QTS Realty Trust, Inc.
Investor Presentation
Third Quarter 2020
Forward Looking Statements
Some of the statements contained in this document 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 COVID-19 pandemic, its impact on the Company and the Company's response thereto and to the Company's strategy, plans, intentions, 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.
The forward-looking statements contained in this document reflect the Company's current views about future events and are subject to numerous known and unknown
risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed in any forward-looking statement. The Company does not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
- adverse economic or real estate developments in the Company's markets or the technology industry;
- obsolescence or reduction in marketability of our infrastructure due to changing industry demands;
- global, national and local economic conditions;
-
risks related to the COVID-19 pandemic, including, but not limited to, the risk of business and/or operational disruptions, disruption of the Company's customers' businesses that could affect their ability to make rental payments to the Company, supply chain disruptions and delays in the construction or development of the
Company's data centers; - risks related to our international operations;
- difficulties in identifying properties to acquire and completing acquisitions;
- the Company's failure to successfully develop, redevelop and operate acquired properties or lines of business;
- significant increases in construction and development costs;
- the increasingly competitive environment in which the Company operates; defaults on, or termination or non-renewal of, leases by customers; decreased rental rates or increased vacancy rates;
- increased interest rates and operating costs, including increased energy costs; financing risks, including the Company's failure to obtain necessary outside financing;
- dependence on third parties to provide Internet, telecommunications and network connectivity to the Company's data centers;
- the Company's failure to qualify and maintain its qualification as a real estate investment trust;
- environmental uncertainties and risks related to natural disasters;
- financial market fluctuations;
- 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 the Company's good faith beliefs, they are not guarantees of future performance. Any forward-looking statement speaks only as of the date on which it was made. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, as well as other periodic reports the Company files with the Securities and Exchange Commission, many of which should be interpreted as being heightened as a result of the ongoing COVID-19 pandemic and the actions taken to contain the pandemic or mitigate its impact.
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. 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.
2
Broad Footprint Focused on Top Data Center Markets
3.2 million SF of raised floor capacity1 and 950+ MW of available utility power2
24 DATA CENTERS 14 MARKETS | 96% OWNED3 |
1. | Represents basis-of-design floor space as of June 30, 2020. Basis-of-design floor space defined as the total data center raised floor potential of existing data center facilities. | 3 | |
© QTS. All Rights Reserved. | 2. | Represents installed utility power and transformation capacity that is available for use by the facility as of June 30, 2020. | |
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. |
QTS Key Investment Highlights
- Secular trends support continued growth
- Diversified platform supports consistent performance
- Differentiators enable enhanced value creation opportunity
④ | De-risked growth outlook with record booked-not-billed backlog and |
fully-funded capital plan through middle of 2021 | |
⑤ | Critical nature of data center business supports resilient performance |
amidst COVID-19 | |
© QTS. All Rights Reserved. | 4 |
Strong Secular Drivers Support Continued Growth in Data Center Demand
Data Center
Outsourcing
Outsourced data center infrastructure market share expected to double to 66% by 20231
Work From Home
Increased reliance on SaaS platforms and infrastructure capacity
Data Growth
Global data volume expected to reach 175 zettabytes by 2025 (27% CAGR)2 driven by application development and Artificial Intelligence
© QTS. All Rights Reserved.
