QTS - Earnings call transcript Q3 2020

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Operator

Good morning, and welcome to the QTS Realty Trust third quarter earnings conference call. [Operator Instructions]. I would now like to turn the conference over to Stephen Douglas, Head of Investor Relations at QTS. Please go ahead, sir.

Stephen Douglas

Thank you, Operator. to Quarter welcome Call. Earnings and everyone, QTS' XXXX Third Conference Hello, Chief Jeff Stephen Relations Chad today and Investor Head Williams, Officer; QTS, Chairman I'm of joined at Douglas, Financial our Berson, Chief and I'm our Executive Officer. and by

joined are of members participate additional who our Q&A. by team will also We executive in

section release website. and are Our our financial earnings posted in of information supplemental the Investor Relations

to the follow provided slides presentation make and webcast with and have available to on also We it them easier our day. website our made

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

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

Chad Williams

Call. to welcome Hello, Earnings Stephen. and Third QTS' Quarter Thanks, XXXX

of financial quarter, performance strong our a for Turning to of strongest the to us time and financial the QTS activity the leasing outlook year. during Slide including increase signed confidence X. one second this that gives performance delivered quarters

our our impact trends industry development our extent, more normalized nearly pandemic to customer and payment consistent we levels, remains While supporting on growth customer robust customer track. approaching metrics. to Overall, continued every broad-based see verticals, to demand in some target activity across financial the remains continues have key and

quarter, revenue total of and XX%. representing of the and year-over-year approximately During adjusted approximately generated and XX% growth $XXX respectively, million, third EBITDA $XX million QTS

during approximately result Our last of with our during a margin with basis expansion of representing the combined we as third benefit leverage we margin the adjusted expenses $X was benefit business operating quarter points, lower million to third XX.X%, scales The corporate cost these $X which as EBITDA of million. expenses is million, discussed was year for recognized full laid approximately XXXX reflects quarter utility the pandemic. travel of $X continued the and consistent year-over-year quarter from out we cost quarter approximately expectations the which from last benefit XXX

the quarter, with For efficiency. reflecting we EBITDA growth, share our $X.XX, combined continued strong capital OFFO quarter, approximately delivered year-over-year performance and of in third the per X% on which revenue focus adjusted our represents

Moving to on X. Slide

effectively cycles. We Federal. contributions and and quarter-to-quarter in opportunity sources Hybrid reduces volatility the enabling growth economic the of of to QX our and believe provides from each maximize customer our while return Colocation, included of verticals, business Our of performance capital invested a risk-adjusted diversity our on hyperscale our variety industry grow to through

QTS our our sustainability or software-defined platform Federal and our and core continued These operational market center customer differentiators experience differentiators record maturity business in and our target leadership initiatives, data to scale continue premium share. include accelerate commitment to to customer verticals, infrastructure, fully SDP. cost strong track mega advantage a these Within digitized we leverage successfully through

high single-digit capital consistent for and in This a leasing performance platform, industry which our greater of customers business of leasing from verticals enterprise diversification across to floor return a diversified healthy invested in million Fortune provides and annual critical business, driving Colocation higher our a quarter-to-quarter given approximately deliver X/X is variety across range. Hybrid Our XXXX represents with and performance and on is any rent continues quarter. in

business, complemented Our select is opportunities. consistent participate by acceleration Hybrid our business hyperscale Colocation opportunities and provides which Federal growth strategic to in

Federal have these complementary hyperscale and an cycles Although for QTS. of creation opportunities business, to term tend attractive than longer our the value Hybrid sale the opportunity size provides and business

X. Slide on Next

of million which quarter in quarter, the rent, During second represents and highest company's the representing approximately modified QTS our history. third leases signed incremental new $XX leasing annualized

in experienced steady Our with third performance hyperscale volume and Hybrid in quarter an Federal leasing performance leasing unique business. Colocation. in we within our acceleration that combined continued both was somewhat the

of up not strength of revenue, which in had of but yet Continued revenue the end the commenced million approximately for the and development of at sequentially. with quarter, performance XX% We for continue This signed up approximately of in annualized quarter-over-quarter. of is engine. sales million, backlog recognized and visibility we approximately effects performance our was our $XX strong as reoccurring remain see resulted $XXX future XX% provides straight-line the backlog momentum our Adjusted our of third rent, our end via derisks the pleased leasing into quarter which been the activity. backlog build materially level to

while leasing further XX%, considering our the performance our Federal we by represents average our differentiation year, the during the our acceleration in third increased backdrop net QTS' backlog continues which and growth in of quarter, approximately over platform. demonstrates trailing booked-but-not-billed to tremendous a verticals has the business. grown past drive hyperscale steady the Colocation of vertical experienced XX%, top economic Hybrid Over On our has XX-month and

is general third low During which with healthy, X.X%, customers on space to rates weighted renewal our the which increasing digits. up of quarter, towards remained the more consistent mid-single installed base, our is with pricing rates the in enterprise expectations

for X%. our year churn of with guidance reduced remains guidance the X%, year-to-date X% expectations already our full initial year to to of addition, consistent was and In X.X% X% of which from

quarter-over-quarter. Our churn an during X.X% represented the quarter increase of

by events the of from half customers' the than as was first in first the better half timing attrition year. this into the pushed largely with the of second generally the half getting year However, some trended anticipated initially driven churn

Moving Slide on X. to

leasing multi-megawatt business. the strategic This of our included quarter's signed activity, Federal tenants, further several signed XX% several the hyperscale hyperscale in of with and quarterly approximately we Starting leases which customers. existing leasing deals performance importance hyperscale contributed hyperscale, with larger demonstrating incumbency with signed

ability power strong XXX opened data included served we've the the in the a site customer feet in cost QTS' currently substations megawatts in market our an is includes X Atlanta quarter years. market megawatts our dual through Ultimately, new new expansion our base with of expected competitive in now to of power in new than center X XX phase facility, Atlanta QTS leverage having first Atlanta, which support capacity Our hyperscale incremental offer XX its customers to more quarter. our new Atlanta in of over well-established through customer. metro the over XX than market million capacity officially advantages Suwanee large across Atlanta Including the third full commitment, a of the for this and stabilization. leasing and more centers during operating data customers. lowest leader results square preleased operation, upon large market third embedded the remains megawatt

position. look to forward level the site the extending with leadership pleased and preleasing are in of market strong our We

