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QTS Reports First Quarter 2014 Operating Results

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

OVERLAND PARK, Kan., April 29, 2014 /PRNewswire/ -- QTS Realty Trust, Inc. ("QTS," the "Company" or the "Successor") (NYSE: QTS) today announced operating results for the first quarter ended March 31, 2014. 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"). The following financial data for the three months ended March 31, 2014 is that of the Company. The financial data for the three months ended December 31, 2013 includes financial data on a combined basis for both the Company and its Predecessor and the financial data for the three months ended March 31, 2013 is that of the Predecessor.

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First Quarter Highlights

    --  Reported Operating FFO of $17.3 million in the first quarter of 2014, an
        increase of 102% compared to the first quarter of 2013. Operating FFO
        for the first quarter of 2014 on a fully diluted per share basis was
        $0.47 per share.
    --  Reported Adjusted EBITDA of $21.6 million in the first quarter of 2014,
        an increase of 29% compared to the first quarter of 2013.
    --  Total revenues of $48.9 million recognized in the first quarter 2014, an
        increase of 18% compared to the first quarter 2013. Monthly Recurring
        Revenue ("MRR") as of March 31, 2014 increased by 19% to $14.6 million
        compared to MRR as of March 31, 2013.
    --  During the first quarter of 2014 the Company executed new and modified
        leases aggregating to a net increase of $10.5 million in incremental
        annualized rent, net of downgrades.
    --  Reported NOI of $31.5 million in the first quarter of 2014, an increase
        of 21% compared to the first quarter of 2013.

"I'm pleased to report that QTS has entered 2014 in a very strong position and I am proud of our team's performance during the first quarter," said Chad Williams, QTS' Chairman and Chief Executive Officer. "We continue to grow our business through our fully integrated technology services platform which allows us to deliver differentiated value through our 3C product offering in our mega data center sites. All of this is powered by our people who consistently provide premium customer service and market-leading security and compliance. Our momentum can be seen in our first quarter performance, as well as in our record net incremental leasing activity which is the second highest in QTS' history."

Williams added, "As of March 31, 2014, QTS' booked-not-billed balance was a record $29.9 million of annualized rent, providing visibility to QTS' future growth and momentum."

Financial Results

Net income recognized in the first quarter of 2014 was $5.3 million ($0.14 per basic and diluted share) compared to a net loss recognized in the first quarter of 2013 of $2.1 million. QTS generated Operating FFO of $17.3 million in the first quarter of 2014, an increase of approximately 102% compared to $8.5 million for the first quarter of 2013. Additionally, QTS generated $21.6 million of Adjusted EBITDA in the first quarter of 2014, an increase of 29% compared to $16.8 million for the first quarter of 2013. MRR as of March 31, 2014 was $14.6 million, an increase of 19% compared to MRR as of March 31, 2013 of $12.2 million, with total revenues increasing by 18% to $48.9 million for the first quarter 2014 compared to $41.5 million for the first quarter 2013.

Leasing Activity

During the first quarter of 2014, QTS entered into customer leases representing approximately $0.9 million of incremental MRR, net of downgrades, (and representing approximately $10.5 million of incremental annualized rent) at a weighted average rental rate of $1,195 per square foot. Although incremental MRR, net of downgrades, for the first quarter of 2014 was in line with the trailing four quarter average of $0.9 million of MRR, it represents the second highest quarter in the Company's history and at a much higher average rate per square foot in comparison to the trailing four quarter average which was driven by a larger proportion of C2 (Colocation) and C3 (Cloud and Managed Services) space sold in the first quarter of 2014 compared to the four quarter average.

During the first quarter of 2014, QTS renewed leases with a total annualized rent of $5.0 million at an average rent per square foot of $770, which was 8.9% higher than the annualized rent prior to their respective renewals. The Company defines renewals as leases which the customer retains the same amount of space before and after renewal, which facilitates rate comparability. As summarized in more detail in our supplemental information, there is variability in our renewal rates and although this was a solid quarter, renewal rates are expected to continue to increase in the low single digits on average. Rental churn (which is the MRR impact from a customer completely departing the platform in a given period compared to the total MRR at the beginning of the period) for the first quarter of 2014 was 1.4%.

