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 June 30, 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 51,018,919 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 August 1, 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 June 30, 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 and Statements of Comprehensive Income (Loss) is that for net income (loss), 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 June 30, 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

39

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

62

 

 

 

ITEM 4.

Controls and Procedures

62

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

ITEM 1.

Legal Proceedings

64

 

 

 

ITEM 1A.

Risk Factors

64

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

 

ITEM 3.

Defaults Upon Senior Securities

65

 

 

 

ITEM 4.

Mine Safety Disclosures

65

 

 

 

ITEM 5.

Other Information

65

 

 

 

ITEM 6.

Exhibits

65

 

 

 

 

Signatures

68

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

    

June 30, 2018

    

December 31, 2017

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Real Estate Assets

 

 

 

 

 

 

Land

 

$

105,541

 

$

88,216

Buildings, improvements and equipment

 

 

1,833,870

 

 

1,701,287

Less: Accumulated depreciation

 

 

(434,565)

 

 

(394,823)

 

 

 

1,504,846

 

 

1,394,680

Construction in progress

 

 

649,766

 

 

567,819

Real Estate Assets, net

 

 

2,154,612

 

 

1,962,499

Cash and cash equivalents

 

 

52,468

 

 

8,243

Rents and other receivables, net

 

 

50,090

 

 

47,046

Acquired intangibles, net

 

 

100,202

 

 

109,451

Deferred costs, net

 

 

44,682

 

 

41,545

Prepaid expenses

 

 

10,088

 

 

6,163

Goodwill

 

 

173,843

 

 

173,843

Other assets, net

 

 

68,880

 

 

66,266

TOTAL ASSETS

 

$

2,654,865

 

$

2,415,056

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Unsecured credit facility, net

 

$

694,751

 

$

825,186

Senior notes, net of debt issuance costs

 

 

394,406

 

 

394,178

Capital lease, lease financing obligations and mortgage notes payable

 

 

6,217

 

 

10,565

Accounts payable and accrued liabilities

 

 

109,355

 

 

113,430

Dividends and distributions payable

 

 

25,648

 

 

22,222

Advance rents, security deposits and other liabilities

 

 

29,640

 

 

28,903

Deferred income taxes

 

 

2,068

 

 

4,611

Deferred income

 

 

32,870

 

 

25,305

TOTAL LIABILITIES

 

 

1,294,955

 

 

1,424,400

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

7.125% Series A 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 June 30, 2018; zero shares authorized, issued and outstanding as of December 31, 2017

 

 

103,212

 

 

 —

6.50% Series B cumulative convertible perpetual preferred stock: $0.01 par value (liquidation preference $100.00 per share), 3,162,500 shares authorized, issued and outstanding as of June 30, 2018; zero shares authorized, issued and outstanding as of December 31, 2017

 

 

304,426

 

 

 —

Common stock: $0.01 par value, 450,133,000 shares authorized, 51,140,798 and 50,701,795 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively

 

 

511

 

 

507

Additional paid-in capital

 

 

1,056,667

 

 

1,049,176

Accumulated other comprehensive income

 

 

8,840

 

 

1,283

Accumulated dividends in excess of earnings

 

 

(223,724)

 

 

(173,552)

Total stockholders’ equity

 

 

1,249,932

 

 

877,414

Noncontrolling interests

 

 

109,978

 

 

113,242

TOTAL EQUITY

 

 

1,359,910

 

 

990,656

TOTAL LIABILITIES AND EQUITY

 

$

2,654,865

 

$

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 June 30,

 

Six Months Ended June 30,

 

    

2018

    

2017

    

2018

    

2017

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

89,232

 

$

80,793

 

$

174,945

 

$

159,910

Recoveries from customers

 

 

10,444

 

 

8,774

 

 

21,957

 

 

17,135

Cloud and managed services

 

 

10,974

 

 

16,856

 

 

24,155

 

 

33,821

Other

 

 

1,627

 

 

1,445

 

 

4,917

 

 

2,966

Total revenues

 

 

112,277

 

 

107,868

 

 

225,974

 

 

213,832

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Property operating costs

 

 

36,558

 

 

36,846

 

 

74,298

 

 

72,267

Real estate taxes and insurance

 

 

2,903

 

 

2,946

 

 

5,808

 

 

6,093

Depreciation and amortization

 

 

37,820

 

 

34,527

 

 

73,733

 

 

