QTS - Earnings call transcript Q2 2019

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Operator

Good morning and welcome to the QTS Second Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded.

I would now like to turn the conference over to Stephen Douglas. Please go ahead.

Stephen Douglas

Thank you, Operator. to Quarter welcome Call. Earnings and everyone QTS' XXXX Second Conference Hello, and and Stephen Relations Officer. by here Chairman Investor Head Chad Executive QTS, our I'm of joined at Douglas, Chief Berson, Jeff our and I'm Williams, Chief Financial Officer; today also of executive will additional team members in Q&A. by joined who We're our participate

website and Relations our website. our We've earnings supplemental information make financial webcast of Our to available are posted the provided to section presentation slides made easier release and in them with the follow Investor today. it also on our

Before as we subject may are some during in and filings described on start, future include let information call and uncertainty that assumptions to me our may SEC a based remind this vary actual are materially. certain of the you number forward-looking of results that statements and provided risks

that as press FFO, today as yesterday in non-GAAP them update adjusted undertake release with statements NOI, monthly we remarks Today's operating measures made and to we Forward-looking recurring yesterday are GAAP and ROIC, use our we our including remarks that press reports EBITDAre operating our issued non-GAAP financial of include FFO, also information our these actual unfold. issued certain you of events to today duty reconciliation FFO, EBITDA. the along SEC and them release results. refer a revenue, We furnished for the of filed to our with periodic no further and adjusted regarding and measures

over the And now I'll to Chad. call turn

Chad Williams

to Thanks, Stephen, Quarter hello QTS' XXXX Second Call. welcome and and Earnings

in the continued QTS to quarter on capitalize strategic second the differentiators our During market.

with software the end our and platform balances our is the combined peer market performance base. with diversified at continues we target continues hyperscale growth Strong and are with delivered business, world-class, select that hybrid to scalable through customer premium focus with high combined infrastructure acceleration experience execution financial on our support consistent of performance growth colocation share. And strategic steady winning customer opportunities customers, approach go-to-market resonate that to defined our group. Our

Slide to X. Turning

the revenue, the million Our signed than and customer reflect average to above at incremental four annualized during of modified representing $XX.X verticals. attractive performances mix Leasing demand performance capital. company's our one second of continues prior targeted on QTS leases has of history. new across quarter our and strongest invested represents XX% more quarterly This quarters in returns the the our leasing healthy

quarter commenced revenue near As not a of yet cash record signed the annualized result, million. $XX approximately we but ended backlog of

engine perform sales colocation to continues well. hybrid QTS'

over the a six results past volume. period, than increase two-thirds more that represent the quarters XX% quarter of over with leasing colocation Our prior hybrid six representing

a period, the signed revenue deals reoccurring flat. square on was same approximately the held Over XX%, square up per size while monthly in pricing is basis terms feet foot and of both average of

In rates six we addition, of trend up increased during our space as company. same that over same quarter, X.X% a pricing consistently renewal reported were have public continuing the a space years second

QTS' see that to and dedication customers value the Demonstrating innovation. to in our continue platform

interact to data or metrics. provisioning to empowers QTS sensors, enable can we their center this security, API, with QTS' and remains the software-defined data access powerful and in key aspects and Interface Through cooling, operations, Programming many customers a Our platform platform all Application real-time which power, of including services differentiator data market. center other

However, and infrastructure monitoring our just interface. a tool platform critical is than SDP more

their for invested a carriers, service theme we that as are providers worlds infrastructure solution IT and integrate their we customers able solutions needs. to accelerating their partners. Cloud and platform, It developing years. the cloud our a largest for which for platform, is within our this in cloud ecosystems Customer this Integrating the has most Through strategically acts facilities. reason advanced facilitator our that environments. customers' and demand for several seamlessly continued colocation with is hybrid to for IT have software-defined

trend leveraging IT capability because integrate a platform, environments Customers have cloud requirements. And technology these will are we complex customers to that is the their we expect and continue. choosing QTS will

While represents pursue our our requirements and growth base predict And significant. the a hybrid continue from fastest we result with are growing our opportunities timing which hyperscale difficult inherently lumpy customer technology and to acceleration two-thirds a colocation largest of of to this center vertical Data revenue perspective. remains business, actively engine strategic for as the companies.

our opportunities built this hyperscale larger an is model five year. one only For three plus financial reason, each signing megawatt to upon assumption of

steady the on is Supporting return invested return; This leading driving diversified, QTS. performance the combined performance and our higher best us path to for a strong adjusted capital business of with growth. risk hybrid for colocation optimize

are come. and to progress to the our confident are for And incrementally with hyper sector QTS opportunity we We pleased will at our years make relationships an remain with continue growth attractive the customers. skilled for building target hyperscale that

leasing win for a strategic business. Our the expansion signing set five a a and two hyperscale federal commence in multiple to This sites the federal skilled and supporting multi-site program. XXXX, for in deployment the megawatt opportunities is which in second includes of deployment late quarter plus represents a QTS growth large of incremental results both opportunities customer include significant hyper existing

like we of hyperscale center second quarter. see excess the the data deployments the focus security area well Slide unique X. on capital Even other during the core we in customer return a is return this due for profile our for in and remains the requirements deployments to profile QTS for federal signed to involving to segments. Federal barriers customer one higher Turning the the typically entry, customer The customers Vertical base for

