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 September 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 every interactive Data File required to be submitted 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 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

☐  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

QualityTech, LP

 

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

☒  

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 51,007,775 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 October 31, 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 September 30, 2018, its only material asset consisted of its ownership of approximately 88.4% 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 controls and procedures sections, separate Exhibit 31 and 32 certifications, and separate presentation of certain accompanying notes to the financial statements, including Note 9 – 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 September 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

41

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

63

 

 

 

ITEM 4.

Controls and Procedures

64

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

ITEM 1.

Legal Proceedings

65

 

 

 

ITEM 1A.

Risk Factors

65

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

 

 

 

ITEM 3.

Defaults Upon Senior Securities

66

 

 

 

ITEM 4.

Mine Safety Disclosures

66

 

 

 

ITEM 5.

Other Information

66

 

 

 

ITEM 6.

Exhibits

66

 

 

 

 

Signatures

69

 

 

 

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)

 

 

 

 

 

 

 

 

  

September 30, 2018

  

December 31, 2017

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Real Estate Assets

 

 

 

 

 

 

Land

 

$

105,541

 

$

88,216

Buildings, improvements and equipment

 

 

1,881,390

 

 

1,701,287

Less: Accumulated depreciation

 

 

(450,429)

 

 

(394,823)

 

 

 

1,536,502

 

 

1,394,680

Construction in progress

 

 

731,660

 

 

567,819

Real Estate Assets, net

 

 

2,268,162

 

 

1,962,499

Cash and cash equivalents

 

 

13,879

 

 

8,243

Rents and other receivables, net

 

 

51,719

 

 

47,046

Acquired intangibles, net

 

 

96,622

 

 

109,451

Deferred costs, net

 

 

42,735

 

 

41,545

Prepaid expenses

 

 

7,223

 

 

6,163

Goodwill

 

 

173,843

 

 

173,843

Other assets, net

 

 

64,675

 

 

66,266

TOTAL ASSETS

 

$

2,718,858

 

$

2,415,056

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Unsecured credit facility, net

 

$

776,052

 

$

825,186

Senior notes, net of debt issuance costs

 

 

394,595

 

 

394,178

Capital lease, lease financing obligations and mortgage notes payable

 

 

6,180

 

 

10,565

Accounts payable and accrued liabilities

 

 

122,292

 

 

113,430

Dividends and distributions payable

 

 

30,782

 

 

22,222

Advance rents, security deposits and other liabilities

 

 

29,001

 

 

28,903

Deferred income taxes

 

 

1,212

 

 

4,611

Deferred income

 

 

31,517

 

 

25,305

TOTAL LIABILITIES

 

 

1,391,631

 

 

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 September 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 September 30, 2018; zero shares authorized, issued and outstanding as of December 31, 2017

 

 

304,265

 

 

 —

Common stock: $0.01 par value, 450,133,000 shares authorized, 51,124,091 and 50,701,795 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

511

 

 

507

Additional paid-in capital

 

 

1,059,914

 

 

1,049,176

Accumulated other comprehensive income

 

 

10,103

 

 

1,283

Accumulated dividends in excess of earnings

 

 

(257,019)

 

 

(173,552)

Total stockholders’ equity

 

 

1,220,986

 

 

877,414

Noncontrolling interests

 

 

106,241

 

 

113,242

TOTAL EQUITY

 

 

1,327,227

 

 

990,656

TOTAL LIABILITIES AND EQUITY

 

$

2,718,858

 

$

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 September 30,

 

Nine Months Ended September 30,

 

  

2018

  

2017

  

2018

  

2017

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

91,733

 

$

85,831

 

$

266,678

 

$

245,741

Recoveries from customers

 

 

11,800

 

 

9,698

 

 

33,757

 

 

26,833

Cloud and managed services

 

 

7,537

 

 

16,224

 

 

31,692

 

 

50,045

Other

 

 

1,143

 

 

2,014

 

 

6,060

 

 

4,980

Total revenues

 

 

112,213

 

 

113,767

 

 

338,187

 

 

327,599

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Property operating costs

 

 

38,217

 

 

39,743

 

 

112,515

 

 

112,010

Real estate taxes and insurance

 