Digital
Transformation
"There is no alternative to digital transformation; Those that don't adapt will fail"
Jeff Bezos - CEO of Amazon
Cloud
Adoption
51% CAGR of cloud market through 20231
Connected Devices
21B+ devices by 2025 (17% CAGR)3 driven by Internet of Things, autonomous vehicles and 5G
1. Structure research; 2. Statista; 3. IoT Analytics Research
5
Driving Success in Hyperscale & Hybrid Colocation
IT Infrastructure Growing and Moving Off-Premise1
Hyperscale/Cloud | Colocation | ||||
Market ($B) | |||||
Market ($B) | |||||
2019 | 2023 | ||||
$64 | |||||
$384 | |||||
33% $508B | $803B 34% | 10% | |||
CAGR |
Market | |
51% | Size |
CAGR |
$74
2019 2023
Market | $44 | |
Size | ||
67% | ||
66% | ||
On-Premise | Outsourced | 2019 | 2023 | |
33% of Revenue2 | 67% of Revenue2 | |||
Hyperscale | Hybrid Colocation | |||
World-Class Mega Data Center Infrastructure | Technology-Enabled Colocation Platform | |||
1.Structure Research | 6 | |
© QTS. All Rights Reserved. | 2.Based on MRR as of June 30, 2020, including QTS' 50% pro rata share of leases associated with unconsolidated joint ventures |
Consistent Performance Enabled by Differentiation Across Diversified Target Customer Verticals
Differentiators
Cost-advantagedmega | Digitized, premium customer experience | |
scale infrastructure | through QTS' Service Delivery Platform | |
Industry leadership in | Operational maturity & track record in | |
sustainability initiatives | highly secure deployments | |
Diversified Across Target Customers
HYPERSCALE
- Growth accelerant
- Highest credit quality tenants
- 5-10+year contracts and long-term cash flow visibility
HYBRID COLOCATION | FEDERAL |
• | Consistency in quarter-to- | • | Growth accelerant |
quarter performance | • Highest barriers to entry | ||
• | Customer diversification | • | Premium ROIC opportunity |
- Enhanced ROIC opportunity
- Enhanced capital efficiency
© QTS. All Rights Reserved. | 7 |
Positioned for Continued Capital Efficient Growth
QTS' powered shell capacity represents 5+ years of growth
Powered Shell Capacity
1.4M SF
additional capacity
• Ability to 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 722 acres of land available in majority of key markets already acquired and pad-ready
55% currently built out
3.2M SF at Full Buildout1,2
© QTS. All Rights Reserved. | 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. | 8 |
2.Includes properties contributed to unconsolidated joint ventures at the JVs' 100% share |
SDP Utilization Continues to Ramp Amid Pandemic
Customers leveraging QTS platform and SDP to enable remote
infrastructure tracking and management
20%
17,000+ | active SDP users | INCREASE | ||
new unique log-ins | ||||
quarter-over-quarter | ||||
Average session time for QTS | Average session time for top | |||
user base of approximately | SDP users of more than |
30 | 60 | ||||
MINUTES | MINUTES | ||||
Approximately double pre COVID-19 level | Approximately double pre COVID-19 level | ||||
Customers utilizing | Recurring revenue signed from | Recurring revenue signed from | |||
Remote Hands & Eyes | IP Bandwidth Upgrades | Cross Connects | |||
+40% | +85% | +30% | |||
YEAR-OVER-YEAR | YEAR-OVER-YEAR | YEAR-OVER-YEAR | |||
© QTS. All Rights Reserved. | 9 | ||||
Federal Vertical Remains a Core Focus Area for QTS
Expanding growth opportunity
- Q2 leasing results include a 5MW+ expansion for an existing hyperscale customer supporting the Federal Government
- Deployment across multiple existing QTS facilities is set to commence in mid-2021
- Represents an expansion of the 5MW+ federal lease QTS signed in
Q2 '19 - Further demonstrates the value of incumbency in the Federal vertical
