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QTS Reports Fourth Quarter 2013 Operating Results

Companies mentioned in this article: QTS Realty Trust, Inc.

OVERLAND PARK, Kan., Feb. 19, 2014 /PRNewswire/ -- QTS Realty Trust, Inc. (the "Company" or the "Successor") (NYSE: QTS) today announced operating results for the fourth quarter and year ended December 31, 2013. The Company completed its initial public offering on October 15, 2013, pursuant to which the Company became the general partner of QualityTech, LP (the "Predecessor"). Unless otherwise noted, the following data includes financial data on a combined basis for both the Predecessor and the Successor together with their consolidated subsidiaries, which are referred to collectively as "QTS."

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Fourth Quarter Highlights

    --  Reported Operating FFO of $16.4 million in the fourth quarter of 2013,
        an increase of 140% compared to the fourth quarter of 2012. Operating
        FFO for the fourth quarter of 2013 on a fully diluted per share basis
        was $0.47 per share.
    --  Reported Adjusted EBITDA of $21.2 million in the fourth quarter of 2013,
        an increase of 45% compared to the fourth quarter of 2012.
    --  Total revenues recognized in the fourth quarter 2013 increased by 24%
        compared to the fourth quarter 2012. Monthly Recurring Revenue ("MRR")
        as of December 31, 2013 increased by 19% to $14.1 million compared to
        MRR as of December 31, 2012.
    --  During the fourth quarter of 2013 we executed new and modified leases
        aggregating to a net increase of $9.3 million in incremental annualized
        rent, net of downgrades, the third highest level in the history of the
        Company.
    --  Reported NOI of $30.4 million in the fourth quarter of 2013, an increase
        of 23% compared to the fourth quarter of 2012.

*Fully diluted per share data is calculated on a pro rata basis accounting for the number of operating partnership units outstanding for the period from October 1, 2013 through October 14, 2013 and the total number of public shares and remaining operating partnership units outstanding from October 15, 2013 through December 31, 2013.

Chad Williams, QTS' Chairman and Chief Executive Officer, commented, "We are pleased to report solid growth in our operating portfolio and significant momentum heading into 2014 with some of the highest incremental rent leasing levels in the Company's history. We continue to see significant ongoing activity in each of our 3Cs product offerings (C1 - Custom Data Center, C2 - Colocation, and C3 - Cloud and Managed Services), across our national footprint, supported by what we believe to be industry leading security and compliance expertise, powered by our people. We are continuing to expand our facilities in the Atlanta and Richmond markets and, in the fourth quarter of 2013, commenced the redevelopment of our Dallas facility, a portion of which is scheduled to become operational in the third quarter of 2014."

Financial results

Net income recognized in the fourth quarter of 2013 was $4.4 million compared to a net loss recognized in the fourth quarter of 2012 of $1.6 million. QTS generated Operating FFO of $16.4 million in the fourth quarter of 2013, which is an increase of approximately 140% compared to $6.9 million for the fourth quarter of 2012. Additionally, QTS generated $21.2 million of Adjusted EBITDA in the fourth quarter of 2013, an increase of approximately 45% compared to $14.7 million for the fourth quarter of 2012. MRR as of December 31, 2013 was $14.1 million, an increase of approximately 19% compared to MRR as of December 31, 2012 of $11.9 million, with total revenues increasing by approximately 24% to $47.4 million for the fourth quarter 2013 compared to $38.2 million for the fourth quarter 2012.

Leasing Activity

During the fourth quarter of 2013, QTS entered into customer leases representing approximately $0.8 million of incremental MRR, net of downgrades, representing approximately $9.3 million of incremental annualized rent at a weighted average rental rate of $351 per square foot. Incremental MRR, net of downgrades, for the fourth quarter of 2013 was in line with the trailing four quarter average of $0.8 million of MRR, and in line with the trailing four quarter average rate per square foot.

