QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW

(unaudited and in thousands)

For the three months ended March 31, 2020 and 2019


	2020		2019
Cash flow from operating activities:
Net income	$	8,120	$	21,148
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		43,373		37,247
Amortization of above and below market leases		90		64
Amortization of deferred loan costs		987		978
Distributions from unconsolidated entity		300		—
Equity in net loss of unconsolidated entity		677		274
Equity-based compensation expense		4,875		3,300
Bad debt expense		3,719		239
Gain on sale of real estate, net		—		(13,408)
Deferred tax expense (benefit)		(270)		111
Foreign currency remeasurement income		(159)		—
Changes in operating assets and liabilities
Rents and other receivables, net		2,888		(2,043)
Prepaid expenses		(3,164)		(2,762)
Due to/from affiliates, net		(4,428)		—
Other assets		(238)		(419)
Accounts payable and accrued liabilities		7,173		(7,140)
Advance rents, security deposits and other liabilities		6,727		1,653
Deferred income		392		4,926
Net cash provided by operating activities		71,062		44,168

Cash flow from investing activities:
Proceeds from sale of property, net		—		52,722
Acquisitions, net of cash acquired		(1,797)		—
Additions to property and equipment		(171,218)		(101,234)
Net cash used in investing activities		(173,015)		(48,512)

Cash flow from financing activities:
Credit facility proceeds		212,917		93,000
Credit facility repayments		—		(210,000)
Payment of deferred financing costs		(5)		(173)
Payment of preferred stock dividends		(7,045)		(7,045)
Payment of common stock dividends		(25,627)		(20,961)
Distribution to noncontrolling interests		(2,934)		(2,735)
Proceeds from exercise of stock options		808		2,687
Payment of tax withholdings related to equity-based awards		(2,293)		(2,062)
Principal payments on finance lease obligations		(620)		(799)
Mortgage principal debt repayments		(12)		(9)
Common stock issuance proceeds, net of costs		83,260		159,360
Net cash provided by financing activities		258,449		11,263
Effect of foreign currency exchange rates on cash and cash equivalents		(192)		—
Net change in cash and cash equivalents		156,304		6,919
Cash and cash equivalents, beginning of period		15,653		11,759
Cash and cash equivalents, end of period	$	171,957	$	18,678

See accompanying notes to financial statements.

8

Table of Contents

QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (continued)

(unaudited and in thousands)

For the three months ended March 31, 2020 and 2019


	2020		2019
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (excluding deferred financing costs and amounts capitalized)	$	9,370	$	9,461
Noncash investing and financing activities:
Accrued capital additions	$	125,750	$	69,963
Net decrease in other assets/liabilities related to change in fair value of derivative contracts	$	(35,097)	$	(9,853)
Equity received in unconsolidated entity in exchange for real estate assets	$	—	$	25,280
Increase in assets in exchange for finance lease obligation	$	—	$	45,024
Accrued equity issuance costs	$	44	$	918
Accrued preferred stock dividend	$	5,938	$	5,938

See accompanying notes to financial statements.

9

Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED BALANCE SHEETS

(in thousandsexcept share and per share data)


	March 31, 2020		December 31, 2019
	(unaudited)
ASSETS
Real Estate Assets
Land	$	130,576	$	130,605
Buildings, improvements and equipment		2,411,426		2,178,901
Less: Accumulated depreciation		(588,685)		(558,560)
		1,953,317		1,750,946
Construction in progress		877,313		920,922
Real Estate Assets, net		2,830,630		2,671,868
Investments in unconsolidated entity		32,051		30,218
Operating lease right-of-use assets, net		55,716		57,141
Cash and cash equivalents		171,957		15,653
Rents and other receivables, net		74,506		81,181
Acquired intangibles, net		78,139		81,679
Deferred costs, net		53,271		52,363
Prepaid expenses		13,747		10,586
Goodwill		173,843		173,843
Other assets, net		49,337		49,001
TOTAL ASSETS	$	3,533,197	$	3,223,533

LIABILITIES
Unsecured credit facility, net	$	1,222,946	$	1,010,640
Senior notes, net of debt issuance costs		395,740		395,549
Finance leases and mortgage notes payable		46,244		46,876
Operating lease liabilities		62,843		64,416
Accounts payable and accrued liabilities		177,949		142,547
Dividends and distributions payable		37,464		34,500
Advance rents, security deposits and other liabilities		24,569		18,027
Derivative liabilities		61,706		26,609
Deferred income taxes		479		749
Deferred income		39,561		39,169
TOTAL LIABILITIES		2,069,501		1,779,082

PARTNERS' CAPITAL
7.125% Series A cumulative redeemable perpetual preferred units: $0.01 par value (liquidation preference $25.00 per unit), 4,600,000 units authorized, 4,280,000 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		103,212		103,212
6.50% Series B cumulative convertible perpetual preferred units: $0.01 par value (liquidation preference $100.00 per unit), 3,162,500 units authorized, issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		304,223		304,223
Common units: $0.01 par value, 450,133,000 units authorized, 67,069,024 and 64,901,157 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		1,120,664		1,064,481
Accumulated other comprehensive income (loss)		(64,403)		(27,465)
TOTAL PARTNERS' CAPITAL		1,463,696		1,444,451
TOTAL LIABILITIES AND PARTNERS' CAPITAL	$	3,533,197	$	3,223,533

See accompanying notes to financial statements.

10

Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands)


	Three Months Ended March 31,
	2020		2019
Revenues:
Rental	$	120,081	$	109,389
Other		6,211		3,300
Total revenues		126,292		112,689
Operating expenses:
Property operating costs		40,781		34,103
Real estate taxes and insurance		3,911		3,367
Depreciation and amortization		45,070		38,788
General and administrative		20,683		19,891
Transaction and integration costs		216		1,214
Total operating expenses		110,661		97,363
Gain on sale of real estate, net		—		13,408
Operating income		15,631		28,734
Other income and expense:
Interest income		—		45
Interest expense		(7,162)		(7,146)
Other income		159		—
Equity in net loss of unconsolidated entity		(677)		(274)
Income before taxes		7,951		21,359
Tax benefit (expense) of taxable REIT subsidiaries		169		(211)
Net income	$	8,120	$	21,148
Preferred unit distributions		(7,045)		(7,045)
Net income attributable to common unitholders	$	1,075	$	14,103

See accompanying notes to financial statements.

11

Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited and in thousands)


	Three Months Ended March 31,
	2020		2019
Net income	$	8,120	$	21,148
Other comprehensive income (loss):
Foreign currency translation adjustment loss		(223)		—
Decrease in fair value of derivative contracts		(36,715)		(9,853)
Reclassification of other comprehensive income to utilities expense		354		—
Reclassification of other comprehensive income to interest expense		758		(494)
Comprehensive income (loss)	$	(27,706)	$	10,801

See accompanying notes to financial statements.

12

Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(unaudited and in thousands)

The consolidated statement of ~~equity~~partners’ capital for the three months ended March 31, ~~2018:~~2020:

Accumulated other

Accumulated

Total

Preferred Stock

Common stock

Additional

comprehensive

dividends in

stockholders'

Noncontrolling


Shares

Amount

Shares

Amount

paid-in capital

income

excess of earnings

equity

interests

Total
Balance January 1, 2018

—

$
—

50,702

$
507

$
1,049,176

$
1,283

$
(173,552)

$
877,414

$
113,242

$
990,656
Net share activity through equity award plan

—

—

434

4

(1,311)

—

—

(1,307)

1,069

(238)
Increase in fair value of derivative contracts

—

—

—

—

—

5,290

—

5,290

692

5,982
Equity-based compensation expense

—

—

—

—

4,337

—

—

4,337

561

4,898
Net proceeds from Series A Preferred Stock offering

4,280

103,184

—

—

—

—

—

103,184

—

103,184
Dividends declared on the Series A Preferred Stock

—

—

—

—

—

—

(328)

(328)

—

(328)
Dividends declared to common stockholders

—

—

—

—

—

—

(20,971)

(20,971)

—

(20,971)
Dividends to noncontrolling interests

—

—

—

—

—

—

—

—

(2,736)

(2,736)
Net income (loss)

—

—

—

—

—

—

(223)

(223)

(29)

(252)
Balance March 31, 2018

4,280

$
103,184

51,136

$
511

$
1,052,202

$
6,573

$
(195,074)

$
967,396

$
112,799

$
1,080,195


	Limited Partners' Capital						General Partner's Capital			Accumulated other
	Preferred Units			Common Units			Common Units			comprehensive income (loss)
	Units	Amount		Units	Amount		Units	Amount		Amount		Total
Balance January 1, 2020	7,443	$	407,435	64,901	$	1,064,481	1	$	—	$	(27,465)	$	1,444,451
Net share activity through equity award plan	—		—	238		(1,458)	—		—		—		(1,458)
Decrease in fair value of derivative contracts	—		—	—		—	—		—		(36,715)		(36,715)
Foreign currency translation adjustment	—		—	—		—	—		—		(223)		(223)
Equity-based compensation expense	—		—	—		4,875	—		—		—		4,875
Proceeds net of fees from settlement of forward shares	—		—	1,930		83,217	—		—		—		83,217
Dividends declared on Series A Preferred Units	—		—	—		(1,906)	—		—		—		(1,906)
Dividends declared on Series B Convertible Preferred Units	—		—	—		(5,139)	—		—		—		(5,139)
Common dividends declared to QTS Realty Trust, Inc.	—		—	—		(28,393)	—		—		—		(28,393)
Partnership distributions	—		—	—		(3,133)	—		—		—		(3,133)
Net income	—		—	—		8,120	—		—		—		8,120
Balance March 31, 2020	7,443	$	407,435	67,069	$	1,120,664	1	$	—	$	(64,403)	$	1,463,696

~~See accompanying notes to financial statements.~~

7

~~Table of Contents~~

~~QTS REALTY TRUST, INC.~~

~~INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW~~

~~(unaudited and in thousands)~~

~~For the three months ended March 31, 2019 and 2018~~

2019

2018
Cash flow from operating activities:

Net income (loss)

$
21,148

$
(252)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

37,247

34,580
Amortization of above and below market leases

64

139
Amortization of deferred loan costs

978

962
Equity-based compensation expense

3,300

3,481
Bad debt recoveries

—

(863)
Gain on sale of real estate, net

(13,408)

—
Deferred tax expense (benefit)

111

(2,402)
Restructuring costs, net of cash paid

—

8,020
Changes in operating assets and liabilities

Rents and other receivables, net

(1,804)

2,753
Prepaid expenses

(2,762)

(4,165)
Other assets

(419)

(3,339)
Accounts payable and accrued liabilities

(6,866)

9,619
Advance rents, security deposits and other liabilities

1,653

(354)
Deferred income

4,926

3,374
Net cash provided by operating activities

44,168

51,553

Cash flow from investing activities:

Proceeds from sale of property, net

52,722

—
Acquisitions, net of cash acquired

—

(24,626)
Additions to property and equipment

(101,234)

(103,936)
Net cash used in investing activities

(48,512)

(128,562)

Cash flow from financing activities:

Credit facility proceeds

93,000

102,000
Credit facility repayments

(210,000)

(95,000)
Payment of deferred financing costs

(173)

(499)
Payment of preferred stock dividends

(7,045)

—
Payment of common stock dividends

(20,961)

(19,670)
Distribution to noncontrolling interests

(2,735)

(2,552)
Proceeds from exercise of stock options

2,687

—
Payment of tax withholdings related to equity-based awards

(2,062)

(867)
Principal payments on finance lease obligations

(799)

(2,324)
Mortgage principal debt repayments

(9)

(16)
Preferred stock issuance proceeds, net of costs

—

103,615
Common stock issuance proceeds, net of costs

159,360

—
Net cash provided by financing activities

11,263

84,687

Net increase in cash and cash equivalents

6,919

7,678
Cash and cash equivalents, beginning of period

11,759

8,243
Cash and cash equivalents, end of period

$
18,678

$
15,921

~~See accompanying notes to financial statements.~~

8

~~Table of Contents~~

~~QTS REALTY TRUST, INC.~~

~~INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (continued)~~

~~(unaudited and in thousands)~~

~~For the three months ended March 31, 2019 and 2018~~

2019

2018
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

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

$
9,461

$
4,720
Noncash investing and financing activities:

Accrued capital additions

$
69,963

$
102,489
Net increase (decrease) in other assets/liabilities related to change in fair value of derivative contracts

$
(9,853)

$
5,982
Equity received in unconsolidated entity in exchange for real estate assets

$
25,280

$
—
Increase in assets in exchange for finance lease obligation

$
45,024

$
—
Accrued equity issuance costs

$
918

$
432
Accrued preferred stock dividend

$
5,938

$
328

~~See accompanying notes to financial statements.~~

9

~~Table of Contents~~

~~QUALITYTECH, LP~~

~~INTERIM CONSOLIDATED BALANCE SHEETS~~

~~(in thousandsexcept share and per share data)~~

March 31, 2019

December 31, 2018

(unaudited)

ASSETS

Real Estate Assets

Land

$
105,541

$
105,541
Buildings, improvements and equipment

2,031,825

1,917,251
Less: Accumulated depreciation

(494,787)

(467,644)

1,642,579

1,555,148
Construction in progress

803,888

790,064
Real Estate Assets, net

2,446,467

2,345,212
Investments in unconsolidated entity

44,191

—
Operating lease right-of-use assets, net

61,585

—
Cash and cash equivalents

18,678

11,759
Rents and other receivables, net

56,898

55,093
Acquired intangibles, net

92,053

95,451
Deferred costs, net

45,674

45,096
Prepaid expenses

9,585

6,822
Goodwill

173,843

173,843
Assets held for sale

—

71,800
Other assets, net

55,280

56,893
TOTAL ASSETS

$
3,004,254

$
2,861,969

LIABILITIES

Unsecured credit facility, net

$
828,861

$
945,657
Senior notes, net of debt issuance costs

394,944

394,786
Finance leases and mortgage notes payable

48,988

4,674
Operating lease liabilities

69,346

—
Accounts payable and accrued liabilities

120,501

99,166
Dividends and distributions payable

33,244

29,633
Advance rents, security deposits and other liabilities

34,515

32,679
Liabilities held for sale

—

24,349
Deferred income taxes

1,208

1,097
Deferred income

38,167

33,241
TOTAL LIABILITIES

$
1,569,774

$
1,565,282

PARTNERS' CAPITAL

7.125% Series A cumulative redeemable perpetual preferred units: $0.01 par value (liquidation preference $25.00 per unit), 4,600,000 units authorized, 4,280,000 units issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

103,212

103,212
6.50% Series B cumulative convertible perpetual preferred units: $0.01 par value (liquidation preference $100.00 per unit), 3,162,500 units authorized, issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

304,223

304,265
Common units: $0.01 par value, 450,133,000 units authorized, 62,027,587 and 57,799,035 units issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

1,034,554

886,866
Accumulated other comprehensive income

(7,509)

2,344
TOTAL PARTNERS' CAPITAL

1,434,480

1,296,687
TOTAL LIABILITIES AND PARTNERS' CAPITAL

$
3,004,254

$
2,861,969

~~See accompanying notes to financial statements.~~

10

~~Table of Contents~~

~~QUALITYTECH, LP~~

~~INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(unaudited and in thousands)~~

Three Months Ended March 31,

2019

2018
Revenues:

Rental

$
98,596

$
88,415
Variable lease revenue from recoveries

10,793

11,513
Other

3,300

13,769
Total revenues

112,689

113,697
Operating Expenses:

Property operating costs

34,103

37,740
Real estate taxes and insurance

3,367

2,905
Depreciation and amortization

38,788

35,913
General and administrative

19,891

22,234
Transaction and integration costs

1,214

920
Restructuring

—

8,530
Total operating expenses

97,363

108,242
Gain on sale of real estate, net

13,408

—
Operating income (loss)

28,734

5,455
Other income and expenses:

Interest income

45

1
Interest expense

(7,146)

(8,110)
Equity in earnings (loss) of unconsolidated entity

(274)

—
Income (loss) before taxes

21,359

(2,654)
Tax benefit (expense) of taxable REIT subsidiaries

(211)

2,402
Net income (loss)

$
21,148

$
(252)
Preferred unit distributions

(7,045)

(328)
Net income (loss) attributable to common unitholders

$
14,103

$
(580)

~~See accompanying notes to financial statements.~~

11

~~Table of Contents~~

~~QUALITYTECH, LP~~

~~INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(unaudited and in thousands)~~

Three Months Ended March 31,

2019

2018
Net income (loss)

$
21,148

$
(252)
Other comprehensive income:

Increase (decrease) in fair value of derivative contracts

(9,853)

5,982
Reclassification of other comprehensive income to interest expense (income)

(494)

402
Comprehensive income

$
10,801

$
6,132

~~See accompanying notes to financial statements.~~

12

~~Table of Contents~~

~~QUALITYTECH, LP~~

~~INTERIM CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL~~

~~(unaudited and in thousands)~~

The consolidated statement of partners’ capital for the three months ended March 31, 2019:

Limited Partners' Capital

General Partner's Capital

Accumulated other

Preferred Units

Common Units

Common Units

comprehensive income (loss)


Units

Amount

Units

Amount

Units

Amount

Amount

Total
Balance January 1, 2019

7,443

$
407,477

57,799

$
886,866

1

$
—

$
2,344

$
1,296,687
Net cumulative effect upon ASC 842 adoption (see Note 2)

—

—

—

(1,813)

—

—

—

(1,813)
Net share activity through equity award plan

—

—

229

741

—

—

—

741
Decrease in fair value of derivative contracts

—

—

—

—

—

—

(9,853)

(9,853)
Equity-based compensation expense

—

—

—

3,300

—

—

—

3,300
Adjustment to expenses from Series B Preferred equity offering

—

(42)

—

—

—

—

—

(42)
Net proceeds from equity offering

—

—

4,000

158,663

—

—

—

158,663
Dividends declared on Series A Preferred Units

—

—

—

(1,906)

—

—

—

(1,906)
Dividends declared on Series B Convertible Preferred Units

—

—

—

(5,139)

—

—

—

(5,139)
Common dividends declared to QTS Realty Trust, Inc.

—

—

—

(24,371)

—

—

—

(24,371)
Partnership distributions

—

—

—

(2,935)

—

—

—

(2,935)
Net income

—

—

—

21,148

—

—

—

21,148
Balance March 31, 2019

7,443

$
407,435

62,028

$
1,034,554

1

$
—

$
(7,509)

$
1,434,480


	Limited Partners' Capital						General Partner's Capital			Accumulated other
	Preferred Units			Common Units			Common Units			comprehensive income (loss)
	Units	Amount		Units	Amount		Units	Amount		Amount		Total
Balance January 1, 2019	7,443	$	407,477	57,799	$	886,866	1	$	—	$	2,344	$	1,296,687
Net cumulative effect upon adoption of ASC Topic 842 adoption	—		—	—		(1,813)	—		—		—		(1,813)
Net share activity through equity award plan	—		—	229		741	—		—		—		741
Decrease in fair value of derivative contracts	—		—	—		—	—		—		(9,853)		(9,853)
Equity-based compensation expense	—		—	—		3,300	—		—		—		3,300
Adjustment to expenses net from Series B Convertible Preferred equity offering	—		(42)	—		—	—		—		—		(42)
Proceeds net of fees from equity offering	—		—	4,000		158,663	—		—		—		158,663
Dividends declared on Series A Preferred Units	—		—	—		(1,906)	—		—		—		(1,906)
Dividends declared on Series B Convertible Preferred Units	—		—	—		(5,139)	—		—		—		(5,139)
Common dividends declared to QTS Realty Trust, Inc.	—		—	—		(24,371)	—		—		—		(24,371)
Partnership distributions	—		—	—		(2,935)	—		—		—		(2,935)
Net income	—		—	—		21,148	—		—		—		21,148
Balance March 31, 2019	7,443	$	407,435	62,028	$	1,034,554	1	$	—	$	(7,509)	$	1,434,480

~~The consolidated statement of partners’ capital for the three months ended March 31, 2018:~~

Limited Partners' Capital

General Partner's Capital

Accumulated other

Preferred Units

Common Units

Common Units

comprehensive income


Units

Amount

Units

Amount

Units

Amount

Amount

Total
Balance January 1, 2018

—

$
—

57,246

$
989,207

1

$
—

$
1,449

$
990,656
Net share activity through equity award plan

—

—

564

(238)

—

—

—

(238)
Increase in fair value of derivative contracts

—

—

—

—

—

—

5,982

5,982
Equity-based compensation expense

—

—

—

4,898

—

—

—

4,898
Net proceeds from Series A Preferred equity offering

4,280

103,184

—

—

—

—

—

103,184
Dividends declared on Series A Preferred Units

—

—

—

(328)

—

—

—

(328)
Common dividends declared to QTS Realty Trust, Inc.

—

—

—

(20,971)

—

—

—

(20,971)
Partnership distributions

—

—

—

(2,736)

—

—

—

(2,736)
Net (loss)

—

—

—

(252)

—

—

—

(252)
Balance March 31, 2018

4,280

$
103,184

57,810

$
969,580

1

$
—

$
7,431

$
1,080,195

See accompanying notes to financial statements.

13

Table of Contents

QUALITYTECH, LP

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW

(unaudited and in thousands)

For the three months ended March 31, ~~2019~~2020 and ~~2018~~2019


	2020		2019
Cash flow from operating activities:
Net income	$	8,120	$	21,148
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		43,373		37,247
Amortization of above and below market leases		90		64
Amortization of deferred loan costs		987		978
Distributions from unconsolidated entity		300		—
Equity in net loss of unconsolidated entity		677		274
Equity-based compensation expense		4,875		3,300
Bad debt expense		3,719		239
Gain on sale of real estate, net		—		(13,408)
Deferred tax expense (benefit)		(270)		111
Foreign currency remeasurement income		(159)		—
Changes in operating assets and liabilities
Rents and other receivables, net		2,888		(2,043)
Prepaid expenses		(3,164)		(2,762)
Due to/from affiliates, net		(4,428)		—
Other assets		(238)		(419)
Accounts payable and accrued liabilities		7,173		(7,140)
Advance rents, security deposits and other liabilities		6,727		1,653
Deferred income		392		4,926
Net cash provided by operating activities		71,062		44,168

Cash flow from investing activities:
Proceeds from sale of property, net		—		52,722
Acquisitions, net of cash acquired		(1,797)		—
Additions to property and equipment		(171,218)		(101,234)
Net cash used in investing activities		(173,015)		(48,512)

Cash flow from financing activities:
Credit facility proceeds		212,917		93,000
Credit facility repayments		—		(210,000)
Payment of deferred financing costs		(5)		(173)
Payment of preferred unit dividends		(7,045)		(7,045)
Payment of dividends to QTS Realty Trust, Inc.		(25,627)		(20,961)
Partnership distributions		(2,934)		(2,735)
Proceeds from exercise of stock options		808		2,687
Payment of tax withholdings related to equity-based awards		(2,293)		(2,062)
Principal payments on finance lease obligations		(620)		(799)
Mortgage principal debt repayments		(12)		(9)
Common unit issuance proceeds, net of costs		83,260		159,360
Net cash provided by financing activities		258,449		11,263
Effect of foreign currency exchange rates on cash and cash equivalents		(192)		—
Net change in cash and cash equivalents		156,304		6,919
Cash and cash equivalents, beginning of period		15,653		11,759
Cash and cash equivalents, end of period	$	171,957	$	18,678

See accompanying notes to financial statements.

2019

2018
Cash flow from operating activities:

Net income (loss)

$
21,148

$
(252)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

37,247

34,580
Amortization of above and below market leases

64

139
Amortization of deferred loan costs

978

962
Equity-based compensation expense

3,300

3,481
Bad debt recoveries

—

(863)
Gain on sale of real estate, net

(13,408)

—
Deferred tax expense (benefit)

111

(2,402)
Restructuring costs, net of cash paid

—

8,020
Changes in operating assets and liabilities

Rents and other receivables, net

(1,804)

2,753
Prepaid expenses

(2,762)

(4,165)
Other assets

(419)

(3,339)
Accounts payable and accrued liabilities

(6,866)

9,619
Advance rents, security deposits and other liabilities

1,653

(354)
Deferred income

4,926

3,374
Net cash provided by operating activities

44,168

51,553

Cash flow from investing activities:

Proceeds from sale of property

52,722

—
Acquisitions, net of cash acquired

—

(24,626)
Additions to property and equipment

(101,234)

(103,936)
Net cash used in investing activities

(48,512)

(128,562)

Cash flow from financing activities:

Credit facility proceeds

93,000

102,000
Credit facility repayments

(210,000)

(95,000)
Payment of deferred financing costs

(173)

(499)
Payment of preferred unit dividends

(7,045)

—
Payment of dividends to QTS Realty Trust, Inc.

(20,961)

(19,670)
Partnership distributions

(2,735)

(2,552)
Proceeds from exercise of stock options

2,687

—
Payment of tax withholdings related to equity-based awards

(2,062)

(867)
Principal payments on finance lease obligations

(799)

(2,324)
Mortgage principal debt repayments

(9)

(16)
Preferred unit issuance proceeds, net of costs

—

103,615
Common unit issuance proceeds, net of costs

159,360

—
Net cash provided by financing activities

11,263

84,687

Net increase in cash and cash equivalents

6,919

7,678
Cash and cash equivalents, beginning of period

11,759

8,243
Cash and cash equivalents, end of period

$
18,678

$
15,921

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QUALITYTECH, LP

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (continued)

(unaudited and in thousands)

For the three months ended March 31, 2020 and 2019


	2020		2019
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (excluding deferred financing costs and amounts capitalized)	$	9,370	$	9,461
Noncash investing and financing activities:
Accrued capital additions	$	125,750	$	69,963
Net decrease in other assets/liabilities related to change in fair value of derivative contracts	$	(35,097)	$	(9,853)
Equity received in unconsolidated entity in exchange for real estate assets	$	—	$	25,280
Increase in assets in exchange for finance lease obligation	$	—	$	45,024
Accrued equity issuance costs	$	44	$	918
Accrued preferred unit distribution	$	5,938	$	5,938

See accompanying notes to financial statements.

14

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~~QUALITYTECH, LP~~

~~INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (continued)~~

~~(unaudited and in thousands)~~

~~For the three months ended March 31, 2019 and 2018~~

2019

2018
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

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

$
9,461

$
4,720
Noncash investing and financing activities:

Accrued capital additions

$
69,963

$
102,489
Increase in other assets related to change in fair value of interest derivative contracts

$
(9,853)

$
5,982
Equity received in unconsolidated entity in exchange for real estate assets

$
25,280

$
—
Increase in assets in exchange for finance lease obligation

$
45,024

$
—
Accrued equity issuance costs

$
918

$
432
Accrued preferred unit dividend

$
5,938

$
328

~~See accompanying notes to financial statements.~~

15

Table of Contents

QTS REALTY TRUST, INC.

QUALITYTECH, LP

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business

QTS Realty Trust, Inc., (“QTS”) through its controlling interest in QualityTech, LP (the “Operating Partnership” and collectively with QTS and ~~their~~its subsidiaries, the ~~“Company”~~“Company,” “we,” “us,” or “our”) and the subsidiaries of the Operating Partnership, is engaged in the business of owning, acquiring, constructing, redeveloping and managing multi-tenant data centers. As of March 31, ~~2019, the Company’s~~2020 our portfolio consisted of 24 owned and leased properties, including a property owned by an unconsolidated entity, with data centers located throughout the United States, Canada ~~Europe~~ and ~~Asia.~~Europe.

QTS elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2013. As a REIT, QTS generally is not required to pay federal corporate income taxes on its taxable income to the extent it is currently distributed to its stockholders.

~~The Operating Partnership is a Delaware limited partnership formed on August 5, 2009 and is QTS’ historical predecessor.~~ As of March 31, ~~2019,~~2020, QTS owned approximately ~~89.2%~~90.1% of the interests in the Operating Partnership. Substantially all of QTS’ assets are held by, and QTS’ operations are conducted through, the Operating Partnership. QTS’ interest in the Operating Partnership entitles QTS to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to QTS’ percentage ownership. As the sole general partner of the Operating Partnership, QTS generally has the exclusive power under the partnership agreement of the Operating Partnership to manage and conduct the Operating Partnership’s business and affairs, subject to certain limited approval and voting rights of the limited partners. QTS’ board of directors manages the Company’s business and affairs.

2. Summary of Significant Accounting Policies

Basis of Presentation – The accompanying financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in compliance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes and management’s discussion and analysis included in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on February ~~25, 2019.~~28, 2020. The consolidated balance sheet data included herein as of December 31, ~~2018~~2019 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

The accompanying financial statements are presented for both QTS Realty Trust, Inc. and QualityTech, LP. References to “QTS” mean QTS Realty Trust, Inc. and its controlled subsidiaries and references to the “Operating Partnership” mean QualityTech, LP and its controlled subsidiaries.

The Operating Partnership meets the definition and criteria of a variable interest entity (“VIE”) in accordance with ~~ASC~~Accounting Standards Codification (“ASC”) Topic 810 Consolidation, and the Company is the primary beneficiary of the VIE. As discussed below, the Company’s only material asset is its ownership interest in the Operating Partnership, and consequently, all of its assets and liabilities represent those assets and liabilities of the Operating Partnership. The Company’s debt is an obligation of the Operating Partnership where the creditors may have recourse, under certain circumstances, against the credit of the Company.

QTS is the sole general partner of the Operating Partnership, and its only material asset consists of its ownership interest in the Operating Partnership. Management operates QTS and the Operating Partnership as one business. The management of QTS consists of the same employees as the management of the Operating Partnership. QTS does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity from time to time. QTS has not issued or guaranteed any indebtedness. Except for net proceeds from public equity issuances by QTS, which are contributed to the Operating Partnership in exchange for units of limited partnership interest of the Operating Partnership, the Operating Partnership generates all remaining capital required by the business through its operations, the direct or indirect incurrence of indebtedness, and the issuance of partnership units. Therefore,

16

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as general partner with control of the Operating Partnership, QTS consolidates the Operating Partnership for financial reporting purposes.

16

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The Company ~~believes, therefore, that providing~~presents one set of notes for the financial statements of QTS and the Operating ~~Partnership provides the following benefits:~~

·

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

·

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

·

~~creates time and cost efficiencies through the preparation of one set of notes instead of two separate sets of notes.~~

In addition, in light of these combined notes, the Company believes it is important for investors to understand the few differences between QTS and the Operating Partnership in the context of how QTS and the Operating Partnership operate as a consolidated company. With respect to balance sheets, the presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated balance sheets of QTS and those of the Operating Partnership. On the Operating Partnership’s consolidated balance sheets, partners’ capital includes preferred partnership units and common partnership units as well as accumulated other comprehensive income (loss) that are owned by QTS and other partners. On QTS’ consolidated balance sheets, stockholders’ equity includes preferred stock, common stock, additional paid in capital, accumulated other comprehensive income (loss) and accumulated dividends in excess of earnings. The remaining equity reflected on QTS’ consolidated balance sheet is the portion of net assets that are retained by partners other than QTS, referred to as noncontrolling interests. With respect to statements of operations, the primary difference in QTS' Statements of Operations and Statements of Comprehensive Income (Loss) is that for net income (loss), QTS retains its proportionate share of the net income (loss) based on its ownership of the Operating Partnership, with the remaining balance being retained by the Operating Partnership. These combined notes refer to actions or holdings as being actions or holdings of “the Company.” Although the Operating Partnership is generally the entity that enters into contracts, holds assets and issues debt, management believes that these general references to “the Company” in this context is appropriate because the business is one enterprise operated through the Operating Partnership.

As discussed above, QTS owns no0 operating assets and has no operations independent of the Operating Partnership and its subsidiaries. Also, the Operating Partnership owns no0 operating assets and has no operations independent of its subsidiaries. Obligations under the 4.75% Senior Notes due 2025 and the unsecured credit facility, both discussed in Note 7,6, are fully, unconditionally, and jointly and severally guaranteed by the Operating Partnership’s existing subsidiaries (other than certain foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any indebtedness of QTS Realty Trust, Inc., the Operating Partnership, QTS Finance Corporation (the co-issuer of the 4.75% Senior Notes due 2025) or any subsidiary guarantor. The indenture governing the 4.75% Senior Notes due 2025 restricts the ability of the Operating Partnership to make distributions to QTS, subject to certain exceptions, including distributions required in order for QTS to maintain its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”).

The interim consolidated financial statements of QTS Realty Trust, Inc. include the accounts of QTS Realty Trust, Inc. and its majority owned ~~subsidiaries.~~controlled subsidiaries including the Operating Partnership as well as unconsolidated entities accounted for using equity method accounting. This includes the operating results of the Operating Partnership for all periods presented.

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets, allowances for doubtful accounts and deferred tax assets and the valuation of derivatives, real estate assets, acquired intangible assets and certain accruals. The impacts of the COVID-19 pandemic increases uncertainty, which has reduced our ability to use past results to estimate future performance. Accordingly, our estimates and judgments may be subject to greater volatility than has been the case in the past.

17

~~Table of Contents~~

Principles of Consolidation – The consolidated financial statements of QTS Realty Trust, Inc. include the accounts of QTS Realty Trust, Inc. and its controlled subsidiaries. The consolidated financial statements of QualityTech, LP include the accounts of QualityTech, LP and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in the financial statements.

~~The Company evaluates its~~We evaluate our investments in ~~unconsolidated~~less than wholly owned entities to determine whether they should be recorded on a consolidated basis. The percentage of ownership interest in the entity, an evaluation of control and whether a VIE exists are all considered in ~~the Company’s~~our consolidation assessment. Investments in real estate entities which ~~the Company has~~we have the ability to exercise significant influence, but ~~does~~do not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, ~~the Company’s~~our share of the earnings or losses of these entities is included in consolidated net income (loss).

Variable Interest Entities (VIEs) – ~~The Company determines~~We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. The determination of whether an entity in which ~~the Company holds~~we hold a direct or indirect variable interest is a VIE is based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. ~~The Company makes~~We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.

~~The Company analyzes~~We analyze any investments in VIEs to determine if ~~the Company is~~we are the primary beneficiary. In evaluating whether ~~it is~~we are the primary beneficiary, ~~the Company evaluates its~~we evaluate our direct and indirect economic interests in the entity. ~~A reporting entity is determined to be the primary beneficiary if it holds a controlling financial interest in the VIE.~~ Determining which reporting entity, if any, ~~has a controlling financial interest in~~is the primary beneficiary of a VIE is primarily a qualitative approach focused on identifying which reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgment.

