 27.1%

Atlanta-Metro, GA

ROIC: 17.5%

Richmond, VA

ROIC: 12.7%

174,160 SF

63% Built Out

275,701 SF


98,820 SF

56% Built Out

176,000 SF


56,000 SF

26% Built Out

215,855 SF

Utility Power: 55MW2 Occupied: 93.8%

Piscataway, NJ

ROIC: 11.1%

Chicago, IL

ROIC: 8.2%

Irving, TX

ROIC: 12.5%

Note: Square footage reflects current Raised Floor Operating Net Rentable Square Feet (“NRSF”) as of September 30, 2019 (red shaded bars) and “Basis of Design” Raised Floor NRSF at full buildout. MW denotes

available utility power as of September 30, 2019. Occupied percentage as of September 30, 2019. ROIC calculated by dividing annualized core NOI for the quarter ended September 30, 2019 by the average total cost,

less construction in progress for the quarters ended September 30, 2019 and June 30, 2019.

1. Atlanta -Metro currently has 72 MW of available utility power based on current agreements with its utility provider but has transformer capacity for 120 MW.

2. 24MW available utility power as of September 30, 2019, with an additional 31 MW available upon QTS request.

3. Adjusted to include impact of booked-not-billed backlog

58,157 SF

37% Built Out

158,157 SF


37,960 SF

48% Built Out

80,000 SF


38,740 SF

22% Built Out

178,000 SF


Fort Worth, TX

ROIC: 11.4%3

Ashburn, VA

ROIC: 8.0%3

Princeton, NJ

ROIC: 13.4%


Market Cap, $3,388M2

Senior Notes, $400M

Pro Rata Share of Unconsolidated JV Debt, $34M

Series B Convertible Preferred Stock, $316M

Series A Preferred Stock, $107M

Finance Leases & Other, $48M

Unsecured Credit Facility, $924M1

• Reported net debt to LQA

adjusted EBITDA of 5.5x; pro

forma leverage of 4.8x4, including

forward equity proceeds

• $175M5 of undrawn forward

equity proceeds available as of

November 4, 2019

• In October ‘19, extended credit

facility with improved pricing and

increased capacity by $180M to

$1.7B

• Record $80M booked-not-billed

backlog of annualized revenue

• No significant debt maturities until

beyond 2022

• 75%+ of debt is subject to a fixed

rate, including interest rate swap

agreements

1. Includes three term loans ($700 million in aggregate) and $224 million of borrowings on revolving credit facility as of September 30, 2019, including the pro forma effects of an amendment to the Company’s unsecured credit facility executed in October 2019

2. Market Cap calculated as: Class A and Class B common stock and OP units of 66 million incl. common stock sold in forward structure using treasury stock method, multiplied by 9/30/2019 stock price of $51.41 per share.

3. Includes the pro forma effects of an amendment to the Company’s unsecured credit facility executed in October 2019; may not sum due to rounding

4. Pro forma for the effects of cash expected to be received upon the full physical settlement of, and issuance of, 3.7 million shares of common stock pursuant to forward equity sales through the date of this report, assuming such proceeds were used to repay a portion of the Company’s outstanding debt. The company expects to use the proceeds from these forward equity agreements to fund future capital expenditures.

5. Reflects net proceeds available at the Company’s election to physically settle the forward equity sales

$5.2B Enterprise

Value

Capital Structure Highlights

Debt Maturities ($M)3

$1 $3 $3 $5 $261

$1,134

2019 2020 2021 2022 2023 2024+

Balance Sheet and Liquidity Summary


Q3 2019

Performance Review

© QTS. All Rights Reserved.19

• Q3 ’19 OFFO growth of 16% year-over-year1; Q3 ’19 OFFO/sh growth of 6% year-over-year1