During the fourth quarter of 2013, QTS renewed leases with a total annualized rent of $3.5 million at an average rent per square foot of $922, which was 1.1% lower than the annualized rent prior to their respective renewals, and reflects the impact of a C2 customer which changed its product mix, resulting in a lower rate per square foot. This renewal represents 1 of our 50 renewed leases in the fourth quarter and the renewal rates in the fourth quarter of 2013 would have increased 3.3% without the impact of this renewal. The actual change in fourth quarter renewal rates compares to a prior four quarter average increase of 1.6%, which also reflects the impact of 3 significant C2/C3 renewals signed in the first 2 quarters of 2013. These leases were extended at lower total effective rates as a function of services changes associated with the customer deployments. Overall renewal rate increases in the preceding four quarters would have been 4.1% without the impact of these first half 2013 lease renewals. We define renewals as leases which the customer retains the same amount of space before and after renewal, which facilitates rate comparability. Rental churn (which is the MRR impact from a customer completely departing our platform in a given period compared to the total MRR at the beginning of the period) for the fourth quarter of 2013 was 2.3% and was 5.7% for the twelve months ended 2013.

During the fourth quarter of 2013, QTS commenced customer leases (which includes new customers and also existing customers that renewed their lease term) representing approximately $2.3 million of MRR (and representing approximately $27.7 million of annualized rent) at $280 per square foot. This compares to customer leases representing an aggregate trailing four quarter average of approximately $1.3 million of MRR (representing approximately $16.1 million of annualized rent) at $436 per square foot. The difference in these commencements on a per square foot basis is largely due to the timing and magnitude of C1 lease commencements relative to C2/C3 lease commencements. See more detailed analysis in the Company's supplemental information.

As of December 31, 2013, our booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of December 31, 2013) was approximately $2.3 million, or $28.2 million of annualized rent. Of this booked-not-billed balance, approximately $0.4 million of MRR was attributable to new customers and approximately $1.9 million of MRR was attributable to existing customers. The booked-not-billed balance is expected to contribute $9.5 million to revenue in 2014 (representing $13.5 million in annualized revenues), $3.6 million in 2015 (representing $8.4 million in annualized revenues), and $6.3 million in annualized revenues thereafter.

Development and Redevelopment Activity

During the fourth quarter of 2013, QTS had a net reduction of 51,000 of net rentable square feet ("NRSF"). QTS obtained approximately 66,000 NRSF relinquished by a C1 tenant in the Atlanta-Metro facility. The majority of this space was redeveloped to accommodate a large C1 tenant and the remaining portion is being redeveloped to accommodate C2 tenants. The space redeveloped for the C1 customer came online in January 2014 and the space which is being redeveloped to accommodate C2 customers is expected to be completed in the second quarter of 2014. During the fourth quarter of 2013, QTS placed 15,000 NRSF into service in the Atlanta-Suwanee facility and placed capital of $12 million into service on its platform. In addition, during the fourth quarter of 2013 we continued redevelopment of our Dallas, Richmond, Atlanta-Suwanee, and Sacramento facilities.

Balance Sheet and Liquidity

As of December 31, 2013, QTS' total debt balance was $347.9 million (or 4.1x fourth quarter annualized Adjusted EBITDA) and its liquidity was nearly $330 million, consisting of nearly $325 million of available capacity on its credit facilities and approximately $5 million of cash available on its balance sheet. In February 2014, the Company expanded the capacity of its unsecured credit facility by $50 million, increasing the total revolving credit facility capacity to $400 million, to provide additional liquidity.


    2014 Guidance
    -------------


                                 2014 ($ in
                                  millions)
                                 ----------

                                    High              Low
                                    ----              ---

    Operating FFO                      $77.0            $73.0

    Operating FFO per share            $2.05            $1.95

    Adjusted EBITDA                    $99.0            $94.0

    Capital Expenditures              $200.0           $150.0

This guidance is calculated based on revenue growth in the mid to high teens (which ramp during the year), rental churn of 5-8%, and does not contemplate any acquisitions, dispositions or financing activities other than those which have already been disclosed.

Non-GAAP Financial Measures

This document includes certain non-GAAP financial measures that management believes are helpful in understanding the Company's business, as further described in the Supplemental Information.