~~The Company considers~~17

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We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct financing, leasing, construction and other operating decisions and activities. In addition, ~~the Company considers~~we consider the rights of other investors to participate in those decisions, to replace the manager and to sell or liquidate the entity. ~~The Company determines~~We determine whether ~~it is~~we are the primary beneficiary of a VIE at the time ~~the Company becomes~~we become involved with a variable interest entity and ~~reconsiders~~reconsider that conclusion ~~continually.~~upon a reconsideration event. As of March 31, ~~2019, the Company~~2020, we had ~~one~~1 unconsolidated entity that was considered a VIE for which ~~the Company is~~we are not the primary beneficiary. ~~The Company’s~~Our maximum exposure to losses associated with this VIE is limited to ~~its aggregate~~our net investment, which was approximately ~~$44~~$32.1 million as of March 31, ~~2019.~~2020.

~~Reclassifications~~ – Revenue categories in the statement of operations for the three months ended March 31, 2018 have been reclassified to conform to 2019 presentation which consists of three categories instead of four categories presented historically. The statement of operations for the three months ended March 31, 2018 incorporates a reclassification of $2.7 million of straight line rent from the “Other” line item into the “Rental” line item, as well as the combination of $13.2 million of what was previously classified as “Cloud and managed services” revenue and $0.6 million of remaining “Other” revenue into a single “Other” line item.

Real Estate Assets – Real estate assets are reported at cost. All capital improvements for the income-producing properties that extend their useful lives are capitalized to individual property improvements and depreciated over their estimated useful lives. Depreciation for real estate assets is generally provided on a straight-line basis over 40 years from the date the property was placed in service. Property improvements are depreciated on a straight-line basis over the life of the respective improvement ranging from 20 to 40 years from the date the components were placed in service. Leasehold improvements are depreciated over the lesser of 20 years or through the end of the respective life of the lease. Repairs and maintenance costs are expensed as incurred. For the three months ended March 31, 2020, depreciation expense related to real estate assets and non-real estate assets was $32.3 million and $3.4 million, respectively, for a total of $35.7 million. For the three months ended March 31, 2019, depreciation expense related to real estate assets and non-real estate assets was $27.4 million and $2.9 million, respectively, for a total of $30.3 million. ~~For the three months ended March 31, 2018, depreciation expense related to~~We capitalize certain real estate ~~assets and non-~~

18

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~~real estate assets was $23.7 million and $3.2 million, respectively, for a total of $26.9 million. The Company capitalizes certain~~ development costs, including internal costs incurred in connection with development. The capitalization of costs during the construction period (including interest and related loan fees, property taxes and other direct and indirect project costs) begins when development efforts commence and ends when the asset is ready for its intended use. The capitalization of internal costs increases construction in progress recognized during development of the related property and the cost of the real estate asset when placed into service and such costs are depreciated over its estimated useful life. Capitalization of such costs, excluding interest, aggregated to $4.5 million and ~~$3.5~~$4.5 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. Interest is capitalized during the period of development by applying ~~the Company’s~~our weighted average effective borrowing rate to the actual development and other capitalized costs paid during the construction period. Interest is capitalized until the property is ready for its intended use. Interest costs capitalized totaled ~~$7.8~~$8.1 million and ~~$5.4~~$7.8 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Acquisitionsand Sales – Acquisitions of real estate and other entities are either accounted for as asset acquisitions or business combinations depending on facts and circumstances. When substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the transaction is accounted for as an asset acquisition. In an asset acquisition, the purchase price paid for assets acquired is allocated between identified tangible and intangible assets acquired based on relative fair value. Transaction costs associated with asset acquisitions are capitalized. When substantially all of the fair value of assets acquired is not concentrated in a group of similar identifiable assets, the set of assets will generally be considered a business. When accounting for business combinations, purchase accounting is applied to the assets and liabilities related to all real estate investments acquired in accordance with the accounting requirements of ASC Topic 805, Business Combinations, which requires the recording of net assets of acquired businesses at fair value. The fair value of the consideration transferred is assigned to the acquired tangible assets, consisting primarily of land, construction in progress, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-place leases, value of customer relationships ~~trade names, software intangibles~~ and finance leases. The excess of the fair value of liabilities assumed, common stock issued and cash paid over the fair value of identifiable assets acquired is allocated to goodwill, which is not ~~amortized by the Company.~~amortized. Transaction costs associated with business combinations are expensed as incurred.

In developing estimates of fair value of acquired assets and assumed liabilities, management ~~analyzed~~analyzes a variety of factors including market data, estimated future cash flows of the acquired operations, industry growth rates, current replacement cost for fixed assets and market rate assumptions for contractual obligations. Such a valuation requires management to make significant estimates and assumptions, particularly with respect to the intangible assets.

Acquired in-place leases are amortized as amortization expense on a straight-line basis over the remaining life of the underlying leases. ~~This amortization expense is accounted for as real estate amortization expense.~~

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Acquired customer relationships are amortized as amortization expense on a straight-line basis over the expected life of the customer relationship. ~~This~~These amortization ~~expense is~~expenses are accounted for as real estate amortization expense.

~~Other acquired intangible assets, which includes platform, above~~Above or below market leases ~~and trade name intangibles,~~ are amortized on a straight-line basis over their ~~respective~~ expected ~~lives. Above or below market leases~~lives and are ~~amortized~~recorded as a reduction to or increase in rental revenue when we are the ~~Company is a~~ lessor as well as a reduction to or increase in rent expense over the remaining lease terms when we are the lessee.

During the three months ended March 31, 2020, we completed acquisitions of land in ~~the case~~Atlanta, Georgia totaling 2.1 acres adjacent to our Atlanta (DC-1) and Atlanta (DC-2) data centers for an aggregate purchase price of ~~the Company as lessee. The expense associated with trade name intangibles is~~approximately $1.8 million. These acquisitions were accounted for as ~~real estate amortization expense, whereas~~asset acquisitions and were included within the ~~expense associated with~~“Construction in Progress” line item of the ~~amortization~~consolidated balance sheets at the time of ~~platform intangibles is accounted for as non-real estate amortization expense.~~acquisition.

~~The Company accounts for the sale of assets to non-customers under Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2017-05,~~ ~~Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets~~ ~~(Subtopic 610-20), which provides for recognition or derecognition based on transfer of ownership.~~ During the three months ended March 31, 2019, ~~the Company~~we sold ~~its~~our Manassas facility to an unconsolidated affiliate in exchange for cash consideration and noncash consideration in the form of an equity interest in the unconsolidated entity. After measuring the consideration received at fair value, ~~the Company~~we recognized a $13.4 million gain on sale of real estate, net of approximately $5.8 million of transaction costs, associated with ~~the Company’s~~our contribution of certain assets in ~~its~~our Manassas facility to the unconsolidated entity. Substantially all of the fair value of the assets contributed to the entity was concentrated in a group of similar identifiable assets and the sale of the assets were not to a customer,

19

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therefore the transaction was accounted for as an asset sale. The gain on sale of real estate is included within the “Gain on sale of real estate, net” line item of the consolidated statements of operations.

Impairment of Long-Lived Assets, Intangible Assets and Goodwill – ~~The Company reviews its~~We review our long-lived assets, ~~and~~ intangible assets and equity method investments for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset group. If the net carrying value of the asset group exceeds the value of the undiscounted cash flows, the fair value of the asset group is assessed and may be considered impaired. An impairment loss is recognized based on the excess of the carrying amount of the impaired asset over its fair value. NoNaN impairment losses were recorded for the three months ended March 31, ~~2019. The Company recognized $4.0 million of impairment losses related to certain non-real estate product related assets during the three months ended~~2020 and March 31, ~~2018, which was included in the “Restructuring” line item of the consolidated statement of operations.~~2019.

The fair value of goodwill is the consideration transferred in a business combination which is not allocable to identifiable intangible and tangible assets. Goodwill is subject to at least an annual assessment for impairment. In connection with the goodwill impairment evaluation that ~~the Company~~we performed as of October 1, ~~2018, the Company~~2019, we determined qualitatively that it is not more likely than not that the fair value of ~~the Company’s one~~our 1 reporting unit was less than the carrying amount, thus itwe did not perform a quantitative analysis. As ~~the Company continues~~we continue to operate and assess ~~its~~our goodwill at the consolidated level for ~~its~~our single reporting unit and ~~its~~our market capitalization significantly exceeds ~~its~~our net asset value, further analysis was not deemed necessary as of March 31, ~~2019.~~2020.

~~Assets Held for Sale –~~ The Company completed the sale of the Manassas facility to an unconsolidated entity on February 22, 2019. As of December 31, 2018, prior to the Company’s sale of the assets to the entity, the completion of the sale was probable and the Company accordingly reclassified certain assets, as well as liabilities associated with those assets, as held for sale. As of December 31, 2018, the asset value of $71.8 million associated with the held for sale assets was included within the “Assets held for sale” line item of the consolidated statements of financial position and primarily consisted of construction in progress. As of December 31, 2018, the liability value of $24.3 million associated with the held for sale liabilities was included within the “Liabilities held for sale” line item of the consolidated statements of financial position and primarily consisted of accounts payable and accrued liabilities associated with construction in progress assets. See Note 6 for further discussion of the unconsolidated entity.

Cash and Cash Equivalents – ~~The Company considers~~We consider all demand deposits and money market accounts purchased with a maturity date of three months or less at the date of purchase to be cash equivalents. ~~The Company’s~~Our account balances at one or more institutions periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is concentration of credit risk related to amounts on deposit in excess of FDIC coverage. ~~The Company mitigates~~We mitigate this risk by depositing a majority of ~~its~~our funds with several major financial institutions. ~~The Company~~We also ~~has~~have not experienced any losses and ~~does~~do not believe that the risk is significant.

Deferred Costs – Deferred costs, net, on ~~the Company’s~~our balance sheets include both deferred financing costs and deferred leasing costs.

Deferred financing costs represent fees and other costs incurred in connection with obtaining debt and are amortized over the term of the loan and are included in interest expense. Debt issuance costs related to revolving debt arrangements are deferred and presented as assets on the balance sheet; however, all other debt issuance costs are recorded as a direct offset to the associated liability. Amortization of debt issuance costs, including those costs presented as offsets to the

19

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associated liability in the consolidated balance sheet, was $1.0 million for both the three months ended March 31, ~~2019~~

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2020 and ~~2018,~~2019, respectively. ~~Deferred financing costs presented as assets on the balance sheet related to revolving debt arrangements, net of accumulated amortization, are as follows:~~

March 31,

December 31,
(dollars in thousands)

2019

2018

(unaudited)

Deferred financing costs

$
11,488

$
11,530
Accumulated amortization

(4,335)

(3,859)
Deferred financing costs, net

$
7,153

$
7,671

~~Deferred financing costs presented as offsets to the associated liabilities on the balance sheet related to fixed debt arrangements, net of accumulated amortization, are as follows:~~

March 31,

December 31,
(dollars in thousands)

2019

2018

(unaudited)

Deferred financing costs

$
14,641

$
14,501
Accumulated amortization

(3,446)

(2,944)
Deferred financing costs, net

$
11,195

$
11,557

Initial direct costs, or deferred leasing costs, include commissions paid to third parties, including brokers, leasing and referral agents, and internal sales commissions paid to employees for successful execution of lease agreements and are accounted for pursuant to ASC Topic 842, Leases. These costs are incurred when ~~the Company executes~~we execute lease agreements and represent only incremental costs that would not have been incurred if the lease agreement had not been executed. To a lesser extent, ~~the Company incurs~~we incur the same incremental costs to obtain managed ~~service~~services and cloud contracts with customers that are accounted for pursuant to ASC Topic 606, Revenue from Contracts with Customers. Because the framework of accounting for these costs and the underlying nature of the costs are the same for ~~the Company’s~~our revenue and lease contracts, the costs are presented on a combined basis within ~~the Company’s~~our financial ~~statements and within the below table.~~statements. Both revenue and leasing commissions are capitalized and generally amortized over the term of the related leases or the expected term of the contract using the straight-line method. If a customer lease terminates prior to the expiration of its initial term, any unamortized initial direct costs related to the lease are written off to amortization expense. Amortization of deferred leasing costs totaled ~~$5.4~~$6.2 million and ~~$4.9~~$5.4 million for the three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively. ~~Deferred leasing costs, net of accumulated amortization, are as follows:~~

March 31,

December 31,
(dollars in thousands)

2019

2018

(unaudited)

Deferred leasing costs

$
65,655

$
63,018
Accumulated amortization

(27,134)

(25,593)
Deferred leasing costs, net

$
38,521

$
37,425

Revenue Recognition – ~~The Company derives its~~We derive our revenues from leases with customers for data center space which include lease components and nonlease revenue components, such as power, tenant recoveries, cloud and managed services. ~~The Company adopted Accounting Standards Codification (“ASC”) Topic 842,~~ ~~Leases, the new accounting standard for leases, effective January 1, 2019 using the modified retrospective approach. In addition, the Company adopted ASC Topic 606,~~ ~~Revenue from Contracts with Customers, the new accounting standard for revenue from contracts with customers, effective January 1, 2018 using the modified retrospective approach. The Company has~~We have elected the available practical expedient under ASC Topic 842, Leases, to combine ~~its~~our nonlease revenue components that have the same pattern of transfer as the related operating lease component into a single combined lease component. The single combined component is accounted for under ASC ~~842. See~~Topic 842 if the ~~“Recently Adopted Accounting Standards” section below~~lease component is the predominant component and is accounted for ~~further details.~~under ASC Topic 606 if the nonlease components are the predominant components.

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A description of each of ~~the Company’s~~our disaggregated revenue streams ~~as presented on the face of the Consolidated Statements of Operations~~ is as follows:

Rental Revenue

~~The Company’s~~

Our leases with customers are classified as operating leases and rental revenue is recognized on a straight-line basis over the customer lease term. Occasionally, customer leases include options to extend or terminate the lease agreements. ~~The Company does~~We do not include any of these extension or termination options in a customer’s lease term for lease classification purposes or recognizing rental revenue unless it is reasonably certain the customer will exercise these extension or termination options.

Rental revenue also includes revenue from power delivery on fixed power arrangements, whereby customers are billed and pay a fixed monthly fee per committed available amount of connected power. These fixed power arrangements require ~~the Company~~us to provide a series of distinct services ~~of standing~~and to stand ready to deliver the power over the contracted term which is co-terminus with the lease. Customer fixed power arrangements have the same pattern of transfer over the lease term as the lease component and are therefore combined with the lease component to form a single lease component that is recognized over the term of the lease on a straight line basis.

In addition, rental revenue includes straight line rent. Straight line rent represents the difference in rents recognized during the period versus amounts contractually due pursuant to the underlying leases and is recorded as deferred rent receivable/payable in the consolidated balance sheets. For lease agreements that provide for scheduled rent increases, rental income is recognized on a straight-line basis over the non-cancellable term of the leases, which commences when control of the space has been provided to the customer. The amount of the straight-line rent receivable on the balance sheets included in rents and other receivables, net was ~~$31.4~~$42.0 million and ~~$29.7~~$38.7 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Rental revenue also includes amortization of set-up fees which are amortized over the term of the respective lease as discussed below.

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Variable Lease Revenue from Recoveries

Certain customer leases contain provisions under which customers reimburse ~~the Company~~us for power and cooling-related charges as well as a portion of the property’s real estate taxes, insurance and other operating expenses. Recoveries of power and cooling-related expenses relate specifically to ~~the Company’s~~our variable power arrangements, whereby customers pay variable monthly fees for the specific amount of power utilized at the current utility rates. ~~The Company’s~~Our performance obligation is to stand ready to deliver power over the life of the customer contract up to a contracted power capacity. Customers have the flexibility to increase or decrease the amount of power consumed, and therefore sub-metered power revenue is constrained at contract inception. The reimbursements are included in revenue as recoveries from customers and are recognized each month as the uncertainty related to the consideration is resolved (i.e. ~~the Company provides~~we provide power to ~~its~~our customers) and customers utilize the power. Reimbursement of real estate taxes, insurance, common area maintenance, or other operating expenses are accounted for as variable payments under lease guidance pursuant to the practical expedient and are recognized as revenue in the period that the expenses are recognized. Variable lease revenue from recoveries discussed above, including power, common area maintenance or other operating costs, have the same pattern of transfer over the lease term as the lease component and are therefore combined with the lease component to form a single lease component. Variable lease revenue from recoveries is included within the “rental” line item of the statements of operations.

Other Revenue

Other revenue primarily consists of revenue from ~~the Company’s~~our cloud and managed service ~~offerings. The Company,~~offerings, as well as revenue earned from partner channel, management and development fees. We, through ~~its TRS,~~our Taxable REIT Subsidiaries (“TRS”), may provide both ~~its~~our cloud product and use of ~~its~~our managed services to ~~its~~our customers on an individual or combined basis. In both ~~its~~our cloud and managed services offerings the TRS’s performance obligation is to provide services (e.g. cloud hosting, data backup, data storage or data center personnel labor hours) to facilitate a fully integrated information technology (“IT”) outsourcing environment over a contracted term. Although underlying services may vary, over the contracted term monthly service offerings are substantially the same and ~~the Company accounts~~we account for the services as a series of distinct services in accordance with ASC Topic 606. Service fee revenue is recognized as the revenue is earned, which generally coincides with the services being provided. As ~~the Company has~~we have the right to consideration from

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customers in an amount that corresponds directly with the value to the customer of the TRS’s performance of providing continuous services, ~~the Company recognizes~~we recognize monthly revenue for the amount invoiced.

With respect to the transaction price allocated to remaining performance obligations within ~~the Company’s~~our cloud and managed service contracts, ~~the Company has~~we have elected to use the optional exemption provided by ASC Topic 606 whereby ~~the Company is~~we are not required to estimate the total transaction price allocated to remaining performance obligations as ~~the Company applies~~we apply the “right-to-invoice” practical expedient. As described above, the nature of our performance obligation in these contracts is to provide monthly services that are substantially the same and accounted for as a series of distinct services. These contracts generally have a remaining term ranging from month-to-month to three years.

Management fees and other revenues are generally received from ~~the Company’s~~our unconsolidated affiliate properties as well as third parties. Management fee revenue is earned based on a contractual percentage of unconsolidated affiliate property revenue. Development fee revenue is earned on a contractual percentage of hard costs to develop a property. ~~The Company recognizes~~We recognize revenue for these services provided when earned based on the performance criteria in ASC Topic 606, with such revenue recorded in “Other” revenue on the consolidated ~~statement~~statements of operations.

~~The Company records~~Leases as Lessee – We determine if an arrangement is a lease at inception. If the contract is considered a lease, we evaluate leased property to determine whether the lease should be classified as a finance or operating lease in accordance with U.S. GAAP. We periodically enter into finance leases for certain data center facilities, equipment, and fiber optic transmission cabling. Finance lease assets are included within the “Buildings, improvements and equipment” line item of the consolidated balance sheets and finance lease liabilities are included within “Finance leases and mortgage notes payable” line item of the consolidated balance sheets. In addition, we lease certain real estate (primarily land or real estate space) under operating lease agreements with such assets included within the “Operating lease right of use assets,

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net” line item of the consolidated balance sheets and the associated lease liabilities included within the “Operating lease liabilities” line item on the consolidated balance sheets.

Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As our leases as lessee typically do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We assess multiple variables when determining the incremental borrowing rate, such as lease term, payment terms, collateral, economic conditions, and creditworthiness. ROU assets also include any lease payments made and exclude lease incentives. Many of our lease agreements include options to extend the lease, which we do not include in our expected lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

Allowance for Uncollectible Accounts Receivable – We record a provision for uncollectible accounts if a receivable balance relating to ~~contractual rent, rental revenue recorded on a straight-line basis, tenant recoveries or other billed amounts~~lease components from an individual contract is considered by management to be ~~uncollectible. The~~not probable of collection, and this provision is recorded as a reduction to leasing revenues. We also record a general provision of estimated uncollectible tenant receivables based on ~~management’s historical experience~~general probability of collection in accordance with ASC 450-20 Loss Contingencies. This provision is recorded as bad debt expense and ~~a review~~recorded within the “Property Operating Costs” line item of the ~~current status~~consolidated statements of ~~the Company’s receivables.~~operations. The aggregate allowance for doubtful accounts on the consolidated balance ~~sheet~~sheets was ~~$3.3~~$5.2 million and ~~$3.8~~$2.3 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Advance Rents and Security Deposits – Advance rents, typically prepayment of the following month’s rent, consist of payments received from customers prior to the time they are earned and are recognized as revenue in subsequent periods when earned. Security deposits are collected from customers at the lease origination and are generally refunded to customers upon lease expiration.

Deferred Income – Deferred income generally results from non-refundable charges paid by the customer at lease inception to prepare their space for occupancy. ~~The Company records~~We record this initial payment, commonly referred to as set-up fees, as a deferred income liability which amortizes into rental revenue over the term of the related lease on a straight-line basis. Deferred income was ~~$38.2~~$39.6 million and ~~$33.2~~$39.2 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Additionally, ~~$3.2~~$3.9 million and ~~$2.9~~$3.2 million of deferred income was amortized into revenue for the three months ended March 31, 2020 and 2019, respectively.

Foreign Currency - The financial position of foreign subsidiaries is translated at the exchange rates in effect at the end of the period, while revenues and ~~2018, respectively.~~expenses are translated at average exchange rates during the period. Gains or losses from translation of foreign operations where the local currency is the functional currency are included as components of other comprehensive income (loss). Gains or losses from foreign currency transactions are included in determining net income (loss). In February 2020 we entered into a net investment hedge which resulted in gains or losses subsequently being recognized in Other Comprehensive Income (Loss).

Equity-based Compensation – Equity-based compensation costs are measured based upon their estimated fair value on the date of grant or modification and amortized ratably over their respective service periods. ~~The Company has~~We have elected to account for forfeitures as they occur. Equity-based compensation expense ~~net of forfeited and repurchased awards~~ was ~~$3.3~~$4.9 million and ~~$3.5~~$3.3 million for the three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively. Equity based compensation expense for the three months ended March 31, 2018 excludes $1.4 million of equity based compensation expense associated with the acceleration of equity awards related to certain employees impacted by the Company’s strategic growth plan. The aforementioned equity based compensation expense is included in the “Restructuring” expense line item on the consolidated statements of operations.

Segment Information – ~~The Company manages its~~We manage our business as ~~one~~1 operating segment and thus ~~one~~1 reportable segment consisting of a portfolio of investments in multiple data ~~centers located primarily in the United States.~~centers.

Customer Concentrations – ~~As of~~During the three months ended March 31, ~~2019, one~~2020, 1 of ~~the Company’s customers represented 12.5% of its total monthly rental revenue. No other~~our customers exceeded 6%10% of total ~~monthly rental revenue.~~revenues, representing approximately 10.8% of total revenues for the three months ended March 31, 2020.

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Table of Contents

As of March 31, ~~2019, three~~2020, 4 of ~~the Company’s~~our customers exceeded 5% of trade accounts receivable. In aggregate, these ~~three~~4 customers accounted for approximately ~~24%~~22% of trade accounts receivable. ~~One~~None of these customers individually exceeded 10% of total trade accounts receivable.

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Income Taxes – ~~The Company has~~We have elected for ~~two~~2 of ~~its~~our existing subsidiaries to be taxed as taxable REIT subsidiaries pursuant to the REIT rules of the U.S. Internal Revenue Code. We also have subsidiaries subject to tax in non-US jurisdictions.

For the taxable REIT subsidiaries, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

~~A current and deferred~~An income tax ~~expense~~benefit has been recognized in the three months ended March 31, ~~2019,~~2020, in connection with recorded operating activity. As of March 31, ~~2019, one~~2020, 1 of ~~the Company’s~~our taxable REIT subsidiaries is in a net deferred tax liability position primarily due to a valuation allowance against certain deferred tax assets. In considering whether it is more likely than not that some portion or all of the deferred tax assets will be realized, it has been determined that it is possible that some or all of our deferred tax assets could ultimately expire unused. ~~The Company establishes~~We establish valuation allowances against deferred tax assets when the ability to fully utilize these benefits is determined to be uncertain.

~~The Company provides~~We provide a valuation allowance against deferred tax assets if, based on management’s assessment of operating results and other available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The evidence contemplated by management at March 31, ~~2019~~2020 consists of current and prior operating results, available tax planning strategies, and the scheduled reversal of existing taxable temporary differences. Evidence from the scheduled reversal of taxable temporary differences relies on management judgements based on the accumulation of available evidence. Those judgements may be subject to change in the future as evidence available to management changes. Management’s assessment of ~~the Company’s~~our valuation allowance may further change based on our generation of or ability to project future operating income, and changes in tax policy or tax planning strategies.

~~The Company provides~~We provide for income taxes during interim periods based on the estimated effective tax rate for the year. The effective tax rate is subject to change in the future due to various factors such as the operating performance of the taxable REIT subsidiaries, tax law changes, and future business acquisitions or divestitures. The taxable ~~REIT~~ subsidiaries’ effective tax rates were ~~(6.3%)~~13.0% and ~~23.1%~~(6.3)% for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The CARES Act is an emergency economic stimulus package that includes measures and tax provisions to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act provides tax changes in response to the COVID-19 pandemic. Some of the provisions which may impact the Company’s financial statements include the removal of certain limitations on utilization of net operating losses, increasing the ability to deduct interest expense, and amending certain provisions of the previously enacted Tax Cuts and Jobs Act. Due to the recent enactment of the CARES Act, the Company is currently evaluating the impact, if any that the CARES Act will have on its consolidated financial statements. The Company has not yet identified any material impacts that may result from the CARES Act.

Fair Value Measurements – ASC Topic 820, Fair Value Measurement, emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is established that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

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Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that ~~the Company has~~we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. ~~The Company’s~~Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

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As of March 31, ~~2019, the Company~~2020, we valued ~~its~~our derivative instruments primarily utilizing Level 2 inputs. See Note 1514 – ‘Fair Value of Financial Instruments’ for additional details.

~~Recently Adopted Accounting Standards~~

~~Revenue from Contracts~~COVID-19 – QTS is actively monitoring developments with ~~Customers~~

~~In May 2014,~~respect to COVID-19 and has taken numerous actions based on corporate policies specifically focusing on the ~~Financial Accounting Standards Board (“FASB”) issued guidance codified in ASC Topic 606,~~ ~~Revenue from Contracts with Customers, which supersedes~~safety and wellness of its customers, partners, and employees, as well as providing continuous and resilient services. Although the ~~former revenue recognition requirements in ASC Topic 605,~~ ~~Revenue Recognition~~. Under this new guidance, entities should recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The standard establishes a five-step model framework which recognizes revenue as an entity transfers control of goods or servicesCOVID-19 pandemic is causing significant disruptions to the ~~customer~~United States and ~~requires enhanced disclosures. The Company adopted ASC Topic 606 effective January 1, 2018,~~global economy and ~~elected~~has contributed to significant volatility and negative pressure in financial markets, as of March 31, 2020 these developments have not had a known material adverse effect on the ~~modified retrospective transition approach. The adoption did not result in a cumulative catch-up adjustment to opening equity and does not change the recognition pattern~~Company’s business. As of March 31, 2020, each of the Company’s data centers in North America and Europe are fully operational and operating ~~revenues.~~

~~Leases~~

~~In February 2016, and further amended~~ in ~~2018,~~accordance with the ~~FASB issued ASC Topic 842,~~ ~~Leases, which supersedes the former lease guidance in ASC 840,~~ ~~Lease~~s. The new standard increases transparency and comparability most significantly by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

~~The Company adopted ASC 842 effective January 1, 2019 using the modified retrospective approach, which applied the provisions~~Company’s business continuity plans. Across each of the ~~new guidance at~~respective jurisdictions in which the ~~effective date without adjusting comparative periods presented. The~~ Company ~~elected a package of practical expedients permitted under~~operates, the ~~transition guidance within the new standard~~Company’s business has been deemed an essential operation, which ~~allowed~~allows the Company to remain fully staffed with critical personnel in place to continue to provide continued service and support for its customers.

Since the beginning of the economic disruptions from COVID-19, the Company has experienced a modest increase in customer requests for payment relief, primarily concentrated in the retail, oil and gas, hospitality and transportation customer verticals. The total revenue associated with customers requesting some form of payment relief represented approximately 5% of the Company’s revenue for the three months ended March 31, 2020. Importantly, of the small number of customers requesting some form of payment relief, as of March 31, 2020, the large majority of these customers were current on their rental payments and while QTS has not ~~reassess (i) whether expired or existing contracts contain a lease under~~reduced their future payments, it has in certain circumstances provided additional flexibility in the new standard, (ii) the lease classification for existing leases or (iii) whether previously-capitalized initial direct costs would qualify for capitalization under the new standard. The Company did not elect the hindsight practical expedient which permits entities to use hindsight in determining the lease term and assessing impairment.form of extended payment terms.

The ~~adoption~~extent to which the COVID-19 pandemic impacts our business and operations remains largely uncertain and will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the duration and scope of ~~ASC 842 impacted our consolidated balance sheet with~~ the ~~recognition~~pandemic, new information that may emerge concerning the severity of ~~existing operating leases~~COVID-19, the response of the overall economy and financial markets and the actions taken to contain COVID-19 or treat its impact, such as ~~lessee resulting~~government actions, laws or orders or any changes or amendments thereto and the success of any lifting or easing of, or the risk of any premature lifting or easing of, any such restrictions, among others. Due to uncertainties regarding COVID-19, any estimates of the effects of COVID-19 as reflected and/or discussed in ~~$62.9 million of ROU assets and $70.7 million of lease liabilities recorded as of January 1, 2019. The Company also recognized a $1.8 million cumulative effect adjustment~~these financial statements are based upon the Company’s best estimates using information known to ~~retained earnings. The adjustment to retained earnings was due to an impairment of certain ROU assets associated with vacant office space~~ the Company ~~is party to related to a prior acquisition. See the table below for the impact of adoption of the lease standard on our consolidated balance sheet as of January 1, 2019 (in thousands):~~

As Previously

New Lease Standard

Reported

Adjustment

As Adjusted
Operating lease right-of-use assets

$
—

$
62,922

$
62,922
Operating lease liabilities

—

70,657

70,657
Deferred rent payable

5,922

(5,922)

—

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As lessor, accounting for our leases will remain largely unchanged from ASC 840. The new lease standard more narrowly defines initial direct costs as only costs that are incremental to origination of a lease (i.e. costs that would not have been incurred had the lease not been obtained). The Company did not historically capitalize non-incremental costs, thereforeat this time, and such estimates may change ~~will have no impact on the accounting for initial direct costs~~ in the ~~consolidated financial statements on a prospective basis.~~near term, the effects of which could be material.

Additionally, from a lessor perspective, the Company elected a practical expedient which allows lessors to combine nonlease components with the related lease components if both the timing and pattern of transfer are the same for the nonlease component(s) and related lease component, and the lease component would be classified as an operating lease. The single combined component is accounted for under ASC 842 if the lease component is the predominant component and is accounted for under ASC 606 if the nonlease components are the predominant components. Lessors are permitted to apply the practical expedient to all existing leases on a retrospective or prospective basis. The Company elected the practical expedient to combine its lease and nonlease components that meet the defined criteria and will account for the combined lease component under ASC 842 on a prospective basis.

New Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in ASU 2018-13 eliminate the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, valuation processes for Level 3 fair value measurements, and policy for timing of transfers between levels. ASU 2018-13 also provides clarification in the measurement uncertainty disclosure by explaining that the disclosure is to communicate information about the uncertainty in measurement as of the reporting date. In addition, ASU 2018-13 added the following requirements: changes in unrealized gains and losses for the period included in other comprehensive income

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for recurring Level 3 fair value measurements held at the end of the reporting period; and range and weighted average of significant unobservable inputs used in Level 3 fair value measurements. Finally, ASU 2018-13 updated language to further encourage entities to apply materiality when considering de minimus determination for disclosure requirements. The guidance will be applied retrospectively for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with the exception of amendments to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used for Level 3 fair value measurements, and the narrative description of measurement uncertainty which will be applied prospectively. ~~Early adoption is permitted. The Company is currently assessing~~We adopted this ASU effective January 1, 2020, and the ~~impact~~provisions of this standard did not have a material impact on ~~its~~our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (~~Subtopic~~(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service ~~Contract.~~Contract. The amendments in ASU 2018-15 ~~require an entity~~clarifies that implementation costs incurred by customers in ~~a service contract hosting arrangement apply Subtopic 350-40 to identify costs to capitalize or expense related to~~cloud computing arrangements are deferred if they would be capitalized by customers in the ~~service contract.~~software licensing arrangements under the internal-use software guidance. ASU 2018-15 also ~~requires~~clarifies that any capitalized costs should not be recorded to “Depreciation and amortization” in the ~~entity~~Consolidated Statements of Operations for costs after adoption. ASU 2018-15 is effective for the Company beginning January 1, 2020 and provides for the alternative to ~~capitalize~~adopt the ASU (a) prospectively only for new costs incurred after the adoption date or (b) by adjusting existing costs to comply with this standard, including the requirement to present the amortization of costs outside “Depreciation and amortization”. We adopted this ASU effective January 1, 2020 using the prospective transition approach to all new implementation costs incurred after adoption. This standard did not have a material impact on our net income during the three months ended March 31, 2020. However, on a prospective basis beginning in the first quarter of 2020, this standard will result in certain expenses previously recognized as non-real estate depreciation being recognized as general and administrative or operating expense.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, ASU 2019-05 in May 2019, ASUs 2019-10 & 2019-11 in November 2019, and ASU 2020-02 in February 2020. The standard, as amended, requires entities to use a new impairment model based on current expected credit losses (“CECL”) rather than incurred losses. The CECL model is designed to capture expected credit losses through the establishment of an allowance account, which will be presented as an offset to the amortized cost basis of the service contract hosting arrangement and amortize such costs over the life of the contract and present the capitalized costs in the same line item as fees associated with the hosting service on the statement of income and statement of cash flows.related financial asset. The guidance ~~will be applied retrospectively~~is effective for interim and annual periods beginning after December 15, 2019. We adopted this ASU effective January 1, 2020. As the majority of our revenue is generated from operating leases which are governed under ASC Topic 842, the provisions of this standard did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions and adding some requirements regarding franchise (or similar) tax, step-ups in a business combination, treatment of entities not subject to tax and when to apply enacted changes in tax laws. This ASU is effective for fiscal years beginning after December 15, ~~2019,~~2020 and interim periods within those fiscal ~~years, with the exception~~years. The amendments related to changes in ownership of ~~all implementation costs incurred after the date of adoption which will~~foreign equity method investments or foreign subsidiaries should be applied ~~prospectively.~~on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. Early adoption is permitted. ~~The Company is~~We are currently assessing the impact of this standard on ~~its~~our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815, which clarifies the interaction between the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The ~~Company has~~amendments in this Update should be applied prospectively. We are currently assessing the impact of these standards on our consolidated financial statements.

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Table of Contents

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During Q1 2020, we have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

We determined ~~that~~ all other recently issued accounting pronouncements will not have a material impact on ~~its~~our consolidated financial statements or do not materially apply to ~~its~~our operations.