Uniquely positioned to succeed in Federal vertical
- Strategically invested in the necessary processes, operational capability and talent, capable of supporting highly compliant government agencies
- Track record of success in Federal vertical with strategically located powered shell footprint further supporting enhanced returns on capital
Higher barriers to entry targeting the 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 | 10 |
Committed to Deliver on Highest Standards in ESG Principles
QTS publishes second annual ESG Initiatives Report
Environmental | Social | Governance |
Procure 100% of power from
renewable sources by 2025 (32% today)
Pursue LEED certification at 90% of QTS properties by
2025 (55% today)
Install EV charging stations in 75% of our facilities by 2025
Conserve at least 15 million gallons of water per year, up from 10 million in 2019
Recycle 600 million pounds of material by 2025
© QTS. All Rights Reserved. | 11 |
Differentiated Platform Supports Consistent Performance
Revenue ($M)1,2 | Adjusted EBITDA Margin1,2 |
$423
$370
$530 | +550bp | ||
$481 | 53.8% | ||
52.1% | |||
51.6% | |||
48.3%
2017 | 2018 | 2019 | 2020 | 2017 | 2018 | 2019 | 2020 |
TTM Avg. Signed Leasing ($M)3 | Booked-Not-Billed Backlog ($M)4 |
$111.2
$21.6 | $22.0 | $100.9 | |||||||||||||||||||
$19.0 | $93.1 | ||||||||||||||||||||
$79.8 | |||||||||||||||||||||
$13.5 | $14.0 | $14.7 | $68.1 | ||||||||||||||||||
$62.6 | |||||||||||||||||||||
$10.9 | $11.1 | $12.5 | $12.3 | $12.8 | $56.6 | $57.4 | $53.3 | $60.0 | |||||||||||||
$10.4 | $11.4 | $46.8 | $54.8 | ||||||||||||||||||
$39.7 | |||||||||||||||||||||
Q2'17 | Q1'18 | Q4'18 | Q3'19 | Q2'20 | Q2'17 | Q1'18 | Q4'18 | Q3'19 | Q2'20 |
© QTS. All Rights Reserved. | 1) 2020 figures represent midpoint of company guidance; 2) 2017 & 2018 figures represent results for Core business only; 3) trailing twelve month incremental annualized revenue signed from new and modified renewal 12 | ||||||||
leases, net of downgrades, 2017 & 2018 represent results for Core business only; 4) backlog of signed but not yet commenced annualized monthly recurring revenue, 2018 represents results for Core business only. |
Balance Sheet and Liquidity Summary
Capital Structure ($M)
Unsecured Credit Facility 1,
$1,208
Finance Leases & Other, $46
Series A Preferred Stock,
$107
Series B Convertible$6.6B
Preferred Stock, $316
Pro Rata Share of Unconsol. | Enterprise |
JV Debt, $43 | Value6 |
Senior Notes, $400 |
Market Cap 2, $4,512
Debt Maturities ($M)5
$905
$554
Highlights
- Pro forma leverage of 3.7x3 net debt to annualized adjusted EBITDA, including forward equity proceeds; net debt to LQA adjusted EBITDA of 5.8x at the end of 2Q 2020
- Approximately $1.1B of available liquidity, including $591M4 of undrawn forward equity proceeds
- No significant debt maturities until 2023 and beyond
$229 | |||||
$1 | $3 | $5 | |||
2020 | 2021 | 2022 | 2023 | 2024 | 2025+ |
- ~70% of debt is subject to a fixed rate, including interest rate swap agreements
- Includes three term loans ($700 million in aggregate) and approximately $508 million of borrowings on revolving credit facili ty as of June 30, 2020
- Market Cap calculated as: Class A and Class B common stock and OP units of 70.4 million incl. common stock sold in forward structure using treasury stock method, multiplied by 6/30/2020 stock price of $64.09 per share.
- Pro forma for the effects of cash expected to be received upon the full physical settlement of, and issuance of, 10.3 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 th ese forward equity agreements to fund future capital expenditures.
