qts_Current_Folio_10Q

Table of Contents

 

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2018

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                      

 

Commission File Number 001-36109


 

QTS Realty Trust, Inc.

QualityTech, LP

(Exact name of registrant as specified in its charter)


 

Maryland (QTS Realty Trust, Inc.)

46-2809094

Delaware (QualityTech, LP)

(State or other jurisdiction of

incorporation or organization)

27-0707288

(I.R.S. Employer

Identification No.)

 

 

12851 Foster Street, Overland Park, Kansas

66213

(Address of principal executive offices)

(Zip Code)

 

(Registrant’s telephone number, including area code) (913) 312-5503

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 

 

QTS Realty Trust, Inc.  Yes  ☒     No  ☐

QualityTech, LP   Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

 

 

 

QTS Realty Trust, Inc.  Yes  ☒     No  ☐

QualityTech, LP   Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

QTS Realty Trust, Inc.

 

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

☐  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

QualityTech, LP

 

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

☒  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

 

QTS Realty Trust, Inc.  Yes  ☐     No  ☒

QualityTech, LP   Yes  ☐     No  ☒

 

There were 51,021,328 shares of Class A common stock, $0.01 par value per share, and 128,408 shares of Class B common stock, $0.01 par value per share, of QTS Realty Trust, Inc. outstanding on May 8, 2018.

 

 


 

Table of Contents

EXPLANATORY NOTE

 

This report combines the quarterly reports on Form 10-Q of QTS Realty Trust, Inc. (“QTS”) and QualityTech, LP, a Delaware limited partnership, which is our operating partnership (the “Operating Partnership”). This report also includes the financial statements of QTS and those of the Operating Partnership, although it presents only one set of combined notes for QTS’ financial statements and those of the Operating Partnership.

 

Substantially all of QTS’s assets are held by, and its operations are conducted through, the Operating Partnership. QTS is the sole general partner of the Operating Partnership, and, as of March 31, 2018, its only material asset consisted of its ownership of approximately 88.5% of the Operating Partnership. Management operates QTS and the Operating Partnership as one business. The management of QTS consists of the same employees as the management of the Operating Partnership. QTS does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity from time to time. QTS has not issued or guaranteed any indebtedness. Except for net proceeds from public equity issuances by QTS, which are contributed to the Operating Partnership in exchange for units of limited partnership interest of the Operating Partnership, the Operating Partnership generates all remaining capital required by our business through its operations, the direct or indirect incurrence of indebtedness, and the issuance of partnership units. Therefore, as general partner with voting control of the Operating Partnership, QTS consolidates the Operating Partnership for financial reporting purposes.

 

We believe, therefore, that a combined presentation with respect to QTS and the Operating Partnership, including providing one set of notes for the financial statements of QTS and the Operating Partnership, provides the following benefits:

·

enhances investors’ understanding of QTS and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

 

·

eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this report applies to both QTS and the Operating Partnership; and

 

·

creates time and cost efficiencies through the preparation of one presentation instead of two separate presentations.

 

In addition, in light of these combined disclosures, we believe it is important for investors to understand the few differences between QTS and the Operating Partnership in the context of how QTS and the Operating Partnership operate as a consolidated company. With respect to balance sheets, the presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated balance sheets of QTS and those of the Operating Partnership. On the Operating Partnership’s consolidated balance sheets, partners’ capital includes preferred partnership units and common partnership units as well as accumulated other comprehensive income (loss) that are owned by or attributable to QTS and other partners. On QTS’ consolidated balance sheets, stockholders’ equity includes preferred stock, common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated dividends in excess of earnings. The remaining equity reflected on QTS’ consolidated balance sheet is the portion of net assets that are retained by partners other than QTS, referred to as noncontrolling interests. With respect to statements of operations, the primary difference in QTS’ Statements of Operations is that for net income, QTS retains its proportionate share of the net income (loss) based on its ownership of the Operating Partnership, with the remaining balance being retained by the Operating Partnership.