26

~~Table of Contents~~

3. ~~Acquired Intangible Assets and Liabilities~~

~~Summarized below are the carrying values for the major classes of intangible assets and liabilities (unaudited and in thousands):~~

March 31, 2019

December 31, 2018

Gross

Gross

Carrying

Accumulated

Net Carrying

Carrying

Accumulated

Net Carrying


Useful Lives

Value

Amortization

Value

Value

Amortization

Value
Customer Relationships

1 to 12 years

$
95,705

$
(30,449)

$
65,256

$
95,705

$
(28,461)

$
67,244
In-Place Leases

0.5 to 10 years

32,066

(18,701)

13,365

32,066

(17,670)

14,396
Solar Power Agreement (1)

17 years

13,747

(3,841)

9,906

13,747

(3,639)

10,108
Platform Intangible

3 years

—

—

—

9,600

(9,600)

—
Acquired Favorable Leases

Acquired below market leases - as Lessee

46 years

2,301

(8)

2,293

2,301

—

2,301
Acquired above market leases - as Lessor

0.5 to 8 years

4,649

(3,416)

1,233

4,649

(3,247)

1,402
Tradenames

3 years

—

—

—

3,100

(3,100)

—
Total Intangible Assets

$
148,468

$
(56,415)

$
92,053

$
161,168

$
(65,717)

$
95,451

Solar Power Agreement (1)

17 years

13,747

(3,841)

9,906

13,747

(3,639)

10,108
Acquired Unfavorable Leases

Acquired below market leases - as Lessor

3 to 4 years

809

(671)

138

809

(611)

198
Acquired above market leases - as Lessee

11 to 12 years

2,453

(821)

1,632

2,453

(767)

1,686
Total Intangible Liabilities (2)

$
17,009

$
(5,333)

$
11,676

$
17,009

$
(5,017)

$
11,992

~~(1)~~

~~Amortization related to the Solar Power Agreement asset and liability is recorded at the same rate and therefore has no net impact on the statement of operations.~~

~~(2)~~

~~Intangible liabilities are included within the “Advance rents, security deposits and other liabilities” line item of the consolidated balance sheets.~~

Above or below market leases are amortized as a reduction to or increase in rental revenue in the case of the Company as lessor as well as a reduction to or increase in rent expense in the case of the Company as lessee over the remaining lease terms. The net effect of amortization of acquired above‑market and below‑market leases resulted in a net decrease in rental revenue of $0.1 million and $0.1 million for the three months ended March 31, 2019 and 2018, respectively. The estimated amortization of acquired favorable and unfavorable leases for each of the five succeeding fiscal years ending December 31 is as follows (unaudited and in thousands):

Net Rental Revenue

Net Rental Expense

Decrease

Increase/(Decrease)
2019 (April - December)
$
368

$
(121)
2020

647

(166)
2021

46

(166)
2022

17

(166)
2023

17

(166)
Thereafter

—

1,446
Total
$
1,095

$
661

Net amortization of all other identified intangible assets and liabilities was $3.1 million and $4.0 million for the three months ended March 31, 2019 and 2018, respectively. The estimated net amortization of all other identified intangible assets and liabilities for each of the five succeeding fiscal years ending December 31 is as follows (unaudited and in thousands):

2019 (April - December)

$
8,946
2020

11,379
2021

10,137
2022

9,910
2023

9,910
Thereafter

28,339
Total

$
78,621

27

~~Table of Contents~~

4. Real Estate Assets and Construction in Progress

The following is a summary of ~~properties~~our cost of owned or leased ~~by the Company~~properties as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

As of March 31, ~~2019~~2020 (unaudited):


			Buildings,
			Improvements		Construction
Property Location	Land		and Equipment		in Progress		Total Cost
Atlanta, Georgia Campus ⁽¹⁾	$	44,588	$	561,369	$	148,660	$	754,617
Irving, Texas		8,605		370,483		107,072		486,160
Ashburn, Virginia ⁽²⁾		16,476		301,886		89,564		407,926
Richmond, Virginia		2,180		196,766		140,855		339,801
Chicago, Illinois		9,400		205,698		98,001		313,099
Suwanee, Georgia (Atlanta-Suwanee)		3,521		174,594		5,302		183,417
Piscataway, New Jersey		7,466		105,784		38,791		152,041
Santa Clara, California ⁽³⁾		—		116,282		185		116,467
Fort Worth, Texas		9,079		98,224		3,415		110,718
Hillsboro, Oregon ⁽²⁾		—		—		96,728		96,728
Leased Facilities ⁽⁴⁾		—		84,198		471		84,669
Sacramento, California		1,481		65,373		263		67,117
Dulles, Virginia		3,154		50,159		5,799		59,112
Manassas, Virginia ⁽²⁾		—		13		58,909		58,922
Princeton, New Jersey		20,700		35,220		9		55,929
Eemshaven, Netherlands		—		—		46,450		46,450
Phoenix, Arizona ⁽²⁾		—		—		33,252		33,252
Groningen, Netherlands		1,713		9,311		3,089		14,113
Other ⁽⁵⁾		2,213		36,066		498		38,777
	$	130,576	$	2,411,426	$	877,313	$	3,419,315

Buildings,




Improvements

Construction

Property Location

Land

and Equipment

in Progress

Total Cost
Atlanta, Georgia (Atlanta-Metro)

$
20,416

$
497,111

$
110,769

$
628,296
Irving, Texas

8,606

346,276

104,988

459,870
Richmond, Virginia

2,180

253,593

68,059

323,832
Chicago, Illinois

9,400

152,704

120,999

283,103
Suwanee, Georgia (Atlanta-Suwanee)

3,521

167,173

2,977

173,671
Ashburn, Virginia (1)

17,326

95,585

166,484

279,395
Piscataway, New Jersey

7,466

98,501

34,141

140,108
Santa Clara, California (2)

—

105,386

1,250

106,636
Dulles, Virginia

3,154

72,756

4,018

79,928
Sacramento, California

1,481

64,904

91

66,476
Leased Facilities (3)

—

89,331

9,449

98,780
Fort Worth, Texas

9,078

18,619

50,869

78,566
Princeton, New Jersey

20,700

34,083

424

55,207
Phoenix, Arizona (1)

—

—

30,016

30,016
Hillsboro, Oregon (1)

—

—

44,942

44,942
Manassas, Virginia (1)

—

8

54,245

54,253
Other (4)

2,213

35,795

167

38,175

$
105,541

$
2,031,825

$
803,888

$
2,941,254

(1)	~~(1)~~ The “Atlanta, Georgia Campus” includes both the existing data center Atlanta (DC-1) as well as new property development associated with construction of a second megascale data center Atlanta (DC-2) on land adjacent to the existing Atlanta DC-1 facility.

(2)

Represent land purchases. Land acquisition costs, as well as subsequent development costs, are included within construction in progress until development on the land has ended and the asset is ready for its intended use.

(3)

~~(2)~~

Owned facility subject to long-term ground sublease.

(4)

~~(3)~~

Includes 97 facilities. All facilities are leased, including those subject to finance leases.

(5)

~~(4)~~

Consists of Miami, FL; Lenexa, KS and Overland Park, KS facilities.

2826

Table of Contents

As of December 31, ~~2018:~~2019:


			Buildings,
			Improvements		Construction
Property Location	Land		and Equipment		in Progress		Total Cost
Atlanta, Georgia Campus ⁽¹⁾	$	44,588	$	525,300	$	128,930	$	698,818
Irving, Texas		8,606		369,727		98,170		476,503
Ashburn, Virginia ⁽²⁾		16,476		156,396		189,375		362,247
Richmond, Virginia		2,180		195,684		139,948		337,812
Chicago, Illinois		9,400		205,026		86,878		301,304
Suwanee, Georgia (Atlanta-Suwanee)		3,521		174,124		5,559		183,204
Piscataway, New Jersey		7,466		103,553		36,056		147,075
Santa Clara, California ⁽³⁾		—		114,499		1,238		115,737
Fort Worth, Texas		9,079		55,018		35,722		99,819
Leased Facilities ⁽⁴⁾		—		82,813		666		83,479
Sacramento, California		1,481		65,258		163		66,902
Hillsboro, Oregon ⁽²⁾		—		—		63,573		63,573
Manassas, Virginia ⁽²⁾		—		—		57,662		57,662
Princeton, New Jersey		20,700		35,192		39		55,931
Dulles, Virginia		3,154		48,651		4,688		56,493
Eemshaven, Netherlands		—		—		37,267		37,267
Phoenix, Arizona ⁽²⁾		—		2,412		31,840		34,252
Groningen, Netherlands		1,741		9,085		3,028		13,854
Other ⁽⁵⁾		2,213		36,163		120		38,496
	$	130,605	$	2,178,901	$	920,922	$	3,230,428

Buildings,




Improvements

Construction

Property Location

Land

and Equipment

in Progress

Total Cost
Atlanta, Georgia (Atlanta-Metro)

$
20,416

$
493,446

$
88,253

$
602,115
Irving, Texas

8,606

345,615

99,445

453,666
Richmond, Virginia

2,180

253,098

67,932

323,210
Chicago, Illinois

9,400

130,150

133,095

272,645
Ashburn, Virginia (1)

17,325

63,245

184,951

265,521
Suwanee, Georgia (Atlanta-Suwanee)

3,521

166,298

3,188

173,007
Piscataway, New Jersey

7,466

97,806

33,472

138,744
Manassas, Virginia (1) (2)

—

—

45,194

45,194
Santa Clara, California (3)

—

98,548

7,600

106,148
Dulles, Virginia

3,154

72,435

3,852

79,441
Fort Worth, Texas

9,079

18,623

43,715

71,417
Sacramento, California

1,481

64,874

92

66,447
Princeton, New Jersey

20,700

34,046

431

55,177
Leased Facilities (4)

—

43,347

9,334

52,681
Hillsboro, Oregon (1)

—

—

39,835

39,835
Phoenix, Arizona (1)

—

—

29,562

29,562
Other (5)

2,213

35,720

113

38,046

$
105,541

$
1,917,251

$
790,064

$
2,812,856

(1)	~~(1)~~ The “Atlanta, Georgia Campus” includes both the existing data center Atlanta (DC-1) as well as new property development associated with construction of a second megascale data center Atlanta (DC-2) on land adjacent to the existing Atlanta DC-1 facility.

(2)

Represent land purchases. Land acquisition costs, as well as subsequent development costs, are included within construction in progress until development on the land has ended and the asset is ready for its intended use.

(3)

~~(2)~~

~~Excludes $71.0 million of construction in progress included within the “Assets held for sale” line item of the consolidated balance sheets.~~

~~(3)~~

Owned facility subject to long-term ground sublease.

(4)

~~(4)~~

Includes 107 facilities. All facilities are leased, including those subject to finance leases.

(5)

~~(5)~~

Consists of Miami, FL; Lenexa, ~~KS;~~KS and Overland Park, ~~KS; and Duluth, GA~~KS facilities.

4. Leases

5. ~~Leases~~

Leases as Lessee

The Company determines if an arrangement is a lease at inception. If the contract is considered a lease, the Company evaluates leased property to determine whether the lease should be classified as a finance or operating lease in accordance with U.S. GAAP. The Company periodically enters into finance leases for certain data center facilities, equipment, and fiber optic transmission cabling. In addition, the Company leases certain real estate (primarily land or real estate space) under operating lease agreements with such assets included within the “Operating lease right ofWe use ~~assets, net” line item of the consolidated balance sheets and the associated lease liabilities included within the “Operating lease liabilities” line item on the consolidated balance sheets.~~

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Variable lease payments consist of nonlease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As the Company’s leases as lessee typically do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company assessed multiple variables when determining the incremental borrowing rate, such as lease term, payment terms, collateral, economic conditions, and creditworthiness. ROU assets also include any lease payments made and exclude lease incentives. Many of the Company’s lease agreements include options to extend the lease, which the Company does not include in its expected lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

29

~~Table of Contents~~

~~The Company uses~~ leasing as a source of financing for certain data center facilities and related equipment. ~~The Company~~We currently ~~operates one~~operate 1 data center facility, along with various equipment and fiber optic transmission cabling, that are subject to finance leases. The remaining terms of our finance leases range from one to ~~nineteen~~eighteen years. ~~The Company’s~~Our finance lease associated with the data center includes multiple extension option periods, some of which were included in the lease term as ~~the Company is~~we are reasonably certain to exercise those extension options. ~~The Company’s~~Our other finance leases typically do not have options to extend the initial lease term. ~~Finance~~

We currently lease assets are included within the “Buildings, improvements and equipment” line item of the consolidated balance sheets and finance lease liabilities are included within “Finance leases and mortgage notes payable” line item of the consolidated balance sheets.

~~The Company currently leases seven~~6 other facilities under operating lease agreements for various data centers, our corporate headquarters and additional office space. ~~The Company’s~~Our leases have remaining lease terms ranging from ~~one~~four to ~~eight~~seven years. ~~The Company has~~We have options to extend the initial lease term on nearly all of these leases. Additionally, ~~the Company has two~~we have 1 ground ~~leases~~lease for our Santa Clara property that ~~are~~is considered an operating ~~leases, only one of~~lease which ~~is material that~~ is scheduled to expire in 2052.

27

Table of Contents

Components of lease expense were as follows (unaudited and in thousands):


	Three months ended
	March 31, 2019
Operating lease cost	$	3,543

			Three months ended
			March 31, 2020		March 31, 2019
Finance lease cost:
Amortization of assets		386	$	1,038	$	386
Interest on lease liabilities		245		489		245
Operating lease expense:
Operating lease cost				2,263		3,333
Variable lease cost				264		210
Sublease income		(46)		(48)		(46)
Total lease costs	$	4,128	$	4,006	$	4,128

~~Supplemental balance sheet information related to leases was as follows (unaudited and in thousands, except lease term and discount rate):~~

March 31,

2019
Operating leases:

Operating lease right-of-use assets

$
61,585
Operating lease liabilities

69,346
Finance leases:

Property and equipment, at cost

48,233
Accumulated amortization

(1,477)
Property and equipment, net

$
46,756
Finance lease liabilities

$
47,196

Weighted average remaining lease term (in years):

Operating leases

14.0
Finance leases

12.1

Weighted average discount rate:

Operating leases

5.1%
Finance leases

4.6%

30

~~Table of Contents~~

~~Supplemental cash flow and other information related to leases was as follows (unaudited and in thousands):~~

Three months ended

March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$
2,523
Operating cash flows from finance leases

$
196
Financing cash flows from finance leases

$
799

~~Maturities of lease liabilities were as follows (unaudited and in thousands):~~

March 31, 2019

Operating Leases

Finance Leases
2019 (April - December)
$
7,281

$
3,561
2020

9,605

4,493
2021

9,834

4,514
2022

10,283

4,639
2023

10,409

4,776
Thereafter

57,889

39,908
Total Lease Payments
$
105,301

$
61,891
Less: Imputed Interest

35,955

14,695
Total Lease Obligations
$
69,346

$
47,196

Leases as lessor

~~The Company’s~~Our lease revenue contains both minimum lease payments as well as variable lease payments. See Note 2 – ‘Summary of Significant Accounting Policies’ for further details of ~~the Company’s disaggregated~~our revenue streams and associated accounting treatment. The components of ~~the Company’s~~our lease revenue were as follows ~~(in~~(unaudited and in thousands):


	Three months ended
	March 31,
	2019		2018

					Three months ended
					March 31,		March 31,
					2020		2019
Lease revenue:
Minimum lease revenue	$	98,596	$	88,415	$	107,485	$	98,596
Variable lease revenue (recoveries from customers)		10,793		11,513
Variable lease revenue (primarily recoveries from customers)						12,596		10,793
Total lease revenue	$	109,389	$	99,928	$	120,081	$	109,389

6. 5. Investments in Unconsolidated Entity

During the three months ended March 31, 2019, QTS formed an unconsolidated entity with Alinda Capital Partners (“Alinda”), ~~a premier~~an infrastructure investment firm. QTS contributed a ~~118,000 square foot~~ hyperscale data center under development in Manassas, Virginia to the entity. The facility, and the previously executed 10-year operating lease toagreement with a global cloud-based software company, ~~pursuant~~was contributed to ~~a 10-year lease agreement, was contributed~~the unconsolidated entity in exchange for cash and noncash consideration in the form of equity interest in the entity that was measured at fair value pursuant to Topic 820. The equity interest received and any amounts due from the unconsolidated entity are recorded within ~~the Company’s~~our consolidated balance ~~sheet~~sheets and totaled ~~$44.2~~$32.1 million as of March 31, ~~2019.~~2020. QTS and Alinda each own a 50% interest in the entity. As ~~the Company is~~we are not the primary beneficiary of the arrangement but ~~has~~have the ability to exercise significant influence, ~~the Company~~we concluded that the investment should be accounted for as an unconsolidated entity using equity

31

~~Table of Contents~~

method investment accounting. As of March 31, ~~2019~~2020, the total assets of the entity were ~~$130.7~~$134.0 million and the total debt outstanding, net of deferred financing costs, was ~~$52.4~~$71.8 million.

Under the equity method, ~~the Company’s~~our cost of investment is adjusted for additional contributions to and distributions from the unconsolidated entity, as well as ~~its~~our share of equity in the earnings and losses of the unconsolidated entity. Generally, distributions of cash flows from operations and capital events are made to members of the unconsolidated entity in accordance with each member’s ownership percentages and the terms of the agreement, but also provides ~~the Company~~us with rights to preferential cash distributions as certain phases are completed and leased to the underlying tenant. Our policy is to account for distributions from the unconsolidated entity on the basis of the nature of the activities that generated the distribution. Distributions from the operations of the unconsolidated entity are a return on our investment and we classify these distributions as operating cash flows. Any differences between the cost of ~~the Company’s~~our investment in an unconsolidated affiliate and its underlying equity as reflected in the unconsolidated affiliate’s financial statements generally result from costs of ~~the Company’s~~our investment that are not reflected on the unconsolidated affiliate’s financial statements.

Under the unconsolidated entity agreement, ~~the Company will~~we serve as the entity’s operating member, subject to authority and oversight of a board appointed by ~~the Company~~us and Alinda, and separately ~~the Company will~~we serve as manager and developer of the facility in exchange for

28

Table of Contents

management and development fees. The entity agreement includes various transfer restrictions and rights of first offer that will allow ~~the Company~~us to repurchase Alinda’s interest should Alinda wish to exit in the future.

6. Debt

7. ~~Debt~~

Below is a listing of ~~the Company’s~~our outstanding debt, including finance leases, as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	Weighted Average
	Effective Interest Rate at		March 31,		December 31,
	March 31, 2020 ⁽¹⁾	Maturity Date	2020		2019
	(unaudited)		(unaudited)
Unsecured Credit Facility
Revolving Credit Facility	1.96%	December 17, 2023	$	529,135	$	317,028
Term Loan A	3.26%	December 17, 2024		225,000		225,000
Term Loan B	3.30%	April 27, 2025		225,000		225,000
Term Loan C	3.46%	October 18, 2026		250,000		250,000
Senior Notes	4.75%	November 15, 2025		400,000		400,000
Lenexa Mortgage	4.10%	May 1, 2022		1,724		1,736
Finance Leases	4.35%	2021 - 2038		44,520		45,140
	3.27%			1,675,379		1,463,904
Less net debt issuance costs				(10,449)		(10,839)
Total outstanding debt, net			$	1,664,930	$	1,453,065

Weighted Average

Coupon Interest Rate at

March 31,

December 31,


March 31, 2019 (1)

Maturities

2019

2018

(unaudited)

(unaudited)

Unsecured Credit Facility

Revolving Credit Facility

3.83%

December 17, 2022

$
135,000

$
252,000
Term Loan I

3.50%

December 17, 2023

350,000

350,000
Term Loan II

3.53%

April 27, 2024

350,000

350,000
Senior Notes

4.75%

November 15, 2025

400,000

400,000
Lenexa Mortgage

4.10%

May 1, 2022

1,791

1,801
Finance Leases

4.33%

2019 - 2038

47,197

2,873

3.96%

1,283,988

1,356,674
Less net debt issuance costs

(11,195)

(11,557)
Total outstanding debt, net

$
1,272,793

$
1,345,117

(1)

~~(1)~~

The coupon interest rates associated with Term Loan IA, Term Loan B, and Term Loan IIC incorporate the effects of the Company’s interest rate swaps in effect as of March 31, ~~2019.~~

2020.

Credit Facilities, Senior Notes and Mortgage Notes Payable

~~(a)~~ Unsecured Credit Facility – In ~~November 2018,~~October 2019, the Company ~~executed an amendment to its~~ amended and restated its unsecured credit facility (the “unsecured credit facility”), which among other things ~~included extending~~increased the total potential borrowings, extended maturity dates, lowered interest rates, and provided for an additional term ~~modifying or eliminating certain covenants and reduced pricing by 20 basis points.~~loan under the agreement. The unsecured credit facility includes a ~~$350~~$225 million term loan which matures on December 17, ~~2023,~~2024 (the “Term Loan A”), a ~~$350~~$225 million term loan which matures on April 27, ~~2024,~~2025 (the “Term Loan B”), an additional term loan of $250 million, maturing on October 18, 2026 (the “Term Loan C”), and ~~an $820 million~~a $1.0 billion revolving credit facility which matures on December 17, ~~2022, with~~2023. The revolving portion of the unsecured facility has a ~~one year~~one-year extension option. Amounts outstanding under the ~~amended~~ unsecured credit facility bear interest at a variable rate equal to, at ~~the Company’s~~our election, LIBOR or a base rate, plus a spread that will vary depending upon ~~the Company’s~~our leverage ratio. For revolving credit loans, the spread ranges from ~~1.35%~~1.25% to ~~1.95%~~1.85% for LIBOR loans and ~~0.35%~~0.25% to ~~0.95%~~0.85% for base rate loans. For ~~term loans,~~Term Loan A and Term Loan B, the spread ranges from ~~1.30%~~1.20% to ~~1.90%~~1.80% for LIBORloans and 0.20% to 0.80% for base rateloans. For Term Loan C, the spread ranges from 1.50% to 1.85% for LIBOR loans and ~~0.30%~~0.50% to ~~0.90%~~0.85% for base rate loans. The unsecured credit facility also provides for borrowing capacity of up to ~~$200~~$300 million in various foreign ~~currencies, and a $500 million accordion feature, subject to obtaining additional loan commitments.~~currencies.

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~~Table of Contents~~

Under the unsecured credit facility, the capacity may be increased from the current capacity of ~~$1.52~~$1.7 billion to ~~$2.02~~$2.2 billion subject to certain conditions set forth in the credit agreement, including the consent of the administrative agent and obtaining necessary commitments. ~~The Company is~~We are also required to pay a commitment fee to the lenders assessed on the unused portion of the unsecured revolving credit facility. At ~~the Company’s~~our election, itwe can prepay amounts outstanding under the unsecured credit facility, in whole or in part, without penalty or premium.

The Company’s ability to borrow under the ~~amended~~ unsecured credit facility is subject to ongoing compliance with a number of customary affirmative and negative covenants. As of March 31, ~~2019,~~2020, the Company was in compliance with all of its covenants.

As of March 31, ~~2019, the Company~~2020, we had outstanding ~~$835~~$1,229.1 million of indebtedness under the unsecured credit facility, consisting of ~~$135.0~~$529.1 million of outstanding borrowings under the unsecured revolving credit facility and $700.0 million

29

Table of Contents

outstanding under the term loans, exclusive of net debt issuance costs of ~~$6.1~~$6.2 million. In connection with the unsecured credit facility, as of March 31, ~~2019, the Company~~2020, we had additional letters of credit outstanding aggregating to ~~$4.1~~$4.0 million. ~~As of March 31, 2019, the weighted average interest rate for amounts outstanding under the unsecured credit facility, including the effects of interest rate swaps, was 3.57%.~~

The Company has also entered into certain interest rate swap agreements. See Note 87 – ‘Derivative Instruments’ for additional details.

(b) Senior Notes – On ~~July 23, 2014,~~November 8, 2017, the Operating Partnership and QTS Finance Corporation, a subsidiary of the Operating Partnership formed solely for the purpose of facilitating the offering of the 5.875% Senior Notes due 2022 (collectively, the “Issuers”), ~~the Company and certain of its other subsidiaries entered into a purchase agreement pursuant to which the Issuers~~ issued $400 million aggregate principal amount of ~~4.75%~~4.750% Senior Notes due November 15, 2025 (the “Senior Notes”) in a private offering. The Senior Notes have an interest rate of 4.750% per annum and were issued at a price equal to 100% of their face value. The net proceeds from the offering were used to fund the redemption of, and satisfy and discharge the indenture pursuant to which the Issuers issued, all of their outstanding 5.875% Senior Notes and to repay a portion of the amount outstanding under ~~the Company’s~~our unsecured revolving credit facility. As of March 31, ~~2019,~~2020, the outstanding net debt issuance costs associated with the Senior Notes were ~~$5.2~~$4.3 million.

The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Operating Partnership’s existing subsidiaries (other than certain foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any indebtedness of QTS Realty Trust, Inc., the Issuers or any other subsidiary guarantor, other than QTS Finance Corporation, the co-issuer of the Senior Notes. QTS Realty Trust, Inc. does not guarantee the Senior Notes and will not be required to guarantee the Senior Notes except under certain circumstances. The offering was conducted pursuant to Rule 144A of the Securities Act of 1933, as amended, and the Senior Notes were issued pursuant to an indenture, dated as of November 8, 2017, among QTS, the Issuers, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee.

The annual remaining principal payment requirements as of March 31, ~~2019~~2020 per the contractual maturities, excluding extension options and excluding operating and finance leases, are as follows (unaudited and in thousands):


2019	$	52
2020		71

2020 (April - December)			$	52
2021		74		73
2022		136,594		1,599
2023		350,000		529,135
2024				225,000
Thereafter		750,000		875,000
Total	$	1,236,791	$	1,630,859

33

~~Table of Contents~~

As of March 31, ~~2019, the Company was~~2020, we were in compliance with all of ~~its~~our covenants.

8. 7. Derivative Instruments

From time to time, ~~the Company enters~~we enter into derivative financial instruments to manage certain cash flow risks.

Derivatives designated and qualifying as a hedge of the exposure to variability in the cash flows of a specific asset or liability that is attributable to a particular risk, such as interest rate risk, are considered cash flow hedges.

Interest Rate Swaps

~~The Company’s~~Our objectives in using interest rate swaps are to reduce variability in interest expense and to manage exposure to adverse interest rate movements. To accomplish this objective, ~~the Company~~we primarily ~~uses~~use interest rate swaps as part of ~~its~~our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for ~~the Company~~us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

~~On April 5, 2017, the Company entered into forward~~As of March 31, 2020, we had interest rate swap agreements in place with an aggregate notional amount of ~~$400~~$700 million. The forward swap agreements effectively fix the interest rate on ~~$400~~$700 million of term loan borrowings, ~~$200~~$225 million of

30

Table of Contents

swaps allocated to ~~each term loan, from January 2, 2018 through December 17, 2021 and April 27, 2022, respectively, at approximately 3.3% assuming the current LIBOR spread of 1.3%.~~

On December 20, 2018, the Company entered into additional forward interest rate swap agreements with an aggregate notional amount of $400 million. The forward swap agreements effectively fix the interest rate on $400Term Loan A, $225 million ~~of term loan borrowings, $200 million of swaps~~ allocated to ~~each term loan, from December 17, 2021~~Term Loan B and ~~April 27, 2022~~$250 million allocated to Term Loan C, through the current maturity dates of the respective term loans which are December 17, 2023 and April 27, 2024, respectively. The weighted average effective fixed interest rate on the $400 million notional amount of term loan financing following the execution of these swap agreements will approximate 3.9%, commencing on December 17, 2021 and April 27, 2022, assuming the current LIBOR spread of 1.3%. Additionally, the Company entered into forward interest rate swap agreements with an aggregate notional amount of $200 million. The forward swap agreements effectively fix the interest rate on $200 million of additional term loan borrowings, $100 million of swaps allocated to each term loan, from January 2, 2020 through the current maturity dates of December 17, 2023 and April 27, 2024, respectively. The weighted average effective fixed interest rate on the $200 million notional amount of term loan financing, following the execution of these swap agreements, will approximate 3.9%, commencing on January 2, 2020, assuming the current LIBOR spread of 1.3%.loans.

~~The Company reflects its~~We reflect our interest rate swap agreements, which are designated as cash flow hedges, at fair value as either assets or liabilities on the consolidated balance sheets within the “Other assets, net” or ~~“Advance rents, security deposits and other~~“Derivative liabilities” line items, as applicable. As of March 31, 2020 and December 31, 2019, the fair value of interest rate swaps ~~included~~represented an ~~asset of $1.9 million as well as a~~aggregate liability of ~~$7.7 million. As of December 31, 2018, the fair value of interest rate swaps included an asset of $5.3~~$53.6 million ~~as well as a liability of $3.0 million.~~and $19.9 million, respectively.

The forward interest rate swap agreements are derivatives that currently qualify for hedge accounting whereby ~~the Company records~~we record the effective portion of changes in fair value of the interest rate swaps in accumulated other comprehensive income or loss on the consolidated balance sheets and statements of comprehensive income which is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of a derivative's change in fair value is immediately recognized within net income. The amount reclassified from other comprehensive income as an increase to interest ~~income~~expense on the consolidated statements of operations was ~~$0.5~~$0.8 million for the three months ended March 31, ~~2019. The amount reclassified from other comprehensive income~~2020 and a decrease to interest expense ~~on the consolidated statements~~ of ~~operations was $0.4~~$0.5 million for ~~the~~ three months ended March 31, ~~2018.~~2019. There was no0 ineffectiveness recognized for the three months ended March 31, ~~2019,~~2020, and ~~2018.~~2019. During the

34

~~Table of Contents~~

subsequent twelve months, beginning April 1, ~~2019,~~2020, we estimate that ~~$1.3~~$11.9 million will be reclassified from other comprehensive income as ~~a reduction~~an increase to interest expense.

35

~~Table of Contents~~

Interest rate derivatives and their fair values as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows (unaudited and in thousands):


				Fixed One Month

														Fixed One Month
Notional Amount	Notional Amount			LIBOR rate per			Fair Value				Notional Amount			LIBOR rate per			Fair Value
March 31, 2019		December 31, 2018		annum	Effective Date	Expiration Date	March 31, 2019		December 31, 2018
March 31, 2020											March 31, 2020	December 31, 2019		annum	Effective Date	Expiration Date	March 31, 2020		December 31, 2019
$	25,000	$	25,000	1.989%	January 2, 2018	December 17, 2021	$	131	$	331	25,000	$	25,000	1.989%	January 2, 2018	December 17, 2021	$	(694)	$	(209)
	100,000		100,000	1.989%	January 2, 2018	December 17, 2021		523		1,318
	75,000		75,000	1.989%	January 2, 2018	December 17, 2021		392		990
	50,000		50,000	2.033%	January 2, 2018	April 27, 2022		213		667
	100,000		100,000	2.029%	January 2, 2018	April 27, 2022		436		1,341
	50,000		50,000	2.033%	January 2, 2018	April 27, 2022		212		666
	100,000		100,000	2.617%	January 2, 2020	December 17, 2023		(1,935)		(782)
	100,000		100,000	2.621%	January 2, 2020	April 27, 2024		(2,071)		(818)
	200,000		200,000	2.636%	December 17, 2021	December 17, 2023		(1,911)		(722)
	200,000		200,000	2.642%	April 27, 2022	April 27, 2024		(1,809)		(648)
$	1,000,000	$	1,000,000				$	(5,819)	$	2,343
											100,000		100,000	1.989%	January 2, 2018	December 17, 2021		(2,775)		(837)
											75,000		75,000	1.989%	January 2, 2018	December 17, 2021		(2,082)		(627)
											50,000		50,000	2.033%	January 2, 2018	April 27, 2022		(1,713)		(545)
											100,000		100,000	2.029%	January 2, 2018	April 27, 2022		(3,418)		(1,081)
											50,000		50,000	2.033%	January 2, 2018	April 27, 2022		(1,713)		(545)
											100,000		100,000	2.617%	January 2, 2020	December 17, 2023		(8,366)		(4,007)
											100,000		100,000	2.621%	January 2, 2020	April 27, 2024		(9,103)		(4,324)
											70,000		—	0.968%	March 2, 2020	October 18, 2026		(2,123)		—
											30,000		—	0.973%	March 2, 2020	October 18, 2026		(917)		—
											200,000		200,000	2.636%	December 17, 2021	December 17, 2023		(8,826)		(3,939)
											200,000		200,000	2.642%	April 27, 2022	April 27, 2024		(8,639)		(3,802)
											125,000		—	1.014%	December 17, 2023	December 17, 2024		(516)		—
											100,000		—	1.035%	December 17, 2023	December 17, 2024		(429)		—
											75,000		—	1.110%	December 17, 2023	October 18, 2026		(833)		—
											100,000		—	1.088%	April 27, 2024	April 27, 2025		(435)		—
											125,000		—	1.082%	April 27, 2024	April 27, 2025		(536)		—
											75,000		—	0.977%	April 27, 2024	October 18, 2026		(450)		—
																	$	(53,568)	$	(19,916)

Power Purchase Agreements

In March 2019, ~~QTS~~we entered into ~~two~~2 10 year agreements to purchase renewable energy equal to the expected electricity needs of ~~the Company’s~~our datacenters in Chicago, Illinois and Piscataway, New Jersey. These arrangements currently qualify for hedge accounting whereby ~~the Company records~~we record the changes in fair value of the instruments in “Accumulated other comprehensive income” or loss on the consolidated balance sheets and statements of comprehensive income which is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ~~Company~~amount reclassified from other comprehensive income as an increase to utilities expense on the consolidated statements of operations was $0.4 million for the three months ended March 31, 2020. There was 0 amount reclassified from other comprehensive income to utilities expense for the three months ended March 31, 2019. We currently ~~reflects~~reflect these agreements, which are designated as cash flow hedges, at fair value as liabilities on the consolidated balance sheets within the ~~“Advance rents, security deposits and other~~“Derivative liabilities” line ~~items.~~item.