- Reflects net proceeds available at the Company's election to physically settle the forward equity sales
© QTS. All Rights Reserved. 5. | Includes QTS' pro rata share of debt at the joint venture | 13 |
6. | Net of cash and cash equivalents |
Business Momentum Remains Steady Amidst COVID-19
Industry & Tenant Diversification1
Other, 8.8%
Retail, 5.2%
Cloud & IT Services,
32.0%
Healthcare, 7.4%
Customer Highlights
• Well diversified customer base across industries |
• 50%+ of in-place revenue is generated from |
Content & Digital Media and Cloud & IT Services |
industries |
• <10% of in-place revenue is generated from |
retail, transportation, hospitality and oil & gas |
Network, 7.1%
1,200+
customers |
Customers
Government &
Security, 5.3%
Financial Services, | Content & Digital |
15.3% | Media, 18.9% |
1. | Percentage of in-place MRR as of 6/30/20 |
• As of Q1 earnings release, QTS had received a |
modest increase in requests for extended |
payment terms from customers representing |
approximately 5% of Q1 '20 revenue related to |
impact of COVID-19 |
• Pace of additional incoming requests for |
payment relief moderated significantly during Q2 |
• A number of customers who had previously |
asked for extended payment terms have since |
resumed payments |
Development activity remains on track
- Year-to-dateQTS has successfully delivered on key commitments to customers across all QTS markets
- Remain on schedule to deliver on development commitments to customers tied to QTS' booked-not- billed backlog in 2020, assuming current trends continue
© QTS. All Rights Reserved. | 14 |
Appendix
© QTS. All Rights Reserved. | 15 |
NOI Reconciliation
Three Months Ended | Six Months Ended | |||||||||
$ in thousands | June 30, 2020 | March 31, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||
Net Operating Income (NOI) | ||||||||||
Net income | $ | 10,209 | $ | 8,120 | $ | 7,535 | $ | 18,329 | $ | 28,683 |
Equity in net loss of unconsolidated entity | 590 | 677 | 401 | 1,267 | 675 | |||||
Interest income | (2) | - | (36) | (2) | (81) | |||||
Interest expense | 6,924 | 7,162 | 6,459 | 14,086 | 13,605 | |||||
Depreciation and amortization | 47,554 | 45,070 | 41,481 | 92,624 | 80,269 | |||||
Other (income) expense | - | (159) | 40 | (159) | 40 | |||||
Tax expense (benefit) of taxable REIT subsidiaries | 138 | (169) | 199 | (31) | 410 | |||||
Transaction, integration and impairment costs | 381 | 216 | 1,039 | 597 | 2,253 | |||||
General and administrative expenses | 21,391 | 20,683 | 20,124 | 42,074 | 40,015 | |||||
Gain on sale of real estate, net | - | - | - | - | (13,408) | |||||
NOI from consolidated operations | $ | 87,185 | $ | 81,600 | $ | 77,242 | $ | 168,785 | $ | 152,461 |
Pro rata share of NOI from unconsolidated entity | 927 | 844 | 842 | 1,771 | 1,076 | |||||
Total NOI | $ | 88,112 | $ | 82,444 | $ | 78,084 | $ | 170,556 | $ | 153,537 |
© QTS. All Rights Reserved. | 16 |
EBITDAre & Adjusted EBITDA Reconciliation
Three Months Ended | Six Months Ended | |||||||||
$ in thousands | June 30, 2020 | March 31, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||
EBITDAre and Adjusted EBITDA | ||||||||||
Net income | $ | 10,209 | $ | 8,120 | $ | 7,535 | $ | 18,329 | $ | 28,683 |
Equity in net loss of unconsolidated entity | 590 | 677 | 401 | 1,267 | 675 | |||||
Interest income | (2) | - | (36) | (2) | (81) | |||||
Interest expense | 6,924 | 7,162 | 6,459 | 14,086 | 13,605 | |||||
Tax expense (benefit) of taxable REIT subsidiaries | 138 | (169) | 199 | (31) | 410 | |||||
Depreciation and amortization | 47,554 | 45,070 | 41,481 | 92,624 | 80,269 | |||||
Gain on disposition of depreciated property | - | - | - | - | (13,408) | |||||
Pro rata share of EBITDAre from unconsolidated entity | 924 | 819 | 863 | 1,743 | 1,078 | |||||
EBITDAre | $ | 66,337 | $ | 61,679 | $ | 56,902 | $ | 128,016 | $ | 111,231 |
Equity-based compensation expense | 6,082 | 4,875 | 4,296 | 10,957 | 7,596 | |||||
Transaction and integration costs | 381 | 216 | 1,039 | 597 | 2,253 | |||||