large will In be shell capital returns. addition, powered higher that supported signed QX moderate even lease in a existing supporting and we QTS within the incremental enabling

supporting positioned vertical. to personnel for in compliant expertise the differentiators in business including and highly of operational the And investments agencies talent federal is federal strategic capable made has processes, Incumbency the industry and succeed customers. QTS are powerful government necessary capability QTS our

within growing federal sizable slow opportunities been have relatively opportunities we pipelines. to the in over federal our past of meaningful years, states several number to materialize see are beginning Although a

requirements These opportunities are expand. out it programs data growing At be into data to these or supporting the to are source the federal rapidly solutions centers pressure programs find within as same running internally continue time, cloud. center

creation As which we and I deals, the on market opportunities for mentioned, for its an capital of these in generally multi shareholders. attractive represent in return invested the QTS excess deals typical megawatt return value opportunity represents see

see leveraging and our capability our about we We forward are to building and relationships excited look within federal unique further the drive growth. vertical momentum customer the to

X. Slide to on Moving

course QTS a continue hyperscale will pursue differentiated strategically year, incremental demonstrated efficiency over prioritizes growth opportunities the of that to and we've with approach this capital returns. As customers with

our facility the this has already three XXXX, each in ability five value deployment sign have drive last side expectation we addition we facility demonstrated one plus of creation in And annually megawatt Manassas transactions a Through year-to-date in of larger Our quarter. our signing unique XX shareholders. in our hyperscale these quarter. leases, megawatt our Ft. to signed to the logo leasing lease performance to for multi-site new Worth including met the federal enhanced

in were with XX% hyperscale return return $XXX announced year, X% a to XX Manassas megawatt from the was JV invested this with a in quarter able in commitment. logo above-average our able lease new which we QTS' Manassas Arlinda low by on capital to million inventory support the Ft. we generate plus lease megawatt the stabilized bases megawatt to We've combined hyperscale with lease earlier Capital convert quarter. X reduction capital a leveraging signed previously last sign the shell and approximately through X Beginning this a overall also the to existing hyperscale returns powered been both Worth

one signed carry also in a programs the like supporting return the mentioned In we premium typically second addition, deployment I've opportunity. federal datacenter quarter

look have to past differentiated the larger three our XX value and highlighting going capability drive Over maintaining same each forward. months, creation we approach we hyperscale transactions the signed forward disciplined to

are excited Next about. Slide initiative I'd on an to like the we very that X, highlight

our report is transparency its is stakeholders our report, QTS section the the Among During procure them the the making ESG to of quarter, The our provide to first intended by in and the initiatives XXX% to the evaluate governance second our is report sustainability energy and progress published goal in which social a delivering environmental, renewable of commitment and highlights to XXXX. principles. to standards website. key allow available we're key highest

in in We successfully role power. for recognized The current of from continues our on grow a EPA QTS award leadership as costs Chicago our continue at have well are target to sources energy. Piscataway on energy that of power to for proud a of renewable all and XXX% from way we carbon by XXX% comparable renewable are including availability our of renewable procure Partner more effort are free to sources, is supported topic with non-renewable. leadership towards finding already to take than energy Look sources we this opportunities which power. our we a sites goal renewable currently with Irving, to in drive XX% in energy mega recently datacenter renewable and the Power more the us to that

Berson, With Officer. Financial Jeff? our to over Chief turn that, it Jeff I'll

Jeffrey Berson

morning. good Thanks Chad, and

The data million. centers the $XX Moving mega existing conjunction QTS' renewable expansion significant two X, hyperscale we in that of two and sites fiber one Groningen integration to major located with landings, the In acquired in concentration cable data resources operating earnings, to approximately two update one undersea adjacent for Netherlands in the in of Q first multiple acquisition on international Slide to data the and are a like centers April. I'd Netherland with an deployment. we provide Eemshaven announced of center strategically scale power

two to facility colocation per with an a revenue infrastructure, and The which that in value with for low smaller for future upfront incredibly broader Eemshaven to megawatts average out built $X the approximately revenue to $XX process shareholders. market customer opportunity hyperscale the able cost share capacity closer upside Groningen in large million along place leasing to the XX were of embedded flow. $X creation bankruptcy cash basis base available strong initial opportunity million contribution, on per acquire fraction Along and FFO significant embedded provides per a base megawatt. matched build an has represents a and We supporting sites megawatt ongoing breakeven through million and the acquire site, with an is of opportunistically customer

facilities completed integration of QTS are already broader asset. in been portfolio to the and incremental is into growth shifting our we focus two the has The

had we're we've In we seeing annualized $X Groningen facility the initially performance two incremental of the Since in than expansion million annualized assuming of generate closing adjusted facilities recurring already had and $X underwritten. approximately what fact, revenue closing, we million At above expected to initially of revenue. annualized customers new already EBITDA representing the no signed combined acquisition, leasing. new more or recurring four $XXX,XXX