During the first quarter of 2014, QTS commenced customer leases (which includes new customers and also existing customers that renewed their lease term) representing approximately $1.0 million of MRR (and representing approximately $12.2 million of annualized rent) at $558 per square foot. This compares to customer leases representing an aggregate trailing four quarter average of approximately $1.8 million of MRR (representing approximately $21.0 million of annualized rent) at $360 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. A more detailed analysis of this activity is set forth in the Company's supplemental information.

As of March 31, 2014, the booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of March 31, 2014) was approximately $2.5 million, or $29.9 million of annualized rent. Of this booked-not-billed balance, approximately $0.6 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 an incremental $9.6 million to revenue in 2014 (representing $15.5 million in annualized revenues), an incremental $3.6 million in 2015 (representing $8.8 million in annualized revenues), and an incremental $5.6 million in annualized revenues thereafter.

Development and Redevelopment Activity

During the first quarter of 2014, the Company brought online approximately 50,000 net rentable square feet ("NRSF") of raised floor at an aggregate cost of approximately $15 million at the Atlanta-Metro facility. In addition, during the first quarter of 2014 the Company continued redevelopment of the Dallas-Fort Worth, Atlanta - Metro, Richmond, Atlanta - Suwanee and Sacramento facilities. Space related to these redevelopment projects is expected to be ready for its intended use in the second and third quarters of 2014.

Balance Sheet and Liquidity

As of March 31, 2014, QTS's total debt balance was $405.5 million (or 4.7x first quarter annualized Adjusted EBITDA) and its liquidity was approximately $320 million, consisting of approximately $312 million of available capacity on its credit facilities and approximately $8 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.

2014 Guidance

QTS is maintaining its 2014 guidance of Operating FFO in the range of $73.0 million to $77.0 million, or Operating FFO per share of $1.95 to $2.05. Additionally, QTS is maintaining its 2014 guidance for Adjusted EBITDA of $94.0 million to $99.0 million and Capital Expenditures of $150.0 million to $200.0 million.

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

Conference Call Details

The Company will host a conference call April 30, 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 1291474# and callers are asked to dial in ten minutes prior to start time. A link to the live broadcast, earnings presentation 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/upcoming-webcasts

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 over 800 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 can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this release reflect the Company's current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed in any forward-looking statement. The Company does not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: adverse economic or real estate developments in the Company's markets or the technology industry; national and local economic conditions; difficulties in identifying properties to acquire and 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 Annual Report on Form 10-K for the year ended December 31, 2013.



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

    (in thousands)


    The following financial data as of March 31, 2014 and
     December 31, 2013 is that of the Company.


                                    March                December
                                        31,                     31,

                                         2014                    2013
                                         ----                    ----

                               ASSETS
                               ------

    Real Estate Assets

       Land                                    $30,601                 $30,601

       Buildings and
        improvements                              743,101                 728,230

       Less: Accumulated
        depreciation                             (147,336)               (137,725)
                                                  -------                --------


                                                  626,366     621,106


    Construction in
     progress                                     182,699                 146,904
                                                  -------                 -------


    Real Estate Assets,
     net                                          809,065                 768,010
                                                  -------                 -------




    Cash and cash
     equivalents                                    7,928                   5,210

    Rents and other
     receivables, net                              11,497                  14,434

    Acquired
     intangibles, net                               4,413                   5,396

    Deferred costs, net
     (1)                                           19,157                  19,150

    Prepaid expenses                                4,804                   1,797

    Other assets, net
     (2)                                           20,157                  17,359
                                                   ------                  ------


       TOTAL ASSETS                           $877,021                $831,356
                                              ========                ========


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

    Mortgage notes
     payable                                      $88,294                 $88,839

    Unsecured credit
     facility                                     314,500                 256,500

    Capital lease
     obligations                                    2,728                   2,538

    Accounts payable
     and accrued
     liabilities                                   53,737                  63,204

    Dividends payable                              10,832                   8,965

    Advance rents,
     security deposits
     and other
     liabilities                                    3,331                   3,261

    Deferred income                                 8,105                   7,892

    Derivative
     liability                                        320                     453
                                                      ---                     ---


       TOTAL LIABILITIES                          481,847                 431,652


                               EQUITY
                               ------


    Common stock, $0.01
     par value,
     450,133,000 shares
     authorized,
     29,016,774 and
     28,972,774 shares
     issued and
     outstanding as of
     March 31, 2014 and
     December 31, 2013,
     respectively                                     290                     289

    Additional paid-
     in capital                                   319,551                 318,834

    Accumulated other
     comprehensive loss                              (252)                   (357)