Conference Call Details

The Company will host a conference call February 20, 2014, 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 3201556# 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. See more at: http://investors.qualitytech.com/2013-10-18-QTS-Realty-Trust-Inc-Announces-Third-Quarter-2013-Earnings-Release-and-Conference-Call#sthash.DBZ9GrKZ.dpuf

About QTS

QTS Realty Trust, Inc. (NYSE:QTS) is a leading owner, developer and operator of state-of-the-art, carrier-neutral, multi-tenant data centers. The Company's data centers are facilities that house the network and computer equipment of multiple customers and provide access to a range of communications carriers. The Company has a fully integrated platform through which it owns and operates its data centers and provides a broad range of information technology infrastructure solutions. The Company believes that it owns and operates one of the largest portfolios of multi-tenant data centers in the United States, as measured by gross square footage, and has the capacity to more than double its leased raised floor square footage without constructing any new buildings. The Company's portfolio is currently leased to approximately 880 customers comprised of companies of all sizes representing an array of industries.

QTS Investor Relations Contact

Jeff Berson - Chief Investment Officer
William Schafer - Chief Financial Officer
ir@qtsdatacenters.com

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 also can 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; national and local economic conditions; difficulties in identifying properties to acquire and difficulties in completing acquisitions; the Company's failure to successfully develop, redevelop and operate acquired properties and operations; significant increases in construction and development costs; the increasingly competitive environment in which the Company operates; defaults on 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 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 final prospectus related to its IPO filed with the Securities and Exchange Commission on October 10, 2013.



    Combined Consolidated Balance Sheets
    ------------------------------------

    (in thousands)

    The following financial data as of December 31, 2013 and
     2012, includes the Company and its Predecessor.


                                       December                        December
                                          31,                           31,

                                             2013                      2012
                                             ----                      ----

                ASSETS
                ------

    Real Estate
     Assets

      Land                                                    $30,601            $24,713

      Buildings
       and
       improvements                                           728,230            622,506

      Less:
       Accumulated
       depreciation                                          (137,725)          (102,900)
                                                             --------           --------


                                                              621,106            544,319


    Construction
     in progress                                              146,904             87,609
                                                              -------             ------


    Real Estate
     Assets, net                                              768,010            631,928
                                                              -------            -------




    Cash and
     cash
     equivalents                                                5,210              8,232

    Restricted
     cash                                                           -                146

    Rents and
     other
     receivables,
     net                                                       14,434             11,943

    Acquired
     intangibles,
     net                                                        5,396              9,145

    Deferred
     costs, net
     (1)                                                       19,150             15,062

    Prepaid
     expenses                                                   1,797              1,011

    Other
     assets, net
     (2)                                                       17,359              7,976
                                                               ------              -----


      TOTAL ASSETS                                           $831,356           $685,443
                                                             ========           ========


              LIABILITIES
              -----------

    Mortgage
     notes
     payable                                                  $88,839           $171,291

    Secured
     credit
     facility                                                       -            316,500

    Unsecured
     credit
     facility                                                 256,500                  -

    Capital
     lease
     obligations                                                2,538              2,491

    Accounts
     payable and
     accrued
     liabilities                                               63,204             36,001

    Dividends
     payable                                                    8,965                  -

    Advance
     rents,
     security
     deposits
     and other
     liabilities                                                3,261              3,011

    Deferred
     income                                                     7,892              6,745

    Derivative
     liability                                                    453                767

    Member
     advances
     and notes
     payable                                                        -             26,958
                                                                  ---             ------


      TOTAL
       LIABILITIES                                            431,652            563,764


                EQUITY
                ------



    Common
     stock,                          issued and
     $0.01 par                       outstanding
     value,                          as of
     450,133,000                     December
     and 0                           31, 2013
     shares                          and 2012,
     authorized,                     respectively
     28,864,145
     and 0
     shares                                                       289                  -

    Partners'
     capital                                                        -            121,679

    Additional
     paid-in
     capital                                                  318,834

    Accumulated
     other
     comprehensive
     loss                                                        (357)                 -

    Accumulated
     deficit                                                   (3,799)                 -
                                                               ------                ---

      Total
       stockholders'
       equity                                                 314,967            121,679

     Noncontrolling
     interests                                                 84,737                  -
                                                               ------                ---

      TOTAL EQUITY                                            399,704            121,679
                                                              -------            -------

      TOTAL
       LIABILITIES
       AND EQUITY                                            $831,356           $685,443
                                                             ========           ========


      (1) As of
       December
       31, 2013
       and  2012,
       deferred
       costs,
       net,
       included
       $7.3
       million
       and $6.9
       million of
       deferred
       financing
       costs,
       respectively,
       and $11.1
       million
       and $8.2
       million of
       deferred
       leasing
       costs,
       respectively.