Although Netherlands small strong revenue footprint and represents given ROIC combined the terms our a incremental low-cost new basis. in absolute opportunity

site existing capital to opportunities facility In site amount capital. by capacity we re-commission average in invested potentially of the renewing And with pipeline hyperscale the will of ongoing the and invest we've initial XXXX. addition, our discussions and above to positioning upside facility customers of encouraged In incremental saleable been initiatives. late we're expect our We've additional multiple anticipate on customers modest the growth valuable believe provide we which time we're potential to Eemshaven incremental returns the opportunity in over support and with having represent process a expect growing Eemshaven, a hyperscale in the had building. to

news for in incremental significant remaining datacenter our has reports positioning in are capacity being government sites that limitations enhances new by the the northern Amsterdam believe recent the on placed growth addition, area we of activity two local In which Netherlands, strategic policy. for time development And have suggesting authorities unaffected customers. the the Dutch

model We with an opportunity opportunity. investment a QTS' significant upside to initial de-risk are operating extend a that provides and growth excited modest internationally efficient

same We in expansion opportunities to incremental abroad we have will demonstrated and and the with continue in evaluate US past. consistently the discipline both the de-risked approach,

to like balance current Slide sheet on now review position. XX, I'd Next our

business the June of had million proceeds. in we $XXX approximately equity As undrawn in forward including XXXX, XXth, liquidity

future ended more our of is We XX% a including We beyond with proceeds of series to equity of have to subject drawn the raised in the maturities offering forma debt for X.Xx no adjusted $XXX provide rate not approximately capital XXXX debt pro through agreement. which million than have been leverage of and quarter interest significant but structure of until rate QX, equity annualized net our availability. a approximately currently and indebtedness forward fixed swap EBITDA

with As of mid we proceeds and we in our in revenue. where yet these signs but light to range the not the we business our remain several of the near returning term to draw Xx significant the down backlog over commenced comfortable consistent leverage high managed have anticipate next quarters, historically

our We OFFO consistent company. -term driving to invest find continue for the long In approach this, to evaluate of allocation goal directly continuing per prioritize results, capital the opportunities of achieving balance to as spend order share. to we to the capital view and in tied near-term our accomplish while both constantly in to growth our right growth

two investments in we've Over position with market. the platform significant past plus years, the the right business made to in our assets our right

incremental opportunity and We million returns deliver shell excited plus of at by afforded capacity are just-in-time material our advantage, that on on funding growth square possible. fund we low the can a while cost execute basis our our that From to our on monetizing bring business dilution. further we backlog, the a capital basis term capital. significant minimizing quickly our supporting in feet focused evaluating near both we structure a the manage timing business friendly financing on In shareholder we're equity try to to way and most into perspective, power

To forward have $XXX proceeds. remaining currently development approximately in we equity undrawn support activity several quarters, the next our over million

to will Alinda funding joint incremental forward evaluate partner tied development as program continue range of In opportunities our with needs. additional ATM funding with our activity closely well including of addition, use a actively we more to as options venture

guidance financial XX. our onto Slide Next on

compares OFFO million rental $XXX per We're also churn guidance $XXX $XXX.X For underlying between $X.XX. expectation between EBITDA is total the X% year-to-date guidance to is initial guidance our reiterating our $X.XXX of and between share and from full-year which we of unchanged our are our million year million performance X.X%. of reiterating and adjusted of range a and XXXX, our and X% guidance outlook revenue of $XXX.X this full and between million,

of raised the proceeds from million and between guidance also equity is which $XXX is $XXX CapEx Our our unchanged, million QX. funded including fully in

to are pleased for quarter the we shareholders. ability during the with to strong second generate continue our platform encouraged differentiated performance Overall, by to and returns a

We will approach longer-term growth and remain balanced a to our allocating on capital objectives. ongoing opportunities focused support in

over Chad. the turn back now I'll call to

Chad Williams

Jeff. Thanks.

XX. Slide onto Now

quarter markets peers. in see of hybrid second strong continue our quarter The QTS like represented across hyperscale verticals. each press We another competition we for in enterprise federal which advantages competitive colocation, performance our just our to our and

these the and confidence our However, in strong. remain opportunity we see markets

important Our is market where as end higher. markets competition share proving Northern differentiated key platform to our like does Virginia result an be verticals. to be tend gaining customer And across we're a

customer the to differentiator. a center within First enterprise software-defined QTS' data valuable vertical, prove to be platform continues

first across analysts fact, of environments. as quoted to leverage In datacenter one to data from multi service for and QTS hybrid industry use visibility customer improve saying, XXXX recently the its is and providers cloud

the grow. market We changing we and The intense their access past datacenter sustainable The have our continues buying expectations for plus and implemented strategy same operators is of power a seeing the most to an benefits new every impacting availability QTS digitization is of initiatives. environment work; digitization datacenter not way services and years customers solutions the data the The norm. of at have are multi-cloud base where in first that nearly delivered over two a over becoming industry. are with now decade

investments the in us QTS been of positioned generation software-defined believe the customers they share center established deliver enterprise the platform data have market expect. solutions is We win has and to that higher bar next to a made to

only opportunity at due returns cost by quickly, of customers infrastructure one the feet shell advantaged existing to the within provides space deliver million plus vertical, returns not its and across hyperscale capability premium differentiated power basis. for leveraging to Europe. but cost a drive This low US also Next QTS outsized to our square our

differentiated security we a returns unique the federal to with years solutions leading the made we investments with of result, these signed over government provider QTS higher case through the typically the approach Worth a strategic existing the a itself and has hyperscale the generally in agencies. first the third the entry sector. to with As our capital opportunities several target on high X past In signed our we've established logo is market lease government megawatt quarter Ft. as facility. as amongst in new vertical to highest requirements in Due barriers services datacenter carry federal a