68,475

General and administrative

 

 

21,031

 

 

22,562

 

 

43,265

 

 

44,759

Transaction, integration and impairment costs

 

 

653

 

 

161

 

 

1,573

 

 

497

Restructuring

 

 

11,430

 

 

 —

 

 

19,960

 

 

 —

Total operating expenses

 

 

110,395

 

 

97,042

 

 

218,637

 

 

192,091

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

1,882

 

 

10,826

 

 

7,337

 

 

21,741

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

25

 

 

 —

 

 

26

 

 

 1

Interest expense

 

 

(8,203)

 

 

(7,647)

 

 

(16,313)

 

 

(14,516)

Income (loss) before taxes

 

 

(6,296)

 

 

3,179

 

 

(8,950)

 

 

7,226

Tax benefit (expense) of taxable REIT subsidiaries

 

 

(137)

 

 

1,429

 

 

2,265

 

 

2,950

Net income (loss)

 

 

(6,433)

 

 

4,608

 

 

(6,685)

 

 

10,176

Net (income) loss attributable to noncontrolling interests

 

 

1,002

 

 

(568)

 

 

1,031

 

 

(1,259)

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

 

$

(5,431)

 

$

4,040

 

$

(5,654)

 

$

8,917

Preferred stock dividends

 

 

(2,248)

 

 

 —

 

 

(2,576)

 

 

 —

Net income (loss) attributable to common stockholders

 

$

(7,679)

 

$

4,040

 

$

(8,230)

 

$

8,917

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.16)

 

$

0.08

 

$

(0.17)

 

$

0.18

Diluted

 

 

(0.16)

 

 

0.08

 

 

(0.17)

 

 

0.17

 

See accompanying notes to financial statements.

 

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Table of Contents

QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

    

2018

    

2017

    

2018

    

2017

Net income (loss)

 

$

(6,433)

 

$

4,608

 

$

(6,685)

 

$

10,176

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in fair value of interest rate swaps

 

 

2,563

 

 

(1,499)

 

 

8,545

 

 

(1,499)

Reclassification of other comprehensive income to interest expense

 

 

91

 

 

 —

 

 

493

 

 

 —

Comprehensive income (loss)

 

 

(3,779)

 

 

3,109

 

 

2,353

 

 

8,677

Comprehensive (income) loss attributable to noncontrolling interests

 

 

431

 

 

(385)

 

 

(271)

 

 

(1,076)

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

 

$

(3,348)

 

$

2,724

 

$

2,082

 

$

7,601

 

See accompanying notes to financial statements.

 

 

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Table of Contents

QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF EQUITY

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other

 

Accumulated

 

Total

 

 

 

 

 

 

 

Preferred Stock

 

Common stock

 

Additional

 

comprehensive

 

dividends in

 

stockholders'

 

Noncontrolling

 

 

 

 

Shares

  

Amount

  

Shares

  

Amount

  

paid-in capital

  

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

 —

 

 

 —

 

439

 

 

 4

 

 

(1,897)

 

 

 —

 

 

 —

 

 

(1,893)

 

 

1,031

 

 

(862)

Increase in fair value of interest rate swaps

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

7,557

 

 

 —

 

 

7,557

 

 

988

 

 

8,545

Equity-based compensation expense

 —

 

 

 —

 

 —

 

 

 —

 

 

9,388

 

 

 —

 

 

 —

 

 

9,388

 

 

1,220

 

 

10,608

Net proceeds from Series A Preferred Stock offering

4,280

 

 

103,212

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

103,212

 

 

 —

 

 

103,212

Net proceeds from Series B Preferred Stock offering

3,163

 

 

304,426

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

304,426

 

 

 —

 

 

304,426

Dividends declared on the Series A Preferred Stock

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,233)

 

 

(2,233)

 

 

 —

 

 

(2,233)

Dividends declared on the Series B Convertible Preferred Stock

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(343)

 

 

(343)

 

 

 —

 

 

(343)

Dividends to common stockholders

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(41,942)

 

 

(41,942)

 

 

 —

 

 

(41,942)

Distributions to noncontrolling interests

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,472)

 

 

(5,472)

Net loss

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,654)

 

 

(5,654)

 

 

(1,031)

 

 

(6,685)

Balance June 30, 2018

7,443

 

$

407,638

 

51,141

 

$

511

 

$

1,056,667

 

$

8,840

 