In order to highlight the few differences between QTS and the Operating Partnership, there are sections and disclosure in this report that discuss QTS and the Operating Partnership separately, including separate financial statements, separate audit reports, separate controls and procedures sections, separate Exhibit 31 and 32 certifications, and separate presentation of certain accompanying notes to the financial statements, including Note 8 – Partners’ Capital, Equity and Incentive Compensation Plans. In the sections that combine disclosure for QTS and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of “we,” “our,” “us,” “our company” and “the Company.” Although the Operating Partnership is generally the entity that enters into contracts, holds assets and issues debt, we believe that these general references to “we,” “our,” “us,” “our company” and “the Company” in this context are appropriate because the business is one enterprise operated through the Operating Partnership.

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Table of Contents

QTS Realty Trust, Inc.

QualityTech, LP

Form 10-Q

For the Quarterly Period Ended March 31, 2018

 

INDEX

 

 

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

Financial Statements of QTS Realty Trust, Inc.

4

 

 

 

 

Financial Statements of Quality Tech, LP

10

 

 

 

 

Notes to QTS Realty Trust, Inc. and QualityTech, LP Financial Statements

16

 

 

 

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

40

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

59

 

 

 

ITEM 4.

Controls and Procedures

60

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

ITEM 1.

Legal Proceedings

62

 

 

 

ITEM 1A.

Risk Factors

62

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

 

 

 

ITEM 3.

Defaults Upon Senior Securities

63

 

 

 

ITEM 4.

Mine Safety Disclosures

63

 

 

 

ITEM 5.

Other Information

63

 

 

 

ITEM 6.

Exhibits

63

 

 

 

 

Signatures

66

 

 

 

 

 

3


 

Table of Contents

PART I. FINANCIAL INFORMATION 

 

ITEM 1. Financial Statements 

 

QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEETS

(in thousands except per share data)

(in thousands except share data)

 

 

 

 

 

 

 

    

March 31, 2018

    

December 31, 2017

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Real Estate Assets

 

 

 

 

 

 

Land

 

$

88,215

 

$

88,216

Buildings, improvements and equipment

 

 

1,778,322

 

 

1,701,287

Less: Accumulated depreciation

 

 

(417,150)

 

 

(394,823)

 

 

 

1,449,387

 

 

1,394,680

Construction in progress

 

 

636,054

 

 

567,819

Real Estate Assets, net

 

 

2,085,441

 

 

1,962,499

Cash and cash equivalents

 

 

15,921

 

 

8,243

Rents and other receivables, net

 

 

45,057

 

 

47,046

Acquired intangibles, net

 

 

104,950

 

 

109,451

Deferred costs, net

 

 

42,398

 

 

41,545

Prepaid expenses

 

 

10,328

 

 

6,163

Goodwill

 

 

173,843

 

 

173,843

Other assets, net

 

 

64,950

 

 

66,266

TOTAL ASSETS

 

$

2,542,888

 

$

2,415,056

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Unsecured credit facility, net

 

$

832,462

 

$

825,186

Senior notes, net of debt issuance costs

 

 

394,333

 

 

394,178

Capital lease, lease financing obligations and mortgage notes payable

 

 

8,225

 

 

10,565

Accounts payable and accrued liabilities

 

 

144,616

 

 

113,430

Dividends and distributions payable

 

 

24,036

 

 

22,222

Advance rents, security deposits and other liabilities

 

 

28,233

 

 

28,903

Deferred income taxes

 

 

2,109

 

 

4,611

Deferred income

 

 

28,679

 

 

25,305

TOTAL LIABILITIES

 

 

1,462,693

 

 

1,424,400

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Series A 7.125% cumulative redeemable perpetual preferred stock: $0.01 par value (liquidation preference $25.00 per share), 4,600,000 shares authorized, 4,280,000 shares issued and outstanding as of March 31, 2018; zero shares authorized, issued and outstanding as of December 31, 2017

 

 

103,184

 

 

 —

Common stock, $0.01 par value, 450,133,000 shares authorized, 51,135,691 and 50,701,795 shares issued and outstanding as of  March 31, 2018 and  December 31, 2017, respectively