We are types continuing these and size excited signed we federal supporting about we the and favoring see requirements program, of a grow, to the lease QTS. the multi and number megawatt in providers quarter like of incumbent larger

for uniquely outsized believe value Across three and verticals, in customers market the to we positioned shareholder enhanced our platform is customer drive our returns.

this successfully of the and book XXXX, expect of momentum the by supported first have second half the in but backlog. to demonstrated We sales and continue a billed pipeline already not a our year, in strong half

we highlight quarter on facility points. May hosted closing, exchange I'd one briefly inaugural next to of the Before officially Richmond internet Point like hosted second that Access is Xth. launched event an its event which Network the Richmond QTS during key the

We are seen. and the was new customer enthusiastic already encouraged activity by the turnout

We a reoccurring future. expect this and event in the look seeing all be forward to there to you

and to Finally, through for continue results thank and the to who also drive QTS like business our shareholders their world-class service. dedication thank customers of our confidence customer our I'd I'd in their employees to continued to QTS. trust like

that we'd Operator? be to With questions. glad take your

Operator

Instructions] [Operator

from first Capital question Atkin go comes Markets. today's from ahead. And Please Jonathan RBC

JonathanAtkin

Thanks.

commercial federal served plus. big kind kind quarter, you Is lease megawatt of on this the So an now had the that past find of I into existing that you customer about division and a question five the clients? that

ChadWilliams

a relationship any customer is In that this existing Hey, Jonathan, Chad. it with. we regard is this had

JonathanAtkin

a it federal or revenues more revenues and federal integrators systems you'd be federal at the opportunity sight wider seeing have directly you likely more agencies towards And the as that is a government generating that broadly as is client? like the look from from

ChadWilliams

us the to have of are with a not lot But access. federal involved. integrators, --it but primary it of direct our integrators outside not the would federal I is think to work abilities times role is for is

JonathanAtkin

quarter And then where and I Chicago, sales is bookings some was been of interested the Phoenix, on in date pipeline where market Hillsborough, has Dallas or Virginia commentary just strongest? the to

ChadWilliams

a across not Obviously, the We've markets country. good open. we're seen in balance some

infrastructure pre-positioned have We and land.

strong in bookings uptick said You We've we infrastructure. seen have pre-positioned seen and Phoenix, land in in We've Chicago. Atlanta. an demand

continue And balance and of course, a Virginia, about hybrid business. Richmond. of We we kind time demand our from nice engine QTS And the it's Worth in business time growth and nice think of this Northern we in see acceleration to in quarter year of business and that have a It's what been continues drive the Ft. how we year. colocation opportunities opportunity hyperscale balance been this to to our is saw it and for on the just first the force. and

JonathanAtkin

And as Asia-Pac prospectively likely then international focus opportunities. keep the forward you or you on Could going lastly or Europe? most on an evaluate include Canada potentially would

ChadWilliams

should de-risk and like the feel for fashion in Yes. megawatts I enter creation in we were Asia-Pac. big almost opportunity traditional QTS QTS very in QTS to visible with We you growth. path infrastructure in a about value ambitions earnings a don't of Europe think think having XX fortunate a enough

I and think we're too move much we've and very that that going on with into I should accomplished. it. happy wouldn't read we're forward you to more think And what focus that

Operator

Please Guggenheim Gutman Robert of Our today go comes ahead. next question Securities. from

RobertGutman

bit Hi. move change increased a law, Santa outs like footprint by the taking question. more a I wanted wondering changes in the looks little within leasing, rebate if Chicago, Richmond that impacted some tax occupancy Chicago I within some Good about in it's being properties Clara. a datacenter seeing to Thanks the just and just for looking about there? is you're the demand Richmond and in was know in ins move

ChadWilliams

even I had think going to pleasant lot been the Chicago surprise. was very and legislation don't get think as have of people and we in hybrid. already more passed feel with quite through, a before that Clint very, a which we our competitive, uptick but forecasted about saw very in was maybe I become we big Chicago saw uptick a states in has good we team the what

about; station, the And I a it's market just robust most Chicago excited continues one that's think grow on finished property momentum; now. large it sight substation on to substations we good be about that So we couldn't and the a in just of feel that. more phenomenal probably

in of think On different the Richmond, kind and migration kind those that takes I we customers country. different if to have a we customer discretion view usually through and works areas our had decisions a and from that time have for on. from of the of that just to grow time standpoint from work that it we loads And location a are point of always us, at that move

a portfolio. So demand the across good

Operator

Our ahead. next Erik Stifel. today Please of comes Rasmussen question go from

ErikRasmussen

then if about side on in at with shaping Yes. maybe mean I'm what how XX.X QX, And better seeing the in could year, for realizing one Thank just say what you're only you the potential about above general And with second hyperscale of echo seeing three just result, a deals look Yes, also average, you. targeting the I'll industry? terms does customers? nice that year you're you do talk see I leasing you annualized activity? out to quarter a the but just four half. hyperscale obviously rent an a discussions maybe across leasing

ChadWilliams

accomplished this a different I from qts that purview do do is that I think, build based thanks, is don't already. think --we every have on year And our because We to we kind need We plan deal. every it Erik. deal. of one type This feel like three don't win opportunities. chase to we've we Chad.