31

Table of Contents

Power purchase agreement derivatives and their fair values as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows (unaudited and in thousands):

~~Fair Value~~

~~Counterparty~~

~~Facility~~

~~Effective Date~~

~~Expiration Date~~

~~March 31, 2019~~

~~December 31, 2018~~

~~Calpine Energy Solutions, LLC~~

~~Piscataway~~

~~3/8/2019~~

~~2/28/2029~~

$

~~(636)~~

$

—

~~Calpine Energy Solutions, LLC~~

~~Chicago~~

~~3/8/2019~~

~~2/28/2029~~

~~(1,055)~~

—

$

~~(1,691)~~

$

—


				Fair Value
Counterparty	Facility	Effective Date	Expiration Date	March 31, 2020		December 31, 2019
Calpine Energy Solutions, LLC	Piscataway	3/8/2019	2/28/2029	$	(3,645)	$	(2,919)
Calpine Energy Solutions, LLC	Chicago	3/8/2019	2/28/2029		(4,493)		(3,774)
				$	(8,138)	$	(6,693)

9. 8. Commitments and Contingencies

~~The Company is~~We are subject to various routine legal proceedings and other matters in the ordinary course of business. ~~The Company~~We currently ~~does~~do not have any litigation that would have a material adverse impact on ~~the Company’s~~our financial statements. Additionally, we do not currently have any material contingencies related to the impact of COVID-19 reflected in our financial statements aside from certain increases to our general bad debt reserve provided for under ASC 450-20.

36

~~Table of Contents~~

~~10.~~ 9. Partners’ Capital, Equity and Incentive Compensation Plans

QualityTech, LP

QTS has the full power and authority to do all the things necessary to conduct the business of the Operating Partnership.

As of March 31, ~~2019,~~2020, the Operating Partnership had ~~four~~4 classes of limited partnership units outstanding: Series A Preferred ~~Stock~~ Units, Series B Convertible Preferred ~~Stock~~ Units, Class A units of limited partnership interest (“Class A units”) and Class O LTIP units of limited partnership units (“Class O units”). The Class A units currently outstanding are now redeemable on a ~~one-for-one~~1-for-one exchange rate at any time for cash or shares of Class A common stock of QTS. The Company may in its sole discretion elect to assume and satisfy the redemption amount with cash or its shares. Class O units were issued upon grants made under the QualityTech, LP 2010 Equity Incentive Plan (the “2010 Equity Incentive Plan”). Class O units are pari passu with Class A units. Each Class O unit is convertible into Class A units by the Operating Partnership at any time or by the holder at any time ~~following full vesting (if such unit is subject to vesting)~~ based on formulas contained in the partnership agreement.

QTS Realty Trust, Inc.

In connection with its ~~IPO,~~initial public offering on October 13, 2013 (“IPO”), QTS issued Class A common stock and Class B common stock. Class B common stock entitles the holder to 50 votes per share and was issued to enable ~~the Company’s~~our Chief Executive Officer to exchange 2% of his Operating Partnership units so he may have a vote proportionate to his economic interest in the Company. Also in connection with its IPO, QTS adopted the QTS Realty Trust, Inc. 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”), which authorized 1.75 million shares of Class A common stock to be issued under the 2013 Equity Incentive Plan, including options to purchase Class A common stock if exercised. On May ~~9, 2019,~~4, 2015, following approval by ~~the Company’s~~our stockholders at ~~the Company’s 2019~~our 2015 Annual Meeting of Stockholders, the total number of shares available for issuance under the 2013 Equity Incentive Plan was increased by an additional ~~1,110,000.~~3,000,000. On May 9, 2019, following approval by our stockholders at our 2019 Annual Meeting of Stockholders, the total number of shares available for issuance under the 2013 Equity Incentive Plan was increased by an additional 1,110,000 to 5,860,000.

In March 2019, the Compensation Committee completed a redesign of the long-term incentive program for executive officers ~~with~~to include the following ~~changes:~~types of awards:

·

a.

~~Issued~~ Performance-Based FFO Unit Awards — performance-based restricted share unit awards, which may be earned based on Operating Funds From Operations ~~("OFFO"~~(“OFFO”) per diluted share measured over a two-year performance period ~~ending December 31, 2020 (Performance-Based~~(performance-based FFO ~~Units~~units or “FFO Units”), with two-thirds of the earned shares of Class A common stock vesting at the end of the performance period when results have been certified and the remaining one-third of the shares vesting at the end of three years from the award grant date. The number of shares of Class A

32

Table of Contents

common stock subject to the awards ~~will~~that can be earned ranges from 0% to 200% of the target award based on actual performance over the performance period, with the number of shares to be determined based on a linear interpolation basis between threshold and target and target and maximum performance.

·

b.

~~Introduced~~ Performance-Based Relative TSR Unit Awards — performance-based restricted share unit awards, which may be earned based on total stockholder return ~~("TSR"~~(“TSR”) as compared to the MSCI U.S. REIT Index (the ~~"Index"~~“Index”) over a three-year performance period ~~ending December 31, 2021~~ (the ~~Performance-Based Relative~~performance-based relative TSR ~~Units~~units or “TSR Units”). The number of shares of Class A common stock subject to the awards ~~will~~that can be earned ranges from 0% to 200% of the target award based on our TSR compared to ~~an index.~~the Index. In addition, award payouts will be determined on a linear interpolation basis between threshold and target and target and maximum performance; and will be capped at the target performance level if our TSR is negative.

c.

Restricted Stock Awards — the restricted stock awards vest as to one-third of the shares subject to awards on the first anniversary of the date of grant and as to 8.375% of the shares subject to the awards each quarter-end thereafter, subject to the named executive officer’s continued service as an employee as of each vesting date.

37

~~Table of Contents~~

The following is a summary of award activity under the 2010 Equity Incentive Plan and 2013 Equity Incentive Plan and related information for the three months ended March 31, ~~2019~~2020 (unaudited):


	2010 Equity Incentive Plan					2013 Equity Incentive Plan
				Weighted					Weighted		Restricted	Weighted			Weighted			Weighted
		Weighted		average			Weighted		average		Stock /	average			average			average
	Number of	average		fair			average		fair		Deferred	fair value			fair value			fair value
	Class O units	exercise price		value		Options	exercise price		value		Stock	at grant date		TSR Units	at grant date		FFO Units	at grant date
Outstanding at December 31, 2019	82,310	$	25.00	$	5.97	1,934,838	$	37.11	$	7.05	389,750	$	39.67	84,350	$	54.64	84,350	$	42.01
Granted	—		—		—	99,872		56.84		9.35	263,041		56.85	84,202		79.18	84,202		56.84
Exercised/Vested ⁽¹⁾	(1,875)		25.00		10.26	(24,664)		32.74		6.14	(127,165)		40.83	—		—	—		—
Cancelled/Expired	—		—		—	—		—		—	(3,739)		46.83	—		—	—		—
Outstanding at March 31, 2020	80,435	$	25.00	$	5.87	2,010,046	$	38.14	$	7.18	521,887	$	48.00	168,552	$	66.90	168,552	$	49.42

2010 Equity Incentive Plan

2013 Equity Incentive Plan






Weighted





Weighted

Restricted










Weighted

average

Weighted

average

Stock /

Weighted

Weighted

Weighted

Number of

average

fair

average

fair

Deferred

average

average

average

Class O units

exercise price

value

Options

exercise price

value

Stock

grant price

TSR Units

grant price

FFO Units

grant price
Outstanding at December 31, 2018

102,279

$
24.05

$
5.67

2,037,163

$
36.86

$
7.10

420,309

$
37.83

—

$
—

—

$
—
Granted

—

—

—

124,955

42.01

7.56

265,231

42.01

86,089

54.64

86,089

42.01
Exercised/Vested (1)

—

—

—

(96,589)

27.82

5.58

(95,330)

37.12

—

—

—

—
Cancelled/Expired

—

—

—

(60,285)

46.07

9.62

(54,041)
(2)

38.73

—

—

—

—
Outstanding at March 31, 2019

102,279

$
24.05

$
5.67

2,005,244

$
37.34

$
7.12

536,169

$
39.93

86,089

$
54.64

86,089

$
42.01

(1)

~~(1)~~

This represents (i) Class O units which were converted to Class A units, (ii) options to purchase Class A common stock which were exercised, and (iii) the Class A common stock that has been released from restriction and which was not surrendered by the holder to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted common ~~stock. This also represents Class O units which were converted~~stock, with respect to ~~Class A units and options to purchase Class A common stock which were exercised for their respective columns.~~

the applicable column.

~~(2)~~

~~Includes restricted Class A common stock surrendered by certain employees to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted common stock.~~

The assumptions and fair values for restricted stock and options to purchase shares of Class A common stock granted for the three months ended March 31, ~~2019~~2020 are included in the following table on a per unit basis (unaudited). Options to purchase shares of Class A common stock were valued using the Black-Scholes model and TSR Units were valued using a Monte-Carlo simulation that leveraged similar assumptions to those used to value the Class A common stock and FFO Units.



		Three Months Ended March 31, ~~2019~~2020
Fair value of FFO units and restricted stock granted		$ ~~42.01~~56.84 - $57.28
Fair value of TSR units granted		$ ~~54.64~~79.18
Fair value of options granted		$ ~~7.56~~9.35
Expected term (years)		5.5
Expected volatility		~~28%~~ 27%
Expected dividend yield		~~4.19%~~ 3.31%
Expected risk-free interest rates		~~2.56%~~ 0.61%

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Table of Contents

The following tables summarize information about awards outstanding as of March 31, ~~2019~~2020 (unaudited).


	~~Operating Partnership Awards Outstanding~~
				~~Weighted average~~
			~~Awards~~	~~remaining~~
	~~Exercise prices~~		~~outstanding~~	~~vesting period (years)~~
~~Class O Units~~	$	~~20.00 - 25.00~~	~~102,279~~	—
~~Total Operating Partnership awards outstanding~~			~~102,279~~


	Operating Partnership Awards Outstanding
				Weighted average
			Awards	remaining
	Exercise prices		outstanding	vesting period (years)
Class O Units	$	25.00	80,435	—
Total Operating Partnership awards outstanding			80,435


	QTS Realty Trust, Inc. Awards Outstanding
				Weighted average
			Awards	remaining
	Exercise prices		outstanding	vesting period (years)

					QTS Realty Trust, Inc. Awards Outstanding
								Weighted average
							Awards	remaining
					Exercise prices		outstanding	vesting period (years)
Restricted stock	$	—	536,169	2.0	$	—	521,887	1.1
TSR units		—	86,089	2.8		—	168,552	1.2
FFO units		—	86,089	2.8		—	168,552	0.9
Options to purchase Class A common stock	$	21.00 - 50.66	2,005,244	0.8	$	21.00 - 56.84	2,010,046	0.4
Total QTS Realty Trust, Inc. awards outstanding			2,713,591				2,869,037

Any ~~remaining nonvested~~ awards ~~are~~outstanding as of the end of the period have been valued as of the grant date and generally vest ratably over a defined service period. As of March 31, ~~2019 there were approximately 0.6 million nonvested~~2020 all restricted Class A common stock, TSR units, and FFO units outstanding were unvested and approximately 0.2 million options to purchase Class A common stock were outstanding ~~respectively.~~and unvested. As of March 31, ~~2019 the Company~~2020 we had ~~$30.6~~$40.2 million of

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~~Table of Contents~~

unrecognized equity-based compensation expense which will be recognized over a remaining weighted-average vesting period of 1.1 years. The total intrinsic value of Class O units and options to purchase Class A common stock outstanding at March 31, ~~2019~~2020 was ~~$20.5~~$42.3 million.

Dividends and Distributions

The following tables present quarterly cash dividends and distributions paid to QTS’ common and preferred stockholders and the Operating Partnership’s unit holders for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (unaudited):


Three Months Ended March 31, 2020
				Aggregate
		Per Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
Common Stock/Units
December 20, 2019	January 7, 2020	$	0.44	$	28.6
				$	28.6

Series A Preferred Stock/Units
December 31, 2019	January 15, 2020	$	0.45	$	1.9
				$	1.9

Series B Preferred Stock/Units
December 31, 2019	January 15, 2020	$	1.63	$	5.1
				$	5.1

Three Months Ended March 31, 2019






Aggregate

Per Share and

Dividend/Distribution
Record Date

Payment Date

Per Unit Rate

Amount (in millions)
Common Stock

December 21, 2018

January 8, 2019

$
0.41

$
23.7

$
23.7

Series A Preferred Stock

December 31, 2018

January 15, 2019

$
0.45

$
1.9

$
1.9

Series B Preferred Stock

December 31, 2018

January 15, 2019

$
1.63

$
5.1

$
5.1

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Three Months Ended March 31, 2018






Aggregate

Per Common Share and

Dividend/Distribution
Record Date

Payment Date

Per Unit Rate

Amount (in millions)
Common Stock

December 5, 2017

January 5, 2018

$
0.39

$
22.2

$
22.2


Three Months Ended March 31, 2019
				Aggregate
		Per Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
Common Stock/Units
December 21, 2018	January 8, 2019	$	0.41	$	23.7
				$	23.7

Series A Preferred Stock/Units
December 31, 2018	January 15, 2019	$	0.45	$	1.9
				$	1.9

Series B Preferred Stock/Units
December 31, 2018	January 15, 2019	$	1.63	$	5.1
				$	5.1

Additionally, subsequent to March 31, ~~2019,~~2020, the Company paid the following dividends:

·

●

On April ~~4, 2019,~~7, 2020, the Company paid its regular quarterly cash dividend of ~~$0.44~~$0.47 per common share and per unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on March 20, ~~2019.~~

2020.

·

●

On April 15, ~~2019,~~2020, the Company paid a quarterly cash dividend of approximately $0.45 per share on its Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on March 31, ~~2019.~~

2020, and the Operating Partnership paid a quarterly cash distribution of approximately $0.45 per unit on outstanding Series A Preferred Units held by the Company.

·

●

On April 15, ~~2019,~~2020, the Company paid a quarterly cash dividend of approximately $1.63 per share on its Series B Preferred Stock to holders of Series B Preferred Stock of record as of the close of business on March 31, ~~2019.~~

2020, and the Operating Partnership paid a quarterly cash distribution of approximately $1.63 per unit on outstanding Series B Preferred Units held by the Company.

Equity Issuances

Class A Common Stock

In ~~March 2017,~~February 2019, QTS conducted an underwritten offering of 7,762,500 shares of its Class A common stock, $0.01 par value per share (the “Class A common stock”) consisting of 4,000,000 shares issued by the Company during the first quarter of 2019 and 3,762,500 shares which were issued on a forward basis. During the period ended March 31, 2020, we settled the remaining shares subject to the forward sale agreements with net proceeds received in the three months ended March 31, 2020 totaling $35.8 million. We have concluded that the forward sale agreements meet the derivative scope exception for certain contracts involving an entity’s own equity. The initial forward sale price was subject to daily adjustment based on a floating interest rate factor equal to the specified daily rate less a spread, and decreased by other fixed amounts specified in the forward sale agreement. Until settlement of all of the forward sale agreements, which occurred during the three months ended March 31, 2020, our earnings per share dilution resulting from the agreements, if any, was determined using the two-class method.

In June 2019, we established ana new “at-the-market” equity offering program (the “ATM Program”) pursuant to which ~~the Company~~we may issue, from time to time, up to ~~$300~~$400 million of ~~its~~our Class A common ~~stock.~~stock, which may include shares to be sold on a forward basis. The ~~Company issued no shares~~use of forward sales under the ATM Program generally allows the Company to lock in a price on the sale of shares of our Class A common stock when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares of our Class A common stock are issued at settlement on a later date. We have concluded that the forward sale agreements meet the derivative scope exception for certain contracts involving an entity’s own equity. The initial forward sale price is subject to daily adjustment based on a floating interest rate factor equal to the specified

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daily rate less a spread, and will decrease by other fixed amounts specified in the forward sale agreement. Until settlement of all of the forward sale agreements, our earnings per share dilution resulting from the agreements, if any, is determined using the two-class method.

At any time during the term of any forward sale under the ATM Program, we may settle the forward sale by physical delivery of shares of Class A common stock to the forward purchasers or, at our election, cash settle or net share settle. The initial forward sale price per share under each forward sale equals the product of (x) an amount equal to 100% minus the applicable forward selling commission and (y) the volume weighted average price per share at which the borrowed shares of our common stock were sold pursuant to the equity distribution agreement by the relevant forward seller during the applicable forward hedge selling period for such shares to hedge the relevant forward purchaser’s exposure under such forward sale. Thereafter, the forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor equal to the specified daily rate less a spread, and is decreased based on specified amounts related to dividends on shares of our common stock during the term of the applicable forward sale. If the specified daily rate is less than the spread on any day, the interest rate factor will result in a daily reduction of the applicable forward sale price. During the three months ended March 31, ~~2019.~~2020, we received $47.5 million of net proceeds from the settlement of forward shares as noted in the table below. The ~~Company’s ATM program expired in~~Company expects to physically settle (by delivering shares of Class A common stock) the remaining forward sales prior to the first anniversary date of each respective transaction.

The following table represents a summary of equity issuances of our Class A common stock for the period ended March ~~2019.~~31, 2020 (in thousands):


Offering Program	Forward Shares Sold/(Settled)			Net Proceeds Received		Remaining Expected Proceeds Available
Total as of December 31, 2019	3,795				$	177,845
February 2019 Offering - Settlement	(931)	⁽¹⁾	$	35,841		(35,841)
ATM Program - Settlements	(1,000)	⁽¹⁾		47,490		(47,490)
ATM Program - Sales	3,917			-		209,934
Total as of March 31, 2020	5,781		$	83,331	$	304,448

(1)	Represents the number of forward shares we elected to physically settle during the three months ending March 31, 2020.

Preferred Stock

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~~Table of Contents~~

On March 15, 2018, QTS issued 4,280,000 shares of 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) with a liquidation preference of $25.00 per share, which included 280,000 shares of the underwriters’ partial exercise of their option to purchase additional shares. ~~The Company used the net proceeds of approximately $103.2 million to repay amounts outstanding under its unsecured revolving credit facility.~~ In connection with the issuance of the Series A Preferred Stock, on March 15, 2018 the Operating Partnership issued to the Company 4,280,000 Series A Preferred Units, which have economic terms that are substantially similar to the Company’s Series A Preferred Stock. The Series A Preferred Units were issued in exchange for the Company’s contribution of the net offering proceeds of the offering of the Series A Preferred Stock to the Operating Partnership.

Dividends on the Series A Preferred Stock are payable quarterly in arrears on or about the 15th day of each January, April, July and October. ~~The first dividend on the Series A Preferred Stock was paid on April 16, 2018, in the amount of $0.14844 per share for the period March 15, 2018 through April 14, 2018.~~ The Series A Preferred Stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, the Series A Preferred Stock will rank senior to common stock and pari passu with the Series B Preferred Stock with respect to the payment of distributions and other amounts. Except in instances relating to preservation of ~~QTS’s~~QTS’ qualification as a REIT or pursuant to the Company’s special optional redemption right, the Series A Preferred Stock is not redeemable prior to March 15, 2023. On and after March 15, 2023, the Company may, at its option, redeem the Series A Preferred Stock, in whole, at any time, or in part, from time to time, for cash at a redemption price of $25.00 per share, plus any accrued and unpaid dividends (whether or not declared) to, but not including, the date of redemption.

Upon the occurrence of a change of control, the Company has a special optional redemption right that enables it to redeem the Series A Preferred Stock, in whole, at any time, or in part, from time to time, within 120 days after the first date on which a change of control has occurred resulting in neither QTS nor the surviving entity having a class of common shares listed on the NYSE, NYSE Amex, or NASDAQ or the acquisition of beneficial ownership of its stock

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entitling a person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in election of directors. The special optional redemption price is $25.00 per share, plus any accrued and unpaid dividends (whether or not declared) to, but not including, the date of redemption.

Upon the occurrence of a change of control, holders will have the right (unless the Company has elected to exercise its special optional redemption right to redeem their Series A Preferred Stock) to convert some or all of such holder’s Series A Preferred Stock into a number of shares of Class A common stock, par value $0.01 per share, equal to the lesser of:

·

●

the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accrued and unpaid dividends (whether or not declared) to, but not including, the change of control conversion date (unless the change of control conversion date is after a record date for a Series A Preferred Stock dividend payment and prior to the corresponding Series A Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the Common Stock Price; and

·

●

1.46929 (i.e., the Share Cap);

subject, in each case, to certain adjustments and provisions for the receipt of alternative consideration of equivalent value as described in the prospectus supplement for the Series A Preferred Stock.

On June 25, 2018, QTS issued 3,162,500 shares of 6.50% Series B Cumulative Convertible Perpetual Preferred Stock (“Series B Preferred Stock”) with a liquidation preference of $100.00 per share, which included 412,500 shares the underwriters purchased pursuant to the exercise of their overallotment option in full. ~~The Company used the net proceeds of approximately $304 million to repay amounts outstanding under its unsecured revolving credit facility.~~ In connection with the issuance of the Series B Preferred Stock, on June 25, 2018 the Operating Partnership issued to the Company 3,162,500 Series B Preferred Units, which have economic terms that are substantially similar to the Company’s Series B Preferred Stock. The Series B Preferred Units were issued in exchange for the Company’s contribution of the net offering proceeds of the offering of the Series B Preferred Stock to the Operating Partnership.

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~~Table of Contents~~

Dividends on the Series B Preferred Stock are payable quarterly in arrears on or about the 15th day of each January, April, July and October. ~~The first dividend on the Series B Preferred Stock was paid on October 15, 2018, in the amount of $1.9861111 per share for the period June 25, 2018 through October 14, 2018.~~ The Series B Preferred Stock is convertible by holders into shares of Class A common stock at any time at the then-prevailing conversion rate. The conversion rate as of March 31, ~~2019~~2020 is ~~2.1278~~2.1342 shares of the Company’s Class A common stock per share of Series B Preferred Stock. The Series B Preferred Stock does not have a stated maturity date. Upon liquidation, dissolution or winding up, the Series B Preferred Stock will rank senior to common stock and pari passu with the Series A Preferred Stock with respect to the payment of distributions and other amounts. The Series B Preferred Stock ~~will~~is not be redeemable by the Company. At any time on or after July 20, 2023, the Company may at its option cause all (but not less than all) outstanding shares of the Series B Preferred Stock to be automatically converted into the Company’s Class A common stock at the then-prevailing conversion rate if the closing sale price of the Company’s Class A common stock is equal to or exceeds 150% of the then-prevailing conversion price for at least 20 trading days in a period of 30 consecutive trading days, including the last trading day of such 30-day period, ending on the trading day prior to the issuance of a press release announcing the mandatory conversion.

If a holder converts its shares of Series B Preferred Stock at any time beginning at the opening of business on the trading day immediately following the effective date of a fundamental change (as described in the prospectus supplement) and ending at the close of business on the 30th trading day immediately following such effective date, the holder will automatically receive a number of shares of the Company’s Class A common stock equal to the greater of:

·

●

the sum of (i) a number of shares of the Company’s Class A common stock, as may be adjusted, as described in the Articles Supplementary for the 6.50% Series B Cumulative Convertible Perpetual Preferred Stock filed with the State Department of Assessments and Taxation of Maryland on June 22, 2018 (the “Articles Supplementary”) and (ii) the make-whole premium described in the Articles Supplementary; and

·

●

a number of shares of the Company’s Class A common stock equal to the lesser of (i) the liquidation preference divided by the average of the daily volume weighted average prices of the Company’s Class A common stock for ten days preceding the effective date of a fundamental change and (ii) 5.1020 (subject to adjustment).

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Table of Contents

10. Related Party Transactions

~~In February 2019, QTS conducted an underwritten offering of 7,762,500 shares of its Class A common stock, consisting of 4,000,000 shares issued by the Company~~

As described further in Note 5 – ‘Investments in Unconsolidated Entity’, during the first quarter of 2019 and 3,762,500 shares which will be issued on a forward basis, in each case at a price of $41.50 per share. The Company received net proceeds of approximately $159 million from the issuance of 4,000,000 shares during the first quarter, which it used to repay amounts outstanding under its unsecured revolving credit facility. The Company expects to physically settle the forward sale (by the delivery of shares of common stock) and receive proceeds of approximately $148 million from the sale of the 3,762,500 shares of common stock by March 1, 2020, although the Company has the right to elect settlement prior to that time. As ofthree months ended March 31, 2019, QTS formed an unconsolidated entity with Alinda, an infrastructure investment firm. QTS contributed a hyperscale data center under development in Manassas, Virginia to the ~~Company had not settled any shares from~~entity. The facility, and the forward sale. QTS has concluded that the forward sale agreements meet the derivative scope exception for certain contracts involving an entity’s own equity. QTS has not yet received any proceeds from the forward contract and no amounts have been or will be recorded in equity on the Company’s balance sheet until the forward sale agreements settle. The initial forward sale price is subjectpreviously executed operating lease to ~~daily adjustment based on~~ a floating interest rate factor, and will decrease by other fixed amounts specified in the forward sale agreement. Until settlement of the forward sale agreements, QTS’s EPS dilution resulting from the agreements, if any, is determined using the two-class method.

~~QTS Realty Trust, Inc. Employee Stock Purchase Plan~~

In June 2015, the Company established the QTS Realty Trust, Inc. Employee Stock Purchase Plan (the “2015 Plan”) to give eligible employees the opportunity to purchase, through payroll deductions, shares of the Company’s Class A common stock in the open market by an independent broker with the Company paying brokerage commissions and fees associated with such share purchases. The 2015 Plan became effective July 1, 2015. The Company reserved 250,000 shares of its Class A common stock for purchase under the 2015 Plan, which were registeredglobal cloud-based software company pursuant to a ~~registration statement on Form S-8 filed on June 17, 2015.~~10-year lease agreement, was contributed in exchange for cash and noncash consideration in the form of equity interest in the entity that was measured at fair value pursuant to ASC Topic 820. QTS and Alinda each own a 50% interest in the entity.

41

~~Table~~Under the unconsolidated entity agreement, we serve as the entity’s operating member, subject to authority and oversight of ~~Contents~~

~~On May 4, 2017, the stockholders~~a board appointed by us and Alinda, and separately we serve as manager and developer of the ~~Company approved an amendment~~facility in exchange for management and ~~restatement of~~development fees. QTS earned $0.5 million and $0.2 million in development fees from the ~~Plan (the “2017 Plan”). The 2017 Plan became effective July 1, 2017~~unconsolidated entity during the three months ended March 31, 2020 and ~~is administered by~~2019, respectively. In addition, QTS earned approximately $0.2 million and less than $0.1 million in management fees from the ~~compensation committee (the “Compensation Committee”) of~~unconsolidated entity during the board of directors (or by a committee of one or more persons appointed by it or the board of directors). The 2017 Plan permits participants to purchase the Company’s Class A common stock at a discount of up to 10% (as determined by the Compensation Committee). Employees of the Companythree months ended March 31, 2020 and its majority-owned subsidiaries who have been employed for at least thirty days and who perform at least thirty hours of service per week for the Company are eligible to participate in the 2017 Plan, excluding any employee who, at any time during which the payroll deductions are made on behalf of the participating employees to purchase stocks, owns shares representing five percent or more of the total combined voting power or value of all classes of shares of the Company, or who is a Section 16 officer. Under the 2017 Plan, there are four purchase periods per year, and participants may deduct a minimum of $20 per paycheck and a maximum of $1,000 per paycheck towards the purchase of shares. Shares purchased under the 2017 Plan are subject to a one-year holding period following the purchase date, during which they may not be sold or transferred.2019, respectively.

~~11.~~ ~~Related Party Transactions~~

~~The Company~~In addition, we periodically ~~executes~~execute transactions with entities affiliated with ~~its~~our Chairman and Chief Executive Officer. Such transactions include automobile, furniture and equipment purchases as well as building operating lease payments and receipts, and reimbursement for the use of a private aircraft service by ~~the Company’s~~our officers and directors.

The transactions which occurred during the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 are outlined below (unaudited and in thousands):


	Three Months Ended
	March 31,
	2019		2018

					Three Months Ended
					March 31,
					2020		2019
Tax, utility, insurance and other reimbursement	$	261	$	261	$	176	$	261
Rent expense		254		254		257		254
Capital assets acquired		54		158		-		54
Total	$	569	$	673	$	433	$	569

~~12.~~ 11. Noncontrolling Interest

Concurrently with the completion of the IPO, QTS 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. The previous owners of QualityTech, LP retained 21.2% ownership of the Operating Partnership as of the date of the IPO.

Commencing at any time beginning November 1, 2014, at the election of the holders of the noncontrolling interest, the currently outstanding Class A units of the Operating Partnership are redeemable for cash or, at the election of the Company, Class A common stock of the Company on a ~~one-for-one~~1-for-one basis. As of March 31, ~~2019,~~2020, the noncontrolling ownership interest percentage of QualityTech, LP was ~~10.8%~~9.9%.

~~13.~~ 12. Earnings per share of QTS Realty Trust, Inc.

Basic income per share is calculated by dividing the net income attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted income per share adjusts basic income per share for the effects of potentially dilutive common shares. Unvested restricted stock awards and ~~the Company’s~~our forward sale ~~contract~~contracts described in Note 109 contain non-forfeitable rights to dividends and thus are participating securities and are included in the computation of basic earnings per share pursuant to the two-class method for all periods presented. The two-class method is an earnings allocation formula that treats a participating security as having rights to undistributed earnings that would otherwise have been available to common stockholders. Accordingly, service-based restricted stock awards and the forward sale ~~contract~~contracts were included in the calculation of basic earnings per share using the two-class method for all periods presented to the extent outstanding during the period.

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The computation of basic and diluted net income per share is as follows (in thousands, except per share data, and unaudited):


	Three Months Ended
	March 31,
	2020		2019
Numerator:
Net income	$	8,120	$	21,148
Income attributable to noncontrolling interests		(110)		(1,590)
Preferred stock dividends		(7,045)		(7,045)
Earnings attributable to participating securities		(1,596)		(1,935)
Net income (loss) available to common stockholders after allocation to participating securities	$	(631)	$	10,578
Denominator:
Weighted average shares outstanding - basic		58,038		51,948
Effect of Class O units, TSR units and options to purchase Class A common stock on an "as if" converted basis		—		347
Weighted average shares outstanding - diluted		58,038		52,295

Basic net income (loss) per share	$	(0.01)	$	0.20

Diluted net income (loss) per share	$	(0.01)	$	0.20

Three Months Ended

March 31,

2019

2018
Numerator:

Net income (loss)

$
21,148

$
(252)
Loss (income) attributable to noncontrolling interests

(1,590)

29
Preferred stock dividends

(7,045)

(328)
Earnings attributable to participating securities

(1,935)

(258)
Net income (loss) available to common stockholders after allocation of participating securities

$
10,578

$
(809)
Denominator:

Weighted average shares outstanding - basic

51,948

50,279
Effect of Class O units, TSR units and options to purchase Class A common stock on an "as if" converted basis

347

—
Weighted average shares outstanding - diluted

52,295

50,279

Basic net income (loss) per share

$
0.20

$
(0.02)

Diluted net income (loss) per share

$
0.20

$
(0.02)

*

Note: The ~~table~~calculations of basic and diluted net income (loss) per share above ~~does~~do not include the following number of Class A partnership units, of 6.7 million and 6.6 million for the three months ended March 31, 2019, and 2018, respectively, as their inclusion would have been antidilutive. Also does not include 0.5 million reflecting the effects of Class O units, TSR units and options to purchase common stock on an ~~"as if"~~“as if” converted basis, ~~for the three months ended March 31, 2018,~~ and ~~6.7 million reflecting~~ the effects of Series B Convertible preferred stock on an “as if” converted basis ~~for the three months ended March 31, 2019,~~ as their respective ~~inclusion~~inclusions would have ~~also~~ been ~~antidilutive.~~

antidilutive:


	Three Months Ended
	March 31,
	2020		2019
Class A Partnership units		6,671		6,674
Class O units, TSR units and options to purchase common stock on an "as if" converted basis		655		—
Series B Convertible preferred stock on an "as if" converted basis		6,749		6,729

~~14.~~ 13. Contracts with Customers

Future minimum payments to be received under non-cancelable customer contracts including both lease rental revenue components and ~~nonlease~~non-lease revenue components that are accounted for as a combined lease component in accordance with the practical expedient provided by ASC Topic 842 which is discussed in Note 2 above (inclusive of payments for contracts which have not yet commenced, and exclusive of variable lease revenue such as recoveries of operating costs from customers) are as follows for the years ending December 31 (unaudited and in thousands):


2019 (April - December)	$	277,683
2020		308,650

2020 (April - December)			$	294,261
2021		250,263		346,559
2022		163,494		258,818
2023		88,227		164,342
2024				120,976
Thereafter		107,386		205,369
Total	$	1,195,703	$	1,390,325

~~15.~~ 14. Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based upon the application of discount rates to estimated

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future cash flows based upon market yields or by using other valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, fair values are not necessarily indicative of the amounts ~~the Company~~we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.

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Short-term instruments: The carrying amounts of cash and cash equivalents and restricted cash approximate fair value.

Derivative Contracts:

Interest rate swaps

Currently, ~~the Company uses~~we use interest rate swaps to manage ~~its~~our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of fair value accounting guidance, ~~the Company incorporates~~we incorporate credit valuation adjustments to appropriately reflect both ~~its~~our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of ~~its~~our derivative contracts for the effect of nonperformance risk, ~~the Company has~~we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although ~~the Company has~~we have determined that the majority of the inputs used to value ~~its~~our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with ~~its~~our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ~~the Company~~us and ~~its~~our counterparties. However, as of March 31, ~~2018, the Company~~2020, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of ~~its~~our derivative positions and ~~has~~ determined that the credit valuation adjustments are not significant to the overall valuation of ~~its~~our derivatives. As a result, ~~the Company has~~we have determined that ~~its~~our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. ~~The Company does~~We do not have any fair value measurements on a recurring basis using significant unobservable inputs (Level 3) as of March 31, ~~2018~~2020 or December 31, ~~2017.~~2019.

Power Purchase Agreements

In March 2019, ~~Company~~we began using energy hedges to manage risk related to energy prices. The inputs used to value the derivatives primarily fall within Level 2 of the fair value hierarchy, and valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including futures curves. The fair values of the energy hedges are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future energy rates (forward curves) derived from observable market futures curves. To comply with the provisions of fair value accounting guidance, ~~the Company incorporates~~we incorporate credit valuation adjustments to appropriately reflect both ~~its~~our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of ~~its~~our derivative contracts for the effect of nonperformance risk, ~~the Company has~~we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

~~Nonrecurring sale of assets:~~ ~~For~~Credit facility and Senior Notes: As market interest rates have fluctuated compared to contracted interest rates, the ~~three months ended March 31, 2019, the company recognized a gain on the sale of real estate assets that is discussed in detail in Note 6. In order to determine~~ fair value of our unsecured credit facility approximated the ~~noncash equity consideration received for the sale~~carrying value of the ~~assets, the Company utilized estimation models to derive~~credit facility less the fair value of the ~~equity~~ interest received in the transaction. These estimation models consisted of a discounted cash flow analysis that included Level 3 inputs including market rents, discount rates, expected occupancy and estimates of additional capital expenditures, and capitalization rates derived from market data.