      (2) As of
       December
       31, 2013
       and 2012,
       other
       assets,
       net,
       primarily
       included
       $14.7
       million
       and $5.9
       million of
       corporate
       non-real
       estate
       fixed
       assets,
       respectively,
       primarily
       relating
       to
       construction
       of
       corporate
       offices,
       leasehold
       improvements
       and
       corporate
       software
       related
       assets.


    Combined Consolidated Statements of Operations and Comprehensive Income (Loss)
    -----------------------------------------------------------------------------

    (in thousands)



    The following financial data for the three months and year ended December 31, 2013, includes financial data on a combined basis
     for both the Company and its Predecessor.



                                                Three Months Ended
                                                   (unaudited)                                   Year Ended
                                               -------------------                               ----------

                                     December             September              December
                                        31                  30,                31                      December 31,


    Revenues:                            2013              2013               2012                  2013                   2012
                                         ----              ----               ----                  ----                   ----

      Rental                                    $39,122            $37,595           $31,205               $145,306               $120,758

      Recoveries from
       customers                                  3,173              3,603             2,509                 13,098                  9,294

      Cloud and managed
       services                                   4,703              4,393             3,772                 17,531                 14,497

      Other (1)                                     431                429               687                  1,952                  1,210
                                                    ---                ---               ---                  -----                  -----

      Total revenues (2)                         47,429             46,020            38,173                177,887                145,759
                                                 ------             ------            ------                -------                -------


    Operating expenses:

      Property operating
       costs                                     15,820             15,638            12,868                 60,750                 51,506

      Real estate taxes
       and insurance                              1,188              1,101               846                  4,492                  3,632

      Depreciation and
       amortization                              13,161             12,136             9,636                 47,358                 34,932

      General and
       administrative (3)                         9,848             10,097            10,127                 39,183                 35,986

      Transaction costs
       (4)                                 66                 -                493                   118                    897

      Restructuring
       charge (5)                           -                 -                  -                     -                  3,291
                                          ---               ---                ---                   ---                  -----


      Total operating
       expenses                                  40,083             38,972            33,970                151,901                130,244
                                                 ------             ------            ------                -------                -------


    Operating income                              7,346              7,048             4,203                 25,986                 15,515


    Other income and
     expense:

      Interest income                                 1                  4                 7                     18                     61

      Interest expense                           (2,747)            (4,343)           (6,101)               (18,724)               (25,140)

      Other income
       (expense), net (6)                (153)                -                283               (3,430)                (1,151)
                                         ----               ---                ---                ------                 ------

    Income (loss)
     before gain on
     sale of real
     estate                                       4,447              2,709            (1,608)                 3,850                (10,715)

      Gain on sale of
       real estate (7)                      -                 -                  -                     -                    948
                                          ---               ---                ---                   ---                    ---

    Net income (loss)                             4,447              2,709            (1,608)                 3,850                 (9,767)

    Net income
     attributable to
     noncontrolling
     interests (8)                       (848)                -                  -                  (848)                     -
                                         ----               ---                ---                  ----                    ---

    Net income (loss)
     attributable to
     QTS Realty Trust,
     Inc                                          3,599              2,709            (1,608)                 3,002                 (9,767)

      Unrealized gain
       (loss) on swap (9)                            74                  8                (8)                   294                   (766)
                                                    ---

    Comprehensive
     income (loss)                               $3,673             $2,717           $(1,616)                $3,296               $(10,533)
                                                 ======             ======           =======                 ======                =======


    (1) Other revenue -Includes
     straight line rent and sales
     of scrap metals and other
     unused materials.