 

3,088

 

 

3,116

 

 

8,896

 

 

9,209

Depreciation and amortization

 

 

37,900

 

 

35,309

 

 

111,633

 

 

103,784

General and administrative

 

 

19,922

 

 

21,652

 

 

63,187

 

 

66,411

Transaction, integration and impairment costs

 

 

901

 

 

1,114

 

 

2,474

 

 

1,611

Restructuring

 

 

13,737

 

 

 —

 

 

33,697

 

 

 —

Total operating expenses

 

 

113,765

 

 

100,934

 

 

332,402

 

 

293,025

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(1,552)

 

 

12,833

 

 

5,785

 

 

34,574

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

66

 

 

65

 

 

92

 

 

66

Interest expense

 

 

(6,386)

 

 

(7,958)

 

 

(22,699)

 

 

(22,474)

Income (loss) before taxes

 

 

(7,872)

 

 

4,940

 

 

(16,822)

 

 

12,166

Tax benefit of taxable REIT subsidiaries

 

 

980

 

 

2,454

 

 

3,245

 

 

5,404

Net income (loss)

 

 

(6,892)

 

 

7,394

 

 

(13,577)

 

 

17,570

Net (income) loss attributable to noncontrolling interests

 

 

1,610

 

 

(887)

 

 

2,641

 

 

(2,146)

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

 

$

(5,282)

 

$

6,507

 

$

(10,936)

 

$

15,424

Preferred stock dividends

 

 

(7,045)

 

 

 —

 

 

(9,621)

 

 

 —

Net income (loss) attributable to common stockholders

 

$

(12,327)

 

$

6,507

 

$

(20,557)

 

$

15,424

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.25)

 

$

0.13

 

$

(0.42)

 

$

0.31

Diluted

 

 

(0.25)

 

 

0.13

 

 

(0.42)

 

 

0.31

 

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 September 30,

 

Nine Months Ended September 30,

 

    

2018

    

2017

    

2018

    

2017

Net income (loss)

 

$

(6,892)

 

$

7,394

 

$

(13,577)

 

$

17,570

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in fair value of interest rate swaps

 

 

1,429

 

 

(286)

 

 

9,974

 

 

(1,785)

Reclassification of other comprehensive income to interest expense

 

 

(83)

 

 

 —

 

 

410

 

 

 —

Comprehensive income (loss)

 

 

(5,546)

 

 

7,108

 

 

(3,193)

 

 

15,785

Comprehensive (income) loss attributable to noncontrolling interests

 

 

639

 

 

(850)

 

 

368

 

 

(1,926)

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

 

$

(4,907)

 

$

6,258

 

$

(2,825)

 

$

13,859

 

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

 —

 

 

 —

 

422

 

 

 4

 

 

(2,153)

 

 

 —

 

 

 —

 

 

(2,149)

 

 

1,015

 

 

(1,134)

Increase in fair value of interest rate swaps

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

8,820

 

 

 —

 

 

8,820

 

 

1,154

 

 

9,974

Equity-based compensation expense

 —

 

 

 —

 

 —

 

 

 —

 

 

12,891

 

 

 —

 

 

 —

 

 

12,891

 

 

1,678

 

 

14,569

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

 

 

304,265

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

304,265

 

 

 —

 

 

304,265

Dividends declared on the Series A Preferred Stock

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(4,140)

 

 

(4,140)

 

 

 —

 

 

(4,140)

Dividends declared on the Series B Convertible Preferred Stock

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,482)

 

 

(5,482)

 

 

 —

 

 

(5,482)

Dividends to common stockholders

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(62,909)

 

 

(62,909)

 

 

 —

 

 

(62,909)

Distributions to noncontrolling interests

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,207)

 

 

(8,207)

Net loss

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(10,936)

 

 

(10,936)

 

 

(2,641)

 

 

(13,577)

Balance September 30, 2018

7,443

 

$

407,477

 

51,124

 

$

511

 

$

1,059,914

 

$

10,103

 

$

(257,019)

 

$

1,220,986

 

$

106,241

 

$

1,327,227

 

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 nine months ended September 30, 2018 and 2017

 

 

 

 

 

 

 

 

 

    

2018

    