 

 

511

 

 

507

Additional paid-in capital

 

 

1,052,202

 

 

1,049,176

Accumulated other comprehensive income

 

 

6,573

 

 

1,283

Accumulated dividends in excess of earnings

 

 

(195,074)

 

 

(173,552)

Total stockholders’ equity

 

 

967,396

 

 

877,414

Noncontrolling interests

 

 

112,799

 

 

113,242

TOTAL EQUITY

 

 

1,080,195

 

 

990,656

TOTAL LIABILITIES AND EQUITY

 

$

2,542,888

 

$

2,415,056

 

See accompanying notes to financial statements.

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Table of Contents

QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF OPERATIONS

(unaudited and in thousands except share and per share data)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2018

    

2017

Revenues:

 

 

 

 

 

 

Rental

 

$

85,713

 

$

79,117

Recoveries from customers

 

 

11,513

 

 

8,361

Cloud and managed services

 

 

13,181

 

 

16,965

Other

 

 

3,290

 

 

1,521

Total revenues

 

 

113,697

 

 

105,964

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

Property operating costs

 

 

37,740

 

 

35,421

Real estate taxes and insurance

 

 

2,905

 

 

3,147

Depreciation and amortization

 

 

35,913

 

 

33,948

General and administrative

 

 

22,234

 

 

22,197

Transaction, integration and impairment costs

 

 

920

 

 

336

Restructuring

 

 

8,530

 

 

 —

Total operating expenses

 

 

108,242

 

 

95,049

 

 

 

 

 

 

 

Operating income

 

 

5,455

 

 

10,915

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

Interest income

 

 

 1

 

 

 1

Interest expense

 

 

(8,110)

 

 

(6,869)

Income (loss) before taxes

 

 

(2,654)

 

 

4,047

Tax benefit of taxable REIT subsidiaries

 

 

2,402

 

 

1,521

Net income (loss)

 

 

(252)

 

 

5,568

Net (income) loss attributable to noncontrolling interests

 

 

29

 

 

(691)

Net income (loss) attributable to QTS Realty Trust, Inc.

 

$

(223)

 

$

4,877

Preferred stock dividends

 

 

(328)

 

 

 —

Net income (loss) attributable to common stockholders

 

$

(551)

 

$

4,877

 

 

 

 

 

 

 

Net income (loss) per share attributable to common shares:

 

 

 

 

 

 

Basic

 

$

(0.02)

 

$

0.10

Diluted

 

 

(0.02)

 

 

0.10

 

See accompanying notes to financial statements.

 

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QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2018

    

2017

Net income (loss)

 

$

(252)

 

$

5,568

Other comprehensive income:

 

 

 

 

 

 

Increase in fair value of interest rate swaps

 

 

5,982

 

 

 —

Reclassification of other comprehensive income to interest expense

 

 

402

 

 

 —

Comprehensive income:

 

 

6,132

 

 

5,568

Comprehensive (income) attributable to noncontrolling interests

 

 

(702)

 

 

(691)

Comprehensive income attributable to QTS Realty Trust, Inc.

 

$

5,430

 

$

4,877

 

See accompanying notes to financial statements.

 

 

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QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF EQUITY

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Accumulated

 

Total

 

 

 

 

 

 

 

Preferred Stock

 

Common stock

 

Additional

 

other

 

dividends in

 

stockholders'

 

Noncontrolling

 

 

 

 

Shares

  

Amount

  

Shares

  

Amount

  

paid‑in capital

  

comprehensive income

  

excess of earnings

  

equity

  

interests

  

Total

Balance January 1, 2018

 —

 

$

 —

 

50,702

 

$

507

 

$

1,049,176

 

$

1,283

 

$

(173,552)

 

$

877,414

 

$

113,242

 

$

990,656

Net share activity through equity award plan

 —

 

 

 —

 

434

 

 

 4

 

 

(1,311)

 

 

 —

 

 

 —

 

 

(1,307)

 

 

1,069

 

 