• Adjusted EBITDA margin of 50.3%, down 90bps vs. Q3 ‘181

• Lower margin was driven by higher-than-expected power costs in certain locations combined

with increased property tax expenses, a significant portion of which was passed through

directly to customers

• Higher-than-expected utilities and property tax expenses aggregated to approximately $1.5M

of incremental expense, net of what was recovered from customers

• Excluding the net effect of these expenses, Q3 ’19 adjusted EBITDA margin would have

approximated 53%, an increase of approximately 200bp year-over-year

1. Prior period amounts represent Core business only

Revenue1

Q3 2019 Financial Highlights

$107.5

$125.3

Q3 '18 Q3 '19

$55.0

$63.0

Q3 '18 Q3 '19

Adjusted EBITDA1


Ne

t L

ea

sin

g (

$M

)1

• Q3 leasing driven by a strong acceleration in hyperscale combined with steady enterprise demand

• +13% above prior four quarter average leasing

• Subsequent to the end of Q3, signed a 12MW expansion with a strategic hyperscale customer

that will anchor QTS’ new data center development in Atlanta; this lease is not included in Q3

leasing

• Q3 leasing includes 4.5MW downgrade from this customer in Richmond; excluding this

downgrade, Q3 leasing would have been in excess of $22M

• Signed 40 new hybrid colocation logos, up 10%+ year-over-year

• Same space renewal rates +2.0%

• Strong leasing activity resulted in record booked-not-billed backlog of $80M as of the end of Q3 ‘19

Signed new/modified leases totaling $17.4M of incremental annualized rent

Ba

ck

log

($

M)2

1. Incremental annualized revenue from new and modified renewal leases, net of downgrades. Reflects results for Core business only in 2018.

2. Backlog of signed but not yet commenced annualized monthly recurring revenue. Reflects results for Core business only in 2018.

$15.3M Prior 4

Quarter Avg.

Q3 2019 Leasing Review


Q3 2019 Hyperscale Leasing Highlights

Hyperscale vertical accounted for approximately 50% of Q3 ’19 leasing

Piscataway: 500kWManassas: 4MW

Ashburn: 10MW (new logo)Atlanta 2: 12MW1

1. Signed subsequent to the end of the third quarter 2019

© QTS. All Rights Reserved.

22

Thank You!

[email protected]


Appendix


NOI Reconciliation

$ in thousands

Net Operating Income (NOI)

Net income (loss) $ 6,588 $ 7,535 $ 7,576 $ (14,468) $ (6,892)

Equity in net (income) loss of unconsolidated entity 317 401 — — —

Interest income (22) (36) (66) — (66)

Interest expense 6,724 6,459 6,384 2 6,386

Depreciation and amortization 42,875 41,481 36,693 1,206 37,899

Other (income) expense (370) 40 — — —

Tax expense (benefit) of taxable REIT subsidiaries 369 199 (409) (571) (980)

Transaction and integration costs 827 1,039 901 — 901

General and administrative expenses 19,504 20,124 17,732 2,191 19,923

Restructuring — — — 13,737 13,737

NOI from consolidated operations $ 76,812 $ 77,242 $ 68,811 $ 2,097 $ 70,908

Pro rata share of NOI from unconsolidated entity 872 842 — — —

Total NOI $ 77,684 $ 78,084 $ 68,811 $ 2,097 $ 70,908

June 30, 2019

TotalNon-Core

Three Months Ended

CoreTotal Total

September 30, 2019 September 30, 2018


EBITDAre & Adjusted EBITDA Reconciliation

$ in thousands

EBITDAre and Adjusted EBITDA

Net income (loss) $ 6,588 $ 7,535 $ 7,576 $ (14,468) $ (6,892)


Interest income (22) (36) (66) — (66)

Interest expense 6,724 6,459 6,384 2 6,386

Tax expense (benefit) of taxable REIT subsidiaries 369 199 (409) (571) (980)

Depreciation and amortization 42,875 41,481 36,693 1,206 37,899

Loss on disposition of depreciated property and impairment w rite-dow ns of depreciated property — — — 7,409 7,409