good and has feel of square million mean a power advantage demand. about cost when this I you And see advantage. helps it we that shell year. foot we speed good have So

advantages, it's the conversation you when put hyperscalars with position. can those you good start in So with that two in regard

make strategic market couple also last we that's share strong course, for spent Of hyperscalars to locations sure key the point. years expanding another we so had our

that that monetize investments Now good opportunity go to now. that it's the come and they focus to space; they feel from been lumpy to up people one. day market start upon years that get is made should back our the last And and It's couple a always have certainly when hyperscale, think rely People it the about do they we we see business are buy those changing. buy timing just I one I and of don't buy. thing fill more. the I think

think just should moving lumpy So business it's read or going fact model we unquestioned. that hybrid and I that's company why It's don't on differentiated why our we colocation anything our That's this for we into we it. that. And the based markets did that the engine built we're backwards. positioned a into drives business. think right a well of the changing But up

ErikRasmussen

my just it's Netherlands. the datacenters Maybe Great follow-up, in

completed complete the integration and You that seems now. to be

You're focusing two those business your for that sites. efforts on growing

a is breaking facility then that And highlight just customers the new your as plan customers? of in online? move plans? bring to what's maybe potentially discussions Eemshaven hyperscale strategic the expansion And or global to maybe this of maybe existing also into terms with how So relates it

ChadWilliams

and off nice of about talked us. it coming up and and ownership transition operating and some in Yes. to additional as growing that a to uptick customer but in the is Groningen had it's nothing seamless to customers get new that have market It's, material, Jeff so, to confidence we course,

basis the us a finished opportunity to you shareholders of we're on it's message. and for our it about would working and asset starts own should something profitability type over and small just growth that leasing a already impact is our such And year. be Eemshaven facility that we we're through recommissioning any that huge that's to that. earnings is be at there And just re-conditioning because expect next the great us, early for just of strategic customers talk with starting platform. that So a for because material amount to that that

the around and entry And time had on a think country that going conversation of great And more to about property kind next going we're power, area over have for --for We and lease access the and expect So, growth years. it the to think a be that customers that's obviously, hyperscale we does insight that Amsterdam focused to Europe. have because up of accelerant the make to received be we least few Netherlands fibre for grow it's the well we our obviously that datacenter just going is is northern great part it. to statement accelerating curtailing of another growth a no to at period the a accelerant.

So opportunity us. a for great

Operator

Please comes Capital Jordan question Sadler next KeyBanc from Our of Markets. go ahead.

JordanSadler

morning. Good Thanks.

as hypers So first year-to-date, This powershell leases? I all existing those wanted capacity. talked last sure opposed into leases turnkey leases to to clarify make shell deploying on you that were quarter you about to the with want hyperscalars I just signed right? quarter and

ChadWilliams

Yes.

JordanSadler

to the guys of that there. it and you franchise at you the sounds see assets win about looking additional is And opportunity clarify maybe potential what where sort thank your Okay, Can like federal business? you. just you this and platform then it positions

ChadWilliams

Yes.

solution enabled to need, been to have very obviously to And drives the combination. in a it the starts like when be think of have a develop record we And has you right being years right understands federal that business to and committed infrastructure, physical track space. I started ago a a powerful few the anything that start journey the it.

we feel type couple that. government have our And a that chunks agency of we have their purpose big of career a and work. mission specifically a just around fact, members board like we spent number-- in are that In

business And the integrate to when that all that, we a personnel winning. of build And to and it off you kind of momentum locations and solution big powerful and ability to committed have the bring be having the focus security it. to tool just a and right is to the set mindset a federal really of the right just and forward something the kind secured the people, right part right becomes of look it's

JordanSadler

FedRAMP like physical government you I that if others wondering I that was like don't. Okay. requirements specifically RFPs more these certifications have and/or datacenter have guess guys may

ChadWilliams

under and point were to that it's because is other that unique certifications yes, been have everything on. that operating just could hard that. we've a your that's focused do is operator is could to number, It's There that we of requirements, differ does generalize it companies. But unique that be something to everything the and kind today that's around or not the given only that

it's generalize really because So an in in many and very one. unique hard just cases each every to RFP they're

Operator

Choe of next question today JP Please And comes Richard from our Morgan. ahead. go

RichardChoe

Hi.

it the little your a mentioned bit what follow to terms breakout the get of three going year, one clarity leasing Just colo forward? to marks, you have a signed on little now terms and that wanted we hyperscale? prepared been for should but signings in between what of in two, in look to up for would you And the kind more of deals

JeffreyBerson

Hey, Richard. This is Jeff.

seen five, and to sees in the the saw what exactly you hyperscale course the periodically of has basis terms you've is an we've the they underlying that acceleration. and that of business. leveraging out the colo, So last anchor spike in And was the then quarters. over continued and what stable on quarter continue quarter six laid hybrid, opportunistically in we've pretty It remarkably been

get hyperscale accelerated at look the that And can that over the engine really you provide hybrid. the for last a you performed stable couple what and that. if to quarters, So feel we've course continues then traditional

RichardChoe

than at the in given to some more competitors seeing for? of probably churn in or churn, you're be we terms to of of update instances it Great we're guidance Can cloud they end. higher anything are of guess And low year of apps you're looks going you end some looking and and on we should kind where in the the running, like if wondering mean where the I movement saw and any that? us that dedicated be regarding then I

JeffreyBerson

Sure, bit Richard. where quarters that's we've remain Those and line so out within it's laid X% lower. to some We the beginning. a range confident see X% bit little never could straight higher, you at the a numbers, little that a

we're overall an range. fall through as great we've this that remain But value I and a lot we delivering of a don't focus SDP. think perspective, limit we'll that customers. from that confident we've some nice to obviously, that stability. had at to of, and churn of other range a And pretty integration that of customers the deliberate our that way So what that result in to the we continue. still that that will And want We customers extremely terms working stage. stable. we're seen seen within --we And a And see with provide lot expect aspects

Operator

Michael Bank of Please our comes next ahead. of go And today Funk question from America.