~~Credit facility and Senior Notes:~~ ~~The Company’s unsecured credit facility did not have interest rates which were materially different than current market conditions and therefore, the fair value approximated the carrying value.~~rate swap liability. The fair value of ~~the Company’s~~our Senior Notes was estimated using Level 2 “significant other observable inputs,” primarily based on quoted market prices for the same or similar issuances. At March 31, ~~2019,~~2020, the fair value of the Senior Notes was approximately ~~$387.0~~$386.0 million.

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Other debt instruments: The fair value of ~~the Company’s~~our other debt instruments (including finance leases and mortgage notes payable) were estimated in the same manner as the unsecured credit facility above. Similarly, each of these instruments did not have interest rates which were materially different than current market conditions and therefore, the fair value of each instrument approximated the respective carrying values.

~~16.~~ 15. Subsequent Events

In April ~~2019, the Company~~2020, we paid ~~its~~our regular quarterly cash dividends on ~~its~~our common stock, Series A Preferred Stock and Series B Preferred Stock. See the ‘Dividends and Distributions’ section of Note 109 for additional details. In addition, in April 2020, we reduced our cash position more in line with historical cash balances by using a portion of cash on hand to repay a portion of our unsecured revolving credit facility, pay dividends to common and preferred stockholders and fund additional capital expenditures.

In April 2019, QTS completed the acquisition of two data centers in the Netherlands for approximately $44 million in cash, including closing costs. The two facilities, in Groningen and Eemshaven, currently have approximately 160,000 square feet of raised floor capacity and 30 megawatts of combined gross power capacity built out and fully available. The acquisition is expected to be accounted for as an asset acquisition.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations

The following discussion and analysis presents the financial condition and results of operations of QTS Realty Trust, Inc., a Maryland corporation (“QTS”), which includes the operations of QualityTech, LP (the “Operating Partnership”), for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. You should read the following discussion and analysis in conjunction with QTS’ and the Operating Partnership’s accompanying consolidated financial statements and related notes contained elsewhere in this Form 10-Q. We believe it is important for investors to understand the few differences between the financial statements of QTS and the Operating Partnership. See “Explanatory Note” for an explanation of the differences between these ~~few differences.~~financial statements in the context of how QTS and the Operating Partnership operate as a consolidated company. Since the financial data presented in this Item 2 does not contain any differences between QTS and the Operating Partnership, all periods presented reflect the operating results of both QTS and the Operating Partnership.

Forward-Looking Statements

Some of the statements contained in this Form 10-Q 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 COVID-19 pandemic, its impact on us and our response thereto and our strategy, plans, intentions, capital resources, liquidity, portfolio performance, results of operations, anticipated growth in our funds from operations and anticipated market conditions contain 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 Form 10-Q reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. We do 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 our markets or the technology industry;

·

●

obsolescence or reduction in marketability of our infrastructure due to changing industry demands;

·

●

global, national and local economic conditions;

·

●

risks related to the COVID-19 pandemic, including, but not limited to, the risk of business and/or operational disruptions, disruption of our customers’ businesses that could affect their ability to make rental payments to us, supply chain disruptions and delays in the construction or development of our data centers;

●

risks related to our international operations;

·

●

difficulties in identifying properties to acquire and completing acquisitions;

·

●

our failure to successfully develop, redevelop and operate acquired properties or lines of business;

·

●

significant increases in construction and development costs;

·

●

the increasingly competitive environment in which we operate;

·

●

defaults on, or termination or non-renewal of, leases by customers;

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·

●

decreased rental rates or increased vacancy rates;

·

●

increased interest rates and operating costs, including increased energy costs;

·

●

financing risks, including our failure to obtain necessary outside financing;

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·

●

dependence on third parties to provide Internet, telecommunications and network connectivity to our data centers;

·

●

our failure to qualify and maintain QTS’ qualification as a REIT;

·

●

environmental uncertainties and risks related to natural disasters;

·

●

financial market fluctuations;

·

●

changes in real estate and zoning laws, revaluations for tax purposes and increases in real property tax rates; and

·

●

limitations inherent in our current and any future unconsolidated joint venture investments, such as lack of sole decision-making authority and reliance on our partners’ financial condition.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Any forward-looking statement speaks only as of the date on which it was made. We disclaim 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 our future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019, and Item 1A. “Risk Factors” of this Form ~~10-Q.~~10-Q, as well as other periodic reports that the Company files with the Securities and Exchange Commission, many of which should be interpreted as being heightened as a result of the ongoing COVID-19 pandemic and the actions taken to contain the pandemic or mitigate its impact.

Overview

QTS is a leading provider of data center solutions to the world’s largest and most sophisticated hyperscale technology companies, enterprises and government agencies. Through our technology-enabled platform, delivered across mega scale data center infrastructure, we offer a comprehensive portfolio of secure and compliant IT solutions. Our data centers are facilities that power and support our customers’ IT infrastructure equipment and provide seamless access and connectivity to a range of communications and IT services providers. Across our broad footprint of strategically-located data centers, we provide flexible, scalable and secure IT solutions, including data center space, power and cooling, connectivity and value-add managed services for more than ~~1,100~~1,200 customers in the financial services, healthcare, retail, government and technology industries. We build out our data center facilities depending on the needs of our customers to accommodate both multi-tenant environments (hybrid colocation) and ~~for executed leases~~customers that require significant amounts of space and power (hyperscale), ~~depending on the needs of each facility at that time.~~including federal customers. We believe that we own and operate one of the largest portfolios of multi-tenant data centers in the United States, as measured by gross square footage, and have the capacity to nearly double our sellable data center raised floor space without constructing or acquiring any new buildings. In addition, we own more than ~~650~~731 acres of land that is available at our data center properties that provides us with the opportunity to significantly expand our capacity to further support future demand from current and new potential customers.

As of March 31, ~~2019,~~2020, we operated a portfolio of 24 data centers located throughout the United States, Canada ~~Europe~~ and ~~Asia.~~Europe. Within the United States, our data centers are concentrated in the markets which we believe offer the highest growth opportunities. Our data centers are highly specialized, mission-critical facilities utilized by our customers to store, power and cool the server, storage, and networking equipment that support their most critical business systems and processes. We believe that our data centers are best-in-class and engineered to adhere to the highest specifications commercially available to customers, providing fully redundant, high-density power and cooling sufficient to meet the

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needs of the largest companies and organizations in the world. We have demonstrated a strong operating track record of “five-nines” (99.999%) reliability since QTS’ inception.

The COVID-19 Pandemic

QTS is ~~a Maryland corporation formed~~actively monitoring developments with respect to COVID-19 and has taken numerous actions based on ~~May 17, 2013~~corporate policies specifically focusing on the safety and wellness of its customers, partners, and employees, as well as providing continuous and resilient services. Although the COVID-19 pandemic is causing significant disruptions to the ~~sole general partner~~United States and ~~majority owner~~global economy and has contributed to significant volatility and negative pressure in financial markets, as of the ~~Operating Partnership. Our Class A common stock trades~~date of this report these developments have not had a known material adverse effect on our business. As of the ~~New York Stock Exchange under the ticker symbol “QTS.”~~

~~We account for the operations~~date of ~~all~~this report, each of our ~~properties~~data centers in ~~one reporting segment.~~North America and Europe are fully operational and operating in accordance with our business continuity plans. Across each of the respective jurisdictions in which the Company operates, our business has been deemed an essential operation, which allows the Company to remain fully staffed with critical personnel in place to continue to provide continued service and support for its customers.

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~~Table~~Since the beginning of ~~Contents~~

the economic disruptions from COVID-19, we have experienced a modest increase in customer requests for payment relief, primarily concentrated in the retail, oil and gas, hospitality and transportation customer verticals. As of March 31, ~~2019, QTS owned an approximate 89.2% ownership interest~~2020, less than 10% of our MRR balance was generated from these industries. The total revenue associated with customers requesting some form of payment relief represented approximately 5% of our revenue for the three months ended March 31, 2020. Importantly, of the small number of customers requesting some form of payment relief, as of March 31, 2020, the large majority of these customers were current on their rental payments and while we have not reduced their future payments, we have in certain circumstances provided additional flexibility in the ~~Operating Partnership. Substantially all~~form of extended payment terms. Partially due to the risk of non-payment for customers experiencing potential business disruptions due to COVID-19, we increased our bad debt reserve as of March 31, 2020.

In addition to these customer requests for payment relief, we also have experienced modest delays in construction activity in a few of our ~~assets~~markets primarily as a result of availability of contractors and slower permitting. However, as of the date of this report none of these delays are ~~held by,~~expected to create a material adverse change in the our anticipated infrastructure deliveries to customers. From a supply chain perspective, given the long-lead time generally associated with larger components in data center development, such as generators, UPS systems and chillers, as of the date of this report we have acquired the vast majority of equipment needed to complete our ~~operations are conducted through,~~2020 development activities. In addition, we have accelerated the ~~Operating Partnership.~~acquisition of additional infrastructure equipment to support our early 2021 expected development activity around our customers’ continued growth expectations.

The ~~Operating Partnership is a Delaware limited partnership formed~~extent to which COVID-19 impacts our business and operations remains largely uncertain and will depend on ~~August 5, 2009~~future developments that are highly uncertain and ~~was QTS’ historical predecessor prior~~cannot be predicted with confidence, including the duration and scope of the pandemic, new information that may emerge concerning the severity of COVID-19, the response of the overall economy and financial markets and the actions taken to ~~QTS’ initial public offering~~contain COVID-19 or treat its impact, such as government actions, laws or orders or any changes or amendments thereto and the success of any lifting or easing of, or the risk of any premature lifting or easing of, any such restrictions, among others. The COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial performance, and results of operations and may also exacerbate many of the risks identified under the section entitled “Risk Factors” in our Annual Report on ~~October 13, 2013 (“IPO”), having operated~~Form 10-K for the ~~Company’s business until the IPO.~~

~~We believe that QTS has operated and has been organized in conformity with the requirements for qualification and taxation as a REIT commencing with our taxable~~ year ended December 31, ~~2013. Our qualification as~~2019. For a ~~REIT, and maintenance~~further discussion of ~~such qualification, depends upon our ability~~the risks related to ~~meet, on a continuing basis, various complex requirements under~~ the Internal Revenue Code of 1986, as amended (the “Code”) relating to, among other things, the sources of our gross income, the composition and values of our assets, our distributions to our stockholders and the concentration of ownership of our equity shares.COVID-19 pandemic, see “Item 1A Risk Factors.”

Our Customer Base

Our data center facilities are designed with the flexibility to support a diverse set of solutions and customers. Our customer base is comprised of more than ~~1,100~~1,200 different companies of all sizes representing an array of industries, each with unique and varied business models and needs. We serve Fortune 1000 companies as well as small and medium-sized businesses, or SMBs, including financial institutions, healthcare companies, retail companies, government agencies, communications service providers, software companies and global Internet companies.

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We have customers that range from large enterprise and technology companies with significant IT expertise and data center requirements, including financial institutions, “Big Four” accounting firms and the world’s largest global Internet and cloud companies, to major healthcare, telecommunications and software and web-based companies.

As a result of our diverse customer base, customer concentration in our portfolio is limited. As of March 31, ~~2019,~~2020, only five of our more than ~~1,100~~1,200 customers individually accounted for more than 3% of our monthly recurring revenue (“MRR”) (as defined below), with the largest customer accounting for approximately ~~12.5%~~10.9% of our MRR and the next largest customer accounting for only 5.6% of our MRR.

Our Portfolio

As of March 31, ~~2019,~~2020, including 100% of the unconsolidated ~~joint ventures for~~entity with which we are affiliated, we operated 24 data centers located throughout the United States, Canada ~~Europe~~ and ~~Asia,~~Europe, containing an aggregate of approximately ~~6.2~~7.2 million gross square feet of space, including approximately ~~2.7~~3.2 million “basis-of-design” raised floor square feet (approximately ~~96.3%~~96.2% of which is wholly owned by us including our data center in Santa Clara which is subject to a long-term ground lease), which represents the total sellable data center raised floor potential of our existing data center facilities. This reflects the maximum amount of space in our existing buildings that could be leased following full build-out, depending on the space and power configuration that we deploy. As of March 31, ~~2019,~~2020, this space included approximately ~~1.5~~1.7 million raised floor operating net rentable square feet, or NRSF, plus approximately ~~1.2~~1.5 million square feet of additional raised floor in our development pipeline, of which approximately ~~119,000~~133,000 raised floor square feet is expected to become operational by December 31, ~~2019.~~2020. Of the total ~~1.2~~1.5 million raised floor square feet in our development pipeline, ~~that is expected to become operational by December 31, 2019,~~ approximately ~~51,000~~108,000 square feet was related to customer leases which had been executed as of March 31, ~~2019~~2020 but not yet commenced. Our facilities collectively have access to approximately ~~667~~926 megawatts (“MW”) of available utility power. Access to power is typically the most limiting and expensive component in developing a data center and, as such, we believe our significant access to power represents an important competitive advantage.

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The following table presents an overview of the portfolio of operating properties that we own or lease, based on information as of March 31, ~~2019:~~2020:


			Net Rentable Square Feet (Operating NRSF) ⁽¹⁾
											Available	Basis of	Current
		Gross									Utility	Design	Raised
	Year	Square	Raised	Office &	Supporting		%		Annualized		Power	("BOD")	Floor as a
Property	Acquired ⁽²⁾	Feet ⁽³⁾	Floor ⁽⁴⁾	Other ⁽⁵⁾	Infrastructure ⁽⁶⁾	Total	Occupied ⁽⁷⁾		Rent ⁽⁸⁾		(MW) ⁽⁹⁾	NRSF	% of BOD
Richmond, VA	2010	1,318,353	117,309	51,093	131,654	300,056	84.9	%	$	33,570,024	110	557,309	21.0	%
Atlanta, GA (DC-1) ⁽¹⁰⁾	2006	968,695	527,186	36,953	364,815	928,954	97.0	%	$	118,129,363	72	527,186	100.0	%
Irving, TX	2013	698,000	187,742	6,981	198,913	393,636	95.9	%	$	52,201,124	140	275,701	68.1	%
Princeton, NJ	2014	553,930	58,157	2,229	111,405	171,791	100.0	%	$	10,380,831	22	158,157	36.8	%
Chicago, IL	2014	474,979	70,000	1,786	71,622	143,408	95.3	%	$	19,256,457	56	215,855	32.4	%
Ashburn, VA	2017	445,000	110,606	6,096	110,560	227,262	66.1	%	$	6,882,751	50	178,000	62.1	%
Suwanee, GA	2005	369,822	205,608	8,697	107,128	321,433	94.0	%	$	60,505,502	36	205,608	100.0	%
Piscataway, NJ	2016	360,000	103,820	14,311	104,301	222,432	90.9	%	$	20,486,370	111	176,000	59.0	%
Fort Worth, TX	2016	261,836	55,828	17,232	97,699	170,759	77.0	%	$	5,605,624	50	80,000	69.8	%
Santa Clara, CA ⁽¹¹⁾	2007	135,322	59,905	944	45,094	105,943	90.3	%	$	22,882,619	11	80,940	74.0	%
Sacramento, CA	2012	92,644	54,595	2,794	23,916	81,305	35.8	%	$	10,243,959	8	54,595	100.0	%
Dulles, VA ⁽¹²⁾	2017	87,159	30,545	5,997	32,892	69,434	89.4	%	$	17,846,722	13	48,270	63.3	%
Leased facilities ⁽¹³⁾	2006 & 2015	190,875	62,274	18,650	41,901	122,825	84.2	%	$	24,238,797	14	82,886	75.1	%
Other ⁽¹⁴⁾	Misc.	459,549	51,561	49,337	70,636	171,534	84.9	%	$	13,095,663	98	180,380	28.6	%
		6,416,164	1,695,136	223,100	1,512,536	3,430,772	89.9	%	$	415,325,806	791	2,820,887	60.1	%

New Property Development
Atlanta, GA (DC-2) ⁽¹⁵⁾	2018	495,000	—	—	—	—	—	%		—	—	240,000	—	%
Hillsboro, OR	2017	158,000	—	—	—	—	—	%		—	—	85,000	—	%

Unconsolidated Properties - at 100% Share ⁽¹⁶⁾
Manassas, VA	2018	118,031	22,400	12,663	39,044	74,107	100.0	%	$	8,456,635	135	66,324	33.8	%

Total Properties		7,187,195	1,717,536	235,763	1,551,580	3,504,879	90.1	%	$	423,782,441	926	3,212,211	53.5	%

Net Rentable Square Feet (Operating NRSF) (1)

Available

Basis of

Current

Gross

Utility

Design

Raised

Year

Square

Raised

Office &

Supporting

%

Annualized

Power

("BOD")

Floor as a
Property

Acquired (2)

Feet (3)

Floor (4)

Other (5)

Infrastructure (6)

Total

Occupied (7)

Rent (8)

(MW) (9)

NRSF

% of BOD
Richmond, VA

2010

1,318,353

167,309

51,093

178,854

397,256

70.9
%

$
40,048,363

110

557,309

30.0
%
Atlanta, GA (Metro)

2006

968,695

486,706

36,953

346,263

869,922

97.9
%

$
106,761,525

72

527,186

92.3
%
Irving, TX

2013

698,000

174,160

6,981

179,083

360,224

94.7
%

$
51,870,922

140

275,701

63.2
%
Princeton, NJ

2014

553,930

58,157

2,229

111,405

171,791

100.0
%

$
10,206,631

22

158,157

36.8
%
Chicago, IL

2014

474,979

56,000

1,786

58,182

115,968

84.0
%

$
12,534,696

24

215,855

25.9
%
Ashburn, VA

2017

445,000

19,500

6,096

31,988

57,584

90.7
%

$
3,690,636

50

178,000

11.0
%
Suwanee, GA

2005

369,822

205,608

8,697

107,128

321,433

93.4
%

$
56,296,509

36

205,608

100.0
%
Piscataway, NJ

2016

360,000

98,820

14,311

100,151

213,282

88.9
%

$
18,051,649

111

176,000

56.1
%
Fort Worth, TX

2016

261,836

10,600

—

19,438

30,038

98.9
%

$
2,084,513

50

80,000

13.3
%
Santa Clara, CA*

2007

135,322

59,905

944

45,094

105,943

72.5
%

$
18,466,859

11

80,940

74.0
%
Sacramento, CA

2012

92,644

54,595

2,794

23,916

81,305

37.5
%

$
10,474,745

8

54,595

100.0
%
Dulles, VA

2017

87,159

30,545

5,997

32,892

69,434

62.9
%

$
16,494,315

13

48,270

63.3
%
Leased facilities **

2006 & 2015

192,588

63,937

18,650

41,901

124,488

83.3
%

$
26,841,451

14

84,549

75.6
%
Other ***

Misc.

147,435

22,380

49,337

30,074

101,791

68.9
%

$
6,582,622

5

22,380

100.0
%
Consolidated properties

6,105,763

1,508,222

205,868

1,306,369

3,020,459

88.9
%

$
380,405,436

667

2,664,550

56.6
%

Unconsolidated JV Properties - at the JV's 100% Share (10)

Manassas, VA

2018

118,031

11,200

12,663

39,044

62,907

100.0
%

$
6,047,136

24

66,324

16.9
%

Total Properties

6,223,794

1,519,422

218,531

1,345,413

3,083,366

89.0
%

$
386,452,572

691

2,730,874

55.6
%

(1)

~~(1)~~

Represents the total square feet of a building that is currently leased or available for lease plus developed supporting infrastructure, based on engineering drawings and estimates, but does not include space held for redevelopment or space used for our own office space.

(2)

~~(2)~~

Represents the year a property was acquired or, in the case of a property under lease, the year our initial lease commenced for the property.

(3)

~~(3)~~

With respect to our owned properties, gross square feet represents the entire building area. With respect to leased properties, gross square feet represents that portion of the gross square feet subject to our lease. Gross square feet includes ~~347,261~~383,761 square feet of our office and support space, which is not included in operating NRSF.

(4)

~~(4)~~

Represents management’s estimate of the portion of NRSF of the facility with available power and cooling capacity that is currently leased or readily available to be leased to customers as data center space based on engineering drawings.

(5)

~~(5)~~

Represents the operating NRSF of the facility other than data center space (typically office and storage space) that is currently leased or available to be leased.

(6)

~~(6)~~

Represents required data center support space, including mechanical, telecommunications and utility rooms, as well as building common areas.

(7)

~~(7)~~

Calculated as data center raised floor that is subject to a signed lease for which ~~space is occupied (1,112,529 square feet as of March 31, 2019)~~billing has commenced divided by leasable raised floor based on the current configuration of the properties, ~~(1,249,529 square feet as of March 31, 2019),~~ expressed as a percentage.

(8)

~~(8)~~

We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under executed contracts as of a particular date, which includes revenue from our 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 contracts (as defined below) as of a particular date, unless otherwise specifically noted, nor does it reflect the accounting associated with any free rent, rent abatements or future scheduled rent increases.

(9)

~~(9)~~

Represents installed utility power and transformation capacity that is available for use by the facility as of March 31, ~~2019.~~

2020.

(10)	~~(10)~~ This property was formerly known as “Atlanta, GA (Metro)” but has been renamed “Atlanta, GA (DC-1)” to distinguish between the existing data center and the new property development shown as “Atlanta, GA (DC-2)” within the new property development section.

(11)	Subject to long-term ground lease.

(12)	The Dulles campus has two data center buildings and the Company is currently relocating customers from the smaller and older facility to the new facility in an effort to optimize its operating cost structure.

(13)	Includes 7 facilities. All facilities are leased, including those subject to finance leases.

(14)	Consists of Miami, FL; Lenexa, KS; Overland Park, KS; Eemshaven, Netherlands and Groningen, Netherlands facilities.

(15)	Represents the development of a new data center building at our Atlanta, GA campus.

(16)	Represents the Company’s unconsolidated ~~joint venture~~entity at ~~the JV’s~~ 100% share. ~~QTS’s pro rata share~~QTS’ equity ownership of the JVunconsolidated entity is 50%.

*~~Subject to long term ground lease.~~

**~~Includes 9 facilities. All facilities are leased, including those subject to finance leases.~~

~~***Consists of Miami, FL; Lenexa, KS; Overland Park, KS; and Duluth, GA facilities.~~

~~Key Operating Metrics~~

~~The following sets forth definitions for our key operating metrics. These metrics may differ from similar definitions used by other companies.~~

~~Monthly Recurring Revenue (“MRR”).~~ We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our 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 as of a particular date, unless otherwise specifically noted. MRR does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.

~~Annualized Rent~~. ~~We define annualized rent as MRR multiplied by 12.~~

~~Rental Churn~~. ~~We define rental churn as the MRR lost in the period from a customer intending to fully exit our platform in the near term compared to the total MRR at the beginning of the period.~~

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~~Leasable Raised Floor~~. We define leasable raised floor as the amount of raised floor square footage that we have leased plus the available capacity of raised floor square footage that is in a leasable format as of a particular date and according to a particular product configuration. The amount of our leasable raised floor may change even without completion of new development projects due to changes in our configuration of space.

~~Percentage (%) Occupied and Billing Raised Floor.~~ We define percentage occupied and billing raised floor as the square footage that is subject to a signed lease for which billing has commenced as of a particular date compared to leasable raised floor based on the current configuration of the properties as of that date, expressed as a percentage.

~~Booked-not-Billed.We define booked-not-billed as our customer leases that have been signed, but for which lease payments have not yet commenced.~~

Factors That May Influence Future Results of Operations and Cash Flows

~~Recent Accounting Pronouncements.We adopted the provisions of ASC Topic 606,~~ ~~Revenue from Contracts with Customers, effective January 1, 2018. We also adopted ASC Topic 842,~~ ~~Leases,~~ effective January 1, 2019. For additional information with respect to the impact of the standards on our financial condition and results of operations, refer to Note 2 – Summary of Significant Accounting Policies.

Revenue.Our revenue growth will depend on our ability to maintain the historical occupancy rates of leasable raised floor, lease currently available space, lease new capacity that becomes available as a result of our development and redevelopment activities, attract new customers and continue to meet the ongoing technological requirements of our customers. As of March 31, ~~2019,~~2020, we had in place customer leases generating revenue for approximately ~~89%~~90% of our leasable raised floor. Our ability to grow revenue also will be affected by our ability to maintain or increase rental and managed services rates at our properties. ~~Future~~The impact of the COVID-19 pandemic, including, but not limited to, the risk of business and/or operational disruptions, disruption of our customers’ businesses that could affect their ability to make rental payments to us, supply chain disruptions and delays in the construction or development of our data centers, future economic downturns, regional downturns or downturns in the technology industry, new technological developments,

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evolving industry demands and other similar factors could impair our ability to attract new customers or renew existing customers’ leases on favorable terms, or at all, and could adversely affect our customers’ ability to meet their obligations to us. ~~Negative~~For example, since the beginning of the economic disruptions from COVID-19, we have experienced a modest increase in customer requests for payment relief and also have experienced modest delays in construction activity in a few of our markets, primarily as a result of availability of contractors and slower permitting as more fully described under the caption “The COVID-19 Pandemic.” In response to these customer requests, although we have not reduced future payments, we have in certain circumstances provided additional flexibility in the form of extended payment terms. Partially due to the risk of non-payment for customers experiencing potential business disruptions due to COVID-19, we increased our bad debt reserve as of March 31, 2020. Although as of the date of this report these developments have not had a known material adverse effect on the Company’s business, these or other negative trends in one or more of these or other factors described above could adversely affect our revenue in future periods, which would impact our results of operations and cash flows.We also at times may elect to reclaim space from customers in a negotiated transaction where we believe that we can redevelop and/or re-lease that space at higher rates, which may cause a decrease in revenue until the space is re-leased.

Leasing Arrangements.As of March 31, ~~2019,~~2020, 45% of our MRR came from customers which individually occupied greater than or equal to 6,600 square feet of space (or approximately 1 MW of power), with the remaining 55% attributable to customers utilizing less than 6,600 square feet of space. As of March 31, ~~2019,~~2020, approximately ~~52%~~50% of our MRR was attributable to the metered power model, the majority of which is comprised of customers that individually occupy greater than 6,600 square feet of space. Under the metered power model, the customer pays us a fixed monthly rent amount, plus reimbursement of certain other operating costs, including actual costs of sub-metered electricity used to power its data center equipment and an estimate of costs for electricity used to power supporting infrastructure for the data center, expressed as a factor of the customer’s actual electricity usage. Fluctuations in our customers’ utilization of power and the supplier pricing of power do not significantly impact our results of operations or cash flows under the metered power model. These leases generally have a minimum term of five years. As of March 31, ~~2019,~~2020, the remaining approximately ~~48%~~50% of our MRR was attributable to the gross lease or managed service model. Under this model, the customer pays us a fixed amount on a monthly basis, and does not separately reimburse us for operating costs, including utilities, maintenance, repair, property taxes and insurance, as reimbursement for these costs is factored into MRR. However, if customers incur more utility costs than their leases permit, we are able to charge these customers for overages. For leases under the gross lease or managed service model, fluctuations in our customers’ utilization of power and the prices our utility providers charge us will impact our results of operations and cash flows. Our gross leases and managed services contracts generally have a term of three years or less.

Scheduled Lease Expirations.Our ability to minimize rental churn (which we define as MRR lost in the period from a customer intending to fully exit our platform in the near term compared to the total MRR at the beginning of the period) and customer downgrades at renewal and renew, lease and re-lease expiring space will impact our results of operations and cash flows. Leases which have commenced billing representing approximately ~~15%~~14% and ~~13%~~20% of our total leased raised floor are scheduled to expire during the years ending December 31, ~~2019~~2020 (including all month-to-month leases) and ~~2020,~~2021, respectively. These leases also represented

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approximately 24% and ~~19%~~21%, respectively, of our annualized rent as of March 31, ~~2019.~~2020. Given that our average rent for larger contracts tend to be at or below market rent at expiration, as a general matter, based on current market conditions, we expect that expiring rents will be at or below the then-current market rents.

Acquisitions, Development, and Financing.Our revenue growth also will depend on our ability to acquire and redevelop and/or construct and subsequently lease data center space at favorable rates. We generally fund the cost of data center acquisition, construction and/or redevelopment from our net cash provided by operations, revolving credit facility, other unsecured and secured borrowings, joint ventures or the issuance of additional equity. We believe that we have sufficient access to capital from our current cash and cash equivalents, borrowings under our credit ~~facilities to fund our redevelopment projects,~~facility and ~~the~~ forward equity ~~transaction~~transactions. Since the beginning of the economic disruptions from COVID-19, we ~~completed during~~have experienced modest delays in construction activity in a few of our markets, primarily as a result of availability of contractors and slower permitting as more fully described under the ~~three months ended March 31, 2019.~~caption “The COVID-19 Pandemic.” Although as of the date of this report these developments have not had a known material adverse effect on the Company’s business, these or other negative trends in one or more of these or other factors described above could adversely affect our revenue in future periods, which would impact our results of operations and cash flows.

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Unconsolidated ~~joint venture.~~Entity. On February 22, 2019, we entered into ~~a joint venture~~an agreement with Alinda, ~~a premier~~an infrastructure investment firm, with respect to our Manassas data center. At closing, we contributed cash and our Manassas data center (a ~~118,000 square foot~~ hyperscale data center under development in Manassas, Virginia), and Alinda contributed cash, in each case in exchange for a 50% interest in the ~~joint venture.~~unconsolidated entity. The Manassas data center, which is currently leased to a global cloud-based software company pursuant to a 10-year lease agreement, was contributed at an expected stabilized value upon completion of approximately $240 million. At the closing, we received approximately $53 million in net proceeds, which was funded from the cash contributed by Alinda and also borrowings under a $164.5 million secured credit facility entered into by the ~~joint venture~~unconsolidated entity at closing that carries a rate of LIBOR plus 2.00% to 2.25%. depending on the existing leverage ratio. We used these distributions to pay down our revolving credit facility and for general corporate purposes. Under the ~~joint venture~~ agreement, we will receive additional distributions in the future as and when we complete development of each phase of the Manassas data center and place it into service, which allows us to receive distributions for Alinda’s share of the ~~joint venture~~unconsolidated entity based on the expected full stabilization of the asset. These distributions will be based on a 6.75% capitalization rate for each phase delivered during the first three years of the ~~joint venture.~~agreement. Under the ~~joint venture~~ agreement, we ~~will~~ serve as the ~~joint venture’s~~unconsolidated entity’s operating member, subject to authority and oversight of a board appointed by us and Alinda, and separately we ~~will~~ serve as manager and developer of the facility in exchange for management and development fees. The ~~joint venture~~ agreement includes various transfer restrictions and rights of first offer that will allow us to repurchase Alinda’s interest should Alinda wish to exit in the future. In addition, we have agreed to provide Alinda an opportunity to invest in future similar entities based on similar terms and a comparable capitalization rate. This ~~joint venture is~~agreement has been reflected as an unconsolidated ~~joint venture~~entity on our reported financial statements beginning in the first quarter of 2019.

Operating Expenses.Our operating expenses generally consist of direct personnel costs, utilities, property and ad valorem taxes, insurance and site maintenance costs and rental expenses on our ground and building leases. In particular, our buildings require significant power to support the data center operations conducted in them. Although ~~substantially all~~a significant portion of our long-term leases -– leases with a term greater than three years -– contain reimbursements for certain operating expenses, we will not in all instances be reimbursed for all of the property operating expenses we incur. During the first quarter of 2020 we experienced an increase in total operating costs, partially driven by an increase in bad debt expense which was due to the risk of non-payment for customers experiencing potential business disruptions due to COVID-19. We also incur general and administrative expenses, including expenses relating to senior management, our in-house sales and marketing organization, cloud and managed services support personnel and legal, human resources, accounting and other expenses related to professional services. We also will incur additional expenses arising from being a publicly traded company, including employee equity-based compensation. Increases or decreases in our operating expenses will impact our results of operations and cash flows. We expect to incur additional operating expenses as we continue to expand. Although as of the date of this report the expenses described above related to the COVID-19 pandemic have not had a known material adverse effect on the Company’s business, these or other negative trends in one or more of these or other factors described above could adversely affect our operating expenses in future periods, which would impact our results of operations and cash flows.

General Leasing Activity

Information is provided in the tables below for both our leasing activity as well as booked-not-billed balances.

New/modified leases signed, “Incremental Annualized Rent, Net of Downgrades” reflect net incremental MRR signed during the period for purposes of tracking incremental revenue contribution. The amounts include renewals when there was a change in square footage rented, but exclude renewals where square footage remained consistent before and after renewal. (See “Renewed Leases” table below for such renewals.) Annualized rent per leased square foot is computed using the total MRR associated with all new and modified leases for the respective periods.

In regards to renewed leases signed, consistent with our strategy and business model, the renewal rates below reflect total MRR per square foot including all subscribed services. For comparability, we include only those leases where the square

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footage remained consistent before and after renewal. All customers with space changes are incorporated into new/modified leasing statistics and rates.

~~General Leasing Activity~~

We define booked-not-billed as our customer leases that have been signed, but for which lease payments have not yet commenced.

The following leasing and booked-not-billed statistics include results of the consolidated business as well as QTS’ 50% ~~pro rata~~ share of revenue from the unconsolidated ~~joint venture.~~entity, if any.

~~Below our sales activity is outlined for the three months ended March 31, 2019:~~

Incremental

Number of

Annualized rent ⁽²⁾

Annualized Rent ⁽²⁾, Net

Period

Leases

per leased sq ft

of Downgrades

New/modified leases signed

Three Months Ended March 31, 2020

486

$

388

$

21,832,767

Number of

Renewed

Annualized rent ⁽²⁾

Period

Leases

per leased sq ft

Annualized Rent ⁽²⁾

Rent Change

Renewed Leases ⁽¹⁾

Three Months Ended March 31, 2020

78

$

871

$

11,279,385

5.0

%

Annualized Rent of

Incremental

Number of

Total

Annualized rent

New and Modified

Annualized Rent, Net

Period

Leases

Leased sq ft

per leased sq ft

Lease

of Downgrades

New/modified leases signed
Three Months Ended March 31, 2019

520

33,914

$
477

$
16,169,892

$
11,304,724

Number of

Renewed

Total

Annualized rent

Period

Leases

Leased sq ft

per leased sq ft

Annualized Rent


Rent Change
Renewed Leases (1)
Three Months Ended March 31, 2019

88

11,596

$
988

$
11,456,028

1.6
%

(1)

~~(1)~~

We define renewals as leases where the customer retains the same amount of space before and after renewals, which facilitates rate comparability.

(2)	We define annualized rent as MRR as of March 31, 2020, multiplied by 12.