XXXX. and an early Richmond. We Fort data incremental industry. in Moving the center has now first This lease their customer has expanded with to X customers to capacity QTS we this largest the X.X-megawatt sites, in Worth signed of support since continuing of its into forward the with in signed one additional continued to business. growth in hyperscale QTS look lease customer

This supporting Federal signed signed a lease representing government. This continued hyperscale momentum we're an of lease deployment initial the seeing potential the demonstrates this an customer growth Federal, incremental within with the Federal first is X-megawatt Next, the in we in vertical. source customer, with approximately QTS' future.

driving remain see have the we performance. Across deployments proud and I'll for the to Financial with our is maintaining are the each of our Federal to quarter. third successful by to our in momentum in to a differentiation positioning building and look increased Officer. customer and close of, of we the backdrop, segment due growth it our at higher rates market. in is for leasing the With of of our we barriers consistency QTS. that, We base the this forward creation year funnel look the Against Chief forward our and the encouraged this As verticals, and activity unique business and entry, win discussed economic plan value to growth Overall, Berson, Jeff the strong. security unique over execution QTS out unique our Federal customer our pleased target turn for results continued volatile business Jeff? something momentum opportunity represent past, are requirements in we and continued we

Jeffrey Berson

Thanks, good Chad, morning. and

basis first to senior of portion facility. activities amount a offering activity. X. Turning rates reflecting capital the outstanding of notes proceeds under intent maturities, QTS' extends initially QTS in transaction revolver quarter. completed of credit a successful the by the I'd the The historically private use development end revolving X.XX% $XXX since debt to markets last million recent locking early QTS' unsecured to availability This November priced a and a offering. further our high-yield at The in upsized our outstanding nearly QTS called our call and under bonds, XXX support represents offering to performance. our was net repay XX, million X.XXX%. unsecured of continued of point the Subsequently, to notes This to $XXX of Slide from the In were reviewing the attractive profile XXXX, like size October, from of due second QTS' ongoing while initial $XXX date an our week, unsecured consistent inside provided notice credit offering begin the used at senior X-year in XXXX. corresponding debt million existing improvement successfully

million earlier pandemic late repayment consistent in credit year. was XXXX. swap completed a to X.X% applicable approximately term which years of REIT by to mid-November, XX, weighted cost a maturity. on completed points Additionally, successfully the believe loan October spread with the its onset X-year this since loan nearly and completed series factoring X in including X.X as average average approximately in and QTS basis of its months, interest rate years this of September high-yield X-year new approximately The We public Including weighted a is XX over reduced loan pricing represents new generally agreements. new term first of loan and a of term XXXX, the the high-yield XX, $XXX facility, debt by term by debt XX the QTS' the the QTS maturity QTS' on the existing on existing last notes extended has notes with

early improvement is our to in platform, continued the Lastly, even investment-grade our through volatile X an in ongoing Moody's QTS upgraded growth BaX. conservative rating is few QTS key September, announce for anticipate that A a operating and balance notch profile scale of QTS' We amidst consistent and achieving pleased years. performance in over priority next diversification the economic rating management credit and by backdrop. credit ratings sheet to

Now moving equity funding X. on to Slide our activity

a second access approximately As was equity earnings million our to our of July on through program, call basis. representing release on forward our Subsequent earnings proceeds XXXX of stock $XX XX, net through net issuances. sold million to of proceeds approximately had QTS ATM forward $XXX QX quarter

to In settled approximately activity. of forward net yesterday's to $XXX the release. as approximately million proceeds for QTS of through forward earnings stock $XXX quarter, million our proceeds addition, results support equity QTS net during million development of This approximately available in ongoing X.X of issuances shares third

positions us booked-not-billed prefunding combined volatility continued future funding markets, believe results. materially proactive capital needs the As needs to momentum, we've to is quarters, backlog, with a in continued growth our capital our given recent quarters in X accelerating across our in middle of well to year, our we expect operating consistent discussed the derisked, more to combined with to next currently or in deliver maintain business advance. leasing continue X capital that With performance we are pre-funded which into approach

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

high-yield rate loan and we available the of ended beyond, to incremental interest series total our including portion forma our offering of maturities leverage adjusted end annualized high-yield pro November. repayment a currently term until the X.XX% liquidity quarter We and the a notes the significant pro As equity credit effects, with facility agreements. assuming indebtedness refinancing these We XX% approximately revolving forma forward X.Xx of available of of the and unsecured quarter, recent our EBITDA, million $X.X available equity XXXX of fixed subject our in and to of for approximately of existing forward have including billion, approximately and is forma proceeds. pro $XXX third debt Also, net including swap no a debt proceeds. of rate, of including had

equity forward equity backlog funding. down approximately at have this in leverage remain We forward Xx maintaining our leverage coming third pre-lease considering level, high fund to associated operated comfortable addition our historically our size the draw mid- consistent of business with and X.Xx. equity leverage at Excluding proceeds, range. quarter to the in where end a the We development of the at expect derisked was booked-not-billed we the to plan operating proceeds our future development the level while currently quarters to over

XX. on Next, Slide

XXXX updated for due Through capital We outlook our outperformance, are to performance year-to-date the XXXX. continued for revising reflect activity leasing and our we've quarter, to expectations strong of balance outperform the our of third financial year-to-date. recurring to revenue our expenditure initial expectation guidance

million our raising are recurring continued midpoint management, between revising guidance prior outlook. for to and increase an of million, in $XXX revised which At a $X million to represents from expansion. adjusted Due range to range midpoint $XXX revenue the our cost revenue midpoint, again and result, As at range we previously. reflects to XXX our EBITDA of XX.X%, million successful we points million XXXX basis are outperformance relative EBITDA the million $XXX to of an margin margin for of $XXX guidance adjusted our the million of representing approximately a to year-over-year guidance $XXX up $XXX XXXX

our result we of utility a effects a full outlook and travel ongoing COVID-XX lower-than-expected to of last year as that reminder, relative approximately to a $X current million As quarter. benefit aggregate million includes of corporate expenses discussed the $X

to adjusted would While these to normalized performance margin return begins reduced costs XXXX, we EBITDA COVID-XX-related in subside. XXXX, more to assuming costs our these a have in increased level disruption expect