MichaelFunk

the questions. for up a Great. guys. morning, to going Thank It's question. on Good following churn you

and churn about lock You some size, any looking half don't manage year of maybe the half, doing do proactively but free near-term large expiration a deal to that a ones then? about them you before any a have those are with and years. potential and and looking having you to kind of What at become larger forward of they agents customers and have at two

JeffreyBerson

first weighted don't much about is have down XX- look the than are two, at the and of three model customers largest average most customers -- months is plus once term lease customers Top first you any out. the the and our rent, top of those diversification more our guess point years get below and the customers nice of again I those thing you if our are I'll that remaining X% XX you about XX, make of Sure. is

those So we've got of and pipeline. great lot in visibility larger of a renewals terms

I'll in those customers of of Greaves with terms terms we to with to them. Jon have In interaction some of work in our ask the jump ability advance,

JonGreaves

Jeff. Thanks, Yes.

So work on the bringing is platform. them we with the really technology interaction

their to that with the trends, and balance workload. their with appropriately we work curves both them platform demand can with their SDP So see

of So gives way to really a us a their interactive with being really it way different talking customers and of design. different

ChadWilliams

for relevant keeps result that I minimize something interactions And very be it are John helping different growing just I the success them. a have this team us to and it and it's to churn it's their of that valuing going are us accelerant the think accelerate we and think Because bringing And retaining customers direct as in powerful solutions. on will marches also And be growth. a march with customers. digitization

MichaelFunk

one follow-up it, I could. guys. it. I Maybe more question Got appreciate

that I assumptions was are assume is rising what level capital wondering the XXXX? underpinning about XXX -- does expenditure in XXX, So if to your demand, market underpinning assumptions kind what that environment, we of improving that guidance, as are think an

JeffreyBerson

in terms continued based is It strength Mike. Sure, visibility best in on of our QTS.

You can see seen. up, we and in in you've put in the performance we what it'll continue a similar that business that we've are seeing fashion the anticipate momentum

of that to company, of of benefit the not are to needs visibility second think but of couple ever that history us billed the we've in I is our had the be backlog next gives over book and have the highest terms growth years. in a going what also the great support We

MichaelFunk

Are would that change One to pricing? down that follow-up markets the increase in one any well. and that either in activity, or be change public is private competitors builds, build in behavior seeing and whether in you more slowing

JeffreyBerson

Nothing material.

Operator

question And comes of Crossett Berenberg. today our Nat ahead. from Please next go

NathanCrossett

my taking question. for Thanks Hi.

when a I For can the you what talk deal? sense about spread non-federal give is you ROIC, us of the leased mean federal above above average a

ChadWilliams

the thanks, say you'll about that quick on higher because operationally, security, at and was I of that just see Nate, a we X% at I spreads and of accelerate went to shell that the mean of return an around have federal our of uniqueness been end Yes. XX%. existing opportunities the one XX% return. them XX%. through would couple talk infrastructure fortunate into transactions, which We've Chad. our hyperscale this year to it's

part So of that it's we don't and changing. been trend that and a we've noticed see

So to it opportunity accelerate a just the returns. great balance

NathanCrossett

that cap this I that there JV leverage then mean is properties rate gives into one if you JV? wondering on additional just then be [Indiscernible] more kick on just would the update could I recent new announcement And added? there JV. helpful. that's that maybe any And was could asset Alinda Okay, for go

JeffreyBerson

Hey, is This Jeff. Nate.

template that we but on the CapEx JV our returns and we the Alinda JV original leveraging partnership. the is we enables it So we're now Alinda, our that asset about that the fund us with with to the business a Alinda materially, to continue that and excited the reduce out announced announcement had into capital as put real increase ability assets from cost laying that low to to continue that with excited have of with that second we're was thing

to with an ongoing remain are active very discussion Alinda opportunities, that. open we So and

was going relates think and deal that it for cap a cap As material to frankly caps forward, was did rate just that's like lot that and place of but was assets we cap at that is structure that the the going yields that cap was that deal where And to not expands. is we itself, to was NOI full that we what speak utilization about a pretty the rate rate rate That every in based state basically at ratchet that on a rate time. asset. in as cap asset designed that and of the out a

to And about the through continue will thing so and and JVs. can JVs different think help all different they and different got look structures have it's industry all if fund very many We to benefits you a and think everyone's respects different companies. in they

cap again most rate cap value So effectively increased asset excited a fixed, that in just that deal grow as not rate as existing place about but we NOI the at it's shareholders. the accrues that that is stays grows signed, that's our with the we're means on to asset which look you what to

Operator

Please Eric question of Fargo. Luebchow comes ahead. next today go our from And Wells