The following table outlines the booked-not-billed ~~(“BNB”)~~ balance as of March 31, ~~2019~~2020 and how that ~~will~~is expected to affect revenue in ~~2019~~2020 and subsequent years:


Booked-not-billed ("BNB") ⁽¹⁾		2020		2021		Thereafter		Total
MRR	$	2,931,570	$	3,380,378	$	2,099,609	$	8,411,557
Incremental revenue ⁽²⁾		16,597,741		27,959,324		25,195,308
Annualized revenue ^{(3) (4)}	$	35,178,845	$	40,564,534	$	25,195,308	$	100,938,688

Booked-not-billed ("BNB")


2019


2020


Thereafter


Total
MRR

$
2,483,528

$
1,023,329

$
1,060,358

$
4,567,215
Incremental revenue

14,095,278

8,308,813

12,724,296

Annualized revenue

$
29,802,336

$
12,279,948

$
12,724,296

$
54,806,580

(1)

Includes the Company’s consolidated booked-not-billed balance in addition to booked-not-billed revenue associated with the unconsolidated entity at QTS’ pro rata share of the booked-not-billed revenue. Of the $100.9 million annualized booked-not-billed revenue, approximately $1.8 million related to QTS’ pro rata share of booked-not-billed revenue associated with the unconsolidated entity.

(2)	Incremental revenue represents the expected amount of recognized MRR for the business in the period based on when the booked-not-billed leases commence throughout the period.

(3)	Annualized revenue represents the booked-not-billed MRR multiplied by 12, demonstrating how much recognized MRR might have been recognized if the booked-not-billed leases commencing in the period were in place for an entire year.

(4)

As of March 31, 2020, adjusting booked-not-billed revenue for the effects of revenue which had begun recognition via straight line rent, the Company’s annualized booked-not-billed balance was $54.8 million, of which $26.1 million was attributable to 2020, $16.7 million was attributable to 2021, and $12.0 million was attributable to years thereafter.

The Company estimates the remaining cost to provide the space, power, connectivity and other services to the customer contracts which had not billed as of March 31, ~~2019~~2020 to be approximately ~~$30~~$226 million. This estimate generally includes customers with newly contracted space of more than 3,300 square feet of raised floor space. The space, power, connectivity and other services provided to customers that contract for smaller amounts of space is generally provided by existing space which was previously developed.

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Results of Operations

Three Months Ended March 31, ~~2019~~2020 Compared to Three Months Ended March 31, ~~2018~~2019

Changes in revenues and expenses for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 are summarized below (unaudited and in thousands):


	Three Months Ended March 31,
	2019		2018		$ Change		% Change

									Three Months Ended March 31,
									2020		2019		$ Change		% Change
Revenues:
Rental	$	98,596	$	88,415	$	10,181	12	%	$	120,081	$	109,389	$	10,692	10	%
Variable lease revenue from recoveries		10,793		11,513		(720)	(6)	%
Other		3,300		13,769		(10,469)	(76)	%		6,211		3,300		2,911	88	%
Total revenues		112,689		113,697		(1,008)	(1)	%		126,292		112,689		13,603	12	%
Operating expenses:
Property operating costs		34,103		37,740		(3,637)	(10)	%		40,781		34,103		6,678	20	%
Real estate taxes and insurance		3,367		2,905		462	16	%		3,911		3,367		544	16	%
Depreciation and amortization		38,788		35,913		2,875	8	%		45,070		38,788		6,282	16	%
General and administrative		19,891		22,234		(2,343)	(11)	%		20,683		19,891		792	4	%
Transaction and integration costs		1,214		920		294	32	%		216		1,214		(998)	(82)	%
Restructuring		—		8,530		(8,530)	(100)	%
Total operating expenses		97,363		108,242		(10,879)	(10)	%		110,661		97,363		13,298	14	%
Gain on sale of real estate, net		13,408		—		13,408	*	%		—		13,408		(13,408)	( 100)	%
Operating income (loss)		28,734		5,455		23,279	427	%
Operating income										15,631		28,734		(13,103)	(46)	%
Other income and expense:
Interest income		45		1		44	4,400	%		—		45		(45)	(100)	%
Interest expense		(7,146)		(8,110)		(964)	(12)	%		(7,162)		(7,146)		16	0	%
Equity in earnings (loss) of unconsolidated entities		(274)		—		(274)	*	%
Income (loss) before taxes		21,359		(2,654)		24,013	905	%
Other income										159		—		159	*	%
Equity in net loss of unconsolidated entity										(677)		(274)		(403)	147	%
Income before taxes										7,951		21,359		(13,408)	(63)	%
Tax benefit (expense) of taxable REIT subsidiaries		(211)		2,402		(2,613)	(109)	%		169		(211)		380	180	%
Net income (loss)	$	21,148	$	(252)	$	21,400	8492	%
Net income									$	8,120	$	21,148	$	(13,028)	(62)	%

~~Revenues.~~Revenues. Total revenues for the three months ended March 31, ~~2019~~2020 were ~~$112.7~~$126.3 million compared to ~~$113.7~~$112.7 million for the three months ended March 31, ~~2018.~~2019. The ~~decrease~~increase of ~~$1.0~~$13.6 million, or 1%12%, was largely attributable to ~~the 2018 strategic~~ growth ~~plan in which we transitioned a significant portion of our cloud and managed service offerings to a third party. Growth~~ in our hyperscale and hybrid colocation offerings, ~~offset that decrease,~~ primarily through increases in revenues in the ~~Atlanta-Metro,~~Ashburn, Atlanta (DC-1), Chicago, Fort Worth and Irving ~~Piscataway, Ashburn and Chicago~~ data ~~centers.~~centers as well as the acquisition of the Groningen data center. Offsetting these increases were revenue reductions in various leased facilities partly associated with the exit from those facilities.

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Property Operating Costs. Property operating costs for the three months ended March 31, ~~2019~~2020 were ~~$34.1~~$40.8 million compared to property operating costs of ~~$37.7~~$34.1 million for the three months ended March 31, ~~2018, a decrease~~2019, an increase of ~~$3.6~~

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$6.7 million, or ~~10%~~20%. The breakdown of our property operating costs is summarized in the table below (unaudited and in thousands):


	Three Months Ended March 31,
	2019		2018		$ Change		% Change

									Three Months Ended March 31,
									2020		2019		$ Change		% Change
Property operating costs:
Direct payroll	$	5,727	$	5,764	$	(37)	(1)	%	$	6,528	$	5,727	$	801	14	%
Rent		3,170		3,612		(442)	(12)	%		2,748		3,170		(422)	(13)	%
Repairs and maintenance		2,811		4,126		(1,315)	(32)	%		3,339		2,811		528	19	%
Utilities		13,853		14,472		(619)	(4)	%		14,988		13,853		1,135	8	%
Management fee allocation		4,466		5,255		(789)	(15)	%		4,676		4,466		210	5	%
Other		4,076		4,511		(435)	(10)	%		8,502		4,076		4,426	109	%
Total property operating costs	$	34,103	$	37,740	$	(3,637)	(10)	%	$	40,781	$	34,103	$	6,678	20	%

The ~~decrease~~increase in total property operating costs was largely driven by ongoing company growth. In addition, there was an increase in bad debt expense which was partially attributable to ~~aggregate expense reductions~~the risk of ~~$3.6 million~~a loss across our portfolio of lease receivables primarily related to customers experiencing business disruptions due to COVID-19, which is included in the “Other” line item of the property operating costs table above. Also contributing to the increase in property operating costs was an increase to utilities expense largely related to increased power usage. Rent expense decreased primarily due to our transition ~~from our cloud and managed services offerings associated with our strategic growth plan, with expense reductions primarily~~out of two small international leased facilities in ~~repairs and maintenance, utilities and management fee allocation.~~ 2019.

Real Estate Taxes and Insurance. Real estate taxes and insurance for the three months ended March 31, ~~2019~~2020 were ~~$3.4~~$3.9 million compared to ~~$2.9~~$3.4 million for the three months ended March 31, ~~2018.~~2019. The increase of $0.5 million, or 16%, was primarily attributable to an increase in taxes at our ~~Chicago~~Irving, Fort Worth, and ~~Irving~~Ashburn facilities.

Depreciation and Amortization.Depreciation and amortization for the three months ended March 31, ~~2019~~2020 was ~~$38.8~~$45.1 million compared to ~~$35.9~~$38.8 million for the three months ended March 31, ~~2018.~~2019. The increase of ~~$2.9~~$6.3 million, or 8%16%, was due primarily ~~due~~ to additional depreciation expense relating to an increase in assets placed in service at our Ashburn, Chicago and Irving ~~Chicago, Atlanta-Metro and Ashburn~~ facilities.

General and Administrative Expenses.General and administrative expenses were $20.7 million for the three months ended March 31, 2020 compared to general and administrative expenses of $19.9 million for the three months ended March 31, 2019, ~~compared~~an increase of $0.8 million, or 4%. The increase was primarily attributable to ~~general~~an increase in equity-based compensation expense.

Transaction and ~~administrative expenses of $22.2~~Integration Costs. Transaction and integration costs were $0.2 million for the three months ended March 31, ~~2018, a decrease of $2.3 million, or 11%. The decrease was primarily attributable~~2020, compared to ~~the implementation of the aforementioned strategic growth plan, resulting in a decrease in net payroll expenses.~~

~~Transaction and Integration Costs.Transaction and Integration Costs were~~ $1.2 million for the three months ended March 31, ~~2019, compared to $0.9 million for the three months ended March 31, 2018.~~2019. The ~~increase~~decrease of ~~$0.3~~$1.0 million, or ~~32%~~82%, ~~was primarily related to increased~~indicated a decrease in costs associated with the assessment of actual and potential acquisitions during the three months ended March 31, ~~2019.~~2020.

~~Restructuring Costs.~~ Restructuring costs, which were costs associated with our strategic growth plan in the prior year, were $8.5 million for the three months ended March 31, 2018. Restructuring costs primarily related to employee severance expenses, professional fees, acceleration of equity-based compensation awards and the sale or write-off of certain product-related assets. No restructuring costs were incurred during the three months ended March 31, 2019.

Gain on sale of real estate, net.The gain on sale of real estate net incurred during the three months ended March 31, 2019 ~~represents the~~primarily relates to a $13.4 million net gain realized upon sale of the Manassas facility to the ~~joint venture and~~unconsolidated entity which represents the fair value of cash and noncash consideration received in the sale transaction, net of costs directly related to the sale in excess of the carrying amounts of the assets.

Interest Expense. Interest expense for the three months ended March 31, ~~2019~~2020 was ~~$7.1~~$7.2 million compared to ~~$8.1~~$7.1 million for the three months ended March 31, ~~2018. The decrease of $1.0 million, or 12%, was due primarily to a higher level of capitalized interest, partially offset by an increase in interest costs related to an increase in the~~2019. Our average total debt balance increased from the prior period which was offset by a decrease in interest rates which led to a similar level of ~~$78.1 million.~~total interest costs incurred compared to the prior period.

Other Income (Expense). Other income (expense) represents the impact of foreign currency exchange rate fluctuations on the value of investments in foreign subsidiaries whose functional currencies are other than the U.S. Dollar. We

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~~Equity~~recognized $0.2 million of foreign currency gain related to our investment in ~~earnings (loss) of unconsolidated entities.~~ ~~During~~the Netherlands facilities during the three months ended March 31, 2020.

Equity in net income (loss) of unconsolidated entity. This represents equity in earnings (loss) of our unconsolidated entity formed during the first quarter of 2019 ~~we entered into a joint venture agreement with respect to~~that owns our Manassas data center. ~~Equity~~The increase in net loss ~~from~~for the ~~inception of our investment through~~three months ended March 31, 2020 compared to March 31, 2019 was ~~$0.3 million,~~primarily attributable to the unconsolidated entity being in place for a full quarter in the current period compared to only ~~reporting period we had this entity.~~a portion of the prior period.

Tax ~~Expense/Benefit~~Expense (Benefit) of Taxable REIT Subsidiaries. ~~Tax expense~~The tax benefit of our taxable REIT subsidiaries for the three months ended March 31, ~~2019~~2020 was $0.2 million compared to a$0.2 million of tax ~~benefit of $2.4 million~~expense for the three months ended March 31, ~~2018.~~2019. The ~~current period tax expense primarily related to current state tax expense associated with recorded operating results, and valuation allowances recorded against~~determination that certain ~~federal and state~~ deferred tax ~~assets. The~~assets may not be utilized prior ~~period tax benefit primarily related~~ to ~~recorded operating losses.~~expiration was applied to both three month periods ended March 31, 2020 and March 31, 2019.

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures to be useful to investors as key supplemental measures of our performance: (1) FFO; (2) Operating FFO; (3) Adjusted Operating FFO; (4) MRR; (5) NOI; (6) EBITDAre; and (7) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss and cash flows from operating activities as a measure of our operating performance. FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDAre and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDAre and Adjusted EBITDA as reported by other companies that do not use the same definition or implementation guidelines or interpret the standards differently from us.

We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. We believe the presentation of non-GAAP financial measures provide meaningful supplemental information to both management and investors that is indicative of our operations. We have included a reconciliation of this additional information to the most comparable GAAP measure in the selected financial information below.

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FFO, Operating FFO and Adjusted Operating FFO

We consider funds from operations (“FFO”) to be a supplemental measure of our performance which should be considered along with, but not as an alternative to, net income ~~(loss)~~ and cash provided by operating activities as a measure of operating performance. We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of depreciable real estate ~~and land~~ related to our primary business, impairment write-downs of depreciable real estate ~~and land~~ related to our primary business, real estate-related depreciation and amortization, and similar adjustments for unconsolidated entities. To the extent we incur gains or losses from the sale of assets that are incidental to our primary business, or incur impairment write-downs associated with assets that are incidental to our primary business, we include such ~~charges~~amounts in our calculation of FFO. Our management uses FFO as a supplemental performance measure because, in excluding real estate-related depreciation and amortization, impairment and gains and losses from property dispositions related to our primary business, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.

Due to the volatility and nature of certain significant charges and gains recorded in our operating results that management believes are not reflective of our core operating performance, management computes an adjusted measure of FFO, which we refer to as Operating funds from operations (“Operating FFO”). Operating FFO is a non-GAAP measure that is used as a supplemental operating measure and to provide additional information to users of the financial statements. We generally calculate Operating FFO as FFO excluding certain non-routine charges and gains and losses that management believes are not indicative of the results of our operating real estate portfolio. We believe that Operating FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent they calculate Operating FFO on a comparable basis, between REITs.

Adjusted Operating Funds From Operations (“Adjusted Operating FFO”) is a non-GAAP measure that is used as a supplemental operating measure and to provide additional information to users of the financial statements. We calculate Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment,

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paid leasing commissions, amortization of deferred financing costs and bond discount, non-real estate depreciation and amortization, straight line rent adjustments, deferred taxes and ~~non-cash~~equity-based compensation.

We offer these measures because we recognize that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO, Operating FFO and Adjusted Operating FFO exclude real estate depreciation and amortization and capture neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition, cash flows and results of operations, the utility of FFO, Operating FFO and Adjusted Operating FFO as measures of our operating performance is limited. Our calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO in accordance with NAREIT guidance. In addition, our calculations of FFO, Operating FFO and Adjusted Operating FFO are not necessarily comparable to FFO, Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. FFO, Operating FFO and Adjusted Operating FFO are non-GAAP measures and should not be considered a measure of our results of operations or liquidity or as a substitute for, or an alternative to, net income (loss), cash provided by operating activities or any other performance measure determined in accordance with GAAP, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders.

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


	Three Months Ended
	March 31,
	2020		2019
FFO
Net income	$	8,120	$	21,148
Equity in net loss of unconsolidated entity		677		274
Real estate depreciation and amortization		41,700		35,927
Gain on sale of real estate, net		—		(13,408)
Pro rata share of FFO from unconsolidated entity		278		41
FFO		50,775		43,982
Preferred stock dividends		(7,045)		(7,045)
FFO available to common stockholders & OP unit holders		43,730		36,937

Transaction and integration costs		216		1,214
Operating FFO available to common stockholders & OP unit holders ⁽¹⁾		43,946		38,151

Maintenance Capex		(1,662)		(709)
Leasing commissions paid		(8,998)		(6,515)
Amortization of deferred financing costs		987		978
Non real estate depreciation and amortization		3,370		2,861
Straight line rent revenue and expense and other		(3,755)		(1,422)
Tax expense (benefit) from operating results		(169)		211
Equity-based compensation expense		4,875		3,300
Adjustments for unconsolidated entity		66		22
Adjusted Operating FFO available to common stockholders & OP unit holders ⁽¹⁾	$	38,660	$	36,877

Three Months Ended

March 31,

2019

2018
FFO

Net income (loss)

$
21,148

$
(252)
Equity in net (income) loss of unconsolidated entity

274

—
Real estate depreciation and amortization

35,927

32,057
Gain on sale of real estate, net

(13,408)

—
Pro rata share of FFO from unconsolidated entity

41

—
FFO (1)

43,982

31,805
Preferred stock dividends

(7,045)

(328)
FFO available to common stockholders & OP unit holders

36,937

31,477

Restructuring costs

—

8,530
Transaction and integration costs

1,214

920
Tax benefit associated with restructuring, transaction and integration costs

—

(1,635)
Operating FFO available to common stockholders & OP unit holders

38,151

39,292

Maintenance Capex

(709)

(930)
Leasing commissions paid

(6,515)

(5,910)
Amortization of deferred financing costs and bond discount

978

962
Non real estate depreciation and amortization

2,861

3,857
Straight line rent revenue and expense and other

(1,422)

(2,518)
Tax expense (benefit) from operating results

211

(767)
Equity-based compensation expense

3,300

3,481
Adjustments for unconsolidated entity

22

—
Adjusted Operating FFO available to common stockholders & OP unit holders

$
36,877

$
37,467

(1)

~~(1)~~

The Company’s calculations of Operating FFO ~~for~~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 three months ended March 31, 2018 includes $4.0 million of impairment losses related to certain non-real estate product related assets that were considered incidental to our primary business. No gains, losses or impairment write-downs associated with assets incidental to our primary business were incurred during the three months ended March 31, 2019.

same definition.

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Monthly Recurring Revenue (MRR) and Recognized MRR

We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our 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 is also calculated to include the Company’s pro rata share of monthly contractual revenue under signed leases as of a particular date associated with unconsolidated entities, which includes revenue from the unconsolidated entity’s rental and managed services activities, but excludes the unconsolidated entity’s customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. ~~MRR reflects the annualized cash rental payments.~~ It does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted.

Separately, we calculate recognized MRR as the recurring revenue recognized during a given period, which includes revenue from our 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 our customer leases and customer leases attributable to our business. MRR and recognized MRR should not be viewed by investors as alternatives to actual monthly revenue, as determined in accordance with GAAP. Other companies may not calculate MRR or recognized MRR in the same manner. Accordingly, our MRR and recognized MRR may not be comparable to other companies’ MRR and recognized MRR. MRR and recognized MRR should be considered only as supplements to total revenues as a measure of our performance. MRR and recognized MRR should not be used as measures of our results of operations or liquidity, nor is it indicative of funds available to meet our cash needs, including our ability to make distributions to our stockholders.

A reconciliation of total GAAP revenues to recognized MRR in the period and MRR at period end is presented below (unaudited and in thousands):


	Three Months Ended
	March 31,
	2020		2019
Recognized MRR in the period
Total period revenues (GAAP basis)	$	126,292	$	112,689
Less: Total period variable lease revenue from recoveries		(12,275)		(10,793)
Total period deferred setup fees		(3,924)		(3,232)
Total period straight line rent and other		(8,032)		(3,942)
Recognized MRR in the period	$	102,061	$	94,722

MRR at period end
Total period revenues (GAAP basis)	$	126,292	$	112,689
Less: Total revenues excluding last month		(82,446)		(73,809)
Total revenues for last month of period		43,846		38,880
Less: Last month variable lease revenue from recoveries		(4,156)		(3,871)
Last month deferred setup fees		(1,410)		(1,242)
Last month straight line rent and other		(3,669)		(2,068)
Add: Pro rata share of MRR at period end of unconsolidated entity		352		253
MRR at period end ⁽¹⁾	$	34,963	$	31,952

Three Months Ended

March 31,

2019

2018
Recognized MRR in the period

Total period revenues (GAAP basis)

$
112,689

$
113,697
Less: Total period variable lease revenue from recoveries

(10,793)

(11,513)
Total period deferred setup fees

(3,232)

(2,893)
Total period straight line rent and other

(3,942)

(4,451)
Recognized MRR in the period

$
94,722

$
94,840

MRR at period end

Total period revenues (GAAP basis)

$
112,689

$
113,697
Less: Total revenues excluding last month

(73,809)

(75,661)
Total revenues for last month of period

38,880

38,036
Less: Last month variable lease revenue from recoveries

(3,871)

(3,107)
Last month deferred setup fees

(1,242)

(964)
Last month straight line rent and other

(2,068)

(2,051)
Add: Pro rata share of MRR at period end of unconsolidated entity

253

—
MRR at period end *

$
31,952

$
31,914

(1)	Does not include our booked-not-billed MRR balance, which was $8.4 million and $4.6 million as of March 31, 2020 and 2019, respectively.

55

*~~Does not include our booked-not-billed MRR balance, which was $4.6 million and $4.7 million as~~Table of ~~March 31, 2019 and 2018, respectively.~~Contents

Net Operating Income (NOI)

We calculate net operating income (“NOI”), as net income ~~(loss)~~ (computed in accordance with GAAP), excluding: interest expense, interest income, tax expense (benefit) of taxable REIT subsidiaries, depreciation and amortization, write off of unamortized deferred financing, debt restructuring costs, gain (loss) on extinguishment of debt, transaction and

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~~Table of Contents~~

integration costs, gain (loss) on sale of real estate, restructuring costs, general and administrative expenses and similar adjustments for unconsolidated entities. We allocate a management fee charge of 4% of cash revenues for all facilities (with the exception of the leased facilities acquired in 2015, which were allocated a charge of 10% of cash revenues) as a property operating cost and a corresponding reduction to general and administrative expense to cover the day-to-day administrative costs to operate our data centers. The management fee charge is reflected as a reduction to net operating income.

Management uses NOI as a supplemental performance measure because it provides a useful measure of the operating results from our customer leases. In addition, we believe it is useful to investors in evaluating and comparing the operating performance of our properties and to compute the fair value of our properties. Our NOI may not be comparable to other REITs’ NOI as other REITs may not calculate NOI in the same manner. NOI should be considered only as a supplement to net income as a measure of our performance and should not be used as a measure of our results of operations or liquidity or as an indication of funds available to meet our cash needs, including our ability to make distributions to our stockholders. NOI is a measure of the operating performance of our properties and not of our performance as a whole. NOI is therefore not a substitute for net income as computed in accordance with GAAP.

A reconciliation of net income to NOI is presented below (unaudited and in thousands):


	Three Months Ended
	March 31,
	2020		2019
Net Operating Income (NOI)
Net income	$	8,120	$	21,148
Equity in net loss of unconsolidated entity		677		274
Interest income		—		(45)
Interest expense		7,162		7,146
Depreciation and amortization		45,070		38,788
Other (income) expense		(159)		—
Tax expense (benefit) of taxable REIT subsidiaries		(169)		211
Transaction and integration costs		216		1,214
General and administrative expenses		20,683		19,891
Gain on sale of real estate, net		—		(13,408)
NOI from consolidated operations ⁽¹⁾	$	81,600	$	75,219
Pro rata share of NOI from unconsolidated entity		844		234
Total NOI ⁽¹⁾	$	82,444	$	75,453

Three Months Ended

March 31,

2019

2018
Net Operating Income (NOI)

Net income (loss)

$
21,148

$
(252)
Equity in net (income) loss of unconsolidated entity

274

—
Interest income

(45)

(1)
Interest expense

7,146

8,110
Depreciation and amortization

38,788

35,913
Tax expense (benefit) of taxable REIT subsidiaries

211

(2,402)
Transaction and integration costs

1,214

920
General and administrative expenses

19,891

22,234
Gain on sale of real estate, net

(13,408)

—
Restructuring

—

8,530
NOI from consolidated operations (1)

$
75,219

$
73,052
Pro rata share of NOI from unconsolidated entity

234

—
Total NOI (1)

$
75,453

$
73,052

(1)

~~(1)~~

Includes facility level general and administrative allocation charges of 4% of cash revenue for all ~~facilities (with the exception of the leased facilities acquired in 2015, which were allocated a charge of 10% of cash revenues).~~facilities. These allocated charges aggregated to ~~$4.5~~$4.7 million and ~~$5.3~~$4.5 million for the three month periods ended March 31, 2020 and 2019, ~~and 2018,~~ respectively.

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Table of Contents

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDA

We calculate EBITDAre in accordance with the standards established by NAREIT. EBITDAre represents net income ~~(loss)~~ (computed in accordance with GAAP) adjusted to exclude gains (or losses) from sales of depreciated property related to our primary business, income tax expense (or benefit), interest expense, depreciation and amortization, impairments of depreciated property ~~and unconsolidated entities,~~related to our primary business, and similar adjustments for unconsolidated entities. Management uses EBITDAre as a supplemental performance measure because it provides performance measures that, when compared year over year, captures the performance of our operations by removing the impact of our capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from our operating results.

Due to the volatility and nature of certain significant charges and gains recorded in our operating results that management believes are not reflective of operating performance, we compute an adjusted measure of EBITDAre, which we refer to as Adjusted EBITDA. We ~~generally~~ calculate Adjusted EBITDA as EBITDAre excluding certain non-routine charges, write off of unamortized deferred financing costs, gains (losses) on extinguishment of debt, restructuring costs, and transaction and integration costs, as well as our pro-rata share of each of those respective ~~expenses~~adjustments associated with

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~~Table of Contents~~

the unconsolidated entity aggregated into one line item categorized as “Adjustments for the unconsolidated entity.” In addition, we calculate Adjusted EBITDA excluding certain non-cash recurring costs such as equity-based compensation. We believe that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent other REITs calculate Adjusted EBITDA on a comparable basis, between REITs.

Management uses EBITDAre and Adjusted EBITDA as supplemental performance measures as they provide useful measures of assessing our operating results. Other companies may not calculate EBITDAre or Adjusted EBITDA in the same manner. Accordingly, our EBITDAre and Adjusted EBITDA may not be comparable to others. EBITDAre and Adjusted EBITDA should be considered only as supplements to net income (loss) as measures of our performance and should not be used as substitutes for net income (loss), as measures of our results of operations or liquidity or as indications of funds available to meet our cash needs, including our ability to make distributions to our stockholders.

A reconciliation of net income to EBITDAre and Adjusted EBITDA is presented below (unaudited and in thousands):


	Three Months Ended
	March 31,
	2019		2018

					Three Months Ended
					March 31,
					2020		2019
EBITDAre and Adjusted EBITDA
Net income (loss)	$	21,148	$	(252)
Equity in net (income) loss of unconsolidated entity		274		—
Net income					$	8,120	$	21,148
Equity in net loss of unconsolidated entity						677		274
Interest income		(45)		(1)		—		(45)
Interest expense		7,146		8,110		7,162		7,146
Tax expense (benefit) of taxable REIT subsidiaries		211		(2,402)		(169)		211
Depreciation and amortization		38,788		35,913		45,070		38,788
(Gain) loss on disposition of depreciated property and impairment write-downs of depreciated property		(13,408)		4,017
EBITDAre from unconsolidated entity		215		—
Gain on disposition of depreciated property						—		(13,408)
Pro rata share of EBITDAre from unconsolidated entity						819		215
EBITDAre		54,329		45,385		61,679		54,329


Equity-based compensation expense		3,300		3,481		4,875		3,300
Restructuring costs		—		4,513
Transaction and integration costs		1,214		920		216		1,214
Adjusted EBITDA	$	58,843	$	54,299	$	66,770	$	58,843

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Table of Contents

Liquidity and Capital Resources

Short-Term Liquidity

Our short-term liquidity needs include funding capital expenditures for the development of data center space (a significant portion of which is discretionary), meeting debt service and debt maturity obligations, funding payments for finance leases, funding distributions to our common and preferred stockholders and unit holders, utility costs, site maintenance costs, real estate and personal property taxes, insurance, rental expenses, general and administrative expenses and certain recurring and non-recurring capital expenditures.

In addition to the ~~$101.2~~$173.0 million of capital expenditures incurred in the three months ended March 31, ~~2019~~2020, we expect that we will incur approximately ~~$350~~$375 million to ~~$400~~$425 million in additional capital expenditures through December 31, ~~2019,~~2020 in connection with the development of our data center facilities, which excludes acquisitions and includes our 50% proportionate share of capital expenditures at the Manassas facility that was contributed to ~~a joint venture.~~an unconsolidated entity. We expect to spend approximately ~~$275~~$325 million to ~~$325~~$375 million of capital expenditures with vendors on development, and the remainder on other capital expenditures and capitalized ~~overhead~~internal project costs (including capitalized interest, commissions, payroll and other similar costs), personal property and other less material capital projects. ~~We expect to fund these costs using operating cash flows, draws on our credit facility, accessing forward equity net proceeds of approximately $148~~

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~~Table of Contents~~

~~million, additional equity issuances or other capital markets activity.~~ A significant portion of these expenditures are discretionary in nature and we may ultimately determine not to make these expenditures or the timing of ~~such~~ expenditures may vary.

We expect to meet these costs and our other short-term liquidity needs through operating cash flow, cash and cash equivalents, ~~and~~ borrowings under our credit facility, ~~in addition to accessing~~proceeds from the forward equity ~~net proceeds of approximately $148 million.~~transactions discussed below, additional equity issuances through our ATM program or other capital markets activity. We may also ~~transfer~~sell an interest in certain projects into unconsolidated entities as another source of capital.

Our cash paid for capital expenditures for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 are summarized in the table below (unaudited and in thousands):


	Three Months Ended March 31,
	2020		2019
Development	$	143,153	$	72,688
Acquisitions		1,797		—
Maintenance capital expenditures		1,662		709
Other capital expenditures ⁽¹⁾		26,403		27,837
Total capital expenditures	$	173,015	$	101,234

Three Months Ended March 31,

2019

2018
Development

$
72,688

$
84,163
Acquisitions

—

24,626
Maintenance capital expenditures

709

930
Other capital expenditures (1)

27,837

18,843
Total capital expenditures

$
101,234

$
128,562

(1)

Represents capital expenditures for capitalized interest, commissions, personal property, overhead costs and corporate fixed assets. Corporate fixed assets primarily relate to construction of corporate offices, leasehold improvements and product related assets.

Long-Term Liquidity

Our long-term liquidity needs primarily consist of funds for property acquisitions, scheduled debt maturities, payment of principal at maturity of our Senior Notes, funding payments for finance leases, dividend payments on our Series A Preferred Stock and Series B Preferred Stock and recurring and non-recurring capital expenditures. We may also pursue new developments and additional redevelopment of our data centers and future redevelopment of other space in our portfolio. We may also pursue development on land which QTS currently owns that is available at our data center properties in ~~Atlanta-Metro,~~Atlanta (DC–2) (which represents the development of a new data center building at our Atlanta (DC-1) campus), Atlanta-Suwanee, Richmond, Irving, Fort Worth, Princeton, Chicago, Ashburn, Phoenix, Hillsboro and Manassas, through our ~~new joint venture.~~unconsolidated entity. The development and/or redevelopment of this space, including timing, is at our discretion and will depend on a number of factors, including availability of capital and our estimate of the demand for data center space in the applicable market. We expect to meet our long-term liquidity needs with net cash provided by operations, incurrence of additional long-term indebtedness, borrowings under our credit facility, ~~access to joint venture capital~~distributions from our unconsolidated entity and issuance of additional equity or debt securities, subject to prevailing market conditions, as discussed below. We may also sell an interest in certain projects into unconsolidated entities as another source of capital.

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Table of Contents

Equity Capital

On March 15, 2018, we issued 4,280,000 shares of 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock with a liquidation preference of $25.00 per share, which included 280,000 shares of the underwriters’ partial exercise of their option to purchase additional shares. We used the net proceeds of approximately $103.2 million to repay amounts outstanding under our unsecured revolving credit facility.

On June 25, 2018, we issued 3,162,500 shares of 6.50% Series B Cumulative Convertible Perpetual Preferred Stock with a liquidation preference of $100.00 per share, which included 412,500 shares the underwriters purchased pursuant to the exercise of their overallotment option in full. We used the net proceeds of approximately $304 million to repay amounts outstanding under our unsecured revolving credit facility.

In February 2019, ~~QTS~~we conducted an underwritten offering of 7,762,500 shares of ~~its~~ Class A common stock, consisting of 4,000,000 shares issued ~~by the Company~~ during the first quarter of 2019 and 3,762,500 shares ~~which will be issued~~sold on a forward basis, ~~in each case at a price~~which included 1,012,500 shares sold upon full exercise of ~~$41.50 per share. The Company~~the underwriters’ option to purchase additional shares. We received net proceeds of approximately $159 million from the issuance of 4,000,000 shares during the first quarter of 2019, which itwere used to repay amounts outstanding under ~~its~~our unsecured revolving credit facility. During the third quarter of 2019, we settled 2,832,000 forward shares for total net proceeds of approximately $110 million, which was used to repay amounts outstanding under our revolving credit facility. In addition, during the three months ended March 31, 2020, we settled the remaining shares subject to the forward sale agreements with net proceeds received in the three months ended March 31, 2020 totaling $35.8 million.

In June 2019, we established a new “at-the-market” equity offering program (the “ATM Program”) pursuant to which we may issue, from time to time, up to $400 million of our Class A common stock, which may include shares to be sold on a forward basis. The use of forward sales under the ATM Program generally allows the Company ~~expects~~to lock in a price on the sale of shares when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares are issued at settlement on a later date.

During the year ended December 31, 2019, we utilized the forward provisions under the ATM Program to allow for the sale of up to an aggregate of 2.9 million shares of our common stock. During the three months ended March 31, 2020, we received $47.5 million of net proceeds from the settlement of forward shares issued through the ATM Program. In addition, through May 4, 2020, we utilized the forward provisions under the ATM Program to allow for the sale of additional shares of our common stock as noted in the table below.

The following table represents a summary of our equity issuances during the three months ended March 31, 2020, as well as through May 4, 2020 (unaudited and in thousands):


Offering Program	Forward Shares Sold/(Settled)			Net Proceeds Received		Remaining Expected Proceeds Available
Total as of December 31, 2019	3,795				$	177,845
February 2019 Offering - Settlement	(931)	⁽¹⁾	$	35,841		(35,841)
ATM Program - Settlements	(1,000)	⁽¹⁾		47,490		(47,490)
ATM Program - Sales	3,917			-		209,934
Total as of March 31, 2020	5,781		$	83,331	$	304,448
ATM Program - Sales	634			-		37,094
Total as of May 4, 2020	6,415		$	83,331	$	341,542

(1)	Represents the number of forward shares we elected to physically settle during the three months ending March 31, 2020.