benefits, even margin platform. of However, basis points guidance more leverage expansion, excluding our reflecting continued still EBITDA in our these represents year-over-year than operating margin XXX updated adjusted

from to strength strong activity CapEx. leasing guidance our raising are the Moving XXXX. Due to capital resulting signed our year-to-date, of expenditure booked-not-billed backlog for we

previously. $XXX to million cash million $XXX For CapEx, excluding the of full from expect year million, now M&A, XXXX, up XXXX we and $XXX between $XXX million

updated incorporates raised additional in Our momentum and floor sales XX,XXX an XXXX of approximately capacity previous expectations, CapEx square our Piscataway expect we feet now Richmond, in that outlook and deliver to service Hillsboro. relative Chicago, reflecting to

have our capital and higher reflect We plan. EBITDA share adjusted updated to and also revenue XXXX updated our per guidance development outlook OFFO

midpoint. range to per and increase in share year-over-year $X.XX guidance original of range of reflects excess updated OFFO Our X.XX guidance the to XXXX our guidance X% the an our at $X.XX for $X.XX relative of growth of represents X.XX. previous to This year $X.XX to

approach a few to like I'd XX. minutes Slide to spend reviewing allocation. to turning capital Now QTS' overall

development directly and deployed, is we the share in capital the centers to lease, capital some and business. consistent constantly reallocate of jobs X% reprioritize to long-term approach on primary is inherently between in a past, our of before OFFO of our associated is capital managing allocation instances, tied Building well revenue to annual growth per Since a and the one capital-intensive is as balance discussed in between achieving appropriate management our a goal As to data commences team, signed to the near-term our X%. find returns.

near-term strategy, including while plays our development critical funding future minimizing a of forward dilution. equity derisking equity, activity Additionally, use in our role

XXXX, activity course the signed result the CapEx expectations and have of this needs in experienced. While acceleration funding have of equity associated leasing direct we is a increased our over

to than more leases. result, a the in XXXX tied As supporting is will XX% we signed spent have of development customer capital directly

revenue cost between In that past commencement, before been lower to X% to towards per increase material has deployed expect to spread within in executed our typically above addition, X% the we of our continues the cost debt even a capital, Despite to company-wide creation to higher to during XX in over strong share capital capital months. year, return target years the growth would maintaining we've of end value lag invested improvements developed significant OFFO of been the able Due our intensity like successful on this achieve we capital we've a capital OFFO target trend represent which and XXXX. of X% growth per share X%. still to the our

for X%. In per midpoint of OFFO we're over our fact, of XXXX, based updated outlook on growth anticipating share the

momentum we're performance in in backlog growth the revenue XXXX, sales with into and business We double-digit funnel. pleased our head low our will believe leasing the support visibility we expected in As and XXXX. again

platform we're $XX leasing would Year-to-date, megawatt our and power per the a with prior in years and quarterly drives averaged which a level announced XXXX EBITDA outlook. a deliver capacity, XX gross we the due similar This growth to and In a creation XXXX we of by And total megawatts particularly driven on share to amount. current range booked-not-billed opportunity of growth, XXXX, diversification in XXXX, compares cost for lower for environment. pace and although for accelerated cash growth in In in addition, shareholders within in to performance drives the expansion Based our leasing XXXX XXXX as volume accelerated outlook approximates in with incremental deployment strength complete expect economic while the dynamic remain to XXXX. X/X to accelerated new fully This EBITDA amidst expansion efficient approximately we operating is expect over addition XXXX of more in in of our funded X%, level. consistent levels. booked-not-billed at corresponding the for earlier. dividend to XXXX and we of we're annual future our in platform, the of largely consistent With achieving X% the that margin Overall, existing positioning I value in X of previously million expect Chad. referenced to in double-digit this and in expectations. XX% call year-over-year next backlog, XXXX of continued net mid-XXXX. be pre-leased above expect year, CapEx COVID-related between is activity our $X business strong our the our in leasing adjusted end that with million XX-plus activity continued benefits sites on continuing commences. the across likely we the deliver facility our expenditure adjusted directly to Ashburn backlog million, the the that operating that our of plan capacity pleased leverage turn continue reflects our adjusting plans opening year-over-year I'll of range of to robust results. yield, that development into to than consistent our of on combined XXXX financial focused million capital that $XX capital development to middle back OFFO Based XXXX, average over to target committed total now and target on XXXX $X When and approximately leasing

Chad Williams

in future society. I'm further the today's our digitized visibility view, with demonstrates, of our The and the and the Jeff. results consistency our Thanks, in growth criticality business business pleased of relative and our execution performance.

continued our We And opportunity our much support to customers is execution who our to of pace to like much and share surrounding market of each expected. to of QTS environment transformation workplaces leveraging believe digital accelerates, we continue the expand, and unique other, for the for a commitment local to the look QTS current to communities. forward continued growth we in accelerate I'd drive As and we is opportunity their to differentiators growth. our have communities. serving believe given, thank core our and will our each

and thank continued take would Operator? to trust Finally, glad QTS. customers in I confidence like we'd questions. be also that, for and shareholders our With their to

Operator

Jordan comes question Capital Instructions]. from KeyBanc Today's first Markets. with Sadler [Operator

Jordan Sadler

an acceleration see the a past of guys of acceleration you So related? have of of if characterize to spoke feels Hyperscale a the more years? pandemic several your of wanted bit that starting to what's the result to business put that you're Can is more sort you start in prepared you continued remarks. the nature work the driving Or off of maybe in that this on this, over

Chad Williams

seen Jordan, make it this capital any the in to is that intersect? the there's is from where It shell us behavior for we're work. opportunity, deal return our us target X to we X look haven't sure capital-efficient on really a result is QTS. does deals. a really the we've just works focused business. - of hyperscalers. good for invested every just normal Again, Not for on Chad. We We really it's powered with Where course attractive uptick but inventory? And - regular

where I grow. think cloud to the like an to digitization with and excited we continue and the and how companies it marketplace, for participate the where and SaaS feel the attractive It's - us. fits clouds we're we plans just

Jordan Sadler

and returns maybe of it's are ROIC. Well, - Yes. a you because range achieving and you a hyperscale did because the of range, for to And I leasing overall you've continuing deals now? Federal - this bit done have in quarter. same the of about quite are did in kind the in XXXX What Federal quarter? in What achieving the returns the hyperscale to think, curious that for year. you or be mentioned terms you I'm point you interesting CapEx