EricLuebchow

interconnection question. the Hey, those accelerate around subsea represent the that your market cables particular? in the subsea kind you cables think of ability Richmond of opportunity new to in that What thanks at and and Curious for Knapp. of announcement leasing the revenues type terminating taking

ClintHeiden

Eric. Clint Heiden. Hey, It's

probably a visibility most datacenters about from talked one of site. domestic worldwide. the it So for It has been went tremendous that base to datacenter

in traffic path, as Richmond. Maria lower cable in Europe facility was receive and traffic terminate and the America. use lowest Chicago Atlanta-based competitor site to Chicago and those highest South a in route latency, in from a both from that latency it US to the Richmond routes coming better a back expect through then had routing our from case that are customer had the to wants to We we over Europe They capacity,

to moving us with discussing database. they're their colo our environment now And Richmond

Now it's diversify but we go, a and the to most this just on will datacenter internet. something that to the of in a do started to need preserve and interconnection the long points there's way we sought-after become one nutshell And internet.

stuff. great seeing we're So

EricLuebchow

then just more And great, Okay, one me. for helpful.

after Looking large XXXX. see at your it I commences backlog, pretty a chunk of

deal of or book-to-bill longer trend just some quarter? any sign they're these and this is specific complex you larger to kind federal it cycles from the of having there more is So deals

JeffreyBerson

I deal. escalators periods Yes. scale will have contracts federal as mean the and longer It's the longer term contracts general really the well. hyperscale in and

you're of You'll see deal. but there it's impact some from that seeing largely federal what that

Operator

today Frank James. question Louthan Raymond go of And our next comes from Please ahead.

FrankLouthan

much. very Great. Thank you

grow talk hyperscale is a Can customer. over deals the chance a to I follow-up. you us say that when megawatt Then longer-term deal? a sometimes So for the have X more you an government government give these bit can there contract about to idea us little expand? It the it's is-- of life

ChadWilliams

cases procedure set space the the in for get that hope would I grow integrators is Okay. the mean hyperscale most working I the established, contracts, security think anticipation those once with of this integrators their Yes, we opportunity government, Frank, and federal an customers an have they these opportunities. is Chad. it and both us is to up, the that

the is course, unpredictable. with Of very anything federal agency

but in we're establish a like space So a get usually of to work will reservations not And have into they to are that some they once going themselves. prediction that there additional runway type.

FrankLouthan

that? multi-site? maybe define did locations that it's this also is you grow it-- into? if I how And to you different mean defies I potentially fact multi-site is missed you can could the many related And --can

ChadWilliams

what. talk One of to not with Yes. really at and of liberty about kind thing the type and business, government we're who where

we this multi-site is all is deployment. now right can a add So

Operator

And our go Please ahead. of BMO. next Klein question comes Aryeh from

AryehKlein

Thanks.

on that? And expect provide growing is pricing of color was you a of separately can the then customer structures the Top XX strategic in longer do given Any Richmond that So any in importance change just there? Top XX. XX you the like locations in no it looks kind

ChadWilliams

take Ary, Yes. the part that. first I'll of

to consistent significantly our as don't great being solutions they And think as We value pointed We that, access start about Clint he QTS to materially think to think platform pointed going that should valuable you years to you think to in country. be I trust. about partner to and anything out a opportunity start customers want take going a the a stick it's pricing. Richmond network don't be and to across that. out, accelerant trying pretty I provide and yes, different that I than drive they think change. our to is them-- should and points

JeffreyBerson

those business We relationships and decisions Top the intermediary thought that allocate are end-users. end that on decisions. working other was accurate aggregated that from making the really the location; funneling to customers to question, customer customer that in have of was an through was to we actually that that some just from XX given us. Ary, the XX past more that are just had the customer that it each the the through chart, but revenue We

it data. a granular the So trying in shift really get terms more to with of just was

Operator

of go Jefferies. Please And ahead. comes from question next our Peterson Jon

JonPeterson

thanks. Great,

be around guys to of the in XQ, on Alinda of big JV now. this any after turnkey? where great. the early hyperscale guys XXXX it's your would at just I update from of should building would know is us least tranche space you if that to next turn expect of think in kind the which we process? to XXXX. signed change. When same just kind I updates you're lease, But in kind that at don't shell I be But into two could grow you I XX over your guess strategy So first megawatts years realize

ChadWilliams

and mean and we I'm opportunity to expect to up track. deploying I advantage everything but not of Yes. Chad. everything seems Customers going on on is it their running take be this and years them running. be and the John, facilities the is to speculate to for to Thanks. come. up an build-out, in

JonPeterson

should a XQ, that conservative by guess a build-out modeling is we be full still estimate? XXXX, I

ChadWilliams

But want to loads the grow. projecting to I mean customers. hyperscale for expected into we don't get I

JonPeterson

for larger And remain leasing customers spreads leasing past kind the smaller then you and wondering maybe different how of your if versus wholesale and are leases? between positive spreads could I'm But out colo Okay wholesale deployments. segment that to few quarters.