(238)

Increase in fair value of interest rate swaps

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

5,290

 

 

 —

 

 

5,290

 

 

692

 

 

5,982

Equity-based compensation expense

 —

 

 

 —

 

 —

 

 

 —

 

 

4,337

 

 

 —

 

 

 —

 

 

4,337

 

 

561

 

 

4,898

Net proceeds from Series A Preferred Stock offering

4,280

 

 

103,184

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

103,184

 

 

 —

 

 

103,184

Dividends declared on Preferred Stock

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(328)

 

 

(328)

 

 

 —

 

 

(328)

Dividends to stockholders

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(20,971)

 

 

(20,971)

 

 

 —

 

 

(20,971)

Distributions to noncontrolling interests

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,736)

 

 

(2,736)

Net income (loss)

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(223)

 

 

(223)

 

 

(29)

 

 

(252)

Balance March 31, 2018

4,280

 

$

103,184

 

51,136

 

$

511

 

$

1,052,202

 

$

6,573

 

$

(195,074)

 

$

967,396

 

$

112,799

 

$

1,080,195

 

See accompanying notes to financial statements.

 

 

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Table of Contents

QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOW

(unaudited and in thousands)

For the three months ended March 31, 2018 and 2017

 

 

 

 

 

 

 

 

 

    

2018

    

2017

Cash flow from operating activities:

 

 

 

 

Net income (loss)

 

$

(252)

 

$

5,568

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

34,580

 

 

32,970

Amortization of above and below market leases

 

 

139

 

 

259

Amortization of deferred loan costs

 

 

962

 

 

872

Amortization of senior notes discount

 

 

 —

 

 

68

Equity-based compensation expense

 

 

3,481

 

 

3,082

Bad debt expense (recoveries)

 

 

(863)

 

 

314

Deferred tax benefit

 

 

(2,402)

 

 

(1,581)

Restructuring costs, net of cash paid

 

 

8,020

 

 

 —

Changes in operating assets and liabilities

 

 

 

 

 

 

Rents and other receivables, net

 

 

2,753

 

 

(1,084)

Prepaid expenses

 

 

(4,165)

 

 

(3,253)

Other assets

 

 

(3,339)

 

 

(800)

Accounts payable and accrued liabilities

 

 

9,619

 

 

(11,815)

Advance rents, security deposits and other liabilities

 

 

(354)

 

 

4,144

Deferred income

 

 

3,374

 

 

1,791

Net cash provided by operating activities

 

 

51,553

 

 

30,535

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

 

(24,626)

 

 

 —

Additions to property and equipment

 

 

(103,936)

 

 

(66,119)

Net cash used in investing activities

 

 

(128,562)

 

 

(66,119)

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

Credit facility proceeds

 

 

102,000

 

 

67,000

Credit facility repayments

 

 

(95,000)

 

 

 —

Debt proceeds

 

 

 —

 

 

1,920

Payment of deferred financing costs

 

 

(499)

 

 

(4)

Payment of common stock dividends

 

 

(19,670)

 

 

(17,222)

Distribution to noncontrolling interests

 

 

(2,552)

 

 

(2,442)

Proceeds from exercise of stock options

 

 

 —

 

 

42

Payment of tax withholdings related to equity based awards

 

 

(867)

 

 

(1,770)

Principal payments on capital lease obligations

 

 

(2,324)

 

 

(3,249)

Mortgage principal debt repayments

 

 

(16)

 

 

(14)

Preferred Stock issuance proceeds, net of costs

 

 

103,615

 

 

 —

Net cash provided by financing activities

 

 

84,687

 

 

44,261

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

7,678

 

 

8,677

Cash and cash equivalents, beginning of period

 

 

8,243

 

 

9,580

Cash and cash equivalents, end of period

 

$

15,921

 

$

18,257

 

See accompanying notes to financial statements.