Pro rata share of EBITDAre from unconsolidated entity 867 863 — — —

EBITDAre $ 57,718 $ 56,902 $ 50,178 $ (6,422) $ 43,756

Equity-based compensation expense 4,456 4,296 3,961 — 3,961

Restructuring costs — — — 6,328 6,328


Adjusted EBITDA $ 63,001 $ 62,237 $ 55,040 $ (94) $ 54,946

June 30, 2019

TotalNon-Core

Three Months Ended

September 30, 2018September 30, 2019

Total Total Core


FFO, Operating FFO and Adjusted Operating FFO

Reconciliation

*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

$ in thousands

FFO

Net income (loss) $ 6,588 $ 7,535 $ 7,576 $ (14,468) $ (6,892)


Real estate depreciation and amortization 39,969 38,544 34,023 556 34,579

Pro rata share of FFO from unconsolidated entity 369 344 — — —

FFO (1) 47,243 46,824 41,599 (13,912) 27,687

Preferred stock dividends (7,045) (7,045) (7,045) — (7,045)

FFO available to common stockholders & OP unit holders 40,198 39,779 34,554 (13,912) 20,642

Restructuring costs — — — 13,737 13,737


Tax benefit associated w ith restructuring, transaction and integration costs — — — (571) (571)

Operating FFO available to common stockholders & OP unit holders* 41,025 40,818 35,455 (746) 34,709

Maintenance Capex (381) (2,233) (1,660) — (1,660)

Leasing commissions paid (7,302) (6,528) (5,212) (249) (5,461)

Amortization of deferred f inancing costs and bond discount 978 979 959 — 959

Non real estate depreciation and amortization 2,906 2,937 2,670 650 3,320

Straight line rent revenue and expense and other (2,278) (979) (1,013) (54) (1,067)

Tax expense (benefit) from operating results 369 199 (409) — (409)

Equity-based compensation expense 4,456 4,296 3,961 — 3,961

Adjustments for unconsolidated entity 63 (42) — — —

Adjusted Operating FFO available to common stockholders & OP unit holders* $ 39,836 $ 39,447 $ 34,751 $ (399) $ 34,352

June 30, 2019

Three Months Ended

Core

September 30, 2019

Total Total TotalNon-Core

September 30, 2018


MRR Reconciliation

$ in thousands

Recognized MRR in the period

Total period revenues (GAAP basis) $ 125,255 $ 119,167 $ 107,513 $ 4,700 $ 112,213

Less: Total period variable lease revenue from recoveries (17,563) (12,672) (11,800) — (11,800)

Total period deferred setup fees (4,041) (3,822) (3,174) (101) (3,275)

Total period straight line rent and other (4,768) (5,485) (1,701) (2,171) (3,872)

Recognized MRR in the period 98,883 97,188 90,838 2,428 93,266

MRR at period end

Total period revenues (GAAP basis) $ 125,255 $ 119,167 $ 107,513 $ 4,700 $ 112,213

Less: Total revenues excluding last month (81,114) (77,863) (71,443) (4,416) (75,859)

Total revenues for last month of period 44,141 41,304 36,070 284 36,354

Less: Last month variable lease revenue from recoveries (6,369) (4,222) (3,896) — (3,896)

Last month deferred setup fees (1,684) (1,322) (1,095) — (1,095)

Last month straight line rent and other (3,452) (3,323) (979) 356 (623)

Add: Pro rata share of MRR at period end of unconsolidated entity 343 343 — — —

MRR at period end $ 32,979 $ 32,780 $ 30,100 $ 640 $ 30,740

Three Months Ended

June 30, 2019September 30, 2019

Total Total Core Non-Core

September 30, 2018

Total

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QTS Realty Trust, Inc.filecache.investorroom.com/mr5ir_qualitytech/413... · “The Power Analytics App is a game-changer. Most of your competitors take 3 weeks to provide this data