ChadWilliams

have Jeff, you anything we've seen on on growth products. spreads consistency particular? in mean do I all on

JeffreyBerson

and nice now guess data every during point hybrid portfolio Yes. years for those got just come five years you've which have I chart public the have John. six have periods. that is our for in of hyperscale had been data means in both of that going you renewal now had having up here, we back customer contracts about that

And consistency renewals just you see, really evident can so it's spreads an those positive and both of numbers across to verticals. the

JonPeterson

Okay one. one last and then just

how renewable guys about of might by that's You think and power should about impacts getting of you various moving cost we need make? investments those could talked I'm about XXXX to curious XXX% margins how there to you seems your kind talk going. But the like and if the is where industry

ChadWilliams

question. think great a it's I John,

firm customer. You you a about we cost the have are the we renewable that and important the also speak believer for initiatives today, about most about the But I as that XXX% our to company. to should the power some I within talked when of think with balance script of QTS that competitive also ESG buy hear access the

Robey Wright the deliver win-win maturing markets Dave under doing of it to sure who we can our that making job be So Mr. where us balance enough of fantastic has a environment. and think is sustainability for runs a the you stewardship I the Travis win-win.

set to We're we in balance same our those as think Chicago, up opportunity. to the we've rate and is we're push a a locking with we going very time competitiveness ambitious, live balance that that's in power kinds some goal continue to to showing cases less example the and I that. attractive think XXXX same either the customers. to And that try at or and we're target going in and Irving cost to through but and the markets cost Piscataway and that at And of

Operator

today question next MoffettNathanson. Please our And ahead. go of Deo comes from Nicholas Del

NicholasDelDeo

initiative value your How ourselves income from you streams? doing in win is you considered FTP my for software Chad business something potential you've spent a taking generating from like high be do shooting by prepared time SDP guys. value Would high created something just others thanks foot margin that or the you've of licensing to that a in strategic in is differentiating Hi, it multiple the your the by -- that stands question. some emphasizing you for the you remarks versus

ChadWilliams

have world-class journey here need knowing to been really about colo engagement to customer's now I are to say just out. And speak this in let power building years playing could that. would I about Customer DSIM. maybe point some stay. to do it than software because here John's have I speak type drive is John And they datacenter SDP the environment first Multi-clouds people the to what company a to we're that. existence. customer right I a that couple And some It stay. is on on we're he is right hybrid that's for fancy seeing disconnected Nick, expectations to What might now deployment that to focused is absolutely is last more find think think here opportunities stay. in and we a just way talk directly

JonGreaves

from They in so their cases own directly datacenter on the at being different customers real customers from to to with access having interactions range systems cooling, net power an around management seen and of larger own We've the the key to us themselves. some allowing a of time to customers allows Chad. they be And many and Thanks levels. other control us and are works customer. profiles customers views building forward-looking be metrics extension in really datacenter and the now embedded building workloads

ChadWilliams

part On It's platform; If monetize our this not commitment shareholders a a this to do I we the will really value entire it's But commitment add about right, to the it's could another be the companies you aspect? for just us of many you're opportunities feel is other eventually like to thing It's we abundant. that years. that many, is we've shift the QTS a for do. it takes been digitize which on business and play that. on digitizing the seeing out go will that their one industries path couple And all future have. just that mind economies of last

It's together fun the it. value think of of our it and it going just wrapping will right and all the delivering on add not future kind unfolds part we that's on. and part shareholders. platform what's it It's we'll it. But And now our differentiate of to see how one

NicholasDelDeo

The site gotten And helpful. has some stand in in think that Hillsborough you others profile interesting and make your initiative might facility talk from press plan attention you to you customer a might then recently. that's Okay, your about how of you location in be the to bit that how construction? find out the close Can market?

ChadWilliams

Greg. is This Yes.

starting not in our land enterprise zone which that's datacenter is XXX much there's -- substation. new Our in adjacent with left Zone acres the a Enterprise there that to brand

of elements acres infrastructure to adjacent in physical the fiber just the XXX So zone. enterprise it and

opportunities big three of kind there. with start you So

Richmond, Hillsborough and to access be like proven We a cloud feel important also to a the providers. technology has network lot point of

inherent like in attractive growth the feel at we infrastructure the of the area and Internet So be nature another Hillsborough. will the

acquired years the One it it. long-term of ago put and on reasons went map the and a we couple

focus. there be are less. with a in We that could XX-months And deliver that get to certainly our trying and ourselves infrastructure continues we to in position the or planning

Q&A of End

Operator

This to question-and-answer back the any like turn Williams Chad for conference to closing remarks. I'd over session. concludes our

Chad Williams

Thank you this for quarter. your time

our time opportunities have. look QTS. We to hard for QTSs all out We And the future that continue Thank your we the there. to forward today. at work you and thank

Operator

This today's We you, concludes for thank all today's sir. Thank you attending conference call. presentation.

a now disconnect line. wonderful have may You day. your And

Stephen Douglas	VP, Finance & IR
Chad Williams	Chairman, President & CEO
Jeffrey Berson	CFO
Clint Heiden	Chief Revenue Officer
Jon Greaves	Chief Technology Officer
Jonathan Atkin	RBC Capital Markets
Robert Gutman	Guggenheim Securities
Erik Rasmussen	Stifel
Jordan Sadler	KeyBanc Capital Markets
Richard Choe	JP Morgan
Michael Funk	Bank of America Merrill Lynch
Nathan Crossett	Berenberg
Eric Luebchow	Wells Fargo Securities
Frank Louthan	Raymond James & Associates
Aryeh Klein	BMO Capital Markets
Jon Peterson	Jefferies
Nicholas Del Deo	MoffettNathanson

Qts Realty Trust (QTS) 30 Jul 192019 Q2 Earnings call transcript