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Table of Contents

QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOW (continued)

(unaudited and in thousands)

For the three months ended March 31, 2018 and 2017

 

 

 

 

 

 

 

 

 

    

2018

    

2017

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest (excluding deferred financing costs and amounts capitalized)

 

$

4,720

 

$

9,368

Noncash investing and financing activities:

 

 

 

 

 

 

Accrued capital additions

 

$

102,489

 

$

39,673

Increase in other assets related to change in fair value of interest rate swaps

 

$

5,982

 

$

 —

Accrued equity issuance costs

 

$

432

 

$

 —

Accrued preferred stock dividend

 

$

328

 

$

 —

 

See accompanying notes to financial statements.

 

 

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QUALITYTECH, LP 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

BALANCE SHEETS

(in thousands)

 

 

 

 

 

 

 

 

 

    

March 31, 2018

    

December 31, 2017

 

 

(unaudited)

 

 

ASSETS

 

 

 

 

 

 

Real Estate Assets

 

 

 

 

 

 

Land

 

$

88,215

 

$

88,216

Buildings, improvements and equipment

 

 

1,778,322

 

 

1,701,287

Less: Accumulated depreciation

 

 

(417,150)

 

 

(394,823)

 

 

 

1,449,387

 

 

1,394,680

Construction in progress

 

 

636,054

 

 

567,819

Real Estate Assets, net

 

 

2,085,441

 

 

1,962,499

Cash and cash equivalents

 

 

15,921

 

 

8,243

Rents and other receivables, net

 

 

45,057

 

 

47,046

Acquired intangibles, net

 

 

104,950

 

 

109,451

Deferred costs, net

 

 

42,398

 

 

41,545

Prepaid expenses

 

 

10,328

 

 

6,163

Goodwill

 

 

173,843

 

 

173,843

Other assets, net

 

 

64,950

 

 

66,266

TOTAL ASSETS

 

$

2,542,888

 

$

2,415,056

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Unsecured credit facility, net

 

$

832,462

 

$

825,186

Senior notes, net of debt issuance costs

 

 

394,333

 

 

394,178

Capital lease, lease financing obligations and mortgage notes payable

 

 

8,225

 

 

10,565

Accounts payable and accrued liabilities

 

 

144,616

 

 

113,430

Dividends and distributions payable

 

 

24,036

 

 

22,222

Advance rents, security deposits and other liabilities

 

 

28,233

 

 

28,903

Deferred income taxes

 

 

2,109

 

 

4,611

Deferred income

 

 

28,679

 

 

25,305

TOTAL LIABILITIES

 

 

1,462,693

 

 

1,424,400

 

 

 

 

 

 

 

PARTNERS' CAPITAL

 

 

 

 

 

 

Series A 7.125% cumulative redeemable perpetual preferred units: $0.01 par value (liquidation preference $25.00 per share), 4,600,000 units authorized, 4,280,000 units issued and outstanding as of March 31, 2018; zero units authorized, issued and outstanding as of December 31, 2017

 

 

103,184

 

 

 —

Common units, 57,810,023 and 57,245,524 units issued and outstanding as of March 31, 2018 and December 31, 2017, respectively

 

 

969,580

 

 

989,207

Accumulated other comprehensive income

 

 

7,431

 

 

1,449

TOTAL PARTNERS' CAPITAL

 

 

1,080,195

 

 

990,656

TOTAL LIABILITIES AND PARTNERS' CAPITAL

 

$

2,542,888

 

$

2,415,056

 

See accompanying notes to financial statements.

 

 

10


 

Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF OPERATIONS

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2018

    

2017

Revenues:

 

 

 

 

Rental

 

$

85,713

 

$

79,117

Recoveries from customers

 

 

11,513

 

 

8,361

Cloud and managed services

 

 

13,181

 

 

16,965

Other

 

 

3,290

 

 

1,521

Total revenues

 

 

113,697

 

 

105,964

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

Property operating costs

 

 

37,740

 

 

35,421

Real estate taxes and insurance

 

 

2,905

 

 

3,147

Depreciation and amortization

 

 

35,913

 

 

33,948

General and administrative

 

 

22,234

 

 

22,197

Transaction, integration and impairment costs

 

 

920

 

 

