OVERLAND PARK, Kan., July 26, 2016 /PRNewswire/ — QTS Realty Trust, Inc. (“QTS” or the “Company”) (NYSE: QTS) today announced operating results for the second quarter ended June 30, 2016.
Second Quarter Highlights
“We are pleased to be reporting another quarter of strong performance and consistent growth, delivering a diversified set of 3C products to enterprise customers who are increasingly focused on hybrid solutions for their complex IT stack,” said Chad Williams, Chairman and CEO of QTS.
Williams added, “We are excited at the continued ramp of our existing facilities, with strong leasing in Atlanta, Richmond and Dallas continuing to drive our base, while our recent Chicago and Piscataway expansions will accelerate that growth and further support our future performance.”
Net income recognized in the second quarter of 2016 was $5.8 million ($0.11 and $0.10 per basic and diluted share, respectively), which included approximately $3.8 million of transaction and integration costs and $2.5 million of income tax benefit, compared to net income of $5.5 million ($0.14 per basic and diluted share) recognized in the second quarter of 2015, which also included approximately $4.7 million of transaction and integration costs and $3.1 million of income tax benefit.
QTS generated Operating FFO of $34.9 million, or $0.63 per fully diluted share, in the second quarter of 2016, which includes a deferred tax benefit of approximately $1.3 million, and compares to Operating FFO of $23.4 million, or $0.53 per share, for the second quarter of 2015. The current quarter’s Operating FFO represents an increase of approximately 48.9% compared to the prior year, and an 18.4% increase on a per share basis.
Additionally, QTS generated $45.6 million of Adjusted EBITDA in the second quarter of 2016, an increase of 43.3% compared to $31.8 million for the second quarter of 2015.
QTS generated total revenues of $98.7 million in the second quarter of 2016, an increase of 44.9% compared to $68.1 million in the second quarter of 2015. MRR as of June 30, 2016 was $28.9 million, an increase of 13.3% compared to MRR as of June 30, 2015 of $25.5 million.
During the second quarter of 2016, QTS entered into customer leases representing approximately $13.3 million of incremental annualized rent, net of downgrades, which is a 54% increase over the prior four quarter average net leasing activity. This growth was driven by both the C1 and C2/C3 aspects of the QTS platform. Pricing of the C1 deals signed during the quarter was down slightly over the prior four quarter average primarily due to contracting additional space with existing C1 customers whereby the scale allows QTS to provide lower pricing. Pricing of the Company’s C2/C3 deals exceeded the prior four quarter average primarily attributable to customers contracting additional services with those leases.
During the second quarter of 2016, QTS renewed leases with a total annualized rent of $7.2 million at an average rent per square foot of $739, which was 2.0% 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 platform compared to total MRR at the beginning of the period) was 1.3% for the second quarter of 2016 and 3.6% for the six months ended June 30, 2016.
During the second quarter of 2016, average pricing on QTS commenced customer leases (which includes new customers and also existing customers that renewed their lease term) decreased compared to the prior four quarter average due to the change in C1 versus C2/C3 mix. The C1 average commencement rate of $232 per square foot represents an increase of 16% over the prior four quarter average of $200 per square foot, which was due to customers commencing with additional redundancy in the current period. The C2/C3 average commencement rate of $1,255 per square foot represents an increase of 8% over the prior four quarter average of $1,157 per square foot, which was due to additional services being attached to C2/C3 customer commencements.
As of June 30, 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 June 30, 2016) was approximately $4.1 million, or $49.1 million of annualized rent, and compares to $51.6 million at March 31, 2016. The booked-not-billed balance is expected to contribute an incremental $8.2 million to revenue in 2016 (representing $19.2 million in annualized revenues), an incremental $9.3 million in 2017 (representing $16.0 million in annualized revenues), and an incremental $13.9 million in annualized revenues thereafter.