$

(223,724)

 

$

1,249,932

 

$

109,978

 

$

1,359,910

 

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 six months ended June 30, 2018 and 2017

 

 

 

 

 

 

 

 

 

    

2018

    

2017

Cash flow from operating activities:

 

 

 

 

Net income (loss)

 

$

(6,685)

 

$

10,176

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

 

 

 

 

 

 

Depreciation and amortization

 

 

70,804

 

 

66,443

Amortization of above and below market leases

 

 

270

 

 

479

Amortization of deferred loan costs

 

 

1,923

 

 

1,815

Amortization of senior notes discount

 

 

 —

 

 

136

Equity-based compensation expense

 

 

7,480

 

 

6,815

Bad debt expense

 

 

(1,230)

 

 

1,105

Deferred tax benefit

 

 

(2,443)

 

 

(2,979)

Loss on sale of equipment

 

 

2,846

 

 

 —

Restructuring costs, net of cash paid

 

 

10,065

 

 

 —

Changes in operating assets and liabilities

 

 

 

 

 

 

Rents and other receivables, net

 

 

(1,914)

 

 

(3,599)

Prepaid expenses

 

 

(3,925)

 

 

(1,957)

Other assets

 

 

1,867

 

 

(595)

Accounts payable and accrued liabilities

 

 

3,535

 

 

(7,640)

Advance rents, security deposits and other liabilities

 

 

1,369

 

 

5,745

Deferred income

 

 

7,564

 

 

1,440

Net cash provided by operating activities

 

 

91,526

 

 

77,384

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

Proceeds from sale of property

 

 

1,496

 

 

 —

Acquisitions, net of cash acquired

 

 

(24,626)

 

 

(5,019)

Additions to property and equipment

 

 

(248,852)

 

 

(139,818)

Net cash used in investing activities

 

 

(271,982)

 

 

(144,837)

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

Credit facility proceeds

 

 

231,000

 

 

109,000

Credit facility repayments

 

 

(362,000)

 

 

 —

Debt proceeds

 

 

 —

 

 

1,920

Payment of deferred financing costs

 

 

(606)

 

 

(38)

Payment of preferred stock dividends

 

 

(635)

 

 

 —

Payment of common stock dividends

 

 

(40,641)

 

 

(35,958)

Distribution to noncontrolling interests

 

 

(5,289)

 

 

(5,087)

Proceeds from exercise of stock options

 

 

18

 

 

662

Payment of tax withholdings related to equity-based awards

 

 

(1,233)

 

 

(2,464)

Principal payments on capital lease obligations

 

 

(4,316)

 

 

(6,547)

Mortgage principal debt repayments

 

 

(32)

 

 

(22)

Preferred stock issuance proceeds, net of costs

 

 

408,415

 

 

 —

Common stock issuance proceeds, net of costs

 

 

 —

 

 

39,011

Net cash provided by financing activities

 

 

224,681

 

 

100,477

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

44,225

 

 

33,024

Cash and cash equivalents, beginning of period

 

 

8,243

 

 

9,580

Cash and cash equivalents, end of period

 

$

52,468

 

$

42,604

 

See accompanying notes to financial statements.

8


 

Table of Contents

QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOW (continued)

(unaudited and in thousands)

For the six months ended June 30, 2018 and 2017

 

 

 

 

 

 

 

 

 

    

2018

    

2017

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

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

 

$

14,265

 

$

11,517

Noncash investing and financing activities:

 

 

 

 

 

 

Accrued capital additions

 

$

67,708

 

$

46,894

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

 

$

8,545

 

$

1,499

Accrued equity issuance costs

 

$

777

 

$

 —

Accrued preferred stock dividend

 

$

2,576

 

$

 —

Accrued deferred financing costs

 

$

14

 

$

 —

 

See accompanying notes to financial statements.