336

Restructuring

 

 

8,530

 

 

 —

Total operating expenses

 

 

108,242

 

 

95,049

 

 

 

 

 

 

 

Operating income

 

 

5,455

 

 

10,915

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

Interest income

 

 

 1

 

 

 1

Interest expense

 

 

(8,110)

 

 

(6,869)

Income (loss) before taxes

 

 

(2,654)

 

 

4,047

Tax benefit of taxable REIT subsidiaries

 

 

2,402

 

 

1,521

Net income (loss)

 

$

(252)

 

$

5,568

    Preferred unit distributions

 

 

(328)

 

 

 —

Net income (loss) attributable to common unitholders

 

$

(580)

 

$

5,568

 

See accompanying notes to financial statements.

 

11


 

Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2018

    

2017

Net income (loss)

 

$

(252)

 

$

5,568

Other comprehensive income:

 

 

 

 

 

 

Increase in fair value of interest rate swaps

 

 

5,982

 

 

 —

Reclassification of other comprehensive income to interest expense

 

 

402

 

 

 —

Comprehensive income

 

$

6,132

 

$

5,568

 

See accompanying notes to financial statements.

12


 

Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited Partners' Capital

 

General Partner's Capital

 

Accumulated other

 

 

 

 

 

Preferred Units

 

Common Units

 

Common Units

 

comprehensive income

 

 

 

 

  

Units

  

Amount

  

Units

  

Amount

  

Units

  

Amount

  

Amount

  

Total

Balance January 1, 2018

 

 —

 

$

 —

 

57,246

 

$

989,207

 

 1

 

$

 —

 

$

1,449

 

$

990,656

Net share activity through equity award plan

 

 —

 

 

 —

 

564

 

 

(238)

 

 —

 

 

 —

 

 

 —

 

 

(238)

Increase in fair value of interest rate swaps

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

5,982

 

 

5,982

Equity-based compensation expense

 

 —

 

 

 —

 

 —

 

 

4,898

 

 —

 

 

 —

 

 

 —

 

 

4,898

Net proceeds from QTS Realty Trust, Inc. Series A Preferred equity offering

 

4,280

 

 

103,184

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

103,184

Dividends declared on Preferred Units

 

 —

 

 

 —

 

 —

 

 

(328)

 

 —

 

 

 —

 

 

 —

 

 

(328)

Dividends to QTS Realty Trust, Inc.

 

 —

 

 

 —

 

 —

 

 

(20,971)

 

 —

 

 

 —

 

 

 —

 

 

(20,971)

Partnership distributions

 

 —

 

 

 —

 

 —

 

 

(2,736)

 

 —

 

 

 —

 

 

 —

 

 

(2,736)

Net income (loss)

 

 —

 

 

 —

 

 —

 

 

(252)

 

 —

 

 

 —

 

 

 —

 

 

(252)

Balance March 31, 2018

 

4,280

 

$

103,184

 

57,810

 

$

969,580

 

 1

 

$

 —

 

$

7,431

 

$

1,080,195

 

See accompanying notes to financial statements.

 

13


 

Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOW

(unaudited and in thousands)

For the three months ended March 31, 2018 and 2017

 

 

 

 

 

 

 

 

 

    

2018

    

2017

Cash flow from operating activities:

 

 

 

 

Net income (loss)

 

$

(252)

 

$

5,568

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

34,580

 

 

32,970

Amortization of above and below market leases

 

 

139

 

 

259

Amortization of deferred loan costs

 

 

962

 

 

872

Amortization of senior notes discount

 

 

 —

 

 

68

Equity-based compensation expense

 

 

3,481

 

 

3,082

Bad debt expense (recoveries)

 

 

(863)

 

 

314

Deferred tax benefit

 

 

(2,402)

 

 

(1,581)

Restructuring costs, net of cash paid

 

 

8,020

 

 

 —

Changes in operating assets and liabilities

 

 

 

 

 

 

Rents and other receivables, net

 

 

2,753

 

 

(1,084)

Prepaid expenses

 

 

(4,165)