We expect to physically settle (by delivering shares of common stock) the forward sales under the ATM program prior to the first anniversary date of each respective transaction. As seen in the table above, we currently have access to approximately $342 million of net proceeds through forward stock sales (subject to further adjustment as described below). We view forward equity sales under our ATM program as an important capital raising tool that we expect to continue to strategically and selectively use, subject to market conditions and overall availability under the ATM program.

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Table of Contents

At any time during the term of any forward sale, we may settle the forward sale ~~(by the~~by physical delivery of

60

~~Table of Contents~~

~~shares of common stock) and receive proceeds of approximately $148 million from the sale of the 3,762,500~~ shares of common stock to the forward purchaser or, at our election, cash settle or net share settle. The initial forward sale price per share under each forward sale equals the product of (x) an amount equal to 100% minus the applicable forward selling commission and (y) the volume weighted average price per share at which the borrowed shares of our common stock were sold pursuant to the equity distribution agreement by ~~March 1, 2020, although~~ the ~~Company has~~relevant forward seller during the ~~right~~applicable forward hedge selling period for such shares to ~~elect settlement prior~~hedge the relevant forward purchaser’s exposure under such forward sale. Thereafter, the forward sale price is subject to ~~that time.~~adjustment on a daily basis based on a floating interest rate factor equal to the specified daily rate less a spread, and is decreased based on specified amounts related to dividends on shares of our common stock during the term of the applicable forward sale. If the specified daily rate is less than the spread on any day, the interest rate factor will result in a daily reduction of the applicable forward sale price.

Manassas ~~Joint Venture~~Unconsolidated Entity

On February 22, 2019, we entered into ~~a joint venture~~an agreement with Alinda Capital Partners (“Alinda”), ~~a premier~~an infrastructure investment firm, with respect to our Manassas data center, as described above under “Factors That May Influence Future Results of Operations and Cash Flows.” At the closing, we received approximately $53 million in proceeds, which was comprised of the cash contributed by Alinda and also borrowings under a $164.5 million secured credit facility entered into by the ~~joint venture~~unconsolidated entity at closing that carries a rate of LIBOR plus 2.00% to 2.25%. depending on the existing leverage ratio. We used these proceeds to pay down our revolving credit facility and for general corporate purposes. Under the ~~joint venture~~ agreement, we will receive additional proceeds in the future as and when we complete development of each phase of the Manassas data center and place it into service, which allows us to receive proceeds for Alinda’s share of the ~~joint venture~~unconsolidated entity based on the expected full stabilization of the asset. These proceeds will be based on a 6.75% capitalization rate for each phase delivered during the first three years of the venture. We expect that upon full stabilization of the Manassas data center, we will have received approximately $87 million of proceeds from the joint venture (including the proceeds received at closing and which number is subject to reduction under certain circumstances), which will include proceeds from the joint venture’s credit facility. We further expect that this joint venture will reduce our expected capital deployment requirements for the development of the Manassas data center by approximately $120 million.agreement.

Cash

As of March 31, ~~2019,~~2020, resulting from heightened volatility in the capital markets, we ~~had $18.7 million of unrestricted~~increased our cash and cash ~~equivalents.~~equivalents balance to approximately $172.0 million, primarily through settlement of the aforementioned forward equity sales and draws on our unsecured revolving credit facility, which is considerably greater than historical levels. Subsequent to March 31, 2020, we reduced our cash position more in line with historical cash balances by using a portion of cash on hand to repay a portion of our unsecured revolving credit facility, pay dividends to common and preferred stockholders and fund additional capital expenditures.

Dividends and Distributions

The following tables present quarterly cash dividends and distributions paid to QTS’ common and preferred stockholders and the Operating Partnership’s unit holders for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


Three Months Ended March 31, 2020
				Aggregate
		Per Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
Common Stock/Units
December 20, 2019	January 7, 2020	$	0.44	$	28.6
				$	28.6

Series A Preferred Stock/Units
December 31, 2019	January 15, 2020	$	0.45	$	1.9
				$	1.9

Series B Preferred Stock/Units
December 31, 2019	January 15, 2020	$	1.63	$	5.1
				$	5.1

Three Months Ended March 31, 2019






Aggregate

Per Share and

Dividend/Distribution
Record Date

Payment Date

Per Unit Rate

Amount (in millions)
Common Stock

December 21, 2018

January 8, 2019

$
0.41

$
23.7

$
23.7

Series A Preferred Stock

December 31, 2018

January 15, 2019

$
0.45

$
1.9

$
1.9

Series B Preferred Stock

December 31, 2018

January 15, 2019

$
1.63

$
5.1

$
5.1

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Three Months Ended March 31, 2018






Aggregate

Per Common Share and

Dividend/Distribution
Record Date

Payment Date

Per Unit Rate

Amount (in millions)
Common Stock

December 5, 2017

January 5, 2018

$
0.39

$
22.2

$
22.2


Three Months Ended March 31, 2019
				Aggregate
		Per Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
Common Stock/Units
December 21, 2018	January 8, 2019	$	0.41	$	23.7
				$	23.7

Series A Preferred Stock/Units
December 31, 2018	January 15, 2019	$	0.45	$	1.9
				$	1.9

Series B Preferred Stock/Units
December 31, 2018	January 15, 2019	$	1.63	$	5.1
				$	5.1

Additionally, subsequent to March 31, ~~2019, the Company~~2020, we paid the following dividends:

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·

●

On April ~~4, 2019,~~7, 2020, the Company paid its regular quarterly cash dividend of ~~$0.44~~$0.47 per common share and per unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on March 20, ~~2019.~~

2020.

·

●

On April 15, ~~2019,~~2020, the Company paid a quarterly cash dividend of approximately $0.45 per share on its Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on March 31, ~~2019.~~

2020 and the Operating Partnership paid a quarterly cash distribution of approximately $0.45 per unit on outstanding Series A Preferred Units held by the Company.

·

●

On April 15, ~~2019,~~2020, the Company paid a quarterly cash dividend of approximately $1.63 per share on its Series B Preferred Stock to holders of Series B Preferred Stock of record as of the close of business on March 31, ~~2019.~~

2020 and the Operating Partnership paid a quarterly cash distribution of approximately $1.63 per unit on outstanding Series B Preferred Units held by the Company.

Indebtedness

As of March 31, ~~2019,~~2020, we had approximately ~~$1,284.0~~$1,675.4 million of indebtedness, including ~~financing~~finance lease obligations.

Unsecured Credit Facility. ~~In November 2018, we amended our~~ We amended and restated our unsecured credit facility byin October 2019 (as so amended and restated, the “unsecured credit facility”), which among other things, ~~extending~~increased the total potential borrowings, extended maturity dates, lowered interest rates, and provided for an additional term ~~modifying or eliminating certain covenants and reduced pricing by 20 basis points.~~loan under the agreement. The unsecured credit facility includes a ~~$350~~$225 million term loan which matures on December 17, ~~2023,~~2024 (“Term Loan A”), a ~~$350~~$225 million term loan which matures on April 27, ~~2024,~~2025 (“Term Loan B”), an additional term loan of $250 million which matures on October 18, 2026 (“Term Loan C”) and ~~an $820 million~~a $1.0 billion revolving credit facility which matures on December 17, ~~2022, with~~2023. The revolving portion of the credit facility has a ~~one year~~one-year extension ~~option.~~option available to the Company. Amounts outstanding under the ~~amended~~new unsecured credit facility bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will vary depending upon our leverage ratio. For revolving credit loans, the spread ranges from ~~1.35%~~1.25% to ~~1.95%~~1.85% for LIBOR loans and ~~0.35%~~0.25% to ~~0.95%~~0.85% for base rate loans. For ~~term loans,~~Term Loan A and Term Loan B, the spread ranges from ~~1.30%~~1.20% to ~~1.90%~~1.80% for LIBOR loans and ~~0.30%~~0.20% to ~~0.90%~~0.80% for base rate loans. For Term Loan C the spread ranges from 1.50% to 1.85% for LIBOR loans and 0.50% to 0.85% for base rate loans. The new unsecured credit facility also provides for borrowing capacity of up to ~~$200~~$300 million in various foreign ~~currencies, and a $500 million accordion feature, subject to obtaining additional loan commitments.~~currencies.

Under the new unsecured credit facility, the capacity may be increased from the current capacity of ~~$1.52~~$1.7 billion to ~~$2.02~~$2.2 billion subject to certain conditions set forth in the credit agreement, including the consent of the administrative agent and obtaining necessary commitments. We are also required to pay a commitment fee to the lenders assessed on the

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unused portion of the revolving portion of the new unsecured ~~revolving~~ credit facility. At our election, we can prepay amounts outstanding under the new unsecured credit facility, in whole or in part, without penalty or premium.

Our ability to borrow under the ~~amended~~new unsecured credit facility is subject to ongoing compliance with a number of customary affirmative and negative covenants, including limitations on liens, mergers, consolidations, investments, distributions, asset sales and affiliate transactions, as well as the following financial covenants: (i) the Operating Partnership's and its subsidiaries' consolidated total unsecured debt plus any capitalized lease obligations with respect to the unencumbered asset pool properties may not exceed 60% of the unencumbered asset pool value (or 65% of the unencumbered asset pool value for up to ~~two~~four consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the ~~Agent;~~Agent, provided the ~~two~~four fiscal quarter period includes the quarter in which the material acquisition was consummated); (ii) the unencumbered asset pool debt yield cannot be less than 12% (or 11.5% for the two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated)10.5%; (iii) QTS must maintain a minimum fixed charge coverage ratio (defined as the ratio of consolidated EBITDA, subject to certain adjustments, to consolidated fixed charges) for the prior two most recently-ended calendar quarters of 1.50 to 1.00; (iv) QTS must maintain a maximum debt to gross asset value (as defined in the amended and restated credit agreement) ratio of 60% (or 65% for the ~~two~~four consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the ~~Agent;~~Agent, provided the ~~two~~four fiscal quarter period includes the quarter in which the material acquisition was consummated); and (v) QTS must maintain tangible net worth (as defined in the amended and restated credit agreement) which cannot be less than the sum of ~~$1,567,000,000~~$1,686,000,000 plus 75% of the net proceeds from any equity offerings subsequent ~~equity offerings.~~to June 30, 2019.

The availability under the new revolving credit facility is the lesser of (i) ~~$820 million,~~$1.0 billion, (ii) 60% of the unencumbered asset pool capitalized value (or 65% of the unencumbered asset pool capitalized value for the ~~two~~four consecutive fiscal quarters

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immediately following a material acquisition for which the Operating Partnership has provided written notice to the ~~Agent;~~Agent, provided the ~~two~~four fiscal quarter period includes the quarter in which the material acquisition was consummated) and (iii) the amount resulting in an unencumbered asset pool debt yield of 12% (or 11.5% for the two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated)10.5%. In the case of clauses (ii) and (iii) of the preceding sentence, the amount available under the revolving credit facility is adjusted to take into account any other unsecured debt and certain capitalized leases. A material acquisition is an acquisition of properties or assets with a gross purchase price equal to or in excess of 15% of the Operating Partnership’s gross asset value (as defined in the amended and restated credit agreement) as of the end of the most recently ended quarter for which financial statements are publicly available. The availability of funds under our new unsecured credit facility depends on compliance with our covenants.

As of March 31, ~~2019,~~2020, we had outstanding ~~$835~~$1,229.1 million of indebtedness under the unsecured credit facility, consisting of ~~$135.0~~$529.1 million of outstanding borrowings under ~~our~~the unsecured revolving credit facility and $700.0 million outstanding under the term loans, exclusive of net debt issuance costs of ~~$6.1~~$6.2 million. In connection with the unsecured credit facility, as of March 31, ~~2019,~~2020, we had additional letters of credit outstanding aggregating to ~~$4.1~~$4.0 million.

As of March 31, ~~2019, the weighted average interest rate for amounts outstanding under the unsecured credit facility, was 3.57%.~~

~~On April 5, 2017,~~2020, we ~~entered into forward~~had interest rate swap agreements in place with an aggregate notional amount of ~~$400~~$700 million. The forward swap agreements effectively fix the interest rate on ~~$400~~$700 million of term loan borrowings, ~~$200~~$225 million of swaps allocated to ~~each term loan, from January 2, 2018 through December 17, 2021 and April 27, 2022, respectively. The weighted average effective fixed interest rate on the $400~~Term Loan A, $225 million ~~notional amount of term loan financing approximates 3.3%, which commenced on January 2, 2018 and assumes the current LIBOR spread of 1.3%.~~

On December 20, 2018, we entered into additional forward interest rate swap agreements with an aggregate notional amount of $400 million. The forward swap agreements effectively fix the interest rate on $400 million of term loan borrowings, $200 million of swaps allocated to ~~each term loan, from December 17, 2021~~Term Loan B and ~~April 27, 2022~~$250 million allocated to Term Loan C, through the current maturity dates of the respective term loans which are December 17, 2023 and April 27, 2024, respectively. The weighted average effective fixed interest rate on the $400 million notional amount of term loan financing following the execution of these swap agreements will approximate 3.9%, commencing on December 17, 2021 and April 27, 2022, assuming the current LIBOR spread of 1.3%. Additionally, we entered into forward interest rate swap agreements with an aggregate notional amount of $200 million. The forward swap agreements effectively fix the interest rate on $200 million of additional term loan borrowings, $100 million of swaps allocated to each term loan, from January 2, 2020 through the current maturity dates of the respective term loans which are December 17, 2023 and April 27, 2024, respectively. The weighted average effective fixed interest rate on the $200 million notional amount of term loan financing, following the execution of these swap agreements, will approximate 3.9%, commencing on January 2, 2020, assuming the current LIBOR spread of 1.3%.loans.

4.750% Senior Notes due 2025. On November 8, 2017, the Operating Partnership and QTS Finance Corporation, a subsidiary of the Operating Partnership formed solely for the purpose of facilitating the offering of the 5.875% Senior Notes due 2022 (collectively, the “Issuers”), issued $400 million aggregate principal amount of ~~4.75%~~4.750% Senior Notes due November 15, 2025 (the “Senior Notes”) in a private offering. The Senior Notes have an interest rate of 4.750% per annum and were issued at a price equal to 100% of their face value. The net proceeds from the offering were used to fund the redemption of, and satisfy and discharge the indenture pursuant to which the Issuers issued, the 5.875% Senior Notes due 2022 and to repay a portion of the amount outstanding under the Company’s unsecured revolving credit facility.

The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Operating Partnership’s existing subsidiaries (other than foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any indebtedness of QTS, the Issuers or any other subsidiary guarantor. QTS Realty Trust, Inc. does not guarantee the Senior Notes and will not be required to guarantee the Senior Notes ~~expect~~except under certain

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circumstances. The offering was conducted pursuant to Rule 144A of the Securities Act of 1933, as amended, and the Senior Notes were issued pursuant to an indenture, dated as of November 8, 2017, among QTS, the Issuers, the

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guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (the “Indenture”). As of March 31, ~~2019,~~2020, the outstanding net debt issuance costs associated with the Senior Notes were ~~$5.1~~$4.3 million.

The Indenture contains affirmative and negative covenants that, among other things, limits or restricts the Operating Partnership’s ability and the ability of certain of its subsidiaries (the “Restricted Subsidiaries”) to: incur additional indebtedness; pay dividends; make certain investments or other restricted payments; enter into transactions with affiliates; enter into agreements limiting the ability of the Operating Partnership’s restricted subsidiaries to pay dividends; engage in sales of assets; and engage in mergers, consolidations or sales of substantially all of their assets.

However, certain of these covenants will be suspended if and for so long as the Senior Notes are rated investment grade by specified debt rating services and there is no default under the Indenture. The Operating Partnership and its Restricted Subsidiaries also are required to maintain total unencumbered assets (as defined in the Indenture) of at least 150% of their unsecured debt on a consolidated basis.

The Senior Notes may be redeemed by the Issuers, in whole or in part, at any time prior to November 15, 2020 at a redemption price equal to (i) 100% of the principal amount, plus (ii) accrued and unpaid interest to the redemption date, and (iii) a make-whole premium. On or after November 15, 2020, the Issuers may redeem the Senior Notes, in whole or in part, at a redemption price equal to (i) 103.563% of the principal amount from November 15, 2020 to November 14, 2021, (ii) 102.375% of the principal amount from November 15, 2021 to November 14, 2022, (iii) 101.188% of the principal amount from November 15, 2022 to November 14, 2023 and (iv) 100.000% of the principal amount of the Senior Notes from November 15, 2023 and thereafter, in each case plus accrued and unpaid interest to, but excluding, the redemption date. In addition, at any time prior to November 15, 2020, the Issuers may, subject to certain conditions, redeem up to 40% of the aggregate principal amount of the Senior Notes at 104.750% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the redemption date, with the net cash proceeds of certain equity offerings consummated by the Company or the Operating Partnership. Also, upon the occurrence of a change of control of us or the Operating Partnership, holders of the Senior Notes may require the Issuers to repurchase all or a portion of the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes to be repurchased plus accrued and unpaid interest to the repurchase date.

Lenexa Mortgage. On March 8, 2017, we entered into a $1.9 million mortgage loan secured by our Lenexa facility. This mortgage has a fixed rate of 4.1%, with periodic principal payments due monthly and a balloon payment of $1.6 million in May 2022. As of March 31, ~~2019,~~2020, the outstanding balance under the Lenexa mortgage was ~~$1.8~~$1.7 million.

Contingencies

We are subject to various routine legal proceedings and other matters in the ordinary course of business. While resolution of these matters cannot be predicted with certainty, management believes, based upon information currently available, that the final outcome of these proceedings will not have a material adverse effect on our financial condition, liquidity or results of operations.

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Contractual Obligations

The following table summarizes our contractual obligations as of March 31, ~~2019,~~2020 including the future non-cancellable minimum rental payments required under operating leases and the maturities and scheduled principal repayments of indebtedness and other agreements (unaudited and in thousands):


Obligations ⁽¹⁾	2020		2021		2022		2023		2024		Thereafter		Total
Operating Leases	$	7,194	$	9,818	$	10,266	$	10,393	$	8,317	$	48,908	$	94,896
Finance Leases		1,960		2,712		2,958		3,229		3,516		30,144		44,519
Future Principal Payments of Indebtedness ⁽²⁾		52		73		1,599		529,135		225,000		875,000		1,630,859
Total⁽³⁾	$	9,207	$	12,602	$	14,823	$	542,757	$	236,832	$	954,052	$	1,770,274

Obligations

2019

2020

2021

2022

2023

Thereafter

Total
Operating Leases

$
7,165

$
9,648

$
9,877

$
10,327

$
10,454

$
58,111

$
105,582
Finance Leases

2,056

2,579

2,713

2,958

3,229

33,661

47,196
Future Principal Payments of Indebtedness (1)

52

71

74

136,594

350,000

750,000

1,236,791
Total (2)

$
9,273

$
12,298

$
12,664

$
149,879

$
363,683

$
841,772

$
1,389,569

(1)	~~(1)~~ Contractual obligations do not include our energy power purchase agreements as QTS has the ability to sell unused capacity back to the utility provider.

(2)

Does not include the related debt issuance costs on the Senior Notes nor the related debt issuance costs on the term loans reflected at March 31, ~~2019.~~2020. Also does not include letters of credit outstanding aggregating to ~~$4.1~~$4.0 million as of March 31, ~~2019~~2020 under our unsecured credit facility.

(3)

~~(2)~~

Total obligations does not include contractual interest that we are required to pay on our long-term debt obligations. Contractual interest payments on our credit facilities, mortgages, finance leases, and other financing arrangements through the scheduled maturity date, assuming no prepayment of debt and inclusive of the effects of interest rate swaps, are shown below. Interest payments were estimated based on the principal amount of debt outstanding and the applicable interest rate as of March 31, ~~2019~~2020 (unaudited and in thousands):


2019		2020		2021		2022		2023		Thereafter		Total

2020														2020	2021		2022		2023		2024		Thereafter		Total
$	43,956	$	52,477	$	52,412	$	53,963	$	47,275	$	47,421	$	297,504	41,582	$	55,349	$	57,304	$	56,952	$	38,186	$	34,578	$	283,951

Off-Balance Sheet Arrangements

On February 22, 2019, we entered into an agreement with Alinda Capital Partners (“Alinda”), an infrastructure investment firm, with respect to our Manassas data center, as described above under “Factors That May Influence Future Results of Operations and Cash Flows.” As of March 31, ~~2019,~~2020, our pro rata share of mortgage debt of the ~~joint venture~~unconsolidated entity, excluding deferred financing costs, was approximately ~~$27.3~~$36.8 million, ~~all~~the majority of which is subject to forward interest rate swap agreements. See Item 3, Quantitative and Qualitative Disclosures About Market Risk, for ~~additional~~ information on ~~our~~the Company’s interest rate swaps.

In June 2019, we established the ATM Program pursuant to which we may issue, from time to time, up to $400 million of our Class A common stock, which may include shares to be sold on a forward basis. The use of forward sales under the ATM Program generally allows the Company to lock in a price on the sale of shares when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares are issued at settlement on a later date.

Through May 4, 2020, the Company currently has access to approximately $342 million of net proceeds through forward stock sales (subject to further adjustment as described above under the heading “Equity Capital”). The Company views forward equity sales under its ATM Program as an important capital raising tool that it expects to continue to strategically and selectively use, subject to market conditions and overall availability under the ATM Program. See the section above titled “Equity Capital” for additional information related to our forward stock sales.

Cash Flows

Cash flow for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 are summarized below (unaudited and in thousands):


	Three Months Ended
	March 31,
	2020		2019
Cash flow provided by (used for):
Operating activities	$	71,062	$	44,168
Investing activities		(173,015)		(48,512)
Financing activities		258,449		11,263

Three Months Ended

March 31,

2019

2018
Cash flow provided by (used for):

Operating activities

$
44,168

$
51,553
Investing activities

(48,512)

(128,562)
Financing activities

11,263

84,687

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Three Months Ended March 31, ~~2019~~2020 Compared to Three Months Ended March 31, ~~2018~~2019

Cash flow provided by operating activities was $71.1 million for the three months ended March 31, 2020 compared to $44.2 million for the three months ended March 31, ~~2019 compared to $51.6 million for the three months ended March 31, 2018.~~2019. There was an increase in cash operating income of ~~$5.8~~$11.8 million from the prior period primarily related to our expansion of certain data centers and leasing activity ~~offset by a decrease~~as well as an increase in cash flow associated with net changes in working capital of ~~$13.2~~$15.1 million primarily related to changes in accounts payable and accrued liabilities and advance rents and other liabilities.

Cash flow used for investing activities ~~decreased~~increased by ~~$80.1~~$124.5 million to $173.0 million for the three months ended March 31, 2020, compared to $48.5 million for the three months ended March 31, ~~2019, compared to $128.6 million for the three months ended March 31, 2018.~~2019. The ~~decrease~~increase was due primarily to cash proceeds of $52.7 million received from the Company’s contribution of assets to ~~a joint venture~~an unconsolidated entity during the ~~current~~prior period as well as ~~a decrease~~an increase in ~~cash paid for acquisitions~~additions to property and equipment of ~~$24.6~~$70.0 million.

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Cash flow provided by financing activities ~~was~~increased by $247.2 million to $258.4 million for the three months ended March 31, 2020, compared to $11.3 million for the three months ended March 31, ~~2019, compared to $84.7 million for the three months ended March 31, 2018.~~2019. The ~~decrease~~increase was primarily due to ~~lower~~$329.9 million of higher net ~~proceeds of $124 million~~borrowings under ~~our unsecured credit facility, primarily a result of~~ the ~~payoff of a portion of the~~Company’s revolving credit facility ~~using proceeds from issuance of common stock~~ during the ~~three months ended March 31, 2019,~~current period, partially offset by lower net equity issuance proceeds of $76.1 million as well as higher payments of cash dividends to common ~~and preferred~~ stockholders of ~~$8.3 million. Offsetting these decreases was in increase in net equity proceeds of $55.7~~$4.7 million.

Critical Accounting Policies

The Company applies those accounting policies that management believes best reflect the underlying business and economic events, consistent with accounting principles generally accepted in the United States. Inherent in such policies are certain key assumptions and estimates made by management. Management periodically updates its estimates used in the preparation of the consolidated financial statements based on its latest assessment of the current and projected business and general economic environment.

~~Effective January 1, 2019, the Company adopted ASC Topic 842,~~ ~~Leases~~, which resulted in changes to the Company’s critical accounting policy relating to accounting for lease transactions. Refer to Note 2 – ‘Summary of Significant Accounting Policies’ for additional information regarding the new and updated policies as a result of the adoption of ASC Topic 842.

Additional information regarding the Company’s Critical Accounting Policies and Estimates is included in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~201~~8. 2019.

Inflation

~~Substantially all~~A significant portion of our long-term leases - leases with a term greater than three years - contain rent increases and reimbursement for certain operating costs. As a result, we believe that we are largely insulated from the effects of inflation over periods greater than three years. Leases with terms of three years or less will be replaced or renegotiated within three years and should adjust to reflect changed conditions, also mitigating the effects of inflation. Moreover, to the extent that there are material increases in utility costs, we generally reserve the right to renegotiate the rate. However, any increases in the costs of redevelopment of our properties will generally result in a higher cost of the property, which will result in increased cash requirements to redevelop our properties and increased depreciation and amortization expense in future periods, and, in some circumstances, we may not be able to directly pass along the increase in these redevelopment costs to our customers in the form of higher rental rates.

Distribution Policy

To satisfy the requirements to qualify as a REIT, and to avoid paying tax on our income, QTS intends to continue to make regular quarterly distributions of all, or substantially all, of its REIT taxable income (excluding net capital gains) to its stockholders.

All distributions will be made at the discretion of our board of directors and will depend on our historical and projected results of operations, liquidity and financial condition, QTS’ REIT qualification, our debt service requirements, operating expenses and capital expenditures, prohibitions and other restrictions under financing arrangements and applicable law and other factors as our board of directors may deem relevant from time to time. We anticipate that our estimated cash available for distribution will exceed the annual distribution requirements applicable to REITs and the amount necessary to avoid the payment of tax on undistributed income. However, under some circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet these distribution requirements and we may need to borrow funds to make certain distributions. If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

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The Operating Partnership also includes certain partners that are subject to a taxable income allocation, however, not entitled to receive recurring distributions. The partnership agreement does stipulate however, to the extent that taxable

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income is allocated to these partners that the partnership will make a distribution to these partners equal to the lesser of the actual per unit distributions made to Class A partners or an estimated amount to cover federal, state and local taxes on the allocated taxable income. No such distributions ~~related to allocated taxable income~~ were made to these partners ~~for~~during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control, contribute to interest rate risk.

As of March 31, ~~2019,~~2020, we had interest rate swap agreements in place with an aggregate notional amount of $700 million. The forward swap agreements effectively fix the interest rate on $700 million of term loan borrowings, $225 million of swaps allocated to Term Loan A, $225 million allocated to Term Loan B and $250 million allocated to Term Loan C, through the current maturity dates of the respective term loans.

As of March 31, 2020, after consideration of interest rate swaps in effect, we had outstanding ~~$435~~$529.1 million of consolidated indebtedness that bore interest at variable rates, which ~~does not take into account $400 million~~was comprised of ~~swaps that take effect December 17, 2021 and April 27, 2022, and~~ the ~~$200 million~~revolving portion of ~~swaps that take effect on January 2, 2020, each as discussed below.~~the unsecured credit facility.

We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical 1% change in year-end interest rates. A 1% increase in ~~the LIBOR rate~~interest rates would increase the interest ~~expense~~costs on the ~~$435~~$529.1 million of variable indebtedness outstanding as of March 31, ~~2019~~2020 by approximately ~~$4.4~~$5.3 million annually. Conversely, a decrease in the LIBOR rate to ~~1.49%~~0.00% would decrease the interest ~~expense~~costs on this ~~$435~~$529.1 million of variable indebtedness outstanding by approximately ~~$4.4~~$5.3 million annually based on the one month LIBOR rate of approximately ~~2.49%~~0.99% as of March 31, ~~2019.~~2020.

~~On April 5,~~In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee ("ARRC") which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. The Company ~~entered into~~has contracts consisting of the unsecured credit facility and the forward interest rate swap agreements, documented above, that are indexed to LIBOR and is monitoring and evaluating the related risks, which include interest on loans and amounts received and paid on derivative instruments. These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur. While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an ~~aggregate notional amount of $400 million. The forward swap agreements effectively fix the interest~~alternative reference rate ~~on $400 million of term loan borrowings, $200 million of swaps allocated to each term loan, from January 2, 2018 through December 17, 2021~~will be accelerated and ~~April 27, 2022, respectively, at approximately 3.3% assuming the current LIBOR spread of 1.3%.~~magnified.

In addition, on December 20, 2018, we entered into additional forward interest rate swap agreements with an aggregate notional amount of $400 million. The forward swap agreements effectively fix the interest rate on $400 million of term loan borrowings, $200 million of swaps allocated to each term loan, from December 17, 2021 and April 27, 2022 through the current maturity dates of the respective term loans which are December 17, 2023 and April 27, 2024, respectively. The weighted average effective fixed interest rate on the $400 million notional amount of term loan financing following the commencement of these swap agreements will approximate 3.9%, commencing on December 17, 2021 and April 27, 2022, assuming the current LIBOR spread of 1.3%. Additionally, the Company entered into forward interest rate swap agreements with an aggregate notional amount of $200 million. The forward swap agreements effectively fix the interest rate on $200 million of additional term loan borrowings, $100 million of swaps allocated to each term loan, from January 2, 2020 through the current maturity dates of the respective term loans which are December 17, 2023 and April 27, 2024, respectively. The weighted average effective fixed interest rate on the $200 million notional amount of term loan financing, following the execution of these swap agreements, will approximate 3.9%, commencing on January 2, 2020, assuming the current LIBOR spread of 1.3%.

The above analyses do not consider the effect of any change in overall economic activity that could impact interest rates or expected changes associated with future indebtedness. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

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ITEM 4. Controls and ~~Procedures~~Procedures

QTS Realty Trust, Inc.

Disclosure Controls and Procedures

Based on an evaluation of disclosure controls and procedures for the period ended March 31, ~~2019,~~2020, conducted by the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that QTS’ disclosure controls and procedures are effective to ensure that information required to be disclosed by QTS in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

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Changes in Internal Control over Financial Reporting

There were no changes in QTS’ internal control over financial reporting during the period ended March 31, ~~2019,~~2020, that have materially affected, or are reasonably likely to materially affect, QTS’ internal control over financial reporting.

QualityTech, LP

Disclosure Controls and Procedures

Based on an evaluation of disclosure controls and procedures for the period ended March 31, ~~2019,~~2020, conducted by the ~~Company’s~~Operating Partnership’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that the Operating Partnership’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Operating Partnership in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the ~~Company’s~~Operating Partnership’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in ~~the Operating Partnership’s~~QTS’ internal control over financial reporting during the period ended March 31, ~~2019,~~2020, that have materially affected, or are reasonably likely to materially affect, ~~the Operating Partnership’s~~QTS’ internal control over financial reporting.

.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

In the ordinary course of our business, we are subject to claims and administrative proceedings, none of which we believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on us.

ITEM 1A. Risk ~~Factors~~Factors

~~There~~Except as set forth below, as of the date of this report, there have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the Securities and Exchange Commission (“SEC”) on February ~~25, 2019,~~28, 2020, which are accessible on the SEC’s website at www.sec.gov.

Our business may be adversely affected by the recent coronavirus (COVID-19) pandemic or by future outbreaks of highly infectious or contagious diseases or other public health crises.

The novel coronavirus (COVID-19) pandemic is causing significant disruptions to the United States and global economy and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak is rapidly evolving and, as cases of the virus have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, restrictions on travel and mandatory closures of businesses. The COVID-19 pandemic or any other future outbreaks of highly infectious or contagious diseases or other public health crises, and any preventative or protective actions that we or others may take in response thereto , may result in business and/or operational disruption for us and/or our customers, suppliers, contractors, capital sources and other business partners. For example, our customers’ businesses have been and may continue to be disrupted due to the COVID-19 pandemic, which could affect their ability to make rental payments to us, and if this were to occur, our revenues could be negatively affected. Furthermore, the COVID-19 pandemic has and may continue to, and other global economic disrupters could, negatively impact our supply chain, increase the costs of development and cause delays in the construction or development of our data centers due to delays in the ability to obtain permits, disruptions in the availability of contractors, disruptions in the supply of materials or products or the inability of our contractors to perform on a timely basis or at all, and it may not be possible to find replacement products or supplies. Any such disruptions or delays such could adversely affect our business and growth.

Additional factors that could negatively impact our ability to successfully operate during or following the COVID-19 pandemic or similar public health crises, or that could otherwise significantly adversely impact and disrupt our business, financial condition and results of operations, include, but are not limited to, the risk of unanticipated operating costs and expenses related to measures taken to ensure health and safety and business continuity; difficulty in accessing debt and equity capital on attractive terms, or at all, or a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which could affect our access to capital necessary to fund our operations and liquidity needs; the increased risk of cyber incidents and disruptions to our internal control procedures due to increased teleworking and state stay-at-home orders, and the processes, procedures and controls that we have implemented to help mitigate cyber risks may not be sufficient or that our internal control procedures may experience challenges or delays; the continued service and availability of personnel, including our executive officers and other leaders that are part of our management team and our ability to recruit, attract and retain skilled personnel to the extent our management or personnel are impacted in significant numbers or in other significant ways by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work; and the risk of asset impairments due to future changes in expectations for sales, earnings and cash flows related to fixed assets, intangible assets and goodwill.

Any of the foregoing risks and developments, as well as others, could have a material adverse effect on our business, financial condition and results of operations. The extent to which the COVID-19 pandemic impacts our business and operations remains largely uncertain and will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the duration and scope of the pandemic, new information that may emerge concerning the severity of COVID-19, the response of the overall economy and financial markets and the actions taken to contain COVID-19 or treat its impact, such as government actions, laws or orders or any changes or amendments thereto and the success of any lifting or easing of, or the risk of any premature lifting or easing of, any such restrictions,

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among others. The COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial performance, and results of operations and may also exacerbate many of the risks identified under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

QTS did not sell any securities during the three months ended March 31, ~~2019~~2020 that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).