    (2) Total revenues -The
     increase in total revenues of
     $9.3 million and $32.1
     million for the three months
     and year ended December 31,
     2013 compared to the three
     months and year ended
     December 31, 2012,
     respectively, consisted of an
     increase of $3.5 million and
     $13.5 million, respectively,
     relating to the Company's
     acquisition of a data center
     in Sacramento, CA in December
     2012 and $6.1 million and
     $18.9 million, respectively,
     related to increases in the
     Company's existing portfolio.


    (3) General and administrative
     expenses -Includes personnel
     costs, sales and marketing
     costs, professional fees,
     travel fees, and other
     corporate general and
     administrative expenses.
     General and administrative
     expenses were 20.8%, 21.9%,
     and 26.5% of total revenues
     for the three month periods
     ended December 31, 2013,
     September 30, 2013, and
     December 31, 2012,
     respectively. General and
     administrative expenses were
     22.0% and 24.7% of total
     revenues for the years ended
     December 31, 2013 and 2012,
     respectively.


    (4) Transaction costs -In
     2013 and 2012, we incurred
     $0.1 million and $0.9
     million, respectively, in
     costs related to the
     examination of proposed
     acquisitions, of which $0.1
     million and $0.5 million,
     respectively, was incurred in
     the three months ended
     December 31, 2013 and 2012.


    (5) Restructuring charge - In
     the first quarter of 2012, we
     decided to consolidate our
     former New York data center
     operations into our Jersey
     City data center. In
     connection with the
     consolidation of our New York
     data center operations into
     our Jersey City data center,
     we recorded a one-time
     restructuring charge of $3.3
     million.


    (6) Other expense, net -
     Includes write offs of
     unamortized deferred
     financing costs associated
     with the early extinguishment
     of certain debt instruments.


    (7) Gain on sale of real
     estate -In September 2012,
     we recognized a gain on sale
     of a vacant data center
     facility of $0.9 million.


    (8) Noncontrolling interest -
     Concurrently with the
     completion of the initial
     public offering, QTS Realty
     Trust, Inc. consummated a
     series of transactions
     pursuant to which QTS became
     the sole general partner and
     majority owner of
     QualityTech, LP, which then
     became its operating
     partnership. Certain prior
     owners of QualityTech, LP
     retained 21.2% of ownership
     in the operating partnership.


    (9) Unrealized gain (loss) on
     swap -For the effective
     portions of qualifying
     hedges, the change in fair
     value is recorded  as
     unrealized gains (losses) on
     swap and is included in other
     comprehensive income (loss).


    Reconciliations of Net Income
     (Loss) to FFO, Operating FFO
     & Adjusted Operating FFO
    -----------------------------

    (in thousands)


    The Company calculates FFO in
     accordance with the standards
     established by the National
     Association of Real Estate
     Investment Trusts, or NAREIT.
     FFO represents net income
     (loss) (computed in
     accordance with GAAP),
     adjusted to exclude gains (or
     losses) from sales of
     property, real estate-
     related depreciation and
     amortization and similar
     adjustments for
     unconsolidated partnerships
     and joint ventures. The
     Company generally calculates
     Operating FFO as FFO
     excluding certain non-
     recurring and primarily non-
     cash charges and gains and
     losses that management
     believes are not indicative
     of the results of our
     operating real estate
     portfolio. The Company
     believes that Operating FFO
     provides investors with
     another financial measure
     that may facilitate
     comparisons of operating
     performance and liquidity
     between periods and, to the
     extent other REITs calculate
     Operating FFO on a comparable
     basis, between the Company
     and these other REITs. The
     Company calculates Adjusted
     Operating FFO by adding or
     subtracting from Operating
     FFO items such as:
     maintenance capital
     investment, paid leasing
     commissions, amortization of
     deferred financing costs,
     non- real estate
     depreciation, straight-line
     rent adjustments, and non-
     cash compensation.