Chad Williams

they've is It XX% number we a has range position. on we our depends us, strong end that it's And return. higher X% but market, feel good attractive, of year of where which very been been a this which competitive been because the to on very those for deals have about

way it's we we Federal markets some returns. we in in is some and, at doesn't And deals X% mean feel it's alignment. higher a as XX% competitive. more range. hyperscale think It cases, just consistently we've end the talked that done the exceeds - the about - where to cost good Our also great I haven't are But about

about we the feel is I we a And us. efficiency, and good about discipline matters metrics. have we that pace think it So have the to return capital the best opportunities

Operator

our question Atkin Markets. Jonathan And with comes Capital from next RBC today

Jonathan Atkin

of next kind So And I into us topic give of of roughly a - the can frame wanted year. for little then per kind that a to II Phase drill to the get the CapEx by you And I different mix directionality on? CapEx a well your given might Phase megawatt, be way as how cost year it the interesting to of unit it for versus would much? next onward be types of builds, CapEx perspectives the

Jeffrey Berson

Sure, Jon.

your guidance same So $XXX $XXX range. CapEx million said CapEx next we point, in to I this to that at for anticipate the million, year we think year

of CapEx that very based a very on we're seeing we proud what of flexible had move of that adjusting where we're is the we've Now demand that. terms history in and being

that to knowledge $XXX got one, million is, we've a within $XXX that booked-not-billed a million embedded So record backlog.

is of that and that leasing lot that in continue our And confidence secondarily, signed then support to year already next a into committed so will And continued level. billed CapEx contracts. not book

In of that year, of current booked-not-billed our that again, is of projects of next loaded. that a to the see need you'll towards get lot timing middle terms for already in more because front-end it, backlog, the delivered

So think you're modeling you about it. as should that

Chad Williams

to end our going per examples we're we're at million There than million are cost also much but megawatt. where about of the on Jonathan, competitive that, to unit of there's continue that. the be kind $X talk higher on And where unit, examples per cost per $X we more to

standardization last and an infrastructure I we changes really us towards us, have cost, to call feel what years helped on speed. and uniform of continue - cost put think and is that for kind on Freedom that's and across the like biggest the of we supply design helping attractive systematic It's to of the lineup and metric team Dave that that and be really efficiency thing together done we have the platform. chain couple continue speed work we've Robey the over made

Jonathan Atkin

the maybe volume industry, of around capital CapEx items. labor, that long the competition On there and for cadence for kind How the imagine going time thinking for your timing? be play development might the timing the the of outlook given can of then, of I into competition does next into year the just lead

Chad Williams

are, had any it impact been have the on Yes, the which not this markets the that, issues probably potential and biggest year depends you with we but has around pandemic.

teams have megawatts with or this have we've been build partners job accomplished or which sure make we'll laid deliver for goals. working sites Our safe, customers, out XX are our done our We've an we've excellent that and safe, us. people - delivered to our are infrastructure them develop important has approaching of and every year hit date for for that important our and

order that ship Dave product and the risk we of standardization to kind of chain helping So anywhere that standardization our we the supply have team think done worked also. and can think the impacts with of us really ability through, the have kind is with

Operator

Fargo. comes question from Eric today next Our with Wells Luebchow

Eric Luebchow

Great.

or per obviously been I over know XX well But wondering, that you've talk Just to hyperscale about X months last to above X the so. deals still year. you continue

that if update maybe then Federal should that. logo that to So to future? vertical that in we or a expectations? your annual above nice perhaps, side, any of expect in you the to see was been have kind more targeting Or on foreseeable a you'll be range the directly, it new of continue kind little if And

don't Federal color Are you a sense is out expansions? see pursue? Or that your there kind great new for be there? logos existing some there would just a so share other have market what vertical, of opportunity will lot can you there great. what wondering be Just of kind Just of in it the

Chad Williams

sense to great lot X pressure questions. very disciplined We a on to X. that. don't stay numbers feel on change Two We're the of to hyperscale going or trying

colocation like with that's that the focused compliance Federal, think their the get love enterprises up a balance business. and has of we're on the point. enterprise-focused a that value that come And something worked our hundreds hundreds that and a a service. decade. thing have I help, and I'm continued with about for with us we've up I'm product think to challenging at in that the and need ones a it to really continuing some working excited was hundreds existing most outsource you a of business at to and gets prop. market we level felt forward of and how our a of to that there's love It's to - traction hyperscale both with Federal of day taking step traction we great in search it expand team look that for see as on high position partners something I works space. out a digitized ones. hybrid to every I been new is group in are everybody It's has just that - in-source where the is and that we're I to the diversification mentioned, had of

Operator

Colby comes question next Synesael with today from Cowen. Our

Colby Synesael

just And also you it trying mentioned to I do? JVs? then lease? then we but to increased opportunity million your you demand that dilution for Or that you expect the within that $X when What product, mentioned would opportunity? triple-net And going million increased is CapEx I tell $X a curious, alternative? to is seeing require demand see target. arguably was to apologize. if What capacity Are X% from range doing that leases. hyperscalers that may. also walk trend interest away you should potentially And you earlier was on referenced I'm in seeing you are as few, very was you of kind see just you've could deals wondering, actually strong get these curious, Just the an to this if is If you where then committed A the it also, you different us the type demand, leasing. to you OFFO continue to turnkey? X% typical share enterprise one to sneak a also, which Can see I'm target? there. And sense that I Great. the referenced X% as already, you opposed just the growth. that below your you more will and from are I more, extent for typical And going? shell more to simply of triple-net incremental per

Chad Williams

I've question-answer five ever best the seen. was That

at me It's That's X%. going look on Hey, on to expectations. to a that stay that we on continue their necessarily we'll be capital. to invested let to the more disciplined we're line. be of to that efficiency consistent. and stay range. on disciplined option, focused return time but away it that. within to take going something stay ranges We X% going to try need an investors walked to than so different we're the always grow like stay here. on one from got had all that sorts away at because from year any are you And to this don't how We deals, have walk I've and JVs we've year deals bottom We've capital

on hyperscalers focused was that a I some triple don't prefer stay that. that all. necessarily. actually at structure. have in mind Enterprise see do to We that? of net do we're And opportunities within, So It's structure. going more Not Richmond. we great oh, it

explain us above base that, of to billing a rent. expenses all that Just the makes

things. So little just of all taxes table. those power us, and and off and the to And type insurance of bit a it's risk

to probably to to do We typically for that. to that is infrastructure their are them, to model. lot of to trend up a preferred shell triple-net like great is a replicate be away structure. game over inventory going years but somebody that's if towards from come. our say I'd buyer. our stuff capacity the for give really to up think That's us some not shows strategic that We method, go There that shell hyperscalers the shell don't our and And hard in just opportunity the of is do embedded most go growth leases, that's themselves. markets. an that's to not So want that Howard we're

So to like much. give I don't up that too

you, thank So Colby.