    Accumulated deficit                            (8,016)                 (3,799)
                                                   ------                  ------

       Total
        stockholders'
        equity                                    311,573                 314,967

    Noncontrolling
     interests                                     83,601                  84,737
                                                   ------                  ------

       TOTAL EQUITY                               395,174                 399,704
                                                  -------                 -------


       TOTAL
        LIABILITIES AND
        EQUITY                                   $877,021                $831,356
                                              ========                ========


    (1) As of March 31, 2014 and December 31, 2013, deferred
     costs, net included $7.1 million and $7.3 million of
     deferred financing costs, respectively, and $12.1 million
     and $11.9 million of deferred leasing costs, respectively.


    (2) As of March 31, 2014 and December 31, 2013, other assets,
     net primarily included $17.3 million and $14.2 million of
     corporate 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 ended
     March 31, 2014 is that of
     the Company. The financial
     data for the three months
     ended December 31, 2013
     includes financial data on a
     combined basis for both the
     Company and its Predecessor
     and the financial data for
     the three months ended March
     31, 2013 is that of its
     Predecessor.

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

                                    March             December           March
                                     31,                 31,              31,

    Revenues:                        2014             2013 (1)              2013
                                     ----             -------               ----

       Rental                               $40,579             $39,122           $33,806

        Recoveries
        from
        customers                             3,691               3,173             2,866

       Cloud
        and
        managed
        services                              4,231               4,703             4,110

       Other
        (2)                                     442                 431               716
                                                ---                 ---               ---

       Total
        revenues                             48,943              47,429            41,498
                                             ------              ------            ------


    Operating expenses:


        Property
        operating
        costs                                16,223              15,820            14,408

       Real
        estate
        taxes
        and
        insurance                             1,218               1,188             1,113

        Depreciation
        and
        amortization                         13,247              13,161            10,815

        General
        and
        administrative
        (3)                                  10,778               9,848             9,594

        Transaction
        costs
        (4)                                      64                  66                 -
                                                ---                 ---               ---


       Total
        operating
        expenses                             41,530              40,083            35,930
                                             ------              ------            ------


     Operating
     income                                   7,413               7,346             5,568


    Other
     income
     and
     expense:

        Interest
        income                                    8                   1                 6

        Interest
        expense                              (2,065)             (2,747)           (6,550)

       Other
        income
        (expense),
        net
        (5)                             -               (153)             (1,098)
                                      ---                ----              -----

    Income
     (loss)
     before
     taxes                                    5,356               4,447            (2,074)

       Tax
        expense
        of
        taxable
        REIT
        subsidiaries                  (28)                  -                  -
                                      ---                 ---                ---

    Net
     income
     (loss)                                   5,328               4,447            (2,074)

    Net
     income
     attributable
     to
     noncontrolling
     interests
     (6)                                     (1,130)               (848)                -
                                              -----                ----               ---

    Net
     income
     (loss)
     attributable
     to
     QTS
     Realty
     Trust,
     Inc                                      4,198               3,599            (2,074)

        Unrealized
        gain
        on
        swap
        (7)                                     105                  74                72
                                                ---

     Comprehensive
     income
     (loss)                                  $4,303              $3,673           $(2,002)
                                             ======              ======             =====


    (1) For the reconciliation of the financial data of the
     Company and the Predecessor for the three month period
     ended December 31, 2013, see the Company's earnings release
     filed as Exhibit 99.1 to the Form 8-K filed with the
     Securities and Exchange Commission on February 19, 2014.


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


    (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 22.0%,
     20.8%, and 23.1% of total revenues for the three month
     periods ended March 31, 2014, December 31, 2013, and March
     31, 2013, respectively.


    (4) Transaction costs -For the three months ended March 31,
     2014, we incurred $0.1 million in costs related to the
     examination of potential acquisitions. There were no such
     costs incurred for the three months ended March 31, 2013.


    (5) Other income (expense), net -Generally includes write
     offs of unamortized deferred financing costs associated
     with the early extinguishment of certain debt instruments.


    (6) 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.