    A reconciliation of net income
     (loss) to FFO, Operating FFO
     and Adjusted Operating FFO is
     presented below:


                             Three Months Ended                      Year Ended
                             ------------------                      ----------

                     December                        September               December
                        31,                            30,                 31,                 December 31,

                         2013                         2013                2012                  2013                 2012
                         ----                         ----                ----                  ----                 ----

    FFO

    Net income
     (loss)                                  $4,447             $2,709                $(1,608)               $3,850       $(9,767)

    Real estate
     depreciation
     and
     amortizaton                             11,766             10,731                  7,972                42,114        30,968

    Gain on sale
     of real
     estate                                       -                  -                      -                     -          (948)

              FFO                            16,213             13,440                  6,364                45,964        20,253
                                             ------             ------                  -----                ------        ------


     Restructuring
     charge                                       -                  -                      -                     -         3,291

    Write off of
     unamortized
     deferred
     finance
     costs                                      153                  -                      -                 3,430         1,434

    Transaction
     costs                                       66                  -                    493                   118           897

    Unrealized
     gain on
     derivatives                                  -                  -                      -                     -          (307)

           Operating
            FFO  *                           16,432             13,440                  6,857                49,512        25,568
                                             ------             ------                  -----                ------        ------


    Maintenance
     Capex                                     (298)              (492)                (1,011)               (2,538)       (1,725)

    Leasing
     Commissions
     paid                                    (2,407)            (2,374)                (1,579)               (9,296)       (6,856)

    Amortization
     of deferred
     financing
     costs                                      582                588                    803                 2,775         3,370

    Non real
     estate
     depreciation
     and
     amortizaton                              1,395              1,406                  1,664                 5,244         3,965

    Straight
     line rent
     revenue                                   (149)              (229)                    35                  (577)           14

    Straight
     line rent
     expense                                     82                 83                     77                   328           319

    Equity-
     based
     compensation
     expense                                    655                510                     71                 1,960           412

          Adjusted
           Operating
           FFO *                            $16,292            $12,932                 $6,917               $47,408       $25,067
                                            =======            =======                 ======               =======       =======


    * The Company's
     calculations of
     Operating FFO and
     Adjusted Operating
     FFO  may not be
     comparable to
     Operating FFO and
     Adjusted Operating
     FFO as calculated by
     other REITs that do
     not use the same
     definition.



    Reconciliations of Net Income
     (Loss) to EBITDA and Adjusted
     EBITDA
    ------------------------------

    (in thousands)


    The Company calculates EBITDA as
     net income (loss) excluding
     interest expense and interest
     income, provision for income taxes
     (including income taxes applicable
     to sale of assets) and
     depreciation and amortization. The
     Company believes that EBITDA is
     another metric that is often
     utilized to evaluate and compare
     the Company's ongoing operating
     results and also, in part, to
     assess the value of the Company's
     operating portfolio. In addition
     to EBITDA, the Company calculates
     an adjusted measure of EBITDA,
     which the Company refers to as
     Adjusted EBITDA, as EBITDA
     excluding write off of unamortized
     deferred financing costs, gain on
     extinguishment of debt,
     transaction costs, equity-based
     compensation expense,
     restructuring charge, gain on
     legal settlement and gain on sale
     of real estate. The Company
     believes that Adjusted EBITDA
     provides investors with another
     financial measure that can
     facilitate comparisons of
     operating performance between
     periods and between REITs.


    A reconciliation of net income
     (loss) to EBITDA and Adjusted
     EBITDA is presented below:


                           Three Months Ended                      Year Ended
                           ------------------                      ----------

                   December                        September               December
                      31,                            30,                 31,                 December 31,

                       2013                         2013                2012                  2013                 2012
                       ----                         ----                ----                  ----                 ----

    EBITDA and
     Adjusted
     EBITDA

    Net income
     (loss)                                $4,447             $2,709                $(1,608)               $3,850       $(9,767)

    Interest
     expense                                2,747              4,343                  6,101                18,724        25,140

    Interest
     income                                    (1)                (4)                    (7)                  (18)          (61)

    Depreciation
     and
     amortization                          13,161             12,136                  9,636                47,358        34,932

      EBITDA                               20,354             19,184                 14,122                69,914        50,244
                                           ------             ------                 ------                ------        ------


    Write off of
     unamortized
     deferred
     finance
     costs                                    153                  -                      -                 3,430         1,434

    Equity-
     based
     compensation
     expense                                  655                510                     71                 1,960           412

    Transaction
     costs                                     66                  -                    493                   118           897

    Gain on sale
     of real
     estate                                     -                  -                      -                     -          (948)

     Restructuring
     charge                                     -                  -                      -                     -         3,291