Operator

next question Rasmussen comes Stifel. our today from And with Erik

Erik Rasmussen

solid the on Congrats execution.

I like sort get have other maybe would weakness potential from slowdown your pipeline. business, to of you there. for or a And follow-up. for any comment up following then more steady thoughts avenues? to as on are Hybrid hearing in or you clarity some - been further But we've seeing the projects can then a on pushouts I And hear the had Just little you performance there. Colo mentioned

Chad Williams

me a getting bit incumbency obviously, Yes. It of enterprise where COVID saying kind from I to of we've are $X question pandemic. hybrid had perform. to the missed feed for that is last range the $X I that, couple has on uptick But saving of over the we seeing consistent. them business be quarters. on Thanks, definitely continues to our little underneath it's million $X would on of been. million great Erik, driving their million there. more million $X The range What's kind is

We that focus and 'XX, plans we're will need for get ability figured we a excited consistent on haven't it. their out opportunity for hybrids pull be that us seen forward, the to and any think about to

in So pretty consistent its performance.

Erik Rasmussen

back you maybe Great. Can be the maybe comments acceleration That sounds helpful. and year-to-date? you leasing and customer good. on Federal some strong Are And the circling there? on just seeing just just driving there changes pipeline comment the that. would what's behavior then deal business, in Maybe any on

Chad Williams

Yes.

away hard that to take I thing get can't have and unless to is deal. it, business very security can get Federal biggest you the behind to you can't think unless place and a compliance it you do I record a track because you get do the is

hard that's it's So circle perpetual to into. get this

but very type best It's with and work have going to government. have mission worth think that. we're this hard opportunity, build good to can. us in has position. going got us as predict and with continue entrusted I that a And and important continue customers we that country certain we're our service clients of to of of this lot to put to our years' We've an we're for to trust business, to the serve going the a continue

Operator

Nate And from Crossett comes with question next Berenberg. our today

Nate Crossett

overall on pricing. question a just Maybe

was lease quarter, a you pricing lease. This large new hyperscale when strip little that bit below out even trend

then on also interconnect you that just some was a wondering I be current if us of helpful. you you did if Was could would And could pricing, it because on comment deals? So number color pricing. larger just give

Chad Williams

feel you $XXX like Yes, of that is that Nate, which we're out kind in with on net, range, really historical. the pull line in really if that pricing, triple we

enabling drive. CrossConnect So of sits of our we be to think world that's to pricing customers is And the that us. for in that. we line. platform just was data platform, continue automation centers, digitized a the on driver in and a software-defined to with top to the less with SDP The think our is us intersect nature It continue friction. going

about right and So to network excited trends we that area. the type see that adding continue time, growth. and the area business of our all in to we're We're the of that

Nate Crossett

Okay. Can margins of just XXXX you give And then a guidepost have levers keep to and us you pull to just up? going one kind on for margins. EBITDA what

Jeffrey Berson

Sure, Nate.

where points if than our at over XXX basis We look we last the you call love that XX.X%. it, about, that's we're So guidance the higher of fact XXXX, midpoint in at the year. were

good some operating leverage seeing business. we're clearly, in the So

of to $X expenses coming to benefit Some just reduced and related power COVID, in discussed, we is XXXX, as from $X that's out million. of margin travel million the some

basis of expect if COVID, of coming we So year. margin that points improvement XX reverse about normalize, out next you that's will in XXXX

we or core margins basis So by minus. XX our to is points, then see grow plus can our expectation continuing operating leverage where

in the leverage the that in to line XXXX, you then entertainment operating for costs it. So saw and make travel effectively, if increasing up XXXX with from XX.X% margins and it's are

Operator

our And question BOA. next with Michael from Funk today comes

Michael Funk

some in if that have into push so, one, next delayed, uptick COVID? if I out an what year? your First XXXX in could. are expectations I from may for churn corporate, maybe 'XX as benefited customers Has guess, that for in churn

Chad Williams

anything seen little a be if this we've year, think of back-end it I bit loaded. Michael,

some significant you So to into But the we down. the we X%, year, which stuff anything year. this any don't I kind year, difference earlier little of And feel in this that later about. that's plopping change pushed of there's as seeing think the 'XX uptick. did probably would the we And a range don't that I necessarily tightened good into the probably anything in year. this necessarily we're X% over to saw that's see 'XX earlier anything

Michael Funk

could, And if one then I please. more,

'XX. expense think You have help thoughts XQ you property with online some the operating associated [indiscernible], us online facilities the X about in initial coming those gave facilities during growth. XXXX Maybe with about expense, coming operating sequencing

Jeffrey Berson

Mike. Sure,

our facilities in you'll that some for the terms in the coming I QX. the we one expectations online, added QX above expectations see in CapEx is things of mean, of So of

The of move very see market, it and last Chicago, are standpoint, those those facilities expand actually that increasing have and as some just because markets, forward about the of the market, the as enterprise of thing the that new are continued CapEx on Piscataway. right? growth Richmond, maintained OpEx not of into strong is associated seen the those to OpEx, OpEx you like enterprise growth Chicago on couple of where some continued we've margins well And demonstrates over feel an markets of pretty improving. Hybrid markets the where hyperscale we're we're resets And good lot leverage the some From for as from the we Colo seeing. of us. years we'd side, that the slightly that takes with piscataway is operating markets we've that business footprint, some those we've which well. been going early G&A. investment then markets in nice the coming And a clearly And anticipate steady And the new historically deals, very bigger

on on manage cost efficiencies, capital So definitely some into also as markets but focusing move good pressure the leveraging with facilities to OpEx, efficiencies. and new STP you