 

 

9


 

Table of Contents

QUALITYTECH, LP 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

BALANCE SHEETS

(in thousands)

 

 

 

 

 

 

 

 

 

    

June 30, 2018

    

December 31, 2017

 

 

(unaudited)

 

 

ASSETS

 

 

 

 

 

 

Real Estate Assets

 

 

 

 

 

 

Land

 

$

105,541

 

$

88,216

Buildings, improvements and equipment

 

 

1,833,870

 

 

1,701,287

Less: Accumulated depreciation

 

 

(434,565)

 

 

(394,823)

 

 

 

1,504,846

 

 

1,394,680

Construction in progress

 

 

649,766

 

 

567,819

Real Estate Assets, net

 

 

2,154,612

 

 

1,962,499

Cash and cash equivalents

 

 

52,468

 

 

8,243

Rents and other receivables, net

 

 

50,090

 

 

47,046

Acquired intangibles, net

 

 

100,202

 

 

109,451

Deferred costs, net

 

 

44,682

 

 

41,545

Prepaid expenses

 

 

10,088

 

 

6,163

Goodwill

 

 

173,843

 

 

173,843

Other assets, net

 

 

68,880

 

 

66,266

TOTAL ASSETS

 

$

2,654,865

 

$

2,415,056

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Unsecured credit facility, net

 

$

694,751

 

$

825,186

Senior notes, net of debt issuance costs

 

 

394,406

 

 

394,178

Capital lease, lease financing obligations and mortgage notes payable

 

 

6,217

 

 

10,565

Accounts payable and accrued liabilities

 

 

109,355

 

 

113,430

Dividends and distributions payable

 

 

25,648

 

 

22,222

Advance rents, security deposits and other liabilities

 

 

29,640

 

 

28,903

Deferred income taxes

 

 

2,068

 

 

4,611

Deferred income

 

 

32,870

 

 

25,305

TOTAL LIABILITIES

 

 

1,294,955

 

 

1,424,400

 

 

 

 

 

 

 

PARTNERS' CAPITAL

 

 

 

 

 

 

7.125% Series A cumulative redeemable perpetual preferred units: $0.01 par value (liquidation preference $25.00 per unit), 4,600,000 units authorized, 4,280,000 units issued and outstanding as of June 30, 2018; zero units authorized, issued and outstanding as of December 31, 2017

 

 

103,212

 

 

 —

6.50% Series B cumulative convertible perpetual preferred units: $0.01 par value (liquidation preference $100.00 per unit), 3,162,500 units authorized, issued and outstanding as of June 30, 2018; zero units authorized, issued and outstanding as of December 31, 2017

 

 

304,426

 

 

 —

Common units: $0.01 par value, 450,133,000 units authorized, 57,818,242 and 57,245,524 units issued and outstanding as of June 30, 2018 and December 31, 2017, respectively

 

 

942,278

 

 

989,207

Accumulated other comprehensive income

 

 

9,994

 

 

1,449

TOTAL PARTNERS' CAPITAL

 

 

1,359,910

 

 

990,656

TOTAL LIABILITIES AND PARTNERS' CAPITAL

 

$

2,654,865

 

$

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 June 30,

 

Six Months Ended June 30,

 

    

2018

    

2017

    

2018

    

2017

Revenues:

 

 

 

 

 

 

 

 

Rental

 

$

89,232

 

$

80,793

 

$

174,945

 

$

159,910

Recoveries from customers

 

 

10,444

 

 

8,774

 

 

21,957

 

 

17,135

Cloud and managed services

 

 

10,974

 

 

16,856

 

 

24,155

 

 

33,821

Other

 

 

1,627

 

 

1,445

 

 

4,917

 

 

2,966

Total revenues

 

 

112,277

 

 

107,868

 

 

225,974

 

 

213,832

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Property operating costs

 

 

36,558

 

 

36,846

 

 

74,298

 

 

72,267

Real estate taxes and insurance

 

 

2,903

 

 

2,946

 

 

5,808

 

 

6,093

Depreciation and amortization

 

 

37,820

 

 

34,527

 

 

73,733

 

 

68,475

General and administrative

 

 

21,031

 

 

22,562

 

 

43,265

 

 

44,759

Transaction, integration and impairment costs

 

 

653

 

 

161

 

 

1,573

 

 

497

Restructuring

 

 

11,430

 

 

 —

 

 

19,960

 

 

 —

Total operating expenses

 

 

110,395

 

 

97,042

 

 

218,637

 

 

192,091

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

1,882

 

 

10,826

 

 

7,337

 

 

21,741

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

25

 

 

 —

 

 

26

 

 

 1

Interest expense

 

 

(8,203)

 

 

(7,647)

 

 

(16,313)

 

 

(14,516)

Income (loss) before taxes

 

 

(6,296)

 

 

3,179

 

 

(8,950)

 

 

7,226

Tax benefit (expense) of taxable REIT subsidiaries

 

 

(137)