Development, Redevelopment, and Acquisitions
During the second quarter of 2016, the Company brought online approximately 10.8 megawatts of gross power and approximately 43,000 net rentable square feet (“NRSF”) of raised floor and various portions of customer specific capital at an aggregate cost of approximately $68 million. In addition, during the second quarter of 2016, the Company continued redevelopment of the Dallas-Fort Worth, Atlanta-Metro, Richmond and Chicago facilities to have space ready for customers later in 2016 and forward. The Company expects to bring approximately 46,000 raised floor NRSF into service in the remaining quarters of 2016 at an aggregate cost of approximately $103 million.
On June 6, 2016, the Company completed the acquisition of the Piscataway facility for $125 million. This facility is located in the New York metro area on 38 acres and consists of 360,000 gross square feet, including 88,000 square feet of raised floor, and approximately 18 MW of critical power. The Piscataway facility supports future growth with space for an additional 88,000 square feet of raised floor in the existing structure, as well as capacity for over 8 MW of additional critical power. The facility’s current customers occupy approximately 56,000 square feet and 8.4 MW of the total available critical power. This acquisition was funded with a draw on the unsecured revolving credit facility.
Balance Sheet and Liquidity
As of June 30, 2016, the Company’s total debt balance was $839.4 million, resulting in a debt to annualized Adjusted EBITDA of 4.6x. This ratio continues to be impacted by various portions of the Company’s portfolio that were placed into service in the second quarter of 2016 which have not yet produced a stabilized Adjusted EBITDA. In addition, the Company incurred costs included in construction in progress related to revenue which will begin to ramp in the remainder of 2016 associated with the Company’s booked-not-billed backlog of $49.1 million in annualized rent.
As of June 30, 2016, the Company had total available liquidity of approximately $417 million which was comprised of $404 million of available capacity under the Company’s unsecured revolving credit facility and approximately $13 million of cash and cash equivalents.
As previously disclosed, on April 1, 2016, the Company issued 6,325,000 shares of QTS’ Class A common stock at a price of $45.50 per share in an underwritten public offering, which included the exercise of the underwriters’ overallotment option in full. The Company used substantially all of the net proceeds of approximately $276 million to repay amounts outstanding under its unsecured revolving credit facility.
The Company is raising its 2016 guidance for Adjusted EBITDA, Operating FFO and Operating FFO per share. The Company now expects Adjusted EBITDA of $179.0 million to $187.0 million, Operating FFO of $135.5 million to $140.5 million, and Operating FFO per share of $2.55 to $2.65. The Company is maintaining its 2016 guidance for Capital Expenditures, excluding acquisitions, of approximately $300.0 million to $350.0 million, as well as its guidance for churn of 5-8% for 2016, and continues to anticipate Adjusted EBITDA margin to expand by approximately 300 basis points over second half 2015 levels over the next few years.
Non-GAAP Financial Measures
Conference Call Details
The Company will host a conference call and webcast on July 27, 2016, at 10:00 a.m. Eastern time (9:00 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 1930729# 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.
QTS Realty Trust, Inc. (NYSE: QTS) is a leading provider of secure, compliant data center solutions, hybrid cloud and fully managed services. QTS’ integrated technology service platform of custom data center (C1), colocation (C2) and cloud and managed services (C3) provides flexible, scalable, secure IT solutions for web and IT applications. QTS’ Critical Facilities Management (CFM) provides increased efficiency and greater performance for third-party data center owners and operators. QTS owns, operates or manages 25 data centers and supports more than 1,000 customers in North America, Europe and Asia Pacific.
Stephen Douglas – Vice President – Investor Relations and Strategic Planning
Jeff Berson – Chief Investment Officer
William Schafer – Chief Financial Officer
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, including data centers acquired in the Company’s acquisition of Carpathia Hosting, Inc.; 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, 2015 and other periodic reports the Company files with the Securities and Exchange Commission.
SOURCE QTS Realty Trust, Inc.