2017

Cash flow from operating activities:

 

 

 

 

Net income (loss)

 

$

(13,577)

 

$

17,570

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

 

 

 

 

 

 

Depreciation and amortization

 

 

107,019

 

 

100,455

Amortization of above and below market leases

 

 

385

 

 

699

Amortization of deferred loan costs

 

 

2,882

 

 

2,737

Amortization of senior notes discount

 

 

 —

 

 

206

Equity-based compensation expense

 

 

11,441

 

 

10,507

Bad debt expense (recoveries)

 

 

(1,625)

 

 

1,750

Deferred tax benefit

 

 

(3,423)

 

 

(5,371)

Loss on sale of equipment

 

 

2,846

 

 

 —

Restructuring costs, net of cash paid

 

 

18,960

 

 

 —

Changes in operating assets and liabilities

 

 

 

 

 

 

Rents and other receivables, net

 

 

(3,429)

 

 

(7,518)

Prepaid expenses

 

 

(3,265)

 

 

(291)

Other assets

 

 

7,060

 

 

(367)

Accounts payable and accrued liabilities

 

 

13,241

 

 

(4,145)

Advance rents, security deposits and other liabilities

 

 

1,044

 

 

3,480

Deferred income

 

 

6,546

 

 

547

Net cash provided by operating activities

 

 

146,105

 

 

120,259

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

Proceeds from sale of property

 

 

1,496

 

 

 —

Acquisitions, net of cash acquired

 

 

(36,956)

 

 

(47,013)

Additions to property and equipment

 

 

(382,221)

 

 

(236,971)

Net cash used in investing activities

 

 

(417,681)

 

 

(283,984)

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

Credit facility proceeds

 

 

312,000

 

 

221,000

Credit facility repayments

 

 

(362,000)

 

 

(81,000)

Debt proceeds

 

 

 —

 

 

1,920

Payment of deferred financing costs

 

 

(609)

 

 

(200)

Payment of preferred stock dividends

 

 

(2,541)

 

 

 —

Payment of common stock dividends

 

 

(61,612)

 

 

(54,919)

Distribution to noncontrolling interests

 

 

(8,024)

 

 

(7,732)

Proceeds from exercise of stock options

 

 

48

 

 

4,948

Payment of tax withholdings related to equity-based awards

 

 

(1,481)

 

 

(3,310)

Principal payments on capital lease obligations

 

 

(6,142)

 

 

(9,865)

Mortgage principal debt repayments

 

 

(43)

 

 

(38)

Preferred stock issuance proceeds, net of costs

 

 

407,616

 

 

 —

Common stock issuance proceeds, net of costs

 

 

 —

 

 

92,612

Net cash provided by financing activities

 

 

277,212

 

 

163,416

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

5,636

 

 

(309)

Cash and cash equivalents, beginning of period

 

 

8,243

 

 

9,580

Cash and cash equivalents, end of period

 

$

13,879

 

$

9,271

 

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 nine months ended September 30, 2018 and 2017

 

 

 

 

 

 

 

 

 

    

2018

    

2017

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

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

 

$

33,296

 

$

22,759

Noncash investing and financing activities:

 

 

 

 

 

 

Accrued capital additions

 

$

75,315

 

$

28,368

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

 

$

9,974

 

$

1,785

Accrued equity issuance costs

 

$

139

 

$

26

Accrued preferred stock dividend

 

$

7,080

 

$

 —

Accrued deferred financing costs

 

$

 4

 

$

 8

 

See accompanying notes to financial statements.

 

 

9


 

Table of Contents

QUALITYTECH, LP 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

BALANCE SHEETS

(in thousands)

 

 

 

 

 

 

 

 

 

    

September 30, 2018

    

December 31, 2017

 

 

(unaudited)

 

 

ASSETS

 

 

 

 

 

 

Real Estate Assets

 

 

 

 

 

 

Land

 

$

105,541

 

$

88,216

Buildings, improvements and equipment

 

 

1,881,390

 

 

1,701,287

Less: Accumulated depreciation

 

 

(450,429)

 

 

(394,823)

 

 

 

1,536,502

 

 

1,394,680

Construction in progress

 

 

731,660

 