Adjusted EBITDA | $ | 72,800 | $ | 66,770 | $ | 62,237 | $ | 139,570 | $ | 121,080 |
© QTS. All Rights Reserved. | 17 |
FFO, Operating FFO and Adjusted Operating FFO Reconciliation
Three Months Ended | Six Months Ended | |||||||||||
$ in thousands | June 30, 2020 | March 31, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||||
FFO | ||||||||||||
Net income | $ | 10,209 | $ | 8,120 | $ | 7,535 | $ | 18,329 | $ | 28,683 | ||
Equity in net loss of unconsolidated entity | 590 | 677 | 401 | 1,267 | 675 | |||||||
Real estate depreciation and amortization | 44,196 | 41,700 | 38,544 | 85,896 | 74,471 | |||||||
Gain on sale of real estate, net | - | - | - | - | (13,408) | |||||||
Pro rata share of FFO from unconsolidated entity | 399 | 278 | 344 | 677 | 385 | |||||||
FFO | 55,394 | 50,775 | 46,824 | 106,169 | 90,806 | |||||||
Preferred stock dividends | (7,045) | (7,045) | (7,045) | (14,090) | (14,090) | |||||||
FFO available to common stockholders & OP unit holders | 48,349 | 43,730 | 39,779 | 92,079 | 76,716 | |||||||
Transaction and integration costs | 381 | 216 | 1,039 | 597 | 2,253 | |||||||
Operating FFO available to common stockholders & OP unit holders | (1) | 48,730 | 43,946 | 40,818 | 92,676 | 78,969 | ||||||
Maintenance capital expenditures | (4,220) | (1,662) | (2,233) | (5,882) | (2,942) | |||||||
Leasing commissions paid | (6,805) | (8,998) | (6,528) | (15,803) | (13,043) | |||||||
Amortization of deferred financing costs | 991 | 987 | 979 | 1,978 | 1,957 | |||||||
Non real estate depreciation and amortization | 3,358 | 3,370 | 2,937 | 6,728 | 5,798 | |||||||
Straight line rent revenue and expense and other | (5,702) | (3,755) | (979) | (9,457) | (2,401) | |||||||
Tax expense (benefit) from operating results | 138 | (169) | 199 | (31) | 410 | |||||||
Equity-based compensation expense | 6,082 | 4,875 | 4,296 | 10,957 | 7,596 | |||||||
Adjustments for unconsolidated entity | (1) | (88) | 66 | (42) | (22) | (20) | ||||||
Adjusted Operating FFO available to common stockholders & OP unit holders | $ | 42,484 | $ | 38,660 | $ | 39,447 | $ | 81,144 | $ | 76,324 | ||
- 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.
© QTS. All Rights Reserved. | 18 |
MRR Reconciliation
Three Months Ended | Six Months Ended | |||||||||
$ in thousands | June 30, 2020 | March 31, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||
Recognized MRR in the period | ||||||||||
Total period revenues (GAAP basis) | $ | 131,640 | $ | 126,292 | $ | 119,167 | $ | 257,932 | $ | 231,856 |
Less: Total period variable lease revenue from recoveries | (12,528) | (12,275) | (12,672) | (24,803) | (23,465) | |||||
Total period deferred setup fees | (4,520) | (3,924) | (3,822) | (8,444) | (7,053) | |||||
Total period straight line rent and other | (9,327) | (8,032) | (5,485) | (17,359) | (9,428) | |||||
Recognized MRR in the period | 105,265 | 102,061 | 97,188 | 207,326 | 191,910 | |||||
MRR at period end | ||||||||||
Total period revenues (GAAP basis) | $ | 131,640 | $ | 126,292 | $ | 119,167 | $ | 257,932 | $ | 231,856 |
Less: Total revenues excluding last month | (87,538) | (82,446) | (77,863) | (213,830) | (190,552) | |||||
Total revenues for last month of period | 44,102 | 43,846 | 41,304 | 44,102 | 41,304 | |||||
Less: Last month variable lease revenue from recoveries | (4,350) | (4,156) | (4,222) | (4,350) | (4,222) | |||||
Last month deferred setup fees | (1,533) | (1,410) | (1,322) | (1,533) | (1,322) | |||||
Last month straight line rent and other | (2,480) | (3,669) | (3,349) | (2,480) | (3,349) | |||||
Add: Pro rata share of MRR at period end of unconsolidated entity | 352 | 352 | 369 | 352 | 369 | |||||
MRR at period end | $ | 36,091 | $ | 34,963 | $ | 32,780 | $ | 36,091 | $ | 32,780 |
© QTS. All Rights Reserved. | 19 |
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QTS Realty Trust Inc. published this content on 10 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 August 2020 21:57:09 UTC