G&A. but say OpEx, that I'd so some of operating see in of a the a And bit in little forward, of going it leverage you'll lot

Operator

question next Sachs. Feldman Brett with from And today Goldman our comes

Brett Feldman

cycles. you I have So bookings that point several and had lot have. here is longer mean, where of made so have just we've Federal, the you've target to tend that And sale the these been a noted, hyperscale coming and this you out of had far quarters you as above obviously

sort just expectations, year what in the way be of the for in doing we conservatism you that that outlook, you, if expectations. earlier front adjust I'm degree above imagine to sort to something's you better hitting it. you when natural seem were Even I knew of was got sure So than of in of setting be set opportunity embedded you a and well

I guess And in early getting you is, think year Did in quickly? Are question anything more just win you a actually the things way hadn't expand that are you expected? so way you be be closing I funnel rate? the $XX just the of a higher not just helpful bookings now modeling sure going of feels can help baseline I'm low. what right book would because just entirely rate to should forward? us - million the too offer quarter that about it think

Chad Williams

of space and next Colocation Brett, But and to a thanks. business. It's million in Maybe does we in the we're hyperscale all year. And consistency see been, business, of right, fashion. not business consistent kind I enterprise Hybrid you're we million reliability our the always space go $XX commercial where to play that. Federal a combination our mean, on it's just going the of base or $XX our

no quarter. in given or Federal any hyperscale no have may you So

Well, for do I nothing want where the that's set But to and yes, win participate of a we build reliable the where quarter have and cycles, and and consistent just last and in it's way to we Oh, been forward right fortunate build the not quarter, models consistency and went a to the their says, end wrong? deals And expectations. able to of markets. that years. to we've We've to with right we what tried the couple It's then going federal with base right be really consistent type hyperscale a the right I want on, want and been very returns business do. don't that wrong. build people did went up we want So what is what everybody to

Brett Feldman

bookings last don't new actually yourself? into you customer be up Or base? you noted in you'll risk it bringing establish questions target in more that next one your sell of existing just execution because ability If inventory you this. more is to this because follow obviously in And the we've inventory gotten one to some in be have you can I've does to markets mind more derisk the sell in question, part new going and hit does your can year. you the locations are you increase have on

Chad Williams

where It's a have expansions the mega question. scale tremendous resource. are of campuses already many is great What's we've our we done in great to adjacent

great adds locations, to expand that a future That's Hillsboro. Atlantic Tier ability a it's the the historic is opened with now take You megawatts. us that They years open. important that last there We've Dallas, a facilities, great in combination. example. have in show type of I feature customers the Chicago, for it's I it to those facility building markets mean for Right? QTS. new also Richmond, and Tag scale been your for was the booked week. of growth Atlanta, a to XX number would never Clint that QTS. whether and say, of embedded Atlanta, leasing, have visible very point, opportunities important it's can we've that in customers scale with got XXX side, So now on and great a is operations sell X And but it's have to grow because in it see both opportunity a the path. I derisked other

Operator

And today our next Choe with JPMorgan. question comes from Richard

Richard Choe

makes how successful in market and in And you why given pieces? were go is? both in competitive Just also about deeper what then Richmond putting a feel wanted on to you little confident bit being that Ashburn more talk those capital so

Chad Williams

Ashburn, XX% mean, about occupied. in it I last Great. Well, was quarter, Richard,

tip it's quarter, going XX%. over This to

forward. Clint that the sure So in make we it's we're are leaning and marketplace. that competitive to not that want It's Tag

one is most markets. of competitive Ashburn the

seeing feel show is market, you're it success say And owned customers, management, we're to there that business. our value in very our gives And we've our highly It's that do push to there hyperscale lots I But a hybrid. concern Ashburn out. big But think doing and and customers we're believe when that we are for of the to tremendously in whether a have Richmond, our We're customer our and Ashburn we've years. Those to things build that. software connectivity. engagement it's to in in done people not In delivering product XX of that's SVP offering, it's a scores, there. about on midst whether differentiated not competitive and whether and was continue got truly are opened visibility some QTS Richmond in data both differently. whether stuff we it's offering, we going mattering up great product platform well. fashion, a it's at

pretty I are ahead it. position in. days to be brightest that's unique think Richmond of And still the a for

in coming in at I think we've communication changing with Richmond conversation it's through the transatlantic fiber that that not degree before. facility the seen now Richmond, a

to whole to and alternative continue growth, see to power as from think bunch transatlantic an opportunity to about for tax the going ability you're a have connection of connectivity Richmond think things. both people and scale, fiber the and other I also efficiency, cost, advantage a

the glad So builder to runway a company to I'm with be continue positioned a it's because for next we're Richmond long decade. going of for this just in growth

Richard Choe

the to - CapEx lot a loaded half Or And quick being of assume second it expect in middle backlog, that year? a comments with the follow-up we about made next year. be we for we large backlog should such on through are earlier of is And next front-end to booked-not-billed coming should you the one steadier?

Chad Williams

year. of more It and throughout loaded of will be middle kind front-end Yes. the the

Jeffrey Berson

more Yes, going up contracts be start that to middle delivered you're the back year. front-end the loaded. of the The and towards CapEx - just the leasing to be to are see going will half

as see So the performance will you space. ramp that we deliver

Operator

Simon next And from Stanley. comes today our question Morgan with Flannery

Simon Flannery

on update while. for touch going on the you've talked you in Europe your lot us a on Netherlands? strong opportunities. if And growth growth the just touch just on opportunities, what's there. just organic wonder about could Could you I a There's

inorganic? they markets into in Europe, new Are going about what So perhaps?