QTS from time to time issues shares of Class A common stock, ~~(i) upon exercise of stock options issued under~~including pursuant to the QTS Realty Trust, Inc. 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”) upon exercise of stock options issued and ~~(ii)~~grant of restricted stock under the 2013 Equity Incentive Plan, and upon redemption of Class A units of limited partnership of the Operating Partnership (either through Class A units previously held or those received from conversion of Class O units from the QualityTech, LP 2010 Equity Incentive Plan). Pursuant to the partnership agreement of the Operating Partnership, each time QTS issues shares of common stock, the Operating Partnership issues to QTS, its general partner, an equal number of Class A ~~units, which are redeemable for cash or Class A common stock on a one-for-one basis.~~units. The units issued to QTS are not registered under the Securities Act in reliance on Section 4(a)(2) of the Securities Act due to the fact that Class A units are issued only to QTS and therefore, do not involve a public offering. In addition, during the three months ended March 31, 2019, the Operating Partnership issued approximately 97,000 Class A units in connection with the issuance of Class A common stock upon exercise of stock options issued by QTS.

In addition, on March 1, 2019, the Operating Partnership issued 4,000,000 Class A units to QTS in connection with QTS’s underwritten offering of 7,762,500 shares of Class A common stock, consisting of 4,000,000 shares issued by QTS on March 1, 2019 and 3,762,500 shares which will be issued on a forward basis prior to March 1, 2020 (and in connection with which 3,762,500 Class A units will be issued to QTS). These units issued to QTS~~were~~ not registered under the Securities Act in reliance on Section 4(a)(2) of the Securities Act due to the fact that Class A units were issued only to QTS and therefore, did not involve a public offering. During the three months ended March 31, 2020, the Operating Partnership issued approximately 25,000 Class A units to QTS in connection with Class A unit redemptions and stock option exercises and issuances pursuant to the 2013 Equity Incentive Plan, with a value aggregating approximately $1.5 million based on the respective dates of the redemptions and option exercises, as applicable. During the three months ended March 31, 2020 the Operating Partnership issued approximately 1,000,000 Class A units to QTS related to the settlement of a portion of the shares subject to forward sale agreements under the ATM, with an aggregate value of approximately $47.5 million, net of equity issuance costs. In addition, during the three months ended March 31, 2020 the Operating Partnership issued approximately 931,000 Class A units to QTS related to the settlement of the remaining shares subject to forward sale agreements under the February 2019 Offering, with an aggregate value of approximately $35.8 million, net of equity issuance costs.

The Operating Partnership also issues Class A units upon the conversion of Class O units of the Operating Partnership. During the three months ended March 31, 2020, the Operating Partnership issued less than 0.1 million Class A units to holders of Class O units. These Class A units were not registered under the Securities Act in reliance on Section 4(a)(2) of the Securities Act due to the fact that Class A units were issued only to the respective holders of Class O units at the time of conversion and did not involve a public offering.

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Repurchases of Equity Securities

During the three months ended March 31, ~~2019,~~2020, certain of our employees surrendered Class A common stock owned by them to satisfy their federal and state tax obligations in connection with the vesting of restricted common stock under the 2013 Equity Incentive Plan.

The following table summarizes all of these repurchases during the three months ended March 31, ~~2019:~~2020:


				Total number of
				shares purchased as	Maximum number of
	Total number	Average price		part of publicly	shares that may yet be
	of shares	paid per		announced plans or	purchased under the
Period	purchased ⁽¹⁾	share		programs	plans or programs
January 1, 2020 through January 31, 2020	—	$	—	N/A	N/A
February 1, 2020 through February 29, 2020	—		—	N/A	N/A
March 1, 2020 through March 31, 2020	39,589		57.92	N/A	N/A
Total	39,589	$	57.92

Total number of


shares purchased as

Maximum number of

Total number

Average price

part of publicly

shares that may yet be

of shares

paid per

announced plans or

purchased under the
Period

purchased (1)

share

programs

plans or programs
January 1, 2019 through January 31, 2019

639

$
37.05

N/A

N/A
February 1, 2019 through February 28, 2019

2,926

42.11

N/A

N/A
March 1, 2019 through March 31, 2019

45,132

42.43

N/A

N/A
Total

48,697

$
42.34

(1)

~~(1)~~

The number of shares purchased represents shares of Class A common stock surrendered by certain of our employees to satisfy their federal and state tax obligations associated with the vesting of restricted common stock. With respect to these shares, the price paid per share is based on the closing price of our Class A common stock as of the date of the determination of the federal income tax.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. ~~Exhibits~~Exhibits


Exhibit Number		Exhibit Description

~~2.1~~		Stock Purchase Agreement dated May 6, 2016 by and among Quality Technology Services Holding, LLC, Carpathia Holdings, LLC and Carpathia Acquisition, Inc., incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on May 12, 2015 (Commission File No. 002-36109)

~~2.2~~		First Amendment to Stock Purchase Agreement dated June 12, 2015, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on June 19, 2015 (Commission File No. 001-36109)

3.1		Articles of Amendment and Restatement of QTS Realty Trust, Inc., incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on October 17, 2013 (Commission File No. 001-36109)

3.2		Second Amended and Restated Bylaws of QTS Realty Trust, Inc., incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2017 (Commission File No. 001-36109)

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3.3

Articles Supplementary designating QTS Realty Trust, Inc.’s 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 3.2 to the Company’s Form 8-A filed on March 15, 2018 (Commission File No. 001-36109)

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3.4		Articles Supplementary designating QTS Realty Trust, Inc.’s 6.50% Series B Cumulative Convertible Perpetual Preferred Stock, liquidation preference $100.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 3.3 to the Company’s Form 8-A filed on June 25, 2018 (Commission File No. 001-36109)

3.5		Articles Supplementary opting out of the Maryland Unsolicited Takeovers Act, incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on September 25, 2018 (Commission File No. 001-36109)

3.6		Articles of Amendment to the Articles of Amendment and Restatement of QTS Realty Trust, Inc., incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on May 10, 2019 (Commission File No. 002-36109)

~~4.1~~3.7		Amended and Restated Certificate of Limited Partnership of QualityTech, LP, incorporated by reference to Exhibit 3.7 to the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2020 (Commission File No. 001-36109)

4.1		Form of Specimen Class A Common Stock Certificate, incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675)

4.2		Indenture, dated November 8, 2017, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., certain subsidiaries of QualityTech, LP and Deutsche Bank Trust Company Americas, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on November 8, 2017 (Commission File No. 001-36109)

4.3		Form of 4.750% Senior Notes due 2025 (included as Exhibit A to Exhibit 4.2 hereof)

4.4		Supplemental Indenture, dated as of December 22, 2017, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.4 to the Annual Report on Form 10-K filed with the SEC on February 28, 2018 (Commission File No. 001-36109)

4.5		~~Form~~Supplemental Indenture, dated as of ~~stock certificate evidencing~~June 1, 2018, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the ~~7.125% Series A Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, $0.01 par value per share,~~entity identified therein as a Guaranteeing Subsidiary, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the Subsidiary Guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit ~~4.1~~4.5 to the ~~Company’s~~Quarterly Report on Form ~~8-A~~10-Q filed with the SEC on ~~March 15, 2018~~August 2, 2019 (Commission File No. 001-36109)

4.6		Form of stock certificate evidencing the 6.50% Series B Cumulative Convertible Perpetual Preferred Stock, liquidation preference $100.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 4.1 to the Company’s Form 8-A filed on June 25, 2018 (Commission File No. 001-36109)

~~4.7~~		Supplemental Indenture, dated as of December 31, 2018 among West Midtown Acquisition Company, LLC, QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the Subsidiary Guarantors (as such term is defined in the Indenture), and Deutsche Bank Trust Company Americas, as trustee, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, ~~(the “Indenture”) as amended~~incorporated by reference to Exhibit 4.7 to the Company’s Form 10-K filed on February 25, 2019 (Commission File No. 001-36109)

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4.7

Supplemental Indenture, dated as of ~~December 22, 2017,~~March 29, 2019 by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.7 to the Company’s Quarterly Report on Form ~~10-K~~10-Q filed with the SEC on ~~February 25,~~November 12, 2019 (Commission File No. 001-36109)

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~~10.1~~		Indemnification Agreement, dated as of March 13, 2019, by and between QTS Realty Trust, Inc. and Wayne Rehberger, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 13, 2019 (Commission File No. 001-36109).

~~10.2~~4.8		~~Form of Performance Share Unit Agreement (Performance-Based FFO Units) under QTS Realty Trust, Inc. 2013 Equity Incentive Plan~~

~~10.3~~		~~Form of Performance Share Unit Agreement (Performance-Based FFO Units) for Grants to Chief Executive Officer under QTS Realty Trust, Inc. 2013 Equity Incentive Plan~~

~~10.4~~		~~Form of Performance Share Unit Agreement (Performance-Based Relative TSR Units) under QTS Realty Trust, Inc. 2013 Equity Incentive Plan~~

~~10.5~~		~~Form of Performance Share Unit Agreement (Performance-Based Relative TSR Units) for Grants to Chief Executive Officer under QTS Realty Trust, Inc. 2013 Equity Incentive Plan~~

~~10.6~~		~~First Amendment to Sixth Amended and Restated Credit Agreement,~~Supplemental Indenture, dated as of ~~March 29,~~June 28, 2019 by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities identified therein as Subsidiary Guarantors, ~~KeyBank National Association,~~and Deutsche Bank Trust Company Americas, to the ~~lenders parties~~Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and ~~KeyBank National Association,~~Deutsche Bank Trust Company Americas, as ~~agent~~trustee, incorporated by reference to Exhibit 4.8 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2019 (Commission File No. 001-36109).

~~31.1~~4.9		Supplemental Indenture, dated as of November 1, 2019 by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.9 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2019 (Commission File No. 001-36109).

4.10		Form of stock certificate evidencing the 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 4.1 to the Company’s Form 8-A filed on March 15, 2018 (Commission File No. 001-36109)

4.11		Form of stock certificate evidencing the 6.50% Series B Cumulative Convertible Perpetual Preferred Stock, liquidation preference $100.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 4.1 to the Company’s Form 8-A filed on June 25, 2018 (Commission File No. 001-36109)

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QTS Realty Trust, Inc.)

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QTS Realty Trust, Inc.)

31.3		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QualityTech, LP)

31.4		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QualityTech, LP)

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (QTS Realty Trust, Inc.)

32.2		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (QualityTech, LP)

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101
~~101~~		The following materials from QTS Realty Trust, Inc.’s and QualityTech, LP’s Quarterly Report on Form 10-Q for the period ended March 31, ~~2019,~~2020, formatted in ~~XBRL (eXtensible~~iXBRL (inline eXtensible Business Reporting Language): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations and comprehensive income (loss), (iii) condensed consolidated statements of equity and partners’ capital, (iv) condensed consolidated statements of cash flow, and (v) the notes to the condensed consolidated financial statements

104		Cover Page Interactive Data File (formatted in iXBRL (inline eXtensible Business Reporting Language) and contained in Exhibit 101).

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SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	QTS Realty Trust, Inc.

DATE: May ~~10, 2019~~4, 2020	/s/ Chad L. Williams
	Chad L. Williams
	Chairman and Chief Executive Officer


DATE: May ~~10, 2019~~4, 2020	/s/ William H. Schafer
	William H. Schafer
	Executive Vice President – Finance and Accounting
	(Principal Accounting Officer)


DATE: May ~~10, 2019~~4, 2020	/s/ Jeffrey H. Berson
	Jeffrey H. Berson
	Chief Financial Officer
	(Principal Financial Officer)

	QualityTech, LP

	By: QTS Realty Trust, Inc.,
	its general partner


DATE: May ~~10, 2019~~4, 2020	/s/ Chad L. Williams
	Chad L. Williams
	Chairman and Chief Executive Officer


DATE: May ~~10, 2019~~4, 2020	/s/ William H. Schafer
	William H. Schafer
	Executive Vice President – Finance and Accounting
	(Principal Accounting Officer)


DATE: May ~~10, 2019~~4, 2020	/s/ Jeffrey H. Berson
	Jeffrey H. Berson
	Chief Financial Officer
	(Principal Financial Officer)

7475


Maryland (QTS Realty Trust, Inc.)	46-2809094
Delaware (QualityTech, LP) (State or other jurisdiction of incorporation or organization)	27-0707288 (I.R.S. Employer Identification No.)

12851 Foster Street, Overland Park, Kansas	66213
(Address of principal executive offices)	(Zip Code)


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Class A common stock, $0.01 par value	QTS	New York Stock Exchange
Preferred Stock, 7.125% Series A Cumulative Redeemable Perpetual, $0.01 par value	QTS PR A	New York Stock Exchange
Preferred Stock, 6.50% Series B Cumulative Convertible Perpetual, $0.01 par value	QTS PR B	New York Stock Exchange


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐


Large accelerated filer	☒☐	Accelerated filer	☐

Non-accelerated filer	☐☒	Smaller reporting company	☐

		Emerging growth company	☐


~~Large accelerated filer~~	☐	~~Accelerated filer~~	☐

~~Non-accelerated filer~~	☒	~~Smaller reporting company~~	☐

		~~Emerging growth company~~	☐


QTS Realty Trust, Inc. Yes ☒ No ☐◻	QualityTech, LP Yes ☒ No ☐◻


QTS Realty Trust, Inc. Yes ☐ No ☒	QualityTech, LP Yes ☐ No ☒


~~Title of each class:~~	~~Trading Symbol~~	~~Name of each exchange on which registered:~~
~~Class A common stock, $.01 par value~~	~~QTS~~	~~New York Stock Exchange~~
~~Preferred Stock, 7.125% Series A Cumulative Redeemable Perpetual, $0.01 par value~~	~~QTS PR A~~	~~New York Stock Exchange~~
~~Preferred Stock, 6.50% Series B Cumulative Convertible Perpetual, $0.01 par value~~	~~QTS PR B~~	~~New York Stock Exchange~~


		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements of QTS Realty Trust, Inc.	4

	Financial Statements of Quality Tech, LP	410

	Notes to QTS Realty Trust, Inc. and QualityTech, LP Financial Statements	16

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4642

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	6867

ITEM 4.	Controls and Procedures	6967

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	7069

ITEM 1A.	Risk Factors	7069

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70

ITEM 3.	Defaults Upon Senior Securities	71

ITEM 4.	Mine Safety Disclosures	71

ITEM 5.	Other Information	71

ITEM 6.	Exhibits	71

	Signatures	7475


	March 31, 2019		December 31, 2018
	(unaudited)
ASSETS
Real Estate Assets
Land	$	105,541	$	105,541
Buildings, improvements and equipment		2,031,825		1,917,251
Less: Accumulated depreciation		(494,787)		(467,644)
		1,642,579		1,555,148
Construction in progress		803,888		790,064
Real Estate Assets, net		2,446,467		2,345,212
Investments in unconsolidated entity		44,191		—
Operating lease right-of-use assets, net		61,585		—
Cash and cash equivalents		18,678		11,759
Rents and other receivables, net		56,898		55,093
Acquired intangibles, net		92,053		95,451
Deferred costs, net		45,674		45,096
Prepaid expenses		9,585		6,822
Goodwill		173,843		173,843
Assets held for sale		—		71,800
Other assets, net		55,280		56,893
TOTAL ASSETS	$	3,004,254	$	2,861,969

LIABILITIES
Unsecured credit facility, net	$	828,861	$	945,657
Senior notes, net of debt issuance costs		394,944		394,786
Finance leases and mortgage notes payable		48,988		4,674
Operating lease liabilities		69,346		—
Accounts payable and accrued liabilities		120,501		99,166
Dividends and distributions payable		33,244		29,633
Advance rents, security deposits and other liabilities		34,515		32,679
Liabilities held for sale		—		24,349
Deferred income taxes		1,208		1,097
Deferred income		38,167		33,241
TOTAL LIABILITIES	$	1,569,774	$	1,565,282

EQUITY
7.125% Series A cumulative redeemable perpetual preferred stock: $0.01 par value (liquidation preference $25.00 per share), 4,600,000 shares authorized, 4,280,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively		103,212		103,212
6.50% Series B cumulative convertible perpetual preferred stock: $0.01 par value (liquidation preference $100.00 per share), 3,162,500 shares authorized, issued and outstanding as of March 31, 2019 and December 31, 2018, respectively		304,223		304,265
Common stock: $0.01 par value, 450,133,000 shares authorized, 55,353,643 and 51,123,417 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively		554		511
Additional paid-in capital		1,214,711		1,062,473
Accumulated other comprehensive income (loss)		(6,702)		2,073
Accumulated dividends in excess of earnings		(292,219)		(278,548)
Total stockholders’ equity		1,323,779		1,193,986
Noncontrolling interests		110,701		102,701
TOTAL EQUITY		1,434,480		1,296,687
TOTAL LIABILITIES AND EQUITY	$	3,004,254	$	2,861,969


									Accumulated other		Accumulated		Total
	Preferred Stock			Common stock			Additional		comprehensive		dividends in		stockholders'		Noncontrolling
	Shares	Amount		Shares	Amount		paid-in capital		income (loss)		excess of earnings		equity		interests		Total
Balance January 1, 2020	7,443	$	407,435	58,228	$	582	$	1,330,444	$	(24,642)	$	(376,002)	$	1,337,817	$	106,634	$	1,444,451
Net share activity through equity award plan	—		—	240		3		(1,312)		—		—		(1,309)		(149)		(1,458)
Decrease in fair value of derivative contracts	—		—	—		—		—		(33,155)		—		(33,155)		(3,560)		(36,715)
Foreign currency translation adjustments	—		—	—		—		—		(201)		—		(201)		(22)		(223)
Equity-based compensation expense	—		—	—		—		4,377		—		—		4,377		498		4,875
Proceeds net of fees from settlement of forward shares	—		—	1,930		19		78,516		—		—		78,535		4,682		83,217
Dividends declared on Series A Preferred Stock	—		—	—		—		—		—		(1,906)		(1,906)		—		(1,906)
Dividends declared on Series B Convertible Preferred Stock	—		—	—		—		—		—		(5,139)		(5,139)		—		(5,139)
Dividends declared to common stockholders	—		—	—		—		—		—		(28,393)		(28,393)		—		(28,393)
Dividends declared to noncontrolling interests	—		—	—		—		—		—		—		—		(3,133)		(3,133)
Net income	—		—	—		—		—		—		8,010		8,010		110		8,120
Balance March 31, 2020	7,443	$	407,435	60,398	$	604	$	1,412,025	$	(57,998)	$	(403,430)	$	1,358,636	$	105,060	$	1,463,696


									Accumulated other		Accumulated		Total
	Preferred Stock			Common stock			Additional		comprehensive		dividends in		stockholders'		Noncontrolling
	Shares	Amount		Shares	Amount		paid-in capital		income (loss)		excess of earnings		equity		interests		Total
Balance January 1, 2019	7,443	$	407,477	51,123	$	511	$	1,062,473	$	2,073	$	(278,548)	$	1,193,986	$	102,701	$	1,296,687
Net cumulative effect upon ASC 842 adoption (see Note 2)	—		—	—		—		—		—		(1,813)		(1,813)		—		(1,813)
Net share activity through equity award plan	—		—	231		3		660		—		—		663		78		741
Decrease in fair value of derivative contracts	—		—	—		—		—		(8,775)		—		(8,775)		(1,078)		(9,853)
Equity-based compensation expense	—		—	—		—		2,928		—		—		2,928		372		3,300
Adjustment to expenses net from Series B Preferred stock offering	—		(42)	—		—		—		—		—		(42)		—		(42)
Net proceeds from common equity offering	—		—	4,000		40		148,650		—		—		148,690		9,973		158,663
Dividends declared on the Series A Preferred Stock	—		—	—		—		—		—		(1,906)		(1,906)		—		(1,906)
Dividends declared on the Series B Preferred Stock	—		—	—		—		—		—		(5,139)		(5,139)		—		(5,139)
Dividends declared to common stockholders	—		—	—		—		—		—		(24,371)		(24,371)		—		(24,371)
Dividends to noncontrolling interests	—		—	—		—		—		—		—		—		(2,935)		(2,935)
Net income	—		—	—		—		—		—		19,558		19,558		1,590		21,148
Balance March 31, 2019	7,443	$	407,435	55,354	$	554	$	1,214,711	$	(6,702)	$	(292,219)	$	1,323,779	$	110,701	$	1,434,480


	2019		2018
Cash flow from operating activities:
Net income (loss)	$	21,148	$	(252)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		37,247		34,580
Amortization of above and below market leases		64		139
Amortization of deferred loan costs		978		962
Equity-based compensation expense		3,300		3,481
Bad debt recoveries		—		(863)
Gain on sale of real estate, net		(13,408)		—
Deferred tax expense (benefit)		111		(2,402)
Restructuring costs, net of cash paid		—		8,020
Changes in operating assets and liabilities
Rents and other receivables, net		(1,804)		2,753
Prepaid expenses		(2,762)		(4,165)
Other assets		(419)		(3,339)
Accounts payable and accrued liabilities		(6,866)		9,619
Advance rents, security deposits and other liabilities		1,653		(354)
Deferred income		4,926		3,374
Net cash provided by operating activities		44,168		51,553

Cash flow from investing activities:
Proceeds from sale of property, net		52,722		—
Acquisitions, net of cash acquired		—		(24,626)
Additions to property and equipment		(101,234)		(103,936)
Net cash used in investing activities		(48,512)		(128,562)

Cash flow from financing activities:
Credit facility proceeds		93,000		102,000
Credit facility repayments		(210,000)		(95,000)
Payment of deferred financing costs		(173)		(499)
Payment of preferred stock dividends		(7,045)		—
Payment of common stock dividends		(20,961)		(19,670)
Distribution to noncontrolling interests		(2,735)		(2,552)
Proceeds from exercise of stock options		2,687		—
Payment of tax withholdings related to equity-based awards		(2,062)		(867)
Principal payments on finance lease obligations		(799)		(2,324)
Mortgage principal debt repayments		(9)		(16)
Preferred stock issuance proceeds, net of costs		—		103,615
Common stock issuance proceeds, net of costs		159,360		—
Net cash provided by financing activities		11,263		84,687

Net increase in cash and cash equivalents		6,919		7,678
Cash and cash equivalents, beginning of period		11,759		8,243
Cash and cash equivalents, end of period	$	18,678	$	15,921


	2019		2018
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (excluding deferred financing costs and amounts capitalized)	$	9,461	$	4,720
Noncash investing and financing activities:
Accrued capital additions	$	69,963	$	102,489
Net increase (decrease) in other assets/liabilities related to change in fair value of derivative contracts	$	(9,853)	$	5,982
Equity received in unconsolidated entity in exchange for real estate assets	$	25,280	$	—
Increase in assets in exchange for finance lease obligation	$	45,024	$	—
Accrued equity issuance costs	$	918	$	432
Accrued preferred stock dividend	$	5,938	$	328


	Limited Partners' Capital						General Partner's Capital			Accumulated other
	Preferred Units			Common Units			Common Units			comprehensive income (loss)
	Units	Amount		Units	Amount		Units	Amount		Amount		Total
Balance January 1, 2019	7,443	$	407,477	57,799	$	886,866	1	$	—	$	2,344	$	1,296,687
Net cumulative effect upon ASC 842 adoption (see Note 2)	—		—	—		(1,813)	—		—		—		(1,813)
Net share activity through equity award plan	—		—	229		741	—		—		—		741
Decrease in fair value of derivative contracts	—		—	—		—	—		—		(9,853)		(9,853)
Equity-based compensation expense	—		—	—		3,300	—		—		—		3,300
Adjustment to expenses from Series B Preferred equity offering	—		(42)	—		—	—		—		—		(42)
Net proceeds from equity offering	—		—	4,000		158,663	—		—		—		158,663
Dividends declared on Series A Preferred Units	—		—	—		(1,906)	—		—		—		(1,906)
Dividends declared on Series B Convertible Preferred Units	—		—	—		(5,139)	—		—		—		(5,139)
Common dividends declared to QTS Realty Trust, Inc.	—		—	—		(24,371)	—		—		—		(24,371)
Partnership distributions	—		—	—		(2,935)	—		—		—		(2,935)
Net income	—		—	—		21,148	—		—		—		21,148
Balance March 31, 2019	7,443	$	407,435	62,028	$	1,034,554	1	$	—	$	(7,509)	$	1,434,480


	March 31,		December 31,
(dollars in thousands)	2019		2018
	(unaudited)

Deferred financing costs	$	11,488	$	11,530
Accumulated amortization		(4,335)		(3,859)
Deferred financing costs, net	$	7,153	$	7,671


	As Previously		New Lease Standard
	Reported		Adjustment		As Adjusted
Operating lease right-of-use assets	$	—	$	62,922	$	62,922
Operating lease liabilities		—		70,657		70,657
Deferred rent payable		5,922		(5,922)		—


		March 31, 2019						December 31, 2018
		Gross						Gross
		Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Net Carrying
	Useful Lives	Value		Amortization		Value		Value		Amortization		Value
Customer Relationships	1 to 12 years	$	95,705	$	(30,449)	$	65,256	$	95,705	$	(28,461)	$	67,244
In-Place Leases	0.5 to 10 years		32,066		(18,701)		13,365		32,066		(17,670)		14,396
Solar Power Agreement (1)	17 years		13,747		(3,841)		9,906		13,747		(3,639)		10,108
Platform Intangible	3 years		—		—		—		9,600		(9,600)		—
Acquired Favorable Leases
Acquired below market leases - as Lessee	46 years		2,301		(8)		2,293		2,301		—		2,301
Acquired above market leases - as Lessor	0.5 to 8 years		4,649		(3,416)		1,233		4,649		(3,247)		1,402
Tradenames	3 years		—		—		—		3,100		(3,100)		—
Total Intangible Assets		$	148,468	$	(56,415)	$	92,053	$	161,168	$	(65,717)	$	95,451

Solar Power Agreement (1)	17 years		13,747		(3,841)		9,906		13,747		(3,639)		10,108
Acquired Unfavorable Leases
Acquired below market leases - as Lessor	3 to 4 years		809		(671)		138		809		(611)		198
Acquired above market leases - as Lessee	11 to 12 years		2,453		(821)		1,632		2,453		(767)		1,686
Total Intangible Liabilities (2)		$	17,009	$	(5,333)	$	11,676	$	17,009	$	(5,017)	$	11,992


	Net Rental Revenue		Net Rental Expense
	Decrease		Increase/(Decrease)
2019 (April - December)	$	368	$	(121)
2020		647		(166)
2021		46		(166)
2022		17		(166)
2023		17		(166)
Thereafter		—		1,446
Total	$	1,095	$	661


2019 (April - December)	$	8,946
2020		11,379
2021		10,137
2022		9,910
2023		9,910
Thereafter		28,339
Total	$	78,621


			Buildings,
			Improvements		Construction
Property Location	Land		and Equipment		in Progress		Total Cost
Atlanta, Georgia (Atlanta-Metro)	$	20,416	$	497,111	$	110,769	$	628,296
Irving, Texas		8,606		346,276		104,988		459,870
Richmond, Virginia		2,180		253,593		68,059		323,832
Chicago, Illinois		9,400		152,704		120,999		283,103
Suwanee, Georgia (Atlanta-Suwanee)		3,521		167,173		2,977		173,671
Ashburn, Virginia (1)		17,326		95,585		166,484		279,395
Piscataway, New Jersey		7,466		98,501		34,141		140,108
Santa Clara, California (2)		—		105,386		1,250		106,636
Dulles, Virginia		3,154		72,756		4,018		79,928
Sacramento, California		1,481		64,904		91		66,476
Leased Facilities (3)		—		89,331		9,449		98,780
Fort Worth, Texas		9,078		18,619		50,869		78,566
Princeton, New Jersey		20,700		34,083		424		55,207
Phoenix, Arizona (1)		—		—		30,016		30,016
Hillsboro, Oregon (1)		—		—		44,942		44,942
Manassas, Virginia (1)		—		8		54,245		54,253
Other (4)		2,213		35,795		167		38,175
	$	105,541	$	2,031,825	$	803,888	$	2,941,254


	March 31,
	2019
Operating leases:
Operating lease right-of-use assets	$	61,585
Operating lease liabilities		69,346
Finance leases:
Property and equipment, at cost		48,233
Accumulated amortization		(1,477)
Property and equipment, net	$	46,756
Finance lease liabilities	$	47,196

Weighted average remaining lease term (in years):
Operating leases		14.0
Finance leases		12.1

Weighted average discount rate:
Operating leases		5.1%
Finance leases		4.6%


	Three months ended
	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,523
Operating cash flows from finance leases	$	196
Financing cash flows from finance leases	$	799


	Weighted Average
	Coupon Interest Rate at		March 31,		December 31,
	March 31, 2019 (1)	Maturities	2019		2018
	(unaudited)		(unaudited)
Unsecured Credit Facility
Revolving Credit Facility	3.83%	December 17, 2022	$	135,000	$	252,000
Term Loan I	3.50%	December 17, 2023		350,000		350,000
Term Loan II	3.53%	April 27, 2024		350,000		350,000
Senior Notes	4.75%	November 15, 2025		400,000		400,000
Lenexa Mortgage	4.10%	May 1, 2022		1,791		1,801
Finance Leases	4.33%	2019 - 2038		47,197		2,873
	3.96%			1,283,988		1,356,674
Less net debt issuance costs				(11,195)		(11,557)
Total outstanding debt, net			$	1,272,793	$	1,345,117


	2010 Equity Incentive Plan					2013 Equity Incentive Plan
				Weighted					Weighted		Restricted
		Weighted		average			Weighted		average		Stock /		Weighted			Weighted			Weighted
	Number of	average		fair			average		fair		Deferred		average			average			average
	Class O units	exercise price		value		Options	exercise price		value		Stock		grant price		TSR Units	grant price		FFO Units	grant price
Outstanding at December 31, 2018	102,279	$	24.05	$	5.67	2,037,163	$	36.86	$	7.10	420,309		$	37.83	—	$	—	—	$	—
Granted	—		—		—	124,955		42.01		7.56	265,231			42.01	86,089		54.64	86,089		42.01
Exercised/Vested (1)	—		—		—	(96,589)		27.82		5.58	(95,330)			37.12	—		—	—		—
Cancelled/Expired	—		—		—	(60,285)		46.07		9.62	(54,041)	(2)		38.73	—		—	—		—
Outstanding at March 31, 2019	102,279	$	24.05	$	5.67	2,005,244	$	37.34	$	7.12	536,169		$	39.93	86,089	$	54.64	86,089	$	42.01


Three Months Ended March 31, 2019
				Aggregate
		Per Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
Common Stock
December 21, 2018	January 8, 2019	$	0.41	$	23.7
				$	23.7

Series A Preferred Stock
December 31, 2018	January 15, 2019	$	0.45	$	1.9
				$	1.9

Series B Preferred Stock
December 31, 2018	January 15, 2019	$	1.63	$	5.1
				$	5.1


Three Months Ended March 31, 2018
				Aggregate
		Per Common Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
Common Stock
December 5, 2017	January 5, 2018	$	0.39	$	22.2
				$	22.2


			Net Rentable Square Feet (Operating NRSF) (1)
											Available	Basis of	Current
		Gross									Utility	Design	Raised
	Year	Square	Raised	Office &	Supporting		%		Annualized		Power	("BOD")	Floor as a
Property	Acquired (2)	Feet (3)	Floor (4)	Other (5)	Infrastructure (6)	Total	Occupied (7)		Rent (8)		(MW) (9)	NRSF	% of BOD
Richmond, VA	2010	1,318,353	167,309	51,093	178,854	397,256	70.9	%	$	40,048,363	110	557,309	30.0	%
Atlanta, GA (Metro)	2006	968,695	486,706	36,953	346,263	869,922	97.9	%	$	106,761,525	72	527,186	92.3	%
Irving, TX	2013	698,000	174,160	6,981	179,083	360,224	94.7	%	$	51,870,922	140	275,701	63.2	%
Princeton, NJ	2014	553,930	58,157	2,229	111,405	171,791	100.0	%	$	10,206,631	22	158,157	36.8	%
Chicago, IL	2014	474,979	56,000	1,786	58,182	115,968	84.0	%	$	12,534,696	24	215,855	25.9	%
Ashburn, VA	2017	445,000	19,500	6,096	31,988	57,584	90.7	%	$	3,690,636	50	178,000	11.0	%
Suwanee, GA	2005	369,822	205,608	8,697	107,128	321,433	93.4	%	$	56,296,509	36	205,608	100.0	%
Piscataway, NJ	2016	360,000	98,820	14,311	100,151	213,282	88.9	%	$	18,051,649	111	176,000	56.1	%
Fort Worth, TX	2016	261,836	10,600	—	19,438	30,038	98.9	%	$	2,084,513	50	80,000	13.3	%
Santa Clara, CA*	2007	135,322	59,905	944	45,094	105,943	72.5	%	$	18,466,859	11	80,940	74.0	%
Sacramento, CA	2012	92,644	54,595	2,794	23,916	81,305	37.5	%	$	10,474,745	8	54,595	100.0	%
Dulles, VA	2017	87,159	30,545	5,997	32,892	69,434	62.9	%	$	16,494,315	13	48,270	63.3	%
Leased facilities **	2006 & 2015	192,588	63,937	18,650	41,901	124,488	83.3	%	$	26,841,451	14	84,549	75.6	%
Other ***	Misc.	147,435	22,380	49,337	30,074	101,791	68.9	%	$	6,582,622	5	22,380	100.0	%
Consolidated properties		6,105,763	1,508,222	205,868	1,306,369	3,020,459	88.9	%	$	380,405,436	667	2,664,550	56.6	%

Unconsolidated JV Properties - at the JV's 100% Share (10)
Manassas, VA	2018	118,031	11,200	12,663	39,044	62,907	100.0	%	$	6,047,136	24	66,324	16.9	%

Total Properties		6,223,794	1,519,422	218,531	1,345,413	3,083,366	89.0	%	$	386,452,572	691	2,730,874	55.6	%


Booked-not-billed ("BNB")		2019		2020		Thereafter		Total
MRR	$	2,483,528	$	1,023,329	$	1,060,358	$	4,567,215
Incremental revenue		14,095,278		8,308,813		12,724,296
Annualized revenue	$	29,802,336	$	12,279,948	$	12,724,296	$	54,806,580


Obligations	2019		2020		2021		2022		2023		Thereafter		Total
Operating Leases	$	7,165	$	9,648	$	9,877	$	10,327	$	10,454	$	58,111	$	105,582
Finance Leases		2,056		2,579		2,713		2,958		3,229		33,661		47,196
Future Principal Payments of Indebtedness (1)		52		71		74		136,594		350,000		750,000		1,236,791
Total (2)	$	9,273	$	12,298	$	12,664	$	149,879	$	363,683	$	841,772	$	1,389,569


				Total number of
				shares purchased as	Maximum number of
	Total number	Average price		part of publicly	shares that may yet be
	of shares	paid per		announced plans or	purchased under the
Period	purchased (1)	share		programs	plans or programs
January 1, 2019 through January 31, 2019	639	$	37.05	N/A	N/A
February 1, 2019 through February 28, 2019	2,926		42.11	N/A	N/A
March 1, 2019 through March 31, 2019	45,132		42.43	N/A	N/A
Total	48,697	$	42.34