      Adjusted
       EBITDA                             $21,228            $19,694                $14,686               $75,422       $55,330
                                          =======            =======                =======                 =====       =======


    Reconciliations of Net Income
     (Loss) to Net Operating Income
     (NOI)
    -------------------------------

    (in thousands)


    The Company calculates net
     operating income, or NOI, as
     net income (loss), excluding:
     interest expense, interest
     income, depreciation and
     amortization, write off of
     unamortized deferred financing
     costs, gain on extinguishment
     of debt, transaction costs,
     gain on legal settlement, gain
     on sale of real estate,
     restructuring charge and
     general and administrative
     expenses. The Company believes
     that NOI is another metric
     that is often utilized to
     evaluate returns on operating
     real estate from period to
     period and also, in part, to
     assess the value of the
     operating real estate. A
     reconciliation of net income
     (loss) to NOI is presented
     below:


                                          Three Months Ended                      Year Ended
                                          ------------------                      ----------

                                  December                        September               December
                                     31,                            30,                 31,                 December 31,

                                      2013                         2013                2012                  2013                  2012
                                      ----                         ----                ----                  ----                  ----

    Net
     Operating
     Income
     (NOI)

    Net income
     (loss)                                               $4,447             $2,709                $(1,608)                $3,850       $(9,767)

    Interest
     expense                                               2,747              4,343                  6,101                 18,724        25,140

    Interest
     income                                                   (1)                (4)                    (7)                   (18)          (61)

    Depreciation
     and
     amortization                                         13,161             12,136                  9,636                 47,358        34,932

    Write off of
     unamortized
     deferred
     finance
     costs                                                   153                  -                      -                  3,430         1,434

    Transaction
     costs                                                    66                  -                    493                    118           897

    Gain on sale
     of real
     estate                                                    -                  -                      -                      -          (948)

     Restructuring
     charge                                                    -                  -                      -                      -         3,291

    General and
     administrative
     expenses                                              9,848             10,097                 10,127                 39,183        35,986

      NOI                                                $30,421            $29,281                $24,742               $112,645       $90,904
                                                         =======            =======                =======                 ======       =======

    Breakdown of
     NOI by
     facility:

    Atlanta-
     Metro data
     center                                              $13,654            $13,740                $11,967                $52,393       $42,787

    Atlanta-
     Suwanee
     data center                                           8,210              7,517                  6,853                 29,155        30,471

    Santa Clara
     data center                                           2,640              2,801                  3,131                 10,939        11,183

    Richmond
     data center                                           2,780              2,859                  2,180                 10,318         6,094

    Sacramento
     data center
     (1)                                                   2,061              1,752                    240                  7,699           240

    Other data
     centers                                               1,076                612                    371                  2,141           129

      NOI                                                $30,421            $29,281                $24,742               $112,645       $90,904
                                                         =======            =======                =======                 ======       =======


    (1) Facility was acquired in December 2012.


    Reconciliations of Total
     Revenues to Recognized MRR in
     the period and MRR at period-
     end
    ------------------------------

    (in thousands)


    The Company calculates MRR as
     monthly contractual revenue
     under signed leases as of a
     particular date, which
     includes revenue from our C1,
     C2 and C3 rental and cloud
     and managed services
     activities, but excludes
     customer recoveries, deferred
     set-up fees, variable
     related revenues, non-cash
     revenues and other one-time
     revenues. MRR does not
     include the impact from
     booked-not-billed leases
     (which represent customer
     leases that have been
     executed but for which lease
     payments have not commenced)
     as of a particular date,
     unless otherwise specifically
     noted. The Company calculates
     recognized MRR as the
     recurring revenue recognized
     during a given period, which
     includes revenue from our C1,
     C2 and C3 rental and cloud
     and managed services
     activities, but excludes
     customer recoveries, deferred
     set-up fees, variable
     related revenues, non-cash
     revenues and other one-time
     revenues. Management uses MRR
     and recognized MRR as
     supplemental performance
     measures because they provide
     useful measures of increases
     in contractual revenue from
     customer leases. A
     reconciliation of total
     revenues to recognized MRR in
     the period and MRR at period-
     end is presented below:


                                    Three Months Ended                      Year Ended
                                    ------------------                      ----------

                           December                         September               December
                              31,                             30,                31,                  December 31,

                               2013                          2013               2012                   2013                  2012
                               ----                          ----               ----                   ----                  ----

    Recognized
     MRR in the
     period

    Total period
     revenues
     (GAAP
     basis)                                        $47,429            $46,020                $38,173               $177,887       $145,759

    Less: Total
     period
     recoveries                                     (3,173)            (3,603)                (2,509)               (13,098)        (9,294)

              Total period
               deferred
               setup fees                           (1,228)            (1,263)                (1,290)                (4,678)        (4,317)

              Total period
               other                                (1,147)            (1,240)                (1,365)                (4,532)        (3,615)
                                                    ------             ------                 ------                 ------         ------

    Recognized
     MRR in the
     period                                         41,881             39,914                 33,009                155,579        128,533


    MRR at
     period end*

    Total period
     revenues
     (GAAP
     basis)                                        $47,429            $46,020                $38,173               $177,887       $145,759

    Less: Total
     revenues
     excluding
     last month                                    (31,212)           (30,448)               (24,752)              (161,670)      (132,338)
                                                   -------            -------                -------               --------       --------

    Total
     revenues
     for last
     month of
     period                                         16,217             15,572                 13,421                 16,217         13,421

    Less: Last
     month
     recoveries                                     (1,240)            (1,219)                  (879)                (1,240)          (879)

              Last month
               deferred
               setup fees                             (370)              (427)                  (441)                  (370)          (441)

              Last month
               other                                  (469)              (127)                  (244)                  (469)          (244)

    MRR at
     period end*                                   $14,138            $13,799                $11,857                $14,138        $11,857
                                                   =======            =======                =======                =======        =======


    Results of Operations - Reconciliation of our Successor and Predecessor
    -----------------------------------------------------------------------

     (in thousands)


                                                         The Company                  Historical Predecessor
                                                         -----------                  ----------------------


                                                       For the period                For the period January 1,            Year Ended
                                                      October 15, 2013                 2013 through October              December 31,
                                                    through December 31,                                       14, 2013
                                                                               2013
                                                                               ----

                                                                                                                   2013
                                                                                                                   ----

    Revenues:

       Rental                                                               $33,304                            $112,002               $145,306

       Recoveries from
        customers                                                             2,674                              10,424                 13,098

       Cloud and
        managed
        services                                                              4,074                              13,457                 17,531

       Other                                                                    410                               1,542                  1,952

       Total revenues                                                        40,462                             137,425                177,887
                                                                             ------                             -------                -------


    Operating
     expenses:


       Property
        operating
        costs                                                                13,482                              47,268                 60,750

       Real estate
        taxes and
        insurance                                                             1,016                               3,476                  4,492

       Depreciation
        and
        amortization                                                         11,238                              36,120                 47,358

       General and
        administrative                                                        8,457                              30,726                 39,183

       Transaction
        costs                                                                    66                                  52                    118

       Gain on legal
        settlement                                                                -                                   -                      -

       Restructuring
        charge                                                                    -                                   -                      -

       Total operating
        expenses                                                             34,259                             117,642                151,901
                                                                             ------                             -------                -------

    Operating
     income                                                                   6,203                              19,783                 25,986


    Other income
     and expenses:

       Interest income                                                            1                                  17                     18

       Interest
        expense                                                              (2,049)                            (16,675)               (18,724)

       Other (expense)
        income, net                                                            (153)                             (3,277)                (3,430)
                                                                               ----                              ------                 ------

    Net income
     (loss)                                                                   4,002                                (152)                 3,850

    Net loss
     attributable
     to
     noncontrolling
     interests                                                                 (848)                                  -                   (848)
                                                                               ----                                 ---                   ----

    Net income
     (loss)
     attributable
     to QTS Realty
     Trust, Inc                                                               3,154                                (152)                 3,002

       Unrealized gain
        on swap                                                                  74                                 220                    294
                                                                                                                                           ---

    Comprehensive
     income                                                                  $3,228                                 $68                 $3,296
                                                                             ======                                 ===                 ======

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SOURCE QTS Realty Trust, Inc.