Chad Williams

reopened that really we're but mean the focused our Hybrid mostly we're really of hyperscale will Thank reestablished almost Eemshaven the And people, of the is opportunity XX-megawatt but Colocation kind open, a an hyperscale outperformer open it. we facility, by has excited with an more right and build. had have thrilled participating it on the we end now them. a been assets, glad in going and for feel on We the everything to opportunity. of it's been rest now, it's told you, that as Simon. I in be year, - opens asset, we're Groningen to it. that's small it continued of and piece Netherlands And outperformed internally growth that looks portfolio. We're It's see this the we're as of get the And in Europe year. couldn't success facility Netherlands rest the just good. in our we to exciting

that value, we have opportunity of is of We basis great we the are Netherlands. those The to tradition. been and a of at next assets And think huge that. it in for I some us an really create great value that organic a in has years the example builder Netherlands couple it's scaling shareholder with the can participate our the momentum

Simon Flannery

Great. follow-up And quick a just churn. on

- X% You X.X% it's lower is gave to a a big difference. to X% the getting higher or you're from end range, but

flow? better any look on similar QX? is QX going to or So does How thoughts that to

Chad Williams

We're Yes. not at historically looking anything different.

I we'll think end in the consistent be up will range. and it

Operator

Jefferies. next comes with question our today Jon And from Petersen

Jonathan Petersen

there. curious been could curious and - I'm characterize guess - Or on the if while, a it's also, you it on thing deals, other then government of up for you're you're here side it this talk us convince deals you ramping able - nice can assume of others? QTS I deals you us side that of their the for why see a Federal help kind is? about I'm working On and the center I you of clicked, Federal guys of something to some these - along guess And finally I the have And of some that how Federal market it Is big number from other lose been and you've and talked wins. winning but help through? I data it kind XX with you're losing that, is some working guess, you Federal, the about wins years, assume maybe kind deals demand. on I needs? some characterize go to to how

Chad Williams

and starting you're deals scope efficiency data have government of to biggest can become but the working data winning And government. We've won them have share, Federal position unique we're for that strong to mean, the working all unsustainable. been a companies and what think I see of kind XX going it's we're in to somebody solution fair I'm have And of still speculate government, Jon, glad provided to the on the is in that it to the that we're trust Great. you of creators that entry. - really business. the market big. I to It's that's And largest to And fair years, to And has just that to Yes. that. confidence Federal plan our willing the been on for for a we buy. just continue decade. last existence of need or the Government. want we've the U.S. don't barrier in-source I realization the the a creator has the ability have one And is It's Federal lost. share. integrators do the I that think our is that where this and that on we

Jonathan Petersen

- figure in you guess of that? Is the are government because it than the remind out? Federal to follow-up less Could not what far trying guys a maybe deals lot - on hyperscale of far you us that. more market I of within multi-megawatt the terms versus deal And deal? Like a on are transparency are just wholesale market of then your kind that? position here another it multi-megawatt you come guys Is just of just out I'm side things. returns there's than that XX% the with a

Chad Williams

kind theme good. successful, We've X the It's the exceed Yes. quantify range. at mean returns market. cases, It's we good just to going that returns, be not we're consistent truly build really based to big. Federal the outsourcing the try It think the position. model is, and going the big. market's in I are some continues government that it I put ourselves been feel in a up, and forward. It's of going they're The our will hard a to the X% and our think show of XX% end, to we high right? and points, to about, corporate and timing, to but We're on size

Jeffrey Berson

the deals you decision Jon, just we to what business chasing we're on forward speculate I'd still the uncertainty is challenge, what but so winning, add I is the government might That's and real agency's tell outsource. we others a and and to ability have, be can't is deals move ultimate it's can biggest unpredictable. also, why

Operator

Louthan Our next question today James. comes with Raymond from Frank

Frank Louthan

may And business Great. be politicized Can to the become been just around you there? extent additional digitization Are decisions, accelerate seeing inflow seeing some that, then bit on us you any around on JEDI you're going little that to potentially that's conversations contract? it some customers in net comment COVID? talk strength, is the of strength a where agencies to about areas the any customers wake There's the or potential sort some - get you side, the delay of enterprise that. can

Chad Williams

Yes. is work workforce sign. getting of planning. think a And We're 'XX that's I more huge board. a pushes does like enterprises the We pulls. on across seem remote that really consistently hearing focused haven't and are It or seen priority. any And the top digitization good

going list, them with priorities. lot to just that, people's in to that things of those out we're on of position think that going help a are come a and there's to be be I priorities So

a the far gets more about about things of of this. As be one can't little challenging they and a what contracts contracts, as they little where who and they talk to and that the details just are government sit clear really are. We

federal want of out. about play So really those how that. security contracts really they around part I talking outsourcing, about really specific the or don't integrators talk It's can't

many But focused working on stuff - to know people contract externally it's we're speculate. would it's big would are a parts. I of I I in on characterize press say that as that So that different the kind hard one the got lot.

So it's not just one.

Operator

And with our next from question Long today Tim comes Barclays.

Timothy Long

could. I if Two,

color First, mentioned increased give you little SDP? the as on Hybrid few just again you of us on some sales a bit Can of the It to customers. More like go-to-market. cycle, sounds a quarter, what And on and more Colo. existing then sizes just kind the because from times. little you've I wanted deal far deal in SDP follow-up second, a there more of wins metrics as you or see the seen

recovery do and So see there? kind to you Is of related? that customers logos you on what new do kind COVID new be acquiring see Or the of of the how go-to-market? going cadence

Chad Williams

with Yes. second From to I on a as that I'll objectives. 'XX are start colo we see, one. mentioned focusing the starting standpoint, earlier, enterprises are

enterprise are customer percent at from the We have peak those growth, to is to but saw see again. in build, the or area, of customers. our starting embedded seen also pipeline starting a close comes strong probably We - be to new existing in business business that - XX-plus the we our logo XX%, quarter but trends an

So from normalize business more of see of probably our that to going you'll back comes customers. existing a into 'XX, I think XX%

level. to normalized trend that we'll is more get I of - So think back a

As number have those far goes, Jon of been and a on things. Brent Greaves SDP as taken

In fact, just on Jon, the let win SDP I may you rates. the take conversations and

Jon Greaves

And of consistent. Yes. Tim, Absolutely. usage Chad. terms very we're what just Thanks, is quarter-over-quarter in seeing

the on of about where obviously, start probably if COVID-XX usage say talk we were did kind year elevated being, compared remember, to double with So about before [indiscernible]. much we from I'd you SDP the pre-COVID, of our the QX

the baseline. So rise. continued to new And it's think definitely seen I we've now

and big remain they more to we their enterprise more embrace more, about certainly are look can solution. their seeing SDP very of play Again, lastly, et data kind earlier who better way kind digest around also that talked cetera. provide more can digitize bring know looking numbers a same of transactions them are and at very, for on And call. in the own the SDP. and We customers And we to those took capacity customers continue and then understand plans, healthy continue and crossConnects what as both to it when companies higher and can a hybrid those crossConnects online of they they is I level. into intersect or virtual