 

567,819

Real Estate Assets, net

 

 

2,268,162

 

 

1,962,499

Cash and cash equivalents

 

 

13,879

 

 

8,243

Rents and other receivables, net

 

 

51,719

 

 

47,046

Acquired intangibles, net

 

 

96,622

 

 

109,451

Deferred costs, net

 

 

42,735

 

 

41,545

Prepaid expenses

 

 

7,223

 

 

6,163

Goodwill

 

 

173,843

 

 

173,843

Other assets, net

 

 

64,675

 

 

66,266

TOTAL ASSETS

 

$

2,718,858

 

$

2,415,056

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Unsecured credit facility, net

 

$

776,052

 

$

825,186

Senior notes, net of debt issuance costs

 

 

394,595

 

 

394,178

Capital lease, lease financing obligations and mortgage notes payable

 

 

6,180

 

 

10,565

Accounts payable and accrued liabilities

 

 

122,292

 

 

113,430

Dividends and distributions payable

 

 

30,782

 

 

22,222

Advance rents, security deposits and other liabilities

 

 

29,001

 

 

28,903

Deferred income taxes

 

 

1,212

 

 

4,611

Deferred income

 

 

31,517

 

 

25,305

TOTAL LIABILITIES

 

 

1,391,631

 

 

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 September 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 September 30, 2018; zero units authorized, issued and outstanding as of December 31, 2017

 

 

304,265

 

 

 —

Common units: $0.01 par value, 450,133,000 units authorized, 57,800,709 and 57,245,524 units issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

908,327

 

 

989,207

Accumulated other comprehensive income

 

 

11,423

 

 

1,449

TOTAL PARTNERS' CAPITAL

 

 

1,327,227

 

 

990,656

TOTAL LIABILITIES AND PARTNERS' CAPITAL

 

$

2,718,858

 

$

2,415,056

 

See accompanying notes to financial statements.

 

 

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Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF OPERATIONS

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

    

2018

    

2017

    

2018

    

2017

Revenues:

 

 

 

 

 

 

 

 

Rental

 

$

91,733

 

$

85,831

 

$

266,678

 

$

245,741

Recoveries from customers

 

 

11,800

 

 

9,698

 

 

33,757

 

 

26,833

Cloud and managed services

 

 

7,537

 

 

16,224

 

 

31,692

 

 

50,045

Other

 

 

1,143

 

 

2,014

 

 

6,060

 

 

4,980

Total revenues

 

 

112,213

 

 

113,767

 

 

338,187

 

 

327,599

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Property operating costs

 

 

38,217

 

 

39,743

 

 

112,515

 

 

112,010

Real estate taxes and insurance

 

 

3,088

 

 

3,116

 

 

8,896

 

 

9,209

Depreciation and amortization

 

 

37,900

 

 

35,309

 

 

111,633

 

 

103,784

General and administrative

 

 

19,922

 

 

21,652

 

 

63,187

 

 

66,411

Transaction, integration and impairment costs

 

 

901

 

 

1,114

 

 

2,474

 

 

1,611

Restructuring

 

 

13,737

 

 

 —

 

 

33,697

 

 

 —

Total operating expenses

 

 

113,765

 

 

100,934

 

 

332,402

 

 

293,025

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(1,552)

 

 

12,833

 

 

5,785

 

 

34,574

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

66

 

 

65

 

 

92

 

 

66

Interest expense

 

 

(6,386)

 

 

(7,958)

 

 

(22,699)

 

 

(22,474)

Income (loss) before taxes

 

 

(7,872)

 

 

4,940

 

 

(16,822)

 

 

12,166

Tax benefit of taxable REIT subsidiaries

 

 

980

 

 

2,454

 

 

3,245

 

 

5,404

Net income (loss)

 

$

(6,892)

 

$

7,394

 

$

(13,577)

 

$

17,570

    Preferred unit distributions

 

 

(7,045)

 

 

 —

 

 

(9,621)

 

 

 —

Net income (loss) attributable to common unitholders

 

$

(13,937)

 

$

7,394

 

$

(23,198)

 

$

17,570

 

See accompanying notes to financial statements.

 

11


 

Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited and in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

    

2018