    (7) Unrealized gain on swap -For derivative instruments
     that are accounted for as hedges, or 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 the
     Company's 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
                                           ------------------

                                 March             December          March
                                  31,                31,             31,


                                  2014              2013             2013
                                  ----              ----             ----

    FFO

    Net
     income
     (loss)                               $5,328            $4,447         $(2,074)

    Real
     estate
     depreciation
     and
     amortizaton                          11,864            11,766           9,507

             FFO                          17,192            16,213           7,433
                                          ------            ------           -----


    Write
     off of
     unamortized
     deferred
     finance
     costs                           -               153            1,098

     Transaction
     costs                                    64                66               -

              Operating
              FFO*                        17,256            16,432           8,531
                                          ------            ------           -----


     Maintenance
     Capex                                   (73)             (298)           (759)

    Leasing
     Commissions
     paid                                 (2,249)           (2,407)         (1,970)

     Amortization
     of
     deferred
     financing
     costs                                   582               582             912

    Non real
     estate
     depreciation
     and
     amortizaton                           1,382             1,395           1,308

    Straight
     line
     rent
     revenue                                (152)             (149)           (114)

    Straight
     line
     rent
     expense                                  75                82              77

    Equity-
     based
     compensation
     expense                                 911               655             375

              Adjusted
              Operating
              FFO*                       $17,732           $16,292          $8,360
                                           =====           =======          ======


    * 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
                                          ------------------

                                  March           December         March
                                   31,              31,            31,


                                   2014            2013            2013
                                   ----            ----            ----

    EBITDA and Adjusted EBITDA

    Net income (loss)                    $5,328           $4,447         $(2,074)

    Interest expense                      2,065            2,747           6,550

    Interest income                          (8)              (1)             (6)

    Tax expense of
     taxable REIT
     subsidiaries                    28               -               -

    Depreciation and
     amortization                        13,247           13,161          10,815

                           EBITDA        20,660           20,354          15,285
                                         ------           ------          ------


    Write off of
     unamortized deferred
     finance costs                    -             153           1,098

    Equity-based
     compensation expense                   911              655             375

    Transaction costs                        64               66               -

                                        $21,635          $21,228         $16,758

              Adjusted EBITDA
                                                                             ===


    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
                                         ------------------

                                 March           December          March
                                  31,              31,             31,


                                  2014            2013             2013
                                  ----            ----             ----

    Net Operating Income (NOI)

    Net income (loss)                   $5,328            $4,447         $(2,074)

    Interest expense                     2,065             2,747           6,550

    Interest income                         (8)               (1)             (6)

    Depreciation and
     amortization                       13,247            13,161          10,815

    Write off of
     unamortized
     deferred finance
     costs                           -             153            1,098

    Tax expense of
     taxable REIT
     subsidiaries                   28               -                -

    Transaction costs                       64                66               -

    General and
     administrative
     expenses                           10,778             9,848           9,594

                NOI                    $31,502           $30,421         $25,977
                                         =====           =======           =====


    Breakdown of NOI by facility:

    Atlanta-Metro
     data center                       $14,402           $13,654         $12,184

    Atlanta-Suwanee
     data center                         8,174             8,210           6,784

    Santa Clara data
     center                              2,730             2,640           2,747

    Richmond data center                 3,047             2,780           2,267

    Sacramento data
     center                              2,324             2,061           1,924

    Other data centers                     825             1,076              71

                NOI                    $31,502           $30,421         $25,977
                                         =====           =======           =====


    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 its 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 its 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
                                      ------------------

                                March             December            March
                                 31,               31,             31,


                                 2014             2013            2013
                                 ----             ----            ----

    Recognized MRR in the period

    Total period
     revenues (GAAP
     basis)                             $48,943          $47,429          $41,498

    Less: Total
     period recoveries                   (3,691)          (3,173)          (2,866)

              Total period
               deferred setup
               fees                      (1,219)          (1,228)          (1,062)

              Total period other           (878)          (1,147)          (1,233)
                                           ----           ------           ------

    Recognized MRR in
     the period                          43,155           41,881           36,337


    MRR at period end

    Total period
     revenues (GAAP
     basis)                             $48,943          $47,429          $41,498

    Less: Total
     revenues
     excluding last
     month                              (32,551)        (31,212)          (27,301)
                                         ------          -------           ------

    Total revenues for
     last month of
     period                              16,392           16,217           14,197

    Less: Last month
     recoveries                          (1,136)          (1,240)          (1,035)

              Last month
               deferred setup
               fees                        (410)            (370)            (366)

              Last month other             (272)            (469)            (576)

    MRR at period
     end                                $14,574          $14,138          $12,220
                                        =======          =======          =======

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SOURCE QTS Realty Trust, Inc.