Chad Williams

- can from can to differentiator that Tim, a the customer think probably new logos they enterprise the about the have in a one we're and it's with you their talk or and data see with encouraged on is that sit is I new when down Jon, about And that can things point flows strict them Jon's of platform. it's they visibility most

So story. that's another feel It's a just logos. I differentiated new thing encouraged about very

Operator

next And comes Sami Crédit today question Badri our from Suisse. with

Ahmed Badri

average bullets does customers, And to signed include that enterprise are pushed deals does out that customer expect be could aim potentially it probably you applying first to like have major or XXXX, I deals that enter XXXX, activity enterprise was hyperscale that to be I big it sense that when sounds do the signed question enterprise X make in you the pipeline of going on and sign customers? bit us some include and be to happened be little or XXXX, may potential to if a to beyond? you quarter And probably not got wanted your customers. leasing is, more headline XXXX know pipeline good X as that you punted going was and really to of is very those got on enterprise What with every just big enough out. enter activity, to activity, But there give COVID how the enterprise the of a a Federal

Chad Williams

accelerating. necessarily of in couple major XXXX not but a year number and have XXXX the or So not things. the played in surprise our any a decisions of with year we It may delaying out initiatives out people, played

change sure. take kind Federal that not verticals lot I yesterday, as the noise. But we a best the the want thing I think Clint with it's enterprise that been huge engine And How I We many. tell in business think say. on list hyperscale be that I of of year having X people pandemic our talking some our know the encouraging I So that that's to just that to so the things and about created feel go feel part a deals, not will difficult the has like been will has it after. us. a of pickup, X can they opportunities everyday good of I'm X have, hybrid. we to system overall between for think dynamic? But you, about we of core that do long ahead were I continues as

Operator

question Matt our from And comes today next with Niknam Bank. Deutsche

Matthew Niknam

I two, could. Just if

the on backdrop. competitive First,

bigger on you talk public private changed anything you're the talk over could seeing in can whether the recent you'd from sheet, about term? get If then has long leverage just markets to in And what for sort frame peers, time to both Jeff, and balance secondly, your maybe what of target like the over to path about what you getting to investment-grade and months?

Chad Williams

same tell not I'll mature we with at take they're not in place. competitive. the We're which we people we less one It's day. truly business. We like day. our I the our get But I from competitive public Obviously, feel competition. of the even the see mean up competition the really for scale each peers, and It's diversity ourselves market business. that's separate more so in every every private can that. the focused feel - we're about very a way depends why And what on that's differentiation, that. prepared of competitive, every first market, get we the to on it And and going competition. on what rely upon, think assets, we strong can the that's and

that? think this do talk want you're out year. I play seeing that Jeff, about to you

Jeffrey Berson

fund leverage of for bringing proceeds From given level X Sure. over the historically, been a maturities a to excited XX turns down think as last management that pushing business to forward is, business. some couple the way the of equity continue a years, manage consistent and see terms, going to by implemented sheet way as think the out of course standpoint, right things net where actual we months, high the in And standpoint, we've quarter from think I few the next we're well, balance of we're with to X.X cost about we've leverage capital. leverage very overall more to you'll materially forward mid- the the the leaning a into business, quarter, and using I funding years reality continue the forward. The at over equity the

path and the us very we hopefully agencies. about net on investment the a make excited along continuing So and for agencies from that target as scale the years. putting upgrade coming said, a think, that's within about with to to are is I month well Moody's investment-grade that soon. see next hard grade, gross net net that, upgrades towards just We're beginning, that leverage of with got leverage, ago that the we I working consistency few sure us helps rating and difference continue between the leverage, operations and with And

Operator

final comes Del Nick MoffettNathanson. Today's with Deo from question

Nick Del Deo

Chad, you've with the mix. Colo Chad, X/X hyperscale One always happy Hybrid for for Jeff. about X/X one talked and being

of X/X jump with having obviously trajectory straight-line we you about levels the periods? historical revenue to It's And here? a more about from of how been been with Jeff, function for And in shift emphasized that the up initial got You an actually - By hyperscale much exposure? of free hyperscale could you quarters? question. escalators turning past or much the rent response all point has uncomfortable couple think mix leases before earlier how that X/X, too should then

Chad Williams

is And continue going What and every X/X us are about that with an capital in do right in markets part us percentage with the to first a mean to that's XX%, focus to numbers on I wake returns what the open the and is the not colo I'm doing of sure Well, grow worry hyperscale really we right But and we if Are X/X we hyperscale. we right have are think shift. they our that productive ability get legs together can way, up deals map stand. to in allocation, that dots and the And day. and it's three-legged it as We new up think in stool, on markets of revenue. is deals X% that are some accelerate give those I doing engine we're And and percentage. if just you the right necessarily of see think the deals to focuses. of of we strongest, we important where the the business just three with a to fun navigate efficiency? in as capital X doing exact what with a don't markets the put I think all worried opportunity kind right? kind those right kind goes right a about about it more get for the is,

Jeffrey Berson

the of the to what's straight Federal I'd seen straight months. on time, larger build at in an we're hyperscale you've delivering over same business say on XX And that deals, driven increase line. higher And line, enormous the those But absolutely deals. customers the starting the that's and and some larger last

importantly, behind what's it's ramps. long-term of more and that, terms escalators In much leases,

larger upfront over large these time less these about for deals it's free scaling commitments. and take more So they're ramps as up the rent that about

going hyperscale business we see you're enthusiasm us. forward, have to big continue that to Going some from

in in You're line what anticipating Federal And we're see future sort that's result from straight-line of business us. this to seeing continue year. you're of to going that, the a with as

Operator

over ladies final to the And I'd conference session. this remarks. question-and-answer Williams for Chad back your and like concludes any turn to gentlemen,

Chad Williams

forward Well, time you talking thank quarter, you to next for and and your Look thank you. consideration. to

Operator

We sir. you, all for attending thank today's Thank you presentation.

may and You lines, wonderful your disconnect have now a day.

Qts Realty Trust (QTS) 27 Oct 202020 Q3 Earnings call transcript